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Higher Credit Scores are Coming: Are You One of the Lucky Ones?

Although credit requirements for obtaining a mortgage are quite lax now compared to a decade ago, there are still plenty of potential buyers struggling to raise their credit scores enough for a traditional low-interest mortgage. A recent statement from the CDIA, or Consumer Data Industry Association, which is responsible for representing all three credit bureaus, shows higher credit scores for millions of Americans coming soon.

higher credit scoresWhat’s Changing on Your Credit Report?

The CDIA oversees and represents Experian, Equifax, and Transunion. These are the three credit bureaus responsible for gathering and processing information about your credit history, income, and overall creditworthiness. The group recently stated that all three bureaus were revising the standards via which information is collected and processed The result? Higher credit scores are coming to millions of people across the country, and there’s no action needed on their part.

Why is this Happening?

Recent reports issued by the Consumer Financial Protection Bureau, or CFPB, noted an enforcement action against two of the three major credit bureaus – Equifax and Transunion. Consumers can view their credit scores for free once each year, but they must pay for their scores if they want to check them more often. Per the CFPB, the companies deceived many consumers with the value of the scores they purchased. As a result, the companies will pay a combined total of $17.6 million to consumers who purchased credit reports. They will also pay another $5.5 million in fines to the American government.

What Can You Expect?

Because the credit bureaus are now under increased pressure to report credit information more accurately, they’ve adopted new processes for generating FICO scores. Many civil debts and tax liens, which can bring scores down tremendously, will be completely removed from the calculation. This means that about 12 million people across the country will see their credit scores climb some 40 points, and even more will see increases of roughly 20 points. This may be just enough of an edge to get more families into mortgages, which could potentially boost the housing market, which is still recovering from the slump.

Will Credit Requirements for Loans be Adjusted?

Although 12 million people will see a tremendous increase in their credit scores, it’s unlikely that mortgage brokers and other lenders will increase their credit requirements. Remember that these changes are coming as the result of improper reporting and unfairness in the credit reporting industry. It’s not a falsified or fraudulent credit score increase. This is great news for many consumers who are trying to buy homes, purchase cars, take out personal loans, rent homes, or even get certain jobs with less-than-perfect credit.

For now, things seem to be improving for many Americans with these new higher credit scores, especially if their credit is held back by civil lawsuits or tax liens. For things to continue to improve, the CFPB needs to retain its supervisory powers over the credit bureaus and continue to hold them accountable for accurate reporting.

Federal Reserve Raises Rates for the Second Time in Three Months

Since the financial crisis of 2008, the Federal Reserve has been quite reserved when it comes to raising its benchmark interest rate. However, last week, the rate was raised once again, marking the second increase in three months. There are reasons for this, and while it’s not expected to have a tremendous impact on the housing market today, it could impact some buyers. Here’s what you need to know.

federal reserveWhy Did the Fed Raise Benchmark Rates Again?

Many people want to know why the Federal Reserve raised its benchmark interest rates in the first place. After all, while the Fed doesn’t directly determine the rates you’ll pay when you obtain a mortgage, it does have some impact on those rates. Per Janet Yellen, the chairwoman of the Federal Reserve, improvements in the American economy leading to inflation led to the rate hike. What’s more, the Federal Reserve put a nine-year stimulus plan into effect after the financial crisis of 2008, and this most recent rate hike simply signifies the end of that stimulus.

How Large was the Rate Hike?

This most recent increase in benchmark rates took them a quarter point higher. While that may not seem like much, this is the second quarter-point increase, leading to a total of half a point, in the last three months alone. As stocks and bonds continue to grow in popularity, and as employers continue to hire, and people continue to consume, the rate hike is thought to “match” economic growth. However, Yellen says the Fed is not as optimistic as these analysts and it believes the economy is growing more slowly than many believe. Thus, it’s expected that the Fed will initiate a series of very small rate hikes rather than one very significant increase.

How Will the Rate Hike Affect the Real Estate Market?

While it’s true that the Fed doesn’t directly determine the interest rates you’ll receive when you take out a mortgage, it does set a very solid standard for lenders, who tend to follow the Fed’s lead. Because of this, homebuyers – whether first time or otherwise – will see interest rates increasing now and into the future. Those who have strong credit will likely see only very slight increases, but those who have challenged credit may see differences of several hundred dollars annually. Those who are planning to buy should do so promptly to lock in these lower rates.

The Future of the Federal Benchmark

Yellen said the Federal Reserve is still anticipating another three moves, which means there are increases yet to come. Market experts anticipate the next increase to come sometime in June, and perhaps another in December. The increases will likely follow the same quarter-point trend, as well. Right now, the federal funds rate is 1%, up from 0% this time last year and 0.5% as of the Fed’s first rate hike since 2008 in December 2016. It’s expected that this rate will increase to 1.5% by the end of 2017, which will have an impact on prime lending rates and ARMs.

Although the increase in the Federal Reserve benchmark interest rate has people across the country concerned about the future of real estate, the truth is that a 1.5% increase over the course of 12 months isn’t as significant as it may seem. Fixed-rate mortgages will see only slight interest increases, but those who have adjustable rates may feel more of an impact.

How to Get Your First Luxury Home Mortgage

If you’re interested in buying a luxury home, you’ll need to take a different approach than when you buy a traditional single-family home. Unless you’re paying for much of the purchase price in cash, chances are good you’ll need a jumbo loan. Here’s what you need to qualify for a luxury home mortgage – and what you should expect along the way.

luxury home mortgageWhen You’ll Need a Jumbo Loan

When you need a luxury home mortgage that’s valued at more than $424,100, you’ll need to apply for a jumbo loan. It’s called a jumbo loan because it’s larger than a traditional mortgage, and anything exceeding $424,100 will not be backed by Fannie May or Freddie Mac. This makes a luxury home mortgage riskier for lenders, and because of this, the qualifications are quite strict. Even if you have outstanding credit, you should expect higher interest rates than with a traditional 30-year fixed loan.

Typical Qualifications

If you’re interested in a luxury home mortgage, there are a few guidelines that tend to fit all lenders.

  • A credit score of at least 680. Not all lenders will give you a luxury home mortgage with a credit score of 680, and it’s always a good idea to raise your credit score as high as possible before settling into your mortgage. The lower your credit score, the higher your interest rate. With a jumbo loan, that could mean hundreds of thousands of dollars over the life of your loan.
  • A down payment. You may be able to obtain a luxury home mortgage without mortgage insurance requirements for as little as 5% to 10% down, but for the absolute best results and the lowest interest rates, aim to pay between 15% and 20% of the home value as your down payment.
  • A good debt-income ratio. On average, you’ll need to debt-to-income ratio of 43% or less to secure a jumbo loan. This means that your debt should not exceed 43% of your monthly income.
  • A savings account. Due to the risks involved for lenders, many lenders want to see proof that you have between six and 12 months’ worth of income available to you in savings, bonds, or other assets.

What to Expect

Traditional home loans take about 30 days to close thanks to the simple underwriting process. However, when it comes to a luxury home mortgage, underwriting is far more complex. In fact, your application may be subject to more than one underwriting review, and this is especially true if your lender will have outside investors help them fund your loan. Prepare for multiple underwriting reviews, and expect the process to take up to 60 days rather than 30. With that in mind, it’s important that you seek your prequalification early if you’re interested in taking out a jumbo loan.

Although many of the same guidelines and rules apply to both a traditional and a luxury home mortgage, there are stricter guidelines and more underwriting involved with obtaining a jumbo loan. Remember to shop around since different lenders have different requirements, too.

What’s Behind Rising Interest Rates?

As many experts predicted, the Federal Reserve raised its interest rates by 0.25% in December. These same experts believe that this will be one of many incremental increases to come throughout the course of 2017. Although rising interest rates worry many would-be buyers, it’s a great sign that the economy is strengthening, and there’s no reason why you should put off buying your next home.

Rising Interest Rates Signal a Strong Economy

When the Federal Reserve raised its rates in the last quarter of 2016, many people viewed this as a negative. However, per market analysts, a climbing interest rate reflects a strong economy in which future inflation is predicted. When we live in a strong economy, workers are more likely to receive raises, and companies feel more secure in passing cost increase onto consumers. The same can be said for the real estate industry, and slightly rising interest rates are nothing more than a reaction to a favorable future economy.

rising interest ratesA Potential Increase in the National Deficit

There is much speculation that President Trump will cut taxes for millions upon millions of American households, and per many of his proposals, he’ll increase national spending at the same time. This will cause the national deficit to grow and result in more borrowing, thereby pushing inflation even more. Consumers themselves will have more money to pay for their loans, which means interest rates will likely continue to climb – albeit slowly.

Will Rates Keep Climbing?

Although the Federal Reserve only raised its rates slightly – and it was the only increase for all of 2016 – it is safe to assume that these rates will continue to climb throughout 2017 due to a strong economy and an increased national deficit. However, it’s also safe to say that the rates will climb slowly, due in part to missed predictions surrounding the GDP. Although it was predicted that the US would experience a 3% GDP growth in 2016, that growth only hit the 2% mark, which signals the fact that some markets are still struggling. Real estate market analysts agree that we may see rates around 4.7% by the end of the year.

Why You Might Want to Buy Now

Although there’s no need to panic over December’s increase, if you’ve been thinking of buying a house, it is better to act now. With interest rates on the move for all the reasons mentioned above, all signs point to steady increases throughout 2017 and likely into 2018, as well. Buying now and locking in a low interest rate for a 15- or 30-year loan could save you tens of thousands of dollars over the life of your mortgage. What’s more, even as interest rates are climbing, home values are on the rise as well. This will likely drive up home prices nationwide.

Interest rates are climbing for a few very significant reasons, and experts believe they’ll continue to do so throughout all of 2017. Buying now can help you lock in your investment just before home values start to skyrocket, which will allow you to enjoy a tremendous return even in the wake of rising interest rates.

above, all signs point to steady increases throughout 2017 and likely into 2018, as well. Buying now and locking in a low interest rate for a 15- or 30-year loan could save you tens of thousands of dollars over the life of your mortgage. What’s more, even as interest rates are climbing, home values are on the rise as well. This will likely drive up home prices nationwide.

Interest rates are climbing for a few very significant reasons, and experts believe they’ll continue to do so throughout all of 2017. Buying now can help you lock in the best rates, and you can also invest in your home before home values skyrocket, which will allow you to enjoy a tremendous return.

Refinancing Your Mortgage from a 15-Year to a 30-Year Loan

Taking out a mortgage to buy your first luxury home can be exciting and stressful at the same time. Although chances are good that you did the best you could to make the right choice given your financial situation at the time, things often can and do change. Last week, we discussed the benefits of 15-year loans over 30-year mortgages. Here, you can learn more about some of the reasons why you might want to consider refinancing your mortgage to a 30-year term.

refinancing your mortgageGood Reasons to Refinance

A 30-year loan means that it will take you twice as long to pay off your home, and chances are good that you’ll pay thousands more – even hundreds of thousands more – in interest over the duration of your mortgage term. With that in mind, there are still a couple of really good reasons why you might consider refinancing your mortgage into a 30-year term.

  1. Your financial situation has changed. Sometimes, there’s very little you can do about major changes to your finances. Maybe you lost your job, or an investment fell through, or you’ve bumped into some other problem along the way. Refinancing to a 30-year loan can shave hundreds of dollars off of your monthly mortgage payment and make it easier for you to handle your finances until you’re back on the right track.
  2. You need more money to invest elsewhere. With wealth comes responsibility, and if you’ve found that diversifying your portfolio has been difficult due to the amount of money tied up in your mortgage payments, it could make sense to refinance into a longer-term mortgage. This frees up more money to invest elsewhere, and if your estimated profits are more than what you’ll spend on the additional interest, it’s well worth the consideration.

Keep in mind that you can still pay off a 30-year loan in 15 years. In fact, making just one extra mortgage payment per year can pay down the principle quickly enough to allow you to pay off your home in just about 15 years, even if you’ve opted to refinance into a 30-year mortgage. This can help take some of the stress out of refinancing your mortgage.

When You Should Avoid It

Just as there are times when you might want to consider refinancing to a longer term, there are some instances in which you should avoid it.

  1. You’re planning to sell your home. If you’re planning to sell your home either because you want to buy a new home or your financial situation has changed, it’s never a good idea to refinance beforehand – even if you really need the lower payments. Just find a real estate agent who can help you, ask the lender to prequalify you, and start looking for your new home. Your loan can then be contingent on your ability to sell your existing home.
  2. You can afford the payments. If you’re having no problem making your mortgage payments and you still have funds left to invest in other places, you should not refinance to a longer term. In this case, you’re simply throwing your money away in the form of interest you don’t really need to pay.

If you’re thinking about refinancing your mortgage from a 15-year term to a 30-year term, make sure you’ve thought about the potential repercussions. It’ll take you twice as long to pay off your home if you stick to the payment schedule, and it will cost you up to quadruple the amount of interest, but in some cases, it may still be worth it – especially if your financial security is at stake.

15-Year Mortgage vs. 30-Year Mortgage – Which Is Right for You

If you’re going to take out a mortgage to buy your Denver luxury home, then you have many options available to you. One of the most commonly asked questions is whether a 15-year mortgage is better than a 30-year mortgage. It all depends on your personal situation, but you’ll save far more money with a shorter mortgage term.

15-year mortgage15-Year Mortgage Pros and Cons

There are two very major benefits to taking out a 15-year mortgage. First and foremost, even if you wait until you’re 35 to buy a house, you’ll still own your home by the time you’re 50. That’s a massive investment in your retirement, and it will go a long way toward allowing you to live the lifestyle you want later in life. Second, you can save hundreds of thousands of dollars over paying your mortgage off over the course of 30 years. A 15-year mortgage typically has a lower interest rate, too. Even if you have excellent credit, your bank or lender will give you additional benefits for repaying your loan early in the form of low interest. In fact, you’ll save 0.07% on your interest rate, on average.

30-Year Mortgage Pros and Cons

A 30-year mortgage gives you more time to repay your loan, which means you’ll have much smaller monthly payments. In fact, in most cases, your payments are just under half of what you’d pay if you would have chosen a 15-year loan. This is excellent if you’re interested in a lower monthly payment for the duration of your mortgage, but it does come at a price. The longer it takes you to repay your loan, the more interest you’ll pay over time. Along those same lines, even if you have perfect credit, you’re likely to pay a higher interest rate for a 30-year mortgage than for its 15-year equivalent.

Should You Take Out a Mortgage at All?

When it comes down to it, there are some people who wonder whether it’s in their best interest to take out a mortgage at all. If you can afford to buy your home outright by simply writing a check, why shouldn’t you? There’s one primary reason, and it all has to do with your credit. Regardless of your income or net worth, it’s important to maintain your credit history. Even if you make $5 billion a year, if you have no record of ever having credit, getting credit when you want it is going to be difficult. A mortgage is one of the best ways to build and maintain that credit.

Choosing the Right Option

Now that you understand the differences between 15-year and 30-year mortgages, as well as the pros and cons associated with taking out a mortgage at all, you should be able to make the best decision for your unique financial needs. If you don’t mind the higher monthly payments and you want to own your home quickly, then a 15-year mortgage is the right option. If you want lower monthly payments and you don’t mind paying more interest over time or waiting an additional 15 years to pay off your home, then a 30-year mortgage will work for you.

Everyone is different, and everyone chooses to live a different type of lifestyle. When it comes to buying a luxury home in Denver, you have many choices open to you. For the most part, though, a 15-year mortgage provides the best of everything. It allows you to maintain your credit with less money paid over time, and it puts you on the fast track to home ownership.

Down Payment: Separating Fact from Fiction

A 2015 survey conducted by Ipsos Public Affairs and Wells Fargo Home Mortgage revealed that 36% of people believed a down payment of 20% was a must for buying a home. This is not at all the case, though. It all depends on the individual, his or her credit, and the lender.

What Are the Real Numbers?

Statistics from the same time frame as the study revealed that the average down payment reported by new homebuyers was just under 15%. A year prior, that number was 15.5%. In fact, according to Freddie Mac, about 40% of all homebuyers put down less than 10% on the overall value of their homes. In fact, the lender allows people to put as little as 5% down, and people who qualify for FHA loans can purchase their homes for as little as 3% depending on the circumstances.

down paymentWhat About Luxury Homebuyers?

Things are a bit different when it comes to buying luxury homes, though. Oftentimes, the purchase prices for these homes are more than a million dollars, and this means that lenders must be especially careful about providing mortgages. In these cases, it isn’t uncommon to see lenders asking for as much as 30% down. However, individuals who have excellent credit and a solid track record with previous real estate can often purchase homes for about 15% down, depending on the lender. This is especially true if the purchaser applies for his or her mortgage through the same bank through which most of his or her wealth is managed.

Benefits of a Larger Down Payment

In most cases, if you can put down a larger down payment, you should. The primary reason is obvious; it saves you thousands of dollars in interest charges over the course of your 15- or 30-year mortgage. However, a large down payment can also benefit you in other ways.

  • Smaller Monthly Payments – Smaller monthly mortgage payments are convenient. They allow you to better manage your wealth, and they free up more of your funds for everything from vacationing to investing.
  • No Need to Purchase Private Mortgage Insurance – People who put down less than 20% on their homes are often required to purchase private mortgage insurance, or PMI. Essentially, it means you’re paying to protect the lender in the event that you default on your payments. If you’re asked to purchase PMI, expect to pay .5% to 1% of the total loan amount, which can mean thousands of extra dollars per year – especially for luxury homebuyers.
  • Better Chance to Get the Home – Although luxury homes don’t move as quickly as more traditional family homes, having a larger down payment can give you a significant advantage in a multi-offer situation. If someone else makes an offer on the home, the seller will look at who is most likely to close the deal with their lenders, and the seller will also look at who will close the fastest. Nine times out of 10, that person is the one with the larger down payment.

The truth is that you may not need a 20% down payment to get the luxury home you want. However, there are certainly some benefits to providing at least that amount, and maybe more. Some lenders may require 30% depending on your credit history and your experience in the real estate market, too.

Cash Out Refinancing: Is Now the Time?

Just a few short weeks ago, traders and real estate experts predicted that the Federal Reserve would raise the benchmark mortgage rate, which would affect mortgage rates across the country. However, thanks to events like Brexit and analysts’ failed GDP forecast, this increase isn’t likely. Now may very well be the time for people who purchased homes with higher interest rates to think about cash out refinancing.

What Is Cash Out Refinancing?

Cash out refinancing works like any other type of refinance. Essentially, a homeowner takes out a brand new home loan to pay off his or her existing home loan. In most cases, this happens when a homeowner has access to a lower interest rate and therefore lower monthly payments and less interest paid over time. The cash-out option occurs when a homeowner has equity in his or her home at the time of the refinance. He or she then takes out a new mortgage that is larger than the payoff for the existing mortgage, which provides access to the leftover cash. This is common among homeowners who want to consolidate debt or repair and remodel their homes.

cash out refinancingWhy You Should Be Thinking About It Now

According to mortgage finance agency Freddie Mac, 30-year mortgage rates fell early in August to almost a three year low. Benchmark treasury yields played a role in this fall, as did an inaccurate prediction regarding the GDP. Analysts polled by Reuters had predicted that the GDP would grow 2.6% in the second quarter, but the actual growth was only 1.2% – far lower than predicted. This has sparked some concern on Wall Street, and it means that the Federal Reserve will likely leave benchmark mortgage rates unchanged through the end of the year. Now is a great time to refinance, especially to a 30-year fixed mortgage, which offers a current refinance rate of 3.41% to those who are highly qualified.

Using the Cash Wisely

While there’s no denying that it’s a great time to refinance and even consider cash out refinancing, it’s important to use the cash wisely so it can serve you well in the future. If you choose the cash-out option, consider using the funds to pay off some of your high-interest debt. This can save you thousands of dollars in interest charges, which is money you can use elsewhere to expand your wealth. Because home values are continuing to increase in most US markets, you might also consider using the funds to improve or repair your home. Choose projects that will increase the value of your home significantly, and your cash out refinance will certainly pay off in the future in terms of home value and equity.

If you’ve been waiting for the perfect time to refinance your home, with or without the cash out option, now is the time to act. Mortgage rates are at a near three-year low, and with the instability in today’s global and local economies, it’s a wise idea to take advantage of these lower interest rates.

Should You Consider Buying a Home with Cash?

There are many people across the country who struggle to come up with a 10% down payment required for a mortgage, but despite this, it seems that there is a very surprising trend emerging. More and more people are deciding to buy a home with cash. Is this a good idea? It certainly has its advantages, but it may not be right for everyone.

The Pros of Buying a Home with Cash

There are several advantages to buying a home with cash that you simply won’t experience if you obtain a mortgage from a bank or other lender. If you have the means to buy a home with cash, all of the following may be true:

  • Sellers will want to sell to you. If you have cash in hand when you make your bid, and the seller knows it, then that seller is more likely to sell their home to you – even if someone else outbids you. Why? They’ll know that your application for a mortgage won’t be turned down.
  • You might get a better price. If you’ve ever bought anything with cash, then you know how much bargaining power it gives you. The same buying a home with cashthing can be said for a home, particularly since the seller can obtain the money on the day the home is sold.
  • There’s no mortgage hassle. Whether it’s your first mortgage or your third, obtaining a home loan from a bank is never fun. When you’re buying a home with cash, there’s no need to fill out endless paperwork or wait for your approval to get through underwriting.
  • You won’t have to worry about mortgage payments. Unlike millions of Americans who wonder how they’re going to make their next mortgage payment, that will never be an issue when buying a home with cash. That home is yours, even if you lose your job.

The Potential Downfalls

Just as there are some advantages to buying a home with cash, there are a couple of things that might make you think twice.

  • You’ll lose financial leverage. Buying an asset with money you’ve borrowed from a bank improves your potential return even though you’re paying interest as long as that asset increases in value. Paying with cash means you’ll get a return on the cash you paid; borrowing from a bank means you’ll get that same return, but all you’ve paid is your down payment.
  • You’ll miss out on liquidity. You won’t be able to get your cash out of a real estate investment quite as quickly if you pay all cash for it. Most bank accounts are liquid, which means you can get cash when you need it, either in the form of an equity loan or second mortgage. Buying a home with cash means that you may need to wait months for your home to sell.

Buying a home with cash isn’t right for everyone, but if you plan to live in your home for quite some time, it may be a great option if you have the means to do so. If you’re purchasing that home as an investment property, a mortgage may be a better option if for no other reason than the liquidity and financial leverage it provides.