The Lawhead Team would like to share the following article on what young adults need to know before buying their first home. 

Reasons Young Adults Can’t Buy Homes Today

Many young adults are sitting on the sidelines of the housing market, and there’s no shortage of theories as to why. Maybe millennials can’t land jobs that will let them move out of their parents’ basements, or maybe they’re too buried in student loan debts to contemplate adding a mortgage to their financial obligations.

But new data shows that one huge factor is the competition — some might say unfair competition — young adults face from investors who can just swoop in, drop a pile of cash and buy the houses they want. These investors then turn around and rent these properties to those same young adults for increasing amounts every year, making it even tougher for young would-be homeowners to ever save up enough money for a down payment.

As of October, a huge number of homes — one in four — that sold were bought by investors paying cash. That’s down some from the peak of a few years ago, when almost one in three houses were snapped up by cash buyers. But it’s still a far cry from the 17% of homes that were bought by investors back in 2000 before the real estate bubble grew and burst, according to the Wall Street Journal.

Investors are most likely to snap up cheap, starter homes — the kinds of houses that millennials are most likely to be looking for and able to afford. “Home supply is diminishing but investor demand is not going away,” Lawrence Yun, chief economist for the National Association of Realtors, told the Journal, which reported that the number of homes on the market below the $100,000 mark fell by about 11% in only a year.

During the height of the foreclosure crisis, investors were buying up foreclosed and short-sale properties at rock-bottom prices with the intention of flipping them and reselling for a profit once the market picked back up. But now, more are hanging onto the homes they buy and renting them out.

It’s a good move for investors who have the cash to spare already, but it’s bad news for the people who want to buy low- and mid-priced homes. Across the country, rental rates are skyrocketing: One prediction said rents could rise by an average of 8% this year, with much higher increases in in-demand markets where young adults are most likely to live and work. And this is on top of increases that have already taken place. “The median asking rent for new market rate apartments hit $1,372 last year, a 26 percent increase from 2012,” a report published in December by Harvard University’s Joint Center for Housing Studies said.  

Source: Time Money

The Lawhead Team would like to share the latest “One Cool Thing” from the California Association of Realtors about the reported mortgage challenges first-time home buyers have with understanding the process and options available to them.

Of First Time Buyers:

• 41% said their representative completely explained the types of loans, terms, special programs, fees, and options to reduce their down payment during the mortgage process.
• 43% do not completely understand the mortgage process
• 44% reported the closing agent didn’t completely explain all of the closing documents.
• 54% do not fully understand the different loan options available to them.

Source: J.D. Power U.S. Primary Mortgage Originations Satisfaction

Planning to buy a home in the near future? Check out these ten steps from TransUnion to prepare your credit and finances to apply for a mortgage:

1. Start with your credit report. The first thing lenders will probably do when you apply for a mortgage loan is to check your credit; you should, too. There’s no better time for regular credit monitoring than when you’re trying to prove your creditworthiness to a lender so you can get the best possible rates. You want to make sure that your credit report is as accurate as possible, your scores are where you want them to be, and no one else is getting access to your credit, possibly harming your scores.
2. Then, get things in order. Once you’ve been keeping regular tabs on your credit report, you’ll be able to see how you’re doing. Dispute any inaccuracies with the 3 credit bureaus and get everything cleared up. If your debt-to-credit ratio is too high, monitoring your score over time will show you how your score might change. If you see accounts that you didn’t open or addresses that aren’t yours, take immediate steps to investigate what could be identity fraud.
3. Do your homework. Yes, the word “homework” makes us shudder too, but this time the reward is much bigger than memorizing geometry theorems or the periodic table. You’re finding a home but you’re also making a financial commitment you’ll have to live with for years: get the best deal you can. Research loans, rates and brokers exhaustively before you sign or commit to anything. Doing the hard work now will pay off down the road with a better rate and terms.
4. Be realistic about what you can afford. Home ownership may be the American dream, but keep one foot on the ground, too. If you’re looking for a rate that will require you to come up with a 20% down payment and you only have about 5%, figure your calculations based on the rate you’ll be able to get.
5. Understand how lenders operate. Your credit score, on which lenders base much of their decision about your loan amounts and rates, is a reflection of their confidence in your ability to repay them. In a nutshell, the higher your credit score is, the easier it will be to get the amount and rate you want.
6. Decide how you’ll finance it. Once you research the types of financing available, determine which is best for your financial situation when buying a home: 15-year mortgage or 30, adjustable or fixed. If you are looking for security and a guarantee that payments won’t increase, a fixed rate mortgage might be the way to go. If you believe mortgage rates could still fluctuate and you want more flexibility, consider an adjustable rate mortgage.
7. The larger your down payment, the wider your options. See number 4, it’s important to be realistic. So within a realistic framework of what you can afford, the more you put down, the better your terms. The days of zero down payments, especially on a mortgage, seem to be winding down. Putting more money down up front will help ensure you pay less each month.
8. Check on pre-payment penalties. Something else to keep in mind when finding your perfect mortgage is whether or not you’ll be penalized for paying the mortgage off early. Some homeowners double up on payments to reach the end of their term sooner—regularly or when they experience a cash windfall. Check and make sure you won’t be dinged for actually getting to your goal sooner!
9. Take a targeted, rather than shotgun approach to mortgage applications. Remember that whenever you apply for a loan, including a mortgage, the “hard inquiry” the lenders make shows up on your credit report and temporarily lowers your score. Applying for several mortgages in a two week period only counts as one inquiry, but if you drag it out and canvas as many lenders over a longer period, you’ll end up doing damage to your score, which could result in a lower rate than you were hoping for.
10.  “Not now” doesn’t mean “never”. Home ownership is just not a realistic option for everyone right now, despite what may look like once-in-lifetime mortgage rates. If you fall into this category, don’t despair. Your financial circumstances could change, the economy is still very much in flux, and remember that the current mortgage crisis involved a lot of home buyers getting in over their heads. When it comes to a major purchase like a home, timing is critical.

Read entire article from TransUnion – Ten Tips When Preparing For A Mortgage.

Whether you go with a conventional loan, FHA loan or a VA loan, there are different features that many loans offer.

The following are some of those features:

Fixed Rate – A mortgage with a fixed rate means your interest and mortgage payments remain the same, or “fixed”, through the entire loan. Typically the loans are for 15 to 30 years. A 15 year loan will obviously have higher monthly payments but you will end up saving more than half of the interest costs than a 30 year fixed loan and pay it off in half the time.

Adjustable Rate – This type of mortgage is also known as an ARM. The interest rate on an ARM fluctuates during the entire life of the loan. Your interest rate will be modified based on a predetermined economic index established at the beginning of the loan. Most of the time a max is set on the interest rate to avoid enormous increases. An ARM is usually safe only if your budget can afford to handle fluctuating payments.

Payment Option Adjustable Rate – This type of loan accommodates a households fluctuating cash flow which include minimum payment options, interest only payment options and others. You will want to thoroughly understand these types of loans because you need to make sure you are prepared for a sudden increase in payment.

Balloon Rate – A balloon mortgage has a fixed rate but for a shorter term than 15 or 30 years. At the end of the balloon rate (the fixed rate), the borrower must pay the remaining lump sum or refinance. If the buyer is purchasing unimproved property that they plan to build on in less than ten years, a balloon mortgage may be a good option.

Talk to a lending professional to find out what the best type of loan for you is. We highly recommend knowing exactly what you are getting into when you apply for a home loan.

The latest in the mortgage world for 2014.

Realtors® website shared some interesting changes that will be happening to mortgage in this New Year of 2014.

Take a moment to check out what Realtor® had to say about those looking to apply for a mortgage in 2014:

Qualified Mortgage Rules – Whether you’re thinking of buying a home or mulling over refinancing your mortgage, Jan. 10, 2014, could be an important date for you to remember. The Consumer Financial Protection Bureau is in the process of implementing regulations to meet goals set forth by the Dodd-Frank Act in Congress, which was meant to correct the errors that led to the housing crisis. The CFPB’s “Qualified Mortgage,” or QM, rules go into effect in January. Essentially, these rules require lenders to prove borrowers’ ability to repay a loan by meeting several guidelines, including a maximum debt-to-income ratio of 43 percent. While many lenders already limit borrowers to a similar maximum debt-to-income ratio, the new rules won’t allow for any compensating circumstances such as significant cash reserves or a large down payment to be considered in order to offset a higher debt ratio.

The 3 Percent Rule – The new QM requirements also limit fees for originating a loan to no more than 3 percent of the loan amount. If you’re financing a more costly home, such as a $400,000 home or more, the lender can easily keep fees under 3 percent, which in this case would be $12,000. However, if you’re refinancing a smaller loan balance or purchasing a less expensive home — for example, for $80,000 — the lender might find it more difficult to keep all fees under $2,400. Mortgage lenders are less likely to offer loans for smaller amounts since they won’t always recoup their costs and make enough profit to pay their staff. If you need a small loan, you may want to push to get it closed before Jan. 10, 2014.

Self-Employed Borrowers – One particular group of borrowers will most likely be impacted by the QM rules: self-employed borrowers. These borrowers already are heavily scrutinized and find it more difficult to obtain a mortgage because they must prove their income based on tax returns and profit-and-loss statements, rather than standard paystubs and W2 forms. The “ability-to-repay” feature of QM rules requires all borrowers to prove they have the cash flow to make payments on their mortgage. Self-employed borrowers often have fluctuating income and rely on cash reserves to pay bills in-between payments, but the emphasis on cash flow can make it harder for lenders to approve a loan even for someone with significant funds in the bank.

Potential Lower Loan Limits – The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced in October that plans to reduce the maximum loan limits for conventional conforming loans will be delayed until later in 2014. Typically, loan limits are adjusted on Jan. 1 of each year, but the agency decided to wait to see the impact of the introduction of QM rules before making changes. Currently, the limits are $417,000 in most housing markets and rise to $625,500 in high cost areas. If you need a mortgage near these limits, it would be wise to close your loan earlier in 2014 rather than later in case limits are lowered.

 Read entire article on the mortgage world in 2014 at the Realtor® website.

The Lawhead Team would like to share the latest trends this month in housing affordability for both single family detached and attached homes.

Housing Affordability – Single-Family Detached Homes

• The monthly payment – including principal, interest, property taxes, and insurance – for the median-priced SFD home in North San Diego County increased, to $2,891 in September 2013 (based on a conventional mortgage) from $2,758 in August 2013. The monthly payment for the median-priced SFD housing homes in non-North San Diego County increased, from $2,279 in September 2013 from $2,086 in August 2013.
• The percent of San Diego County households that could afford the median-priced SFD housing home in North County decreased, to 25 percent in September 2013 from 27 percent in August, according to the North San Diego County HomeDexTM; the housing affordability percentage in non-North County Zip Codes was 36 percent in September 2013.
• In September 2012, the housing affordability percentage was 34 percent in North San Diego County and 47 percent in non-North San Diego County.
• The HomeDexTM affordability percentage for all homes in North San Diego County – single-family detached and single-family attached together – was 30 percent in September 2013.

Housing Affordability – Single-Family Attached Homes

• The monthly payment – including principal, interest, property taxes, and insurance – for the median-priced SFA home in North County increased, from $1,631 in August 2013 to $1,800 in September 2013.  The monthly payment for the median-priced SFA home in non-North San Diego County zip codes increased, from $1,415 in August 2013 to $1,450 in September 2013.
• The percent of San Diego County households able to afford the median-priced SFA home in North County decreased, to 47 percent in September 2013 from 51 percent in August 2013.
• The SFA home housing affordability level for non-North San Diego County zip code decreased, from 58 percent in August 2013 to 57 percent in September 2013.
• 60 percent of county households were able to afford the median-priced SFA home in North San Diego County in September 2012, and 69 percent were able to afford the median-priced SFA home in non-North County zip codes.

As you are probably aware, mortgage rates are now starting to make their way back up from their record low numbers.

The Lawhead Team would like to share an article from US Finance Post about the expected increase in mortgage rates seen here is the US:

An Increase in Mortgage Rates Should be expected

Reporter: Rebecca Freeman

As mortgage rates have risen recently, many people appear to have started to panic. Mortgage rates really haven’t spiked, but they have increased, experts say. The increase appears to be a shock to some, but analysts point out the rates had been dropped to all-time lows.

All good things must end, and that is the case with the mortgage rates. Experts point out that two months ago, a 30-year fixed rate mortgage had an interest rate of only 3.35 percent. Instead of working about them increasing to slightly over four-percent, people need to realize why they were so low.

The rates were reduced because the Federal Reserve had no confidence in the economy. Rising mortgage rates has a positive overall meaning, the economy is improving. An improving economy has a major overall impact on a variety of industries and markets.

What should be expected? Experts say as the economy improves, mortgage rates will slowly increase and make it back to their normal levels.

While some reports have indicated that rising interest rates could negatively impact the housing market, others indicate that is not the case. According to the Mortgage Bankers Association, the volume of applications to refinance mortgages since May has dropped by 53 percent. The volume of applications for purchase-money mortgages, which are mortgages for those wanting to buy homes, has decreased by only eight percent.

To sum it up, fewer people need to refinance and the number of those wanting to buy since May has been barely affected. The number buying new and existing homes has not been drastically affected by the rising rates. The most recent national average has the thirty-year fixed rate mortgage at 4.51 percent. The Wall Street Journal has pointed out that even when that rate reaches five percent the cost of housing is still affordable by historical standards.

So as the economy improves, the mortgage rates will continue to rise. Overall, that could be a positive thing because it means that many industries are seeing growth. When industries see growth, there is an increase in cash flow. If people have the cash flow, they can and will buy houses. Increasing mortgage rates are not to believe to result in a major negative impact on the housing market, according to analysts.

However, if someone wants to take advantage of the historically low mortgage rates, now is the time to act, experts indicate. As the economy improves, the rates will continue to climb.

Read entire article here: http://usfinancepost.com/an-increase-in-mortgage-rates-should-be-expected-2892.html

If you are shopping for a home, you will also want to shop around for the right home mortgage to fit your needs.

The Lawhead Team would like share some common home loans and why they are beneficial. If you have any questions about applying for a home mortgage, please call us and we would be happy to help steer you in the right direction.

• 30 Year Fixed – These are mortgages where interest and mortgage payments remain the same for 30 years, at which time you will have paid back the entire loan. This is good for those who prefer the security of fixed-monthly payments like fixed-monthly mortgages. Often, this mortgage is more expensive than its adjustable-rate counterparts, but is easier to understand and provide the greatest payment stability. If you can afford this loan and plan to be live in your home for 10 or more years, this may be the best option for you.
• 15 Year Fixed – These are mortgages where interest and mortgage payments remain the same for 15 years, at which time you will have paid back the entire loan. These loans offer the lowest fixed rates but have the highest monthly payments because you are paying off the loan in a shorter timeframe. This is good for those who prefer the security of fixed-monthly payments and can afford the higher monthly payments of a 15-year term like this mortgage. You will build equity quickly, but the high monthly payments may restrict the overall price of the home you can afford.
• ARMs – Adjustable-rate mortgages (ARMs) are mortgages where the interest rate you pay adjusts at a specified time and frequency. There are many different ARM products, but generally they offer a lower initial rate than a 30-year fixed and they adjust with market trends. Therefore, when your initial rate period ends and your ARM is ready to adjust you may be paying more (with higher current market trends) or less (with lower current market trends) than your initial rate. Generally, ARMs follow this pattern: the shorter the initial term, the lower the initial rate.
• Interest Only – These are fixed or adjustable rate mortgages where you the option of paying interest only for a specified term, usually five to ten years. After the initial term the mortgage switches to a fully-amortizing mortgage for the remainder of the loan. This is good for people who expect their financial situation to change in the near future. Young professionals like doctors and lawyers may also prefer this mortgage since they believe they will be making significantly more money in the future than they do now.
• Payment Option “flex pay” – These are mortgages where you have the option of paying different amounts each month. Usually, the monthly payment options include a low payment option, an interest-only option and an interest plus principal option. The low payment option creates negative amortization and usually adjusts yearly with a maximum rate cap. This is good for people that do not have steady incomes may like this loan. It provides the most flexibility from month to month.

Great article on why now is the right time to buy! The Lawhead Team would like to share this article from pcmbankers.com.

Click Here to read the entire article: “Top 7 Reasons Why Now Is A Good Time To Buy A House“.

A slow economy offers great opportunities

When you read the news, it may seem that the economy still is not quite back on its feet yet. While the stock market is at record levels and housing prices are rising, many people are still wary over investing in a new property. However, there are some great reasons as to why now is a good time to buy a house.

1. Owning is better than renting

When home prices were plummeting, many owners found themselves “underwater” with their properties falling below their original purchase value. At that time, it made sense to avoid the market and rent rather than buy.

However, market conditions are significantly removed from where they were during the peak of the housing meltdown. With so many people turning to rentals, the supply has not been able to keep up with demand. The basic market fundamentals are pushing up rental prices as a result.

When you consider how much it costs to rent in many areas of the country, it simply makes more sense to buy your own property. In fact, some studies, including one by Trulia.com, show that in the vast majority of regional markets, you will do better paying a monthly mortgage as compared to paying monthly rent.

2. Interest rates are low

The interest rates for mortgages continue to stay at historically low levels. While the Federal Reserve is planning to cut back on its support for such low rates, we should see change occur gradually. What this means is that homebuyers still have time to benefit from rates that are near 50-year lows.

With the housing market beginning to pick up rapidly, rates could climb significantly in the next few years depending on how drastically the Fed rolls back its support. For this reason, smart consumers will see that now is the time to grab an opportunity that they might not see again in their lifetime. The more the economy recovers, the more likely it is that interest rates will rise.

Just a tiny increase in mortgage rates, can cause your monthly payment to rise by a hundred dollars or more in some cases!

Some real estate experts also believe that qualifying for a mortgage may become harder rather than easier in the near future. This may seem difficult to believe given the current tight lending policies, but there are indications that things will get worse.

For example, Fannie Mae and Freddie Mac may be doing less lending in the future forcing consumers to deal with private lenders. If the federal government reduces its backing of the mortgage market, we could see banks and other lenders instituting even stricter lending requirements. Many financial institutions are unable to take on much new risk as they are still dealing with bad debt left over from the last meltdown.

3. Prices are rising or stabilizing

In many regions of the country, home prices have been rising rapidly. While the situation across the nation is still very mixed, in most areas, prices are at least stabilizing. The huge slides we saw during the housing meltdown are likely over, according to most indications.

While some analysts fear that small drops can still occur, most do not think that we will see anything like the sustained damage that started in 2007. Homebuyers can have a good deal of confidence that their investments will remain stable at the least, while in many regions, they can see sharp price gains. To be cautious, you can avoid areas that seem to attract excessive speculation. A recent New York Times article discusses some examples of this trend (http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-house-prices-wall-street-buyers/).

One sign that property speculation is going on is when home prices are rising much faster than the local growth in personal income. Another thing to watch out for is sellers that are “flipping” homes at a rapid rate in a particular area.

4. Homes are cheap to buy in many areas

While prices are high in hot real estate markets, in many areas you can still find very good bargains available. Some regions are just beginning to come out of the housing crisis, and sellers in these areas are eager to find people to buy.

When the sellers outnumber the buyers, you can expect lower prices. Often, these types of conditions allow you to bargain the purchase down from the original listed price. Do not be afraid to play “hardball” if you really want a good deal.

Be patient and firm, and eager sellers may come around to your offer. Housing is more affordable now than at any time since the early 1990s.

Click Here to read 3 more reasons now is the right time to buy a house.

The Lawhead Team would like to share North San Diego County’s latest HomeDex report’s key points.

• The median price for all North County home sales – attached and detached – increased to $495,000 in June 2013 compared to $485,000 in May 2013 according to the HomeDex report.
• Detached homes in North County increased 1.71 percent in June 2013 to $565,000 compared to $555,500 in May 2013. Year-over median price for SFD in North San Diego County jumped 20.21 percent, from $470,000 in June 2012, continuing an 11-month trend of year-over median price increases (the last four months exceeding 20 percent).
• HomeDex reported detached home prices OUTSIDE North County increased 2.32 percent to $429,750 in June 2013 compared to $420,000 in May 2013. Year-over non-North County median price jumped 23.49 percent compared to $348,000 in June 2012, making a 15-month trend of year-over median price increases.
• Attached home prices in North County increased 5.86 percent to $333,450 in June 2013 compared to $315,000 in May 2013. Year-over North San Diego County median price increased 28.75 percent, compared to $259,000 in June 2012.
• HomeDex reported Non-North County attached home prices decreased 1.31 percent to $301,000 in June 2013 compared to $305,000 in May 2013. Year-over countywide SFA median price increased 33.19 percent, compared to June 2012.
• The number of North San Diego SFD listings (active and contingent according to the HomeDex report) rose 5.97 percent from May 2013 to June 2013, but decreased 26.1 percent year-over compared to June 2012 – continuing a 22-month trend of year-over declines in listings.
• The number of sold North San Diego County SFD units decreased 5.76 percent in June 2013 compared to May 2013. Year-over sold SFD units decreased 0.88 percent compared to June 2012 according to the HomeDex Report.
• Median days-on-market for single-family detached homes sold in North County increased to 19 days in June 2013 compared to 18 days in May 2013.
• The HomeDex affordability percentage for all homes in North San Diego County – attached and detached – remained at 34 percent in June 2013.