US Mortgage Rates Drop for Third Consecutive Week

Author: Sol Nasisi on November 20, 2009

US mortgage rates dropped for the third consecutive week. The 30-year rate dropped to 4.83% from 4.91%, the lowest since May, mortgage buyer Freddie Mac said today. The average 15-year rate fell to 4.32%, the lowest since records began in 1991.

The Fed's commitment to buy up to $1.25 trillion in mortgage-backed securities bonds brought rates down to record lows in April and rates are close to retracing those lows. As this chart shows, the 30-year mortgage now at 4.83% is close to the April low of 4.78%. The low rates, combined with the first-time homebuyer credit have helped to prop up the housing market. But an article in the WSJ today questioned whether the housing market will be able to withstand the end of the Fed's buying spree (and the resulting rise in rates) and the eventual expiration of the house purchase credit.

Application for new home loans fell last week to a 12 year low.

John Burns of John Burns Real Estate Consulting makes some interesting points in the video below:

If the government removes the stimulus from low mortgage rates, the housing market will crash.
If the FHA tightens its lending standards, the real estate market could crash.

Yet, it's hard to imagine that the Fed can continue to keep mortgage rates low until employment picks up. It's also hard to see how the FHA can continue to serve as a new sub-prime lender or lender as last resort while the FHA is close to insolvent.

The bottom line: low mortgage rates and a rough housing market make it a great time to buy, if you have the credit and the cash.

The Secret to A Successful Mortgage Refinance

Author: Keith A Campbell on November 17, 2009

Here are some tips you can use to help make the processing and funding of your loan a quicker and less stressful experience.

Here are some simple things that can go a long way in ensuring that your purchase loan or refinance goes smoothly and funds without complication.

In order to refinance you home you are going to have to have enough equity in the home. The first thing you will want to do is to try to determine the current value of your home. Now if that last time you refinanced your loan to value was 65% you’re not going to have to worry about value. On the other hand, if your loan to value was 85% or higher, you may have an issue. You should try to determine if you have enough equity to do the new loan. If you have a copy of your last appraisal you may be able to answer the equity question right then and there.

Look at the old appraisal and your loan papers for a point of reference. If you borrowed $450 thousand and you see on your appraisal the home was valued at $500 thousand you may have an issue. You may be able to find comparable sales on the internet on yahoo real estate. If you have the appraisal you should see who the appraiser is and call them. They are usually all too happy to help knowing that since they did the last appraisal they will probably be able to do the new one.

Remind them of your address and what they appraised the home at the last time. If you have done any improvements since they last appraised it fill them in on that as well. This may sound shady, but if you use the same appraiser you are likely to get a better value as they will not want to low ball you because then their last appraisal is suspect. This is especially important if you are on the edge regarding your home’s value. You should also let them know what you think the value should be and why. If they know you need a value of $400 thousand to do the loan it may swing them your way if they are on the fence about the value. There is no guarantee this will work, and it may even help.

You might also call a local realtor and mention you are thinking about selling your house, and how much does he/she think you could get for it. This method works sometimes and it really depends upon the realtor. Some will not give you much information unless you are willing to meet and talk about listing you home through them to sell. I have had varying results with this method and it is not the most accurate method.

You can also refer to your tax assessed value, you most current one, and it’s a pretty safe bet your home will appraise for at least that amount. If your assessed value reads $400 thousand and you need that value to do the loan I would say go ahead with the loan process. It is rare that the home’s value is less that the assessed value.

You can also call a title company and they may be able to help out. I would first try one that you have used before, and you might even remind them of your past business with them. That should get them in your court. If you offer to open escrow with them they will most likely bend over backwards to help you out.

Basically I would try all these methods, gather your data and between them you should be able to figure out if you have enough equity in your property to refinance. Then it is time to go one to the next step towards paving the way for a smooth loan process.

Good luck and happy refinancing.

INTEREST ONLY in Interest Only Loans

Author: Keith A Campbell on November 16, 2009

Here is a look at the hugely popular Interest only loans. They are not so wonderful now.

I had scarcely heard about Interest Only loans in the early 2000’s until around 2004 or 2005 when it seemed that and the Option Arm were the only alternatives when it came to purchase or refinance loans.

The first two firms I worked for did not offer the loans and it was not a big deal as there was not much demand for them. Then late 2004 nearly every borrower knew what they were and was interested in them for their refinance or purchase loan.

Individuals who have interest only loans have the option of paying more of course but they are only required to pay the interest payment. During the interest only period the balance of the loan never changes. One thing to remember, and some forget this, most I/O (interest only) loans are interest only for only 5-10 years of the loan then the fully amortized payment is due each month.

A nice thing about an I/O loan is it gives you the flexibility to pay the fully amortized payment, then if you have tough month, maybe you had unexplained expenses come up, you can then just make the interest payment. If borrowers take this approach the loan is a pretty good deal. The only problem here is that most are not disciplined enough to make a fully amortized payment when it is not due. Then ten years later they lose the option to pay interest only and their payment shoots up because the house has not been paid down and they are paying principal and interest. This sudden financial stress could be disastrous.

When most people go to buy their first home it is viewed as the starter house. The one that they will keep until their income goes up enough to afford the house they really want. That costs quite a bit to do that but with an interest only loan they can buy more house the first time and get the home they really want and that saves them the expenses of doing two loans.

Some people use the excess cash flow to build wealth in the stock market, but one has to have the discipline to do that and to not just spend the money on other things. Some will use the extra cash flow to pay off a higher interest second loan. That is a wise use of an interest only loan.

If you are planning on selling the home you just bought for a quick profit, and you are in a location where home values are steadily appreciating, you will want to make the lowest payment possible which will be an I/O loan or the lowest payment on an Option ARM loan. Since you are selling the house for a quick profit it is not necessary to try to pay down the principal.

To be safe and in a perfect world borrowers would make sure they could afford to pay the fully amortized payment before buying the house. That way they can afford the payment after the I/O period. They will also be able to make their payments when the home has lost value and refinancing or selling are no longer an option.

Put some thought into this type of loan. My buddy refinanced his home to an interest only option and five years later had to walk away from the home. You don’t want to go through that kind of pain.

Good luck and happy borrowing.

FHA Mortgage Loans Growing in Popularity in 2009

Author: Sam Cass on November 13, 2009

One of the big mortgage stories of the financial crisis is the growth of FHA loans as a replacement to conventional mortgage loans and as a replacement to sub-prime loans. According to data from the National Association of Realtors, FHA loans grew from 7% of mortgaqe loans in 2007 to 25% in 2008. That number has probably increased even more in 2009.

This increase has been driven by two factors according to the NAR:

First, under the Economic Stimulus Act of 2008, the loan limit that Government Sponsored Enterprises can purchase in the secondary mortgage market increased from $417,000 to $729,500 in high cost areas, and this allowed many houses to became available for FHA insured loans.

Second, subprime loans have disappeared since the credit crunch in 2007 and more home buyers turned to FHA insured loans and VA (the U.S. Veterans Administration) guaranteed loans as well as Farm Service Agency (FSA)/ Rural Housing Service (RHS) guaranteed loans.

Indeed, it's hard to see why someone would now choose a conforming mortgage loan over an FHA loan. I did a quick check of mortgage rates and found that the FHA 30-year mortgage rate for my areas was 4.714 % APY versus 4.586% APY for a conforming 30-year mortgage loan. That's not a big difference. The FHA loan though comes with lower underwriting standards and is thus easier for those with some credit blemishes to get. FHA loans also require much lower downpayment amounts, as low as 3.5% of the house price.

FHA loans do require the buyer to pre-pay mortgage insurance but the amount on most homes comes out to between $15-30, hardly a burden. It's easy to see why FHA loans have grown in popularity.

Compare FHA Mortgage rates.

The Adjustable Rate Mortgage

Author: Keith A Campbell on November 10, 2009

Far too many people make a blanket statement regarding the ever popular two year Adjustable Rate Mortgages. There is a time and a place for them in any interest rate environment; take a look.

THE ADJUSTABLE RATE MORTGAGE

I cannot tell you how many times I have heard people make a blanket statement regarding ARM’s, or Adjustable Rate Mortgages, and how they are in no way appropriate for borrowers when interest rates are likely to move up.

First of all who knows when rates will move up? Just a few years back everyone was going on and on about rates being the lowest in forty years, and now look where we are; money is almost free. That is free in terms of borrowing, not in terms of it growing on trees. Let’s just assume that mortgage rates are trending up. Does this automatically mean refinancing into a 2yr ARM is a bad idea?

What may be a horrendous idea for one investor could be a life saver for another. Each person’s situation is unique and should be treated as such. Here is a check list for you and if you can answer yes to several of the questions you may want to consider a refinance with a 2yr ARM.

· Credit score 500 or better, but well below 600

· Existing mortgage is about to reset

· Inability to keep up with revolving debt

· Inability to keep up with mortgage payments

· Bankruptcy a real possibility

· Refinance would reduce overall output enough for borrower to keep up with

So there you have it in black and white. If half or most of those apply, or a bankruptcy applies I would be calling my broker, or mortgage consultant to see what my alternatives are. The number of people who find themselves within those criteria just seems to increase every day. Unfortunately because of the number of bad loans out there, a lot of these people are upside down in their mortgage and do not have the option of refinancing or even selling the home. For them a bankruptcy may be the only option still available to them.

If you have found yourself sitting on a FICO in the low five hundreds you will not be able to do anything other than a 2 or 3 year ARM. Because of the low score, any fixed rate loan you may qualify for is going to probably be almost two percent above a fixed rate loan. Because of the very high rate you may not even qualify, income wise. More than likely you will have to entertain a two year ARM.

If your current mortgage is about to reset and go up you may want to see what kind of a deal you can get if you just started over with a debt consolidation loan. There is a lot of lee-way with non prime loans so you may be surprised what a motivated loan officer can put together for you.

If you are a borrower whose minimum overall revolving debt payments are higher than your house note, you need to talk to a broker. You may be thinking that is impossible to have your credit card payments higher than your mortgage but I have seen it many times. It’s pretty easy to save those folks money. If you are a borrower who has a $1,200 house note and fifteen hundred dollars in monthly revolving debt chances are you can consolidate your house note and bills and make your new payment two thousand dollars or lower. It’s pretty tempting to refinance when you are looking at an overall monthly savings of eight hundred to a thousand dollars a month.

If you cannot keep up with your mortgage payments it means you are trashing your credit score and may want to look into it while your score hopefully is above five hundred. If that score dips below five hundred there is nothing anyone can do to help you refinance.

In a perfect world here is how the refinance would go down. You would refinance your home, pay off all your debt, and save yourself eight hundred dollars a month. You would take a two year arm because it would give you the lowest monthly payment by quite a bit. Over the next two years you would keep up with that new house note and not have any late payments on the mortgage. Hopefully you will not have run up those credit cards again and ruin your credit once more.

In two years your score will have gone from a dismal 520 to a respectable 708, and you will qualify for a prime loan at a rate that may save you more money. Best part of all, it is fixed for the life of the loan and you never have to go through this mess again.

That is in a perfect world of course. Unfortunately many non-prime borrowers run their cards up to the max yet again and find themselves in the same situation or worse than they were in two years previously.

As you can see, for some people, regardless of where the rates are going in the future, a two year ARM can be a life saver if done right. Have a plan of action for after you refi, as to what you want to do with all the money you will save so you don’t just go and blow it. Same with the credit cards that lenders will be calling you about to increase your credit line. Don’t take the bait. Stick with the program and you will be welcomed to the prime promise land in the very near future.

Good luck and happy refinancing.

Compare the best mortgage refinance rates.

Paying Points On Your Home Loan - A Good Idea?

Author: Keith A Campbell on November 5, 2009

Hi there, welcome to part two on points, commission, fees and expenses. In this installment we talk about using points to buy down your rate on your mortgage. Crunch the numbers and do what makes financial sense.

Points, to pay or not to pay?

On the first installment we got as far as mutual funds, and got bogged down in the age old debate, NO LOADS vs LOADS this time we will just let that sleeping dog lie, and move on to another topic.

Let’s talk a little about points as it relates to the mortgage industry. Once again you have two camps, the no points no matter what camp, and the, hey it’s okay if it will get me the best rate, camp. And that’s the bottom line isn’t it? We want to know we got the best rate possible for our unique situation, and we want to be sure we are comparing apples to apples.

In the mortgage industry points are used to buy down the base rate on a lender's rate sheet. There will always be the base rate with zero points, then there will be pricing for one point, one and a half, two, two and a half, etc…These tax deductable points are also called discount points.

I cannot tell you how many times I got on the phone with a potential borrower and the first thing they tell me is that they will not pay any points for any reason. I think this attitude comes from the practices of some bad, small lenders who used to charge up to five points on a loan. Think about that for a moment. Your loan amount is five hundred thousand, and you have to pay twenty-five thousand off the top just to get the job done. That’s a hard pill to swallow.

Now take that half a million dollar loan and let’s give it a six percent rate. Your monthly principle and interest payment is going to be $2,997.75. Now let’s pay two points to get that rate down to four and three quarter percent. The cost of points is ten thousand dollars. Your new monthly payment is $2,608.24. That is a savings of $389.51 a month. Over the life of your loan your payment of ten thousand in points is going to save you $140,223.60. If I were to trade you 140k for your 10k payment, how long would you stand there doing the trade? I’d stand there all day. There is a catch though. If you are not going to stay in the house more than two years you may not make back that ten thousand in points, so let’s do the numbers. It is going to take you 25.67 months to pay off the ten thousand you used to pay points. After that it is all savings. If you are going to stay in the home for a year then move, you will waste money. It will take you just over two years to make back that ten grand.

In the scenario we just went over, as long as the borrower is going to stay in the home more than two years, it would seem foolish not to buy down the rate using the discount points. Despite running numerous calculations for borrowers I would still find people so point adverse, that they would not entertain the notion of paying points.

That is really all I have to say regarding points and the mortgage industry. Bottom line, crunch the numbers and you will be able to see if you should be paying points or not. There is no hard fast rule as every loan and every borrower is different. Keep an open mind and do what makes best financial sense.

Good Luck and Happy Financing.

Compare the best mortgage rates.

THE COLD CALL - A sense of urgency

Author: Keith A Campbell on November 4, 2009

When you are cold called do feel you are being pushed, hurried? Well, you are. For a cold caller to be successful he must instill in you a sense of urgency or the call will be a futile one. Often the caller will fudge a little in order for you to act. Take a look here and see what you thing.

A SENSE OF URGENCY

If you are a salesman, nothing I am going to say here will be new to you, unless you are new to the business. Sales practices seem to be pretty much the same, whatever the job is that you are doing, whether it is a mortgage or not. You may have heard this.

If you can sell a car you can sell a home loan, or anything for that matter; selling is selling. When a salesman gets you on the phone his number one job is to get you committed to him first, and his product second. If the guy is selling used Toyota’s, you can go anywhere to buy one so he has to sell himself in order to get you to buy the Toyota from him and not the guy down the street. If he cannot get you committed in the first phone call he has a high likelihood of losing your business, business you did not previously know you needed.

Your sales guy also doesn’t want to plant the seed and have you go to someone else to buy, so there is a real sense of urgency for him. In order for him to get you committed, you have to first believe there is a sense of urgency here. When I was a stockbroker this was easy. Stocks are always on the move, be it up or down, they are moving. Because of that there is a real sense of urgency that you won’t find in the mortgage market. If you don’t refi in the next twenty minutes you’re not going to miss your chance to still get a good rate.

If you are not a prime borrower and feel a sense of urgency, take a step back and listen to what the guy on the other end of the line is saying. That sense of urgency you feel is not really based on fact; most of the time. Sometimes sub prime rates do change and your Loan Officer may call with a sense of urgency, but often that is not the case. If rates in general are not trending up, neither will your subprime rate. Even then just because the Federal Reserve has raised rates, subprime rates do not move lock step with prime rate. There is a big margin between prime rates and non prime ones so there can be a lot of fluctuation in the interest rate without your loan rate changing.

Compare Mortgage Refinance Rates

Sales people are taught to instill a sense of urgency or they will not get the sale. Your loan guy will dream up anything necessary in order for you to feel like you have to buy today. He will want you to send in your documents today in order for him to be able to lock your rate. Remember sub prime rates are not locked like prime ones are. If you don’t send in your docs that very moment, it’s not like he is not going to give you that great deal if you call him a week later and fax your docs.

Just remember, subprime rates do not move rapidly, and you shouldn’t have to either. Keep in mind that the guy on the other end of the phone is operating with the directive, “get the commitment and Docs today or lose the loan to the next guy who calls.” Move at your own pace and he will still be there, desperate as he was three weeks ago, and eager to do your loan.

Happy reading and happy borrowing.