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Things are still happening in the housing market. If there’s one thing I want you to learn from this mid-year update on the home financing market, it’s that we’re still here.

Even when the media talks about high interest rates and low housing inventory, we’re still helping homeowners and homebuyers every single day. And we’re here to help you too. Here is our take on where things stand today.

Homeowners
Many of our clients took our advice over the last few years to finance or refinance at historically low rates, and now they are enjoying the ride. Though national home prices fell at the end of last year, the most up-to-date reporting shows them climbing to a new record in May.*

The takeaway – many homeowners are sitting on good rates and strong equity. Greenway Mortgage is helping many access cash from that equity with lines of credit or loans.

Homebuyers

The picture is more challenging for those who hope to buy. Though interest rates are still below the long-term averages, they are significantly higher than their lows. Many U.S. markets are less affordable than their long-run averages.*

Listings are down more than 50% from pre-pandemic levels, so buyers simply don’t have as many choices. There’s hope there, however, as inventory improved modestly in May and new construction is trying to fill in the gaps.* 

The recently released Consumer Price Index shows inflation moderating more quickly than expected. Slowing inflation can be good for rates – and that's good for affordability.

The takeaway – It may be tougher to buy now. Yet you can be assured that if you need or want to purchase, we have mortgage programs that can offset the impact of high rates and help you get the most for your money.

*Black Knight Mortgage Monitor May 2023

Bottom Line:

In all types of markets, the team at Greenway Mortgage remains committed to helping you make the most of your home financing. Any time we can assist you or someone you know, please reach out! 888-616-9885.

Get Pre-Qualified Today Free


 

After 10 straight rate hikes, the Fed held policy rates steady at its recent meeting. 

Is this likely a pivot or a pause?

In a statement issued after their June meeting, the Fed reiterated their goal of keeping inflation at 2%. Though recent reports indicate a slowdown in rising prices, inflation is still above that mark. The Board will continue to monitor economic activity to make decisions on future adjustments, so it's too soon to know what will come next.

Please Note: Mortgage rates are impacted by market forces beyond Fed actions and will not necessarily change at the same pace as the Fed's moves. They often shift before the Fed acts, in anticipation of changes.

Is this the news you've been waiting for?

If so, let's start looking at your home financing now so you can lock in a rate you love when you're ready.

Are rates still higher than you'd like?

Options like fixed rate buydowns, hybrid ARMs and HELOCs can help you move forward with your plans.

Background on the Fed:

  • The Federal Reserve Board (the Fed) controls the federal funds rate and discount rate, which are charges for overnight loans from bank to bank or from the Fed to member banks.

  • The Fed has a standing goal to maintain inflation within a 2% range. Over the last year, they hoped to slow spending and inflation by making borrowing more expensive.
  • The rate was lowered to near zero in March 2020 in response to the pandemic. These historic measures are now being reversed.

Don't let interest rates hold you back from making a move or accessing cash. We're still closing loans every day. 


 

Low income just got higher! Some of our "low income" home loan programs are now available for borrowers with higher incomes.

The Federal Housing Finance Agency (FHFA) just released updated Area Median Income (AMI) limits for 2023 and 2024. Limits increased an average of 7.73% across 95% of US counties. You can read the full announcement here from Freddie Mac.

This change is expected to open the door to homeownership for more borrowers.

Why did the FHA Make This Update to the Area Median Income (AMI) limits?

The primary objective behind this decision is to foster an environment of increased accessibility to affordable homeownership opportunities for a wider spectrum of individuals. Through the elevation of these limits, a larger segment of the population now stands a chance to meet the eligibility requirements for mortgage programs such as Home Possible® and HomeReady.

How Does This Change Benefit Homebuyers?

  • It expands the pool of borrowers who can qualify for programs like Home Possible® and HomeReady.

  • Allows more people to achieve their dream of homeownership.

  • More affordable financing options

  • Flexibility for lenders to accommodate a wider range of income levels.

Several government-sponsored loan programs provide preferable terms for borrowers who earn 80% or even 100% of an area's median income. When that income level increases, more borrowers become eligible. These programs typically offer low down payments and flexible sources of funds (including gifts) for both first-time homebuyers and repeat buyers.

Not only does this change benefit homebuyers, but it also provides significant advantages to the housing market as a whole. How so?

  • By expanding the pool of borrowers eligible for affordable mortgage programs, this decision ignites demand and leads to an upsurge in homeownership rates.
  • The availability of affordable financing options serves as a catalyst for new home construction, thereby revitalizing the real estate sector and enhancing its overall vitality.

How Do AMI Limits Impact Mortgage Eligibility?

AMI limits play a crucial role in determining mortgage eligibility. They serve as benchmarks for lenders to assess whether a borrower's annual qualifying income meets the requirements of specific mortgage programs. By comparing an applicant's income to the AMI limits applicable to the property's location, lenders can determine eligibility.

Are Area Median Income Limits Updated Frequently?

Typically, AMI limits undergo annual updates to align with shifts in the economic landscape and reflect the latest income trends. The FHFA diligently assesses and revises these limits to ensure they accurately capture the area's current median income levels. It is crucial for prospective borrowers to remain informed about these updates as they directly impact eligibility for different mortgage programs. Staying updated empowers individuals to determine their eligibility and make informed decisions regarding their homeownership journey.

Bottom Line:

If you or someone you love has hesitated to pursue homeownership due to low income, now is an opportune moment to assess your eligibility. When you're ready to take the next step, we encourage you to reach out to us. Our team will assist you in determining whether you qualify for a Fannie Mae or Freddie Mac Loan. Don't miss out on the possibility of fulfilling your homeownership dreams – let us guide you through the process.


 

Tracey Morgan once said, “Bad news travels at the speed of light; good news travels like molasses.”

It seems like just overnight the internet was overflowing with news regarding a “new” unfair tax on mortgage borrowers with higher credit scores and that those with lower credit scores could get a better deal. What is this all about? Well before you stop paying your bills on time and end up with a poor credit score, we’re here to explain!

Let’s clear the air. You will not get a better deal on a mortgage rate if your credit score is lower. This news all has to do with changes to Loan Level Price Adjustments (LLPAs) imposed by Fannie Mae and Freddie Mac (the “Agencies”), the two entities that guaranty a vast majority of new mortgages.

What is Loan-Level Pricing Adjustments and How Do They Work?

LLPAs known as Loan-Level Pricing Adjustments isn’t something new. In fact, they were introduced into conventional mortgage lending in April 2008, and they remain in effect today. LLPAs are fees the government mortgage entities set relative to the nature and potential risk in different loan scenarios. They are literally, adjustments to the “price” of a loan. Loan prices are what determine a borrower’s interest rate. More risk means higher costs, and these costs are passed to borrowers in the form of higher rates or points. LLPAs can change a borrower’s rate by 100 basis points (1.00%) or more.

This fee is based on the borrower’s level of risk and can vary depending on factors such as:

  • Borrower’s loan-to-value ratio (LTV)
  • Credit score
  • Occupancy
  • Number of units the property has
  • The type of mortgage also comes into play. For instance, adjustable-rate-mortgages (ARMs) which have interest-only payments, may have higher LLPAs

Loan-Level Pricing Adjustments have changed several times over the years and a substantial change was announced in January 2023 by the Federal Housing Finance Agency. Some changes were positive, and some were negative. These changes take effect with any loans delivered to the two Government Sponsored Enterprises (GSEs) on or after May 1st, 2023.

Breaking Down Some Key Mortgage Terms

Credit Score

As mentioned above, LLPAs are calculated using several factors. Credit score is one. Clients with lower credit scores are considered riskier borrowers and could be charged with higher LLPAs. On the flip side, those with higher credit scores will be charged less LLPAs. Sometimes LLPAs can be avoided all together. Speak with your loan officer for more information.

Loan-To-Value Ratio

Another term we mentioned earlier is Loan-To-Value Ratio (LTV). LTV is also used to determine LLPAs. It is the amount of mortgage loan divided by the appraised value of the property. The higher the LTV ratio, the higher the LLPAs are going to be.

What Loans Are Affected?

Keep in mind, this new rule was set to help improve housing affordability here in the United States. Loans affected include conventional mortgages and refinance loans purchased by Fannie Mae and Freddie Mac. FHA, VA, USDA, and HUD Section 184 mortgages have been excluded.


What does this new pricing shift mean for borrowers?  Although having a credit score under 680 is now smaller than it was, it will still cost more to have a lower score. Take for example, someone who has a credit score of 659 and is borrowing 75% of the home’s value, they would pay a fee of 1.5% of the loan balance whereas you’d pay no fee if you had a credit score of 780+. Before these changes, there would have been a 2.75% fee! On a hypothetical $300k loan, that's a difference of $3750 in closing costs. Furthermore, they have also recently introduced new credit score thresholds for LLPA at 760 and 780, whereas previously they only went up to 740.

Now onto borrowers with higher credit scores. They will generally be paying a little more than they were under the previous structure.

The following chart from MBS Live, LLC explains the differences.

  • Green and yellow cells show where things have become more affordable than they were. 
  • Orange and red cells = more expensive.  
  • All values refer to a percentage of the loan balance charged as an upfront fee.  

Not noted on the heat map above is the new charge for Debt-to-Income (DTI) ratio. Mortgage News Daily reports, “This will be controversial in many scenarios as income calculations can be somewhat subjective and debt calculations can be legitimately "tweaked" with some advanced planning and/or debt consolidation. Nonetheless, every loan guaranteed by the agencies has a DTI attached to it. If yours is over 40% and you're borrowing more than 60% of your home's value, you'll be paying more.”

  • Update as of May 5, 2023: Members of the mortgage industry stepped in to say the new LLPA would not only lead to confusion and mistrust among borrowers but would also be difficult to implement fairly. First, the agencies postponed implementation. Then, they cancelled it!

Who Will Benefit and Who Will Feel the Effects from the LLPA Changes?

LLPAs

Bottom Line:

The adjustments mentioned above will not be the same for everyone. It depends on individual financial scenarios and the type of property being financed. They do not make home financing cheaper for those with bad credit and more expensive for those with good credit.

Fannie Mae says its mission is “to facilitate equitable and sustainable access to homeownership and quality, affordable rental housing across America. We continue to address the inequities of the past and are working to reduce the housing gaps that exist for members of underserved communities." And Freddie Mac’s mission states they want to "serve America's homebuyers, homeowners, and renters by providing liquidity, stability, and affordability to the housing market.


If you’re thinking of a purchase or refinance this year, please reach out now to see if the fee changes may impact your scenario. We can weigh the potential costs and benefits of acting before these changes occur.

The team at Greenway Mortgage is here to help when you’re ready.

Get Pre-Qualified Today Free

 


 

Well, here we are again. The Fed again increased policy rates by 0.25% at their most recent May 2023 meeting, as the markets expected. What they said next is more interesting.

Will the rate hikes stop here?
After 10 consecutive increases, the Fed softened its stance regarding the probability of future increases but did not go so far as saying this would be the last. Though investors had hoped to hear a pause in the series of hikes was coming, Fed Chair Jerome Powell said ongoing economic conditions will influence future adjustments. 

Please Note: Mortgage rates are impacted by market forces beyond Fed actions and will not necessarily change at the same pace as the Fed's moves. They often shift before the Fed acts, in anticipation of changes.

Should the Fed's news change your home financing plans?

If this is your time to purchase a new home or access cash from equity, don't let rates stop you.

Let's find a way to work within the framework of the current environment. Options like fixed rate buydowns, hybrid ARMs, and HELOCS can help.

Background on the Fed:

  • The Federal Reserve Board (the Fed) controls the federal funds rate and discount rate, which are charges for overnight loans from bank to bank or from the Fed to member banks.

  • The Fed has a standing goal to maintain inflation within a 2% range. By making borrowing more expensive, they slow spending and inflation.

  • The rate was lowered to near zero in March 2020 in response to the pandemic. These historic measures are now being reversed.

  • This is the 10th increase since March 2022.

Bottom Line

Don't let interest rates hold you back from making a move or accessing cash. We are still closing loans ever day and are here to help! 



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