Aug 14, 2023 | Financial Reports
Last week’s economic reporting included readings on inflation, consumer sentiment, and weekly readings on mortgage rates and jobless claims.
Inflation Rate Holds Steady in July
Month-to-month inflation rose at a pace of 0.20 percent in July and met analysts’ expectations. There was no change in the pace of month-to-month inflation from June’s reading of 0.20 percent growth. The Consumer Price Index also reported that year-over-year inflation reached 9.10 percent, which was the highest reading since reaching a 40-year high in mid-2022.
Core inflation, which excludes volatile food and fuel prices, was unchanged from June’s month-to-month pace of 0.20 percent growth. July’s month-to-month reading matched analysts’ expectations. Year-over-year core inflation dipped slightly to 4.70 percent in July as compared to June’s reading of 4.80 percent year-over-year inflation.
Federal Reserve leaders said that they would continue monitoring domestic and global economic developments along with financial and economic data before determining whether or not to raise the Fed’s key interest rate range.
Mortgage Rates, Jobless Claims Rise
Freddie Mac reported higher mortgage rates for the third consecutive week. The average rate for a 30-year fixed-rate mortgage approached seven percent and rose by six basis points to 6.96 percent. Rates for 15-year fixed-rate mortgages rose by nine basis points to 6.34 percent.
248,000 initial jobless claims were filed last week, which surpassed expectations of 231,000 new claims filed and the previous week’s reading of 227,000 first-tine jobless claims filed.
University of Michigan Consumer Sentiment Survey
In other news, the University of Michigan released its monthly preliminary reading on U.S. consumer sentiment.
Consumer sentiment rose to an index reading of 72.0 in August as compared to the July reading of 71.6. The majority of.consumers surveyed indicated that the economy improved in the three months leading up to the survey., Component readings included consumer sentiment index readings for current economic conditions and economic conditions within the next six months. The survey reading for consumer sentiment about economic conditions over the next six months fell to an index reading of 67.3 from the July reading of 68.3 Readings over 50 indicate that most consumers are confident about current economic conditions.
Joanne Hsu, the University of Michigan’s director of consumer surveys, said: “…In general, consumers perceived few differences in the economic environment from last month, but they saw substantial improvement relative to just three months ago.”
What’s Ahead
This week’s scheduled economic reporting includes reading on housing starts and building permits issued, the minutes of the Federal Reserve’s recent meeting of its Federal Open Market Committee, and weekly readings on mortgage rates and jobless claims.
Aug 11, 2023 | Real Estate
The amount of equity you can borrow from your house depends on several factors, including the current market value of your home, the amount you owe on your mortgage, and your credit score.
In general, lenders typically allow you to borrow up to 80% of your home’s equity. For example, if your home is currently valued at $400,000 and you owe $200,000 on your mortgage, you may be able to borrow up to $160,000 (80% of the $200,000 in equity you have in your home).
However, it’s important to note that borrowing against your home’s equity comes with risks. If you are unable to make payments on the loan, you could potentially lose your home through foreclosure. It’s important to carefully consider the risks and benefits of borrowing against your home’s equity before proceeding. It’s also recommended to consult with a financial advisor or a mortgage professional to help you make an informed decision.
What Is My Loan-to-Value?
Your loan-to-value (LTV) is the ratio of the amount of money you borrowed (usually through a mortgage) to the appraised value of the property. It is typically expressed as a percentage.
To calculate your LTV, you need to divide the amount of your loan by the appraised value of the property, then multiply the result by 100. For example, if you have a mortgage of $250,000 on a property appraised at $400,000, your LTV is 62.5% (250,000 / 400,000 x 100 = 62.5%).
LTV is an important factor in determining the risk level of a loan. Lenders generally prefer lower LTV ratios, as they indicate a lower risk of default. A high LTV, on the other hand, can make it more difficult to get approved for a loan, or result in higher interest rates or additional fees.
How Can I Increase My Home Equity?
There are several ways to increase your home equity, which is the difference between the current value of your home and the amount you owe on your mortgage. Here are a few strategies to consider:
Make extra payments on your mortgage: Making additional payments towards your principal balance can help reduce the amount of interest you’ll pay overtime, and also help you build equity more quickly.
Increase the value of your home: Making home improvements or renovations can increase the value of your home, which can in turn increase your equity. Focus on upgrades that provide the best return on investment, such as kitchen and bathroom remodels or adding energy-efficient features.
Refinance to a shorter-term loan: If you can afford higher monthly payments, refinancing to a shorter-term loan can help you pay off your mortgage faster and build equity more quickly.
Avoid taking out additional loans: Avoid taking out additional loans against your home equity, as it will reduce the amount of equity you have in your home.
Regular maintenance: Regular maintenance, such as repairing leaks, repainting walls, and replacing worn-out fixtures can help maintain your property’s value and prevent the need for expensive repairs.
It’s important to remember that building equity is a long-term strategy and requires consistent effort and discipline over time. Consult with a financial advisor or a mortgage professional to determine the best approach for your individual situation.
Aug 10, 2023 | Real Estate
Obtaining a pre-approval for a mortgage is an important step when you’re planning to buy a home. It gives you an idea of how much you can afford, helps streamline the home-buying process, and strengthens your position as a serious buyer. However, many people worry that the pre-approval process might negatively impact their credit score. In this blog post, we’ll dive into the details to determine whether or not a pre-approval for a mortgage will hurt your credit.
Understanding Credit Inquiries
To understand how pre-approval affects your credit, we need to discuss credit inquiries. When you apply for credit, such as a loan or credit card, the lender typically pulls your credit report to assess your creditworthiness. These inquiries are categorized as either “hard” or “soft.”
Hard Inquiries: A hard inquiry occurs when you apply for credit, and it can impact your credit score. These inquiries are visible to other lenders and may suggest that you’re actively seeking credit.
Soft Inquiries: A soft inquiry, on the other hand, doesn’t affect your credit score. These inquiries occur when you check your own credit report or when a lender pre-approves you without your explicit consent.
Pre-Approval and Credit Inquiries
When it comes to mortgage pre-approvals, most lenders perform a hard inquiry to assess your creditworthiness accurately. While this hard inquiry might have a temporary impact on your credit score, the impact is typically minimal. Generally, a single hard inquiry will only result in a small dip in your score, typically around five points or less. The credit bureaus understand that consumers may shop around for the best mortgage terms and account for this in their scoring models.
The Logic Behind Credit Scoring
Credit scoring models are designed to account for consumer behavior related to loans and credit applications. They recognize that it’s normal for individuals to shop around for the best rates and terms when seeking a mortgage. To encourage this behavior, credit scoring models treat multiple mortgage inquiries made within a certain time frame (usually 30 days) as a single inquiry. This means that even if you get pre-approved by multiple lenders within that timeframe, it will be considered a single inquiry when calculating your credit score.
While a pre-approval for a mortgage may result in a temporary dip in your credit score due to the hard inquiry, it’s generally a small and short-lived effect. The benefits of obtaining a pre-approval, such as understanding your budget and strengthening your position as a buyer, far outweigh any minor impact on your credit score.
To minimize any potential negative impact on your credit score during the mortgage pre-approval process, consider the following tips:
Do your research: Before applying for a pre-approval, research lenders and their qualification criteria. Focus on a select few lenders who are likely to meet your needs to minimize the number of credit inquiries.
Time your applications: If possible, try to complete all your mortgage pre-approval applications within a short time frame, such as 30 days. This way, the credit bureaus will consider them as a single inquiry.
Monitor your credit: Regularly monitor your credit report to ensure accuracy and identify any potential issues. You can obtain one free credit report per year from each of the three major credit bureaus.
In most cases, the impact of a mortgage pre-approval on your credit score is minimal and short-lived. While the initial hard inquiry may result in a small dip in your score, credit scoring models are designed to account for shopping around for the best mortgage terms. The long-term benefits of obtaining a pre-approval far outweigh any minor impact on
Aug 9, 2023 | Real Estate
As the housing market continues to evolve, it becomes increasingly crucial for aspiring homeowners to tread carefully and avoid falling into the trap of being house poor. The dream of owning a home should not come at the expense of financial stability and overall well-being. Here are some essential tips to steer clear of this precarious situation:
Setting a Sensible Budget:
Before even considering purchasing a house, it’s imperative to create a comprehensive budget that includes all your income, expenses, and financial goals. Be honest with yourself about what you can afford, considering not only the mortgage but also property taxes, insurance, utilities, and maintenance.
Prioritizing Emergency Savings:
Building a robust emergency fund should be a top priority. Life is unpredictable, and unexpected expenses can arise at any moment. Having a safety net of three to six months’ worth of living expenses can prevent you from becoming overwhelmed by financial burdens if an unforeseen situation occurs.
Saving for a Substantial Down Payment:
While it may be tempting to put down a smaller down payment to secure a house quickly, it’s wiser to save for a more substantial down payment. A larger down payment means borrowing less money and having lower mortgage payments, which can significantly reduce the risk of being house poor.
Consider All Costs:
Beyond the mortgage, homeownership involves additional expenses such as property taxes, insurance, utilities, and maintenance. Renters must consider renter’s insurance, utilities, and other costs.
Maintaining a Healthy Debt-to-Income Ratio:
Lenders often look at your debt-to-income ratio when considering your eligibility for a mortgage. Aim to keep this ratio as low as possible by paying off existing debts before taking on a mortgage.
Living Below Your Means:
It’s crucial to resist the temptation of purchasing the most expensive house you can qualify for. Instead, opt for a more affordable home that aligns with your budget and long-term financial objectives.
Anticipate Future Expenses:
Plan for the future and anticipate upcoming financial commitments such as career changes, education costs, and family planning. Being prepared for these events will ensure that your housing costs remain manageable even as your life circumstances change.
Shop Around for Mortgages or Rent:
If you’re in the market for a new home, don’t settle for the first mortgage offer you receive. Shop around and compare rates and terms from different lenders to secure the most favorable deal.
Avoid Making Big Financial Decisions:
Focus on stabilizing your housing situation first before taking on additional financial responsibilities.
Seek Professional Guidance:
If you’re uncertain about the process or worried about becoming house poor, consider seeking advice from a financial advisor or a reputable real estate professional..
Achieving the goal of homeownership or finding a suitable rental property should not come at the cost of your financial security and overall happiness. Remember, it’s not just about the house you live in; it’s about building a fulfilling life within your means.
Aug 8, 2023 | Real Estate
It is not uncommon for renters to pay more in rent than their landlord’s mortgage payment. This is because landlords are typically looking to make a profit on their rental properties, and they will often set their rent prices based on market rates rather than the cost of their mortgage.
There are several reasons why renters often pay more than a mortgage payment:
Renters are not building equity: When you make a mortgage payment, you are building equity in your home. Equity is the value of your home that you actually own. As you pay down your mortgage, you own more and more of your home. Renters, on the other hand, are not building equity in their homes. They are simply paying for the use of the property.
Renters don’t get tax benefits: Homeowners can deduct their mortgage interest and property taxes from their income taxes, which can save them a significant amount of money. Renters, on the other hand, do not get these tax benefits.
Landlords have to cover maintenance costs: When you rent a property, the landlord is responsible for maintenance and repairs. This includes everything from fixing a leaky faucet to replacing a roof. These costs are factored into the rent payment, so renters end up paying for these expenses indirectly.
Supply and demand: Depending on the area and the rental market, there may be more demand for rental properties than there is supply. This can drive up rental prices, making them higher than mortgage payments.
Location: In some areas, it may simply be more expensive to rent than it is to buy a home. This can be due to a variety of factors, such as high demand, limited supply, or a desirable location.
Overall, there are many factors that can contribute to renters paying more than a mortgage payment. It’s important to note that while renters may feel like they are paying more than their landlord’s mortgage, they are also benefiting from the convenience and flexibility of renting. Renters typically do not have to worry about property maintenance or repair costs, and they have the ability to move more easily than homeowners. Renting can still be a good choice for some people, depending on their financial situation and lifestyle.
