Disappointing Data and Fed Rate Hike

Economic Observer
Disappointing Data and Fed Rate Hike

Downside misses in major reports on inflation and retail sales were favorable for mortgage rates this week. The Fed meeting was viewed as slightly negative. The net effect was a small decline in mortgage rates, which ended at the best levels of the year.

As widely expected, the Federal Reserve raised the federal funds rate on Wednesday afternoon by 25 basis points, bumping it to a range of 1.0% to 1.25%. Investors mostly reacted to new information in the Fed’s statement about the plan to reduce the $4.5 trillion of mortgage-backed securities (MBS) and Treasuries on its balance sheet. If the economy performs in line with the Fed’s forecast, the plan calls for a gradual reduction in the holdings by no longer reinvesting all of the principal payments received. The reductions are expected to begin this year. The amount that will not be reinvested will begin at $10 billion per month (split between Treasuries and MBS roughly in proportion to the Fed’s holdings) and will increase every three months until the total monthly amount not reinvested reaches $50 billion. These figures may have been larger than anticipated by investors, and mortgage rates moved a little higher after the statement was released.

Two major economic reports released on Wednesday morning fell short of expectations, causing mortgage rates to improve. In May, the core Consumer Price Index (CPI), which excludes the volatile food and energy components, was 1.7% higher than a year ago, down from the 1.9% year-over-year rate of increase in April. After holding steady during the second half of 2016, core CPI inflation peaked in January at 2.3% and has declined every month since then. According to the statement, most Fed officials expect that inflation will remain below their 2.0% target in the near term but will stabilize near their target in the medium term.

Excluding the volatile auto component, retail sales in May fell 0.3% from April, which was well below the consensus for an increase of 0.2%. Retail sales are volatile month to month, however, and they still were 4.0% stronger during the first five months of 2017 than they were over the same time period last year.

Week Ahead

Looking ahead, the housing starts data will be released on Friday. The Existing Home Sales report will come out on June 21, followed by New Home Sales on June 23. In addition, Industrial Production, an important indicator of economic growth, will be released on Thursday.


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Jason R. Richardson Photo Jason R. Richardson
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Mid America Mortgage, Inc.
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This letter is for information purposes only and is not an advertisement to extend customer credit as defined by Section 12 CFR 1026.2 Regulation Z. Program rates, terms and conditions are subject to change at any time.

3 Classic Credit Mistakes to Avoid If You’re Trying to Secure a Mortgage Loan

3 Classic Credit Mistakes to Avoid If You're Trying to Secure a Mortgage LoanThe mortgage application process can be fraught with a lot of stress on its own, but if you’ve experienced issues with your credit in the past it can be even more taxing. While there may be a lot of things you may not be aware of when it comes to their impact on your credit, here are some things to watch out for if you’re planning on purchasing a home in the short-term future.

Applying For Extra Credit

Whether you’ve just been offered a great new deal by a department store or you’re not even thinking about it, new credit cards can pop up with deals that are quite enticing in the moment. Unfortunately, applying for new credit can actually signal to lenders that you’ve run out of credit on your other cards. Not only that, it will also have an adverse impact on your credit score each time you apply for new credit. If you’re considering a mortgage in the near future, it’s a good idea to hold off on any additions to your wallet.

Not Paying Your Bills

It may seem straightforward enough that not paying your bills is going to land you in hot water with your credit score, but many people think paying the minimum at any time will do. The truth is that if you want to keep your credit in line and improve your odds, it’s important to pay your minimum before the due date and always pay your bills. The only thing deferring payments will do is add marks against your credit, and this will be damaging come application time.

Don’t Avoid Your Credit Report

Many people who have a poor credit history are aware of the situation, but they’re also unwilling to address it. While it may be difficult to approach your credit report if you’ve had some hiccups in the past, it’s important to know what point you’re working forward from so you can move beyond it. Instead of ignoring it, get a copy of your credit report and review the numbers. Not only will this enable you to address any errors, it means you’ll be facing your issues head on.

There are a number of factors that can adversely affect your mortgage application, but by avoiding new credit and paying your bills on time you can have a positive impact on the result. If you’re currently in the market for a new home, contact your trusted mortgage professional for more information.

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Did You Know? How Accelerating Your Mortgage Payments Can Help Your Credit Score

Did You Know? How Accelerating Your Mortgage Payments Can Help Your Credit ScoreThe tough part might be over after your mortgage has been approved, but it’s still important to keep on top of your monthly payments and maintain a good credit score for your financial future. If you’re currently wondering how increasing your mortgage payments can help your credit outlook, here are some things to consider.

Change Your Payment Schedule

Most people opt for a monthly mortgage payment, which can certainly stretch the budget but is still something that can be maintained consistently. However, what many homeowners don’t realize is that more consistent payments, like a bi-weekly or even weekly payment, can actually pay down the principal that is owed on your home. While this may seem like enough of a benefit on its own, this will also lower the interest you pay on your investment and will mean financial freedom much more quickly!

Make A Lump Sum Payment

Whether you’ve come into an inheritance or received a bonus at work, making a lump sum payment on your mortgage can be a great way of minimizing your interest and improving your overall credit. There are often limitations on the amount of money you can put down, but by adding an additional payment to the amount still owing on your mortgage, you might be surprised by the money savings and the boost to your financial profile.

Limit Your Amortization Period

25 years may be the standard amortization period for a mortgage, but longer is not necessarily better when it comes to your biggest investment. While you won’t want to push yourself too much if your monthly mortgage payment is already high, if you have the financial wherewithal to make a higher payment, it may be worth it for owning your home a little sooner. A shorter amortization period may seem like it will significantly bump your monthly mortgage, but by re-tooling your budget you can get the benefit to your credit score without sacrificing your monthly expenditures.

For many people, it is a month-to-month challenge to stick to their budget and make the monthly mortgage payment, but there are benefits to putting down more than expected. Whether you come into a lump sum amount or want to pay on a bi-weekly basis, extra payments can help to improve your credit and make your investment yours much sooner. If you’re currently in the market for a home, contact your trusted mortgage professionals for more information.

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The Dirty Truth About Discipline : Pros and Cons of Owning Your Home “Free and Clear”

It wasn’t long ago when one of the best benefits of owning your own home were those home equity lines of credit you could get.

In practice, this translated to a whole lot of fun for a whole lot of folks: new furniture and electronics, a pool, maybe even a new car or exotic vacation. And then … POP!

Since the housing market crashed we’ve heard about how many folks are underwater on their homes. But now, statistical and anecdotal evidence alike suggest that more and more Americans are pursuing an entirely different approach to home ownership: aspiring to own their homes “free and clear.”

The Pros and Cons of Owning Your Home “Free and Clear”

Just like every other financial decision, this one is highly personal and situational. But generally speaking, if owning your home free and clear sounds like a financial strategy that might fit in with your own big picture plans, you’ll first want to weigh some basic pros and cons.

Topping the list for most folks in the “Pro” category is peace of mind. Plain and simple, you don’t have to worry about a mortgage payment, and you know you’ll always have a roof over your head if, for example, you lose your job.

For a lot of folks, knowing they’re not paying their hard earned money to the bank in the form of interest is also a plus. But freeing yourself from a big mortgage payment also gives you more financial flexibility to do other things. You can take other chances, for example, like quitting your job.

Included among the cons are tax breaks like the mortgage interest deduction you’ll be missing (the higher your tax bracket, the more tax breaks like this can matter).

And with interest rates at historical lows, no one can argue that if you’ve got the self-discipline, time, and know-how, investing that money rather than paying off a low-interest home loan can make sense. But let’s be honest, very few folks actually have that sort of discipline, time and know-how.

Last, if you have to invest every last penny you have in order to own free and clear, you might be better off investing in several other places to diversify. You should also keep some cash handy for an emergency. Your bank’s not going to give you that money back if you’re in a bind!

The bottom line is that more and more folks decide the pros outweigh the cons. Studies are now showing that almost 30% of Americans own their home free and clear. That’s 21 million households! But is it the right decision for you?

Will I Be Able to Pay Off My Home?

Several factors have been found to predict who will or will not choose to own free and clear.

First and foremost is home values. There’s a direct correlation between how affordable homes are in a certain area, and people’s ability to get their mortgages paid off free and clear.

For example, one of the highest rates for owning free and clear in the entire country — almost 50% — is in McAllen or Hidalgo, Texas, where the average home value is in the range of $75,000. Contrast that to Washington DC, for example, where the average home value is closer to $400,000, and only around 8% of homeowners are able to pay off their mortgages.

Age Matters

A second big factor we’re seeing is borrower age. Folks in that 65 to 85 age bracket top the list for being mortgage-free.

Almost 40% of homeowners in this group own free and clear.

Reasons behind this include the fact that the longer you live somewhere, the more time you have to pay off the mortgage. Older folks historically have more money saved for down payments and to pay off their home loan.

Owning free and clear is also a priority for these folks as they near retirement, but we are seeing younger folks starting to own free and clear as well.

Credit Score Can be an Indicator

Last is credit score. Almost 45% of all folks who own free and clear have a credit score in the 800 to 900 range. This particular factor can be likened to the question, “which comes first, the chicken or the egg?”

Folks with the self-discipline to have a stellar credit score probably have the self-discipline to get their mortgage paid off.

And folks who manage to get their mortgage paid off generally wind up with a higher credit score. The point is, it’s good to be one of them!

How to Pay Off Your Home

If your goal is owning free and clear, any extra amount of money you have lying around can used to pay down your mortgage counts. In addition, if you can afford to make just a single extra payment each year, you can cut the time it will take to pay off your mortgage significantly. Check out an online mortgage calculator to see how quickly the dollars can melt away.

Another way to accomplish the same thing, if your bank allows, is to pay half your mortgage every other week. Additionally, if you haven’t already refinanced to take advantage of low rates, what are you waiting for?

And if you’re serious about owning free and clear, then get serious about a 15 year mortgage instead of a 30 year mortgage. You’ll benefit from paying less money toward interest, too.

Finally, check your household spending for other cost cuts that can be used to get that mortgage paid down! For example, can you have your real estate taxes reduced, or save money on homeowner’s insurance or utilities? Those savings can be used to pay down your mortgage.

Til’ Debt Do Us Part: How to Get a Mortgage If One Spouse Has A Poor Credit Score

Til' Debt Do Us Part: How to Get a Mortgage If One Spouse Has A Terrible Credit ScoreA poor credit history is a reality for many people, but it can be particularly daunting when it comes to investing in a house. Fortunately, simply because you or yours have experienced bad credit doesn’t mean that you should be penalized in the future. If your spouse has struggled with bad credit in the past but you’re both preparing to move forward and invest in a home, here are some tips for getting it together financially.

Face The Music

Many people who have bad credit are too scared to take a look at their credit report and broach it honestly, but it’s important to come to terms with the problem so that it can be fixed. Instead of ignoring it, get a copy of the credit report and review it for any errors so that you can update these if needed and be aware of the issues impacting your credit score. While there may not be any inaccuracies on the report, knowing what you’re dealing with will give you a point to start from.

Make Your Payments

At some point, most people have missed a credit card or bill payment, but the first step involved in improving your finances and your credit is ensuring your spouse is paying their bills on time. While this won’t require paying the complete balance each month, it’s important to pay the minimum balance before the due date, and stick with it! It may seem like a small step, but over time it will improve credit and say a lot to mortgage lenders!

Save Up For Down Payment

20% is the amount that’s often suggested when it comes to a down payment, but if your spouse has terrible credit, it may be worth your while to save up more. It goes without saying that having good credit for both yourself and your spouse is important in getting approved for a mortgage, but by having extra for your down payment and paying your bills on time, you may be successful at convincing lenders you’re a solid bet.

It can be a lot more difficult to get your mortgage approved if your spouse has bad credit, but there are steps you can take to improve your financial outlook and give lenders a better impression. If you’re planning on investing in a home in the near future, contact your trusted mortgage professionals for more information.

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Your Debt-To-Income Ratio and How It Affects Your Mortgage

Your Debt-To-Income Ratio and How It Affects Your MortgageWhen you’re delving into the market in the hopes of finding your dream home, it’s likely you’ll come across the term debt-to-income ratio. This may not seem important at first, but your DTI is the key to determining the amount of money you can put into your home and just how much you should spend on a monthly basis. If you’re curious about what this means for you, here’s how to calculate it and how it can impact your mortgage.

What’s Your DTI Ratio?

One of the best ways to determine whether or not a home is affordable for you is to first calculate your DTI ratio. To get this amount, add up all of your monthly payments including any credit card, loan and mortgage payments, and divide this amount by your gross monthly income. The amount you get is your DTI percentage and this will help to determine how much your monthly payment should be.

What Does Your DTI Mean?

Your DTI percentage helps to determine the amount of house you can afford on a monthly basis, and this is why it can be such a good way to help you find the right home. While a DTI of 25% or less is ideal, a DTI that rises above 43% may be hard to get financing for since there will be little room for error. When it comes to a higher debt load, approval may come down to what your credit history says about your financial health.

The Amount Of Home You Can Afford

It’s easy to be convinced that your dream home is for you, and worth the splurge, but investing in too much home on a consistent basis can lead to future financial difficulties. If you’re set on a home that has a high monthly payment, you may want to hold off until you’ve saved a larger down payment or revamp your budget so that you can make the investment work for you. It may also be worth continuing the housing search so that you have more flexibility to invest in education, travel or other things down the road.

Your DTI ratio may be unfamiliar now, but this can be a great save when it comes to determining how much home you can afford and what will stretch your limits. If you’re currently looking into your housing options and are curious about what’s available to you, contact your trusted mortgage professionals for more information.

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Wondering How Much Mortgage You Can Afford? Here’s How to Calculate It

Wondering How Much Mortgage You Can Afford? Here's How to Calculate ItMany people are aware of the financial commitment that is involved when investing in a home, but what that amounts to is different for every person. From what you can afford to what a lender will allow, there are plenty of details involved in determining the right home for you. If you’re not quite sure what the right price is, here’s how to approach home ownership and determine your debt-to-income.

Calculating Your Debt-To-Income Ratio

You may not know what your DTI ratio is, but it has a lot to with how much home you can afford. In order to calculate this amount, add together all the debts you owe each month and divide them by your monthly pre-tax income. For example, if your credit card is $150 and your rent is $900, your debt amount would be $1050. Divide this amount by your income, say $2500, to get 0.42. This means your DTI ratio is 0.42 or 42%.

What Your DTI Means

While a DTI in the high 20s or low 30s is good, anything that hovers above 43 percent may serve as a red flag to the lender. The lower your DTI ratio is, the more likely it is that a lender will approve your mortgage application since you’ll have the disposable income to deal with financial hurdles. If your dream home has you hovering close to this amount, it may be a sign that it’s a bit out of reach.

How Do You Want To Live?

It’s quite common to be taken over when you find your dream home and decide to commit. However, buying a home is a huge financial commitment, and if you’re buying more than you can afford it may drain your well-being over time. Instead of diving in, determine other expenses that are likely to come up in the next few years, whether it’s travel, a child or a new car. It’s important to have the home you want and budget when buying it, but you’ll still need to financial wiggle room in case something comes up.

There are a lot of factors involved in determining how much house you can afford, but by calculating your DTI ratio and being aware of your spending plans, you’ll be well on your way to an ideal price range. If you’re currently on the market for a home, contact one of our mortgage professionals for more information.

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Mythbusting: Understanding Mortgage Myths and Why They Shouldn’t Hold You Back

Mythbusting: Understanding Mortgage Myths and Why They Shouldn't Hold You BackWith the fluctuations in real estate and the increasing cost of home ownership, many people are entering the market with more trepidation these days. Fortunately, there are a number of myths associated with buying a home that may not adversely affect potential homebuyers. If you’re interested in purchasing a home but are unsure about whether it will get approved, here are a few things you may want to dispel.

No Approval With Less Than 20 Percent

While putting 20 percent down can help you avoid having to pay private mortgage insurance, this down payment percentage is still just a suggestion when it comes to mortgages. It’s necessary to put a certain percentage down and be able to drum up the money on your own, but if getting into the market is your priority, buying now may be worth the investment over time. It’s just important to remember that the cost of your monthly payment should be affordable for the long term.

Home Ownership Is Too Expensive

It’s certainly the case that the real estate market is always fluctuating and prices can go up or down, but generally speaking, a home will increase in value over time and that means your monthly payment will be something you can consider an investment. While monthly rent disappears as soon as the calendar month is over, the money you invest into a home month after month builds up your equity and ensures greater stability for your financial future.

You Must Have A Good Credit Report

While it will definitely help your mortgage application if you possess good credit, it’s not necessarily a deal breaker if you don’t. Each mortgage is assessed based on a combination of factors that can include your down payment amount and your debt-to-income ratio, so this means that if you have a higher down payment and a less impressive credit report, you can still be approved. It’s a good idea to pay your bills on time and get your debt down if you’re applying for a mortgage, but there are opportunities for potential buyers who have experienced credit issues.

Home ownership is an important dream for many people, and as a result, there are many myths associated with the mortgage process. However, even if you don’t have 20 percent down or perfect credit, there are still opportunities for improving your financial well-being and investing in a home. If you’re currently looking for a new home, contact one of our mortgage professionals for more information.

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5 Ways That a Mortgage Can Be a Huge Benefit to Your Financial Future

5 Ways That a Mortgage Can Be a Huge Benefit to Your Financial FutureFor many people, investing in a house is one of the most important purchases they will make in their lifetime. However, alongside having the comfort of your own home, there are many financial benefits associated with buying in. If you’re currently perusing the market for opportunities, here are some reasons to consider investing a little sooner.

Get Away From Inflation

If you have an adjustable-rate mortgage, your interest rates will certainly fluctuate from time to time, but owning a home actually allows you to guard against the reality of inflation, which can be a significant burden as a renter. While the price of housing and apartment rentals can rise considerably with inflation, your monthly mortgage cost will be relatively fixed.

Hold On To More Of Your Money

Renting may be an easier financial obligation than home ownership, but the money you invest into a home each month contributes to your equity, and this is a benefit for your financial future. While rent money will be gone when the month is over, equity provides a consistent means of building wealth.

Buy At A Lower Price

The cost of home ownership may vary around the country, and while it’s certainly climbing in many urban centers, home prices are lower overall. This means that, instead of having to scrounge for a down payment, you’ll be able to invest a little less and maintain a better bank balance.

Cue The Tax Breaks

Many people hold off on home ownership because of the costs of property tax and maintenance, but there are financial boons outside of the money you invest. When tax time comes, you can receive tax deductions for costs like mortgage interest, property taxes and even private mortgage insurance that make buying in a little easier to bear.

Own A Rental Property

Whether you are a first-time buyer or you’ve delved into the market before, having a home in an up-and-coming neighborhood can also be an option, as this will enable you to rent it out and reap the financial rewards. While this may be a more feasible option later on in life, it can be a means of substantial additional income.

Many people hold off on owning a home because of all the associated costs, but it can be of benefit to buy into the market earlier to reap the financial rewards. If you are currently considering home ownership, contact one of our mortgage professionals for more information.

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3 Simple Tips for Boosting Your FICO Credit Score Before Applying for a Mortgage

3 Simple Tips for Boosting Your FICO Credit Score Before Applying for a MortgageThere are a variety of factors that are involved in getting your mortgage approved, but few things will have more of an impact than your FICO score and the credit history that goes along with it. Instead of leaving your score up to chance when submitting your application, here are a few ways that you can boost your financial wellbeing and leave your credit score better off than it was before.

Put More On Your Card

It’s important to put purchases on your credit card that you can afford to pay off consistently, but many people are not aware that how much debt you owe can actually positively contribute to your credit score. While it’s good to use up to 30% of your available debt load, a significantly higher percentage than this can be a signal to lenders that you are experiencing financial difficulties. By putting everyday items on credit, it will be easier to give your score an instant boost.

Clear Your Credit History

Many people who think they have bad credit are too afraid to even review it, but it’s very important to take a look at your credit history when it comes to taking control of your finances and your FICO score. If there happens to be incorrect information on your credit report, this will enable you to contact the appropriate lenders and dispute the charges so they can be corrected prior to your mortgage application. It may not seem significant, but this can actually have a marked impact on the outcome of your application.

Make Your Payments On Time

It’s often the case that those who are struggling with debt may push away the bills altogether and give up on the minimum payment, but it’s very important that the minimum is made to keep your financial health in check. It may take a few months to see the results of putting down this amount before the due date, but it will improve your credit over time and forge good habits for the future.

Your credit score is an important aspect of determining your financial health for lenders, and this means that your credit history is of significant importance when it comes to your mortgage. Instead of leaving it up to chance, ensure that you’re making the minimum payments and correct any discrepancies in your credit report. If you’re currently in the market for a home and are considering your options, contact one of our mortgage professionals for more information.

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