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For years now, if you didn’t have near perfect credit and a hefty 20% down payment, chances were slim that lenders would give you a mortgage. But that’s all about to change because Fannie Mae and Freddie Mac, the two government-backed mortgage giants that backstop a majority of all mortgages, have put new lending guidelines in place that should make it easier for borrowers to secure loans.

Not only are the two agencies lowering down payment requirements and making it easier for loans to be classified as qualified mortgages, but more importantly, they have clarified when lenders will be on the hook if borrowers default.

In the past, Fannie and Freddie have been able to force lenders to buy back loans that have defaulted soon after it was issued, if any mistakes were made in the paperwork or if there was borrower fraud.

“Lenders have been real concerned about these buybacks,” said Doug Lebda, CEO of LendingTree. “If problems arise with loans, the [Fannie/Freddie] guarantee often fails when lenders need it the most.”

Mel Watt, the head of the Federal Housing Finance Agency, acknowledged that the previous policy made it hard for lenders to understand exactly when Fannie Mae or Freddie Mac would require the banks to repurchase loans.

Under the new rules, any loans with no missed payments for 36 consecutive months after they were first issued will be backed by Freddie or Fannie should they default. The agencies will also allow two missed payments in the first 36 months without forcing borrowers into foreclosure.

And if private mortgage insurance, which is required for all low down payment mortgages, is rescinded, say due to errors made in the underwriting process, lenders will not automatically be required to repurchase the loans.

“That makes the Fannie/Freddie guarantees more like real insurance,” said Lebda.

According to Lawrence Yun, chief economist for the National Association of Realtors, the buyback issue has been “the number one hindrance to mortgage lending lately. If it disappears, it would be a big boost to mortgage lending.”

Freddie and Fannie have also said they will start backing 3% down loans. Borrowers can currently get 3.5% down loans from the FHA, although they require borrowers to pay mortgage insurance premiums for the life of their loans.

The new low down payment loans should help boost home buying among low-income and first-time homebuyers, who have been conspicuously absent from the housing market over the past year.

Lenders already seem to be loosening up a bit.  Mark Palim, who oversees economic and strategic research at Fannie Mae, said average credit scores for approved loan applications have dropped slightly over the past few months and lenders are doling out loans with lower down payments as well.

According to the Federal Reserve, nearly 14% of senior loan officers said their banks had gotten less strict in the three months ended in October.

Of course, lenders are not expected to return to the lax underwriting standards of the boom years. Banks are much more careful these days, making sure that all mortgages are fully documented, said Palim.

They don’t want to look irresponsible, or worse, predatory. “They’re very concerned about reputational risk,” he said.

Affording a home is getting more difficult these days. According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, nearly 62% of all homes sold nationwide last quarter could be afforded by a family earning the national median income. Two years ago — when affordability peaked — 78% of people could afford homes.

While mortgage rates are near record lows, home prices are on the rise and incomes aren’t keeping up. Of course, where you buy makes all the difference.

In San Francisco, the median home price is $875,000, making it the least affordable major U.S. city. Only 11.4% of homes sold in San Francisco during the third quarter were reasonably priced enough for the average family to buy, the index found.

Other major cities where home prices were out of reach included Los Angeles, Santa Ana, Calif., San Jose and New York.Where home prices were most affordable was predominantly in cities that were hard hit during the recession.

In Youngstown, Ohio, for example, nearly 90% of all homes sold last quarter could be comfortably purchased by families earning the local median wage. Syracuse, N.Y., Indianapolis, Ind., Harrisburg, Pa., and Dayton, Ohio, all recorded affordability rates of 84.9% or higher.

Despite the growing affordability gap, most buyers are still in a favorable position, said David Crowe, NAHB’s chief economist. “Even with nationwide home prices reaching their highest level since the end of 2007, affordability still remains fairly high by historical standards,” he said.

Rose Quint, a vice president for survey research with NAHB, said conditions should remain favorable through at least next year. She believes home prices growth should slow while an improving economy should help people find jobs and boost their incomes.

One headwind could be rising mortgage rates, which could climb in the next year or so, said Tom Wind, executive vice president of home lending for Ever-bank. 

It’s natural to want to save money when you’re making a purchase as large as a home. You want to buy the best home in the best neighborhood at the best price, and to do that, you may think you have to shop in the bargain bin.

FSBOs (for sale by owner,) foreclosures, and short sales aren’t as plentiful as equity listed homes. You may even scour the MLS (multiple listing service) for signs of desperate sellers, such as homes priced AS-IS, or homes that have been on the market for months.

While some people are successful buying a bargain basement home, you may not be so fortunate, if you put price first. Here are five ways a low price can backfire on you:

1. The home doesn’t suit your needs. A home is a good buy only if it suits your family’s needs for space, features, comfort, and function. If you buy a home without enough bedrooms or baths, it’s not as comfortable or functional.

2.  A bad fit costs you later. To get out of a home that’s too small, too old, or too far from where you need to be, you’ll likely to pay more in transaction costs to sell the home and buy another, rather than if you’d chosen more wisely in the first place.

3. Bargains are rare. If a home is priced lower than others in the area, there’s a reason. Sometimes bank-owned homes will appear to be a bargain compared to other similar nearby homes, but you may notice a real difference in the way it’s been maintained. It’s not much of a bargain if you find out that all the appliances have been stolen or all the copper wiring has been pulled out of the walls.

4. The home needs updating. A home priced below market value usually requires expensive repairs or updates. Are you willing to perform the work or pay someone else to do the work? Any remodeling you do will be at today’s prices. Before you buy, get a home inspection and then talk to professionals who can help you bring the home up to today’s standards.

5. You lose ground trying to lowball the seller. Just as you want the home you buy to appreciate in value, sellers purchased their homes as investments, too. They want to net as much as possible, because they’ve already taken on the risks of buying and maintaining a home.

That makes sellers less willing to negotiate on homes that are well priced and well maintained. If a home has been on the market for a long time without a price reduction, there’s usually a good reason.

You have an unmotivated, unrealistic, or upside-down seller, any of which could waste your time unmercifully. An unmotivated or unrealistic seller simply won’t negotiate to your level. For example, for-sale-by-owner homes are typically priced the same as listed homes, even though the sellers aren’t paying real estate agent commissions, including for your agent, if you have one. Why would you pay the seller not to represent your interests?

Furthermore, a bank foreclosure or bank-approved short sale could take months to close. What if interest rates go up before you close? You may get the home at a bargain price, but the savings could evaporate in higher interest payments.

Right now, home prices are still below previous market highs. Mortgage interest rates are hovering near historic lows. And inventory levels are improving in most areas. Under these circumstances, you’re buying a home at a bargain already. The best strategy for today is not to try to beat the seller down, but to offer a fair price for the home you think is best for your household.

 

 The latest sign that buyers are gaining leverage in Southern California’s housing market: Price cuts are back.

 The number of homes with reduced asking prices has risen sharply in recent months, a reversal from last year’s sellers’ market, when list prices seemed more like a floor than a ceiling. In Orange County, the region’s priciest market, about one-third of sellers have been forced to cut prices, according to data from real estate firm Redfin. Across the Southland, prices have hit a plateau this summer, with sales volume slumping as buyers got pickier. A lot of what we’ve seen over the last six or eight weeks is people lowering their prices to get buyers in the door.- Paul Reid, a Redfin agent in Temecula

These trends have been building all year. But home sellers — often the last to see market shifts — are finally getting the message, said Paul Reid, a Redfin agent in Temecula. The shift from a red-hot sellers’ market to something more balanced is reflected in price trends.

Every month for nearly two years, starting in mid-2012, the median home price in Southern California notched double-digit annual gains, according to housing data firm CoreLogic DataQuick. The growth peaked last June, with a 28% gain.
Still, August’s median was $420,000, the highest point since the recession started in December 2007. That’s keeping many buyers on the sidelines, said Andrew LePage, an analyst with CoreLogic DataQuick. “Prices are high enough to be a hurdle for a lot of buyers,” he said.

After two years of bidding wars and big price run-ups, some sellers have yet to come to terms with reality, said Steven Thomas, chief economist at Reports on Housing, which tracks the Southern California market. “People have been putting a sign in the yard and expecting offers immediately. That’s not reality,” Thomas said. “In a normal market, you’ve got to put some work into selling it.”
With more competition on the market, some of my clients have had to cut prices to drive up interest. “It comes down to affordability,” Silva said. “A lot of people are looking for a good deal. The lower-priced properties are going quickly. The mid-range inventory is taking longer.”

Silva said some of his clients are receptive to the idea of cutting prices to sell their homes. But some sellers — those with less motivation to move now — are pulling their homes off the market, said Steve Shrager, an agent with Coldwell Banker in Studio City.

Sellers who can’t get the price they want are choosing to rent their home, or try to sell again in another year. “They feel the price can’t go anywhere but up,” Shrager said.           Buyers are choosier too, he notes. Though price growth has leveled off, many buyers still aren’t seeing bargains. And while the selection of homes has expanded, some aren’t finding any property they really want. Some, he said, are choosing to stay put, or maybe try the market again next spring.

But after a decade of boom, bust and boom again, many aren’t sure how to react to a normal market. “People are not used to this,” he said. “That’s why you get some panic. Eventually these houses will sell. You just have to be patient.”
Patience and price cuts are paying off for some buyers. With buyers who have been looking for a couple months they are noticing that most of their offers are being countered at a price they can afford as well as it coming in lower then list price.

 

The average rate for a 30-year loan now stands at 4.1%, according to Freddie Mac. That matched its lowest level since June 2013, when it stood at 3.93%. The average 15-year fixed was 3.23%.

The government’s stimulus program has helped keep borrowing costs down. The Federal Reserve has been purchasing Treasury Bonds and mortgaged-backed securities for years, providing a steady market for mortgages.

But the Fed has cut back on its purchases, and plans to end the buying program entirely in October, reducing demand for mortgage bonds. That should eventually cause rates to climb. Low mortgage rates and home prices that are climbing more slowly should boost the housing market, said to Keith Gumbinger, spokesman for HSH.com, a mortgage information company.

“That should provide a solid foundation for home sales this fall,” he said. It was a strong summer. Sales of existing homes rose 2.4% in July to an annualized rate of 5.15 million homes, according to a different report released Thursday by the National Association of Realtors Stronger job growth has boosted the market, according to NAR’s chief economist, Lawrence Yun, and a larger inventory of homes on the market give buyers more to choose from.

“That’s making prospective buyers less hesitant about entering the market,” he said.

Fannie Mae is announcing that on Saturday August 16, 2014, the waiting period for short sales will be extended to 4 years. Before this change, people who sold two years ago and had the ability to invest at least 20% towards their down payment were able to buy. Read Fannie Mae’s Announcement SEL-2014-10.

What this means:

If you had a short sale and planned to buy with a 20% down payment you can now no longer qualify using a Conventional loan. The program that would help you become a homeowner the quickest would be through FHA, but there are some drawbacks to this program. First, FHA allows you to purchase a home after 3 years, but the program comes with a hefty mortgage insurance premium, which is paid upfront through your loan as well as with your monthly payment. Secondly, this mortgage insurance will be included for the life of the loan unless a you buy with 10% down payment or you get a loan term of 15 years. Although there are drawbacks to FHA, it is still a great program to get you in to a home so that you can begin receiving tax benefits and ultimately increasing your net worth. You also have the option to then refinance out of the program once you meet Conventional guidelines. On the upside, if you are at the 4 year mark or close to it, the minimum down payment you’ll need is only 5%. It’s also important to know that you can purchase a home after 2 years with a Conventional loan if you put down 10% and can document that the reason you short sold the home was due to extenuating circumstances.

Not close to the 4 year mark?

There are still ways to purchase a home. For FHA, there are a couple ways that will allow people to buy right away. If you were on time with your payments while your short sale was being processed (at least 12 months) you can purchase right away; as long as you’re not selling and buying just to take advantage of the current market. The second method is with the Back-to-Work program also offered through FHA. This program will allow you to buy after 12 months, but only if you can document extenuating circumstances that caused either a 20% decline in household income or loss of employment for at least 1 year.

What if I had a foreclosure? Are there any new changes?

If you had a foreclosure you will be required to wait 7 years to buy using a Conventional loan. People who had a Deed-In-Lieu of foreclosure (DIL), which are usually treated the same as a foreclosure, can now repurchase after 4 years.

My mortgage was included in a bankruptcy, what are the waiting periods for this?

There is good news relating  to this situation. Before, if a foreclosed mortgage was included in a bankruptcy the waiting periods would resort to the waiting period that extended out the most (foreclosure or bankruptcy). The new guidelines will allow a buyer to purchase a home based on the waiting periods of only the bankruptcy, which can be in as little as 2 years.

Recap… Old Guidelines and New Guidelines

• 2 Years with 20% Down Payment ———— 4 Years with 5% Down Payment
• 4 Years with 10% Down Payment ———— 4 Years with 5% Down Payment
• 7 Years for a Deed-in-Lieu of Foreclosure – 4 Years with 5% Down Payment
• 7 Years for a Foreclosure ———————- Remains the same

If you’re thinking about purchasing a home, sooner might be better than later when it comes to favorable conditions for buyers.

Buying a home is a major financial decision that you shouldn’t rush into. But that doesn’t mean you should take your sweet time either. The real estate market is volatile, and truth be told, this year might be your last chance to affordably buy a home for awhile.

“If you qualify for a mortgage and choose not to buy now, you will be kicking yourself in 12 months,” says Anthony VanDyke, president of ALV Mortgage in Utah.

Thanks to a dearth of inventory, home prices are projected to increase by 6.3 percent nationwide from April 2014 to April 2015, according to a recent study by Corelogic, a leading global property information, analytics, and data-enabled services provider.

Just how much could that increase cost you? More than you might think.

“On a $300,000 house today, the same house will cost you $318,000 in one year,” says VanDyke.

The difference isn’t mere pocket change. So if you’re in the market to buy a home, read on for more reasons why this year could be a prospective homeowner’s last chance to buy an affordable home.

Reason to Buy Now #1: Low for-sale inventory means homes will become more expensive

A low inventory of homes for sale keeps house prices up, according to California-based mortgage banker, Michael Regan, of the Regan Team.

“It’s simple supply and demand,” says Regan. “The less you have of something, the more expensive it will become.”

Just how did we get into this increasingly low-supply, high-price environment? According to Regan, there are a few causes.

“With the limited housing inventory in many markets, and with last year’s home price increases, many people couldn’t afford to buy a home and rented instead,” he says. “Because of the Great Recession, the building of new homes and rental units was almost nonexistent for years and didn’t keep up with population growth.”

With a shortage of housing and rental units available, Regan says housing prices and rents have increased, leading to affordability issues. The good news is that this supply and demand issue will solve itself once more housing units are built to accommodate the population growth and young families looking for homes, says Regan. But the bad news is that it could take a while, and prices will climb until then. So now might be a good time to buy, before prices peak, he explains.

Reason to Buy Now #2: The Fed plans to taper off bond-buying program in October

With the economy improving and the unemployment rate dropping, the Federal Reserve tentatively plans to end their bond-buying program in October. The end of the program, which was aimed to keep interest rates low, is expected to result in higher interest rates, and any increase in interest rates could create even less favorable conditions for buyers, says Van Dyke.

According to the MBA Mortgage Finance Forecast, interest rates on 30-year fixed-rate mortgages are projected to jump half a percentage point in early 2015 from the year before.

On a 30-year conventional mortgage of $300,000, an increase from 4.4 to 4.9 percent means paying an extra $90 each month or more than $30,000 in interest over the life of the loan. So that half point difference can translate into a hefty chunk of cash for any home buyer.

“Rising rates can have just as big an impact on affordability as does rising prices due to low housing inventory,” says Ellen Davis, a Maryland-based senior mortgage loan originator with Corridor Mortgage Group.

When mortgage rates increase, Davis says borrowers experience greater difficulty qualifying for a home loan.

“Higher interest rates increase a borrower’s overall debt to income ratio, and depending on their current situation, they may end up no longer qualifying based on underwriting guidelines. Even if they do qualify, they may not be comfortable with the higher monthly debt payment and may choose to reduce the amount of home they are willing to purchase or put off the purchase indefinitely,” says Davis.

So what’s the take home here?

“While you’ve missed the bottom of the market with home prices, interest rates are still very low,” according to Regan. Don’t risk rates going up, he says, which can ultimately cost you big on your home’s price tag.

Reason to Buy Now #3: The current economy’s flat wages threaten to make homes less affordable

When was the last time you heard of companies giving out big bonuses and substantial salary raises? Save a few high-growth industries, flat wages have been the rule, not the exception. If home prices continue to increase, housing could in theory become less affordable if your take-home pay doesn’t keep up with its growth.

“History has shown us that there is always the chance that home prices are pushed out of reach when wages are flat,” says Davis. “Then at some point, some sort of correction in wages or housing occurs, and the correlation between the two sectors becomes more sustainable.”

The question then becomes, when will this tipping point occur, and can you afford to wait?

According to Davis, homes will be more affordable once all areas of the market – stocks, bonds, home prices, wages, government spending and debt, etc. – are working together to create jobs. And better employment figures translate into more income, leading to wealth, economic growth, and ultimately consumer confidence, which in large part helps drive home purchases, she explains.

Sounds ideal, right? Well, don’t hold your breath. It’s impossible to predict when this synergy will take place, so now is as good a time as any to buy a home you can comfortably afford, says Davis.

Reason to Buy Now #4: Beat other home buyers to the punch before competition heats up

Maybe you’ve been renting and managed to save up a nice nest egg. Or maybe you’ve just outgrown your current space. Well, you might want to take the plunge and buy a home once you’ve found something that you can afford.

Why now? Because the housing market is about to get even more competitive. According to Davis, the pent-up demand of younger professionals, who moved back in with their parents during the recession, is about to explode. And as these young people move out and form new households of their own, they will drive up housing demand, she explains.

This eager subset of buyers will create some steep competition for homes, especially if they have been saving up to make larger down payments or high ticket offers, says Davis.

“If the current homes on the market have more potential buyers, bidding wars develop, and the purchase prices are driven up,” says Davis. While the competition helps the overall home values in the area, it also inflates prices to the point where homes are no longer affordable for a large percentage of potential home buyers, she explains.

And it’s only going to get worse as more and more young professionals feel ready to buy, so it’s a smart move to buy now and avoid the potential price gouging altogether. Once you’re officially a homeowner, you can welcome rising prices, because your home’s value will shoot up, according to Davis. “This is good for the individual homeowner as well as for the broader economy,” she says.

 

Interest rates remain relatively low and even though housing prices are increasing in many areas, the market still offers lots of opportunities to become a homeowner, but what’s holding many back is saving enough for a down payment.

Reaching any goal requires dedication to that goal and a mindset that enables you to sacrifice to achieve what you desire. Often that’s easier said than done. However, if you analyze your spending and lifestyle habits you can determine where you can conserve to create enough of a reserve to comfortably buy a home without feeling totally deprived.

Here are six tips that can help you put away $50 to hundreds of dollars each month. Start with a fresh sheet of paper or a digital document that you can refer to frequently. Keeping it fresh on your mind will help you achieve your goals.

1. Write down what you owe versus what you earn. Get clear about how much is coming in and how much is going out. This alone will help you see where money is being spent and how much is being spent on things that could be cut back or cut out completely.

2. Consider getting rid of recurring expenses for services you don’t really use or you use infrequently. Maybe it’s a gym membership that’s adding up to more than a $1,000 for the year; but you really only use it three or four times a month. That makes no sense. Get rid of it and find a workout buddy and a free place to exercise. Or it could be an audio or video membership that’s going to waste. Sure, it might be $20 a month but over a year, that adds up.

3. Stop the coffee run each morning. Do the math. That fancy coffee drink can cost $40 a week, especially if you add a bakery treat. Your waistline and your wallet will take a beating.

4. Cut back on eating out or dine out early. Make more meals at home. This will allow you to take leftovers for lunch the next day. When you do decide to eat out, dine out earlier in the day. You can often take advantage of eating the same great meal at a less expensive price by ordering from the happy hour menu. These days, you have Groupon, Living Social, and many other websites that can help you save money when going out

5. Start a side job. If you’re working a full-time job, evaluate what your skill set is and see if you can freelance. I spoke with a client recently who had a “day job” and was earning additional income. He was already up about $50,000 from his side job of selling auto parts. It may take a bit to figure out where and how you can earn your side income,  but it’s worth exploring. Lots of people are making money working from home using the Internet. Explore your options and see how you can generate some extra cash each month.

6. Use momentum to pay back your debt.  Work hard to pay down cards with the highest interest rate first. As one card is paid off, transfer the money you were paying on that card to another card. By combining whatever you were paying on the paid off card to another balance that you’re paying down, you’re giving it some momentum and you’ll get that next card paid down even faster.

Remember that reducing your spending is critical to having what you want. So don’t add to your debt. Once you save for your deposit, you’ll want to make sure that you also save enough to have a cash reserve for emergency repairs and any unexpected crisis that might occur. Also, make sure that you make this process a good experience rather than a painful one. Keep your eye on the goal and understand that the decisions you make today will impact your future and your opportunity to become a homeowner.

 

They really do want to move out, according to a study by Harvard’s Joint Center for Housing Studies, and by 2025 could form 24 million new households.

Some 11 million recent grads were living with a parent in 2012, according to Pew. The homeownership rate for those under age 35 was 36% in the first three months of 2014, down from a high of 43% in 2005, according to the Census. Three main factors have been holding them back, said the Harvard study:

1. A weak job market for recent graduates.

2. Student loans.

3. And tight lending standards.

But as the economy turns around, the obstacles have begun to fall. “When the job market recovers and their income recovers, they are going make their mark on this housing market,” said Christopher Herbert, research director at the Harvard division, in a panel discussion following the release of the Harvard report.

Buying by young adults should give a boost to the overall housing market. “If somebody wants to move up from a starter house to a larger house, they need someone to sell the starter house to,” said Mike Calhoun, the president of the Center for Responsible Lending, at the panel.

The report pointed out that some factors could restrain household formation. Despite economic news improving, young adults face only slow economic gains. Unemployment is falling, but wage growth has been persistently stagnant. Plus, they must still confront increasing student debt burdens and tight lending standards.

 

Southern California’s housing market lost steam in May, with sales falling from the month before and a year earlier as investor buying dropped amid rising prices and tight inventory, a market tracker said Wednesday.

Prices continued to rise, but the gains were half as large as a year earlier.

Last month 19,556 new and previously owned houses and condos sold in the six county region, down 2 percent from April and down 15 percent from a year earlier, La Jolla-based DataQuick reported.

Sales across Ventura, Los Angeles, Riverside, San Bernardino, Orange and San Diego counties have now fallen on a year-over-year basis for eight consecutive months. Last month’s turnover of homes was 23 percent below the May average of 25,393 sales, the company said.

“We expected rising prices to unlock more inventory this spring, and that’s happened. But the supply of homes for sale still falls short of demand in many markets, contributing to a rise in prices and a below-average sales pace, said DataQuick analyst Andrew LePage.

Michael Carney, executive director of the Real Estate Research Council at California State Polytechnic University, Pomona, said that the market is not acting in typical fashion.

“I really don’t understand it. Why is there not more inventory?” Carney mused. “One possibility is that they (owners) are waiting because they see home prices going up.”

That is likely to change, soon.

Last month, the region’s median price rose 11 percent to $410,000 from $368,000 in May 2013.

But a year ago annual price gains of 20 percent or more were occurring on a regular basis. Now prices are rising at a “substantially” slower pace than a year ago, DataQuick said.

In Los Angeles County, the median price rose 10 percent to $450,000 from $410,000 a year earlier.

“Four or five years ago, if we were having a conversation about when we would get back to this price level I would have said later in this decade, sometime after 2015 and not before. The (price recovery) we’ve seen so far has been fairly pronounced, Kleinhenz said.

San Bernardino County is still seeing healthy appreciation. It’s median price rose 21 percent, the region’s biggest gain, to $295,000. And it had the region’s smallest sales decline — 10 percent to 2,382 properties.

The influence of distressed properties, which helped drive the market as it climbed out of the Great Recession, continued to fade in May.

Homes foreclosed on in the prior 12 months accounted for 5 percent of the Southland resale market in May, down from a 6 percent in April and from 11 percent a year earlier. Foreclosure resales are at their lowest level since early 2007, DataQuick said.