Mortgage Rules Changes Are Coming in 2014


The world of mortgage lending has changed significantly since the housing bubble burst. Mortgage lenders have returned to traditional loan standards that require extensive documentation of income and assets for a loan approval.

Government regulatory agencies also continue to react to the housing crisis, with more adjustments to mortgage requirements set to go into effect in 2014:

Qualified Mortgage Rules

Whether you’re thinking of buying a home or mulling over refinancing your mortgage, Jan. 10, 2014, could be an important date for you to remember. The Consumer Financial Protection Bureau is in the process of implementing regulations to meet goals set forth by the Dodd-Frank Act in Congress, which was meant to correct the errors that led to the housing crisis. The CFPB’s “Qualified Mortgage,” or QM, rules go into effect in January. Essentially, these rules require lenders to prove borrowers’ ability to repay a loan by meeting several guidelines, including a maximum debt-to-income ratio of 43 percent. While many lenders already limit borrowers to a similar maximum debt-to-income ratio, the new rules won’t allow for any compensating circumstances such as significant cash reserves or a large down payment to be considered in order to offset a higher debt ratio.

If you have credit problems or a high debt-to-income ratio, you may want to push through your loan application for a refinance or home purchase to make sure you close your loan before the new rules go into effect. However, many lenders are already using QM standards in order to make sure they’re in compliance with the regulation. Mortgages that don’t meet QM standards will have to be held by the lender rather than sold to Fannie Mae and Freddie Mac, so most lenders are careful to meet the new standards.

The 3 Percent Rule

The new QM requirements also limit fees for originating a loan to no more than 3 percent of the loan amount. If you’re financing a more costly home, such as a $400,000 home or more, the lender can easily keep fees under 3 percent, which in this case would be $12,000. However, if you’re refinancing a smaller loan balance or purchasing a less expensive home — for example, for $80,000 — the lender might find it more difficult to keep all fees under $2,400. Mortgage lenders are less likely to offer loans for smaller amounts since they won’t always recoup their costs and make enough profit to pay their staff. If you need a small loan, you may want to push to get it closed before Jan. 10, 2014.

Self-Employed Borrowers

One particular group of borrowers will most likely be impacted by the QM rules: self-employed borrowers. These borrowers already are heavily scrutinized and find it more difficult to obtain a mortgage because they must prove their income based on tax returns and profit-and-loss statements, rather than standard paystubs and W2 forms. The “ability-to-repay” feature of QM rules requires all borrowers to prove they have the cash flow to make payments on their mortgage. Self-employed borrowers often have fluctuating income and rely on cash reserves to pay bills in-between payments, but the emphasis on cash flow can make it harder for lenders to approve a loan even for someone with significant funds in the bank.

Potential Lower Loan Limits

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced in October that plans to reduce the maximum loan limits for conventional conforming loans will be delayed until later in 2014. Typically, loan limits are adjusted on Jan. 1 of each year, but the agency decided to wait to see the impact of the introduction of QM rules before making changes. Currently, the limits are $417,000 in most housing markets and rise to $625,500 in high cost areas. If you need a mortgage near these limits, it would be wise to close your loan earlier in 2014 rather than later in case limits are lowered.




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US Home Values Fall for Second Straight Month in October


National home values fell in October from September, according to the October Zillow Real Estate Market Reports, the second month in a row of falling home values and the first consecutive monthly declines since the market hit bottom in October 2011. The U.S. Zillow Home Value Index was $162,800 in October, down 0.1 percent from September.

Half of the 388 metros covered experienced monthly home value depreciation in October from September. Among the 30 largest metro areas covered by Zillow, 10 exhibited monthly depreciation in October, and two more were flat.

Home values nationwide rose 5.2 percent year-over-year, a much slower pace than annual appreciation rates in the 7 percent range experienced over the summer, and further proof that the market has begun to cool off after months of unsustainable appreciation. For the 12-month period from October 2013 to October 2014, national home values are expected to rise just 2.7 percent, roughly half the current pace, according to the Zillow Home Value Forecast. Seven of the top 30 metros covered by Zillow are expected to see home values fall over the next year, with the biggest declines in St. Louis (-1.5 percent), Philadelphia (-0.9 percent) and New York (-0.7 percent).

“The months-long period of annual home value appreciation rates in the 6 and 7 percent range was great while it lasted, but we knew it would not continue indefinitely. The slowdown we’ve seen these past few months was expected and is largely welcome news for a market still struggling to find its natural balance,” said Zillow Chief Economist Dr. Stan Humphries.  “The conditions that led to the robust appreciation experienced earlier this year, including historically low mortgage interest rates, high affordability, low inventory and high demand, are waning. In their place, we’re beginning to see more inventory and rising mortgage rates, which will lead to further normalization in the market going forward.”

National rents rose in October from September, up 0.2 percent to a Zillow Rent Index of $1,300. Year-over-year, national rents were up 2.3 percent in October.

The number of completed foreclosures in October fell to 5.44 homes foreclosed out of every 10,000 homes nationwide, down from 5.5 homes in September. Foreclosure resales represented 8.7 percent of homes sold in the U.S. in October, up 0.5 percentage points from September but down 2.1 percentage points from October 2012.

Zillow Home Value Index (ZHVI) Zillow Rent Index (ZRI)
Metropolitan Areas October 2013 ZHVI Month-Month % Change Year-Year % Change October 2013 ZRI Month-Month % Change Year-Year % Change
United States $162,800 -0.1% 5.2% $1,300 0.2% 2.3%
New York, NY $354,100 0.0% 3.4% $2,305 -0.3% 7.1%
Los Angeles, CA $487,600 1.2% 20.1% $2,332 0.1% 2.5%
Chicago, IL $171,600 -0.2% 6.5% $1,571 0.9% 3.8%
Dallas-Fort Worth, TX $142,900 -0.7% 10.3% $1,359 0.5% 3.3%
Philadelphia, PA $188,700 -0.6% 1.8% $1,500 -0.2% 1.4%
Washington, DC $343,500 0.1% 8.1% $2,090 -0.1% 1.7%
Miami-Fort Lauderdale, FL $175,000 1.2% 16.9% $1,676 0.4% 5.5%
Atlanta, GA $128,500 0.2% 14.3% $1,157 0.8% 3.0%
Boston, MA $343,800 0.5% 9.2% $2,014 0.8% 3.3%
San Francisco, CA $636,900 1.0% 24.1% $2,580 0.5% 3.8%
Detroit, MI $98,300 0.9% 22.7% $1,045 -0.3% 1.8%
Riverside, CA $250,000 0.8% 30.4% $1,590 0.3% 1.9%
Phoenix, AZ $186,000 0.7% 19.4% $1,147 0.2% -0.5%
Seattle, WA $306,000 0.0% 13.8% $1,705 0.9% 6.0%
Minneapolis-St Paul, MN $199,700 0.1% 15.6% $1,472 0.4% 2.7%
San Diego, CA $437,500 0.9% 20.4% $2,166 0.4% 2.7%
St. Louis, MO $128,200 -0.9% 0.9% $1,111 0.2% 0.1%
Tampa, FL $129,500 0.7% 16.2% $1,211 0.1% 3.0%
Baltimore, MD $229,000 -0.7% 4.3% $1,681 -0.2% 0.8%
Denver, CO $246,500 -0.2% 9.9% $1,613 1.1% 8.1%
Pittsburgh, PA $111,400 -0.7% 1.8% $1,038 1.4% 3.4%
Portland, OR $258,000 -0.2% 13.60% $1,456 0.9% 5.0%
Sacramento, CA $284,500 0.3% 30.40% $1,475 0.3% 1.7%
Orlando, FL $148,300 1.1% 20.20% $1,262 0.6% 5.3%
Cincinnati, OH $128,800 0.1% 4.20% $1,120 0.7% 5.9%
Cleveland, OH $114,600 -0.1% 3.60% $1,114 0.1% 3.9%
Las Vegas, NV $164,600 1.5% 33.20% $1,171 0.4% 2.0%
San Jose, CA $731,500 -0.1% 19.60% $2,737 0.8% 6.1%
Columbus, OH $133,800 0.5% 5.6% $1,211 0.8% 6.2%
Charlotte, NC $140,900 0.1% 3.5% $1,144 0.3% 0.6%


(Source: Zillow)

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Time is running out on energy tax credits


You can still get a tax credit for home improvements, but most of them are about to expire (again).

Last year, Congress extended the tax credit for many energy-efficient home improvements through 2013. You can receive up to $500 in total tax credits for eligible home improvements you’ve made since 2006.

If you haven’t already claimed a credit of $500 or more for eligible home improvements, then you may be able to take the break before the end of the year. The improvements must be to your principal residence.

The size of the credit depends on the type of improvement.

The tax break applies to 10 percent of the purchase price (not installation costs) of certain insulation materials, energy-efficient windows ($200 limit for windows), external doors and skylights, metal roofs with pigmented coating, and asphalt roofs with cooling granules that meet certain Energy Star requirements.

You can count materials and labor costs for certain central air conditioners, biomass stoves, electric heat pumps and electric heat pump water heaters that meet specific energy-efficient guidelines — up to a maximum of $300 each. You can count up to $150 for an eligible natural gas, propane or oil furnace or water boiler.

The items must meet specific energy-efficient requirements to qualify. See the U.S. Environmental Protection Agency’s tax breaks site, the Alliance to Save Energy tax credit page and the Tax Incentives Assistance Project site for more information. Keep your receipts and the manufacturer’s certification of eligibility for your records.

Some alternative-energy improvements qualify for larger tax credits with a later deadline. You can take a credit worth 30 percent of the cost of buying and installing certain alternative-energy equipment, such as geothermal heat pumps, solar water heaters, solar panels, fuel cells and small wind-energy systems.

You must make these improvements by Dec. 31, 2016, and they aren’t subject to the $500 limit. See the Energy Star tax credit website for details on these credits.

You can claim these credits by filing IRS Form 5695, Residential Energy Credits, which also includes more details about these credits.

If you don’t qualify for the federal incentives, see if you can get any state tax breaks for energy-efficient home improvements.

For links to information about the programs in each state, see the American Council for an Energy-Efficient Economy site.

For a list of several state and utility programs, see the Tax Incentives Assistance Project site.


(Source: Chicago Tribune)

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Chicago-area home prices climb 14% from last October


Home sales and median prices in the Chicago area continued to beat year-ago comparisons in October, and the time it took to sell a home plunged as a result of a lack of inventory.

October sales of existing homes in the nine-county Chicago area rose 9.6 percent from a year ago to 9,303 homes sold, at a median price of $175,000, up 14.4 percent, the Illinois Association of Realtors said Tuesday.

Market time declined 26 percent, from an average of 84 days in October 2012, to 62 days last month in the Chicago area. Within the city, it took an average of 52 days for a property to go under contract. That compared with 71 days in October 2012.

Within the city of Chicago, sales rose 7.5 percent year-over-year, to 2,231 properties. The median home price in the city was $218,500, up almost 25 percent from October 2012’s $175,000.

Much of that improvement can be tied to better sales prices of condominiums. Last month, the median price of a condo sold in the city was $260,000, up almost 24 percent from a year earlier.

There was concern that the partial federal government shutdown would temporarily derail the housing market’s recovery, and the market’s pace of improvement did slow markedly in October.

“To me, it feels like the normal, seasonal slowdown,” said Yuval Degani, president of Dream Town Realty. “But we still have clients that are waiting for the right property to pop up. I’d be worried if we didn’t have clients who wanted to buy, if we had banks that didn’t give credit, but that’s not happening.”

Last month was the first month since June 2011 that the year-over-year increase in sales volume did not show a double-digit percentage gain. Also, on a month-over-month basis, median prices fell for the fourth consecutive month.

“It’s definitely slowed down a little bit, but the year as a whole has been spectacular for residential real estate,” said Michael Parent, president of the MainStreet Association of Realtors. “Having a little bit of a slowdown, the concern becomes if it becomes like that month over month. I don’t think this is alarming. There’s still a little bit of concern about jobs.”

Sales and pricing improvement are expected to show greater improvements during the next three months, according to Geoffrey J.D. Hewings, director of University of Illinois’ regional economics applications laboratory.

Nationally, existing-home sales totaled a seasonally adjusted annual rate of 5.12 million properties sold in October, up 6 percent from October 2012 but a decline of 3.2 percent from September, reported the National Association of Realtors. It was the second consecutive monthly drop in national home sales.

Lawrence Yun, the association’s chief economist, attributed the decline to decreased affordability as a result of higher prices and mortgage interest rates.

Also on Wednesday, the Mortgage Bankers Association reported that mortgage applications for home purchases increased 6 percent from last week.


(Source: Chicago Tribune)

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Young and smart, but Millennials face homebuying hurdles


High debt levels and weak job prospects have made it hard for many young, educated Americans to buy homes, and that could be a drag on the housing market for years to come.

Missed payments on student loan debt damage credit scores, making it harder and more expensive to get mortgages.

Debt also counts against Millennials when lenders calculate how much money they’ll lend: Every dollar of student debt payments means less available for housing.

In addition, more grads are moving home to live with their parents — 36%, according to a recent Pew survey. While that saves on living expenses, it limits their ability to build the credit histories they need to eventually get a mortgage.

The result is a decline in the percentage of 18-to-32 year olds heading up their own homes — just 34.3% as of this past March, according to Pew, versus 36.1% in 2007.

The New York Federal Reserve reported recently that, for the first time, the homeownership rate among college graduates was less than non-grads.

Danilla DiMartino graduated from college at 25 in 2012 with $35,000 in debt and has lived with her parents in a Westchester County suburb of New York ever since.

She makes $33,000 a year as an account executive with a PR firm, which would be enough to move someplace except for her $700 a month loan payments.

“I love my job and I love my parents, but I am an adult and want a place of my own, but won’t be able to have that for at least four to five years,” she said.

Shane McClelland, 27, a divorce attorney in Columbus, Ohio, is more than two years out of law school, has his own firm and is making a good living. But he has nearly $200,000 in student loan debt.

“It’s really delaying the adult milestones I should be hitting,” he said.

He does not have to live at home with his parents but the debt, which costs him about $2,000 a month, has prevented him from buying a home, even though Columbus boasts affordable prices.

One lender told McClelland they didn’t even want to process his loan application.

Danielle DeBacker, 24, is originally from Houston and works as a clinical research coordinator at Georgetown University Medical Center, a position that took a lot of expensive schooling, including a Masters degree from Case Western Reserve University School of Medicine in Cleveland.

She owes $80,000 in school loans and homeownership is a distant dream. She shares a house in Alexandria, Va., with three others and can’t even afford a car.

“Buying a home will be a mid-30’s project for me at the earliest,” she said.


(Source: CNN Money)

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