Wednesday, May 27, 2015

Rates Soon to Rise

We have seen a slight increase in rates already this 2015, but it’s expected that we’ll see our first significant hike soon.  When the Fed does raise the rates, it will officially be the end to the historically low rates we’ve been experiencing the past 6 years.
     While it seems natural to assume that markets tend to do better when rates are lower, our economic history is not as simple as that logic goes.  In the past, we have weathered rate hikes very well, with only one outlier in the early 80s to temper inflation.  While there is some volatility to be expected in financial markets at such an announcement, it is an initial reaction that will inevitably calm.  Rising rates are typically used to pace economic growth, which is a good sign for the long term.  
     Once again, the Fed is looking to contain inflation, while our unemployment rate continues to decline and our economy continues to recover.  The Federal Reserve aims to encourage employment by keeping the economy growing at a steady pace, not too fast that gaining in wages is lost to higher prices.  The hike in rates was predicted sooner, but first quarter economic data has been weaker than expected.
     Borrowing costs for consumers of mortgages are expected to remain steady for the near future with slowly rising rates over the next few years as our economy regains it’s full strength.  Higher rates signify a strong economic backbone to handle them, which is very beneficial for the long-term. 

Friday, May 22, 2015

Home Equity 101

While experts can’t necessarily agree on how hopeful the housing market is looking after the first quarter, there is one sector that’s absolutely seeing growth.  Home Equity Loans.  Lots of current home owners are deciding to borrow money against their home in order to make improvements and increase value.  The gradually rising prices of homes is giving potential borrowers more equity and the continually stabilizing economy has given banks more confidence to lend.  If taking out a home equity loan is something you’ve been considering, here are four more things you’ll need to know.

1.  You Need Equity, of Course.

     Equity is what share of your home you actually own.  Paying towards the principle of your loan is how you build it.  If your home is valued at $300,000 but you still owe the bank $240,000, you have $60,000 equity, or 20% share in your home. This is generally described as a loan-to-value ratio and compares the remaining balance on your loan to the value of the property.  In this example, the loan-to-value ratio would be 80%.

     Lenders prefer there be at least 80% loan-to-value ratio remaining after the home equity loan.  In order to be a prime candidate for this type of loan, it’s best to have more than 20% equity.

2.  There are two main equity loans to choose from.
     The standard home equity loan is when you borrow one large sum of money, very similar to a primary mortgage.  The second type of home equity loan is borrowing a line of credit, or HELOC, where you borrow small sums as needed up to a certain amount.

     The standard type of home equity loan is good option when you have to spend the loan similarly.  For instance, one big home repair like fixing the foundation, or replacing your septic system can both be large expenses.  This type of loan has closing costs, but not as much as you would see on a full mortgage and has a predetermined pay off date.
     If your planning on remodeling your home, a project that could potentially take months, a HELOC may be the best type of home equity loan.   A HELOC is similar to a credit card, you only incur interest on what you actually borrow.  There is not an ending period unless you payoff/close the line or sell your home.   and you don’t have to start paying off the loan until a certain period of time is up.  That period of time is called the draw.  There aren’t any closing costs, but you may have to pay an annual fee.

3.  Make it worth it.
     Most of the time lenders don’t like giving small home equity loans.  Some banks have a minimum for these types of loans and they’re often in the $20,000 range.  If you don’t need all of that cash, you could opt for the line of credit loan and only borrow from it what you need.  However, if you take out a HELOC for $25,000 and only need $10,000, you still need to have the equity to cover the full amount.

4.  A home equity loan is a mortgage.
     There are certain advantages and disadvantages of taking out a home equity loan or line of credit, just like the primary mortgage on your home.  One advantage is that like a full mortgage, home equity interest is tax deductible.  Check with your tax advisor to be certain of all the limitations.  Another advantage to this type of loan is lower interest rates that most credit cards.  However, they are usually higher than most primary loans.  One disadvantage is that your debt is backed by the value of your home and any failure to make payments puts your property at risk.  It’s important to treat your home equity loan with the same gravity as you would when purchasing a home for the first time.

If you’re not quite ready to make that move up to a bigger home, a home equity loan could be the tool you need to up the value of your current residence.  Improving your home is the best way to get a return on your investment. 

Friday, May 15, 2015

New Guidelines for FHA

The FHA will be making some changes to their guidelines this coming season and applies to all loans with case numbers assigned on and after September 15, 2015.  There will be both positive and negative impact of these changes for the typical FHA borrower this summer.  Some of the more dramatic changes are outlined below.

If your parents are planning on helping you buy your first home by gifting you a downpayment, or a substantial sum for say, a wedding present, their Bank Account Statement now must be provided.  This is to prove the funds didn’t come from an “unacceptable source” and to determine the donor’s ability and withdrawal of funds.

Student Loans
Lenders are no longer allowed to discount student loan payments if deferred for 12 months or greater from the note date.  The actual payment must be used even if the current payment is either zero or deferred.  If no payment can be obtained, 2% of the balance is used to calculate your Debt to Income (DTI) ratio.

Authorized User
If you have authorized usership of an account, it must be included in your DTI ratio unless the lender can prove that someone else (primary account holder) has made all required payment in the last 12 months.  If you have made 3 payments or less in the previous 12 months, it must be included in your DTI determination.

Voluntary Alimony/ Child Support
Alimony and child support received in the last 6 months on a voluntary basis counts as qualifying income.

Mortgage Lates
Certain late payments on a mortgage or HELCO within the past year will automatically downgrade your land to a manual underwrite.

Co-borrower/ Co-signer
The lender must have documented evidence that the “other party” to the loan obligation as been making on-time payments regularly during the previous 12 months, without history of deliquency if the cosigned liability is not included in the monthly obligation.

30 Day Accounts
Previously lenders only considered sufficient funds to cover accounts and did not include the liability.  However, no the lender must verify that the outstanding balance has been paid in full on every 30-Day account each month for 12 months.  If there are late payments, the lender uses 5% of the outstanding balance when determining the borrower’s DTI.

Installment Debt/ Less than 10 Months
Here’s an all around beneficial change!  If closed-end debts are to be paid off within 10 months and the cumulative payments are less than or equal to 5% of your gross monthly income, they will not be included!

Part Time Employment
In order to qualify part-time employment earnings, borrowers must have a 2 year, uninterrupted employment history.  This is an extension of previous FHA qualifications (1-2 years).

Employment History 
A lender will have to have more documentation and rigorous lending standards when it comes to proving the stability of your income if you  have changed jobs more than 3 times in the previous 12 months, or have changed lines of work.  If you’ve had a gap of employment greater than 6 months, you must have been employed for 6 months at your new job regardless of reasons (i.e. maternity leave or sickness).  A complete 2 year employment history prior to employment gap must be provided.

Gross Up of Non-Taxable Income
For example, Social Security, VA Disability, Child Support, etc. The lender must document that amount of income and the current tax rate for the amount being grossed up.  The percentage cannot exceed 15%.  The lender may also base the tax rate on the borrower’s most recent tax return.

As these FHA guidelines are utilized beginning on all loan applications dating on or after September 15, 2015, there impact will become more clear and defined.  

Thursday, May 7, 2015

May Events 2015 #RVA

     As the weather creeps steadily into the upper 70s this May, all types of events will be held outdoors all around the city to celebrate….whatever!  It’s festival time in the city!  This month there are a lot of old favorites along with some new events that Richmonders will flock to check out.

Saturday May 9

Cinco de Mayo Block Party
Continental Divide, the southwestern comfort food restaurant in Richmond's fan area, is blocking off the street to continue the Cinco de Mayo celebration.  There will be beer, food and live music by local rock bands!  $5 in Advance and $10 day of event.  10:30am-11:30am at 2501 W. Main Street.

Virginia Hops & Barley Fest
An outdoor event in Powhatan County where more than 30 Virginia micro-brews will gather and offer unlimited tastings!  Food for purchase, and live country music. $20 in advance, $25 at gate, $10 non-tasting tickets.  12pm-6pm. Route 288 and Huguenot Trail.

Science on Tap Craft Beer Festival
A new festival this Spring, The Science Museum of Virginia is hosting an interactive beer festival with live music.  Brewing demonstrations along with beer from 8 of the area’s most popular breweries.  $10 General Admission.  2500 W. Broad Street.

May 15-17

Dominion Riverrock
A Richmond favorite, this festival brings a weekend of sports, music and fun to Brown’s Island…for free!  The festivities begins on the evening of May 15 and continue all weekend.  500 Tredegar St.

Lebanese Food Festival
Another widely popular festival where you can enjoy beer, wine, food and music Lebanese style!  Free admission with food for purchase, enjoy the fun and excitement of Lebanese culture.  4611 Sadler Road, Glen Allen.

May 28-31

Richmond Greek Festival
This year will be this festival’s 40th anniversary, so you know it will be an event well worth attending!  Traditional Greek food and wine with music and dancing.  Opa!  Free admission and food for purchase.  Saints Constantine and Helen Greek Orthodox Cathedral, 30 Malvern Ave.

May 30

Beer, Bourbon & BBQ Festival
Need there be more to entice you?  A combination of Richmonder’s favorite pastimes, there will be unlimited beer and bourbon tastings with BBQ for purchase, or just come to see the pigs race!  $49 VIP, $35 in advance and $40 day of event.  Richmond Raceway Complex, 600 E. Laburnum Ave at main gate.

Now that you have your weekend activities in order for the month, you can work hard during the week. Rest assured that you have some good music, good food and good company to enjoy every weekend, all month long!