Buying Land to Build a House

Buying Land to Build a House

So many people imagine building their dream home in an ideal location. Finding that location and buying land to build a house is the first step in fulfilling this dream. 

Paying for this lot with cash is the ideal scenario but with lot prices climbing into the hundreds of thousands of dollars range, most buyers will need a loan to purchase a lot. 

The loan you use for buying land to build a house on is very different than the traditional home mortgage loan. Land loans differ because there are generally no improvements like a house on the property. On a traditional mortgage, the home is used to secure the loan. In a land scenario, there are no improvements to use in order to secure the loan. 

This makes the land loan a risky loan for the bank. Because of this, these loans have more stringent requirements than traditional mortgages. You’ll need more money down 20% to 30% depending on your credit score.

Yes, these loans can be difficult to obtain because of the requirements but at the end of the day, it’s worth the hassle because you’ll enjoy plenty of benefits when you do so. Before you even start thinking about them all, you need to do a lot of research. Don’t worry! We’ve done it for you!

Here’s everything you need to know about purchasing land before building your house.

Reasons to Look for Land to Build on

Privacy: Living in an urban or even a suburban neighborhood usually means a lack of privacy. You see and hear your neighbors constantly, and while they may be great people, you want your privacy.

When you buy land to build a house, you have the flexibility of choosing a place the lends itself to seclusion and privacy. Additionally, you have the option of situating your home on the lot in order to maximize your privacy. 

While custom home lots are more extensive than subdivided lots, they also tend to be much larger. This means you’ll have more space surrounding your home, hopefully giving you peace, privacy, and quiet.

Convenience: One of the advantages of buying land is choosing where you’re going to be. That means you can be closer to work, family, or whatever your lifestyle priorities are. 

If convenience is your priority, you may need to be flexible when it comes to designing and building your home. Since communities located close to amenities and other conveniences tend to have more restrictions than more rural communities, you may have to adhere to building restrictions and requirements. This may force you to compromise on the actual type and style of home you end up building.

Style: One of the biggest benefits of building your own home is that you get to choose the style of the home. If you want to build something truly unique, building your own home is the right decision. When you shop for your lot, it’s important that you do your homework in order to make sure you can build what you want. Many communities have architectural guidelines and restrictions that will dictate what you can and cannot build.

When you build your house, you are supposed to get everything that you want. Make sure you buy your lot in an area that has no restrictions or at least restrictions you can live with.

Flexibility: Tract or production builders do a great job of building an attractive product that appeals to a wide range of homebuyers. Unfortunately, not everyone has the same needs and wants. Have you always dreamt about a larger garage, a dedicated workshop, or a cottage? Since you’re in charge of designing the house, you can do it!. You can choose to be practical, extravagant, or something in-between. It’s up to you.

It’s important that you make sure you will have the ability to do the things you want when you choose your building site. You need to make sure the building envelope large enough to accommodate your plans. Also, check to make sure there are no environmental issues that would keep you from executing your plans. We often see large pieces of land that are either too steep or have unbuildable areas because of drainage or some other issue.

The time to find out about these types of conditions is before you close on your lot, not after.

How to Find Land to Build on

Realtor: Your Realtor is a great place to start when looking for land. Realtors often have access to pocket listings, these are lots that are not yet on the market but the owner might be looking to sell.

It’s important to note that realtors tend to specialize in different aspects of the market. A Realtor that specializes in luxury condos in an urban area is probably not a great resource for a custom home lot in a rural or suburban setting. Ask around in order to find realtors that specialize in the type of land you are looking for.

MLS: A Multiple Listing Service (or MLS) is like a realtor’s database, where multiple real estate agents offer both homes and land for sale to each other. Unlike the pocket listing, a property offered on the MLS is there because the owner wants to sell.

Your realtor can set up a search for you on the MLS system. This search will send you notifications when a listing that meets your criteria hits the market. One of the most valuable aspects of this type of search is that the agent can change the search criteria if you aren’t seeing the types of properties you are interested in.

Tax records: If you have a very specific area or neighborhood that you want to live in, this is a great way to search for a lot. Looking at the county tax assessor’s website to locate unimproved properties is how the professionals do it. Builders will often scour the tax records looking for unimproved land. The goal is to find a vacant lot that has been owned for a while, if the owner is out of the area, it’s even better.

Builders will reach out to the owners to see if they have any interest in selling the property. These lots are often owned free and clear, so the only expense to the owner is the property tax. These property owners often don’t even consider selling until someone asks.

This method requires a little detective work and a little bit of hustle but the results can be very rewarding.

Landwatch: Realtors, MLS, and tax records are old-school ways of looking for land. Nowadays, we can take advantage of the internet. And www.landwatch.com is the perfect place to look for land online.

On this website, you’ll find countless land listings from huge agricultural tracts to small parcels. These listings come with descriptions, pictures, pricing, and more. If you like what you see, you can contact the owner and buy it.

Subdivisions: The developers of large subdivisions tend to sell directly to home builders. This is a very efficient method for these developers because the builders buy in bulk and have the financing in place. It’s rare to find a subdivision that sells directly to homeowners, but they do exist. 

Subdivisions that sell directly to private individuals tend to be custom home subdivisions. If you are looking for this type of opportunity, you’ll need to stay on top of the market. Talk to builders and Realtors about where these subdivisions are. If you have already chosen your home builder, they can be a great asset in this search as well.

Important considerations

Rural or Suburban: You probably know the difference between a rural and a suburban setting. When you decide to buy land to build a house, this is a crucial factor.

View: Do you want a view? Or, perhaps, are you willing to sacrifice that in favor of other things? You have to figure out what you want – and to picture how things will look from your finished house, both in and out.

Exposure to the sun: Enough sun exposure will heat your house – but too much of it will overheat your place. In colder areas, too little or too much sun can be the difference between snow and ice on your driveway.

Utilities: Water, electricity, and gas are all a given for most people. Not for those who are building their own house, though. Does your lot have access to utilities? Are the utilities at the property line or will you need to bring them in? Do you have access to a municipal water system, or are you going to need a well? Are you able to tap into a sewer system or will your home need a dedicated septic system?

Access: Can you get to your future house from public-access roads? Sometimes, a plot of land is only accessible from other people’s property; if that’s the case, you need an easement to access your house through private land. That could turn into a legal hassle.

Zoning: Zoning laws and a major consideration when building and proper zoning could be the difference between building your dream house and having a plot of land you no longer want. You need to check and double-check your land’s zoning rules and regulations to make sure you can build what you want.

Survey: No matter if someone surveyed the land not too long ago, you need to survey the lot you want to buy. That’s the only way to know where you can build and where your property ends.

Soils and perc tests: Believe it or not, certain soils like clay and rock can be problematic for building houses. You need to perform a soil test before you build. Savvy buyers will do these tests as a part of the due diligence portion of the sales process. This way you don’t end up with a lot you can’t build on.

How to pay

Cash: Cash is king. Always was and always will be. And this is even truer when you’re buying land to build a house.

Sure, you can take a loan to buy land (although they are more expensive than your average mortgage), but if that’s the case, you’ll have to pay back the loan and invest in building your house at the same time.
On the other hand, if you buy the land using cash, you can then use your new property as equity to finance construction.

Land Loan: As we’ve discussed, land loans are different from mortgages. They have higher interest rates, are not that simple to obtain. These loans have much shorter terms and require a good credit score as well as a 20% to 30% downpayment.

Usually, land loan interest rates are much higher than the average mortgage interest rate. And you have to pay it back in 3 to 5 years; that’s almost ten times less than your average 30-year mortgage.

USDA: Not all land loans are equal, though. If you wish to buy land in a rural area, you might qualify for a loan from the U.S. Department of Agriculture (USDA) – and almost 97% of all Americans are eligible for it.
These loans have few requirements, don’t need a down payment, and feature a fixed interest rate.
The USDA loans are for people who want to build their primary residence, not for any other purpose. And you’ll have to meet specific criteria to ask for one.

Owner Carry: If you don’t have the cash right now and don’t qualify for any loan, it’s not over yet. You can arrange a loan-like scenario with the land’s owner.
Because financing a land purchase can be difficult, property sellers will agree to act as the bank and carry the loan for the sale. The buyer makes payments directly to the property owner. In these scenarios, the buyer will often be asked to make a balloon payment after a number of years. In most cases, the landowner is paid off once the purchaser obtains construction financing.

The relationship between lot cost and total building cost

One final thought when it comes to building your home and the purchase of the lot. Cost and value are two very important factors. It is important from an investment standpoint that you keep the relationship between lot cost and home value in the proper relationship.

The lot price is traditionally 25% of the total cost of the entire home building project. Failing to observe this metric can cause problems further down the road when it’s time to sell the home. After construction, the lot price becomes a part of the home price. If you pay too much for the lot, it increases the price per square foot of the home.

When it’s time to sell, your home is compared to other homes on the market. If your value is in the lot, it’s usually difficult to recover those costs when it’s time to sell.

The bank is also going to be concerned with this when it’s time to get your construction financing. There are requirements you’ll have to meet for this type of loan. Such as showing detailed specs, providing proof of income, and having a good credit score. They vary depending on the loan you’re after.

In Conclusion

Finding an ideal spot to build your dream home can be a difficult task but at the end of the day, it’s worth the journey. In a world where there are very few truly special homes, this is your opportunity to get exactly what you want and make it special. There is a special pride you see in people that have built their dream homes that you almost never see in those that settled for a tract home in a cookie-cutter subdivision.

So, if you are up for the task the rewards are worth it but make sure to use the advice of professionals and experts in the field. Mistakes in this type of project can have serious consequences.

Source: realtybiznews.com

Rising Rates Damp Mortgage Applications Ahead of Spring Selling Season

Mortgage rates reached their highest level since November last week, cooling off home purchase and refinance applications ahead of the all-important spring selling season.

The average rate on the 30-year fixed-rate mortgage rose to 2.81% in the week ended Feb. 18, the highest since the second week of November, according to mortgage-finance giant Freddie Mac. A measure of mortgage applications fell 11.4% over the same week, according to the Mortgage Bankers Association.

Improving Covid-19 vaccination rates in the U.S. and expectations of a large federal stimulus package in the coming weeks drove benchmark 10-year Treasury note yields, which are closely tied to mortgage rates, to their largest weekly gains in more than a month last week. Demand in safe-haven assets such as government bonds weakens when investors feel optimistic about the economy.

“Higher rates are a signal of expectations of faster growth and a stronger job market ahead,” said Mike Fratantoni, the MBA’s chief economist. “This last week, rates have turned faster than many people had anticipated.”

Rising rates sometimes prompt borrowers to put their mortgage plans on hold for a few weeks, Mr. Fratantoni said. Measures of purchase and refinance activity fell 11.6% and 11.3%, respectively, in the week ended Feb. 19, according to MBA data.

If mortgage rates begin to increase at a faster pace, some borrowers could be discouraged from attempting to buy a home during the crucial home-selling months of March through June. In a typical year, more than 40% of annual home sales are made during this period, according to the National Association of Realtors.

Still, rates remain historically low, and more people are applying for purchase mortgages and refinances than at the same time in 2020. Last year was a banner one for the housing market, thanks in large part to mortgage rates, which fell below 3% for the first time last summer.

Mortgage lenders originated a record $3.6 trillion worth of mortgages last year, according to the Mortgage Bankers Association, an increase of more than 50% from 2019. Refinances accounted for about 59% of that volume. With the 30-year rate near 2.81%, between 16.7 million and 18.1 million Americans could lower their monthly mortgage payments through a refinance, according to mortgage-data firm Black Knight Inc.

Lissette Gomez will close this week on a new loan that lowers the mortgage rate on her Cleveland-area condo to 2.75% from 4.125%. Ms. Gomez, a special-education teacher, said she decided to refinance after she watched her boyfriend get a much lower rate on his mortgage.

“Everybody was getting the word, especially in the second half of 2020, that the rates were super low,” Ms. Gomez said. “I wanted to refinance when people were jumping on it, and the numbers were as low as they’ve ever been.”

Source: realtor.com

Texas freeze, rate jump drive a week of stalled mortgage app activity

As interest rates hit the highest levels since September, mortgage application activity dropped for the third week in a row, according to the Mortgage Bankers Association.

Overall loan application volume fell 11.4% for the week ending Feb. 19 on a seasonally-adjusted basis and 10% unadjusted from the week prior. The refinance share of loan activity continues to tumble in contrast with growing mortgage rates, falling to 68.5% from 69.3% week-over-week.

The refi index dropped 11.3% weekly but sat 50% higher than the same time a year ago. The purchase share increased to 31.5% from 30.7% and the index declined 7.8% from last week while rising 7% annually. The average purchase loan size climbed to yet another new record high of $418,000 from $412,200 the previous week.

Brutal weather also contributed to a regional drop in activity. “The severe winter weather in Texas affected many households and lenders, causing more than a 40% drop in both purchase and refinance applications in the state last week,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a press release.

The total application share of loans guaranteed by the Federal Housing Administration jumped to 11.2% from 9% from the week before, the Department of Veterans Affairs loans dipped to 11.9% from 13.2% and U.S. Department of Agriculture loans edged down to 0.3% from 0.4%. The share of adjustable-rate mortgages rose to 2.56% from 2.47%.

Source: nationalmortgagenews.com

Mortgage and refinance rates today, February 23, 2021

Today’s mortgage and refinance rates 

Average mortgage rates rose again yesterday. And the rise was sharper than looked likely first thing that morning. When we say that markets can turn on a dime, we’re not kidding.

As those markets opened, they looked set to take a breather, with less movement than we’ve grown used to recently. But that could be the quiet before the storm ahead of Federal Reserve Chair Jerome Powell’s testimony this morning before the Senate Finance Committee. Still, mortgage rates may hold steady or close to steady today, subject to what Powell says.

Find and lock a low rate (Feb 24th, 2021)

Current mortgage and refinance rates 

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.949% 2.952% Unchanged
Conventional 15 year fixed 2.51% 2.519% -0.01%
Conventional 20 year fixed 2.887% 2.894% Unchanged
Conventional 10 year fixed 2.569% 2.593% Unchanged
30 year fixed FHA 2.69% 3.366% Unchanged
15 year fixed FHA 2.481% 3.063% Unchanged
5 year ARM FHA 2.5% 3.213% Unchanged
30 year fixed VA 2.25% 2.421% Unchanged
15 year fixed VA 2.128% 2.448% Unchanged
5 year ARM VA 2.5% 2.392% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Feb 24th, 2021)


COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

A positive narrative has taken hold in markets as investors savor the prospect of a post-pandemic boom arriving sooner rather than later. As The New York Times’s Ben Casselman put it yesterday:

When the pandemic ends, cash could be unleashed like melting snow in the Rockies.

And it’s that brand of optimism that currently keeping mortgage rates high. Of course, there’s always a chance of some terrible news coming along and dragging those rates lower. But, absent that, it’s beginning to look as if we may be stuck with higher ones for some time to come.

So my personal rate lock recommendations remain:

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • LOCK if closing in 45 days
  • LOCK if closing in 60 days

But, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

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Market data affecting today’s mortgage rates 

Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time yesterday, were:

  • The yield on 10-year Treasurys nudged up to 1.35% from 1.33%. (Bad for mortgage rates) More than any other market, mortgage rates normally tend to follow these particular Treasury bond yields, though less so recently
  • Major stock indexes were lower on opening. (Good for mortgage rates.) When investors are buying shares they’re often selling bonds, which pushes prices of those down and increases yields and mortgage rates. The opposite happens when indexes are lower
  • Oil prices rose to $60.82 from $60.62 a barrel. (Neutral for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.) 
  • Gold prices inched lower to $1,797 from $1,805 an ounce. (Neutral for mortgage rates*.) In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower
  • CNN Business Fear & Greed index — Edged down to 53 from 56 out of 100. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are better than higher ones

*A change of less than $20 on gold prices or 40 cents on oil ones is a fraction of 1%. So we only count meaningful differences as good or bad for mortgage rates.

Caveats about markets and rates

Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. The Fed is now a huge player and some days can overwhelm investor sentiment.

So use markets only as a rough guide. Because they have to be exceptionally strong (rates are likely to rise) or weak (they could fall) to rely on them. But, with that caveat, so far mortgage rates today look likely to be unchanged or barely changed.

Find and lock a low rate (Feb 24th, 2021)

Important notes on today’s mortgage rates

Here are some things you need to know:

  1. The Fed’s ongoing interventions in the mortgage market (way over $1 trillion) should put continuing downward pressure on these rates. But it can’t work miracles all the time. And read “For once, the Fed DOES affect mortgage rates. Here’s why” if you want to understand this aspect of what’s happening
  2. Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read How mortgage rates are determined and why you should care
  3. Only “top-tier” borrowers (with stellar credit scores, big down payments and very healthy finances) get the ultralow mortgage rates you’ll see advertised
  4. Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the wider trend over time
  5. When rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
  6. Refinance rates are typically close to those for purchases. But some types of refinances are higher following a regulatory change

So there’s a lot going on here. And nobody can claim to know with certainty what’s going to happen to mortgage rates in coming hours, days, weeks or months.

Are mortgage and refinance rates rising or falling?

Today and soon

I’m expecting mortgage rates to hold steady today or just inch either side of the neutral line. But, as always, that could change as the day progresses — as it did yesterday.

The same three factors continue to fuel optimism in markets:

  • A vaccination program that’s finally reaching serious numbers of Americans and that could herald brighter economic times ahead
  • Much lower COVID-19 numbers for infections, hospitalizations and deaths
  • The president’s $1.9 trillion pandemic relief measures, which so far remain on track to pass into law

Of course, there are corresponding threats that could bring mortgage rates crashing lower. Fears include a sharp stock market correction and the future emergence of a new strain of SARS-CoV-2 that could prove resistant to existing vaccines. But you’d have to be exceptionally brave to rely on one of those — or some other disaster — occurring before your closing date.

For more background on my wider thinking, read our latest weekend edition, which is published every Saturday soon after 10 a.m. (ET).

Recently

Over much of 2020, the overall trend for mortgage rates was clearly downward. And a new, weekly all-time low was set on 16 occasions last year, according to Freddie Mac.

The most recent weekly record low occurred on Jan. 7, when it stood at 2.65% for 30-year fixed-rate mortgages. But rates then rose. And Freddie’s Feb. 18 report puts that weekly average at 2.81%, up from the previous week’s 2.73%, and the highest it’s been since mid-November. But even that weekly average fails to take into account all the rises we saw that week, nor ones this week.

Expert mortgage rate forecasts

Looking further ahead, Fannie Mae, Freddie Mac and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.

And here are their current rates forecasts for each quarter of 2021 (Q1/21, Q2/21, Q3/21 and Q4/21).

The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s and the MBA’s were updated on Feb. 18 and 19 respectively. But Freddie now publishes forecasts quarterly and its figures are from mid-January:

Forecaster Q1/21 Q2/21 Q3/21 Q4/21
Fannie Mae 2.8% 2.8% 2.9% 2.9%
Freddie Mac 2.9% 2.9% 3.0% 3.0%
MBA 2.8% 3.1% 3.3% 3.4%

However, given so many unknowables, the current crop of forecasts may be even more speculative than usual. And there’s certainly a widening spread as the year progresses.

Find your lowest rate today

Some lenders have been spooked by the pandemic. And they’re restricting their offerings to just the most vanilla-flavored mortgages and refinances.

But others remain brave. And you can still probably find the cash-out refinance, investment mortgage or jumbo loan you want. You just have to shop around more widely.

But, of course, you should be comparison shopping widely, no matter what sort of mortgage you want. As federal regulator the Consumer Financial Protection Bureau says:

Shopping around for your mortgage has the potential to lead to real savings. It may not sound like much, but saving even a quarter of a point in interest on your mortgage saves you thousands of dollars over the life of your loan.

Verify your new rate (Feb 24th, 2021)

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Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.

Source: themortgagereports.com

Mortgage Application Volume Continues Decline

The volume of
mortgage applications for both home purchase and refinancing fell for the third
straight time during the week ended February 19.
The Mortgage Bankers
Association (MBA) says its Market Composite Index, a measure of that volume,
dropped 11.4 percent on a seasonally adjusted basis. It was the largest single
week decline since the week ended April 3, 2020. On an unadjusted basis the index
was down 10.0 percent.

The Refinancing
Index decreased 11 percent from the previous week but was still 50 percent
higher than the same week one year ago. The refinance share of mortgage
activity decreased to 68.5 percent of total applications from 69.3 percent the
previous week.

The seasonally
adjusted Purchase Index dropped 12 percent and was 8 percent lower before adjustment.
Activity was 7 percent higher than the same week one year ago.

 

Refi Index vs 30yr Fixed

 

Purchase Index vs 30yr Fixed

 

“Mortgage
rates have increased in six of the last eight weeks, with the benchmark 30-year
fixed rate last week climbing above 3 percent to its highest level since
September 2020. As a result of these higher rates, overall refinance activity
fell 11 percent to its lowest level since December 2020
, but remained 50
percent higher than a year ago,” said Joel Kan, MBA’s Associate Vice President
of Economic and Industry Forecasting. “Additionally, the severe winter weather
in Texas affected many households and lenders, causing more than a 40 percent
drop in both purchase and refinance applications in the state last week.” 

Added
Kan, “The housing market in most of the country remains strong, with activity
last week 7 percent higher than a year ago. The average loan size of purchase
applications increased to a record $418,000, in line with the accelerating
home-price growth caused by very low inventory levels.” 

The
FHA share of total applications jumped to 11.2 percent from 9.0 percent the previous
week while the VA share fell to 11.9 percent from 13.2 percent and the USDA
share dipped 0.1 point to 0.3. The balance of all loans was $344,800, up from
$338,200 and for purchase loans the balance grew from $412,200 to $418,000.

The average
contract interest rate for 30-year fixed-rate mortgages (FRM) with balances at
or below the current conforming limit of $548,250 increased to 3.08 percent
from 2.98 percent, with points increasing to 0.46 from  0.43. The effective rate was 3.22 percent. 

The
rate for jumbo 30-year fixed-rate mortgages, loans with balances greater than the
conforming limit, increased to 3.23 percent from 3.11 percent, with points increasing to 0.43 from
0.35. The effective rate was 3.35 percent.

Thirty-year
FRM backed by the FHA had an average rate of 3.00 percent with 0.33 point. The
prior week the rate was 2.93 percent with 0.27 point. The effective rate
increased to 3.10 percent.  The rate for
15-year fixed-rate mortgages increased 9 basis points to 2.56 percent and
points grew to 0.40 from 0.36. The effective rate was 2.66 percent.

The
average contract interest rate for 5/1 adjustable-rate mortgages (ARMs) was unchanged
at 2.83 percent, with points
decreasing to 0.36 from 0.70. The effective rate declined to 3.10 percent.  The ARM share of applications increased from
2.4 to 2.7 percent.  

MBA’s Weekly Mortgage Applications
Survey has been conducted since 1990 and covers over 75 percent of all U.S.
retail residential applications Respondents include mortgage bankers,
commercial banks, and thrifts. Base period and value for all indexes is March
16, 1990=100 and interest rate information is based on loans with an 80 percent
loan-to-value ratio and points that include the origination fee.

MBA’s latest Forbearance and Call Volume Survey found a 7-basis point
decline in the total number of loans in forbearance t
o 5.22 percent of all
first liens as of February 14, 2021. According to MBA’s estimate, 2.6 million homeowners
are in forbearance plans.  Of those
loans, 15.9 percent are in the initial forbearance plan stage, while 81.6
percent are in a forbearance extension. The remaining 2.5 percent are re-entries
in the program. 

The
share of Fannie Mae and Freddie Mac (GSE) loans in forbearance decreased to
2.97 percent –
a 4-basis-point improvement. Ginnie Mae (FHA and VA) loans in forbearance ticked
down 2 basis points to 7.32 percent, while the forbearance share for portfolio
loans and private-label securities (PLS) decreased by 20 basis points to 8.94
percent. The percentage of loans in forbearance serviced by independent
mortgage banks (IMB) fell 15 basis points to 5.54 percent, and the percentage
of forborne loans in depository servicers’ portfolios rose 2 basis points to
5.28 percent.

“The share of loans in forbearance has declined for
three weeks in a row, with portfolio and PLS loans decreasing the most this
week. This decline was due to a sharp increase in borrower exits, particularly
for IMB servicers,” said
Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Requests for new
forbearances dropped to 6 basis points, matching a survey low.” 

Fratantoni added, “The housing market is
quite strong, with home sales, home construction, and home price data all
testifying to this strength. Policymakers and the mortgage industry have helped
enable this during the pandemic by providing millions of homeowners support in
the form of forbearance. The decision to extend the allowable duration of
forbearance plans should provide for a smoother transition this year as the job
market continues to recover.”

MBA’s latest Forbearance and Call
Volume Survey covers the period from February 8 through February 14, 2021 and
represents 74 percent of the first-mortgage servicing market (37.1 million
loans).

Source: mortgagenewsdaily.com

Mortgage delinquencies below 6% for first time since March

For the first time since March 2020, the national mortgage delinquency rate fell below 6% to 5.9% in January, according to data from Black Knight on Wednesday.

At the current rate of improvement, the data giant estimates 2.1 million borrowers remain 90 or more days past due though are not yet in foreclosure. While modest mortgage delinquency improvements have occurred for several months, loans considered seriously delinquent are still five times that of pre-pandemic levels.

Thanks to widespread moratoriums, borrowers have managed to avoid eviction and foreclosures for some time now. Foreclosure starts and sales activity managed historic lows in January with starts down 86% year-over-year and sales down more than 95%.

The FHFA most recently extended COVID-19 foreclosure and forbearance moratoriums to March 31, 2021 and the Department of Housing and Urban Development‘s also kicked the foreclosure can further down the road for FHA and USDA loans to June 30, 2021.

While those extensions have reduced short-term foreclosure risk, they are also serving to extend the recovery timeline, Black Knight said. But even with these continuous extensions, Black Knight estimates 1.8 million mortgages will still be seriously delinquent at the end of June when those moratoriums are slated to lift.


From forbearance to post-forbearance: How to make the process effective

To accommodate the large volume of loans still in forbearance, mortgage servicers must have functional, flexible and effective forbearance processes in place. Here are some actionable steps to create that process.

Presented by: FICS

While servicers gear up to handle the million-plus borrowers that will feed through the mortgage delinquency pipeline, recent research from the Urban Institute estimates that a looming foreclosure crisis isn’t actually on the horizon.

A bevy of loss mitigation waterfalls from both the FHA and FHFA allows borrowers not in forbearance programs eligibility for loss mitigation options, including mortgage modifications. Still, not every borrower will qualify for a modification, and some will be forced to downsize or rent, the Urban Institute noted.

Borrowers also have the most equity available to them in history, and those with ample home equity could exit their home, if they needed to, with their credit intact and potentially some cash in hand.

However, approximately 626,000 of the 3.2 million delinquent borrowers have government loans in Ginnie Mae securities. Because of their high loan-to-value ratios at origination, these borrowers are likely to have less home equity.

“Our analysis shows that, even among delinquent borrowers, less than 1 percent have negative equity and 5.5 percent have near-negative equity. For comparison, in the aftermath of the Great Recession,  approximately 30 percent of homes were in negative or near-negative equity, but the number is now 3.6 percent,” Urban Institute report said.

Source: housingwire.com

Can You Sell a House and Buy Another at the Same Time? We Explore Your Options

When you are in the process of moving, the process of buying your new home and selling your old one usually involves choosing which one comes first—to buy or to sell. Selling your old home first is often a more sensible option, as this ensures you have the needed down payment to cover your new property. But if you sell and don’t have a new home waiting for you, you might end up scrambling for a place to stay and someplace to store your belongings. For a family with kids or with pets, that can be especially inconvenient.

Buying before selling is an alternative, but when market demand is low and you can’t sell your old home quickly, you might end up with a lot more obligations than you can handle. You now have two homes to maintain and two mortgages to pay. If you’re on a tight budget, this could put you in hot water. 

What if you decide to buy and sell at the same time? This strategy can work well if you have reserves or some investments to sell to come up with the needed amounts to buy your new home if that occurs before your sell your old one. But if you’re someone who doesn’t have a lot of extra cash to spare, you need to develop some ideas to push through. 

Selling and buying simultaneously will require some ingenuity on your part as this strategy calls for thoughtful planning to time your sales and purchases. While you may not control the entire housing market, there are steps you can take to make sure you pull off both transactions. 

We’ll fill you in on some of the options to make sure you succeed in selling your current property and seal the deal to your new home at the same time. We’ll also cover some contingencies just in case you encounter a gap between selling and buying so that you won’t end up homeless at the very least.  

Options for Buying and Selling at the Same Time 

As mentioned, there are several options you can explore when you plan to buy and sell at the same time. These alternatives can help you manage not only the buying-while-selling process, but it can also keep your stress levels at a minimum.

#1 Find a Cash Buyer for Your Home 

Selling your house requires exact timing and demand from the market. Some markets, like the Florida housing market, are quite in demand right now, but others may not be, so plan out your timeline accordingly and take that extra time you may need to sell into account. You can sell your house fast in areas with high demand if you partner with an instant home buyer or a real estate investment company that offers to pay in cash rather than waiting for buyers to have their mortgages approved. 

This way, selling your house gives you the needed resources to fund your next move when you’ve already closed the deal. If ever you’re still looking, accessible funds ensure you can find temporary arrangements until you’re ready to find a new home.

#2 Talk to a Lender 

In case market demands are low and you can’t sell your house quickly, you would need to consider if owning two homes are feasible for your budget. While cash reserves can get you as far as a few months of the double mortgage, you may need to sell a few of your assets to maintain both properties. 

If you find your savings or income insufficient, you can consider talking to a lender to generate some funding. They can provide you with several loan offers that use your home’s equity as a down payment for your purchase. 

One of them is a bridging loan, short-term financing that can work great when you’ve already chosen your new property and acquiring it is in the works. You can even add a contingency clause that your purchase will only go through if your bridging loan gets approved so you can walk away without any additional obligations.

Another option is to take out a home equity line of credit (HELOC) that gives you greater flexibility to repay only the amount you use for buying your home. A HELOC uses your home’s equity as a basis to issue amounts you can use based on agreed terms that will help you get by until you sell your former home.

However, while these loans can give you access to immediate funds, they often come with considerable interests and lengths. It would be best to give it some careful thought before you take out any of these loans

#3 Make Attractive Offers 

Part of a successful strategy is to make attractive offers for the home that you want and the one you’re selling. Contingency offers help secure your intentions without you having to pay for unnecessary obligations. You can include a condition for the upcoming purchase if your current house sells. This can work to your advantage when you’re in a buyer’s market. It can also work if there is less demand for the home you desire. 

While having a contingency clause may at times weaken your offer, you counter this by offering a higher bid so the seller can wait until you’ve sold your house. You can even add in non-refundable earnest money to win the deal on your next dream home. 

#4 Make Gaps Work to Your Advantage

Sometimes circumstances do not work as planned, but don’t get disheartened. These are just momentary setbacks that may even give you time to improve your current home and increase its current market value. 

If you find yourself in your new home and stressing how to manage the former, you can consider renting it out to cover maintenance and mortgage costs. You can use Airbnb and other similar platforms to gain additional income from your property while the market is on a low. Once the conditions are right, you can sell your house for the price you want. 

If you take out a home equity loan, you can use it to renovate your old home and increase your home value. Some key features to spend on that have high ROIs include enhancing your curb appeal, taking care of house repairs early on, and updating your kitchen to give it a modern look. Spending considerable time and effort on your former property will surely enhance its chances of getting sold in the coming days. 

Conclusion 

Selling and buying are some of the less-traveled paths for homeowners because of their inherent risks. Taking on two mortgages when you do not have sufficient funds can be too much to handle, and taking out loans can add stress. 

You can make this strategy work to your advantage if you find the right tools to help you pull off both transactions simultaneously. Partnering with an instant house buyer can give you cash for your next purchase, while loans can provide you enough leeway to facilitate your move. Adding contingency offers allows you to address gaps as they happen without having to take on additional burdens or leaving you homeless at the very least.

Keep reading

Do You Pay Taxes When Selling Your House?
Great Ways to Increase the Value of Your Home: the 3 Areas with the Biggest ROI
Considering Buying a Home with a Crawl Space? Here’s What You Need to Know
A Brief Guide to Buying Real Estate: The Main Players in Your Next Home Search

Source: fancypantshomes.com

Forbearance of Foreclosure? How to Keep Your Credit and Homeownership Intact

The following is a guest post by Eric Lindeen, of Anna Buys Houses.

The second quarter of 2020 marked the highest U.S. mortgage delinquency rate (reported as 60-days past due) since 1979. Amidst the chaos of the pandemic, federal and state governments have made efforts to protect against the financial strain U.S. consumers are enduring—including mortgage payment forbearance of foreclosure. 

What Is a Forbearance?

Forbearance is the postponement of mortgage payments, or the lowering of monthly payments for a specified time period; it’s not loan forgiveness. Repayment terms are negotiated between the borrower and lender. Mortgage forbearance is one tool to help protect homeowners from foreclosure due to temporary hardships, such as a job loss, natural disaster, or pandemic. Some homeowners may opt for strategic forbearance, meaning they proactively enter a forbearance agreement just in case they lose their ability to make their mortgage payments.

As of October 25, data from the Mortgage Bankers Association (MBA) reports that approximately 2.9 million U.S. homeowners are currently in forbearance plans. That number represents 5.83% of servicers’ portfolio volume. MBA data also shows that nearly 25% of all homeowners in forbearance plans have continued to make their monthly payment (perhaps an indicator of the use of strategic forbearance).

How Do Forbearance Plans Work?

Mortgage payment forbearance programs have come at a time when many Americans are losing their livelihood and others fear the potential fallout from the health and economic crisis. Not all forbearance plans are created equal. Therefore, it’s critical to understand how different plans are structured to protect your financial health and credit. 

The Coronavirus Aid, Relief and Economic Security (CARES) Act is one measure enacted to provide relief to consumers facing hardships due to the impacts of the coronavirus. One provision of the Act allows mortgage payment forbearance and provides other protections for homeowners with federally or Government Sponsored Enterprise (GSE) backed or funded (FHA, VA, USDA, Fannie Mae, Freddie Mac) mortgage loans. 

If you have a federally or GSE-backed mortgage, no documentation is required to request forbearance, other than an assertion that you are facing a pandemic-related hardship. Borrowers are entitled to an initial forbearance period of up to 180 days. If necessary, an extension of an additional 180 days may be requested. Federally backed mortgages are protected against foreclosure through December 31, 2020. 

Recently, the foreclosure moratorium was extended yet  again to at least March 31, 2021 for GSE-backed loans (Fannie Mae and Freddie Mac). Be sure you understand who owns your loan and the terms of your loan as these deadlines approach. Extensions are likely to continue to help borrowers keep their homes and lenders navigate the constant uncertainty that is 2020.

The CARES Act amended the Fair Credit Reporting Act (FCRA) with a provision that when a lender agrees to forbear an account of a consumer impacted by the pandemic, the consumer complies with the terms of the forbearance. Then, the mortgage issuer must report that account as current to credit reporting agencies.

How Your Credit Factors into Forbearance

On paper, knowing that your credit won’t be affected by forbearance seems like a good deal. There’s an important distinction here. Your loan doesn’t need to be current to qualify for forbearance under the CARES Act. However, any delinquencies on your account prior to entering a forbearance plan will impact your credit report. Make sure that your loan is current, and being reported as current to the credit bureaus, before you agree to a forbearance of foreclosure.

What about Private Mortgages?

Around 30% of single-family mortgages are privately owned. Many private banks and loan servicers have voluntarily implemented relief measures that don’t fall under the same protections of the CARES Act. Terms vary by institution and state of residence. And relief plans may not be structured in the same manner as federally-backed and funded loans. 

For example, borrowers with private loans may be required to pay back all missed payments in a lump sum as soon as the forbearance period ends. Lump sum payments are not required for GSE-backed loans. Additionally, if modifications are made to a privately funded loan, the new terms could impact your credit score depending upon how the lender reports the status of your loan to the credit bureaus.

The good news is that the three major credit bureaus (i.e., Equifax, Experian, and TransUnion) are providing free weekly online credit reports through April 2021. Be sure to check these reports to ensure that the new terms of your loan are being reported as “paying as agreed” and not reported as late. Credit.com also has resources to help check and manage your credit.

It’s also important to understand the terms of your loan. Some homeowners who recently refinanced were asked to sign a form that was quickly described as “new COVID paperwork.” The fine print stated that their new loan was not eligible for forbearance relief measures. 

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Mortgage payment forbearance is one tool that can protect homeowners from defaulting on their loan, damaging their credit, and worst of all, losing their home to foreclosure. Key takeaways include, knowing who owns your loan, who services your loan, and what type of protections are available to provide relief if the current economic crisis is impacting you or you fear that it might. 

There are proactive steps to protect against foreclosure and determine the right path for your personal situation.

Source: credit.com

Paying More Today Won’t Lower Future Monthly Mortgage Payments

Posted on February 24th, 2021

Just about everyone with a home loan ponders the idea of paying a little extra, whether it’s via biweekly mortgage payments, or just once a year after receiving a sizable bonus or tax refund.

Whatever the method, you should first consider why you’re thinking about paying your mortgage off early as opposed to putting the money elsewhere.

This is a particularly important question to ask in the super-low mortgage rate environment we’ve been enjoying for some time.

Simply put, mortgage borrowing is really cheap, and probably the least expensive debt you’ve got, so prioritizing it over other debt may not make sense.

For example, if you have student loan or credit card debt, it might be more beneficial to pay that off first.

Anyway, assuming you do decide to make extra mortgage payments, whether significantly larger or just a little more than required, your next monthly payment won’t be affected by the previous payment.

You will still owe what you owed the month before, regardless of your principal balance being smaller.

While this might sound unfair, it all has to do with math and the fact that a mortgage is an amortizing loan.

A Mortgage Is an Amortizing Loan with Equal Monthly Payments

  • Most mortgages have a set loan term in which they are paid off in full
  • Fully-amortizing payments consist of a principal and interest portion
  • The monthly payment amount typically doesn’t change unless it’s an ARM
  • But the portion that goes to principal/interest will adjust over time as your loan is paid off

Traditional mortgages are paid off over a certain set time period with regular monthly payments that consist of a principal and interest portion.

This total payment amount does not change (barring an ARM adjustment or negative amortization) regardless of whether you pay more than is due each month.

The only thing that changes over time is the composition of your mortgage payment, with the portion going toward principal increasing over time as the loan balance falls.

As more goes toward principal, less go toward interest – picture an old-fashioned balance scale where one side drops while the other rises.

Let’s take a look at an example to illustrate:

Mortgage amount: $100,000
Mortgage interest rate: 5%
Loan type: 30-year fixed
Monthly payment: $536.82

In this example, your monthly mortgage payment would be $536.82 per month for 360 months.

The very first payment would allocate $416.67 toward interest and the remaining $120.15 would go toward principal.

This right here illustrates how interest on mortgages is front-loaded, with about 78% of the payment going toward interest and doing nothing to pay down the loan balance.

To calculate the interest portion, simply multiply 5% by $100,000, and divide it by 12 (months). The principal portion is the remainder, as noted above.

For the second payment, you need to use an outstanding balance of $99,879.85 to account for the principal amount paid off via payment one.

So to calculate interest for the second payment, you multiply $99,879.85 by 5% and come up with $416.17. This is the interest due and the remainder of the $536.82 payment goes toward principal.

Over time, the interest portion decreases as the outstanding balance decreases, and the amount that goes toward principal increases.

Pay More Each Month and the Payment Composition Will Change

payment composition

  • While paying more than necessary won’t lower the minimum amount due on your next mortgage payment
  • It will change the composition of all future payments thanks to a lower outstanding balance
  • This means you’ll save on interest and reduce your loan term despite owing the same each month
  • In other words paying extra is well-suited for those looking to save money long-term, not to obtain payment relief

If you make some additional payments, the outstanding loan balance will drop prematurely based on the original amortization schedule.

But instead of your monthly mortgage payments decreasing, the composition of your next payment (and the payment after that) becomes more principal-heavy.

In other words, the payment due would still be $536.82 the next month, but more of it would go toward principal (paying down your balance).

And for that reason, less interest would be paid throughout the life of the loan, and the mortgage would be paid off ahead of schedule. These are the two benefits of making larger payments.

The obvious downside is you wouldn’t enjoy lower payments in the future, which could be an issue if money becomes unexpectedly tight, especially seeing that you used it to pay your mortgage down quicker.

Instead, more money is essentially locked up in your home until you either sell the property or refinance and pull equity (cash out refinance).

Recast or Refinance If You Want to Lower Future Payments

  • As noted extra payments alone won’t lower future ones
  • The only way future mortgage payments will drop is if you recast your loan or refinance it
  • Make sure you have money in the bank after making any extra payments
  • The money could be trapped in your home and unavailable for other more pressing needs

If you made additional payments and want subsequent monthly payments to be lower, you have two options to get payment relief.

You can refinance the loan, which would also re-amortize the loan based on a brand new loan term. Of course, if you’re well into a 30-year loan, you’ll reset the clock if you go with another 30-year term.

That’s why it’s recommended to go with a shorter term loan when refinancing such as a 15-year fixed mortgage, which kind of defeats the purpose of lowering monthly payments.

The other option you might have is to request a “loan recast,” where the lender re-amortizes the loan based on the reduced principal balance.

This generally only makes sense if you make a sizable extra payment, something that would really change the payment structure of the loan.

In fact, some banks may only offer a recast it if you make a certain lump sum payment that cuts a certain percentage off the loan. They’ll also charge you a fee to do it in most cases.

So while both a refinance and a recast can lower monthly payments, you have to be careful not to tack on more costs as you attempt to pay your mortgage down faster.

At the end of the day, it can be very worthwhile to make larger payments even if your subsequent payments don’t change, just make sure you have money set aside for a rainy day.

Source: thetruthaboutmortgage.com