City Creek Mortgage News

If you’re looking to buy a home but have less than perfect credit or lack the cash for a down payment, an FHA loan might be a perfect choice for you. Backed by the Federal Housing Administration, an FHA loan is a type of mortgage loan that allows for purchases with low down payments and closing costs.

At City Creek Mortgage, we’re proud to provide FHA loans in both fixed rate and adjustable rate formats. These loans are among the easiest loans to qualify for, but they do have a few important requirements that buyers and the new home must pass. Let’s look at these.

Basics

Some basics on the FHA loan:

  • Buyers can purchase a home with a down payment as low as 3.5 percent of the home’s value.
  • Pre-payment penalties do not apply.
  • Interest rates are around 4 percent on average.
  • Buyers need a FICO credit score of 580 or better to qualify.

 

Requirements

Some important credit and financial requirements for FHA loans include:

  • You’ll have to provide a Social Security number or proof of lawful residency, along with steady income over the last two years.
  • Your front-end ratio (cost of the mortgage payment plus mortgage insurance, taxes and other fees) should be less than 31 percent of your gross income, but it can be up to 40 percent in some cases.
  • Your back-end ratio (mortgage costs in addition to spending on other debt from credit cards, student loans, etc.) cannot exceed 43 percent in most cases, or 50 percent in others.
  • If your FICO score is between 500 and 580, you can still get an FHA loan if you make a 10 percent down payment or larger.

In addition, the FHA imposes limits on the kinds of houses that you can get on an FHA loan:

  • The borrower must live in the property as their primary residence.
  • There may be limits on loan value, depending on your area – usually 115 percent of the county’s medium home price.
  • The property must be appraised by an approved appraiser in most cases.

 

Mortgage Insurance

In most cases when a borrower can’t put 20 percent down on the house, a conventional loan will require private mortgage insurance that will drive up the monthly payments. With FHA loans, mortgage insurance will come in two forms:

  • Upfront mortgage insurance may be paid as a lump sum or rolled into monthly costs, but will be 1.75 percent of the loan value.
  • Annual insurance premiums will be added to monthly payments. These will vary, and can range between 0.45 percent to 1.05 percent of the loan value.

For more on FHA loan requirements, or to find out about any of our other mortgage loan services, speak to the pros at City Creek Mortgage today.

Real estate agents have a responsibility to do what is best for their clients. However, this doesn’t always happen. Getting a mortgage is a significant decision for a homebuyer. In many cases, the real estate agent will pressure clients to use their preferred lender. Unfortunately, a referral is often made to a lender that is financially or professionally supporting the real estate agent, rather than because it is the most cost-effective solution for the homebuyer.

The Truth Behind Mortgage Rates
One of the reasons other lenders have higher rates than we do is due to the level of compensation the loan officer is making. If a loan officer wants to make more money,
they simply sell their clients a higher interest rate. When this happens, the client pays more than they need to. Clearly, a real estate agent who wants the best for their clients would not want to add this additional financial burden to people they care about.

For example, a client recently called into City Creek Mortgage to compare the loan offer they received from their real estate agent’s preferred lender. The client was looking to borrow $350,000. When I shared with the client that there was enough income in the rate they were being quoted to purchase a brand-new Toyota Corolla, they were upset. Generally, we can save most clients between 20-50%. In this case, it was much more.

Lenders Who Serve The Agents
Most mortgage lenders market their services to real estate agents under the premise that they will help them grow their businesses. A business model that is designed to provide the benefit to the real estate agent generally comes as a cost to the homebuyer. For example, there are some mortgage companies that have several offices in a community just to provide the convenience to their real estate partners. Clearly, the agent’s convenience provides no value to the homebuyer. However, the homebuyer is the one paying the price each month in the form of a higher mortgage payment.

A Consumer-Focused Model
I believe the right business model for a mortgage company is designed with the homebuyers’ best interests in mind. At City Creek Mortgage our promises and guarantees are to our clients, not to real estate agents. We are a low-cost provider that is designed to keep more money in the pockets of hard working Utah families. For 20 years, this has kept our clients coming back and referring their family and friends to us for their mortgage needs.

If you need help evaluating the price offering of another lender, we can help you. We can estimate the amount of commission income priced into the loan and compare that
to what is priced into a loan offering with City Creek Mortgage. We do what is best for the homebuyer, with the long-term goal of squeezing out the margins in a mortgage industry and eliminate the over-compensated loan officer. As a result, we are the most feared second option by our competitors.

Help us get the word out. When you hear that your family and friends need a mortgage, have them call us. By simply having salaried loan officers and a commitment to make less off each loan, we save people a lot of money. We are Utah’s best mortgage choice and appreciate your continued support.

When you receive a mortgage loan from a reputable mortgage company like City Creek Mortgage, an important part of the process will be underwriting. During this process, the underwriter might ask for what’s called a letter of explanation, or LOE.

Some potential borrowers panic when they get this sort of request, but you should not do so. An LOE is not necessarily a bad thing, and is often quite the opposite – it’s often clarification for a very good outcome. Here are all the basics you need to know.

Why Lenders Ask for Them

Simply put, letters of explanation are asked for so that lenders can receive clarification on a particular financial area. This is usually related to credit and underwriting requirements, which are imposed by government organizations and require a mortgage company to be very diligent with their criteria.

As an example, you might be asked for a letter of explanation regarding a negative entry on your credit report. This requirement might come from the lender, or it could come straight from underwriting guidelines imposed by the FHA or Freddie Mac.

Common LEO Situations

There are a few common situations that might result in you being asked for a letter of explanation:

  • Large withdrawals or deposits from a bank account, especially if a source or good reason cannot be easily determined.
  • High levels of debt in relation to your income.
  • Negative entries on a credit report, including delinquencies, foreclosures, missed payments and more.
  • A banking fee that suggests you may have had issues managing your finances in the past – an overdraft fee is a simple example here.

Formatting

Letters of explanation are all about simplicity and clarity. Explain what happened, why it happened, and provide any details of the situation. Be succinct without leaving anything out, and enclose all possible documentation that might be needed to help clarify the issue. Be as specific as possible, including dates and dollar amounts.

For more on letters of explanation, or to find out about any of our services, speak to the pros at City Creek Mortgage today.

 

The Bureau of Labor Statistics’ (BLS) Jobs Report came in way stronger than expected. While the market was looking for 205,000 new job creations, the actual figure came in at a whopping 313,000. In addition, the prior two month’s reports were revised higher by a combined 54,000.  In the history of job reports, I don’t remember a single one where the market was this far off of reality. Economists seem to be out of touch with the strength of the labor force.  We will have to see if this trend continues.

 

Although mortgage bonds experienced an adverse impact to the report, it was tamed by the Average Hourly Earnings number only increasing by 0.1%, which lowered the year over year average from a 2.9% rate to 2.6%. Since wage based inflation is among the greatest concerns of bond investors, this was good news.

 

Another critical part of the report was the Unemployment Rate, which held steady at 4.1%. Since the labor force grew by a greater number than the rate of new jobs created, this held constant. Also good news for mortgage interest rates.

 

The stock market is dramatically higher today, as stock investors celebrate the job report. Stocks are once again within striking distance of all-time high levels. The fears that investors felt in February seem to be behind us.

 

Once again….  we will maintain a locking bias.

At City Creek Mortgage, it’s our mission to get you the best mortgage rate as you search for your home. Especially for first-time buyers looking to become homeowners, this is a vital consideration.

Why should you want to become a homeowner? There are numerous benefits, from the independence and space you’ll find to the kinds of areas you might be able to live in. But perhaps the biggest benefit, and one many folks often overlook or become confused on, is the financial side – two recent studies helped illustrate the net worth and ROI gap between homeowners and renters. Let’s look at the results, and what they might mean for you.

The Stats

As of December 2013, the US Census Bureau reports the median net worth of homeowners at $199,557. This is in comparison to the net worth of renting households, which is just $2,208 on average, or nearly 100 times less. In addition, the recovery of the economy during the years in between makes it likely that the gap is even larger today.

Another study from the Federal Reserve effectively confirmed these findings, noting that the gap in homeowner and renter net wealth rose from a difference of $182,000 to over $220,000 during the period between 2010 and 2013.

How to Interpret Them

It’s important to remember that in many situations, this disparity was due to more than just a housing situation. Many homeowners are in that situation because they’re more well-off to begin with, allowing them to invest in a home.

However, this is something of a self-fulfilling prophecy in some ways. Homeowners enter into debt just like renters, but they do so in an investment – renters do not. Since home prices continue to rise faster than interest on a basic home loan, homeowners are building equity over time and can often make a significant profit on the back end. This is without even considering all the tax advantages that come into play, none of which are available to renters.

To learn more about why you should favor homeownership over renting if you have the choice, or to learn about any of our other mortgage loan services, speak to the pros at City Creek Mortgage today.

The year 2018 is here, and now that we’re all done celebrating the turn of the calendar, it’s time to get down to business. A new calendar year is a good time for those in the mortgage loan world to take a look at some of the trends that took place over the last year, and to forecast how these might carry over into the following year.

At City Creek Mortgage, our experts are ahead of the curve here. Let’s look at a few expected trends for 2018 based on expert opinions in the field.

Rising Home Sales

In recent years, homes have become tougher to find. But 2018 could signal the reversal of that trend, with a growth in inventory anticipated around the fall period. With this, resales of existing homes should rise to a small degree. Experts forecast the southern part of the country to have the most growth, with up to 6 percent growth in some markets.

Rising Mortgage Rates

Mortgage rates were at 4.07 percent in 2017, and they could rise as high as 4.7 percent in 2018 if projections hold. Do remember, though, that mortgage rate is one of the toughest areas to predict – many experts predicted the same kind of rise in 2017, and that never ended up happening. So while a rise of this magnitude is possible, it’s no certainty.

Lowering Home Prices

After several years of insane appreciation, home price increases are expected to slow in 2018. Growth is expected at just 4 percent, in comparison to over 6 percent in each of the last two years. Experts expect home construction to rise significantly, with single-family housing expected to jump by 8 percent.

Equity and Lines of Credit Increasing

Homeowners gain equity as home values rise, and lenders and banks are expecting more borrowing against equity to take place in 2018. Roughly 1.6 million homeowners will receive new home equity lines of credit this year, a 16 percent increase from 2017. By 2022, over 10 million homeowners could have these lines of credit – double the number of the previous five-year segment.

To learn more about changing mortgage trends in 2018 or any of our other services, speak to the pros at City Creek Mortgage today.

With the Tax Reform bill now signed into law, many homeowners will find that this important piece of legislation restricts
some of the benefits they have enjoyed from owning a home. Although the impact will mainly hit the higher end of the
housing market, there are some potential tax deductions that could impact the way they structure their mortgages.
Let’s look at what the changes could mean for current and future homeowners:
Lower Mortgage Interest Deduction
In the past, homeowners have been able to deduct interest on up to $1,000,000 of mortgage obligation.
For homes purchased now and in the future, this limit will be reduced to $750,000. For those who already
owned their homes at the time of the Tax Reform bill passing, they will be grandfathered into the prior
amount allowed.
Impact: Since this portion of the bill only impacts high valued homes, we anticipate this will have little impact on the
overall housing market. People looking at mortgage balances of over $750,000 will likely still purchase homes,
even if they lose the deduction on up to $250,000 of the mortgage balance.
Loss of Tax Benefit for Home Equity Loans
With property values moving higher, there has been a rush of people taking out home equity loans to make
use of their increased available equity. Under old tax rules, a homeowner was able to deduct interest on
up to $100,000 of the balance of an equity loan. This tax loophole has been eliminated.
Impact: We all remember back in 2008 and earlier when homeowners were taking out home equity loans to
purchase boats, make improvements, take vacations or just spoil themselves at the mall. This created major
improvements to the amount of money flowing through the U.S. economy. With values reaching new highs, this
trend has started once again.With the tax advantage no longer available, it will likely deter some people from
taking out home equity loans. Therefore, we could see a negative economic impact. People with home equity
loans will likely consider rolling them into a primary mortgage, which may create more tax advantage and
interest rate stability long term.
Limit on Property Tax Deduction
One reason that has prevented some homeowners from protesting their property taxes is that they have
received 100% of the property tax payments as a write-off from their taxable income. Under the new
law, the property tax and state income tax write-offs have been limited to a combined $10,000 reduction
from taxable income.
Impact: In Utah, the state income tax rate is 5%. This is a flat tax, so there are no itemizing deductions on
a Utah state tax return. If a homeowner has property tax of $2,500, they would be allowed to have $150,000
in gross income and still receive the full tax savings of owning a home. Therefore, the impact will mainly be
for higher income earners.
Given that the average Utah state income tax collection is less than $1,000 per year, most residents will not
be impacted.

With home prices moving a great deal higher in recent years, some are worried that we are now on the verge of another housing bubble. Although this could be true, it certainly doesn’t appear likely in the near term. In fact, housing prices are projected to continue to grow over the coming years. However, many millennials are using this fear as rationale to continue to live with their parents or rent.

Real estate used as a primary residence has proven over time to be a wise investment, regardless of the timing of the purchase. Although some built up significant equity by purchasing when prices were at their lows during the recent housing crisis, even those who bought at the peak of the market in 2007 should once again be in a strong position of equity.

Homeownership is one of the greatest determining factors that contribute to wealth accumulation. In 2015, the average net worth of a homeowner was $195,400, compared to just $5,400 for a renter. Not only is a homeowner able to better weather a financial storm by borrowing against accumulated equity, homeowners are also able to reach a point where they no longer must make a mortgage payment once the home is paid off. Further, with rents rising as rapidly as they have in recent years, a homeowner who purchased their home years ago is likely paying far less than a renter who is leasing a similar priced home. In addition, the homeowner will receive a tax break that isn’t available to those who rent.

Although inching higher, the current home-ownership rate is well below where it should be. We need to see a bigger push for millennial home buyers to help ensure a strong economy in the decades to come. If they fail to buy at a reasonable age, they could be missing out on a significant opportunity.

Our team secretly came together for this photo while we were out of town and put it up on billboards for our return.
Mike and I started this amazing journey when Austin Taylor Roberts was still in a baby carrier sleeping under my desk.CCM_Turns_19_Years_txt
It has been the most rewarding, challenging, painful, scary, and exciting thing we’ve ever done…and we wouldn’t change it for anything.
Every day we get to work with our friends who believe what we believe and share our mission to be the most Trusted, Respected & Loved mortgage company in Utah….and soon beyond 🙂
I could not be more proud of this team, of the company we have all built and to all of you who honor us with the opportunity to serve.
Here’s to another amazing 19 years!

– Tobi Roberts

 

The Hidden Truth about Interest Rates

I recently made the decision to care less about being liked by people in the mortgage industry and more about transparency surrounding what I believe. For the sake of this article, I’ll focus on how much a mortgage loan truly costs an average consumer at most mortgage companies vs. what it costs at City Creek Mortgage. Further, I’ll dive into where I see the future of this industry as well as the people who work within it.

First, I want to make clear this is not a dig at my competitors. I believe most mortgage lenders are wonderful people who work for great companies. Just because I have fundamental differences in beliefs about how much companies and people in my industry should earn, doesn’t make my competitors wrong.

The $ Behind a Mortgage

Few consumers realize how much money is made in the process of a mortgage. For many well-known local mortgage companies, a $300,000 mortgage loan generates $12,000 of revenue. What consumers should understand is that this “standard” cost of originating a loan is substantially higher than the actual cost of doing so. The result is needlessly higher interest rates and closing costs for the consumer. Although “it’s just the way things are done,” I believe once people understand what is happening, this practice will come to an end.

In total transparency, a $300,000 mortgage loan closed at City Creek Mortgage will generate up to $6,000 in revenue on average. Although still a healthy income, it is significantly below what most companies make on the same loan. By choosing to make less money on each loan, we save our borrowers in both interest rate and closing costs compared to many of our competitors. Plain and simple, that’s the truth.

As I consider the future of the mortgage industry, I see what many in the industry don’t want to face. Some may disagree with my assessment. I see a time in the coming years where a computer will be able to replace most of the work done by mortgage loan originators. I will explain my thoughts below.

The Impact of Technology

Technology is making the mortgage process significantly easier, faster & more affordable. We are already at the stage where technology can automatically retrieve taxes, bank statements or pay stubs. Since this is most of the supporting documentation required for a loan, the effort required by the consumer and loan originator is decreasing. Further, many loans no longer require a physical appraisal. Once again, expediting the loan process. When combined with digital signing and instant loan approval, it’s not difficult for one to perceive a day when a mortgage loan originator is only needed on more complicated loans. It could even be that a human is needed on only 25% of all loans closed.

A Mortgage Loan Originator’s Income

In truth, the individual mortgage loan originator is usually able to set their own compensation levels. I know many that get paid 2% of each loan they close. This is in addition to what their respective company makes on each loan. For this to work, mortgage companies roll that super high commission into the interest rate they charge borrowers.

So for a $300,000 loan, not only does the company make money, but the loan officer gets $6,000 in commission. For that same $300,000 loan at City Creek Mortgage, $6,000 is the total revenue. No additional charges, or rolling commission into the interest rate like other companies. We use $6,000 to pay 30 staff members, and all our overhead. That’s why (in other companies) you can often get a lower rate by walking through an office and asking individual mortgage loan originators what their level of compensation is. Once you find the lowest plan, you can choose that mortgage loan originator and be offered lower rates and fees. Or you could do it…

The Right Way

You may be wondering how it is possible for City Creek Mortgage to make half of what our competition make on each loan. It is simple. We have a volume-based model. We have to do more loans, because we make less on each loan. We provide our loan officers with the stability of a salary and since they don’t do any marketing themselves, they can do substantially more loans per month than the typical loan originator.

I believe most mortgage loan originators who work for companies eventually will be paid a salary. An individual loan originator will no longer be able to make hundreds of thousands of dollars a year at the expense of the consumer for closing a handful of loans each month. The current system, where borrowers are paying a luxury tax each month for 30 years for overcompensated loan officers is flawed. Further, the real estate agents who claim to want the best for their clients are often the ones feeding the business to these highly compensated mortgage loan originators. It’s just wrong. Consumers shouldn’t be footing the bill for extravagant lifestyles of over-compensated mortgage loan originators. Trust me, it will change.

And that, my friends, is my explanation as to why our rates at City Creek Mortgage are so much lower than our competitors.