Patrick Whelan's Straight From The Hip - a realistic view of today's mortgage marketplace

Please do not read the headlines, now is the perfect time to buy a home. If you have been watching the television or reading the newspaper you have heard nothing but deflating news when it comes to mortgage rates and the housing market. Let me address a few issues that may help you make a better decision.

The average price of a home in the Denver area has decreased and there are a record number of foreclosures on the market for sale, this is good news for all buyers, not the end of the world. A buyers market which we are experiencing now is the best time to buy regardless of interest rates. The number of listings is at an all time high here in Denver which means most sellers are taking ridiculously low offers to get rid of their homes. I have closed fifteen transactions in the last two months where the buyer’s made an average of twenty thousand dollars in equity from their purchase. Not a bad deal considering the sellers also paid all the closing costs for the buyer.

Next thing is interest rates; we all need to stop crying over 6.5% for a new home loan, these are still very low rates compared the 1980’s. We all got a little bit spoiled from the gift the Federal Reserve gave us from 2001-2005 when interest rates hit an all time low at 5%.  Let me explain it with the following scenario: if you purchase a home today for twenty thousand dollars under market value at the current 6.5% interest rate you save $140.00 a month than if you purchased during a sellers market at full price. The savings generated by this lower purchase price translates into a 5.875% 30 year fixed rate.  If you wait until house prices rise again at these same rates (which is very likely since the average interest rate in the US since 1900 has been 7% and rates have gone up steadily for the last six months) you will miss out on the instant equity you can get now, which is as good as money in the bank.

I have been a mortgage broker for ten years and have closed over 3,500 loans, please believe me when I tell you the rates are NOT bad and now is the time to buy.  Watch for my weekly article with more in depth analysis of mortgage rates and the housing market.

by Patrick Whelan  

Rates have come down again this week and guess what … house prices are still dropping. So let’s see, low rates, low house prices, large inventory, this is the perfect equation for buying. Unless you are waiting for rates and sales prices to rise, so you can’t get the house of your dreams. Reports last week backed up my statement from last week’s Blog that we are not experiencing inflation the way everyone thought we were. Not only that, Mr. Bernake admitted that the economy will slow down and inflation WILL recede. This coupled with the report from the National Realtor Association that the housing market will continue to slump for another year is all the more reason to buy. If you are listing a house to sell, this is not good news because you will not get top dollar for your home, sorry. Folks, people have to sell anyway, so they are taking what they can get right now. Please keep this in mind when you heed my advice and make an offer to purchase. Make lower offers and ask for closing cost money to be paid for by the seller, chances are you will get it.

How can you still get 100% financing that is not a sub-prime loan? The Fannie Mae, My Community Mortgage. This is a superb loan program for first time home buyers with no money for a down payment. This loan has the same rates for all borrowers with credit of 580 or better and at least two months of reserves (two months of your future monthly mortgage payment, including taxes and insurance). The My Community program highlights include 100% financing, one loan, 30 and 40 year fixed rates, collections and charge offs are ok (if they will not lead to a judgment or tax lien), debt to income ratio up to 55%, and low monthly mortgage insurance (which is tax deductible if your total household income is less then a hundred and ten thousand dollars a year). There are income restrictions for buyers but if the home is in a Fannie Mae approved neighborhood, income does not matter. Again, these are NOT interest only sub-prime loans or ARM’s that adjust. These are solid fixed rate loans to help first time buyers get into homes. They also allow for the seller to give 6% concessions towards down payment assistance.

Give me a call today and a member of our team will be happy to pre-approve you for the My Community Mortgage today.

First, I would like to take a minute to thank all of you who responded to my blog last week. I’m glad you all liked it. Now, back to business.

What is inflation? How and why does it affect interest rates?  I am getting asked this question by clients more and more as we continue to read the headlines everyday about inflation. Usually, it starts off with, “Now is not the right time to buy, especially with all the inflation going on in America.”  I then take a deep breath and respond with, “I’m sorry, can you explain exactly what you mean by all the inflation?”  Their response, “You know, prices on everything in America are higher and this has caused interest rates to sky rocket.”  I then apologize to them on behalf of the media and our recent Federal Reserve Chairman, Mr. Bernake, for confusing them. Yes, we are experiencing inflation at the pumps and the grocery store but not really anywhere else. Other than gas and groceries, I’m confident everything else we buy is the same if not lower than ever. We can still buy a DVD player for $20, a shirt for $5, a gallon of water for $1.00. If gas and oil prices begin to rise again it may cause mortgage rates to rise. Right now mortgage rates are up due to the sub-prime market dissolution and all of Mr. Bernake’s double talk about the American Economy.

So, now that we have that out of the way, let me explain how inflation does affect mortgage rates and why?  Inflation is caused when a major resource in America that affects the shipping, distribution, and production of goods, soars out of control to all-time highs. Example, right now gas and oil are out of control therefore causing some of the huge distributors of wholesale goods to raise the prices they charge for delivery to retail stores. This in turn causes the retailers to raise their prices on the goods they sell to the consumer. When these retailers start to get out of control with their pricing, the Federal Government stands up and takes notice. Once it is determined that our country’s big businesses are ripping off the general public, we are now experiencing inflation.

At this point, the Federal Government and Federal Reserve Chairman meet and discuss what to do. The solution is always to raise interest rates on all borrowing in America to stop consumers from spending money on unnecessary items. The hope here is to force big businesses to reduce their obscene retail pricing. It has worked in the past and will work again, if necessary. Unfortunately, this has an affect on mortgage rates. The Fed does not raise mortgage rates but when they raise rates on everything else, it has an indirect affect on mortgage rates. Mortgage pricing is mostly affected by Consumer Spending, Core Inflation, Employment Rate, Consumer Confidence, Retail Reports, and Gross Domestic Production of Goods. All of these would be affected if the Federal Reserve starts to raise rates at a rapid pace … but we don’t have to worry yet.

The truth is, unless we experience a series of events as extreme as the Oil Embargo, Cold War, AND the loose Federal Reserve Policy of the 1970’s and early 1980’s, we should not start to panic. The media and Wall Street are sensationalizing and scarring a lot of innocent people for no reason. I stand by last week’s blog, now is the time to buy and things are just fine.

Please remember this is just my opinion (but I am not often wrong). The Federal Reserve DOES have the best interest of the consumer in mind when they make decisions to lower and raise interest rates. They just need to stop confusing America. Mr. Bernake is still looking for an identity and does not want to make “THE BIG MISTAKE” that will haunt him forever. He has big shoes to fill, replacing the very much missed, Alan Greenspan.

by Patrick Whelan