homebuyer
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The housing market will remain subdued until the Federal Reserve starts cutting rates next year, according to economists and housing pros following the central bank’s Wednesday announcement to leave the benchmark rate unchanged in the target range of 5.25%-5.5%.
Until interest rates come down, affordability challenges will continue to put first-time buyers on the sidelines, housing industry observers said. Real estate experts reiterated caution against further rate increases.
While Fed Chair Jerome Powell emphasized incoming data will determine whether the central bank will raise its federal funds rate at its next FOMC meeting in November, the “dot-plot” of rate projections showed policymakers foresee one more hike by the year-end. The bulk of central bank officials expect to have interest rates finishing the year at around 5.6%.
In an elevated rate environment, the lack of inventory continues to be the biggest challenge for many potential buyers, the Mortgage Bankers Association said.
“While homebuilder sentiment is clearly impacted by the recent surge in mortgage rates, permits for single-family homes provide a positive outlook for the pace of construction in the year ahead. If mortgage rates trend down in 2024 as we anticipate, the combination of more homes for sale and somewhat lower rates should support stronger purchase volume,” Mike Fratantoni, SVP and chief economist at the MBA.
The MBA expects mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases. MBA’s mortgage finance forecast projected the 30-year fixed mortgage rate to decline to 5.4% in 2024 and 5.1% in 2025.
Powell also noted in a press conference that because people locked in “very low rate mortgages, even if they want to move now, that would be hard because the new mortgage would be so expensive.”
Rates are most likely to stay elevated until 2024, said Danielle Hale, chief economist at Realtor.com, thus putting a damper on the number of home sales transactions.
“Higher mortgage rates have radically altered homebuyer purchasing power and have been a key factor in existing home sales dropping from a more than 6.5 million unit pace in early 2022 to the roughly 4 million unit pace in recent months,” Hale said.
More importantly, higher mortgage rates continue to keep existing homeowners sidelined, with as many as one in seven buyers out of the market because they don’t want to borrow at today’s much higher rates, Hale noted.
Short-term mortgage rate movement
In the short-term, mortgage rates are likely to bounce around a bit as the markets digest upcoming economic data, Melissa Cohn, regional vice president of William Raveis Mortgage, said.
Incoming data of job and CPI reports next month will provide more clarity on how strong the economy is. Reports on jobs and inflation will be released on October 6 and October 12, respectively.
“If the data reveals that inflation remains elevated and employment is still growing, then mortgage rates are likely to move up and we can look for what we hope to be the last rate hike of this cycle,” Cohn said.
The rapid ascent is mostly behind us but it will be a while before the economy sees any sign of a gradual descent, Marty Green, principal at mortgage law firm Polunsky Beitel Green, added.
“In my view, this means the mortgage interest rate environment will continue to bounce sideways through the next several months,” Green said.
Mortgage rates have been on an upward trend this year with rates in August surging to 7.23%—the highest since 2001.
Fed officials expect interest rates to be at 5.1% in 2024, up from the 4.6% projected in June. Officials expect fewer cuts in 2025 with the median estimate for the benchmark rate to be at 3.9%, up from 3.4%.
The committee raised its projections for growth, and is looking for a better-than-expected labor market as well, with the jobless rate peaking at 4.1%, rather than 4.5%.
Pushback against further rate increases
With two more scheduled FOMC meetings in November and December, housing experts cautioned against further rate increases.
The Fed must consider the potential economic damage arising from any future rate hikes, Lawrence Yun, chief economist at National Association of Realtors, reiterated his position.
“Commercial real estate has come under stress from higher interest rates, which will further negatively impact community banks due to their large exposure to the sector. Therefore, the Fed needs to wait and not raise rates. Possible interest rate cuts then need to be considered once inflation is fully under control,” Yun said.
Overall data point to an accelerating slowdown but continues to be mixed because of some lagging indicators, Green noted.
Unemployment rates and the CPI component lags measures of market rents by around a year.
“With rates elevated into restrictive territory, I expect the Fed to be patient and hold off on any additional increases until it becomes clearer that an additional rate hike is warranted,” Green said.
Source: housingwire.com
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Past Ginnie Mae president Ted Tozer has argued that the FHA should lower or completely eliminate its current 3.5% down payment requirement.
He discussed the controversial take during a Community Home Lenders of America Roundtable in Washington, D.C. earlier this week, per Inside Mortgage Finance.
This isn’t the first time he’s floated the idea of turning the FHA home loan program into a zero-down-payment program.
In the past while arguing this same position, he noted that the Bush administration even proposed such a change all the way back in 2004.
The question is does this invite more risk at a time when home prices and mortgage rates are already out of reach for most?
Most FHA Loan Borrowers Need a Minimum 3.5% Down Payment
At the moment, FHA loan borrowers need to scrounge up 3.5% of the purchase price when buying a home, assuming they have a 580 FICO score.
Those with scores between 500 and 579 need at least a 10% down payment.
While this is seemingly a pretty low bar, it still acts as a roadblock for many prospective home buyers, especially low-income borrowers with little savings.
According to a semi-recent Federal Reserve study, the average American household had about $42,000 in savings.
But if you break it down by age, those under 35 only had $11,250 and those 35 to 44 only about $28,000.
A home purchase, even with a small down payment, could easily wipe out these accrued savings. And remember that these numbers are an average.
Many households have much less, which is why they’re probably still renting if their desire is to own.
Tozer has argued that after accounting for rent, taxes, food, utilities, and other necessities, prospective first-time home buyers have little left to save for a down payment.
The FHA Minimum Down Payment Was Increased in 2009
If you recall, the FHA Modernization Act of 2008 resulted in the FHA minimum down payment rising from 3% to 3.5%.
It also banned seller-funded down payment assistance, which correlated with much higher default rates on FHA loans.
Ironically, these types of loans resulted in a near-$5 billion loss for the FHA and put the entire program at risk.
Around that time, some lawmakers argued for even higher down payment requirements, such as a minimum of 5% down. That didn’t happen.
Back then, the big argument was about having skin in the game, as those with little invested had no problem walking away from an underwater mortgage.
That’s why the timing of this idea is a bit of a head-scratcher, with home prices at/near all-time highs and mortgage rates more than double their early 2022 levels.
While it isn’t quite 2006 all over again, there has been a lot of speculation in the housing market and prices are certainly not cheap.
The saving grace is that most homeowners hold boring old 30-year fixed-rate mortgages at ultra-low rates this time around.
And zero down loans are generally few and far between, other than homebuyer assistance offered by some state housing finance agencies (HFAs).
What’s the Argument for a 0% FHA Loan Today?
At the moment, you need a minimum 3.5% down payment to obtain an FHA loan, slightly more than the minimum 3% required on conventional loans.
Interestingly, you used to need 5% down to get a conventional loan before they introduced 97% LTV offerings in 2014.
This 3.5% is also significantly higher than what’s required for other government-backed home loans.
Tozer pointed out that both VA loans and USDA loans don’t require a down payment (100% financing OK!).
The thing is those loans are reserved for members of the military or those buying in rural areas, respectively. Conversely, FHA loans are much more widely available.
Regardless, he argues that underwriting should focus on a borrower’s credit history as opposed to the down payment.
But if we recall from the prior mortgage crisis, credit scores got a big share of the blame for the sharp rise in defaults.
So relying on credit score alone might not be the best policy either. While defaults certainly rise as credit scores fall, a holistic approach is best when formulating underwriting standards.
This means looking at layered risk, such as credit score, down payment, DTI ratio, employment history, and more.
The Skin in the Game Is the Cost to Relocate
As for skin in the game at zero down payment, Tozer said the skin is the cost to move.
In other words, once low- and moderate-income homeowners move in, it would cost them way too much to relocate.
And this is apparently what would keep them there. While that might be true, would they continue making payments?
Tozer’s proposal is unlikely to materialize as it would require Congress to act at a time when housing supply is already dismal and affordability historically low.
However, there is other proposed legislation that would offer 100% financing to first responders who need a mortgage, via the HELPER Act of 2023.
In the meantime, other options already exist to get an FHA loan with zero down.
As noted, many state HFAs have programs that offer deferred-payment junior loans that cover the down payment and even the closing costs.
There are also private lenders that offer FHA with zero down, such as the Movement Boost from Movement Mortgage, which relies on a repayable second mortgage.
So options already exist without the need for an across-the-board elimination of the FHA’s down payment requirement.
Source: thetruthaboutmortgage.com
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If you’re in the market for purchasing a new home or taking on a business loan or personal loan, you’re likely finding it difficult to score the almost-2% APR we saw in 2020. That’s because the Federal Reserve has been hiking interest rates since March 2022 in an effort to cool inflation.
“The Fed has two objectives: To keep inflation low, their current obsession, and to keep unemployment low, which is of current lesser concern,” says Amy Hubble, a certified financial planner who has a Ph.D. in consumer economics. “In practice, this means they lower rates to incentivize growth and hiring, and raise rates to combat inflation when the economy gets overextended. This leads to a policy teeter-totter meant to balance out economic activity in the US.”
So the question remains: When will we finally see interest rates start to come down? CNBC Select asked three experts to give their take on what lies ahead for interest rates. Here’s what they had to say.
What we’ll cover
When will interest rates come back down?
Nobody outside of the Federal Open Market Committee (FOMC), the 12 men and women tasked with setting target interest rates, can predict with any certainty what will happen with rates and when. But that hasn’t stopped economists like Preston Caldwell, a senior U.S. economist for Morningstar Research Services LLC, from making their own educated guesses.
“I think rates will start cutting in early 2024,” Caldwell says. “I think inflation will be nearing the Federal Reserve’s 2% target at that phase and the economy will show signs of slowing, but it’s hard to predict.”
Other professionals in the space echo a similar vision. Hubble points to a recent FOMC report that includes committee members’ projections on gross domestic product (GDP) growth, inflation and the unemployment rate — all factors the Fed will weigh when deciding how aggressively to cut rates.
“All FOMC members believe that rates will be stable or higher through 2023 before slowly coming down in 2024–2025 to settle at a comfortable 2.5% for the longer-term,” she says.
Elliot Eisenberg, the Chief Economist at Graphs and Laughs agrees. “There was a belief that once the second half of 2023 came around, rates would’ve been lower than they were at the end of 2022,” he says. “But it hasn’t come down. These things take a long time to work their way through the economy, so sometime in 2024 sounds about right.”
However, he also warns that it’s hard to believe that we’ll see any interest rate cooling in 2023.
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What should you do when interest rates go down?
Lower interest rates make borrowing money cheaper. That means all other factors (like your credit score) being equal, you’ll generally pay less in interest on any new student loans, personal loans, business loans and mortgages than you would during today’s high-rate environment. Existing loans with a variable rate may also start charging less interest as the Fed lowers interest rates.
That’s why waiting until interest rates come down before borrowing money for a large purchase — like a home — can be easier on your bank account. The current average mortgage interest rate on a 30-year loan is 7.98% even for borrowers with a credit score between 700 and 719. That’s a tough pill for a first-time homebuyer to swallow month after month as they pay their mortgage.
However, if holding off on getting a mortgage isn’t doable for you, make sure you improve your credit score before applying so you can qualify for an interest rate that’s as low as possible. Also consider choosing a mortgage lender that helps you save money throughout the process. Ally Bank, for instance, doesn’t charge any lender fees. And if you qualify for a Navy Federal Credit Union mortgage, you can get a home loan with no private mortgage insurance (PMI) requirements even if you make a down payment of less than 20%.
Ally Home
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, HomeReady loan and Jumbo loans
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Terms
15 – 30 years
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Credit needed
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Minimum down payment
3% if moving forward with a HomeReady loan
Terms apply.
You can also refinance your mortgage down the line during a lower interest rate environment so you can score a better rate on your loan. PNC Bank is one of the most accessible lenders because it has locations in all 50 states and customers can apply both online and in-person.
PNC Bank Mortgage Refinance
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Fixed-rate, adjustable-rate, FHA loans, VA loans and jumbo loans
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Fixed-rate Terms
10 – 30 years
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Adjustable-rate Terms
Available in periods of 7 and 10 years for a fixed rate, followed by an adjustment period when the interest rate may increase or decrease on an annual or semi-annual basis
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Credit needed
Not disclosed
Pros
- Refinance available for primary and secondary homes, and investment properties
- Offers a wide variety of loans to suit an array of customer needs
- Offers refinancing for VA and FHA loans
- Available in all 50 states
- Online and in-person service available
Cons
- Doesn’t offer home renovation loans
Lower interest rates can also have an impact on the APY you earn on your high-yield savings account. While buying a house or taking out a personal loan becomes more affordable during lower interest rate environments, you typically can’t earn as high an interest rate from the money in your deposit accounts.
That’s because banks use the Fed rate as a benchmark for yields on savings accounts. So when the Fed rate falls, the interest rate on your high-yield savings account will likely also decrease. Right now, some high-yield savings accounts, like the UFB High Yield Savings Account, are offering more than 5% APY on account balances.
UFB High Yield Savings
UFB High Yield Savings is offered by Axos Bank, a Member FDIC.
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Annual Percentage Yield (APY)
Earn up to 5.25% APY
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Minimum balance
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Monthly fee
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Maximum transactions
No max number of transactions; max transfer amounts may apply
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Excessive transactions fee
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Overdraft fee
Overdraft fees may be charged, according to the terms, but a specific amount is not specified; overdraft protection service available
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Offer checking account?
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Offer ATM card?
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Terms apply.
Even though we’re unlikely to see sky-high APYs stick around after the Fed lowers interest rates, it’s still worth keeping your money in a high-yield savings account even in a lower-rate environment. You’ll still grow your money faster in a high-yield account than with most traditional savings accounts, and it provides a safe, FDIC-insured place to keep your emergency fund.
Bottom line
According to experts, we aren’t likely to see significantly lower interest rates this year, but 2024–2025 is likely to see more progress on that front. Lower rates can make life easier for individuals who have been waiting to buy a house or take on other types of loans, even if savers won’t enjoy the high APYs that thrive in a world of high rates.
Meet our experts
At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed:
- Preston Caldwell, a senior U.S. economist for Morningstar Research Services LLC.
- Elliot Eisenberg, a chief economist and Graphs and Laughs.
- Amy Hubble, a CFP with a Ph.D. in consumer economics.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of personal finance. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best mortgage lenders and high-yield savings accounts.
Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Source: cnbc.com
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How some home buyers are getting mortgage rates as low as 3%
ABC News’ Whit Johnson shares what you need to know about “assumable mortgage loans,” which allow a homebuyer to take over a seller’s home loan and even keep the original mortgage rate.
September 15, 2023
Source: abcnews.go.com
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The Empire State’s real estate market is a bit of a mixed bag. On the one hand, parts of New York City and the Hamptons are among the priciest housing markets in the entire country. But the rest of the state, which is quite large, is full of cities like Buffalo, Rochester and Syracuse, all of which have median home prices of just $200,000 or less (according to July Redfin data).
Whether you’re buying in Long Island or selling in Lake Placid, there’s one part of the real estate transaction that you can’t avoid: closing costs. Here’s what to expect when it comes to closing costs in New York.
How much are closing costs in New York?
Closing costs vary by state, and New York is on the high side with an average rate of 3.1 percent of a home’s sale price, according to CoreLogic’s ClosingCorp. By comparison, Connecticut’s rate is 2.1 percent and New Jersey’s is 1.7 percent.
Data from the New York State Association of Realtors shows that July 2023’s median sale price for the state was an even $400,000. Applying the rate of 3.1 percent, that means closing costs of $12,400.
That number will vary greatly depending on home prices in your local market, though, and prices tend to get higher the closer you get to New York City. According to Redfin, the July median in Westchester County, just north of the city, was $770,000, which would result in closing costs of $23,870. But in Potsdam, not far from the Canadian border, the median is just $175,000, meaning closing costs of $5,425.
Who pays closing costs in New York, buyers or sellers?
Whether you’re buying or selling in the New York housing market, You will be responsible for some amount of closing costs.
Closing costs for buyers
As a homebuyer, most of your closing costs will relate to your mortgage loan. Here are some of the most common closing costs for buyers:
- Loan-related fees: Many lenders charge borrowers loan application and origination fees, as well as a fee to check your credit history. If you are paying points on your mortgage, which typically bumps down your interest rate by 0.25 percent for every 1 percent of your loan amount, that fee will be part of your closing costs as well.
- Appraisal and inspection fees: Your lender will likely require a professional home appraisal to confirm the home’s value (and make sure it’s worth at least the amount you’re borrowing). It’s smart, but not required, to get a professional home inspection as well. This will alert you to any problems with the home and property before they become your problem. If a major problem is discovered, you may be able to use it as a negotiation point. Expect each to run a few hundred dollars.
- Title-related fees: Similar to a background check, a title search is conducted to confirm ownership and make sure that there are no liens or claims on the property. Title insurance protects you (as the new owner) and the lender if any issues arise after the deed is transferred. In some states, the seller pays for title insurance, but in New York, it’s typically the buyer. The cost will depend on your loan amount.
- Taxes: At closing, you’ll likely need to prepay a portion of the year’s property taxes as determined by your local jurisdiction. These funds will be held in escrow and distributed on your behalf. Sellers pay for the base transfer tax in New York, but if you’re buying a home for over $1,000,000, you’ll be on the hook for an additional fee in the form of the state’s mansion tax, which starts at 1 percent of the sale price and gets higher the more expensive a home gets.
- Attorney fees: The state of New York requires both homebuyers and sellers to be represented by an attorney at closing, so add legal fees to the list.
Closing costs for sellers
Sellers aren’t off the hook just because they’re not taking out a mortgage. Here are some of the most common closing costs for sellers:
- Agent commissions: Realtor fees will be your largest expense when selling your home. Commissions typically run between 5 and 6 percent of a home’s sale price, which means the amount can be steep. On a median-priced $400,000 home, 5 percent comes to $20,000.
- Transfer taxes: As the seller, you’ll need to pay New York’s real estate transfer tax, which is $2 for every $500 in home value. On a median priced $400,000 home, that’s $1,600. In New York City, an additional city tax applies.
- Attorney fees: The state of New York requires both homebuyers and sellers to be represented by an attorney at closing.
- Seller concessions: If you made any concessions to the buyer, such as offering to pay for a repair, they’ll be settled at closing time and taken out of the sale price.
- Wire transfer fee: If there’s a balance left on your mortgage, it will be taken out of your sale proceeds and wired to your lender. There may be a fee for this.
Lowering your closing costs in New York
You might be surprised to learn that many closing costs are negotiable (except for government-assessed fees like property and transfer taxes, of course).
For home sellers, your most expensive cost is also one of the most commonly negotiated: the Realtor commission. If your agent is willing to lower their commission by even a little, it could save you a lot. For example, a 5.5 percent commission on a median-priced $400,000 home, rather than the full 6 percent, will save you $2,000.
Buyers can explore down payment assistance programs, which help cover closing expenses for qualified buyers via low- or no-interest loans, grants and more. There are options specifically for first-time homebuyers in New York as well. And remember that different lenders may offer different rates, terms and fee structures, so be sure to shop around for the best deal. Don’t be afraid to ask the seller for concessions, either. They might not agree to pay for that plumbing repair (for example), but it doesn’t hurt to ask.
Find a local real estate agent
New York’s real estate market is unique and complex, and the best way to navigate it is with the help of an experienced local real estate agent. If you don’t have one, a great place to start is by asking for referrals from friends and family. Do some online research, too. Interview a few different candidates to find someone who’s a good fit — and if you can find someone who knows your specific area very well, or even your specific neighborhood, all the better.
FAQs
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According to data from ClosingCorp, closing costs in New York average 3.1 percent of a home’s sale price (not including agent commissions). The median price in the state was $400,000 as of July, per the New York State Association of Realtors, so the closing costs on a median-priced home would come to $12,400.
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Real estate agent commissions, typically paid by the seller, are the most expensive part of closing costs, typically totaling between 5 and 6 percent of a home’s sale price. For a median-priced $400,000 New York home, 5 percent comes to $20,000.
Source: bankrate.com
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In the dynamic landscape of the New Jersey real estate market, where rich historical heritage from colonial roots to contemporary designs, makes each property a compelling narrative. A home inspection in the great state of New Jersey is a journey through the layers of time and innovation that define a property’s character, revealing its captivating charm and possible underlying problems. On the flip side, sellers can leverage this process to transparently present their property’s value and proactively address any homebuyer concerns.
So, whether you’re buying a home in Hoboken or gearing up to sell a property in Jersey City, this Redfin article offers comprehensive insights and guidance to help you navigate the unique home inspection landscape in New Jersey.
Why should you get a home inspection in New Jersey?
“New Jersey homebuyers should never skip the stucco inspection,” says Stucco Safe. “Problems with stucco systems that leak to the structure are incredibly common in New Jersey due to the extremes in temperature. Repairs for these problems can easily exceed $100,000. When making your offer, always include ‘invasive stucco inspection’ in your inspection requests. You won’t regret it.”
“Homebuyers in New Jersey should get a home inspection so that they know the true condition of the home and that there are no hidden issues when they take ownership,” recommends Cooper Inspection Services. “Along with the home inspection, New Jersey buyers should also get a WDI (wood destroying insect) inspection, Radon Test, and depending on the age of the house, they should also do a tank sweep to make sure there are no underground oil storage tanks.”
Are there any specialized inspections that New Jersey buyers should consider?
“One common issue we hear from clients is the difficulty of finding a licensed structural engineer, often resulting in delays with property transactions,” says Kiro Engineering. These types of inspection help to better understand the overall “structural integrity of residential and commercial properties” by conducting “thorough evaluations and considers various factors when assessing the need for repairs.”
“When selecting a home inspector, I would recommend an inspector that has a Home Inspectors License and has been inspecting homes for at least 10 years,” suggests Eagle Eye Home Inspectors. “The home inspection includes a Structural and Mechanical inspection. Some additional tests you might want to consider are:
- Termite Inspections
- Radon Testing
- Swimming Pool Inspections
- Sewer Line Inspections: using a camera to inspect the underground sewer line
- Level 2 Chimney Inspections: this is an in-depth inspection of the chimney, including using a camera to inspect the internal liner
- Mold/Air Quality Tests
For older homes, an Oil Tank Sweep (used to find underground oil tanks) may be needed.”
Are home inspections required in New Jersey?
“First, Home Inspections are not required in New Jersey,” notes Four Dogs Inspections. “My buyers tip would be to always get a tank sweep if buying an older home and always have a sewer scope done when purchasing a home with city sewers.”
How much does a home inspection cost in New Jersey?
“Home inspection costs can vary,” says Inspector Seltzer. “I recommend budgeting roughly two-thousand for an inspection. Including radon, termite, mold, oil tank sweep, sewer line scope, and a level two chimney inspection.”
“In fairness to all home inspection prices vary depending on the age, size, and complexity of the home,” shares Accurate Inspections, Inc. “A single price to inspect any home is either going to be unfair to the home buyer or the home inspector. Two bathroom three bedroom 1,500 sq homes should pay less than home buyers of a home three times that size.”
Expert advice for New Jersey buyers before they get a home inspection
“My advice to a home buyer is to use the process of the home inspection to get to know their new home. We take the time to help our clients not only be aware of any deficiencies in the home, but also to provide an overall education about the home itself,” suggests Michael Czar, from Safeway Home Inspections.
Ask questions
“Do not be afraid to ask questions,” urges Spectora. “You should work with a home inspector that makes you feel comfortable asking questions. Whether you’re buying or you’re doing a checkup on your own home, it can be a little intimidating and people feel embarrassed asking questions they think are silly or unimportant. There’s no better time to ask those questions. Not asking them is a missed opportunity.”
Don’t skip the inspection
“Due to the low inventory in the last few years, New Jersey saw housing demand skyrocket, with many homes selling above their asking price. Consequently, buyers often waived their inspection contingencies,” says Liliana Militaru, Redfin’s Principal Lead Agent. “ However, it is a misconception that waiving the inspection contingency prohibits the buyer from performing an inspection. On the contrary, by waiving the inspection contingency, the buyer only forfeits the right to request repairs or credits for various defects the inspector may find. Therefore, my buyers will always schedule an inspection, even when buying land-only; we still conduct at least an oil tank search.”
Don’t forget the chimney
“For properties with chimneys, considering a specialized Thermocrete inspection can help ensure the safety and functionality of this critical feature,” suggests Approved Chimney. “Thermocrete assessments can identify and address any chimney-related issues, such as cracks or deterioration, making them a valuable addition to the inspection process, especially in regions prone to harsh weather conditions.”
Hire a well-reviewed inspector that offers multiple services
A tip is to read the reviews of your home inspection company before hiring them. Home inspectors who truly take the time to invest in a full understanding of the home will have clients who are happy to share their experiences. It’s also helpful to utilize a company that does several services, including radon testing, oil tank sweeps, main waste line sewer scopes, and wood destroying insect inspections, in addition to the home inspection itself, to maximize your time and money as a client,” shares Safeway Home Inspections.
New Jersey home inspection: the bottom line
In New Jersey real estate, home inspections, though not required, are highly recommended. Whether it’s an old or new property you’re looking to buy or sell, it’s essential to have an inspector look beyond the surface of the home. For both buyers and sellers, a home inspection ensures smart decisions and a smooth transaction.
Source: redfin.com
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Buyers facing high mortgage rates are pulling out of their home-purchase agreements at the highest rate in nearly a year.
Nearly 60,000 home-purchase agreements were canceled nationwide in August, equal to 15.7% of homes that went under contract that month, according to a new report from Redfin.
That rate is up from 14.3% in August 2022 and marks the highest percentage since October 2022, when mortgage rates surpassed 7% for the first time in two decades.
The average interest rate on a 30-year-fixed mortgage was 7.07% in August. Rates last month surged to 7.23%—the highest since 2001 – sending the typical homebuyer’s monthly payment up significantly from last year.
“I’ve seen more homebuyers cancel deals in the last six months than I’ve seen at any point during my 24 years of working in real estate. They’re getting cold feet,” said Jaime Moore, a Redfin Premier real estate agent in Reno, Nevada.
“Buyers get sticker shock when they see their high rate on paper alongside extra expenses for maintenance, repairs and closing costs. Many of them would rather back out, even if it means losing their earnest money. A lot of sellers are also willing to let buyers slip away because they don’t want to concede to repair requests,” Morre said.
Home prices not expected to fall
Home prices are high due to competition among buyers for limited inventory in the market.
The median U.S. home sale price rose 3% year over year to $420,846 in August, the largest annual increase since October 2022.
This price was 2.8% below the May 2022 record of $432,780, and is expected to remain elevated for the foreseeable future.
“The Federal Reserve still has more work to do in its battle against inflation, which means mortgage rates are unlikely to come down anytime soon. As long as rates remain high, homeowners will be reluctant to sell,” Chen Zhao, Redfin economics research lead, said, noting that a lack of homes for sale will keep prices high because it means buyers are competing for limited home supply.
Buyer demand Is below pre-pandemic levels, but no longer in freefall
Pending sales declined 0.6% on a seasonally-adjusted basis to 381,192 in August from the previous month. Compared from a year earlier, pending sales dropped 18.1%.
This figure has been hovering below 400,000 since the end of 2022, compared with nearly 500,000 just before the pandemic.
Pending sales have stabilized as the initial shock of elevated mortgage rates moves further into the rearview mirror, but high housing costs are still keeping many buyers on the sidelines, according to Redfin.
New Listings Tick Up Slightly, But Overall Housing Supply Remains at Record Low
New listings rose 0.8% to 474,239 in August on a seasonally-adjusted basis from July.
It’s the second small uptick on a seasonally-adjusted basis following nearly a year’s worth of declines. Year-over-year new listings were down 14.4%. Most homeowners who feel handcuffed by high rates have already made the decision not to sell, said Zhao.
“New listings have likely bottomed out,” she said. “Many of today’s sellers are putting their homes on the market because they have to, in some cases due to divorce, family emergencies or return-to-office policies.”
Still, the total number of homes for sale hit a record low of 1.3 million in August, falling 1.1% month over month on a seasonally adjusted basis and 20.8% year over year, the largest annual decline since June 2021.
Housing supply is at an all-time low because homeowners feel locked into their low mortgage rates. For many, selling their home and buying a new one would mean taking on a much higher monthly payment, Redfin said.
Source: housingwire.com
Apache is functioning normally
Is the housing boom already over? Did home prices peak before summer?
Well, a new report from Redfin revealed that competition among home buyers eased in May, which may be an ominous early sign of what’s to come.
The company noted that 69.5% of Redfin real estate agents that wrote an offer last month faced competition from another agent, which while high, was down from 73.3% in April and well below the 2013 high of 79%.
Additionally, the percentage of homes that received multiple offers was nearly at year-ago levels again, when the number was 69.3%.
Meanwhile, 49% of Redfin’s winning offers were above the original asking price, down from 51.9% in April.
Why Is the Housing Market Cooling Again?
If this report was for June, as opposed to May, one could look to the higher mortgage rates as a potential housing market buzz killer.
But these are the May numbers, when mortgage rates were still relatively low for a decent chunk of the month. So the obvious issue is an increase in inventory.
Housing inventory always rises in spring as it’s the start of the traditional home buying/selling season, and that’s exactly what happened this year.
In April, the number of homes for sale increased 6.4% month-over-month, the largest monthly increase since March 2010, when the homebuyer tax credit was phasing out.
At the same time, inventory was down 26% compared to April 2012. Home buyer demand was also down, with home tours and written offers slightly lower in May, per Redfin.
Of course, housing demand is definitely local, with Los Angeles and San Francisco still red-hot in terms of competition, while San Diego and Orange County saw significant month-over-month declines in interest.
And not every major market is seeing home prices go for well above the asking price, despite all the rosy media reports.
While that was the case in a staggering 96.8% of properties in San Francisco, which on average sold for 9.7% above list, just 19% of winning offers went above ask in Chicago.
In some major metros, including Baltimore, Chicago, Los Angeles, and Washington D.C., the average difference between offer price and asking price was actually negative.
Now we’ve got the prospect of even more homes coming to market, coupled with significantly higher mortgage rates.
As I’ve noted in the past week or so, mortgage rates are about 1% higher than they were a month ago, so there’s definitely going to be some kind of effect, though it’s too early to tell what that may be.
Plenty of pundits think housing can recover in the face of higher mortgage rates, even with rates in the 5-6% range.
But others are questioning the entire rally now that rates have begun to tick up, calling the recovery nothing more than a weak attempt to keep home prices inflated.
In any case, competition will remain elevated, even if not at levels seen earlier this year.
Characteristics of a Winning Bid
Wondering what it takes to get your offer accepted? Wonder no longer. Below are the most common attributes of a winning offer in May, per Redfin:
– 68.3% were conventional loans, up from 61.7% in April
– 29.4% had a cover letter, up from 28% in April
– 11% waived the inspection contingency, up from 8.3% in April
– 8.9% waived the financing contingency, up from 7.1% in April
As you can see, government loans have fallen out of favor with prospective home buyers, most likely because of the recent increase in annual FHA mortgage insurance premiums.
Additionally, many FHA loans now require insurance for the life of the loan, which clearly isn’t economical, let alone feasible for many would-be borrowers.
Both FHA and VA loan volume decreased from April to May, accounting for just 8.5% and 6.6% of winning offers, respectively.
Meanwhile, all-cash offers grabbed a 5.5% share of the market, up from 5.1% in April – 16.1% of offers were all-cash in Orange County last month, up from 9.7% a month earlier.
What this all means is that if you’re a seller, you better get on it, as things appear to be trending down. And if you’re a prospective buyer, you might be able to bide your time, though you’ll have to contend with the prospect of rising rates.
Read more: Slowing mortgage market could lead to looser lending.
Source: thetruthaboutmortgage.com
Apache is functioning normally
But depending on how a lender interprets the guidelines, the client could have gotten his application rejected for not having consistent employment for a two-year period without interruptions, explained Gastelum.
“It really comes down to interpretation of the guideline. One lender could have said, ‘Oh, he was out a week, so it’s interrupted and therefore, the second employment doesn’t work.’ The problem is, a mortgage credit reject (MCR) is kind of like your scarlet letter, to be completely honest,” Gastelum said.
When a lender rejects an FHA application, it discourages the next lender from even reviewing the application because of the extra work the underwriters have to do to override that MCR, mortgage pros told HousingWire.
All FHA mortgage lenders use a system by the U.S. Department of Housing and Urban Development (HUD) called FHA Connection, a database used to insure and generate FHA case numbers associated with the borrower’s home loan application. When the borrower is denied for an FHA mortgage loan, an MCR report had to be created for that denial. That changed on September 11.
The FHA’s announcement in early September to waive a requirement that FHA-approved lenders flag rejected loans in the FHA Connection system is a step in the right direction since declined borrowers don’t have to overcome a stigma, loan officers said.
In a rate-rising environment where it has become more difficult for first-time buyers to get into the market, borrowers won’t have to deal with a file that has an MCR for six months. Even after the six-month period is over, the borrower’s case number would still be attached to his/her social security number.
Demand for FHA loans have risen over the past year to comprise 23.8% of mortgage applications in August 2023, up from 17% from the same period a year ago, according to the Mortgage Bankers Association.
The FHA/VA share in Q2 2023 stood at 22.9% of the entire mortgage origination volume, up from 18% in Q2 2022, according to data compiled by Inside Mortgage Finance and Urban Institute.
Loan officers said that the FHA’s waiver will give borrowers a fairer shot at obtaining financing. Borrowers won’t be subject to lenders’ different underwriting interpretations that could lead to a rejection of their mortgage applications.
“That (MCR) is a subjective stigma based on credit risk tolerance of the particular lender that you went to initially. “This is an underwriting technicality that is unfair and it is a good move to create more fairness,” Billy Taylor, CEO of Hometown Lenders, said.
“We are really happy about this change because it’s going to provide more opportunity for loan officers and is going to provide more opportunity for buyers to get a second chance,” Michael Borodinsky, VP and branch manager at Caliber Home Loans, said.
Overcoming overlays
The FHA credit requirements are strict, but borrowers can get an FHA loan with no credit score. In fact, HUD forbids lenders from declining a borrower’s FHA loan application simply because they lack a credit history.
In such a case, lenders will ask for documentation, including a letter from the landlord documenting on-time rent payments, payment history of utility companies and cell phone or internet provider.
Lenders, however, have overlays – rules on top of the federal rules that were published as lenders need to sell those loans to investors who do not want to buy high-risk loans.
“Those overlays – it could be higher standards, it could be lower debt-to-income (DTI) ratios – still exist on a subjective basis on a lender-by-lender basis. So a borrower not knowing that they could qualify for a loan where their credit score is below 640 or 620 could be subject to a denial and then not realize that they could be approved somewhere else,” Borodinsky said.
Generally, the FHA requires a minimum 580 credit score with a down payment of 3.5% to qualify for a FHA loan. Under FHA guidelines, borrowers with credit scores between 500 and 579 must make a down payment of at least 10%. But they may also face tighter requirements. Lenders may require a lower loan-to-value (LTV) ratio or ask that the borrower make a larger down payment.
Reasons for a MCR vary, said Ted Tozer, non-resident fellow at the Urban Institute‘s Housing Finance Policy Center (HFPC) and the former head of Ginnie Mae.
“It could be low credit scores, or it could be geographics too – maybe they’re in a market that it’s a soft market where they’re looking at home prices that could be falling. Lenders don’t want to tilt their portfolio to one where these 3.5% down payments could very well become over 100% LTV just because home prices fall,” Tozer noted.
Industry personnel frequently complained that FHA Connection often didn’t provide sufficient information about mortgage credit rejects to determine why the applicant was rejected, said Peter Idziak, senior associate attorney at Polunsky Beitel Green.
“It could be the lender’s own standards could be higher or different, or in addition to just the FHA qualifications,” Idziak said.
For a prospective homebuyer, the new waiver should avoid a possible misrepresentation of their actual creditworthiness, JR Younathan, SVP and California state mortgage production manager at California Bank & Trust, said
“The given waiver doesn’t necessarily open new paths to compete as they could have done that previously. It would only open a new path in the instance that the other lender wasn’t willing to investigate the reasons the denial was registered, and instead rejected the loan file/borrower on the fact it existed at all, thus eliminating that ability to compete,” Younathan noted.
Regardless of whether the applicant is walking in to the lender for the first or second time, the lender should be armed with enough financial information to assess the credit risk.
“The lender should be confident enough to know what questions to ask, how to analyze their income, how to analyze all the other risk profiles, it really shouldn’t make that much difference, because they should be in a situation where they should be asking the right questions to really understand,” Tozer said.
Beggars can’t be choosers
Though loan officers are unanimous that the waiver will make FHA loans more accessible for borrowers, LOs interviewed by HousingWire don’t expect it to increase their production volume.
In a highly competitive environment, lenders had already taken that extra effort to approve loans that would’ve been rejected or already rejected from another lender.
“We’re more likely to underwrite a 500 credit score than a big bank who’s saying ‘I don’t want that risky loan in my portfolio. I don’t want I don’t even want to underwrite it, because I don’t want a 500 or 520 or 560 borrower in my portfolio,’” Taylor, of Hometown Lenders, said.
Hometown Lenders would perform a manual underwriting for an applicant with a lower credit score to try to get an approval rather than simply rejecting a lower credit score borrower, he said.
The FHA loan program requires lenders to seek manual underwriting review when a borrower has a credit score lower than 620 and a DTI greater than 43%. According to HUD, borrowers could qualify with a 580 credit score and a DTI of 50%.
“That (loan origination) is the only way we make income. I don’t think it (the new waiver) would affect us at all, we would have looked at that borrower whether there’s an MCR on there or not,” Taylor noted.
To override an existing MCR would require a level two underwrite – meaning two underwriters would have to underwrite the file as they have the authorization to override the MCR in the FHA Connection system.
Because the mortgage credit reject is going to be eliminated, we’re no longer going to have to deal with a second underwrite, Gastelum said.
“It’s not going to be more business. If anything it’s going to bring some of the borrowers that got declined at other companies back to the marketplace sooner,” Gastelum said.
FHA loan limits rose to a maximum of more than $1 million and mortgage insurance premiums for FHA loans were cut by 30 bps this year in line with home price inflation and to provide relief from the steep rise in mortgage rates.
Some loan officers noted that while the FHA’s decision to cut MIPs was a step in the right direction, the upfront mortgage premium (UFMIP), which amounts to 1.75% of the base loan amount, as well as a monthly premium for the life of the loan, could still be a burden for borrowers compared to those with a conventional loan.
However, affordability will still remain challenging for borrowers as wages would need to rise and home prices would need to fall to tackle that issue, Taylor noted.
“You’re not going to change affordability — which is the real reason people don’t have access to housing — by taking MCR off,” said Taylor.
But any little bit helps, Borodinsky said, citing a tough mortgage origination market that he’s never seen before.
“I welcome anything that moves the needle even fractionally. Because in this market, beggars can’t be choosers. This market is unlike any market we’ve seen in over 30 years in terms of there being no inventory, high interest rates and a real problem compounded with what’s called the lock-in effect,” Borodinsky said.
Source: housingwire.com