home purchase

Latest Mortgage Applications Report Shows Home Purchases Continue to Improve

Last week, the number of Americans applying for mortgages decreased from the previous week, according to a report released today by the Mortgage Bankers Association (MBA).

The Index, which measures and compares mortgage loan application volume from week to week, showed that for the week ending January 16, mortgage activity decreased 9.8% from the previous week’s numbers. The number of refinance applications fell 12.4%, while applications from those seeking to purchase a home posted a 2.5% increase.

Bob Walters, chief economist for Quicken Loans, says the decrease in applications is understandable since the last several weeks have seen record activity but still expects the demand for mortgages to continue long into the new year.

“It is important to remember that this dip in activity comes on the heels of a major increase in refinance applications last week. Mortgage activity remains brisk, as many consumers are taking advantage of long-term mortgage rates that are flirting with the 5 percent level,” Walters said.

“It will be interesting to see how next week’s report pans out given the holiday weekend and Presidential Inauguration. Regardless, demand for mortgages will remain strong for the foreseeable future.”

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home purchase

Should I buy a home in today’s market?

For the average buyer, the state of the real estate market should not really be a major consideration when purchasing a home. If you treat a home like a stock and buy and sell each year, then buying low and selling high is obviously important. Most of us, however, treat a home as a place to live. That means we will, hopefully, live in our home for a while. The longer we live in our home, the less impact the initial purchase price makes on our investment because of appreciation and the pay down of the mortgage.

For many Americans, a home will eventually represent a sizeable portion of our wealth. This wealth, however, is generally built over many years through many up-and-down cycles in the real estate market. The single family home has survived as our biggest investment through many market scares, including most recently the savings and loan fiasco of the 1980s. The reason it survives as a vehicle for wealth is that we all need a place to live and over the long term the single family home has always appreciated in value. This means that even today, there are still buyers! You’re considering buying a home, aren’t you?

Let me answer the question “should I buy a home in today’s market” by finding out if you are ready to buy a home:

• Do you have stable income and is your source on solid ground?
• Is your credit in decent shape? Your credit score should be above 600 with no negative marks in the last 12 months.
• Are you living within your means? In other words, are you putting a little bit into savings each month?
• Do you have 5% of the purchase price saved up? For example, if the purchase price is $100,000, do you have $5,000 in savings? If not, is someone gifting this amount to you?

If you answered no to any of those questions, then you might want to get your financial situation in order before buying a home. Here’s why… Most foreclosures happen simply because the home buyer cannot weather a brief downturn in their financial situation. Moving into a new home is expensive and if you are not prepared for the added expenses, you can easily find yourself in a bad position.

If you answered yes to those questions, then the answer to “Should I buy a home in today’s market?” is a resounding yes! Today is a terrific time to buy a home! Inventory is high, prices are low, and mortgages are available to buyers with decent credit and steady income. What this means to a buyer is there are a lot of homes to consider and there are still mortgage companies with lots of money to lend to qualified buyers!

Also, now is a great time to sell if you are moving up in the market, in other words into a more expensive home. While you will probably sell your current home for less than you could have two years ago, those same forces are at work across the entire market? Because all sellers are taking a hit on the price of their home, you are trading your small hit as a seller for the bigger hit the seller takes when you buy! A savvy real estate agent can help you work this market to your advantage!

So are you ready to take the next step? Let’s discuss how to choose a real estate agent…

home purchase

Debt Ratios: Front-End & Back-End Ratios

To calculate your debt-to-income ratio (DTI) lenders use what is called a front-end ratio to determine what payment a borrower can reasonably afford for a home loan, which is reflected as a percentage of your gross monthly income.
Front-End Ratio = (Monthly Housing Expense / Gross Monthly Income) x 100

• The front-end ratio for a FHA loan is 29%.
• For a conforming conventional loan, the front-end ratio is 33%.

The back-end ratio will reflect what part of borrower’s monthly income will go toward paying your new mortgage payment, plus all existing debts.  Debts here will include the minimum payments per month for your car payments, credit cards, child support, alimony or any other secured / unsecured loans.  The back-end is higher than the front-end.
Back-End Ratio = (Total Monthly Debt Expense / Gross Monthly Income) x 100

• For an FHA loan,  the back-end ratio is 41%.
• For a conforming conventional loan, it is 45%.