Author Archives: joeglez

Simple Real Estate Definitions : Tax And Insurance Escrow

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Escrow taxes and insuranceAs a homeowner in Phoenixville , your fiscal responsibility extends beyond just making mortgage payments. You must also pay your home’s real estate taxes as they come due, as well as your homeowners insurance policy premiums.

Failure to pay real estate taxes can result in foreclosure. Failure to insure your home is a breach of your mortgage loan terms.

There are two methods by which you can pay your real estate tax and homeowners insurance bills.

The first method is to pay your taxes and insurance as the bills come due, usually semi-annually. Depending on your home’s tax bill size and the cost to insure your home, these payments can feel quite large — especially if you’ve failed to budget for them properly.

The second method of paying your taxes and insurance is to give your lender the right to pay them on your behalf, a process known as “escrowing for taxes and insurance”.

When you escrow your real estate taxes and homeowners insurance, you pay a portion of your annual obligation to your lender each month, which your lender then holds in a special account for you, and disperses to your taxing entities and insurance company as needed. Lenders prefer that homeowners escrow taxes and insurance because, in doing so, the lender is assured that tax bills remain current and that homes stay insured.

Want a discount on your next mortgage rate? Tell your lender that you’re willing to escrow.

To help calculate your monthly escrow payment to your lender, do the following :

  1. Find your home’s annual real estate tax bill
  2. Find your home’s annual homeowners insurance premium
  3. Add the two figures and divide by 12 months in a year

The quotient is your monthly “escrow”; the extra payment you’ll make to your lender each month along with your regularly scheduled principal + interest payment. Then, when your tax bills and insurance premiums come due, your lender will make sure the payments are made on your behalf.

If you’re unsure whether escrowing is right for you, talk to your loan officer and/or financial planner. There are valid reasons to choose either path.

Have Mortgage Rates Bottomed Out?

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Mortgage Rates Bottomed Out?

Mortgage rates have troughed. Or, so it seems.

According to Freddie Mac’s weekly Primary Mortgage Market Survey, the average 30-year fixed rate mortgage is 4.00 percent nationwide — roughly the same rate as it’s been for 5 weeks. 

During that times, rates have ranged between 3.97 and 4.02 percent with an accompanying 0.7 discount points, plus “typical” closing costs. Closing costs vary by state and 1 discount point is equal to 1 percent of your loan size.

In other words, to get the weekly, published Freddie Mac rate, borrowers in Pennsylvania should expect to pay a complete set of fees to their respective lenders. The larger the loan, the higher the costs. “Low-fee” and “no-fee” loans are available, too — typically in exchange for a slightly rate.

A breakdown of the Freddie Mac survey shows that interest rates and discount points vary by region. Typically, states in the West Region offer the lowest rates but with the highest costs. East Region states work in reverse; rates are often highest but the accompanying points are fewest.

The most recent mortgage rate breakdown by region shows :

  • Northeast Region : 4.00% with 0.7 discount points 
  • West Region : 3.96% with 0.8 discount points
  • Southeast Region : 4.06% with 0.9 discount points
  • North Central Region : 3.97% with 0.7 discount points
  • Southwest Region : 4.04% with 0.7 discount points

What’s most notable, though, is that in all 4 regions, rates are well below their 2011 highs. Since mid-April, mortgage rates have been in descent, dropping for 5 consecutive months before reaching to their current, “rock-bottom” levels in early-November.

Since then, however, rates have idled and the forces that combined to make rates low throughout King of Prussia are subsiding. The U.S. economy is showing signs of a rebirth; the Eurozone is edging closer to solvency; and the housing market is recovering.

So, if you’ve been wondering whether now is a good time to refinance, or whether higher rates will harm home affordability, the answer is yes. Get in touch with your loan officer to review your home loan options because, looking ahead to 2012, mortgage rates look poised to rise.

Fed Minutes Suggest New Economic Stimulus Next Week

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FOMC minutesThe Federal Open Market Committee released its November 2011 meeting minutes, revealing a Fed split on whether new stimulus is needed for the U.S. economy.

The Fed Minutes is published 8 times annually, three weeks after each scheduled Federal Open Market Committee meeting. It’s the official record of the meeting’s policy-shaping debates and dialogues.

The Fed Minutes is the lengthier companion piece to the FOMC’s more well-known, post-meeting press release.

As compared to press release which is concise and focused at 492 words, the Fed Minutes is comprehensive and broad, totalling 7,682 words over 11 pages, complete with charts.

The November minutes reveal Fed opinions on a variety of economic issues :

  • On employment : Unemployment will gradually decline through 2014
  • On housing : The market remains depressed. Foreclosures are “holding back” growth.
  • On rates : The Fed Funds Rate should remain low until mid-2013

There was also discussion about the government’s revamped HARP program, and how it should help more homeowners get access to low mortgage rates. The Fed sees this as a positive for housing, and for the economy.

There was little in November’s Fed Minutes to surprise Wall Street, however, the Fed did discuss the possibility of new market stimulus, a topic Wall Street expects the FOMC to address next week at its last scheduled meeting of 2011.

Should the Fed introduce new market stimulus next week, and should it arrive in the form of additional mortgage bond purchases, expect for mortgage rates to fall across Pennsylvania and nationwide. If the Fed declines new stimulus, mortgage rates should rise.

The FOMC meets Tuesday, December 13, 2012.

What’s Ahead For Mortgage Rates This Week : December 5, 2011

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Non-farm payrolls Dec 2009 - Nov 2011Mortgage markets made little change last week for the fifth time in as many weeks.

As Wall Street watched both the Eurozone and the U.S. regain their respective footing, expectations for a new Fed-led stimulus increased, which prevented mortgage rates from rising.

According to Freddie Mac, the average 30-year fixed rate conforming mortgage rose just 2 basis points last week to 4.00% nationwide with an accompanying 0.7 discount points. 

1 discount point is equal to 1 percent of your loan size.

For every $100,000 borrowed at 4.00 percent, therefore, today’s Pennsylvania mortgage applicant should expect to pay $700 in “points”. Mortgage rates for “zero-point loans” are higher than Freddie Mac’s published, average value.

This week, with few economic releases set for release, last week’s big stories should carry over into the current one — the biggest of which was a worldwide, coordinated central bank effort to increase system liquidity.

The European Central Bank, Bank of England and U.S. Federal Reserve were joined by the central banks of Japan, Canada and Switzerland in the effort. Stock markets rallied on the news.

Another of last week’s big stories was the sharp drop in the U.S. Unemployment Rate.

After hovering near nine percent since April, the Unemployment Rate broke out of range, dropping to to 8.6% in November. This is the lowest national Unemployment Rate since March 2009, a milestone achieved via the combination of new jobs created (+192,000 in November with revisions) plus a smaller U.S. workforce.

The U.S. economy has added 1.9 million jobs in the last 14 months.

Lastly, last week’s New Home Sales and Pending Home Sales Index releases support the growing belief that the U.S. housing market is in recovery. Both reports showed strong growth for October, corroborating what home builders have been saying — the housing market is improving and buyer ranks are growing.

Home supplies are lower in many U.S. markets.

This week, rate shoppers in Collegeville should be on alert. Market momentum changes quickly, and rates are currently anchored by the expectation of new Federal Reserve stimulus. The Fed meets December 13, 2011. As that date approaches, expectations could change, causing rates to rise.

Mortgage rates remain near all-time lows. It’s a good time to lock a rate with your lender.

More Housing Strength : Pending Home Sales Surged In October

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Pending Home Sales 18 Months Ending October 2011

If you’re waiting for home prices to reach its bottom, you may have missed your window.

After 3 consecutive months of easing, the Pending Home Sales Index jumped 10 percent in October, lending credence to the belief that housing is in recovery.

The Pending Home Sales Index is a monthly publication from the National Association of REALTORS®. It measures the number of homes under contract to sell nationwide. October’s reading is the highest for all of 2011, and the second-highest dating back to April 2010.

April 2010 was the last month of the last year’s federal home buyer tax credit.

For buyers and sellers in King of Prussia and nationwide, the Pending Home Sales Index is a housing metric worth watching. Different from the Existing Home Sales and New Home Sales reports which report on “the past”, the Pending Home Sales Index is a forward-looking housing market indicator.

According to the National Association of REALTORS®, 80% of homes under contract close within 2 months.

The majority of the rest close within Months 3 and 4.

The spike in October’s Pending Home Sales Index, therefore, foretells a strong Existing Home Sales report for November and December. Not that we should be surprised! Home builders have been telling us for weeks that the market is strengthening, and that home supplies are at multi-year lows.

The only wild-card is the market’s out-sized contract failure rate. One in three pending home sales failed to close in October — nearly double the rate of the month prior and 4 times the rate of October 2010. Should this high failure rate continue, the Pending Home Sales Index’s role as a forward-looking indicator would be muted.

Overall, though, new buyer demand for housing accompanied a smaller home supply will result in higher home prices through 2012. And, with mortgage rates expected to rise, monthly carrying costs will be higher, too.

Looking at the data, the best time to buy a home may be right now.

Friday’s Jobs Report Represents A Big Risk To Low Mortgage Rates

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Net new jobs created (2000 - 2011)

Have you been floating a mortgage rate? It may be time to lock.

At 8:30 AM ET Friday, the government’s Bureau of Labor Statistics will release its November Non-Farm Payrolls report. Better known as “the jobs report”, the monthly Non-Farm Payrolls figures provide sector-by-sector employment data, and tally the size of the current U.S. workforce size.

From these two elements, the national Unemployment Rate is derived.

Since topping out at 10.2% in October 2009, the Unemployment Rate has dropped to 9.0%. More than 2.3 million net new jobs have been made in the last 24 months.

Wall Street expect to see 125,000 more jobs added in November.

Depending on how closely the actual Non-Farm Payrolls data meets Wall Street expectations, Collegeville rate shoppers could find that the mortgage market landscape has shifted beneath them. The jobs report is a mortgage-market catalyst and when its reported value differs from Wall Street expectations, the impact on mortgage rates can be palpable — especially in a recovering economy.

The connection between the jobs market and the mortgage market is straight-forward — as the jobs market goes, so goes the economy.

  1. When more people work, consumer spending increases
  2. When consumer spending rises, businesses expand and invest
  3. When businesses expand and invest, more people are put to work

Furthermore, employees and employers both pay taxes to governments. With more tax revenue, governments embark upon new projects which (1) require the hiring of additional workers, and (2) require the purchase and/or repair of additional equipment and supplies. 

Employment can be a self-reinforcing cycle for the economy and that’s why Friday’s jobs report will be so closely watched. If the number of jobs created exceeds the 125,000 expected, mortgage rates will rise on the expectation for a stronger U.S. economy in 2012.

Conversely, if the jobs figures fall short, mortgage rates may fall. 

Mortgage rates continue to hover near all-time lows according to Freddie Mac’s weekly Primary Mortgage Market Survey. The average 30-year fixed rate mortgage is sub-4.000 percent nationwide, with an accompanying fee of 0.7 discount points. 1 discount point is equal to 1 percent of your loan size.

If you’re under contract for a home or looking to refinance, minimize your interest rate risk. Lock ahead of Friday’s Non-Farm Payrolls release.

Get your rate lock in today.

Case-Shiller Index : 17 Of 20 U.S. Housing Markets Slipped In September

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Case-Shiller Index September 2011

Standard & Poor’s released its September 2011 Case-Shiller Index this week. The index tracks home price changes in select cities between months, quarters, and years.

The Case-Shiller Index for September showed drastic devaluations nationwide.

As compared to August, home values fell throughout 17 of the index’s 20 tracked markets, led by Atlanta’s 5.9% drop. On an annual basis, home values have now returned to early-2003 levels.

That said, home buyers and sellers should be cautious when referencing the Case-Shiller Index. The index is a flawed metric and, as such, can lead to improper conclusions about the housing market overall.

The Case-Shiller Index’s first flaw is its most obvious — its limited sample set. 

According to Wikipedia, there are more than 3,100 municipalities nationwide. Yet, the Case-Shiller Index includes data from just 20 of them in its findings. These 20 cities account for fewer than 1% of all U.S. cities, and just a small percentage of the overall U.S. population. 

The “national figures” aren’t really national, in other words.

Even on a city-by-city basis, the Case-Shiller Index gets it wrong.

By lumping disparate neighborhoods into a single, city-wide result, the index ignores the relative strength of one area at the expense of another. In the aforementioned Atlanta, there are areas that fared much better than September’s -5.9% as cited by Case-Shiller. Some areas fared much worse.

A second flaw in the Case-Shiller Index is it’s methodology for measuring changes in home value. The index only considers “repeat sales” of the same home in its findings, and those homes must be single-family, detached property. Condominiums, multi-family homes, and new construction are not included.

In some cities — Chicago, for example — “excluded” property types can account for a large percentage of total monthly sales.

And, third, the Case-Shiller Index is flawed by “age”.

Because Standard & Poor’s publishes on a 60-day delay, the Case-Shiller Index is reporting on a housing that no longer exists. Sales that closed in September are based on contracts written from June-August –a time-frame that’s 6 months aged.

The best use of the Case-Shiller Index is as an analysis tool for economists and policy-makers interested in the long-term trends of U.S. housing. The index does very little good for every day buyers and sellers, unfortunately.

For up-to-date, accurate market data, talk to a real estate professional instead.

New Home Supplies Fall To An 18-Month Low

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New Home Supply 2009-2011

If you plan to buy of new construction in Pennsylvania sometime in 2012, don’t expect today’s low prices. Like everything in housing of late, the market for newly-built homes appears to be stabilizing and, in some markets, improving.

As foreshadowed by this month’s strong Homebuilder Confidence survey, the Census Bureau reports that the number of new homes sold rose to a 6-month high in October, climbing to 307,000 units on a seasonally-adjusted, annualized basis.

A “new home” is a home that is considered new construction. It’s the opposite of an “existing home”.

Home buyers are comparing new construction to home resales and liking what they see. At the current sales pace, the nation’s complete new home inventory would now be depleted in just 6.3 months. This marks the lowest home supply since April 2010 — the last month of the last year’s federal homebuyer tax credit.

By building only to meet new demand, builders are keeping home supplies in check, and home prices stable. They’ve also found a niche market — 80% of homes sold last month sold for less than $300,000.

Split by region, the Census Bureau reports October’s New Home Sales as follows :

  • Northeast Region : +0.0% from September 2011 
  • Midwest Region : +22.2% from September 2011 
  • South Region : -9.5% from September 2011 
  • West Region : -14.9% from September 2011 

Unfortunately, the data may be incorrect.

Although the October New Home Sales report says that sales climbed 1.3 percent last month, the government’s data was published with a ±19.7% margin of error. This means that the actual New Home Sales reading may have been as high as +21.0 percent, or as low as -18.4 percent. Because the range of values includes both positive and negative values, the Census Bureau assigned its October data “zero confidence”.

As home buyers, then, we can’t take our market cues from the published data. Instead, we should look to other metrics including Housing Starts data and the aforementioned homebuilder confidence survey. Each points to strength in the new home market, and foretells higher home prices in 2012.

If you’re in the market for new construction, consider writing an offer soon. Home prices remain low and mortgage rates do, too — a combination that keeps home payments low. Next year, that may not be the case.

What’s Ahead For Mortgage Rates This Week : November 28, 2011

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Non-Farm Payrolls Nov 2009-Oct 2011Mortgage markets worsened slightly last week through a bouncy, holiday-shortened trading week. Markets were closed Thursday for Thanksgiving and re-opened only briefly Friday.

As in past weeks, though, economic, political, and financial news from the Eurozone dictated the direction of U.S. mortgage-backed bonds.

As Greece — and now Italy — have faltered, investors have sought to preserve their respective principal, moving money from unsafe assets to safe ones, a class which includes Fannie Mae- and Freddie Mac-backed mortgage bonds.

This investment pattern is known as “safe haven” buying and it’s why mortgage rates tend to improve when large economies grow unstable. Government mortgage bonds are considered among the safest securities available.

The average 30-year fixed rate mortgage is available for 3.98%, according to Freddie Mac, with borrowers expected to pay an accompanying 0.7 discount points. 1 “discount point” is a loan fee equal to 1 percent of your loan size.

“No-point loans” carry higher rates than the Freddie Mac-published figures, but come with lower closing costs.

This week, there are several reasons to expect mortgage rates to rise throughout Pennsylvania.

First, markets are speculating that the IMF will lend Italy 600 billion euro to help avert financial crisis. This move would reverse the safe haven buying that’s characterized the last few weeks of trading, thereby leading mortgage rates higher.

A second reason is that they are early reports that Black Friday shoppers out-spent analyst estimates. Consumer spending is the largest part of the U.S. economy so, if spending is up, the economy should be up, too. 

As before, this would reverse some of the safe haven buying that’s helped keep mortgage rates low.

Lastly, this week is stuffed with new data including Friday’s always-important Non-Farm Payrolls report. Wall Street expects 116,000 net new jobs created in November. If the actual figure is much higher, mortgage rates will rise.

Expect mortgage rates to be volatile this week. Your quoted mortgage rates could vary by as much as a quarter-percent from day-to-day. If you’re nervous about losing a low rate that’s been offered to you, consider locking in.

Conforming Loan Limits Unchanged For 2012

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Conforming loan limits (1980-2012)

A conforming mortgage is one that, literally, conforms to the mortgage guidelines as set forth by Fannie Mae and Freddie Mac. 

Conforming mortgage guidelines are Fannie’s and Freddie’s eligibility standards; an underwriter’s series of check-boxes to determine whether a given loan should be approved.

Among the many traits of a conforming mortgage is “loan size”.

Each year, the government re-assesses its maximum allowable loan size based on “typical” housing costs nationwide. Loans that fall at, or below, this amount meet conforming mortgage guidelines. Loans in excess of this limit are known as “jumbo” loans.

Between 1980 and 2006, as home values increased, conforming loan limits did, too, rising from $93,750 to $417,000. Since 2006, however, despite falling home prices in many U.S. markets, the conforming loan limit has held steady.  This will remain true for 2012 as well. 

In 2012, for the 7th straight year, the national, single-family conforming mortgage loan limit will remain at $417,000.

The complete 2012 conforming loan limit breakdown, by property type :

  • 1-unit properties : $417,000
  • 2-unit properties : $533,850
  • 3-unit properties : $645,300
  • 4-unit properties : $801,950

However, there are some areas nationally that have earned “loan limit exceptions” based on the local median sales prices. These areas are known as “high-cost” areas and loan limits within these regions range from $417,001 to a maximum of $625,500.

Some examples of high-cost areas include San Francisco (along with a most of California), New York City, and most of Hawaii and Alaska. Nationally, there are approximately 200 such “high-cost” areas.

Verify your local conforming loan limit and loan limits across Pennsylvania via the Fannie Mae website. A complete county-by-county list is published online.