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The Year in Home Loans
Glancing Back & Looking Ahead


The Year in Home Loans - Glancing Back & Looking Ahead

The holiday season is a perfect time to pause and reflect on the year gone by. Likewise, it provides us with an opportunity to set our sights on the year ahead. Believe it or not, this combination of observation and foresight also applies to the world of home loans.

In the spirit of the season, YOU Magazine turned to mortgage market forecaster, Bill Dallas, CEO of Ownit Mortgage Solutions in Agoura Hills, CA, for an overview of 2006, as well as a preview of what to expect in the weeks and months ahead.

Homeowners & Homebuyers Are Winners
Over the past year, consumers seeking a home loan have been treated to an ever-increasing array of mortgage products. Not only do these programs offer greater flexibility when it comes to qualifying for a loan, they also include a variety of payment options.

As any homeowner can attest, pulling together one's financial records can be a bit of a challenge. The good news is that while some borrowers still need to provide a fair amount of income and asset documentation, many others do not. Stated Income loans, as well as No Income Verification loans, are widely available, including No Documentation loans which may require no paperwork at all from prospective borrowers depending on their credit. In some cases, borrowers with excellent credit will still receive the best rates available.

In addition to the easing of documentation requirements, many lenders are also allowing borrowers to finance up to 100% of their home's value. With financing concessions from the seller, homebuyers can even negotiate a purchase agreement in which a portion (or sometimes all) of the buyer's closing costs will be paid by the seller. Some situations call for a minimum contribution from the buyer, but nowadays, buying a home can sometimes require less up-front cash than renting.

Another strategy that has recently been implemented by many home sellers and mortgage professionals involves offering the buyer a fixed-rate mortgage along with a discounted interest rate for the first two or three years the mortgage is in effect. This special financing can decrease the borrower's interest rate by up to three percentage points during the first year of the mortgage. This innovative program combines the benefits of the payment reductions associated with an Adjustable Rate Mortgage together with the security of a fixed-rate mortgage.

The final area which has seen its share of improvements involves greater payment flexibility for borrowers. The initial loan options to become widely available were interest-only loans and option ARMs (which allow for payments that are less than the interest due). In addition, extended loan terms are now being offered which go beyond the 30-year "standard". These longer mortgages generally decrease the required minimum monthly payment while still enabling borrowers to lower their overall loan balance.

With all of these exciting developments taking place, one cannot help but wonder what will happen in 2007. For insights into the future of real estate, we turn to mortgage expert, Bill Dallas.

Interest Rate Forecast
The first question many mortgage professionals are asked by their customers is where are interest rates going? "Fixed mortgage rates will hold somewhere between 6.00% to 6.50% through the end of the year," indicates Dallas. Currently, interest rates are quite attractive, having come down from their high point in June when they approached 7.00% for the first time in years.

Dallas believes that the Federal Reserve will not increase interest rates going forward. In fact, his prediction is that the interest rates controlled by the Federal Reserve will start to come down in the second half of 2007 as the economy continues to slow. In 2008, Dallas believes that interest rates will come down "hard".

Housing Forecast
Home sales continue to decline, but according to Dallas, this is to be expected. He states, "The Federal Reserve is getting just what they were asking for," a corralling of the housing frenzy we witnessed over the past few years. The National Association of REALTORS® (NAR) just reported that home sales were down 1.9% for the month of September as compared to August, and off 14.2% from the year before.

According to the NAR, home prices fell in all regions of the country. The median price (where half of the homes sold for more and half sold for less) of single family homes and condos sold by REALTORS® is now at $220,000, which is down from last year. The decline in values for August and September was the first back-to-back monthly decline in eleven years.

Housing should remain soft and, interestingly enough, Dallas expects the trend to continue even in the face of falling interest rates. He says, "The primary reason for this is affordability. Home prices have escalated beyond the increases in income, and many homebuyers are struggling to make the numbers work."

What to Do
Whenever you are looking to finance a home, one of the most important choices you'll make is choosing a mortgage professional. Their skills are essential when it comes to getting a competitive interest rate and selecting the program that is right for you.

Once you have found a professional whose services you value, Bill Dallas suggests that you request a "perpetual mortgage application." The purpose of this application is to enable the originator to evaluate, on a yearly basis, the mortgage you currently have in effect, along with any credit and life changes which may have taken place. By doing this each year, the originator will be able to ensure that you always have the best mortgage available at that time.

As a matter of fact, you may want to contact your mortgage professional now to set up an appointment, before you become distracted by the holiday season. By reviewing your financial status and the many loan options available to you, it's possible that you could save thousands of dollars during the time your mortgage is in effect.


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