Mortgage Rates to Stay Near Historical Lows in May

The Federal Reserve has stepped up to ensure the rates stay near historical lows. During the policy meeting held on April 29th, the central bank said they would keep buying mortgage-backed securities to allow credit to keep flowing.

Jerome Powell, the Federal Reserve’s chairman, says the Fed will keep purchasing the mortgage-backed securities for “the next year or so” with the unknown economic consequences from the COVID-19 pandemic. The Fed said in its most recent announcement that it foresees “considerable risks to the economic outlook over the medium term.”

The Fed has brought a lot of money to the table when it comes to mortgage-backed securities. In a comment, the Federal Reserve relayed this was necessary “to support smooth market functioning.” Before the Fed stepped in, mortgage rates fell during late February but took a turn up in March because of the market turmoil.

The Federal Reserve has purchased more than half a trillion dollars’ worth of mortgage-backed securities since the middle of March. According to the Fed purchasing these mortgage-backed securities has given lenders the confidence that there will be enough money to keep funding mortgages to consumers. The mortgage rates will stay stable because the Federal Reserve is standing in as a reliable buyer.

Luckily there strategy is working. Currently, the average rate on a 30-year fixed-rate mortgage is 3.389%, a 15-year fixed-rate is at an average of 2.923% and the average for the 5/1 ARM is down to 3.117%. During Nerdwallet’s survey of mortgage rates, they found that the 30-year fixed-rate mortgage is 88 basis points lower than this time last year.

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The Ins and Outs of Mortgage Closing Costs

When buying a home there are many steps to the process. Once you have made an offer, you need to make sure you have money for a down payment, but that is not all the money you will need to bring to the table. Many home buyers do not take into account closing costs. This can come as an unpleasant surprise, but if you understand closing costs and have saved for them, the home-buying process will run much smoother.

First, you will need to understand what closing costs actually are. This is important to the buyer

because most of the closing costs are the buyer’s responsibility. Closing costs consist of the many fees for the services and expenses it takes to finalize a mortgage. Typically they are broken down into property-related fees, loan-related fees, mortgage insurance fees, property tax and homeowners insurance and title fees.

More importantly, is how much are closing costs? The amount usually runs between 2% and 5% of your loan amount. So if you have a $300,000 home purchase, your closing costs would run between $6,000 to $15,000. The best way to pay for them is out of pocket all at once. Some lenders do allow you to finance them by merging them into the loan, but you will end up paying more because of interest over the life of the mortgage. Some states, counties and cities offer low-interest rate loan programs and grants for first time home buyer’s closing costs.

Next, let’s look at the property-related fees that are included in the closing costs. These include the appraisal fee and the home inspection fee. When purchasing a home you will need to know how much the property is worth and what shape the property is in. A certified professional appraiser will be sent to the home to evaluate the home’s worth. This is very important when obtaining a mortgage. The lender needs to know if the property is worth the amount that you want to borrow. A lender wants to make sure they can recoup the value of the home if you default on your loan. Typically the appraisal fee will run between $300 to $400. A home inspection is required when getting a mortgage. A lender wants to make sure the home is structurally sound and in good enough shape to live in. A home inspection fee usually runs between $300 to $500.

Other fees included are loan-related fees. First, there is the application fee which covers the costs of processing your application. These costs usually include credit checks and administrative expenses. Assumption fees can also be included when there is an assumable mortgage that you are taking over from the seller. Many states will require the use of an attorney at the closing. This will add attorney

fees which will vary depending on the amount of work the attorney does for you. Pre-paid interest fees are also included. Lenders typically require you to pay the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date. The biggest chunk of loan-related fees goes to the loan origination fee a.k.a the underwriting fee, administrative fee, or processing fee. This fee is the cost for the evaluating and preparing of your mortgage loan. This cost is about 0.5% of the loan amount. Just like a realtor, if you work with a mortgage broker, there will be a fee. A broker commission will usually be about 0.5% to 2.75% off the home’s purchase price.

Mortgage insurance fees are also included. These include mortgage insurance application fees, upfront mortgage insurance and FHA, VA and USDA fees. Mortgage insurance application fees are included if you make a downpayment of less than 20% of your mortgage. Upfront mortgage fees are there because many lenders require first-time borrowers to pay the first year mortgage insurance premium upfront. FHA, VA, and USDA fees will be tacked on if the Federal Housing Administration insures you, Department of Veterans Affairs, or the U.S. Department of Agriculture. For an FHA you will pay 1.75% of the loan amount, for the VA loan you will pay between 1.25% to 3.3% and the USDA will cost 1%.

Property taxes, annual fees and insurance will also need to be considered. Property taxes will cost about two months’ worth of city and county property taxes at closing. The homeowners association fees will also be required upfront as well as the homeowner’s insurance premium.

When purchasing a home one of the most important documents handled is the title. Title fees include the search fee (to make sure the title is clean and the seller really owns the property), the lender’s title insurance (this protects the lender in case there is an error in the title search) and owner’s title insurance (this protects the buyer if the title comes up with any problems).

So there will be no surprises before you go to closing, mortgage documents will be given to you prior to closing. The loan estimate and the closing disclosure are the two most important. The loan estimate details all the fees, interest rate and other closing costs for your loan and the closing disclosure confirms what was written in the loan estimate. These documents need to be read carefully before you go to closing.

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A Positive Outlook From Home Buyers

The economy might be in questionable times right now, but home buyers across the country are having a positive outlook on their home search. According to the recent Housing Trends Report (HTR), ” the share of prospective home buyers expecting their house search to get easier in the months ahead rose to 25% in the first quarter of 2020, up from 16% and 22%, respectively, in the first quarters of 2018 and 2019.”  This has been the third consecutive year-over-year increase in the share of buyers that anticipate more housing inventory.

The Housing Trends Report (HTR) is created by the NAHB Economics team. Their goal is to measure prospective home buyers’ impressions regarding the availability and affordability of homes for sale in the current market. The report is done quarterly and asses the changes in a buyer’s perception over time.

The HTR breaks down its findings by generation. They found that Gen X buyers were among the highest that felt the housing availability will improve while the Boomers were the lowest. The breakdown by generation of buyers expecting their house search to get easier was Gen X at 27%, Millennials at 26%, Gen Z at 22% and Boomers on the bottom at 20%.

Across the country’s regions, the report finds that 20% to 27% feel that their home search will become easier during the following months. The West came in with the highest percentage at 27%, followed by the Northeast and South at 25% and the Midwest came in last at 20%.

Not only do share buyers believe that the numbers will improve but they are reporting that they actually see more houses out there that they like and can afford. The first quarter of 2020 reported 31% compared to the first quarter of 2019 at 30%.

The report shows the breakdown by generations and regions. The highest generation found was Millennials and the highest region was the West. The breakdown for generations came in at 34% Millennials, 32% Gen Z, 29% Gen X and 24% Boomers. For regions, the West was 33%, the South came in at 32%, the Northeast at 30% and the Midwest last at 25%.

This is good news for the moral of the current housing market. Now is a great time to purchase a new home.

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Ways Builders Are Increasing Energy Efficiency

Home Energy Rating System (HERS) Index is the standard that is used in the industry to measure a home’s energy efficiency. This system is nationally recognized and is used across the country when inspecting and calculating a home’s energy performance. Homebuilders today are finding ways to make sure the homes they are building have low HERS scores.

HERS Index standard scores are determined using energy modeling software. The most common HERS Index score in 2019 was 58 (the standard ranged was between 45 and 80). When building a

home, the lower the score, the more energy-efficient the home is. Here are some useful tools builders are using to make sure their new construction homes are energy efficient.

Builders are using specific heating equipment. In recent studies, ground source heat pumps had the lowest score ranges. Air source heat pumps had the best scores overall which ranged between -20 and 5. Traditional furnaces had high scores ranging from 25 to 70 and electric resistance heating scored the highest ranging 75 or higher.

Heating and cooling efficiency also plays a part. Seasonal Energy Ratios (SEERS), as well as the Annual Fuel Utilization Efficiency (AFUE), play a big part. Homes that scored lower on the HERS index from 25 to 40 had SEER ratings of 17-24. Homes with a SEER around 14 scored a high HERS index score of 45 and above. For an Annual Fuel Utilization Efficiency in the mid-80s, the HERS score ranged from 70 – 75. For a lower HERS score (below 55) the AFUE will need to be 90 and above.

Another tool to look at is the mechanical ventilation type. To achieve a HERS score of 40 and below, most homes must only have Energy Recovery Ventilators (ERVs) and Heat Recovery Ventilators (HRVs). Homes with HERS scores that range between 40 and 50 had exhaust only and those with HERS scores between 56 and 80 had air cyclers only.

Solar photovoltaics (PV) is a specific technology that changes sunlight into direct current electricity by using semiconductors. How it works is when the sun hits the semiconductor (within the PV cell) electrons are freed and the form an electric current.  Homes with PV had a HERS score of 30 and below. Homes without the solar photovoltaics had a Home Energy Rating System Index score of 40 and higher.

Homebuilders have vast resources when it comes to building an energy-efficient home. When a builder combines multiple efficient products with sound building science principles they will have a greater potential for building a great energy-efficient home.

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Can I Sell My Home in the Current Housing Market?

The country might be on hold with the pandemic but life and life events still must go on. We will always have a need to buy and sell our homes. Even in these times, there are many major life changes that still occur that lead to the need to sell your home. Both buyers and sellers find themselves in these situations so it is not a lost hope to sell your home during the pandemic.

Technology is on your side. The stay-at-home guidelines are giving a lot of potential buyers tons of time to browse the internet. This makes a great gateway for real estate listings. Through Social Media, online marketing tools and virtual walkthroughs, your home for sale will be at the buyer’s

fingertips through the internet. Realtors have conveyed that buyers are actively looking online and reaching out to them. Buyers are still making offers and homes are still being sold via paperless technology.

There might be a slow down in foot traffic but buyers are still out there. According to the NAR Flash Survey: Economic Pulse, Realtors have reported that they have not seen a dip or an increase in buyer activity. To a seller that means they have the opportunity to catch those buyer’s interests. It just takes one potential buyer to make an offer on your listing.

The NAR Flash Survey: Economic Pulse also showed that 56% of NAR members said that their sellers are removing their listings from the market. This number sounds scary to some but is great news for a potential seller during this time. The less competition in the market, the better your chances. The fewer listings Realtors have to search the more potential your listing will end up at the top of the buyer’s search list.

Using a professional to list your home is important in any housing market. Realtors adapt to the market and are always ready to list your home. During these untraditional circumstances, Realtors are using technology for both buyers and sellers. Real Estate professionals’ top priority is to keep everyone safe while keeping their real estate needs on track.

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Home Buying Still Supports the Current Local Economy

The country is still trying to get comfortable with the new norm. Life all around is ever-changing with the current pandemic. The real estate market is no different – agents, lenders and customers are connecting and transacting virtually. One thing that has remand constant in this uncertain day in age is purchasing a home.

The National Association of Realtors‘ current report stresses the full economic impact of home sales, “The total economic impact of real estate related industries on the state economy, as well as the expenditures that result from a single home sale, including aspects like home construction costs, real

estate brokerage, mortgage lending and title insurance.”

To see how this works, we will breakdown the average economic impact of just one home sale in the United States. A home that sold for $84,724 will give the real estate industries $23,544 (27.8%), home purchase expenses $4,243 (5%), multiplier of house related expenditures $25,932 (15.1%) and new home construction $91,433 (53.3%).

As you can see when a home is purchased it makes a big impact on the economy. It is a win-win situation where you have a place to live, and you are initiating jobs and income for everyone involved in the transaction. In a nutshell, purchasing a home is making the home buyer an “economic driver.”

Even with the current times, there are many things you can do to keep your home search going. If you have decided to go ahead with your dream of owning a home you need to get pre-approved for a mortgage. Getting pre-approved not only helps you understand how much you can afford but also lets others know you are a serious buyer. Since there is a stay-at-home order, it is important to connect virtually with a Realtor or talk directly to a builder to build a new home or fully custom home. A Realtor is someone you can trust and knows the ever-changing dynamics in the current market. Builders have tons of resources including floorplan design, financing, pricing and selections recommendations, and all businesses involved in the closing of your new home.

Also, you can still do real estate research online.  Even before the pandemic, online searches for real estate were well over 90% with home buyers starting on the Internet to find a home to buy. Shop mortgage lenders and see if there are any down payment assistance programs that would work for you.

You do not have to put your dream of owning your own home on hold, you can view do most of the preliminary footwork for finding and making an offer on a home for sale online. Virtual tours and online sites can help you navigate the housing market, and Ron Lee Homes is also here to help with a toolbox of virtual services for your home buying or home building needs.  Contact Us Today at 985-626-7619 or email Info@RonLeeHomes.com.

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Elements That Affect Mortgage Rates

There are many factors that influence mortgage rates such as inflation, economic growth and most importantly the Federal Reserve. When determining mortgage rates, the Federal Reserve’s monetary policy is taken into consideration.

The Federal Reserve’s monetary policy is set by the Federal Open Market Committee. The Federal Reserve itself is the central banking system of the United States of America. The goal of the Fed is to boost job growth while controlling the amount of inflation. The Federal Open Market Committee

(FOMC) has a certain way of maintaining its goal through monetary policy. This is done through the federal fund rates. The federal fund rates are “interest rate that banks charge one another for short-term loans.” These federal fund rates help shape mortgage rates along with other long-term loans.

Neither the mortgage rates or the fed rates follow each other necessarily. Most of the time, the federal funds rate and mortgage rates tend to go the same direction. There are times in history when the Fed has  lead the market and other times the mortgage market has lead.

The FOMC meets eight times a year to work on any necessary changes that might need to be made to the monetary policy. If they make a change, FOMC will let investors know the result of their decision before making the change. This way there will be a consensus derived from the investor’s opinion on the FOMC’s decision. The consensus, for the most part, agrees with the Fed’s decision whether to cut rates, raise them or keep them the same.

Currently, the federal funds rate has been reduced to a range of 0% to 0.25% as of March 15, 2020.

The central bank plans to keep the federal funds rate close to zero for the time being. They also will conduct a round of quantitative easing which is a form of economic stimulus the central bank has used in the past.

The quantitative easing planned is for the Feds to purchase around $500 billion of Treasurys and approximately $200 billion of mortgage-backed securities. The Fed hopes this will “add cash to the mortgage banking system to reassure lenders that it’s safe to lend because the Fed is willing to buy the resulting mortgage-backed securities.”

Federal funds rate will not only influence the mortgage rates in the housing market but will also influence the home equity lines of credit (HELOC). The HELOc rates are usually adjustable rates and are based off the Wall Street Journal’s prime rate. In a nutshell, when the Fed cuts the federal funds rate, the interest rate on HELOcs will also go down.


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