The Conventional Mortgage is Back in 2011!

Tuesday, July 26, 2011

Over the past 3 years government backed mortgage loans (FHA/VA) have become more and more popular due to actual and perceived difficulties in being approved for a conventional loan. Now there are a bunch of good reasons to look at conventional loans again.

Since October of 2010 FHA has raised the cost of monthly mortgage insurance premiums twice and doubled the monthly cost! The rate was .55% annually and was increased to .90% and then again to 1.15%. I’m not here to debate if these increases were merited, just to report the fact that they happened. To show the impact of this let’s look at a $100,000 mortgage. Prior to these changes the monthly cost of FHA monthly mortgage insurance was $45.83 and now that same insurance is $95.83 per month. Ouch! FHA also increased the minimum down payment to 3.5%.

Contrary to popular belief, Conventional loans at up to 95% loan to value (LTV) are once again available and are approvable. We even have new programs available for up to a 95% LTV with no private mortgage insurance (PMI)! These programs can be very advantageous to a home buyer and often result in lower monthly payments and no PMI expense. This is known as Lender Paid Mortgage Insurance (LPMI). Here is an example for a $200,000 Purchase Price and assuming buyer has a 720 credit score:

                                    FHA w/ 3.5% Down        Conv 5% Dn with LPMI
Interest Rate                                  4.500%                                    5.000%
Down Payment                             $7,000                                   $10,000
PI Payment                                $987.68                                 $1,019.96
Monthly PMI                             $184.96                                        $0.00
Total Monthly Pmt                  $1,172.64                                 $1,019.96

 Monthly Payment Savings of $152.68 with Conventional loan!

As you can see, the LPMI Conventional loan saves the home buyer $152.68 per month and the additional down payment is only $3,000. Many home buyers could actually afford a more expensive home and end up with the same house payment using LPMI. In this example using the Conventional loan the purchase price could increase all the way to almost $220,000 before the monthly payment equals the FHA loan! That’s a lot more purchasing power with the same overall monthly payment. This is an option that should not be overlooked. Are you working with a lender that offers, and knows how to use, the most innovative mortgage loan programs?


The Truth about Whether Michigan Real Estate Values are Falling in 2011

Thursday, July 14, 2011

There’s no disputing the fact that real estate values have fallen significantly over the past 4 years all over the United States. Some markets saw falling prices earlier than others but no one has been spared. Just about every day there is some news piece that you see, hear or read that says home prices are going down. What’s the real deal?

The problem with national news reports for our area is that they focus on the “Detroit” real estate market. The city of Detroit has issues that are affecting the price of homes that are specific to the city. I’m not going to go into that. Suffice it to say that the hardest hit real estate market in the State of Michigan is in Detroit and values there are still falling in 2011 according to the Michigan Association of Realtors (MAR - average sales price for YTD 2010 compared to YTD 2011 is down by approx 9.9%).

The market area I work in is primarily Oakland and Macomb counties. Let’s take a look at this year’s figures from MAR for Oakland County. Total number of sales for the first 4 months of 2011 was 2,219 and for 2010 it was 2,358, which is a drop in the number of homes sold of 5.9% (MAR figures). Last year we had a Tax Credit for Homebuyers that really stimulated the market and that accounts for the sales drop. Actually, I think it’s quite positive that the number of sales dropped so little as many believed the expiration of the tax credit was going to have a much larger negative impact. That may actually show the strength of our market!

What I really want to focus on is the PRICES homes are selling for. The average sales price of a home in Oakland County for the first four months of 2010 was $132,314 and for the same period in 2011 the average price was $136,783 – that’s a 3.4% INCREASE in the average sales price this year over last year. Does that sound like real estate values continue to fall in Oakland County? The average sales price in Macomb County is actually up from $87,093 to $107,144 – a 23% increase!

The auto industry is enjoying an upswing (finally). This week there was a report out that the Big Three are going to be on a massive hiring spree over the next 3 years. Sure, some of those jobs don’t pay quite as well as they used to, but, it still puts people to work. In my opinion, our local economy is on the upswing and we are ready to create some real prosperity here and that bodes well for higher real estate values over the next few years. So, next time you hear some national real estate doom and gloom, ignore it!


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