Blog – CTeBockhorst's Blog

What’s Ahead For Mortgage Rates This Week – December 30th, 2024

December 30, 2024 by Coleen TeBockhorst

With Christmas concluding the prior week, there were few reports other than Consumer Confidence, which had come in slightly below expectations. This should prove to have little impact, especially in the following week. With the New Year on the horizon, there are no reports other than the Chicago Manufacturing output report for the entire week. Happy Holidays!

Consumer Confidence

A post-election pop in consumer confidence fizzled at the end of the year, owing to worries about the U.S. stock market and a potentially higher cost of living as a result of new tariffs. The index of consumer confidence dropped 8.1 points to a three-month low of 104.7 in December, the privately run Conference Board said Monday.

Primary Mortgage Market Survey Index

• 15-Yr FRM rates saw an increase of 0.08% with the current rate at 6.00%
• 30-Yr FRM rates saw an increase of 0.13% with the current rate at 6.85%

MND Rate Index

• 30-Yr FHA rates saw an increase of 0.03% for this week. Current rates at 6.45%
• 30-Yr VA rates saw an increase of 0.03% for this week. Current rates at 6.46%

Jobless Claims

Initial Claims were reported to be 219,000 compared to the expected claims of 225,000. The prior week landed at 220,000.

What’s Ahead

Chicago PMI Report will be the only release for next week.

How to Buy a Home if You Owe Taxes

December 27, 2024 by Coleen TeBockhorst

If you’re considering buying a home while dealing with unpaid taxes, you might be wondering how your tax debt affects your mortgage approval. The good news is, it is possible to buy a home even if you owe taxes. Here’s what you need to know about how owing taxes can impact your homebuying process.

How Owing the IRS Affects Buying a Home

You might not need to wait until your tax debt is completely paid off to apply for a mortgage. It’s important to speak with a loan officer who can guide you through your options based on your specific financial situation. If you’ve been paying off your tax debt through a payment plan, be sure to let your loan officer know and provide supporting documentation and proof of payment.

Getting a Mortgage While You Owe Taxes

While paying off your tax debt isn’t always required before getting a mortgage, there are specific qualifications for mortgages when you have unfiled taxes or a tax lien.

How to Qualify for a Mortgage with Unfiled Taxes

When applying for a mortgage, you’ll need to provide the last two years of your tax returns. If your taxes are unfiled, you’ll need to file an extension with the IRS or your state government to remain eligible.

How to Qualify for a Mortgage with a Tax Lien

A tax lien gives the government a legal claim to your property due to unpaid taxes. Federal and state liens typically need to be paid off before closing to qualify for a mortgage. The IRS releases the lien within 30 days after the tax debt is paid in full.

Exceptions to the Rule

In some cases, exceptions are made for tax liens if you have a payment plan in place. These exceptions depend on the type of loan program.

Conventional Home Loan Requirements

Fannie Mae (FNMA): Requires you to pay off all past-due taxes, including any tax liens, in full before closing. However, Fannie Mae allows installment plans unless there’s a Notice of Federal Tax Lien.
Freddie Mac (FHLMC): If you have a tax lien, Freddie Mac requires it to be paid off or be under a repayment plan for at least three months. Payment history must be documented and included in your debt-to-income ratio.

Government Home Loan Requirements

Government-backed loans (like VA, USDA, and FHA) have more flexibility but still require you to resolve your tax lien situation.

VA and USDA: You must pay off tax liens in full or have a repayment plan for at least three months.
FHA: If your tax liens are delinquent, they must be current or part of a written payment agreement that’s included in your debt-to-income ratio. You’ll need to make at least three months of timely payments.

Does Owing Taxes Affect Mortgage Approval?

Tax debt won’t automatically disqualify you from getting a mortgage, but paying off your debt will increase your chances of approval. If you can’t pay off your tax debt in full, request an installment agreement and ensure you’re making timely payments.

Steps to Secure a Mortgage After Bankruptcy

December 26, 2024 by Coleen TeBockhorst

Experiencing bankruptcy can feel like a significant setback, but it doesn’t mean the end of your dream to own a home. With time, effort, and careful planning, you can rebuild your financial foundation and secure a mortgage. Here are some key steps to guide you through the process of buying a home after bankruptcy.

Step 1: Get a Professional Credit Assessment

After your bankruptcy is discharged, there is typically a waiting period before you can apply for a mortgage—usually two years for Chapter 7 bankruptcy and as little as one year for Chapter 13, depending on the loan type. Use this time to focus on improving your credit score.

Your credit report will be closely scrutinized by lenders, so taking proactive steps to improve it is essential. The better your credit profile, the more likely you’ll be approved for a mortgage—and with better terms.

Step 2: Create and Stick to a Monthly Budget

Rebuilding financial stability after bankruptcy starts with creating a budget. A clear budget helps you manage your income and expenses, ensuring you don’t overextend yourself and remain on track toward homeownership.

Start by listing all your sources of income and subtracting your necessary expenses, such as housing, utilities, and groceries. Use budgeting tools like apps or spreadsheets to make tracking your finances easier. The goal is to allocate a portion of your income toward savings for a down payment and other home-buying costs.

Step 3: Save for a Down Payment

Saving for a down payment is one of the most critical steps in securing a mortgage after bankruptcy. A larger down payment reduces the lender’s risk and shows your commitment to the home-buying process.

The amount required for a down payment depends on the loan type and home price. Conventional loans often require around 20%, but some government-backed loans, like FHA loans, may allow down payments as low as 3.5%. Start saving as early as possible to meet your target amount.

A substantial down payment not only increases your chances of approval but may also qualify you for better interest rates and loan terms.

Step 4: Maintain Financial Discipline

Once your bankruptcy is discharged, maintaining strict financial discipline is crucial. Avoid unnecessary purchases, pay off any remaining debts, and refrain from opening new lines of credit.

Staying disciplined also helps improve your credit score over time, which is vital for qualifying for favorable loan terms and interest rates.

Step 5: Stay Positive and Patient

Rebuilding after bankruptcy is not an overnight process. It takes time, patience, and dedication to improve your financial health. However, by following these steps and staying committed to your goals, homeownership can become a reality.

Remember, your financial past does not define your future. With the right plan and support, you can move forward, secure a mortgage, and build a brighter future in the home of your dreams.

Looking Ahead with Gratitude and Hope

December 25, 2024 by Coleen TeBockhorst

As the holiday season surrounds us with its warmth and cheer, we reflect on the incredible connections we’ve made this year. To our valued clients, whether we’ve worked together already or you’re considering partnering with us—thank you for trusting us to be part of your journey.

This season is not only a time for celebration but also a moment to appreciate the opportunities ahead. We’re truly grateful for the chance to help you achieve your dreams, whether it’s finding the perfect home or planning for a brighter financial future.

As we step into the new year, we’re filled with hope and excitement for what’s to come. May this holiday season bring you peace, joy, and cherished moments with loved ones. Here’s to a wonderful year ahead filled with growth, opportunity, and success!

Happy Holidays and best wishes for a prosperous New Year!

When Will Refinancing Pay Off? Calculating Your Break-Even Point

December 24, 2024 by Coleen TeBockhorst

Refinancing can help homeowners save money, but it’s essential to determine if the potential savings outweigh the upfront costs. One key tool in making this decision is calculating the refinance break-even point. This simple calculation reveals how long it will take for your monthly savings to cover the costs of refinancing. Here’s everything you need to know about determining when refinancing will pay off.

What Is the Refinance Break-Even Point?

The refinance break-even point is the time it takes for the savings from lower monthly payments to equal the total costs of refinancing, such as closing fees and other expenses.

For example, if your closing costs are $4,000 and you save $200 per month, your break-even point is 20 months.

If you plan to stay in your home beyond the break-even point, refinancing can offer substantial long-term savings.

How to Calculate Your Break-Even Point

Determine the Total Costs of Refinancing
Refinance costs typically include:

Loan origination fees
Appraisal fees
Title search fees
Attorney fees

These costs generally amount to 2-6% of the loan amount.

Calculate Monthly Savings
Subtract your new monthly mortgage payment from your current one. For example, if your current payment is $1,500 and your new payment is $1,300, your monthly savings are $200.
Divide Closing Costs by Monthly Savings
Use this formula:
Break-Even Point = Total Closing Costs ÷ Monthly Savings
Example: If your closing costs are $4,000 and your monthly savings are $200, your break-even point is 20 months.

Factors That Influence Your Break-Even Point

Several factors affect how quickly you reach your break-even point:

Interest Rates: A larger rate drop leads to higher monthly savings, shortening the break-even time.
Loan Term: Shortening your term may delay the break-even point but reduce long-term interest costs, while extending it may lower monthly payments and speed up the break-even time.
Closing Costs: Higher closing costs lengthen the time it takes to recoup your expenses.
Loan Amount: Larger loan amounts tend to offer greater savings potential with lower rates.

When Does Refinancing Make Sense?

Refinancing might be a good choice if:

You plan to stay in your home for several years.
You can secure a significantly lower interest rate.
You want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM).
You want to lower your monthly payments or pay off your loan faster.
You need to access home equity with a cash-out refinance.

Common Mistakes When Calculating the Break-Even Point

To ensure accurate calculations, avoid these common pitfalls:

Forgetting to include property taxes, homeowners insurance, or mortgage insurance in your calculations.
Failing to align refinancing with your broader financial goals.
Overestimating how long you’ll stay in your current home.

The Long-Term Benefits of Refinancing

Once you pass the break-even point, the monthly savings from refinancing can add up to significant financial benefits, potentially saving you thousands over the life of the loan. However, resetting your loan term may extend repayment time, so it’s essential to weigh the pros and cons.

What’s Ahead For Mortgage Rates This Week – December 23rd, 2024

December 23, 2024 by Coleen TeBockhorst

The rate cut by the Federal Reserve was hotly anticipated, and as predicted, they proceeded with the reduction, signaling the possibility of further cuts depending on inflation data. Although markets were generally receptive to the positive news, other government-related issues had dampened the high spirits temporarily. Outside of the rate decision, the PCE Index (the Federal Reserve’s preferred inflation indicator) has performed positively by beating the forecast. In addition, the Consumer Sentiment was exactly where it should be as expected.

PCE Index

The PCE index increased a scant 0.1% last month, the government said Friday. That’s the smallest rise in three months and just half as much as economists polled by The Wall Street Journal predicted. The barometer of U.S. inflation favored by the Federal Reserve rose more slowly than expected in November, breaking what appears to be a gradual drift higher in prices that forced the central bank to scale back plans to cut interest rates.

FOMC Rate Decision

The Federal Reserve on Wednesday cut interest rates by a quarter point, the third rate cut since it began to lower borrowing costs in September. The central bank’s latest move leaves its benchmark lending rate at a range of 4.25%-4.5%, a two-year low.

Primary Mortgage Market Survey Index

• 15-Yr FRM rates saw an increase of 0.08% with the current rate at 5.92%
• 30-Yr FRM rates saw an increase of 0.12% with the current rate at 6.72%

MND Rate Index

• 30-Yr FHA rates saw an increase of 0.10% for this week. Current rates at 6.42%
• 30-Yr VA rates saw an increase of 0.10% for this week. Current rates at 6.43%

Jobless Claims

Initial Claims were reported to be 242,000 compared to the expected claims of 220,000. The prior week landed at 224,000.

What’s Ahead

With an extremely light release schedule ahead of Christmas, the jobs release data will be the only important release.

Does Your Home Loan Have a Prepayment Penalty?

December 20, 2024 by Coleen TeBockhorst

Buying a home is a huge milestone, and the excitement of closing can lead many buyers to quickly accept any mortgage offer without fully understanding its terms. One important detail to watch for is whether your mortgage includes a prepayment penalty. This fee can be an unwelcome surprise, so it’s crucial to know what you’re signing up for before finalizing your loan.

What is a Prepayment Penalty?
A prepayment penalty is a fee that some lenders charge if a borrower pays off their mortgage within a specified period, typically during the first two to five years. Though less common, some loans still include this clause. The lender charges the penalty to recoup the loss of expected interest from the loan. Prepayment penalties can apply whether you refinance or sell your home, so understanding the conditions of this fee before signing is essential.

How to Determine if You Have a Prepayment Penalty
Don’t wait until the closing process to ask about a prepayment penalty. Review your loan estimate thoroughly after pre-approval. While prepayment penalties are more typical with certain loans, always read the fine print. If anything seems unclear or if there’s a discrepancy between what you’re told and what’s on paper, reach out to your loan officer for clarification.

What Can You Do About It?
If you find out that your loan includes a prepayment penalty, you still have options. For some borrowers, the penalty isn’t a concern, especially if they plan to stay in the home long-term and don’t expect to refinance soon. Sometimes, agreeing to the penalty can lower your interest rate or closing costs.

However, if you foresee moving or refinancing within a few years, this fee could be problematic. In that case, try negotiating with your lender to remove or reduce the penalty. If that doesn’t work, consider shopping around for another lender who offers better terms.

A prepayment penalty can significantly impact your mortgage, but understanding it upfront allows you to make informed decisions. If you do encounter this fee, negotiation and comparison shopping could help you secure more favorable loan terms for your dream home.

What If My Mortgage Pre-Approval Expires?

December 19, 2024 by Coleen TeBockhorst

A mortgage pre-approval is one of the most valuable tools in your homebuying journey. It’s not just a letter stating how much you’re qualified to borrow; it’s a written commitment from your lender that assures sellers you have the financial backing to make a competitive offer.

Having a pre-approval letter in hand can give you a significant advantage in a competitive housing market, signaling to sellers that you’re serious, financially prepared, and ready to move forward.

However, like many things in life, pre-approval letters have an expiration date. If you don’t find your dream home before that date passes, you may be wondering what your next steps should be.

When Does Pre-Approval Expire?

Pre-approval letters typically expire within 60 to 90 days from the date they are issued. The exact expiration period depends on your lender and personal financial situation. A variety of factors may contribute to the expiration of your pre-approval, including changes in your credit, income, or debt. It’s important to stay mindful of the expiration date so you can plan ahead and ensure you’re still on track for purchasing the home of your dreams.

What Happens If You Don’t Use Your Pre-Approval?

It’s important to remember that just because your pre-approval expires doesn’t mean your home search is over. If you haven’t yet found the right property, or if the market has been particularly competitive, don’t be discouraged.

If your pre-approval expires, all you need to do is refresh it. This is a common step in the homebuying journey and is relatively simple to do. You’ll need to provide updated documentation—such as your most recent bank statements, pay stubs, or any changes to your financial situation—to ensure your pre-approval remains accurate and valid. This allows the lender to reassess your qualifications and ensure you still meet the necessary requirements for a mortgage.

Steps to Take When Your Pre-Approval Expires

Contact Your Loan Officer

The first step is to reach out to your loan officer as soon as your pre-approval is about to expire. They’ll be able to guide you through the process of renewing your pre-approval and make sure everything is up to date.
Be open and transparent with your loan officer about any changes in your financial or employment situation that might affect your application. This could include a new job, a change in income, or any other significant financial adjustments.

Update Financial Documents

Your lender will need to verify your current financial situation before issuing a new pre-approval. To do this, you’ll need to provide your most recent bank statements, pay stubs, tax returns, or other requested materials.
These updates will allow the lender to reassess your qualifications and determine if you still meet the criteria for your desired loan program. The more timely and accurate your documents are, the faster the process will go.

Obtain a New Pre-Approval

After reviewing your updated documents, your loan officer will issue a new pre-approval letter, which will have an updated expiration date. This new letter will enable you to continue your house-hunting journey with confidence.
Keep in mind that your new pre-approval will reflect your current financial standing, so it’s important to stay on top of any changes that could impact your mortgage application.

Exploring Down Payment Options for Homebuyers

December 18, 2024 by Coleen TeBockhorst

Saving for a down payment is a common hurdle for many homebuyers, but there are several ways to make it happen. Whether you’re tapping into savings, receiving a gift, or utilizing assistance programs, understanding your options can make the journey to homeownership smoother.

Common Sources for Down Payments

Gifts from Family or Friends

Gifts can come from immediate family members, relatives by marriage, legal guardians, or close friends (with proper documentation).
Lenders require a gift letter confirming that the money doesn’t need to be repaid.
Eligibility rules vary by loan program, so check with your lender.

401(k) Funds

Loan Option: Borrow up to $50,000 or 50% of your vested balance and repay it over five years with interest.
Early Withdrawal: Withdraw funds, but expect penalties and income taxes if you’re under 59 ½.
While it offers quick cash, consider the impact on your retirement savings.

Second Mortgage

Use equity from your current home as a down payment on a new property.
Requires managing two mortgages, so careful planning is crucial.

Down Payment Assistance Programs

Commonly available for first-time homebuyers or low-to-moderate income families.
Some offer forgivable second mortgages that don’t require repayment if specific conditions are met, such as staying in the home for a set period.

Personal Savings and Investments

Use your own savings or sell investments like stocks or bonds.
Consider tax implications and the impact on long-term financial goals.

Loan Program Differences for Down Payment Sources

Conventional Loans

Accept savings, gifts from family, and proceeds from investments.
Second mortgages are sometimes allowed but may have restrictions.

FHA Loans

More flexible, allowing gifts from family, friends, employers, or charities.
Compatible with many down payment assistance programs.

VA Loans

Often requires no down payment. If needed, gifted funds from the family are acceptable.

USDA Loans

Typically don’t require a down payment, but if needed, personal savings and gifted funds are allowed.

The best down payment option depends on your financial situation and goals. Give us a call to help clarify your choices and guide you toward the right path. Whether you’re using savings, gifts, or assistance programs, the journey to homeownership is within reach.

Condo Financing vs. Single-Family Home Mortgages

December 17, 2024 by Coleen TeBockhorst

Purchasing a condo can be an exciting step, offering a more affordable option or an appealing lifestyle in certain areas. However, financing a condo differs significantly from securing a mortgage for a single-family home. These differences arise from the shared nature of condo ownership, affecting the underwriting process, appraisal requirements, insurance needs, and sometimes even the interest rate. Understanding the nuances of condo financing will help you make more informed decisions when it comes time to purchase a condo.

Key Differences in Condo Financing

1. Appraisal Process

Single-Family Homes: A typical appraisal for a single-family home only evaluates the property itself—looking at its condition, size, location, and comparable homes in the area.
Condos: Condo appraisals are more comprehensive. Not only does the appraiser assess the individual unit, but they also review the condition of the entire building, the shared areas (like hallways, elevators, and parking garages), and the management of the Homeowners Association (HOA). Any issues with the overall building or HOA could impact the value of your unit, and therefore, your mortgage approval.

2. HOA Involvement

Single-Family Homes: There’s no HOA involved in most single-family homes, which means the lender only needs to evaluate the financial aspects of the borrower.
Condos: Lenders take a closer look at the Homeowners Association (HOA), as its financial health and management can have a significant impact on the property’s value and your ability to repay the mortgage. This includes reviewing the HOA’s budget, reserve fund, insurance coverage, and maintenance of shared spaces. Additionally, your HOA fees are included in your debt-to-income (DTI) ratio, so they factor into your loan eligibility.

3. Insurance Requirements

Single-Family Homes: Homeowners typically only need a single policy for their home, covering both the dwelling and personal belongings.
Condos: Condo financing generally requires two types of insurance:

Personal Condo Insurance: This covers the contents of your unit and any improvements or alterations made to it.
HOA Master Insurance: This policy covers the building structure and common areas, such as the roof, walls, hallways, and parking lots. You’re required to have both types of insurance to fully protect your property and meet lender requirements.

4. Interest Rates

Single-Family Homes: Conventional interest rates for single-family homes are typically lower compared to condos.
Condos: Because lenders perceive slightly higher risks with condos (due to shared ownership and potential HOA issues), mortgage interest rates on condos may be slightly higher. The interest rate will also depend on the condo’s financial health and whether it meets lender criteria.

Financing Specific Condo Types

1. Non-Warrantable Condos

These are condos that don’t meet traditional underwriting guidelines. Examples of non-warrantable condos include those with high rental occupancy rates or ongoing litigation. These properties generally require alternative financing, which could involve higher interest rates, larger down payments, or both.

2. Condotels

Condotels are condo units that function like hotel rooms, often used for short-term rentals. These properties are typically ineligible for conventional loans because they don’t meet standard underwriting guidelines. Financing for condotels may require specialized loan programs or higher down payments.

3. New Construction Condos

Financing for pre-construction or newly constructed condos can be more complex. Lenders may require detailed approvals for the project, including reviewing the builder’s track record and the condo association’s plans for managing the property. Conventional mortgage products may not be available until certain milestones are met in the construction process.

Loan Program Requirements

Different loan programs have varying rules for condo eligibility:

1. FHA Loans

For a condo to be eligible for FHA financing, it must be included on the FHA’s approved list of condo projects. If the condo is not approved by the FHA, you may not be able to secure an FHA-backed loan. FHA also limits the number of units in a complex that can be rented out to maintain eligibility.

2. VA Loans

The Department of Veterans Affairs (VA) also has strict guidelines for condos. One of the primary criteria is the percentage of units in a building that are rented out. If the condo complex has too many units being rented, it may not be eligible for a VA loan. Additionally, the complex must meet other VA-specific standards for property management and condition.

3. Conventional Loans

For conventional loans, the rules are typically more flexible, but the property must still meet the guidelines of Fannie Mae or Freddie Mac. These guidelines often require the condo project to have a strong financial history, adequate reserve funds, and good management. Some lenders may offer more leeway than others, but many still follow Fannie Mae and Freddie Mac’s criteria.

Financing a condo may involve additional steps, but with the right guidance, it can be a smooth and straightforward process. Working with an experienced loan officer is key—they can assist in determining if the condo meets lender requirements, review HOA documentation, and help you navigate the approval process. Give us a call and we will work with you to ensure everything is in order and help make your condo purchase a reality.

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