What’s going on with the stock market and mortgage rates?

DOW chart for the last year

If you’ve been paying attention recently, you have surely noticed that the stock market has been crazy for the last 5 trading days or so. If you are invested in the market, odds are you’ve lost some money. Why is this happening?

There is some consensus about exactly what caused the drastic stock market pull back over the last several days.

Theories are:

  • This is just an overdue pull back and perhaps the market was over priced.
  • Others are pointing to the fact that the $1.5 trillion dollar cost of the recent tax cut will hit U.S. books sooner than anticipated, and that debt has to be repaid at increasingly higher rates.
  • Bond yields were and are rising very quickly which made lots of investors have concerns about inflation. 
  • Still others are talking about the change of Federal Reserve Chairman as the new chairman Jerome Powell was sworn in yesterday. We know that Janet Yellen kept rates low to unwind the big recession, but the economy is looking healthy now and we don’t know what Powell will do. The forecast is that there will be 3-4 rate increases this year. Yellen was very conservative about raising rates; but Powell historically is not nearly as dovish about how to handle the economy; so we’ll have to watch how his views and actions affect the markets. 

Was the stock market over priced given the very extended bull market we’ve seen over the last couple years? Probably. Is the stock market pull back over? We don’t know yet but it closed up more than 500 points. Hopefully that’s a signal that the worst is over.

But what are the repercussions for mortgage rates?

Look at how quickly and dramatically mortgage rates are rising?

The last rate increase coupled with the end of quantitative easing late last year DID what we expected. Rates started to rise immediately and mortgage rates increased as well, even before the end of 2017.

If you look back at our September article “Are you ready for mortgage rate increases beginning in October? hopefully you were forewarned that all signs pointed to rates going up. And that has happened. The days of mortgage rates below 4% are pretty much over. Here in Portland average 30 year fixed rates for best qualified buyers are running at 4.125% and up. 

If in fact we see a robust economy, the Feds are likely to continue with quarterly bank overnight rate increases this year, which will impact yields on the 10 year Treasury note and mortgage bond rates (which are up about .5% this year already); and this is why mortgage rates are rising. 

IF you are thinking about buying a home this year, you might seriously think about getting going with that purchase sooner rather than later. Rising rates will impact you with higher monthly payments.

Will rising rates hurt the housing market?

Rising rates will hurt most buyers, and depending on price range and amount of rate increases can ultimately price some buyers out of the market. We’ve seen that happen over the last seven years or so, and it will continue.

On the flip side, housing inventory remains way too low for the number of buyers out there looking, especially for homes priced below $400,000 here in Portland; so prices are more likely to continue to rise. But if you can get into a home, keep in mind that the average person or family that has owned a home over the last 7-8 years, your value has increased almost 60% (more for lower priced homes) and is likely to continue to rise.

Check out the attached home values heat map to see how your area has done over the last several years. 

We do expect to see home value inflation to slow this year due to rate increases and the new tax laws. But it’s only January. 

Stay tuned. We’ll keep you posted as news breaks.  

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What’s new in Oregon and Portland? Laws and regulation changes for 2018

Happy New Year!

As we ring in 2018, there are some new laws and regulations that you might like to know about as well as some tidbits of news you might find interesting.

Oregon state birds

Osprey

Western Meadowlark

 

*SCR 18 Designates the osprey as the official state raptor and the western meadowlark as official state songbird.

Is Oregon the only state that hadn’t already designated a state bird prior to 2017?

 

*Oregon state energy tax credits

As of December 31, 2017, all Oregon state energy tax credits were sunset. aints, the state of Oregon had to sunset all tax credits for home owners. However, if you check out Energy Trust of Oregon, you will find there are still rebates available for some energy improvements that include updated appliances, replacement windows and insulation, etc.

*Home energy audits required in Portland

As we have previously announced all sellers within the Portland city limits in Multnomah County are now required to have a home energy audit done on their properties PRIOR to listing their home for sale. This also applies to those selling their homes without a realtor if the home owner plans to advertise the sale via any medium. If you’d like more details, please read Home energy audit will be require for all Portland home sellers beginning January 2018. 

Audit scores will be available for all homes that have had audits performed. The report and score can be found at the Green Building Registry and will also be available on MLS listings for all properties listed on or after January 1, 2018. Homes will be scored from 1-5. The higher the score, the more efficient the home is.

For home owners, this audit can be a big plus because studies have shown that homes with high energy scores generally sell for 2-3% higher prices. It turns out buyers are definitely looking for greener homes and are willing to spend more to save cash on utility bills later on. NOTE: any home listed after January 1 will have an RMLS number starting with 18.

*Mortgage rates have risen slightly since the Feds raised overnight lending rates to banks in December. It is forecast that the Feds will raise rates up to 4 times in 2018 and mortgage rates will rise to 4.6% by the end of 2018. While rates are tied to the mortgage bond, it appears that they are again tracking the yield on the 10 year Treasury bond which hit 2.5% today for the first time in years.

*Core-Logic Case Schiller predict that the housing market will take off with a bang this year throughout the country. This is nothing new for the Portland market where new buyers have been out in force every January for the last several years.

Housing market brief wrap for 2017

Across the country Core Logic reports that housing prices rose an average of 7%. Here in Portland, those numbers ring true as we did experience a bit of a slowdown in our markets beginning late summer. This slowdown lasted throughout the rest of the year in most areas. Lucky buyers out during the end of last year found that there was little competition facing them while sellers were more disappointed to find their homes often selling at or even below list. The houses in the lower price ranges (priced below $350,000 – now considered first time home buyer range) did see more increase in value than more expensive homes and inventory is considerably lower than in higher price ranges.

*Portland slipped out of 1st place for fastest rising home prices in 2017. We were over-taken by Seattle last year but remain among the top five in the US. We had held the 1st place position for about 5 years as the rate of migration into the state was almost more than we could accommodate. We currently rank as the second most popular area for relocations nationwide. 

Here’s a great vegan sweet breakfast treat recipe for you. What a great way to start your day!

Vegan cranberry orange bread – go ahead and indulge with only 153 calories per serving

Total Time: 50m
Yield: 10-12 slices

Ingredients

  • 2 cups spelt, oat, or all-purpose flour
  • 2/3 cup sugar, unrefined if desired
  • 1/4 cup additional sugar OR stevia baking blend
  • 2 tsp baking powder
  • 3/4 tsp salt
  • 1/2 tsp baking soda
  • 2 cups cranberries, chopped (fresh or frozen-thawed)
  • 1 cup orange juice
  • 3 1/2 tbsp oil (see note for fat-free sub)
  • 2 tsp pure vanilla extract
  • 1 tbsp orange zest

Instructions

*The orange zest is important here for best flavor. The cranberries can be subbed with raspberries if needed. I can’t vouch for the taste if subbing applesauce for oil or using a flour not listed here, but multiple readers have said they liked the results of subbing applesauce for the oil, so feel free to experiment. Oat flour will yield a denser bread, which is still delicious in its own right.

Preheat oven to 350 F. Grease a 9×5 loaf pan, and line the bottom with parchment. In a large bowl, stir first six ingredients. Stir in all remaining to form a batter. Pour into the loaf pan. Bake on the oven center rack 50-55 minutes, or until bread has risen and a toothpick comes out mostly clean. Let cool completely. If you can wait, the taste and texture are so much better the next day! Leftovers can be sliced and frozen if desired. My favorite way to eat this bread is glazed with coconut butter. The glaze in the photos is 1/4 cup powdered sugar mixed with 1 tsp orange juice, which is also delicious.

 

New Federal tax law will impact some home owners and buyers in 2018

Now that Congress has passed and President Trump has signed the new tax law, some home owners, buyers and sellers will be impacted by the SALT (state and local tax limits) provisions of the new law. The $10,000 limit includes property tax, state income tax and sales taxes combined. Fortunately Portland property taxes are relatively low as compared to those paid in California or New York for instance. However the Oregon state income tax is third highest in the country at approximately 9%. On the upside, Oregonians pay NO sales tax which is a huge savings to the majority of residents.

Mortgage interest will still be deductible but will be capped at loans at or less than $750,000 beginning this year. IF you owned your home prior to 2018, the cap was $1,000,000, and that $1,000,000 mortgage amount has been grandfathered in for as long as you own your home.

Property taxes are assessed at the county level and are based on purchase price, square footage, lot size, etc. Special assessments for schools, infrastructure, etc are added to tax bills which can result in considerably different property tax bills in adjacent neighborhoods.

As the Portland metro area has grown and housing values have sky rocketed, there are now more expensive homes and more high income buyers in Oregon than just a few years ago. The end result is that we don’t know just how much the new tax laws will affect our housing market beginning this year.

If you’re contemplating buying a new house, it might make sense to check with your CPA to see how the new tax laws will affect you.

 

 

 

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Veterans beware! Some mortgage lenders are trying to take advantage of you

veteransUS government agency Ginnie Mae  and the VA have developed a task force to investigate the more than 1800 complaints about lender harassment of veterans trying to get them to refinance their current mortgages. There are several lenders that are suspected of participating in attempts to “churn” veterans; in some cases as early as only 6 months and 1 day after their initial home purchase closed. (Churning is defined as excessive trading by a broker in a client’s account largely to generate commissions. Churning is an illegal and unethical practice that violates SEC rules and securities laws.)

In addition to mortgagors calling prior clients directly, you’ve probably seen the commercials urging veterans to refinance their current mortgages with lures like “Cash out the equity in your home and get up to 100% of the current value.” Clearly the commercials don’t tell you that every time you refinance your mortgage, it costs potentially thousands of dollars in closing costs, and could increase your mortgage rate as well. This is only a good deal for you IF you really need that cash equity right now. Odds are your mortgage rate is lower than current rates, and that you are not aware that those closing costs will be added to your new loan balance. But for the lender, this is another commission; so all too often the calls are coming from the mortgage company that financed your initial purchase.

It has been reported that these lenders are very aggressive in their marketing tactics to veterans and active military families  sometimes calling often even if you have already declined their intial offer. If you have received any such calls, or begin to receive such calls, please contact the Consumer Financial Protection Bureau so the task force has a record of which lenders are engaged in this practice.

If you don’t really need the money, please be tough and tell the lender to not call again. A refinance will raise your monthly payments and will add a couple thousand dollars or more to your mortgage. Also, the longer you pay on your mortgage, the greater the amount of the payment that is going towards paying down the loan. Each time you refinance, you’re starting that clock all over again.

It’s important for every home owner to remember that the housing market is cyclical, just like the stock market. Values will drop at some point. What if you max out your financing to the current value and then need to sell when your home value is under water?

Currently anyone who has owned their home a couple years or so are sitting on equity; potentially a lot of equity depending on where you live. That’s money in the bank for you when and if you need it at a later date.

Generally we recommend that you refinance your mortgage only if you need to take cash out or if you are able to reduce your monthly payments or if there has been a change in ownership (such as due to a divorce or an inheritance, or transfer of ownership among family members). Otherwise, leave that equity where it is working for you.

 

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Oregon Residential Energy Tax Credits Expire Dec 31, 2017

solar panelsIf you’re an Oregon home owner thinking about remodeling or updating your house to be more energy efficient, you need to keep your eye on the calendar. Just about all residential energy tax credits will expire at the end of 2017. It is unknown if the state legislature will re-instate any of those credits next year.

There are some great tax credits still available ranging from installing a solar system for your whole house, to installing a system just to heat your pool or hot tub. OR, installing an energy efficient gas fire place or pellet stove and a whole lot more.

To qualify, you must purchase the equipment by the end of the year; it must be installed by April 1, 2018; and all application paperwork to the state must be submitted by June 1, 2018. (Usually the installer will complete paperwork for you.)

To see all the current Oregon energy tax credits (dollar for dollar credit from the tax you owe), please click here Current RETC Rates for Oregon.

Installation of a whole house solar energy system is the only remaining Federal Energy Star tax credit still available. You can recoup up to 30% of the cost of the system through the end of 2017, but that percentage will decrease after this year.

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Home buyers are back out in force in Portland

sold - sale pending signsAfter the usual slow down in property viewings for the last month or so, potential buyers are back out in huge numbers here in Portland. RMLS reports that home views increased almost 20% last week in the Portland metro area. This home buying frenzy is likely to continue until the Thanksgiving holidays if this year is like the last few years. Between Thanksgiving and and the end of the year holidays, the number of “I’m not in a hurry” home viewers tends to decline, while serious buyers continue to seriously search for that perfect home.

To make matters even more urgent for prospective home buyers, it is anticipated that mortgage rates will begin to rise beginning in October 2017 as the Feds begin selling off their $4.6 trillion inventory of Mortgage Backed Securities and Treasury bonds. The rates are expected to increase monthly through 2018 because the number of bonds being released by the Feds will increase monthly for at least a year. Rising interest rates will price many buyers out of the market as prices continue to rise.

Unfortunately the low inventory numbers of homes for sale continues to weigh on home prices in Portland. The median sales price for homes sold in August climbed to $385,000, up 9.1% from a year earlier but $10,000 less than the median price in July.

home prices increase againAverage home prices climbed above $420,000 in July for the first time in Portland’s recorded history, and with an ever growing population, this trend is likely to continue. Prices are rising faster in the Pacific NW than in any other area in the country. Portland ranks 2nd only behind Seattle for fastest rising prices.

 

All these statistics are a bit slanted though because the truth is that home prices have stabilized in homes valued at $500,000 and up, while homes valued below $500,000 are really rising faster than 9.1% year over year. There are so many buyers almost desperate to lock in a home purchase priced under $300,000 that unfortunately we have seen the return of the “lipstick on a pig” type home flippers. These flippers will purchase those properties that are in really poor condition; slap some paint on the interior and exterior, perhaps update the kitchen with new but inexpensive cabinets and appliances and raise the price to at or just below $300,000 to cash in on huge profits. However, a lot of essential repairs are left undone.

Since the under $300,000 price range is where most buyers are becoming more disheartened and a little bit desperate, it is critical to do your own limited home inspection to make sure that you are not risking your limited funds on a home that has too many problems to even qualify for financing. Issues such as dry rot, appliances and furnaces, water heaters etc. that are unsafe, roofs that cannot be certifiable for at least 2-3 years life, windows throughout the house that do not open or lock, and so much more can often be detected by the prospective home buyer.

While your earnest money deposit should not be at risk during the early stages of the purchase IF you purchased through a realtor with all the buyer protections written into the contract, you could lose valuable time searching for a better investment. Please read Tips to avoid buying a money pit to help you do your own quick inspection of any home you are considering making an offer on.

Finally, buyers should always be working with their own realtor, rather than the listing agent to make sure that their realtor is working for them, NOT the seller.

 

Good luck out there.

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Are you ready for mortgage rate increases beginning in October 2017?

Federal Reserve BldgWhile we have all been watching hurricanes, fires, earthquakes, North Korea threats, and so much more, the Feds rather quietly held their usual monthly meeting just about a week ago on September 20, 2017 where they unanimously decided it’s time for them to begin to unwind Quantitative Easing (QE).

Most recently we’ve grown accustomed to news that the Feds met and little changed. The benchmarks the Feds were looking for to signal economic health were not happening. But anyone watching the Feds knew that the news was bound to change soon; and it seems that soon means now.

Per the news conference held after the meeting, the FOMC (Federal Open Market Committee) chaired by Janet Yellen announced that they finally feel that the US economy is now healthy enough to begin to unravel QE  and let the market find its own way.

As a reminder, QE (quantitative easing was implemented just after the bank bailouts and housing market crash about 10 years ago in order to stabilize the economy as much as possible. The over night lending rate for banks and large financial institutions was dropped to zero while the Fed began buying up federal and mortgage bonds in astronomical numbers. They began unwinding that policy at the end of 2015 by gradually raising overnight lending rates which now stands at 1.25%.

The Fed currently holds $4.5 trillion in these security instruments. This buy and hold strategy has artificially held lending rates of all types, including mortgage rates at almost unprecedented low levels for the last 10 years.

Last Wednesday the Fed announced that the over the counter lending rate for banks will remain at 1.25% but QE has come to an end. They will begin selling off bonds beginning October 1, 2017 and will continue to sell monthly until the portfolio is gone,or until they decide that their portfolio is an appropriate size and the markets have stabilized. 

The starting rate of the sell off will begin somewhat slowly; next month they will sell $4 billion in mortgage backed securities and $6 billion in Treasury bonds. This number will increase monthly until the sell rates reach $20 billion monthly in mortgage securities and $30 billion monthly in Treasuries. It is expected that these levels will be reached in about a year. 

Once those bonds start hitting the free markets, it is forecast that all lending rates will increase incrementally, including mortgage rates, until the bonds are gone. As we have seen in the past, when banks feel they have any excuse at all to raise lending rates, they do so. Typically they test the waters with a bigger increase than the market will bear, so they pull that increase back slightly. But with billions of dollars worth of bonds hitting the free markets every month going forward for at least the next year, it’s impossible to predict just how quickly lending rates of all types will rise.

The Fed will monitor the rate of sales closely to ensure that we don’t see car loans, student loans, personal loans, credit card rates and mortgage rates rise too quickly, but rise they all will. Even the Feds expect that. 

IF you are thinking about selling or buying a home, this might be time to get going. These rate increases may seem small, but could definitely affect how much buyers are qualified to spend for a home purchase, especially those who are looking at homes priced at their current pre-approval limits.

 

 

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2017 Oregon Legislative session ends saving important benefits for home owner

The 2017 Oregon legislation session ended last week. Here’s a recap of some of the laws that affect home owners.

HB 2004 – Tenants Rights – failed

Just this week, the long disputed tenants rights bill failed to pass in the Oregon legislature. This is very sad news for tenants, but a huge relief for landlords. It was a poorly written bill that would have enhanced protection for tenants, but was unfairly anti landlords. Tenants will certainly be working to protect their rights again next year, and hopefully a better bill will be written and passed.

In the meantime, renters will retain the rights they already have, which differ from city to city. Before moving, renters should check with the tenants rights groups for the city they are considering moving to so they understand what laws apply to them already, and which laws do not. 

HB 2006 – Mortgage Interest Deduction – failed

This bill would have eliminated the MID (mortgage interest deduction) for individuals making $100,000 or more ($200,000 for joint filers). HB 2006 would have also capped the amount of interest that could be deducted for those individuals making under $100,000 ($200,000 for joint filers) at $15,000 on their primary residence. In addition, the bill would have eliminated the MID for second homes. This bill didn’t get the attention from the public that it probably should have, but the OAR (Oregon Association of Realtors) fought it on home owners behalf. 

With ever increasing housing prices and mortgages, this bill would have hurt just about every home buyer who paid anything close to current average prices for property, especially in the early years of a mortgage when just about all of the principal and interest portion of the payment goes to interest. The interest rate deduction helps middle class families and should not be eliminated. 

HB 2771 – Eliminating the Deductibility of Property Taxes – failed

House Bill 2771 would have phased out the itemized deduction for real property taxes for incomes between $50,000 and $125,000 for single taxpayers and between $100,000 and $250,000 for joint taxpayers. In addition, the bill would have eliminated the ability to deduct property taxes for single tax payers making $125,000 or joint tax payers making $250,000 or more in a year.

Again OAR fought this bill on behalf of all home owners. Home owners should not be the only ones who contribute to state budget shortfalls. And tenants should be equally concerned about these laws since bills eliminating tax write offs for landlords would only serve to increase rents to help those property owners shoulder the additional costs.

 

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Mortgage Rates dip again

Mortgage rates have backed off the highs we saw right after the start of the year when the stock market went into overdrive. There were lenders quoting rates at or near 4.5% at that time. The good news is that rates appear to be below 4% again, so if you’re thinking of buying, this is still a good time. Who knows how long this will last? Just a reminder that you need to shop lenders. Rates can vary as much as 1/4% – 1/2% from lender to lender. 
 
The average home price in the Portland metro area has again topped $400,000. This also means tthat homes priced below $300,000 are becoming harder to find, even when they are fixers, and they sell quickly. Single family detached homes priced below $200,000 have all but disappeared now though there are still condos and town homes available from time to time. With the higher prices, we’re seeing much more home sales activity in outlying areas in NE and SE Portland. According to RMLS statistics neighborhoods east of I-205 are seeing a surge in popularity and in fact a few neighborhoods are reporting more sales in 2017 than some of the very popular close in areas like Multnomah Village, Concordia or Hawthorne. 

For those who are waiting for the inevitable slowdown in housing prices, it is forecast that we are unlikely to see that until 2020 because economists at city planning say that the Portland metro area is currently about 24,000 housing units short of demand and it will take that long for developers to catch up. 
If you are “forced” to buy a home further out from downtown, I wouldn’t fret about it. I doubt it will be long before the bellweathers that forecast that a neighborhood is great, like the opening of a New Seasons or Trader Joes always seem to follow where the population is moving, so watch for news that a new store is opening in outer NE or SE Portland.

By the way, for those of you on the west side, Forest HIlls, Bethany, Beaverton, Tigard, and HIllsboro are still right up there for number of sales as people continue to buy on the west side of town too. In fact, Forest Hills/Bethany had the most sales during the fist quarter of 2017.

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FHA and VA raise loan limits in Oregon

We thought it was never going to happen, but rising home prices and values have finally caught the attention of the powers that be and both the FHA (Federal Housing Administration) and VA (Veterans Administration) have finally increased loan limits to $408,250 in the Portland metro area and in Yamhill County. That’s a pretty decent increase from $368,000. Conventional financing, (Fannie Mae and Freddie Mac) have also increased loan limits to $424,100.

If you live in other counties in Oregon, please check to find out what your current FHA loan limits are. It appears from a brief check that VA loan limits are the same as the new FHA limits in all Oregon counties.
 
This is no way keeps pace with the ever higher prices in our area, but it will make purchasing a home easier for many buyers, especially those who are using FHA and VA financing.

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President Trump signs executive order eliminating the 1/4% FHA mortgage rate cut just announced

A new President, a new day! But not a good day for first time home buyers nor President Trump supporters.

With one quick stroke of his pen, on day one, President Trump took back the FHA mortgage insurance rate cut that had just gone into effect on January 9, 2017. For the average home buyer using FHA financing, this will cost each of you an average of $500 per year. Here in the Portland area, this will cost you between $700 – $900 per year. Not necessarily a deal breaker for many of you, but why in the world did he do that?

FHA has the reserves now to support this rate drop. Perhaps you should ask him.

Please read the article just published yesterday about this rate cut for more information

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FHA lowers mortgage insurance premium for most home buyers – maybe?

In an effort to attract more home buyers to the FHA financing option, on January 9th, FHA announced a reduction in the monthly mortgage insurance premium that most home buyers will pay by 25 basis points for new mortgages closing on or after January 27, 2017.**

FHA says that they have finally reached a stable point in their finances after the enormous losses they endured during the housing collapse. The last four years of housing growth and stability has allowed the FHA to recoup their losses and they want to pass some of these savings on to home buyers to make housing more affordable.

To put this into perspective, for a mortgage of $368,000 (the maximum allowable mortgage for the Portland metro area at this time), this would equate to a monthly savings on your payment of approximately $76.00 (an annual savings of $912).

However, it’s important to remember that mortgage rates have risen over the last several months. We are no longer seeing the low rates we had grown accustomed to over the last 4-5 years at below 4%. Average 30 year fixed rate loans as of today are around 4.25%, even for those with the best credit. So this .25% rate reduction for FHA mortgages only partly offsets the rate increases. Still, every little bit helps, and FHA is the best financing option for prospective home buyers with less than 5% down payment.

In contrast, a conventional home loan will cost the home buyer more to purchase. While there are conventional loans requiring as little as 3% down payment, these are available to only those with the best credit scores; AND the mortgage rate rises for buyers with less than 20% down. FHA rates are the same for those with low down payments  and less than perfect credit, though there is a minimum credit score requirement of at least 620-640 at this time.

**NOTE: I apologize for this footnote, but just as I hit publish on this article, the following news came across: As of yesterday, National Mortgage News reported that Trump is recommending that this reduction in mortgage insurance premiums be delayed until it can be further reviewed by his new Secretary of Housing and Urban Development Ben Carson. This is purportedly just one of the Executive orders that he intends to sign as soon as he is inaugurated.

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Feds raise rates today – how will that affect you?

Today the Feds announced just the second rate increase since 2008. The justification for the rate increase was that the economy continues to get stronger and move closer to the 2% inflation rate that the Federal Reserve considers a solid rate of inflation for a healthy economy.

Fed speak indicated that it is anticipated there will be 3 more rate increases in 2017. 

Federal funds rates do not directly affect mortgage rates but…

Federal funds rates are the rates that banks charge each other for short term loans they need to keep their reserves at a set level to ostensibly prevent another bank melt down.

The federal funds rate can directly affect the cost of housing, rates paid on credit cards, auto and other installment loans and student loan rates.

Mortgage rates are not directly tied to federal funds rates, but banks do find ways to pass on current and anticipated future costs to consumers. With the forecast that bank short term borrowing rates are likely to increase at least three times in the next year, banks are already looking at the losses they will be incurring on the hundreds of millions of 30 year fixed rate loans with rates at and below 4% that have been funded over the last 8 years; as well as losses they will sustain on new mortgages funded now before more rate increases kick in during the coming years. 

However, to put all this in perspective, the banks have been paying basically zero per cent over the last 8 years, while the lowest mortgage rates funded during that same time period was 3.5%. Not to mention that banks have been charging fifteen to twenty percent on credit card debt. This is why most banks are not hurting at all, and in fact have been more profitable than ever over the last several years since the recession ended. 

As regard mortgages, as of today, the average rate for a 30 year fixed rate loan has risen to 4.3%, up from 3.5% available from many lenders to the most qualified buyers just a few weeks ago. 

Still on the fence about buying a house? The forecast is that rates will continue to rise which will reduce buying power for most applicants. It is possible mortgage rates could rise as much as one per cent in 2017. If you’re currently home shopping, be sure to keep in touch with your lender AND keep your pre-approval up to date so you’re aware of how much you can afford at all times. 

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Housing market forecast for 2017 – Portland Oregon

Housing prices UPHousing prices and mortgage rates have very different factors driving the direction of both. If rates rise, will housing prices drop? I’m asked this question all the time. Many people assume that rising rates should cause housing prices to drop.

The truth is that no one can say for sure what’s going to happen with the housing market in the future. We know for a fact that both prices and rates are cyclical; but that’s because of all the many outside factors that influence the two markets. And to be sure, it’s important to remember that these are two very different markets.

Mortgage rates are tied to the Mortgage bond market

When demand for mortgage bonds drop, the yield on the bonds tends to rise and mortgage rates will follow suit. The demand for bonds tend to rise when Wall Street is in a slump. This causes the price for bonds to rise, so the yield drops and rates drop too. Conversely, when the bulls take over Wall Street, as we are seeing since the recent presidential election, institutions sell bonds and buy stocks. As bond prices fall, rates rise.

It would be an over simplification to say this is always true – there are always other factors that are part of this equation, but in general, WATCH WALL STREET! There is no doubt that when the Feds stop buying mortgage bonds to keep that market stable, mortgage rates WILL rise. The 10 year Treasury bond yield, which historically mortgage rates tended to mirror has risen more than 1% since the elections, and mortgage rates have followed though not quite as quickly. Mortgage rates bottomed at around 3.5% and that rate was available as recently as a few weeks ago. As of today, average 30 year fixed rate loans are available at 4.3%.

Housing prices are tied to supply and demand

Unlike mortgage rates, the price of housing is dependent primarily on supply and demand. When inventory is very low, as we have seen in Portland since about 2012, housing prices rise until inventory catches up, or demand drops.

Here in Portland the forecast is that housing prices WILL CONTINUE TO RISE for at least the next couple years. It will take that long for there to be enough inventory to meet the demand. Though, if mortgage rates rise dramatically, many potential home buyers will be priced out of the market.

Why is housing inventory so low in the Portland metro area?

  1. Migration – there are far more people moving into Portland than out. As of 2015 migration numbered approximately 112 people moving into Portland every day! Portland’s population is now at approximately 2.5 million residents and still growing. More recently we are hearing migration numbers have increased to closer to 150 new residents every day.
  2. Jobs and the economy – Industries are moving into Portland bringing some of their own employees with them, and boosting the economy by adding jobs for local residents. Recently, Amazon announced that they will be opening a giant warehouse in Washington county that will employ approximately 1000 people! Add this to Uber, Google, Airbnb, Ebay, plus all the smaller tech start ups, and you can see that there are jobs in this area, and people migrate to areas where employment is available.
  3. Climate – Unlike California and much of the southwest, Oregon has a fabulous moderate climate. Yes, it does rain approximately 141 days of the year, but most of those days we see some sunshine too. And the temperatures are moderate. We have few days below freezing or above 90 degrees. The rain keeps Oregon green and water prices low as compared to much of the country. 141 days of rain means we rarely have water rationing. There’s plenty of water to go around, even for those who like long showers. 
  4. Competition from institutional buyers – with prices relatively low and on the rise, institutional buyers such as hedge funds find Portland a great place to invest so they buy up much of the lower priced housing; competing directly with home buyers who actually live here. Unfortunately they hold these properties as investments and drive up the rental costs along with the housing prices. 
  5. Green economy  – Travel and Leisure magazine ranked Portland the greenest city in America in 2015. 
  6. Millenials are moving to Portland in huge numbers due to all the above factors and have been choosing Portland since around 2010.

All these trends are likely to continue which will continue to contribute to ever higher housing prices.

 

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Election is over – watch mortgage rates rise

The election is over, and whether you supported Trump or Clinton, we all have to face that we are now looking at President-elect Donald Trump. As you know, he promised when elected, during his first hundred days he would push to roll back much of what President Obama accomplished. Unfortunately for consumers, this means much of the consumer protection legislation that was passed could disappear or be seriously revised. 

Since the recession, the Feds have kept interest rates low and continued government subsidies for mortgage bonds to keep mortgage rates low. However, Fed Chairman Yellin has already signaled that an interest rate hike in December is likely and that mortgage bond subsidies will end at that time.

Mortgage rates up approximately 1/2% in last few weeks

In the meantime, mortgage rates started rising even before the elections, and have picked up speed since the results were announced. Lenders tell me that average mortgage rates are already up about 1/2% in the last few weeks. Corporate America and of course this includes banks, are thrilled about the plan to lower taxes on the corporations and the wealthy. If you couple those tax cuts with regulation roll backs, who really knows where mortgage rates could go? 

One of the potential Fed Chairmen that Trump has been talking with has said that it’s time for rates to return to a more normal level. This means we could be looking at as much as a 2% increase over the next 2 years. That would normalize our mortgage rate environment which many of you may have forgotten typically runs around 6%.

Stay tuned. This could be a very different year than the last eight years since the recession. 

 

 

 

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How do lenders determine your mortgage rate?

Libor Index graphicMortgage rates are tied to a variety of indexes such as the mortgage bond index, the LIBOR index, etc. These indexes change continually which is why mortgage rates are an ever moving target, though usually stay within a relatively small range on a daily basis.

Banks will add their profit margin to the index rate to determine their “best rates” at any given time. “Best rate” is the key here though. Depending on the type of mortgage you are applying for, your lender may make adjustments to that “best rate” based primarily on your credit score and amount of down payment.

Conventional financing (Fannie Mae loans)

Mortgage rates chart Oct 15 through December 10, 2015

                               As you can see from the above chart, mortgage rates change frequently

After the recent housing crash when so many home owners who had adjustable rate mortgages lost their homes, most buyers who qualify are opting for 30 year fixed rate mortgages.

IF your credit score is at least 720 AND you have a 20% down payment, AND there are no recent prior derogatory credit issues (such as short sale, foreclosure, bankruptcy), AND you don’t need a co-signer, you should qualify for the best conventional rate you see quoted all over the Internet. But remember that those posted rates may be quoted just once a day, while rates can move up and down, even during the course of a single day.

Important note: Rates quoted on the Internet are often for adjustable rate loans or include a buy down cost.

The reality is that mortgage rates are all about risk. Currently mortgage rates are very low compared to historical averages. This is risky to lenders because you are locking in your rate for 30 years. Banks are all too aware that means that if you keep your house and take the full 30 years to pay it off, they will likely experience an interest rate loss on you at some point during that 30 years as mortgage rates rise. That’s why they build in a substantial profit margin over the rates they are paying to borrow money to lend to you.

If your credit score is below 720, or if you have less than 20% down payment, or if you can’t qualify based on just your own income; you are considered a higher risk, so you will be charged a higher rate to minimize that risk to the lender. We refer to this as “risk based adjustments”. Also, the type of property you are purchasing can trigger risk based adjustments. For example, you will pay a higher rate if purchasing an attached condo. You very likely will not be able to purchase a manufactured home even if you own the land under it, nor a floating home, even if you are also buying the slip, with conventional financing.

ARM (Adjustable rate mortgages)

Adjustable rate mortgages are still available. You’ll hear them referred to as 5/1 ARM, 10/1 ARM, etc. These loans have a locked in fixed rate for 5 or 10 years, or whatever type of ARM you have, but then the rate can (and usually does) begin to rise, as often as twice a year, and up to 2% at a time. For the lender, this means you are assuming some of the interest rate risk so ARMs are generally offered at lower initial rates than 30 year fixed rate loans. It is highly advised that unless you are absolutely sure that you will sell your home prior to the end of the locked in rate period, because the rates increases can be quite a shock to most home owners when they kick in, you should choose the 30 year fixed rate loan if you can afford to do so. (Your mortgage rate can go from 3.5% to 5.5% over night!)

Conventional ARMs are also subject to risk based pricing adjustments. So, all of the above mentioned variables can apply to these loans as well as 30 year fixed. 

Conventional financing can end up being very costly for those who do not qualify for the best rates, because when it comes to risk the banks always win. Buyers always pay for higher risk.

Other loan options

There are several other types of mortgage financing available. FHA, VA, USDA, private lenders, hard money, etc. Each type of financing comes with its own good, bad and ugly features, so each type of financing should be looked at and carefully considered when you are shopping for home financing.

FHA financing

FHA has historically been the option for those who are credit challenged. But, increasingly, those with lesser down payments are opting for FHA financing because the minimum down payment is only 3.5% of the purchase price, and, the fact that you have only 3.5% to put down does not affect your rate. BUT, FHA covers their risk by charging you both an upfront fee for the loan, plus monthly mortgage insurance to cover their risk for the life of the loan. Rather than the rate, the amount of the monthly mortgage insurance will be affected by how much risk you are to the lender. For example, if your credit score is lower (as low as 620), or if you have prior derogatory credit issues, you will be charged a higher monthly mortgage insurance premium. Some lenders do offer FHA financing to borrowers with credit scores lower than 620, but then rate as well as mortgage insurance will be higher. 

FHA rehab loans are a great option for those who want or need to purchase a lower priced home that requires renovations in order to make it safe and habitable. Make sure, if you are looking at fixers, that your lender is aware of this in advance, because there are defined steps you must take in order to close your purchase. Otherwise, FHA is very picky about the properties they finance and have very strict standards about the condition of the property if you are not getting a rehab loan.

Another downside to FHA financing is that the maximum purchase price is lower than the maximum price for conventional financing.

FHA does lend on manufactured homes, but does require a minimum 20% down payment, and these homes must be in excellent condition and must have been built after 1978. 

USDA loans

USDA loans cover up to 100% financing! But there are restrictions.

They are offered only in “rural” areas (as determined by population as of the last census.) In the Portland metro area, USDA loans are pretty hard to get, because only neighborhoods that are way out from downtown Portland still qualify. Additionally, there are income limits for home buyers, maximums on purchase price, and minimum credit scores are higher than for FHA financing.

But, if you are looking in a USDA eligible neighborhood, be sure to talk to your lender about whether or not this option will work for you. Anyone who qualifies gets the best conventional 30 year fixed rates with zero down payment and minimal mortgage insurance premiums.

VA loans

VA loans have been around forever, and what a great program they are for veterans. In most cases, there is zero down payment required, and vets will get the best rates with lower credit scores as well. They do have to pay mortgage insurance, but it is minimal as compared to the MI charged on FHA or conventional loans.

Thank you veterans for your service! You definitely deserve the best mortgages possible for the sacrifices you have made for the rest of us.

Hard money and private lender financing

As a general rule, only those who cannot qualify for any of the above types of financing will turn to hard money or private financing. The exception is when you want to purchase a property that does not qualify for any of the more well known forms of financing. If you seriously want to purchase a home and cannot get a loan, be prepared to pay much higher rates and more points for your loan. These private lenders know you have no other options, and are in a position to take advantage of that fact. Also, these lenders almost never lend without your having considerable “skin in the game” in order to protect their investments in you.

It’s important to talk openly with your realtor and lender when buying a home

Because a mortgage is the biggest debt most people will ever take on, and buying a home is the biggest and one of the most eventful purchases of your lifetime, home buyers need to talk openly with both realtors and lenders to help us guide you to the best purchase and financing for your unique circumstances.

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Mortgage rates drop as Wall Street plunges

rates drop (2)Mortgage rates are again dropping as world economic news has Wall Street selling off in virtually every category. (If you check your 401k or IRA balances, you might notice those balances are about the same as what you would have seen in 2013!) In fact, the DOW has now dropped to lows not seen since May 2014. Prior to this latest sell off, the DOW had topped 18000 and with strong jobs reports and economic news, and appeared to be headed for 19000 perhaps by year end.

Forget Greece. It’s all about the Chinese economy, or so many news outlets would have you believe. But there’s even more going on that is only starting to make the business headlines. Bloomberg news reported this week that Brazil’s stock market is nearing a bear market. Many economists believe that Brazil is headed towards a severe recession, perhaps the worst since 1930s.

And just this morning on CNBC, analysts were saying this sell off is a delayed reaction to the FOMC possibly raising interest rates next month. It appears that what is going on with Wall Street is what we have seen before – panic selling and scheduled sell offs of huge volumes of investments by Mutual Funds, Hedge funds and individual investors alike.

Mortgage Rates drop too

While our tumbling stock market is bad news for investors and savers, it should be music to the ears for home buyers as mortgage rates plunge below 4% for best qualified home buyers.(you might want to read: Do you qualify for best mortgage rates?)

In other better news for home buyers, Janet Yellen (FOMC Chairman) is now hedging on her very strong (almost commitment) to begin raising U.S. interest rates in September. Economic instability in 2 of the worlds’ leading economies outside the U.S. along with the Wall Street sell off will very likely will impact U.S. businesses, so the FOMC is watching China, Brazil, Greece and the rest of the world to try to determine ahead of September 15th, just how much impact all this news will have on our own economy to determine if next month IS a good time to start increasing interest rates. IF FOMC acts , mortgage rates are very likely to follow.

Where are Portland home values headed?

Just a few weeks ago, Wall Street sentiment was that home values will continue to rise for at least the rest of this year, and well into 2016. And, did you know that Oregon ranks #5 in the nation for most increased values since the recession? Did you know that just last month, Portland experienced the single busiest July in RMLS history for home sales?

Update 8/21/15 1:16pm

Wall Street just closed with the DOW down more than 500 points! After a 350 point drop yesterday, and drops everyday this week, Walls street has plunged more than 10% this week alone, S & P approximately 19%, and NASDAQ down 20% this month. So what does this mean for the housing market, here in Portland and in the U.S?

Unfortunately we don’t have answers yet. We never do, until the correction on Wall Street is over and investors start buying the drops rather than selling. We could see a lot of buyers move to the sidelines with a “wait and see” posture. Still, if history is any indicator, long term investors could do worse than buying homes right now. All previous corrections in history have always produced higher values over the long term. AND, mortgage rates did drop more today making homes more affordable. Also, with some buyers moving to the sidelines, there will very likely be less competition for the few houses out there right now.

As Warren Buffet has always said; “Buy when everyone else is selling, not when they’re buying.” If the Feds go ahead and raise rates in September, buyers may not see an opportunity like this one for many more years to come.

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Pre-approvals for mortgages – What you need to know

In a busy housing market, most people know that before you even go out to look at houses, you need to get a written pre-approval for financing. While you may have checked your credit scores recently, your scores don’t tell the whole story about your credit history. The truth is that since the recent recession and the consequent tightening of lending standards, there are many people out there with credit scores between 650-750 who do not qualify for a home loan. A prior bankruptcy, foreclosure or short sale could have your dream of home ownership on hold until the mandated waiting period. And those with old collections and even old judgments will have to pay those old debts prior to obtaining a pre-approval too.

In a sellers’ market, it is not uncommon for sellers to receive multiple offers on their homes. When this happens, sellers may opt to basically ignore offers that are not accompanied by a pre-approval (or proof of funds for cash buyers).Of course sellers are looking for the most money they can make on their homes, but their decisions are also based on the likelihood that an offer will actually close. For sellers, nothing says serious buyer more clearly than a signed pre-approval from a lender (on lender letterhead).

Your pre-approval process is usually fairly easy and with most lenders pretty fast too. You will need to provide (at a minimum) the following information to your lender:

  •  2 months most recent pay stubs
  •  2 months bank statements – all pages included (If pulled online, statement must show your name on the on the paperwork.)
  •  last 2 years tax returns – all pages and all schedules
  • most recent 2 years W2s or 1099s if self employed

Your lender will pull a tri-merge credit report (all 3 credit bureaus) to determine the amount and type(s) of financing that are available to you. Most lenders will use the mid-score from the 3 bureaus.

Not only do sellers require pre-approvals; your realtor needs this information as well.

  • We want to show you properties that you are qualified to purchase.
  • We need to know if, for example you are looking for FHA financing, that the property is FHA approved (many condos are not FHA approved, so why look at them?)
  • Once you find a house you want, we need to be able to present as strong an offer as possible.
  • We frequently communicate with your lender, usually even prior to finding you a home, so we need that contact information as soon as possible.

Your pre-approval is usually good for 90-120 days. Once you have an accepted offer your lender will require all  new updated documentation, AND your credit will be re-pulled at that time too so please read on.

Managing your credit after you receive a pre-approval

Once you have your pre-approval from a lender, it is important that you manage your use of credit wisely. Most lenders should tell you:

  • DO NOT apply for any additional credit cards after your pre-approval is issued.
  • DO NOT make any large purchases ($100 or more) on existing credit cards.
  • DO NOT change jobs or give notice to your current employer. In fact, don’t use online services to search for a new job. Lenders are wise to all the online services, and often check social media sites to see what you’re up to that the loan application does not cover, and they do this just before the loan is scheduled to close.
  • Make sure that you pay all creditors on time.
  • Don’t file for a divorce or formal separation prior to closing a loan. Even if your spouse or partner will not appear on your application or loan, the legal ramifications of a divorce will affect your ability to finance a purchase.

Applying for new credit, large purchases on existing cards, and missed payments to creditors WILL lower your credit scores and will reduce the mortgage amount you qualify for.

You really should be using the time prior to home shopping to do any mortgage shopping before getting a pre-approval. Once you have an accepted offer with a seller, the Oregon contract does clearly spell out that you must notify the seller if you’ve changed lenders after mutual acceptance of your offer.

The credit bureaus allow up to 3 mortgage inquiries within a 90 day period without a 6 point drop in your scores for each inquiry. New sources of credit will lower your scores considerably more than 6 points.

If you know that you will need a new refrigerator for you new home, you have to put these purchases on hold until after your loan closes. You really can manage 1 or 2 days without a new refrigerator or washer/dryer or that big flat screen TV you now have the perfect wall for.

Virtually all lenders will pull a credit update and will verify your employment just before your loan is scheduled to close. Any negative changes to your credit scores, increases in your credit balances, or iffy news about your employment can kill your loan at the last minute.

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Have you checked your credit recently?

Credit reportI’m sure it’s not a surprise to anyone that ID theft is alive and thriving these days.Did you know that approximately 1 of every 4 people in the U.S. has at least one error or derogatory item on their credit reports? And yet, with all the threats out there, most people are pretty lax about keeping tabs on their credit information. Just last week I personally received an updated report and found, much to my surprise, that someone else is using my social security number!

  1. Do you know if there is information on your credit report that is not yours? Or that was reported in error?
  2. Do you have a relative with a similar name? Or is someone else also using your social security number and causing information to reported on your report that isn’t yours?
  3. Do you have an old collection that was filed against you that you never cleared or that you thought you had cleared but was never reported as paid?

Everyone should monitor their credit on a continual basis. There are several credit monitoring services that you can purchase for as little as $10 a month, AND there are multiple free sources for obtaining your credit information as well. All three credit bureaus offer you one free report annually, and several businesses allow you to pull your credit at least several times a year at no charge.

As surprising as this may sound to many of you, the first time that many people learn there are errors on their credit reports is when they apply for a mortgage. Oops! Here you are, all all ready to go out house hunting and find a $5.00 collection on your report. No big deal, or so you think, but that $5.00 collection for cable TV service you were sure you had canceled on a prior move, can cost you a 100 points or more on your credit score. and can cost you thousands of dollars on your mortgage because of the higher rate you will have to pay, if in fact you qualify.

Fixing errors isn’t hopeless, but it takes time and could be more work than you might think. And if the $5.00 collection was a valid charge, paying it will help your score, but not nearly as much or as quickly as your score dropped due to the non-payment of a legitimate bill.

Be sure to check all credit that is being reported to make sure that it is yours. Look for names that your credit report shows using your social security number. Check to make sure the credit bureaus are showing your current address.

How to fix errors on your credit report – This article will outline the fastest, easiest way to fix errors on your credit report yourself, but be warned, it can still take 30 days or more to have errors removed. The reward is an immediate increase in your credit score, and a clean credit report. Errors that have been disputed and removed can never appear on your reports again. 

In March this year, “Eric T. Schneiderman, the New York State attorney general, announced that his office had reached a sweeping settlement with the agencies, affecting consumers nationwide, which was prompted by an investigation that began in 2012.” This is a huge victory for consumers because it will not only make correcting errors on your report easier to fix, but it will change how some information is weighted in computing your scores. The credit reporting agencies have announced that the changes will be implemented over the next 3 years, so don’t expect over night progress. But rather than outsourcing all disputes to employees overseas, the agencies have agreed to hire specially trained personnel to handle all disputes to make sure that they are handled correctly and promptly. AND best of all, information from collectors will no longer be given more weight than documentation from consumers.

While we’re waiting for these sweeping changes to take effect, please, if you haven’t done so recently – Check your credit report today. Don’t wait until you need credit to find out there are errors that can be fixed. The more frequently you monitor your report, the faster you will discover errors, and the easier those errors are to fix.

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Alert: Hackers target home buyers

Hacker at work - https://de.wikipedia.org/wiki/HackerAs if buying a property weren’t stressful enough, the NAR (National Association of Realtors) has just advised us that Internet hackers are now targeting home buyers. It was only a matter of time before hackers went after the vast sums of money involved in purchasing a home, but this time the route to the hacking is a bit different than in most cyber crime-schemes.

Apparently hackers are now targeting realtors’ email accounts and silently watching those emails for information that will allow them to re-route buyers closing funds to their own bank accounts. As closing approaches, escrow officers send buyers instructions, including what to bring to closing, amount of funds required, and where and how to wire funds to close the transaction. The hacker will also send the buyer what appears to be an official looking email from the “title company” with “updated instructions” on where to wire funds. (Remember that your agent and escrow officer have been communicating frequently during your purchase, so hackers have the official signatures each has been using, and these are easy enough to copy to make your email with updated escrow instructions look legit.) Some hackers may even include other information about your transaction to make the email look even more like it has come from a trusted source.

Generally speaking, this will not impact the majority of buyers who hand carry a cashiers’ check to the title company at closing. But, for out of state buyers and cash buyers, it is not uncommon for funds required for settlement to be wired to the title company. By watching emails exchanged between buyers and their agents, hackers gain information about how the purchase will be financed as well as the scheduled closing date.

How can you protect yourself from hackers?

  1. Make sure that your realtor is taking every step possible to keep hackers out of their email. Personally I change my password frequently which makes watching my email much more difficult for hackers, and I use strong passwords that hackers would be unlikely to guess.
  2. It is very uncommon for a real estate agent to request sensitive information from buyers, especially via email. We don’t need your bank statements (unless you are a cash buyer) or any information with your social security number. That type of information should always be handled by your lender. When we do require proof of funds for a cash transaction, buyers should always redact most of your account number (leaving only the last 4 digits), and should send proof of only enough funds required to settle the purchase. If you are able to encrypt the email, that would be even better.
  3. Before wiring funds, always double check with your escrow officer to make sure that you have the correct wiring information for your bank. Be sure to keep and check old emails you have received from the title company to make sure you are calling or emailing the correct person, because hacker contact information is almost always included in the scam emails you receive.
  4. Don’t click on any links in the email, giving the hacker access to your email (if they don’t already have it).

It’s an Internet world out there, but there are always steps you can and should take to protect yourself, and that I take to protect you if you are my client. Unfortunately, once the funds are wired, even to an incorrect account, the money is gone.

The good news is that banks, title companies and realtors are all being notified of this new threat and are all taking whatever steps we can take to tighten security on your behalf. But at the end of the day, responsibility for issuing correct wiring instructions is still yours. So, be careful out there. Check and double check your information before you pass on wiring instructions to your bank, and you should be fine.

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Yellen speak points to rate hike at September FOMC meeting

Janet YellenJanet Yellen spent 2 days last week testifying before Congress. There was a lot of discussion about Fed policy, but the big question was…

When should we expect the Feds to raise the over-night rate to banks?

It seems that we have been talking about this rate hike for so long with no action that most people are beginning to doubt that it will ever happen.

Janet Yellen has been in the hot seat numerous times over the last few years. She is more than adept at seeming to answer very direct questions without providing very direct answers. Still, the general take-away last week is that Ms. Yellen suggested that the long awaited and dreaded first rate hike is likely at the September 2015 FOMC meeting.

Yellen noted that all the Fed requirements for the first rate hike are not yet in place and may not be for several years; but holding rates at or near zero must end at some point, and this should probably happen sooner rather than later. Yellen did emphasize though that the Feds will proceed slowly, carefully monitoring the effects of the hike when it happens. She emphasized that at all costs, the Federal Reserve will proceed with caution.

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Mortgage rates creeping up

10 year bond yields

10 year bond yields

According to CNBC this morning, the yield on the 10 year Treasury bond moved up dramatically this morning causing some concern that mortgage rates (closely tied to the yield on the 10 year bond) are following. Best mortgage rates quoted this morning are between 4% – 4.53%.**

Last week, we saw the yield on the bond about 10 basis points lower than this morning, and of course, this could be a concern for our very robust housing market here in the Portland metro area.

Why did the 10 year bond yield rise so much this morning? This was mostly driven by international news:

  • The Greek bail out
  • Chinese markets on the rise
  • Iranian nuclear deal looks like it might be a go this time

All of these international crises that have been heavily weighing on US stock markets, look like they might be averted finally. Could this be the combination of events that will lead the Feds (led by Federal Reserve Chairman Janet Yellen) to raise over-night bank rates in their September meeting? This would most certainly be a signal that mortgage rates will move up in tandem.

According to the chart above, we are very near the high yield for the 12 months.

** Best 30 year rates on conventional financing are for those with 740 credit scores and 20% down payments. Rates are similar for FHA financing but also include PMI.

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How to fix errors on your credit report

Did you know that 1 in every 4 credit reports contains errors and surprises? ID theft may be responsible, but more often what shows up on your report might just be an error that can be fairly easily corrected.

Some of the most common errors found are:

  1. A parent or child’s mortgage or other credit obligation is reported on your report as yours (even if your names are not exactly the same).
  2. A paid off debt is reported as still owing.
  3. A collection has been filed against you for a debt that was never yours.
    1. One of the most common forms of ID theft is using a fake ID to get cell phone service.
    2. If you have a fairly common name, someone else’s debt can be reported against you.
  4. TV cable or satellite service is often left on after someone moves out of a house or apartment. Until the service is actually shut off, the service provider will report the delinquency under the most current resident’s name.
  5. Blatant ID theft with multiple creditors is actually easier to solve, but if the amounts are small, you may not know about them until your credit is pulled.
  6. A debt discharged through a bankruptcy could still show as unpaid.
  7. Collection agencies are often irresponsible about reporting paid collections, and court systems are equally negligent about reporting paid in full judgments.

All too often errors will sit on your credit report for years without your knowledge. You can still get most credit with an error on your report, but when you apply for a home loan, these little dings on your report and score will raise their ugly heads in a huge way.

Did you know that most collections are auto-filed by creditors and can be for less than a dollar? Many people would think “who cares?” But that little collection can cost you up to 100 points or more on your credit score. That can make a huge difference in the home loan you qualify for and the rate you will pay, if in fact you qualify for a mortgage at all!

How to fight errors on your credit report

1. Contact the creditor

This sounds like it shouldn’t be too difficult, but in fact, most creditors, like cell phone providers or cable companies are pretty non-responsive to your efforts. Be sure to try to contact the creditor in writing so you have proof of your effort.

2. If you receive no response from direct efforts, file a dispute with one or more credit bureaus directly:

Experian,

Transunion,

Equifax

This is important because not all three bureaus will have identical information. They do share, but aside from mortgage lenders, most creditors report to just one of the three bureaus. The easiest way to file the dispute is online. You can even upload copies of your proof of error and/or attempts to resolve the error.

The credit bureaus will contact the creditor on your behalf. The creditors then have very limited to respond to the inquiry or within 30 days the disputed item will be removed from your report.

Usually you will receive a response within days of submitting a dispute acknowledging that your case is being investigated. If you do not hear from the credit bureau within 30 days, follow up. After your report has been corrected, you should receive, along with a letter from the credit bureau, an updated copy of your corrected credit report with your new score within 30 days of the date you file your dispute.

 

 

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Are “fixer” homes overpriced in Portland Oregon?

Fixer statsLooking for a “fixer” home so you can take advantage of low prices and create your dream home for less than a comparably priced home in your preferred area? If you watch many of the housing shows on TV, you see this happen all the time.

According to a recent study by Realtor.com, there is a huge disparity between the possible discounts available to home buyers looking to purchase “fixers” versus move in ready homes throughout the U.S.

For example, in Clarksville, Tennessee a typical fixer can be purchased  for about a 70% discount. Likewise most cities around the country offer some great deals. But those of us who reside in the Portland metro area are seeing only about a 6% discount on fixer properties. That’s hardly enough financial break to afford the necessary repairs and still come out even close to even on comparably priced homes in the area. According to Realtor.com, the median price of a fixer home in Portland is currently 354,928, just 6% lower than the $379,000 median price of homes in good condition.

What’s going on in Portland? It’s really a matter of supply and demand. There is very little supply of “fixer” homes in Portland right now, so the laws of supply and demand rule. It doesn’t help that there is also an ample supply of cash buyers competing with the everyday buyer either.  These developers usually have “fixer teams” make short work of the needed renovations, which of course, they also do at a discount to what you and I would pay for the same work.

Portland isn’t the only city running out of fixers. As-is homes are becoming increasingly harder to find throughout the country. Check out the chart above to see many metro areas and what investors are paying for these fixers these days. Thank goodness we don’t live in Prescott, Arizona!

Beware Portland buyers – there are few “fixers” out there that are really a good deal right now, unless the repairs required are strictly cosmetic and can be done over time. The homes marketed as “fixers” that sound like a great value need a whole lot of fixin’ and will either require a cash purchase or a rehab loan.

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100% First time home buyer program~no mortgage insurance

If you are a low income home buyer in Oregon, 100% financing is available, and could be the ticket to buying your first home.

What is a Key Community Mortgage?

  • 100% Financing Allowed
  • No Mortgage Insurance
  • 30 Year Fixed, no prepayment penalties

What Does It take to Qualify?

  • Property located in Low or Moderate Census tract OR
  • Borrower’s Household Income below County limit (example: $55,000 – $58,000 – depending on county)
  • 42% Maximum Debt to Income Ratio
  • Must be able to document a satisfactory 12 month rental history
  • Cannot own another home at time of closing
  • 620 Minimum credit score
  • No outstanding medical collections over $1000
  • No outstanding consumer collections over $250
  • Bankruptcies must be discharged for 48 months with reestablished credit
  • $500 Minimum investment from Buyer(principal, interest, taxes and insurance) payment is in savings at time of closing
  • Gift funds ARE allowable
  • Borrower must complete Home buyer Counseling Prior to Closing
  • Borrower’s with student loans in deferral and no payment listed on credit report will have an assumed monthly payment of 3% of the total balance
  • Rehab component is available up to a maximum of $50,000 and cannot exceed 150% of the appraised value of the property.

If buyers annual income is at median county income or less, buyer can purchase a home in any location. If income is higher than median county income, the property must be in a low census tract area.

To determine census tract for property, go to http://www.ffiec.gov/Geocode.

  • Type in property address
  • Click search
  • Click Get Census Demographic on the next page
  • Look at the box that says Tract Income level

Call or email me for more information. Your income and location of property are critical to determine if you AND the property qualify for this type of financing.

Do you qualify? Is now the time to buy your first home?

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First time home buyers returning to housing market in 2015

First time home buyers have been conspicuously absent from the housing market during the last few years. Tightened lending standards plus huge down payment requirements kept them on the sidelines.

Last month (December 2014), both Fannie Mae and Freddie Mac announced that they are now offering mortgages with as little as 3% down payments, which will make it easier for first time buyers to save enough cash to purchase a home. Additionally, for those who are a little more credit challenged, FHA has reduced their up-front mortgage insurance by 50 basis points.

“It’s already begun that Millennials are going back into the market,” said Mark Zandi, chief economist for Moody’s Analytics.

According to the Mortgage Bankers Association, sales of new homes are expected to climb by more than 13% in 2015, while existing home sales are expected to increase by 5%. A spike in the number of first-time home buyers should spark a chain reaction by enabling existing homeowners to sell their homes and buy more expensive ones, said Zandi.”

As more buyers are able to enter the market and builders are finally getting into stride with new home production, we should see an increase in inventory. This should result in a slowdown in home price and value increases and result in a more stable housing market.

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Mortgage rates continue to drop as bears take over Wall Street

Wall Street bull and bearIf you’ve been following the stock market this year, you would have noticed that the DOW has been down triple digit numbers all but one day since the year began. That is not good news for investors, but it has produced good news for home owners and buyers.

The yield on 30 year treasury bonds dropped to all-time lows this morning, while the yield on 10 year treasury bonds have reached lows not seen since May 2013. Lenders I work with tell me that as of this morning, best mortgage rates are firmly below 4% for the best qualified buyers, and even for those with less than 20% down payments.

Why all the panic on Wall Street?
It’s earnings season again, and in addition to the oil and natural gas commodities dropping to lows no one could have predicted, retail stores are reporting much lower than expected sales for December 2014. Everyone expected December to be a great month for retailers. Consumer confidence was up, low fuel prices added more cash in consumers’ pockets, the unemployment numbers were down, but consumers still didn’t spend as expected.

According to pundits on CNBC, this could be a very rocky year on Wall Street. Even some of the big banks are reporting lower than expected earnings  (which was unexpected.) And, of course, we can’t discount all the turmoil around the world.

Going forward, everyone is watching the housing markets to see how property valuations hold up as the year progresses. In the meantime, at least here in Portland, the housing market is off to a strong start as buyers are anxious to lock in the very low mortgage rates.

Reuters pundits are now predicting that the Feds will very likely hold off on any interest rate increases until 2016.

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FHA move over – Fannie offers a much better property renovation loan

Buyers often cringe at the thought of buying a “fixer home.”  Some people just see dollar signs flying away as soon as they take possession.Others can’t even imagine tackling all the work, or living in a construction zone for months on end.

But buyers need to keep in mind what home flippers have known for years. The actual cost of renovations is usually considerably less than the increase in property value once renovations are completed.

If you’re one of those people who loves a specific neighborhood but can’t quite afford the homes, or you need special features in a home, but those features are  hard to find or too expensive in your desired neighborhood, we have some great news for you.

Fannie Mae has recently introduced the Homestyle loan for those who qualify for conventional home financing. The Homestyle loan offers so much more than the more commonly offered FHA home renovation loan. It’s a  single-close loan that enables borrowers to purchase a home that needs repairs and include the necessary funds for renovation in the loan balance. The loan amount is based on the lesser of the “as-completed” value of the home or the home purchase price plus cost of renovations.

But here’s where the Homestyle loan beats FHA. You can also use this financing to add a room, tear down walls to open up spaces, purchase new appliances, put in landscaping or site improvements, add a garage,  finish decks, patios or basements, enhance accessibility for disabled persons, and so much more.

Any type of renovation or repair is eligible, as long as it is permanently affixed to the property and adds value. Renovations should be completed within a twelve-month period from the date the mortgage loan is delivered.
 
Property Eligibility
One-to four-unit principal residences, one-unit second homes, or one-unit investor properties including units in condos, co-ops, and PUDs. No manufactured housing.
 
Borrower Eligibility
Eligible borrowers include individual home buyers, investors, nonprofit organizations, or local government agencies. Borrowers must have satisfactory credit to qualify for a Fannie Mae loan (680 minimum credit score is a general guideline)
 
Down payment requirements
Fannie Mae currently requires a minimum of 5% down for owner occupied single unit residences but more on other types of properties and ownership. Read more about Fannie Mae guidelines regarding down payment requirements.
 
Contractors
Most renovation work must be completed by a licensed contractor who must be approved by Fannie Mae prior to the close of the loan. The lender will “hold back” funds required for work and will disburse funds directly to the contractor when completed.
 
The final fantastic component of this type of mortgage is that, if you are an owner occupant, you can finance up to 6 months of your monthly mortgage payment to cover your the mortgage payments while the work is being done. This feature is available to everyone, but works best for renters since your rent payment is not added to your debt ratio when computing how much you are eligible to borrow.

While adding mortgage payments to your loan will increase your loan amount and your monthly payments, you are generally purchasing a lower priced home than it will be worth once renovations are completed. Remember you are very likely buying a “fixer” because of the lower price point than new or renovated homes usually sell for in any given neighborhood.

NOTE: Not all lenders offer this loan, or some may not offer all the features described above, so you may have to shop lenders to find the features you are looking for in your home renovation loan.

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When Janet Yellen speaks everyone listens and markets react accordingly

Janet Yellen

Janet YellenThe Federal Reserve Board (Feds) met yesterday and of course, everyone was listening for news about the Federal Funds rate. The big announcement was that for now, they are leaving the Fed Funds rate unchanged at 0.00% – 0.25%. But what was even more important was Janet Yellen’s press conference following the announcement. Following are some of the highlights:

  1. The Feds are very focused on monitoring inflation (rates will be increased when there are signs that inflation is on the rise).
  2. While the economy continues to improve, housing continues to be a drag on the economy. In fact, Fed chairwoman Janet Yellen commented that she is surprised that housing has not been recovering more quickly than it has been. The Feds believe this continues to be due to very tight lending requirements.
  3. The Feds are stressing patience as they watch closely for signs that signal it is time for changes in the current Fed policy.
  4. As worldwide economies are slowing, this continues to be a factor in our own economic outlook.
  5. Rate increases are very likely at some time in 2015 though there is no pre-determined time as to when the appropriate conditions will fall in place. Some of the factors that will signal time to raise rates:
    1. Lower unemployment
    2. Better utilization of the employable population
      1. Too many people still unemployed
      2. Too many people still working either part time or temporary positions.

It is anticipated that by 2016, Fed funds rate will be inching towards normal and could be as high as 2.5%.

As was seen just after Janet Yellen spoke, Wall Street LOVED her comments and rallied up approximately 300 points.

That rally continued today with the DOW ending up 419 points. Surprisingly, the yield on the 10 year bond dropped and dropped more today again, which will keep mortgage rates down as well.

That rally continued today with the DOW ending up 419 points. But there was also a nice surprise with today’s rally; the yield on the 10 year bond stayed low closing at just under 2.1%. (Remember that mortgage rates are tied to the 10 year bond yield, so this is very good news and important to watch, regardless of which direction the DOW is moving on any given day.)

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Mortgage rates closing in on recession levels

rates drop (2)If you’ve been waiting for mortgage rates to hit 3.5% again (last seen more than a year ago), you may not have long to wait. It appears that rates are headed in that direction again with best 30 year fixed rates loans now hovering around 3.75% for the best qualified buyers.

While this is great news for buyers, the flip side is that this is causing a housing buyer rally that was not foreseen just a few months ago.

As always we need to watch Wall Street to understand why mortgage rates continue to drop in spite of good jobs numbers and increased GDP in the US. While the US economy is in recovery mode, the rest of the world is still in turmoil economically.

Economic activity has hit a 16 year low in France, Japan is officially again in a recession, and Germany is also struggling with manufacturing. To top that off, oil prices continue to fall. This is great for us as consumers, but OPEC just voted to continue to their oil production at its current pace. This affects 10 countries whose economies depend on oil production, so their economies continue to slide as well.

For home buyers in the PDX area, this is almost all good news. Home prices still remain well below 2006 levels. But of course, as mentioned in prior news, housing inventories remain low but as homes become more affordable, more buyers are out shopping. The end result is that Portland home prices will again resume their march towards 2006 high prices.

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Do you qualify for the best mortgage rates?

home application paperwork

home application paperworkWhether buying a house, an investment property, or refinancing a current mortgage, there is a long list of variables that determines the rate you will pay.

Type of financing

Conforming/Conventional: Loans that follow Fannie Mae/Freddie Mac lending guidelines; approximately 87% of all mortgages with balances under $417,000 are still sold to Fannie or Freddie.

Jumbo: Loan amounts above $417,000.

Government: Loans that are insured by government entities, such as HUD, VA, and USDA.

ARM: (adjustable rate mortgages) Loans that start at lower rates than conforming, with rate locked for a specified period of time before it can adjust higher or lower (depending on the index the loan is tied to). Initial rates are usually considerably lower than 30 year fixed rate loans, but can adjust much higher once the initial locked in period ends.

Criteria that will affect the actual loan rate includes:

Credit score: Mortgage lenders pull “tri-merge” credit reports – scores and details from all 3 major credit bureaus. Most lenders will use the middle score as the basis for determining your rate. When multiple borrowers, lenders will use the lower credit scores.

Currently most conforming lenders require scores of 720 – 740 or better to qualify for the best advertised rates. Government insured loans are not nearly as rate sensitive as Fannie/Freddie loans.

Credit history: Lenders are looking for a number of factors on your credit history that can affect the rate you will pay. Obviously most derogatory information, such as bankruptcies, judgments, foreclosures, etc will affect your score, but this information will also affect whether or not you even qualify for a mortgage at any given time.

Amount of down payment: Conventional lenders usually charge higher rates for those with less than 20% down payments. This is known as “risk based” pricing adjustments.

Debt ratio: There are 2 debt ratios used in mortgage lending.

1. Total loan obligations (PITI – principal, interest, taxes, insurance) divided by gross income = lower debt ratio. (also include HOAs and mortgage insurance where applicable)

2. PITI plus all other monthly debts (car loans, credit card montly payments, etc) divided by gross income is the higher debt ratio considered to qualify for a mortgage.

Type of property: a house, condo, condotel, manufactured house, land, etc. Lenders often charge higher rates for some types of property based on risk and life expectancy of property.

Occupancy: Will this property be owner occupied? a second home? a rental? Do you own other rentals? Length of history as a landlord?

Type of Loan: 30 year fixed, ARM (adjustable rate loan), 15 year loan.

Location: Rates can differ from state to state and from lender to lender, so it pays to shop around a bit. Yes, all banks will pull your credit which will result in about a 6 point drop in your score, but you are permitted to shop several lenders within a 90 day period with only one 6 point adjustment to your rate.

And if all the above information isn’t enough, if you are shopping for a mortgage, it is also important to work with someone with offices close to the property you want to finance. A lender in Arkansas, for example, may not have Oregon rates available, and may not know about any special loan programs or financing specials running in your area of interest.

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Clackamas first time home buyer assistance loan program

CHAP

The CHAP Program can lend up to $14,000 to help qualified first-time home-buyers pay for down payment and reasonable closing costs. A CHAP loan is a zero-percent interest deferred-payment loan. Following is more information about how to qualify and apply:

The Buyer must get pre-qualified for primary financing by an Oregon-licensed lender.
The Lender must contact Community Development for a current CHAP application packet.
The Buyer will shop for an eligible property and find an affordable house that is in move in ready condition.
(Use this guide to help you learn how to look for problem areas in a house)
Buyer must submit an accepted offer with required CHAP attachments
For houses built before 1978, a lead disclosure statement.
The Buyer must order and pay for whole house and pest & rot inspection.

The Lender submits a complete application packet to Clackamas County Community Development. The packet must include:
The home inspection report
The pest and dry rot report
A completed CHAP inspection form.

Your loan will take at least 30 days to close from date loan package is submitted to Clackamas County Development

Who is eligible to apply?

  •  “First-time homebuyers”. HUD defines a first-time homebuyer as someone who:
    • has not owned a home during the past 3 years, or
    • is a displaced homemaker, or
    • is a single parent.
  • Be low-income — see chart below.
  • Demonstrate a financial need for CHAP assistance.
  • Be a US citizen, non-citizen national or a qualified alien.

To be a “Qualified Borrower“, the homebuyer must:

  • Have sufficient income to qualify for and support the primary debt.
  • Be pre-qualified by a primary lender.  (Contract sales are not allowed.)
  • Have good credit.
  • Contribute a minimum of $1,000 in cash toward the purchase from the buyer’s own funds. (Does not include items that the buyer paid out-of-pocket, e.g. inspection and appraisal.) Buyers should have at least $2500 cash on hand before beginning a home search to cover earnest money deposit PLUS home inspections and appraisal).

HUD Income Limits for 2014
(Gross Annual)

Number in Household 80% of Median
1 $38,850
2 44,400
3 49,950
4 55,500
5 59,950
6 64,400
7 68,850
8 73,300

To be an “Eligible Property“, the house must:

  • Be located in Clackamas County
  • Have a purchase price at or below:
    • $228,000, and
    • the appraised value
  • Meet the definition of affordable, standard single family housing (a single unit)
  • Meet property standards and pass an inspection by the County
  • Be free of chipped or peeling paint if the house was built before 1978
  • Not be occupied by a tenant (unless the buyer is the tenant)

The CHAP program is funded by a grant from the federal Department of Housing and Urban Development (HUD). The program is subject to funding availability. Homes purchased through the CHAP program must be the primary residence of the homebuyer. Other program requirements apply.

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Mortgage financing updates -programs you may not know about

USDA halts acceptance of new applications at least through December 1, 2014 as they ramp up procedures to better handle the workload. USDA loans are $0 down loans for properties in rural areas.

New VA loan program available

The grant is available to veterans or service members who are entitled to compensation for permanent and total service-connected disability. Veterans must be medically and financially feasible for veteran or service member to modify or purchase a home. Property can be single family home, town home, condo or co-op.

Veterans Administration (VA) provides eligible veterans and service members up to the current maximum allowable grant amount of $14,093 to purchase, build or modify an existing home anywhere in the US.

Clackamas county home buyer assistance program (CHAPS)

This is a zero-percent interest deferred-payment loan for up to $14,000 to help qualified first-time homebuyers pay for down payment and reasonable closing costs.

Eligible applicants must meet the HUD definition of a “first-time homebuyer”, meet income limits and demonstrate a financial need. A “Qualified Borrower” must have sufficient income to qualify for and support the primary debt, be pre-qualified by a primary lender (contract sales are not allowed), have good credit and able to contribute $1,000 in cash toward the purchase from their own funds. Click here for all requirements to utilize funding from this program.

HUD Median Income Limits: 80%

  • Property must be located in Clackamas County, Oregon.
  • The sales price cannot exceed $ 228,000.
  • Allowable property types: Single family housing that meets property standards and passes inspection. (Note: Fixer properties are not eligible)

For more loan programs that may meet your unique needs, please check at the Home ownership opportunities website, as programs will change frequently as funding is approved or runs out in specific areas and programs.

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