How are Current Mortgage Rates Determined?

Locking in low mortgage rates is more than the luck of the draw. There are many components that contribute to how mortgage lenders gauge the rate range they offer to borrowers.
Here are three major influencers of mortgage rates today.

#1. Supply and Demand

Like any business, the issue of supply and demand must be assessed in order to determine what to charge customers for a service. In the case of mortgages, the mortgage crisis of 2008 sent demand for mortgage loans plummeting as supply shot through the roof. The ample number of mortgage lending options in the market and a disinterest in home financing resulted in current mortgage rates dropping to historic lows.

#2. Fed’s Regulation D

The banking operates in a single, large loop when it comes to the way interest rates are determined. The Federal Reserve sets certain requirements for all financial institutions with regard to how much money they must have on deposit.

Banks who do not have enough funds to meet the Fed’s Regulation D requirement, can choose to borrow the cash from other financial institutions or the Federal Reserve itself. However, as with all loans, this borrowing comes at a cost. The borrowing institution must pay interest on the loan while still generating a profit, so consumer mortgage rates are increased as a result.

#3. Likelihood of Default

In addition to the aforementioned factors that drive mortgage rates today up or down, borrowers’ credit histories play a significant role in the rate range they can expect to receive upon submitting a mortgage application.

Even if current mortgage rates are at an all-time low, borrowers who have a less than stellar credit history, and especially those without a substantial amount of equity or down payment to allot to the loan, will likely qualify for higher mortgage rates.

When lenders review a borrower’s creditworthiness, they are essentially making a judgement call as to whether the applicant is a high-risk for default. Lending money to an individual with a track record for making late payments or who doesn’t have any credit history to speak of leaves mortgage lenders with an immense level of uncertainty as to whether they’ll even get their money back.
As a result, mortgage providers will often increase mortgage rates to expedite the return of their money, to reduce their chances of loss in the long-term.

Despite these factors, borrowers who have diligently worked toward maintain a strong credit history can still accomplish their dream of owning a home by taking advantage of mortgage rates today, while they’re still incredibly affordable.


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6 Ways to Sell Your Home This Fall

BOSTON (TheStreet) -- Fall is second only to spring as the busiest time of the year for home sales -- and Idaho Realtor Gail Hartnett sees this autumn as an especially good time to have your property on the market.

"Inventory is low, so if you have your house on the market and is priced well, it's going to sell," says Hartnett, a National Association of Realtors regional vice president and an agent with Keller Williams Realty Boise.

Home sales in Idaho and many other U.S. locales are rebounding this fall as low prices, improved consumer confidence and rock-bottom mortgage rates bring buyers out. At the same time, many would-be sellers are either too discouraged to put homes on the market or are waiting for prices to rise, creating a shortage of available homes in much of the country.

Add in the fact that many people travel to their hometowns for Thanksgiving, football games and the like and Hartnett believes it's a bad idea to keep your property off of the market this fall.
"People who've been thinking of moving back home will look at some houses when they come for a visit, and finding the perfect place will push them into action," she says. "But if your place isn't on the market, they won't see it."

Houses that boast green grass and lush gardens in the spring, though, look a lot less inviting during the fall.

Here are six things Hartnett recommends all would-be sellers do this autumn to adjust for that and get a home moving:

Give your home a cozy smell
Fall brings back childhood memories of hayrides and Thanksgiving dinners for many, and Hartnett recommends maximizing your place's "homey" feeling this time of year.
The Realtor always has spiced cider, fresh-baked cookies or other warm and friendly fare cooking up in during showings and open houses at properties she's listing.

"We take some big old pots and dump cider in them, then warm it up and the whole house smells good," Hartnett says. "It's just a warm, homey smell that makes people feel good when they enter."
She places cider and cookies ready for serving in a strategically out-of-the-way place visitors reach only after touring the house. That way Hartnett has a chance to "pitch" the house to buyers while they snack.

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Real estate investors are optimistic about housing market

By Justin Pierce

Despite some shifts in the housing market that make it more difficult to earn money investing in residential real estate, a large majority of people in that field plan to buy as many or more properties in the next 12 months to rent out or sell for profit.

That’s one of the findings of a study released last month that attempted to measure the impact people involved in income or speculative real estate are having on the housing market .

The survey — sponsored by BiggerPockets.com, the nation’s leading social Web site for real estate investors, and Memphis Invest, one of the largest providers of single-family rentals — shows that 65 percent of investors plan to buy a lot more homes during the next 12 months.
Still, from my experience in the Washington area, business conditions are changing with rising home prices, stiffening competition and shrinking margins. Anyone seeking to get into real estate investing should proceed with caution and not expect to earn the same money that has been made in the past few years.

The report points out that investors played a fairly substantial role in the housing recovery. The housing crisis pushed nearly 4 million foreclosures onto the open market, devastating home values. This and the coinciding financial crisis squashed homebuyers’ confidence and their ability to buy. At that time, real estate investors began buying up the foreclosures when few other people could enter the market. They bought up so many properties that they established single-family rentals as a $100 billion business. In fact, the report says that single-family rentals now outnumber apartment units.
They are also renovating the homes they buy and spending an average of $7,500 per home. That totals more than $9.2 billion every year in construction-related spending, according to the report. This is critical business for an industry that was hit hard by the recession.

In 2008, Congress approved the Neighborhood Stabilization Program to provide funds to municipalities and not-for-profit organizations to repair damage to foreclosed homes. Up to this point, they have spent a total of $7 billion of tax payer money.

Real estate investors are doing more than this every year with their own money or money that they borrow. Surprisingly, the report finds that only one in four real estate investors are cash buyers. In fact, slightly more than half make down payments and finance the rest of the purchase amount. If you read my last post, you’ll see just how much most real estate investors pay for financing.
This strikes at one of the prevailing myths about real estate investors. Very few have cash for their projects. I can also tell you that most real estate investors are more afraid of you, the retail buyer, than you are of them. Real estate investors have to pay higher interest rates than owner occupants and they have many more additional costs. Back in 2006, real estate investors would come in and buy properties at market value and then gamble that they would make their profit within a year on appreciation alone. I can tell you that most all of those investors are out of business now or they’ve learned very painful lessons.

Some 3 percent of American adults or 7 million people are active real estate investors, according to the report. These people are actively looking to buy more property and about half of them make more than five purchases each year. This is a diverse group of people. About 76 percent are under the age 55. They are more likely to live in the South or West of the country and about two-thirds of them make less than $75,000 per year.

Even more interesting, the report tells us that this group of active investors does not plan to slow down despite rising home prices and increased competition. About 65 percent of the active investors plan to buy as many or more properties in the next 12 months as they did in the past 12 months. This is big news considering that fact that real estate investors accounted for as much as 25.3 percent of all home purchases as of May 2012. This indicates that investors have confidence that the housing recovery will continue and their robust activity will help ensure it.

Keep in mind that this is a national survey. The Washington area doesn’t exactly fall in line with national trends. But real estate investors are very optimistic creatures. When the report says 65 percent of investors plan to buy more property in the next 12 months, I believe it. But the key word is plan. I’ve never met an investor who plans to do less this year than last year.

The real estate market in this area has been on a steady climb for a while. New waves of foreclosures have provided targets and opportunities for investors over the past few years. But as illustrated by data from RealEstate Business Intelligence and MRIS, inventories are down and prices are up. Prices in some areas are up to 90 percent of where they were at the peak. Investors will be pressured to pay way more than they’d like for fixer upper homes and many of them will get in trouble if they’re not careful. Nothing throws cold water on investors like a bad deal.

I would expect investor activity to stay fairly strong in this area but I think demand for rentals will slow a bit as home prices increase. I also think rehabbers and home flippers will face stiff competition and less opportunity. I’m already seeing that in my business. I’m getting tighter on my budgets and spending more time and money to find viable projects. If interest rates stay low and prices continue to rise, investors will likely move to land development, commercial real estate or possibly other markets. At some point, we might also see investors become sellers as we did in the late 1990s and beyond as they liquidated holdings they’d accumulated in the down market 20 years ago.

This market should continue to be strong but I would advise investors to begin reassessing their business models. I would also recommend extreme caution to those looking to begin a real estate investing career. You are probably not going to make money in the next few years in the same manner it was made in the last few years.

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WI Lake Homes -- Think Beyond Summer