Is a New Mortgage in Your Future? Advice from an Expert Mortgage Consultant

Are you considering purchasing a home in Northern California? Mortgage rates are predicted to rise on a 30 year fixed to about 5% by the end of the 2013. Purchase your new home now!

The following is an interview with Ephraim Schwartz, Mortgage Consultant at O’Dette Mortgage Group. Schwartz provides insight on present mortgage market conditions and how to obtain best mortgage rate.

Q. What are mortgage rates predicted to do within the next year?

Daily volatility for mortgage rates will likely continue into future, but overall rates are definitely going to increase. My best guess is that a 30 year fixed conforming mortgage will finish in the neighborhood of 5% at the end of 2013.

Something that is not always made clear to the public is that mortgage rates are not set by the Federal Reserve.  Conforming mortgage rates are based on the price of mortgage bonds.  The Federal Reserve can influence rates by purchasing bonds, as they are doing now with their 3rd round of Quantitative Easing (QE3), but it’s overall market conditions that determine which direction bond prices move, and therefore rates.

Q. How much are home prices expected to rise within the next year?  

Case Schiller 20-City Home Price Index (20 key cities in the United State) increased 12.2%, year over year in May.  Looking at the next year ahead, it will absolutely vary depending on the market.  My markets are Lake Tahoe, and the San Francisco/Marin Bay Area. No one has a crystal ball, but I would expect to see Tahoe continue increase less than 10%, and the Bay Area could increase 15% or more.  The Bay Area’s limited inventory, and thriving economy, will continue to push prices up in this competitive market.

Q. Would you advise buying a house now?

Absolutely.  There is a reason why we are seeing so many cash offers in the Northern California Real Estate market, and it’s because the stock market and bond market have little more room for immediate upside.  The bond market is about to head into a long term down turn, and although stocks have performed well, they do not have much higher to go.  If the question is where best to put one’s money, the answer is no better than Northern California real estate. Prices and demand are on the rise, and while rates are up from their all time low, a 30 year fixed rate mortgage is still approximately only half of its average over the past 40 years.

Q. How can one obtain the most competitive mortgage rate?

  • A credit score greater than 740.
  • A down payment of 20%. To note, with a great credit score, one can actually obtain best case rates with less than 20% down, but must buy private mortgage insurance. Best case rates can actually be had with 10% down.   But the sweet spot in terms of lowest cost of monthly ownership is 20% down.
  • Income:  Must be supported by 2 years of tax returns.
  • A note to the self-employed: It can be extremely valuable for self employed (1099) workers to consult with a good mortgage adviser prior to even structuring tax returns, as it could impact if they may choose to forego some write-offs.

Q. For those considering purchasing a second home, do they have any advantage on rate and should they finance with their primary mortgage lender?

When purchasing a second home, there is no advantage in obtaining a mortgage with a primary home lender. For each mortgage, borrowers should select a mortgage adviser who is an expert in their field, and holds the borrowers best interest as the absolutely top priority.   If the second home is in a unique vacation market, it’s always good to go with someone local who is familiar with the properties and area.

Q. If a buyer finds a piece of land or fixer-upper, can they borrow more money on their mortgage to cover building costs?  

Loans for raw land are slowly coming back to market.  They can be had, but generally require strong down payments.   For fixers; these are called “rehab” loans.  There is a Federal Housing Administration 203k Loan that will include funds to remodel.

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  1. Mark @ mortgagesbymark

    A lot of those cash buyers are people overseas seeking to park their money in the US. Unfortunately, it’s caused home values to rise extremely high, especially in San Francisco, which makes it tough for locals to buy homes.

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