Although the sale of every home is unique, every home owner should get a home inspection. A home inspection not only evaluates the physical condition of a home but can also give you an idea of the lifespan of major items and appliances. For example, the roof, water heater, a/c unit, etc.
Many homebuyers confuse an appraisal with a home inspection. An appraisal simply gives you the current market value of a home and whether or not it meets a lenders financing guidelines. An inspection can pinpoint serious problems with a home that could be very costly down the road. It should always be requested by the buyer. In some cases, there are actually sellers that will order an inspection to find out if they should replace or repair anything before listing their home for sale.
You should expect to pay an average of $300-$500 for a home inspection. For this amount, you should receive a detailed written report of the homes condition and any suggested improvements. What if the home has problems? Keep in mind that no house is perfect. Just because an inspector suggests something in the report doesn't mean you shouldn't buy the home. It makes you aware of repairs that may or may not arise after the purchase. Remember that it is the buyers responsibility and right to order a home inspection.
It's only natural to assume with the Federal Reserve dropping the interest rate, for people to think it will affect their adjustable rate mortgage. Unfortunately, that is not the case! When the Feds rate drops, it affects people who have a home equity line of credit on their home. Home Equity lines of credit are based on the Prime Rate, and adjust accordingly. Other financing affected by the decrease in the Fed rate would be credit cards, and auto loans.
The thirty year mortgage rates are affected by the treasuries. One that I pay particular attention to is the 10 year bond. When the bonds move, the rates move. So don't be waiting for the Feds to continue to bring the rate down before purchasing or refinancing your home. The thirty year interest rates are well below prime, keeping around 6.375 & 6.5 during the month of September.
This is still a great time to buy or refinance and get a great 30 year fixed interest rate!
Anyone watching or reading the financial news over the last few weeks has seen a lot of uneasiness over the state of the mortgage industry. In fact, many of the larger lenders in the US have been forced to shut down operations recently. What is happening and what does all this mean to you?
Over the past several years, many loans were made to homeowners with somewhat non-traditional situations, be it a poor credit history, inability to document income, or any number of factors that don't fit within the traditional structure for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they carry a higher risk by nature than A credit or traditional loans. Another type of non-traditional home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done through mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher it's called a "jumbo loan". They can still be done, however the money comes from private institutions, not from the government sponsored entities of Fannie Mae and Freddie Mac.
Most non-conforming loan rates increased substantially, but why?
The end investor for Subprime and/or Alt-A loans will charge a premium for taking on a group of these loans. This is because they know that traditionally these loan types carry a higher rate of default and delinquent payments. But lately, default and foreclosure has been on the rise. This is partially due to the fact that with guidelines tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. The home values no longer support the equity. So now, these end investors are demanding a much higher premium for taking on these groups of "high-risk" loans, as they see the rates of default climb higher.
But since these investors are purchasing these groups of loans, sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage because of the risk. When you multiply that times thousands upon thousands of loans then you have millions of dollars in loss for the company trying to sell their group of loans at a much lower price than they had expected. This is called a liquidity crisis in the mortgage industry. This is what has happened to most of the subprime companies. They simply got caught holding too many high risk loans and were forced to sell them at huge losses. Eventually they had to make the decision to close the doors.
As a result of this happening with some of the largest lenders, any remaining lenders offering non-conforming loan products increased their interest rates dramatically in order to be better prepared for increased risk premiums ahead. Even though jumbo loans are not presently suffering from delinquencies like the Subprime and Alt-A loans are, these rates have spiked as well, because they are being purchased by smaller private entities that can't afford to take on any risk at all.
So Now What?
Well, the damage is done. Lenders have cut all they can and the rates should begin to trend downward over the next year. Guidelines will relax a little more and new programs will be released. People aren't going to stop buying and selling homes. If you are looking to purchase or refinance, make sure you choose a professional that is well versed in whats going on with the market. While I do encourage you to get at least two quotes, now is NOT the time to play the risky game of shopping with ten different lenders looking to save $100. Programs are changing daily and many lenders will promise the world to get your business, only to not follow through. Costs on a good faith estimate can be changed, ask your lender for proof of the rate lock. Once a file is locked, the rate can not be changed for a set period of time. If you have any questions at all, the team at First Choice Mortgage is always happy to help. Give us a call today!
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