Sell My Short Sales

Barbra Streisand obviously wasn’t singing about Bond prices or interest rates in her 1980’s song. But those lyrics were fitting last week when the Federal Reserve stepped in with more buying of Mortgage Backed Securities (MBS), helping Bond prices recover from news of a weak Treasury Auction. Overall, home loan rates bounced around last week and ended the week very slightly improved.

But that said, we can’t “push our luck” and think the Fed will continue to step in and help support home loan rates…we have to remember that the Fed is actually winding down exactly this type of buying support.

As you can see from the chart below, the Federal Reserve’s purchases of MBS peaked at an average of $25 Billion per week back in May – and they are getting closer every day to being done spending their allotment of $1.25 Trillion. Since they announced that their remaining purchases would be rationed out until the end of March 2010 – but that they wouldn’t be making any additional purchases beyond the original commitment – the average purchases per week have been moving lower, down to $14 Billion per week so far in November.

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Chart: Fed’s Purchase of Mortgage Backed Securities (Weekly Averages Per Month)

Why is this important? Because home loan rates are based on MBS – so when the Fed agreed to be a big buyer, it helped provide a market and helped keep MBS prices high and home loan rates low. So as the Fed’s program wraps up and eventually stops, home loan rates are quite likely to be on the rise. So while rates are still very good, they may not be for long. Let’s be sure to talk if you haven’t yet explored how the current rate environment might benefit you or someone you know.

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Once your loan package has been sent to the lender, there are a number of things you should avoid doing that will change your financial picture. Remember, the lender is looking for stability and consistency. If you want the best interest rate, keep that in mind. Here are a few things to consider:

The lender is looking to see what your source of down payment is.

Your lender will most likely ask you to provide proof of your liquid assets. This includes bank statements for checking and savings accounts, verification of investments, and any other liquid assets. Some of the things they ask for may seem trivial, but keep in mind, if you are planning a move to a new home, it’s important to have all documentation readily available. If the lender asks for cancelled checks or deposit receipts to meet certain conditions, you want to be able to find these things quickly to avoid delaying the closing of your loan. Make sure your paper trail is easy to document, and don’t move money from one account to another.

Major purchases tip the scales against your favor.

Avoid making any major purchases. You might be thinking about purchasing new appliances for the new home. This is not the time to do it. Avoid making any major purchases on jewelry, appliances, furniture, vacations, or anything with a significant price tag.

Buying or leasing a car can make a negative impact on the way the lender views your financial status. This is a big ticket item that dramatically affects your debt-to-income ratio. You may feel you have room in your budget to purchase a new car, and think this is a worthy investment if you are looking for a home that will mean a longer commute for you on a daily basis. But by tacking a car payment onto your existing debt, you reduce the amount that you will qualify for in a home loan. A $400 a month car payment can reduce your approved loan limit by as much as $50,000. Think about doing this after your loan is approved if you really need it.

If you have to change jobs, you may be asked to document why this change occurred.

If you are changing jobs to increase your income, that’s a no-brainer for the lender. If you have an erratic work history to start with, another job change may make it look worse for you.

If you are an hourly wage employee, most likely a job change will have no effect on your ability to qualify for a loan. If you have a track record of a consistent amount of overtime or consistent bonuses over the last two years, the lender views this favorably. If you change jobs, there is no way of knowing if the new employer will pay overtime. Many do not! If you work on a salary + commission or straight commission basis, it has a dramatic effect on your stability. If you are considering starting your own business, again, this is something to consider after your loan is funded.

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