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Should I Buy Down My Rate After 2017 Rate Hikes?

Should I Buy Down My Rate After 2017 Fed Rate Hikes?
By JULIAN HEBRON
March 14
What the current market outlook means for you.
Rates are up .5 percent so far in 2017, and could go higher. This raises the question of whether it makes sense to buy your rate down to control your mortgage costs. Let’s review the market outlook, then answer the question.
Where are rates headed from here?
Rates are tied to daily trading in mortgage bonds, and rates rise when bonds sell on improving economic sentiment – this has been happening in 2017.
Concurrently, the Federal Reserve controls short-term rates in the economy using overnight bank-to-bank lending rates. They hike these rates when they believe the economy is improving. Even though mortgage bonds represent longer-term rates, these Fed hikes still fuel selling of mortgage bonds, pushing mortgage rates higher.
The Fed began hiking rates in December, and has indicated continued hiking if economic data stays positive. Their next three rate policy meetings are March 15, May 3, and June 13.
Mortgage rates will rise as the Fed’s economic tone becomes more optimistic. The Mortgage Bankers Association calls for rates to rise about 1 percent in 2017 versus 2016, and we’ve only seen half of that so far.
With many signs pointing to higher rates, let’s address the rate buy down question.
What is buying down my rate?
“Buying your rate down” or “paying points” means you’re paying an extra fee on top of standard loan fees like appraisal, underwriting, and credit report to get a lower rate.
If you were getting a 30-year fixed loan of $325,000, you might get two options with and without points. Today the option with zero points might show the rate as 4.25 percent, and the option with 1 percent in points – equal to $3,250 – might show the rate as 4 percent.
Paying $3,250 at closing to lower your rate by .2 percent lowers your payment $42 per month, and lowers your interest cost $68 per month.
How do I calculate if I should buy my rate down?
To determine if you should buy down your rate, calculate how long it takes your monthly interest cost savings to repay the cost of the points. In our example, we divide the $3,250 you’re paying at closing by the $68 in monthly interest cost savings, showing it takes 48 months for the interest cost savings to repay the points.
If you’re going to live in the home longer than four years, then paying the points makes sense. Note, however, that it doesn’t make sense if you’re getting a 5-year ARM instead of a 30-year fixed – because the 5-year ARM would adjust to a higher payment just one year after you broke even on buying your rate down.
What are the dangers of buying down the rate?
Work with your lender to calculate how long it takes interest cost savings from paying points to repay the points. If you’re in the home (or the loan) longer than this breakeven timeline, you won’t lose money.
But if rates drop after you pay points, your risk is that you’d need to spend money on a refinance to keep you in the market, but that refinance cost could come during the time you’re still waiting to break even on the points you paid.
Given the rate projections noted above, that risk is low for now.
What if I need to buy down my rate to qualify?
Rising rates make your payment higher, which reduces your affordability.
Lenders allow you to spend up to 43 percent of your income on housing and non-housing bills each month. If rising rates don’t push you over this threshold and your budget is still manageable, you can proceed.
But if rising rates push you over this qualifying threshold, you don’t have to rely solely on buying your rate down to qualify.
You can also reduce your purchase price. Or if you don’t want to resort to that, the smartest way to qualify is to find other debt to trim.
How do I know if a rate buy down is being disclosed to me correctly?
Federal law requires lenders to give you a disclosure called a Loan Estimate within three days of a complete loan application.
The Loan Estimate’s second page shows Points in the top left section called Loan Costs. This will show the exact percentage of the loan amount for any points being quoted. It also shows the dollar amount of the points.
Looking for more information about financing a home? Check out our Mortgage Learning Center.
Related:
*When You Should Buy Down Your Interest Rate
*How 2017 Rate Volatility Impacts Home Affordability
*Home Buyers: 5 Things to Know As You Wait for Closing Day
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
Source: Zillow

Lower Mortgage Rates Are Like a Valentine’s Day Gift From the World

By Jonathan Smoke
Feb 11, 2016
The financial market unrest this year is turning into a real boon for U.S. consumers who plan to purchase a home–and for existing homeowners who could benefit from refinancing.
Concerns about China and the price of oil have driven global investors into the perceived safety of U.S. bonds and mortgage-backed securities.That’s why the average 30-year fixed mortgage rate has declined by nearly 50 basis points since the end of 2015. (A basis point is 0.01 percentage point.)
Mortgage rates are lower now than they were at the end of 2015, when the Fed tried to move interest rates higher. In fact, they’re trending towards record lows.
Yes, I forecasted mortgage rates would go up. And eventually, that will happen. (Honest!) But for now they’re still low, making home buying more affordable. Lower rates mean lower monthly payments, and the decline in fixed rates so far equates to nearly 6% more buying power. That’s basically the ultimate “I love you” gift to U.S. homebuyers. And who’s your valentine? The world!
Existing homeowners are already responding to rates that are now at levels last seen in mid-2012. In the last week, refinancing activity jumped 16%, according to the weekly mortgage application index reported today by the Mortgage Bankers Association.
The exact path and timing for mortgage rates this year is the subject of much debate. Some market forecasters are saying that mortgage rates could set new historic lows before going up again.
The decline in the price of oil, as well as concerns about China, precipitated the financial market shift, so any signs of stability or improvement in those markets would likely lead to higher U.S. mortgage rates. And such stability would also strengthen the hand of the Fed in continuing to tighten monetary policy.
In other words, this gift horse will be galloping away before too long. If you are in a position to refinance or buy a home this spring, start your search now. Take a look at rates in your market, and investigate some mortgage options that could ease your concerns about what rates might do in the short term.
For example, a common option today is a “rate lock,” which will let you fix the quoted rate for a specified period of days, to cover the time that it takes to close on a purchase or refinance.
A “float-down” option on a rate lock will enable you to lock the rate, but also benefit from another move down if indeed rates go even lower.
These options come at a cost in terms of points or rates, but they could provide you peace of mind on getting the lowest possible rate for the life of your loan.
Talk to your lender or broker to see if these options might make financial sense for you. Follow what rates are doing by visiting realtor.com daily.
Source: Realtor.com

Beware These 9 Real Estate Code Words

NOV 20, 2015
When you’re house-hunting, it can be overwhelming to sort through all the properties in your price range – especially if you’ve taken time to visit homes that look divine online but fall far short of your expectations in person.
You already know the ABCs of real estate terms, from mortgage and loan to title insurance and walk-through. But there might be clues you’re not picking up on in the property descriptions. A phrase such as “could be a real gem” might mean the property is a fixer-upper – not a good fit if you’re looking for move-in ready. “Full of character” might indicate the home has some quirks you’d be hesitant to inherit (think bathtub in the basement or man den in the master bedroom).
Whether you’re searching homes for sale in Athens, GA, or Sioux Falls, SD, here are nine commonly used code phrases. Knowing the deeper meanings of these real estate terms could help you avoid wasting your time on a home that isn’t right for you.
“Pride of ownership shows”
Sounds great, right? The current residents have been taking care of the place, polishing the banisters and recaulking the bathtubs at every turn. But a lot of times, this also means a home that’s stuck in a time warp: outdated kitchen, black-and-white-tiled ’80s bathrooms, the works.
The home might be well-maintained, but that doesn’t mean the owners had the wherewithal to think beyond their original glass-bricked entryway. An impeccably maintained relic is still a home you’ll probably want to gut the minute you step inside.
“In one of the hottest neighborhoods”
“Hot” is not the same as “popular” or “coveted.” When listings refer to a neighborhood as “hot,” that usually means the neighborhood has yet to establish itself. Sure, it might be an area developers think – or hope – will become the next big thing, but it’s not there yet. Another variation of this term is “up-and-coming neighborhood”: Maybe someday it’ll be the most desired location in your area, but for the immediate future, it’s not.
This shouldn’t immediately be a deal breaker, but an emerging neighborhood might lack the amenities or walkability that you crave from your next home. Also keep in mind that buying into a hot neighborhood today is a gamble – there’s no actual guarantee the neighborhood will still be hot in five years.
“Attention: Investors”
The listing might as well read “Stay away, average homebuyer.” A write-up that includes this line is basically admitting that only a savvy developer can save the property. Basically it’s a place that demands a studs-up rehab because, home loan-wise, there are no other reasonable possibilities.
“Offered as is”
Can you say “money pit”? Chances are, this real estate listing has some downright alarming things going on. Burst pipes that no one bothered to repair or clean up? A renovation that was abandoned halfway through? A creepy red room in the basement? A roof in danger of collapsing?
This warning also means that you have absolutely zero negotiating power. The seller is well aware of all the property’s faults and has no interest in pretending otherwise. Proceed accordingly.
“Condo alternative”
A single-family home in your price range? Holy moly, where’s the checkbook?
Hold up, cowboy. It’s a single-family, yes, but a single-family dwelling so Lilliputian that the bedroom pretty much doubles as the living room that doubles as the master bath. Don’t let the allure of owning a free-standing home cloud your judgment – when it comes to “condo alternatives,” you’ll probably get more bang for your buck in the actual condo market (unless you can afford to build an addition).
“Natural landscaping”
Read: yard jungle. Great for an aspirational green thumb, but a huge letdown for someone who’s looking for a little nonweedy backyard space. That said, professional landscapers can do wonders with even the most wildly overgrown plots.
“Not a drive-by”
Did you wonder why there were no photos of the home’s exterior? The clue was in the write-up. “Not a drive-by” is code for “lacking curb appeal.” Curb appeal can be improved, though often at a hefty cost. But if the rest of the home is terrific, the question becomes, how much do you care about first impressions?
“Not a foreclosure, not a short sale”
This seems like a good thing but is actually kind of a bad thing. Such an upfront warning could mean the house is close to other properties that have gone into foreclosure or are boarded up and waiting to be seized or condemned.
“Needs your decorative touches”
This sounds so innocuous, right? It sounds like an otherwise charming home that’s lacking a few knickknacks and floral arrangements. But more often than not, this descriptor means that the property is in serious need of a new bathroom or kitchen or more – stuff that’s well beyond remedy with a quick run to a home decor shop.

Source: Forbes

CALIFORNIA CREATES ‘TRANSFER UPON DEATH’ DEED

By Bob Hunt
Monday, 12 October 2015
In California there exists a variety of ways by which an owner of real property can direct who shall become the new owner of that property when the current owner dies. Most common among these are: by will; through creation of a trust; or, by owning either in joint tenancy with right of survivorship or as community property with right of survivorship. As of January 1, 2016, there will be another way also.
On September 21 of this year the Governor approved Assembly Bill 139 (Gatto) which had been passed by the Legislature on September 9. AB 139 establishes a method for conveying real property upon death through arevocable transfer upon death deed. Why the need for this new method? The author of AB 139 wrote this:
“The most common form of real property transfer upon death, a will, must pass through probate, a lengthy legal process… The process is often grueling, can take up to a year, and often results in statutory probate fees in the thousands of dollars. Similarly, establishment of a revocable trust can cost upwards of $2,000. For seniors and individuals whose estate consists primarily of the home, the money to establish a trust is out of the question.
[The] revocable transfer on death deed (revocable TOD deed) is the most simple and inexpensive transfer mechanism on the market today. Furthermore, it may be the only tool available to unmarried homeowners who wish to leave their property to a lifelong partner, family member, friend, or loved one upon death, but who cannot afford to set up a trust.”
AB 139 allows an interest in certain real property to be transferred on death by recording a revocable TOD deed. The deed transfers ownership of that property interest upon the death of the owner. Some of the basic features regarding this deed are:
Applicable property types are one to four residential dwelling units, condominium units, or not more than 40 acres of agricultural land with a single-family residence.
A revocable TOD deed is not effective unless the transferor signs and dates the deed before a notary public.
The deed does not need to be delivered to the beneficiary.
The deed must be recorded 60 days or less from the time it is signed.
The deed may be revoked by the transferor at any time.
The form of the deed is prescribed by law. Not only does it contain its own explanation of how it works, it also provides its own frequently-asked-questions section.
For example, it tells the transferor how he or she can revoke the deed. There are 3 ways:
A revocation form can be recorded.
A new and different TOD deed may be recorded.
The property can be transferred to someone else, and that deed recorded, prior to the transferor’s death.
Yes, that’s right, a person might give out more than one revocable TOD deed. The new law provides that the deed with effect will be that one which has the most recent recording date.
What if the beneficiary — the person named in the deed — dies before the person who was giving the property? Then the deed simply has no effect.
Can more than one beneficiary be named in the same deed? Yes. The ownership interests will be divided equally among them.
The list of questions goes on and on.
AB 139 directs the California Law Revision Commission to study the effect of the TOD deed as established by the bill and to report back to the Legislature no later than January 1, 2020. It is specifically to study whether the deed is working effectively, whether it has been used to perpetuate financial abuse, whether it needs changes, and whether it should be continued.
Unless the Legislature acts otherwise, the bill will sunset on January 1, 2021; but that would not invalidate any revocable TOD deed executed before that date.
Source: RealtyTimes

What’s California real estate going to do in 2016?

By Ben Lane
October 8, 2015
Sales expected to rise; price growth will slow down
California’s housing market is expected to improve in 2016, but a shortage of available inventory and continuing high costs are expected to limit the improvement, according to a report released Thursday by the California Association of Realtors.
According to CAR’s 2016 California Housing Market Forecast, existing home sales are expected to rise in 2016 by 6.3% over 2015’s expected total.
Additionally, existing home sales are expected to hit 407,500 in 2015, which would also represent a 6.3% increase over 2014, when there were 383,300 existing home sales.
CAR’s forecast calls for existing home sales to rise to 433,000 in 2016.
The state’s rising prices are predicted to hold back home sales slightly. The California median home price is projected to increase 3.2% to $491,300 in 2016, following a projected 6.5% increase in 2015 to $476,300.
Despite those increasing prices, 2016 is still estimated to have the slowest rate of price appreciation in five years.
CAR’s forecast projects growth in the U.S. gross domestic product of 2.7% in 2016, after a projected gain of 2.4% in 2015.
With projected nonfarm job growth of 2.3% in California in 2016, the state’s unemployment rate should decrease to 5.5% in 2016 from 6.3% in 2015 and 7.5% in 2014, the CAR forecast said.
Additionally, the CAR forecast projects the average interest rate for the 30-year, fixed mortgage will climb only slightly to 4.5%, but should still remain at historically low levels.
With a statewide market as diverse as California, some areas will see the effects of those changes more than others, according to CAR President Chris Kutzkey.
“Solid job growth and favorable interest rates will drive a strong demand for housing next year,” Kutzkey said.
“However, in regions where inventory is tight, such as the San Francisco Bay Area, sales growth could be limited by stiff market competition and diminishing housing affordability,” Kutzkey continued. “On the other hand, demand in less expensive areas such as Solano County, the Central Valley, and Riverside/San Bernardino areas will remain strong thanks to solid job growth in warehousing, transportation, logistics, and manufacturing in these areas.”
CAR Vice President and Chief Economist Leslie Appleton-Young said that there may be a shift in sales to more inland areas of the state in 2016.
“The foundation for California’s housing market remains strong, with moderating home prices, signs of credit easing, and the state continuing to lead the nation in economic and job growth,” Appleton-Young said.
“However, the global economic slowdown, financial market volatility, and the anticipation of higher interest rates are some of the challenges that may have an adverse impact on the market’s momentum next year,” Appleton-Young added. “Additionally, as we see more sales shift to inland regions of the state, the change in mix of sales will keep increases in the statewide median price tempered.”
Source: HousingWire

Southern California housing market is poised for a stronger spring

Written by TIM LOGAN

March 17, 2015

After two years of slim pickings for Southern California home buyers, the supply of houses for sale may be starting to open up, at least a bit. And that could power the region’s housing market to a stronger spring.

Market watchers and real estate agents say they’re starting to see more sellers as prices remain relatively high, interest rates stay low and fewer borrowers owe more on their houses than they’re worth. The number of homes listed for sale in February climbed 9% in Los Angeles County from a year earlier, according to data from the California Assn. of Realtors, and the time it would take to sell every house on the market was at its highest level in three years.

“Supply is not an issue right now, not like it was,” said Rich Simonin, chief executive of Westcoe Realtors in Riverside. “It’s not a problem.”

That’s a shift from the last few years, when many sellers held their homes off the market and bidding wars were common for the rare well-priced listing. More supply should help keep prices in check, economists say, and coupled with an improving economy could help fuel a broad recovery in the region’s housing market over the next few months.

But so far the housing market has been in a slump.

Home sales in the six-county Southland fell 2.7% in February from a year earlier, according to figures out Tuesday from CoreLogic DataQuick; it was the 15th time in 17 months that sales have fallen. Although the region’s median sale price of $415,000 was up 8.4% compared with February 2013, it has been basically flat since last summer, when it plateaued as many buyers hit a ceiling for what they could afford.

Selma Hepp, senior economist at C.A.R., says measures of buyer interest – online real estate searches and open-house traffic – have jumped in recent weeks. If that activity translates into sales, it could put a new round of pressure on pricing, she said.

“The fundamentals are good,” Hepp said. “But affordability is going to stare us right in the face again.”

For many buyers looking at the bottom half of Southern California’s high-cost housing market, affordability never stopped being an issue. The supply of homes for sale remains far tighter at prices below $500,000 than above it, according to C.A.R.’s data. And good homes in that price range tend to sell fast.

Aviva Lomeli, an agent with Redfin who works in southeastern Los Angeles County, saw just how fast over the weekend.

Lomeli listed a home Friday in Downey for $499,900. She held open houses Saturday and Sunday and had 20 to 25 groups of buyers come through each day. Five made offers, one at $25,000 above the asking price. And she expects the house will be under contract this week.

“That’s very quick,” Lomeli said. “It feels like in the last few weeks the market has taken off.”

If it has, prices will rise quickly unless still more sellers step in, said Andrew LePage, a CoreLogic analyst. The key to a healthy housing market, he said, is still supply.

“That’s going to be a huge part of the story this spring and summer,” LePage said. “If we don’t see a meaningful jump in inventory, we’ll be right back up against affordability constraints.”

In the long term, though, it will require more than a seasonal jump in home sellers to boost supply and help more Californians afford housing.

A new report also out Tuesday said the Golden State needs to build roughly 100,000 more homes each year than it does now – nearly all in coastal regions – to ease housing costs that are already 2 1/2 times the national average. Those costs harm the state’s economy in a variety of ways, says the report from the independent Legislative Analyst’s Office, by prompting Californians to endure longer commutes, crowd into smaller homes, put off homeownership and even leave the state.

“The state’s high housing costs make California a less attractive place to call home,” said the report, which urged state lawmakers to “make changes to a broad range of policies” that affect housing supply to promote more development.

But right now, said Simonin, the housing market is as stable as he can remember it being in a long time, balanced between buyers and sellers, appreciating but still somewhat affordable.

“It won’t stay this way very long,” he said. “We should enjoy it while it does.”

Source: Los Angeles Times

Smart Homes for SmartPhones

Smart Home for SmartPhones

Tax breaks for homeowners seem to be safe even as Congress aims at reforms

February 13, 2015

Tax reform is revving up again on Capitol Hill, with the heads of key committees pledging to work toward a simpler and fairer tax code, possibly one with lower tax rates. Sounds intriguing.

But what might that mean for homeowners, many of whom benefit from tax breaks such as mortgage interest and property tax deductions, plus tax-free write-offs of up to $250,000 or $500,000 (depending on whether they file returns as singles or married couples) of capital gains on home sales? Renters get none of these.

Homeowner write-offs become targets for cutbacks or elimination whenever tax-code reforms get serious attention because of their costs in uncollected federal revenues. The mortgage interest deduction alone cost the treasury $113.4 billion in fiscal 2015 and property tax write-offs another $27.8 billion, according to estimates by the congressional Joint Committee on Taxation.

President Obama kicked off the tax-legislation season with a budget proposal that would limit mortgage interest and other deductions for upper-income taxpayers. No surprise there. He called for essentially the same change last year, and this year’s version was widely viewed as dead on arrival in a Congress controlled by Republicans.

But what might Republican tax reformers themselves have up their sleeves? Last February, Rep. Dave Camp of Michigan, then chairman of the Ways and Means Committee, came out with a massive tax-code overhaul blueprint that would offer lower tax rates and a big increase in the standard deduction in exchange for drastic cutbacks in special-interest deductions and credits, including the benefits traditionally enjoyed by homeowners.

Camp’s plan would have shrunk marginal rates for most taxpayers to just two brackets, 10 percent and 25 percent; phased down mortgage-interest deductions from the current $1 million limit to $500,000; eliminated deductions on home equity loans and credit lines altogether; and stretched out the time period needed to qualify for tax-free capital gains exclusions. Camp’s plan also would have eliminated homeowners’ write-offs of local property tax payments and ended penalty-free withdrawals from IRAs to assist with first-time home purchases.

Camp retired from Congress at the end of the past session. His reform plans – considered too controversial to pass in an election year – never moved out of committee. But the impetus for some sort of wholesale reform of the sprawling Internal Revenue Code remains alive and well. Is anything likely or even possible this year and, if so, could it create problems for current or future owners?

Conversations with tax experts and Capitol Hill legislative analysts suggest a couple of things: There is bipartisan support for the broad concept of streamlining the tax code. The new Ways and Means Committee chairman, Rep. Paul Ryan (R-Wis.), said on NBC’s “Meet the Press” that he is prepared to work on reforms with the White House – even compromise on some issues – “if we can find common ground.” Sen. Orrin Hatch (R-Utah), Senate Finance Committee chairman, has created working groups tasked with coming up with tax-reform plans with the objective of introducing a bill, probably by late this spring.

And there is already common ground to build on: bipartisan support, including at the White House, for a broad package of tax changes affecting businesses. Treasury Secretary Jack Lew recently said the administration could support reforms that lower top tax rates for big corporations, eliminate unfair loopholes and simplify the entire system for businesses. Republicans generally are on board but insist that small businesses be part of the solution.

So there’s a chance that a bipartisan corporate tax-reform bill could be cobbled together this year, provided negotiations are completed before the start of the presidential campaign season this fall.

What about comprehensive tax reforms for individuals of the type that inevitably would involve significant changes in current preferences for homeowners and tax increases for higher-income households? Highly unlikely. Congressional Republicans and the White House have such conflicting views of the tax system – Obama wants to raise taxes on the wealthy, Republicans vehemently oppose any net new taxes – that coming together on a major reform package covering individuals would be nothing short of miraculous.

Bottom line: Homeowner tax breaks are safe for the time being, probably until 2017 at the earliest.

Source: By Kenneth R. Harney/Washington Post

Great news for the housing market

Take a look at what’s developing in the housing market:

CNBC Housing Report

Zillow to Buy Trulia

I received this announcement this morning:

Because of your importance as a Premier Agent, I wanted you to be among the first to learn we have just announced that Zillow has entered into a definitive agreement to acquire Trulia. You can read the full press release here.

I’m really excited about this opportunity, but I am sure the news will lead to a number of questions. The most important thing I can stress is that this combination of companies sets the stage for us to offer even more real estate tools and services to empower consumers, and thus has the ability to drive even more business your way.

We expect to maintain both the Zillow and Trulia consumer brands, as both will continue to offer buyers and sellers access to vital information about homes and real estate, providing an important bridge to local agents such as yourself. Both companies will continue to develop and deliver advertising and software solutions that help real estate professionals grow their business.

This acquisition requires shareholder and regulatory approval, which might take several months. We will provide additional details as they become available. For now, it’s business as usual for both companies. Our daily focus and strong commitment to Zillow Premier Agents remain unchanged and of the utmost importance to our entire team.

Regards,

Spencer Rascoff
Zillow CEO