This week brings us only three pieces of economic data that have the potential to influence mortgage rates. We are also still in corporate earnings season, so any surprises in those releases could affect stock and bond trading, leading to changes in mortgage rates. There is nothing of importance scheduled for release tomorrow or Tuesday so we should see the most movement in rates the latter days.
The National Association of Realtors will post June’s Existing Home Sales figures late Wednesday morning. This report gives us a measurement of housing sector strength and mortgage credit demand. Current forecasts are calling for a small increase in sales from May’s totals. A drop in sales would be considered good news for bonds and mortgage rates because a weakening housing sector makes broader economic growth more difficult. However, unless this data varies greatly from forecasts it probably will lead to only a minor change in mortgage rates.
Thursday’s sole monthly economic report is June’s Leading Economic Indicators (LEI) at 10:00 AM ET. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of moderate importance to the bond market. It is expected to show a 0.2% increase, meaning it is predicting minor gains in economic growth over the next few months. A large decline in the index would be good news for the bond and mortgage markets.
June’s New Home Sales report will be released at 10:00 AM ET Friday. This Commerce Department report gives us another measurement of housing sector strength. Analysts are expecting it to show an increase in sales of newly constructed homes, indicating that the new home portion of the housing sector strengthened a little last month. That would be considered negative news for bonds, but since this data tracks only a small percentage of all home sales it usually has little impact on the bond market and mortgage rates unless it varies greatly from forecasts. The Existing Home Sales report covers most of the home sales in the U.S.
Overall, it is difficult to label one particular day as the best candidate for calmest day for mortgage rates. Or most active for that matter also. I suspect we will see changes in rates several days but they will be only minor adjustments. The wildcard will be stocks and if they go into selling mode or a rally. Still, the markets can get active and volatile with little notice, so don’t venture far from your mortgage professional if still floating an interest rate and closing in the near future.
You’ve cleaned up your credit report and have a great score. You’ve talked with a reputable mortgage loan officer and your real estate agent to find out how much house you could afford to buy. Now it’s time to get real about how much you can truly afford to buy. Often new buyers only look at the cost of the house. In today’s post, we’re going to shine a light on the hidden costs involved in buying and owning a home.
Closing the Sale
There are a lot of closing costs involved in buying a home including home inspection costs, survey costs, and escrow fees.
A list of fees you’ll also pay at closing:
Government recording charges: The cost for state and local governments to record your deed, mortgage and loan documents.
Appraisal fee: The cost for an appraiser to decide how much your house is worth.
Credit report fee: Your lender had to pay to get your credit report; you cover the cost.
Title services and lender’s title insurance: Fees related to your home’s title.
Flood life of the loan fee: The government tracks changes in your property’s flood zone status; you’ll pay a small fee.
Tax service fee: Another pretty minor fee; This service ensures the taxes previously paid on the house are up to date.
Lender’s origination fee: This charge for processing your loan application can be pretty pricey.
It’s worth noting that these costs aren’t exactly hidden. They’re routine and legal, and these days, they’re more visible than in the past.
You may also have points on your loan that need to be paid at the time of closing.
You may also need to pay notary fees, document prep fees, pest inspection fees, state recording fees, and tax service fees. Talk with your mortgage broker and real estate agent about these. Some may be negotiable.
If you paid less than 20% of the home’s price in a down payment, you will be required to take out a private mortgage insurance policy (PMI). When you hit 20% equity, you can request to have this removed. However, you will need to factor it in to your estimated monthly costs.
Property Taxes
Find out what the taxes are in advance, divide by 12 and add to your estimated monthly payment. And remember, taxes go up every year.
Insurance
This will cost more than you expect. The cost is higher if there’s brickwork and older electrical, heating and plumbing. Insurance also checks your credit scores periodically and raises you rates based on their assessment of risk level. Here in California, we also have to consider earthquake insurance which can cost as much as the home insurance. If you’re in a flood zone, you’ll pay extra. Contact insurance companies for quotes.
Moving Costs
Are you going to hire movers? Will they be packing up your stuff? Even if you do all your own packing and rent a truck, you’ll need to factor in the cost of boxes and pizza to thank those friends who help you load and unload the truck.
Utilities
Your utilities will be more expensive in a larger home. Chances are you were already paying for telephone, gas and electricity. Now you may need to add in water and garbage. You can ask the seller for prior utility bills to get an idea of about how much you’ll be paying.
Gardener
If you don’t want to take care of the yard, you’ll need to hire someone. Ask your potential new neighbors who they use and about how much. If you want to take care of your yard yourself, you will need to look into purchasing a lawnmower and hedgeclippers and any other additional tools to keep your yard looking at its best.
HOA and Condo Fees
If you’re moving into an area that has a homeowners’ association, be prepared to add that into your monthly expenses. And make sure you find out what you get in return, and who is in charge of those decisions. Often, it’s for items like repaving roads and parking areas as well as repainting houses. If your housing subdivision has a pool area or a golf course, the fees often go towards the maintenance of that.
Home Maintenance
This will vary based on the age of the house and what the prior owners have done. But find out how old the roof is and figure out when you will have to repair or replace it. The same goes for plumbing and appliances. And there’s always a million little things like replacing furnace filters, caulking doors and windows, cleaning the chimney, fixing a leaky toilet, cleaning gutters, re-staining the deck, etc. etc. And light-bulbs will go out. The new LED bulbs save energy and last for decades, however, they are an investment up front.
Cleaning
You will use more cleaning supplies in a larger home. If you hire a cleaning service, the cost will be more than with a small apartment.
Rewiring the House
If you want your cable or phone lines to go to another room, you’ll need to pay for someone to fish the wire through the walls. If you want an electrical outlet somewhere else, you will need to hire an electrician, and then someone to repair the drywall and repaint.
Doing It Yourself
Unless you’re an expert and have actually done the upgrade yourself, be prepared to have to hire someone to come in and fix or finish what you started. And budget time for the stuff the professional finds when he’s fixing something else. Even if you’ve budgeted to hire someone to do a remodel before you move in, they will find more that you didn’t expect (i.e. dry rot) that requires more money and time.
It’s ok to learn and to practice. Just don’t plan on getting it done quickly until you’ve gotten a lot of experience. Here’s a fun video on how to create your own LED light fixtures just to get you thinking of the possibilities.
Safety Features
Many people are adding in motion-detecting lights and camera systems around their home. You may also want to add in additional lighting around a footpath to reduce accidental falls.
Pest Control
This is something else you never had to worry about when renting. If you have termites, cockroaches, mice, bats, or other creepy crawlies, you will need to hire an exterminator to remove the problem, and fix any holes into your house.
Perceived Savings
You hear about saving money with energy saving appliances, programmable thermostats and new windows. But to save the money, you’ll have to spend a lot first. The same goes for solar panels. It may pay off in the long term, but be prepared for a large initial cost.
Emergency Fund
Before, your fund only had to cover rent and other expenses. Now you need an emergency fund to cover a lot more.
Making the House Your Home
This is the tough one. You just bought your dream home and want to start putting in new furniture and decorations. You either need to have money set aside, or you need to agree to wait. Generally, it’s better to wait and get the feel of the home first before adding in new items. Plus, you get over the sticker shock of what you paid to buy it.
There are eight major steps you will take when you buy a home and each one is as important in its own way as the last.
Make your wish list — Decide where you want to live and how many bedrooms and baths you’ll need. Consider lifestyle — condominiums offer shared amenities, with little responsibility. Single-family homes offer more space and privacy, but they also require more exterior and yard maintenance. Consider buying a fixer-upper for a reduced cost so you can remodel it to suit your needs.
Get preapproved — You can prequalify yourself on the internet, but it takes a lender looking at your personal financial information to get prequalified. Your income, credit scores, revolving debts, obligations such as child support as well as the type of loan you choose will influence how much home you can buy. Other factors such as the down payment, interest rate and terms (30-year fixed or an adjustable rate) will determine what you can afford in monthly payments.
Hire a real estate professional — Armed with a sensible price range, you’re ready to hire a real estate expert to help you find the right home. Your real estate professional should be expert in the area where you want to live and familiar with the type of home you want to buy. Your agent should have house-by-house experience in the neighborhood you want so she or he can advise you.
Select your home — No home is perfect, so don’t let minor flaws influence you. Think long-term. Which available home best suits the needs of your household now and in the years ahead? Consider the amount of space, the floorplan, privacy, entertaining options and potential upkeep. Don’t buy more than you need or can comfortably afford.
Make an offer — Your offer should reflect current market conditions. If a home has been on the market a long time, you can ask the seller for a price reduction, but if it’s new on the market, the seller is unlikely to comply. Sellers are more likely to respond to how much you love the home, than all the reasons why you don’t think it’s worth the asking price. Ask your real estate professional for advice on how to negotiate.
Get an inspection — A home inspection is a professional third-party opinion of the home’s condition. The inspector will point out the age of systems, and large and small repairs that are needed, so you’ll know what you’re facing as the next owner. Don’t sweat small cosmetic flaws. Concentrate instead of high-cost items to replace such as air conditioners and roofing.
Get an appraisal – The bank appraisal determines market value to the lender. The appraiser will use comparables of similar homes that have recently sold. If the home doesn’t appraise for the purchase price, the bank will refuse to make the loan unless you renegotiate with the seller. If it appraises for the asking price, the lender will move toward closing.
Go to closing — Once final negotiations are complete, the parties to the transaction meet at the escrow office. This could be a title company, real estate attorney, or other closing agent customary in your area. All paperwork is signed by both parties. The lender pays the seller, minus any liens against the home such as the seller’s mortgage. Once all the disbursements have been made, you get the keys to your new home, according to your agreement.
This week brings us the release of seven relevant economic reports for the bond market to digest in addition to semi-annual congressional testimony by Fed Chair Janet Yellen. A couple of the economic reports are considered to be of high importance, meaning we will likely see more volatility in the financial markets and mortgage pricing over the next several days. There are also some more heavily watched corporate earnings releases scheduled for the stock markets this week that can influence stock trading and therefore, bond and mortgage pricing. And we also have the Greece and China financial situations to watch. In other words, we are likely in for another very active week for mortgage rates.
Today really didn't have anything of relevance to mortgage rates. June’s Retail Sales report will start the week’s activities at 8:30 AM ET tomorrow morning. This data is considered to be of high importance because it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so any related data is watched closely. The Commerce Department is expected to say that sales at retail level establishments rose 0.3% last month. A larger than expected increase in sales will likely cause bond selling and lead to higher mortgage rates since it would mean consumers are spending more than thought. That would point towards economic growth that makes bonds less attractive to investors.
Wednesday has three relevant pieces of economic data scheduled. The first is June’s Producer Price Index (PPI) from the Labor Department. It is a very important release because it measures inflationary pressures at the producer level of the economy. It is expected to show a 0.3% increase in the overall reading and a 0.1% increase in the core data reading. The core reading is the more important of the two because it excludes more volatile food and energy prices, revealing a more reliable inflation reading. The bond market should react favorably if we get weaker than expected readings, but a larger than expected rise in the core reading could send mortgage rates higher early Wednesday.
June’s Industrial Production data is the second report of the day at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show a 0.2% rise in production, indicating that the manufacturing sector strengthened slightly during the month. That would basically be bad news for bonds, however the PPI and later morning events will take center stage.
Late Wednesday morning, Fed Chair Janet Yellen will start her semi-annual update about the economy and monetary policy before Congress. She will speak to the House Financial Services Committee Wednesday and the Senate Banking Committee Thursday, each at 10:00am ET. Her testimony will be broadcast and watched very closely. Analysts and traders will be looking for the Fed’s opinion on the status of the economy and their expectations of future growth, inflation and unemployment concerns that will lead to the Fed’s first rate hike. These topics should create a great deal of volatility in the markets during the prepared testimony and the question and answer session that follows. If she indicates that inflation may become a point of concern or anything that hints at rapid economic growth, we can expect to see the bond market fall and mortgage rates rise Wednesday.
We usually see the most movement in the markets and mortgage rates during the first day of this testimony. This is because the speaker’s prepared words for both appearances are quite similar to each other, meaning that the second day of testimony rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day’s appearance.
As if that was not enough for the day, Wednesday afternoon does bring us something that could influence the markets and possibly mortgage pricing. The Federal Reserve will release its Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. Signs of weakness should translate into bond strength and better mortgage rates.
Friday has the last three reports. The first of them comes at 8:30 AM ET when June’s Consumer Price Index (CPI) is posted. This is a mirror of Wednesday’s PPI with the exception that this report measures inflation at the more important consumer level of the economy. Analysts have forecasted a 0.3% increase in the overall index and a 0.2% rise in the core data. Higher than expected readings could raise future inflation fears and push mortgage rates higher, while readings that fall short of forecasts should lead to lower rates early Friday.
Also at 8:30 AM ET Friday will be the release of June’s Housing Starts report. This data gives us an indication of housing sector strength by tracking construction starts of new homes, but is not considered to be of high importance. Analysts are currently expecting to see an increase in new starts.
However, I don’t see this data having much of an impact on mortgage rates Friday unless it varies greatly from forecasts.
The final report of the week will be the University of Michigan’s Index of Consumer Sentiment just before 10:00 AM ET Friday. This index is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted Friday and is expected to rise from June’s final reading of 96.1. This would indicate that consumers were a little more comfortable with their own financial and employment situations this month than last month. It is believed that if consumer confidence in their own finances is rising, they are more apt to make a large purchase in the near future. And with consumer spending making up such a large part of our economy, investors pay close attention to reports such as these. So, a decline in confidence would be good news for mortgage rates because it means many consumers will probably delay making a large purchase in the immediate future, limiting economic activity.
Overall, I am expecting Wednesday to be the key day of the week due to the number of economic reports scheduled and day one of the Fed congressional testimony. Thursday could be the calmest day, but the overseas issues and stock swings here can heavily influence the markets at any time, so please proceed carefully if still floating an interest rate and closing in the near future.
Are you feeling overwhelmed by the thought of saving up enough money for a down payment on a house? First, talk with a reputable mortgage loan officer to find out how much you could afford, and identify if there are any low down payment mortgages you could qualify for. That would put a box around how much you need to save.
That being said, make sure you ask about additional closing costs, fees, and insurance. You will get estimates, and you can plan on saving up a little bit more. Anything extra can be used towards a great dinner out to celebrate or some new furniture in your home.
Building up your nest egg doesn’t have to be difficult.
Sometimes we sign up for things and don’t realize it, or we forget. Now is the time to pull out your bills and look at them with a critical eye. Many people get signed up for “insurance” on phones that they don’t need. Also look at your data plan and actual usage.
Review your current insurance and see if you could get by with a larger deductible and lower payment. Also, consider shopping around and seeing if you can get a better deal.
And do you really need the full everything package for your tv programs?
Learn How to Budget
The word “diet” is probably the only word that strikes more fear than the word “budget.” Both are really just a way of tracking what you’re spending. A budget is useful for identifying areas where you may not realize you’re overspending. And it can be a good tool for finding out areas where you may want to choose to spend less (dining out, morning coffee, happy hour with coworkers, etc.)
Online tools such as Mint.com, SpringCoin.com and PearBudget.com can help you manage your spending to save more on everyday expenses.
Don’t try to cut everything to the bone. Find compromises such as getting coffee one day a week, or cutting back on your cable but signing up for a streaming service like Netflix. It will take longer but it will be easier.
And consider saving less for retirement right now.
Learn How to Cook
You may need to spend some money to save money here. If you really don’t know how to cook, look into inexpensive classes through your community center. You could also take classes through stores such as Sur La Table. Get a simple cookbook and practice. You can also check out cookbooks from your local library. You will need some basic supplies such as a good knife, a frying pan, and a pot with a lid. The more you can eat at home, the more money you will be able to save. Plus, when you do eat out, it will feel like a very special treat.
Get Creative
You may want to consider finding a cheaper place to rent while you’re saving up for the down payment.
You may want to consider taking a part time job on the side and put all of that money into your house fund.
Find free activities like hiking.
First-time homebuyers can cash out up to $10,000 from an IRA without having to pay the standard 10 percent early withdrawal fee. If you’ve been saving in an IRA, check your balance, and consider cashing out part of the money to put toward your down payment.
Find low cost activities such as renting a movie from Redbox instead of seeing it in the theater.
Sell extra stuff on Craigslist or eBay and put that money into your house fund.
Evaluate your cars. If you’ve paid it off, look into holding onto it. If it’s a really expensive car to maintain, consider selling it, paying off what you still owe and look into an inexpensive car. You want to find one that is low cost to maintain as well as to service.
Put aside any chunks of money you get such as gifts, tax refunds, and bonuses. Even consider putting aside the extra money if you get a raise.
And the most important thing of all is to keep track of how well you’re saving while at the same time pretending that it doesn’t exist so you’re not tempted to dip into it. Consider having two savings accounts. One for your emergency fund, and the other for your home fund.
Price is only one cost related to buying a home. Unless you are paying all cash for your home, you’ll need a mortgage loan. Rates are going up, and the terms of your mortgage loan will impact how much your home costs on a monthly basis as well as how much you pay in interest over the life of the loan.
There are a number of things that impact the interest rate including the kind of loan you are getting such as FHA, jumbo or conventional, whether your rate is fixed or adjustable, how good your credit scores are, and how much money you are putting down so that the lender can lend you less money.
The best way to lower the borrowing costs of your loan is to have your credit in pristine condition. Lenders are requiring credit scores of at least 700 to obtain the best rates, and in some cases, higher scores are needed. In other words, the loan rate that you see advertised may not apply to you and your situation.
Jumbo loans for upscale homes are above normal qualifying limits, so their rates are higher.
Conventional loans require 20% down as payment from the borrower, while FHA and VA loans require less, but they may cost more in other ways. For example, FHA loans require private mortgage insurance, and they have more exacting requirements for the condition of the home.
Loans with less than 20% down cost more than loans with 20% or more down. That’s because the lender is assured that the borrower is less likely to walk away from a large cash investment. If you put less than 20% down, you may have to obtain mortgage insurance with the loan, so that the lender is paid in case of a default. Your mortgage insurance should end when you’ve been in your home for at least five years or if home values have risen giving you approximately 22 percent equity.
First, choose a fixed rate or an adjustable rate. If you plan to be in your home less than three to five years, an adjustable rate might be preferable, but if you aren’t certain, a fixed rate is better.
The most expensive loan is a 30-year fixed rate mortgage, but the advantage is that the cost of your loan won’t go up, because the rate is secure, although you may pay more as time goes on for property taxes and hazard insurance. If you want a shorter term, your rate will go down and you won’t pay as much in interest, but your monthly payment will be higher. However, more of your payment will go to reducing principle in a shorter term loan.
If you can qualify for a $360,000 home at 5%, your P & I (payment and interest) would be $1,933. But when interest rates fall, you can afford “more house.” At 4%, you could qualify for a $400,000 home and your P& I would be $1,910.
Explains the National Association of REALTORS® Chief Economist Lawrence Yun, mortgage interest rates are likely to move higher. “The long-term mortgage rate generally gets its cue from the 10-year Treasury borrowing rate, because most mortgages get retired within 10 years from people moving to buy a new home or because of refinancing,” says Yun. “The 30-year Treasury has already started to move up, and the 30-year mortgage rate will soon follow the upward trend.”
It's better to buy a home and let it lose a little value that can come back later, than to pay more for an interest rate that can't be lowered.
This week has no relevant economic reports for the bond market to digest but we do have the minutes from the last FOMC meeting and two fairly important Treasury auctions taking place. However, before we get to any of those, the focus will be on Greek’s voting down of the proposed bailout plan today. It will likely cause stocks to start the week well in negative territory while bonds should open with pretty strong gains and a noticeable improvement in mortgage pricing.
There is nothing of relevance scheduled for release Monday or Tuesday but corporate earnings season begins this week. Alcoa is expected to post their earnings after the market closes Tuesday, so it will have an impact on overnight and early morning trading Wednesday. This company isn’t necessarily important to gauging economic strength, but it is the first Dow component company that posts earnings each quarter. Since it is the first look into Dow-related earnings, it draws plenty of attention in the markets. Generally speaking, weaker corporate earnings translates into stock selling that makes bonds more attractive to investors. As bond prices rise, yields fall and mortgage rates usually follow bond yields.
Wednesday has the first of two important Treasury auctions when 10-year Notes will be sold. That sale will be followed by a 30-year Bond auction Thursday. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly Wednesday’s sale, we should see afternoon improvements in bonds that could lead to downward revisions to mortgage rates. However, if buyers stay on the sidelines, we may see bonds fall after results are posted at 1:00 PM ET and mortgage rates move higher those days.
Also Wednesday afternoon is the release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following their 2:00 PM ET release. I don’t believe that they will reveal anything surprising from the last FOMC meeting and during Chairperson Yellen’s press conference that followed. Still, market participants will be looking for any indication of when the Fed will make their first rate increase that is expected sometime this year. The minutes will tell us how members voted for related motions and could cause more volatility in the markets if there is anything unexpected in them.
Overall, it is a fairly easy decision to label Monday as the most important day due to the expected reaction to Greece’s vote. As for the calmest day, it could be Friday unless the Greek situation takes another turn or Janet Yellen says something surprising in her speaking engagement. In between we should see plenty of volatility in the markets and movement in mortgage rates. Therefore, it is highly recommended to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.
This week brings us only three pieces of economic data that have the potential to influence mortgage rates. We are also still in corporate earnings season, so any surprises in those releases could affect stock and bond trading, leading to changes in mortgage rates. There is nothing of importance scheduled for release tomorrow or Tuesday so we should see the most movement in rates the latter days.
There are eight major steps you will take when you buy a home and each one is as important in its own way as the last.
Make your wish list — Decide where you want to live and how many bedrooms and baths you’ll need. Consider lifestyle — condominiums offer shared amenities, with little responsibility. Single-family homes offer more space and privacy, but they also require more exterior and yard maintenance. Consider buying a fixer-upper for a reduced cost so you can remodel it to suit your needs.
