With purchase applications tumbling alongside the collapse in refinancings, the headline mortgage application data slumped to its lowest level since September 2000 last week.
This should not be a total surprise as Wells Fargo’s latest results shows the pipeline is collapsing – a forward-looking indicator on the state of the broader housing market and how it is impacted by rising rates, that was even more dire, slumping from $67BN in Q2 to $57BN in Q3, down 22% Y/Y and the the lowest since the financial crisis.
But in the month since those results, mortgage rates have gone higher still… (this is now the biggest 2Y rise in mortgage rates since 2000)…
Sparking further weakness in the housing market…
And absent Christmas weeks in 2000 and 2014, this is the weakest level of mortgage applications since September 2000…
What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage at a time when rates continued to rise – if not that much higher from recent all time lows. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.
And, as famed housing-watcher Robert Shiller recently noted, the weakening housing market is similar to the last market high, just before the subprime housing bubble burst a decade ago.
The economist, who predicted the 2007-2008 crisis, told Yahoo Finance that current data shows “a sign of weakness.”
“This is a sign of weakness that we’re starting to see. And it reminds me of 2006 … Or 2005 maybe,”
Housing pivots take more time than those in the stock market, Shiller said, adding that:
“the housing market does have a momentum component and we’re seeing a clipping of momentum at this time.”
The Nobel Laureate explained:
“If the markets go down, it could bring on another recession. The housing market has been an important element of economic activity. If people start to get pessimistic about housing and pull back and don’t want to buy, there will be a drop in construction jobs and that could be a seed for another recession.”
When reminded that 2006 predated the greatest financial crisis in a lifetime, RT notes that Shiller acknowledged that any correction would likely be far less severe.
“The drop in home prices in the financial crisis was the most severe drop in the US market since my data begin in 1890,” the Yale economist said.
“It could be that we’re primed to repeat it because it’s in our memory and we’re thinking about it but still I wouldn’t expect something as severe as the Great Financial Crisis coming on right now. There could be a significant correction or bear market, but I’m waiting and seeing now.”
Tick, tick, Mr Powell.
Planning to buy a fixer-upper, or make improvements to your existing home? The FHA 203k loan may be your perfect home improvement loan.
In combining your construction loan and your mortgage into a single home loan, the 203k loan program limits your loan closing costs and simplifies the home renovation process.
FHA 203k mortgages are available in California in loan amounts of up to $625,500.
About FHA Mortgages
The Federal Housing Administration (FHA) is a federal agency which is more than 80 years old. It was formed as part of the National Housing Act of 1934 with the stated mission of making homes affordable.
Prior to the FHA, home buyers were typically required to make down payments of fifty percent or more; and were required to repay loans in full within five years of closing.
The FHA and its loan programs changed all that.
The agency launched a mortgage insurance program through which it would protect the nation’s lenders against “bad loans”.
In order to receive such insurance, lenders were required to confirm that loans met FHA minimum standards which included verifications of employment; credit history reviews; and, satisfactory home appraisals.
These minimum standards came to be known as the FHA mortgage guidelines and, for loans which met guidelines, banks were granted permission to offer loan terms which put home ownership within reach for U.S. buyers.
Today, the FHA loan remains among the most forgiving and favorable of today’s home loan programs.
FHA mortgages require down payments of just 3.5 percent; make concessions for borrowers with low credit scores; and provide access to low mortgage rates.
The FHA has insured more than 34 million mortgages since its inception.
What Is The FHA 203k Construction Loan?
The FHA 203k loan is the agency’s specialized home construction loan.
Available to both buyers and refinancing households, the 203k loan combines the traditional “home improvement” loan with a standard FHA mortgage, allowing mortgage borrowers to borrow their costs of construction.
The FHA 203k Loan Comes In Two Varieties.
The first type of 203k loan is the Streamlined 203k. The Streamlined 203k loan is for less extensive projects and cost are limited to $35,000. The other 203k loan type is the “standard” 203k.
The standard 203k loan is meant for projects requiring structural changes to home including moving walls, replacing plumbing, or anything else which may prohibit you from living in the home while construction is underway.
There are no loan size limits with the standard 203k but there is a $5,000 minimum loan size.
The FHA says there are three ways you can use the program.
1. You can use the FHA 203k loan to purchase a home on a plot of land, then repair it
2. You can use the FHA 203k loan to purchase a home on another plot of land, move it to a new plot of land, then repair it
3. You can use the FHA 203k loan to refinance an existing home, then repair it
All proceeds from the mortgage must be spent on home improvement. You may not use the 203k loan for “cash out” or any other purpose. Furthermore, the 203k mortgage may only be used on single-family homes; or homes of fewer than 4 units.
You may use the FHA 203k to convert a building of more than four units to a home of 4 units or fewer. The program is available for homes which will be owner-occupied only.
203k Loan Eligibility Standards
The 203k loan is an FHA-backed home loan, and follows the eligibility standards of a standard FHA mortgage.
For example, borrowers are expected to document their annual income via federal tax returns and to show a debt-to-income ratio within program limits. Borrowers must also be U.S. citizens or legal residents of the United States.
And, while there is no specific credit score required in order to qualify for the 203k rehab loan, most mortgage lenders will enforce a minimum 580 FICO.
Like all FHA loans, the minimum down payment requirement on a 203k rehab loan is 3.5 percent and FHA 203k homeowners can borrow up to their local FHA loan size limit, which reaches $625,500 in higher-cost areas including Los Angeles, New York City, New York; and, San Francisco.
Furthermore, 203k loans are available as fixed-rate or adjustable-rate loans; and loan sizes may exceed a home’s after-improvement value by as much as 10%. for borrowers with a recent bankruptcy, short sale or foreclosure; and the FHA’s Energy Efficiency Mortgage program.
What Repairs Does The 203k Loan Allow?
The FHA is broad with the types of repairs permitted with a 203k loan. However, depending on the nature of the repairs, borrowers may be required to use the “standard” 203k home loan as compared to the simpler, faster Streamlined 203k.
The FHA lists several repair types which require the standard 203k:
• Relocation of loan-bearing walls
• Adding new rooms to a home
• Landscaping of a property
• Repairing structural damage to a home
• Total repairs exceeding $35,000
For most other home improvement projects, borrowers should look to the FHA Streamlined 203k . The FHA Streamlined 203k requires less paperwork as compared to a standard 203k and can be a simpler loan to manage.
A partial list of projects well-suited for the Streamlined 203k program include :
• HVAC repair or replacement
• Roof repair or replacement
• Home accessibility improvements for disabled persons
• Minor remodeling, which does not require structural repair
• Basement finishing, which does not require structural repair
• Exterior patio or porch addition, repair or replacement
Borrowers can also use the Streamlined 203k loan for window and siding replacement; interior and exterior painting; and, home weatherization.
For today’s home buyers, the FHA 203k loan can be a terrific way to finance home construction and repairs.
The mortgage application process just became simpler
As part of its mission to reform the mortgage industry in favor of home buyers, the Consumer Financial Protection Bureau replaced the industry’s existing lending forms with more simplified documents. These documents took effect in early October, as part of the CFPB’s “Know Before You Owe” initiative.
Here are five things to learn about these new disclosure forms.
Four forms become two.
When applying for a mortgage, you used to receive the Good Faith Estimate and Truth-in-Lending Act statements. Before closing, you were given the HUD-1 settlement and final TILA statements.
These days, you only have to worry about two mortgage documents instead of four: the Loan Estimate, which is given to you within three days of applying for a home loan, and the Closing Disclosure, which is sent to you three days before your scheduled closing.
The CFPB says the new forms, which were a few years in the making, are easier to understand and use.
The Loan Estimate helps you better compare loans …
One of the most important aspects of home buying, aside from finding the right house for you and your family, is choosing a mortgage that best suits your circumstances.
The Loan Estimate makes it easier for you to compare loan offers from multiple mortgage lenders by giving you a thorough idea of the many expenses related to a loan, including:
- Your interest rate and whether it’s fixed or adjustable.
- Your monthly payment amount.
- What the loan may cost you over the first five years.
You get this three-page form with every mortgage application, which helps you make an apples-to-apples comparison among different loans.
… and lenders, too.
Each lender has its own set of origination charges, which include an application fee, underwriting fee and points. These charges are outlined on the second page of the Loan Estimate.
The first page of the Loan Estimate lists information about the approximate amount of money you should bring to the closing table to seal the deal on your home purchase.
The “Estimated Cash to Close,” as it’s called on the form, includes the closing costs attached to the loan transaction. If any of the closing costs are added to your loan amount that would also be noted on the Loan Estimate.
The cash to close amount also includes your down payment, minus any deposit you made or seller credits you’re given, and also any additional adjustments or credits.
Your closing costs can’t vary by much.
The fees listed on the Closing Disclosure – the form you receive three days before your closing – may not look identical to your Loan Estimate, but the two documents should be similar.
There are three categories of closing costs: those that cannot increase, those that can increase by up to 10 percent and those that can increase by any amount, according to the CFPB.
Lender fees and the services you aren’t allowed to shop for can’t increase, while fees for services you can shop for, such as homeowners or title insurance, can increase by any amount. Fees for certain lender-required third-party services and also recording fees can increase by up to 10 percent.
For more on the Loan Estimate and Closing Disclosure, check the CFPB website. Happy home buying!