Mortgage Rates at Historical Lows, More Financing Options

If you haven’t heard the news, mortgage rates hit new historical lows this week. Depending on the area you’re in and your credit worthiness, mortgage rates are at 4 percent, if not under 4 percent. That’s just cheap money – plain and simple.

Not only are mortgage rates at all time lows, monthly payment amounts have come down substantially since the beginning of the year. Check it out…

Mortgage payments based on the conforming loan limit of $417,000 are now 9% cheaper as compared to the start of the year:

• January 2011 : A $417,000 mortgage cost $2,180.30 per month
• October 2011 : A $417,000 mortgage cost $1,976.42 per month

That’s over $200 per month saved for bills, home repairs, eating out or your vacation fund.

In addition to record-low mortgage rates and lower monthly payments, lenders are beginning to increase the number and types of financing options available to borrowers.

For example, I recently received an offer on a listing and could hardly believe my eyes…the buyer’s lender letter stated the type of loan as being “100% financing, no PMI”! Now this lender letter wasn’t from just any mom-and-pop mortgage shop – it was BB&T.

I could hardly believe it so I called the loan officer to verify and get the 411 on the loan program. Here’s the scoop,

• It’s a BB&T in-house program
• 100% financing
• no PMI (mortgage insurance)
• credit score of at least 660
• little or no credit history OK
• income cap of $84K based on the property being in Loudoun County, VA
• interest rate, points and closing costs were competitive with traditional financing programs

In case you’re wondering, “What’s the catch?” (I did too)…there’s no catch. There were no “hidden fees” and no last-minute hurdles for the buyer (or seller). We settled on time with no problems. At settlement, the buyer told me they were extremely satisfied with the entire financing process.

This is just one example of how lenders are easing their restraints on financing. I am by no means saying nor wishing that lenders get as lax as they did 2003 through 2006. But I am happy that they’re getting away from the overly-strict lending guidelines of the latter part of the last decade.

With mortgage money being cheaper than ever and financing options becoming more abundant, you’ve got a lot of good things going for you if you’re in the market to sell or buy a home. If you would like to discuss your financing options in more detail, click here to contact me and I will send you names of some great lenders so you can pick their brains and see what’s available to you.

photo credit

Related Articles

Home Values vs. Purchasing Power

Homes Values vs. Purchasing Power

Home buyers seem to mainly focus on price. Yes, price (aka home values) is important. But purchasing power (derived from interest rates) is just as, if not more important than homes values. In fact, purchasing power has an effect on home values. And many (including me) argue that purchasing power is the most important part of not just the home buying decision process, but real estate in general.

If home values and purchasing power were your birthday cake, home values would be the cake part and purchasing power would be the frosting/icing. Personally, the frosting/icing is my favorite and most important part the cake – similar to how purchasing power should be an extremely important part of the equation for all home buyers and those looking to sell and “move up”.

Let’s look at a real life example of purchasing power and how it effects you…

Let’s say you are looking to spend no more than $1500 on your monthly mortgage payment (principal and interest only).

• At today’s average rate of 4.25 percent, you can get a loan up to $304,000
• 10 years ago, rates were at 7 percent which means you could get a loan up to $225,000
• 20 years ago, rates were at 9 percent which means you could get a loan up to $186,000

Quite the difference, isn’t it?!

If words don’t really do it for you, here’s a chart comparing home values vs. purchasing power since 1991 (courtesy of Dan Green, The Mortgage Reports)…

 

 

And don’t forget about how much of an effect interest rates have on your principal loan balance and equity…

The higher the interest rate, the more of your monthly payment goes toward interest and the less of a dent you make in your principal loan balance you owe. A higher interest rate equates to you building less equity in your house each time you make a payment than you would if you had a lower interest rate.

(Even if you’re not a frosting/icing person, I hope you’re starting to see how it’s not just about the cake)

BTW…No, I’m not trying to get you to buy a house because,”Now is a great time to buy!” (courtesy of you-know-who). I’m just saying that you need to take purchasing power into consideration when deciding whether buying a home or “moving up” is right for you or whether you should just continue renting or stay where you are.

Reason #55 Why Using the Right Lender is So Important

There are many reasons why using the right lender/loan officer is important. Let me rephrase that…VERY IMPORTANT! And here is reason #55…

This comes from Allison, a home buyer in Fairfax who posted the following questions on Trulia Q&A (note: I’m not her buyer’s agent nor involved in her transaction whatsoever),

[My] lender overlooked the appraisal/financing contingencies. Closing is in a week and no appraisal yet. Seller hasn’t walked but what recourse do [I have]. I have the lender admitting in an email that no one knew there were contingencies even though the contract quite clearly stated this. My realtor, mortgage broker, and I were all told different dates for when the appraisal would be done by over the last few weeks. The seller hasn’t voided the contract yet but wants this resolved ASAP (as do we all). With only a week left, there’s not much I can do except wait but I don’t think the appraisal was even done until today (if I can believe the lender, and I don’t know if I do at this point). I have a settlement attorney and plan to speak with him about the situation but is there anything that can be done? Even if the deal goes through, I plan to address this with the company (much of this has been documented on email, although of course the loan officer is difficult to contact). I’m not blaming the appraiser at this point until/if I get more information.

This is a crappy situation to be in. Should the lender drag their feet any longer, the outcome could be that Allison (or you if you’re in this situation) loses out on her home as well as the money and time she’s already invested in the moving process. And what if she/you were timing the purchase of your new home with the sale of your current home?!

The truth is that, as the buyer, you are at the mercy of the lender you choose and you often have less control over their actions (or lack thereof) than you may think. If the lender makes a mistake or drags their feet, you may have recourse. But recourse often comes after the damage has already been done which is too late. And recourse has little to do with control.

In case the previous paragraph made you tense up and say, “WHAT?!” or “You’re crazy!”, I’m sorry to disappoint. But that’s the hard truth about real estate. If it makes you feel any better, you’re not alone – almost everyone involved in the transaction including your buyer’s agent, the seller, the listing agent and the title company are at the mercy of the lender. As James A. Garfield once said, “He who controls the money supply of a nation controls the nation.”

Enough of the bad news…let’s get to the good news.

There are ways to avoid getting yourself in the situation in the first place. It requires some legwork, time out of your day and trust, but it’s well worth the investment.

• Ask friends, family, coworkers about their personal experience with the loan officer(s) they’ve worked with in their real estate dealings
• Check the loan officer’s references. It’s not just about price as is shown in Allison’s example
• Ask your real estate agent for recommendations on loan officers
• Make sure your loan officer works for a direct lender, not a mortgage broker
• Don’t just rest on a company name. It doesn’t come down to the company/lending institution, it comes down to the individual loan officer. Just like you may get bad service from one waiter and great service from another waiter at the same restaurant, the level of service you receive depends on the individual loan officer rather than the company they work for.
• Though credit unions are often thought of as having very competitive rates and being good to their members, the complete opposite is often true (trust me, I’ve dealt with 99% of credit unions and can give you story after story)
• Make sure that the loan officer is giving you options, recommending loan types that are suited best for you rather than just the one you want/heard was the best and that they back up their claims with hard facts and numbers. The lender I work closely with and trust implicitly once said, “If you think you need your appendix removed, I would hope that the doctor you went to would check out your appendix and overall body and health prior to removing it just because you thought you needed your appendix removed.”
• Get more than one quote. Talk to 2 or 3 different loan officers. Ask them for an estimate of closing costs and interest rate and compare them to each other. But don’t forget to check their references and remember that it’s not just about price.

All of these are important, but a very important one that is often overlooked or not given enough weight is getting recommendations from your real estate agent. And here’s why…

You’re just another customer to “XYZ” bank and “Joe Smith loan officer” – you may or may not ever work with “Joe Smith” ever again and the loan officer knows that you’ll probably forget their name within a month after the deal closes. They do not have as much incentive to treat you right and go above and beyond as they do with someone they know is a repeat customer.

That’s where your real estate agent comes in… A real estate agent who refers borrower after borrower is worth gold to the loan officer. This is especially true in this market where most loan officers are closing fewer deals and making less per deal than ever before. When it comes to clients who the agent refers, the loan officer will bend over backwards and put out fires faster than you can dial “911″.  They will go to such lengths to provide stellar service because the loan officer knows that if they screw up, the agent will no longer refer them anyone and a potentially large chunk of their income will vanish.

I can honestly and proudly say that not one buyer that has worked with the lender I recommend has every been in Allison’s position. Nor have they been anywhere near such a position. This is the power of long term and ongoing relationships with competent, experienced and honest people and vendors.

Some of you may not believe me and will insist on using a loan officer of your choice despite not heeding the warnings nor following sound advice. I sincerely hope things work out for you and that you don’t end up in Allison’s position or another one equally if not more severe.

To those who do their due diligence and trust those who are honest and have lots of experience in the field of real estate and financing, you will find yourself having no such story to tell as the one at the beginning of this post. And that’s worth gold in itself.

FHA Loans Get More Expensive; LPMI Alternative

If Uncle Sam hasn’t made you dislike April 15 enough, the FHA will. As of April 15, new FHA loan guidelines go into effect which raise the cost of an FHA loan to borrowers.

How and where are the increases? In the Mortgage Insurance (MI) part of the equation.

How much is the increase? Let’s take a look at some examples…

Sales Price Loan Amount(Base) Old MI New MI

$200,000      $193,000     $144.75      $184.96 (+$40.21 per month)

$325,000       $313,625     $235.22      $300.56 (+$65.34 per month)

$450,000       $434,250     $325.69      $416.16 (+ 90.47 per month)

You may be wondering why the FHA is raising the cost of mortgage insurance (and the overall loan) to borrowers now. In my humble opinion…it’s part of their plan to recoup their past losses and protect themselves from future losses. The FHA is still licking their wounds (aka financial losses) from all of the foreclosures and general down market of the past 5 years.

It may also be a sign that the FHA and government in general believes that there is a recovery taking place and, therefore, the market (and borrowers) are able to absorb the added cost. (Whether they’re correct or not is not a debate I’m going to get into right now)

This isn’t good news if you’re an FHA borrower. But you may have an alternative.

It’s called Lender Paid Mortgage Insurance (LPMI). It’s a type of loan where, rather than paying monthly Mortgage Insurance, your interest rate is higher. There are pros and cons to LPMI though I think the pros outweigh the cons in most cases.

Here’s an overview of LPMI…

- LPMI is not an FHA loan product. It is a private lender program backed by Fannie Mae or Freddie Mac.

- LPMI generally requires a 5 percent down payment rather than 3.5 percent for an FHA loan. There are some 3 percent down LPMI programs out there, but they are more expensive for the borrower than than an FHA loan under the new guidelines.

- Even though your interest rate is higher with LPMI, your overall monthly mortgage payment is typically less than an FHA loan with a lower interest rate with Mortgage Insurance.

- Mortgage Insurance may or may not be tax deductible – there are strict income and other guidelines that the borrower must meet. But mortgage interest is tax deductible.

New FHA loan versus LPMI loan

Here’s an example of an FHA loan under the new guidelines versus an LPMI loan on a $400K purchase ($30K down payment, $380K financed)…

New FHA – 4.75% interest rate (based on a 720 – 760 FICO/credit score)

$ 2,002.08 Principal and Interest
$ 348.33 Mortgage Insurance
$ 343.33 Taxes
$ 70.00 Homeowner’s Insurance
$ 2,763.74 Total

LPMI – 5.375% interest rate (based on a 720 – 760 FICO/credit score)

$ 2,127.89 Principal and Interest
$0 Mortgage Insurance
$ 343.33 Taxes
$ 70.00 Homeowner’s Insurance
$ 2,541.22 Total

The difference in the total monthly mortgage payment is $222.52. This does not include the tax benefits of writing off the additional interest with the LPMI option.

New FHA -4.75% interest rate (based on a 680 – 719 FICO/credit score)

$ 2,002.08 Principal and Interest
$ 348.33 Mortgage Insurance
$ 343.33 Taxes
$ 70.00 Homeowner’s Insurance
$ 2,763.74 Total

LPMI – 5.75% interest rate (based on a 680 – 719 FICO/credit score)

$ 2,217.57 Principal and Interest
$0 Mortgage Insurance
$ 343.33 Taxes
$ 70.00 Homeowner’s Insurance
$ 2,630.90 Total

The difference in the total monthly mortgage payment is $132.84. As in the previous example, this does not include the tax benefits of writing off the additional interest with the LPMI option.

New FHA loan versus LPMI loan versus your credit score

The amount you save with LPMI financing is significant if you have a very good to great credit score. But that amount quickly decreases the lower your credit score is. The reason for this is that private lenders want to attract those with very good to great credit and protect themselves from those with mediocre and bad credit.

If your credit score is below 680, the the LPMI is most likely not for you because it requires 6 points (6 percent of the total loan amount) for the lender to even consider you as a candidate for LPMI financing. If you fall into this category, then an FHA loan is probably going to be more cost effective for you.

Is an FHA loan or LPMI loan better for you?

This is a very general outline of the changes and a general comparison between an FHA loan and an LPMI loan. There are lots of other details that come into play and everyone’s situation is different. You should speak with an experienced and honest lender that knows all of the “fine print” so you can make an educated decision about what is best for you.

I got my lesson about the new FHA and LPMI loan guidelines from the lender I’ve been working with for over 8 years now -  Darran Anthony of First Home Mortgage in Leesburg, VA. Darran is very experienced, extremely knowledgeable and will tell it like it is. Give him a call or send him an email to see which financing option is best for you, whether it be FHA, LPMI or one of the other financing options available. Here is his contact info…

Darran Anthony, Branch Manager – First Home Mortgage, Leesburg, VA – 703.443.1150 begin_of_the_skype_highlighting              703.443.1150      end_of_the_skype_highlighting ext 3410 – danthony@gofirsthome.com

Cost of FHA Financing Going Up 63 Percent

As of October 4, the cost of FHA financing is going up. And not just by a little – an average of 63 percent.

A home buyer purchasing a $200,000 home using a $193,000 FHA mortgage before October 4 would pay an insurance premium of $88.46 per month. If the same home buyer waits until after October 4, the insurance premium would jump to $148.01. In this example, the home buyer would lose $59.55 per month, or $7,146 over a 10-year time frame.

According to Gibran Nicholas, chairman of the CMPS Institute, an organization that trains and certifies mortgage bankers and brokers, “Although the upfront mortgage insurance premium is going down after October 4, the real impact to the home buyer is actually a net increase in their out of pocket costs because the monthly premium is going up by 63%. Remember, buyers can pay the upfront premium or it can be financed into the loan amount, so homebuyers rarely pay the upfront premium out of pocket. On the other hand, the increase in the monthly premiums will be paid right out of the home buyer’s pocket with their mortgage payment each month.”

So there it is folks…the cost of FHA financing is going up by an average of 63 percent.

And here I was thinking that the government was here to help make housing more affordable and do things to help the housing market recover.

Silly me.

Credit Scores Explained in One Easy-To-Read Chart

Ever wonder why your credit (aka FICO) score is what it is? Do you think it’s lower than it should be especially since you’ve never had anything repossessed nor ever been foreclosed on? Well, here’s an easy-to-read chart explaining how not paying your credit card bills on time can effect your credit score (click chart to enlarge)…

(courtesy of SpendOnLife.com via AgentGenius.com)

Upcoming Changes to FHA Home Loan Guidelines = Higher Costs to Home Buyers

Upcoming changes to FHA home loan guidelines will increase the cost of buying a home for buyers – especially first-time home buyers. It may sound crazy considering the state of the national housing market, but it’s true.

Here’s the official HUD press release (click here if you don’t see the embedded HUD press release regarding FHA home loan guidelines)…

FHA guideline changes 2010 –

In a nutshell, here are the FHA home loan guideline changes and what they mean to you…

• The upfront Mortgage Insurance Premium (MIP) is going up from 1.75 points to 2.25 points (1 point = 1 percent of the loan amount). On a $200,000 FHA home loan, that’s an added cost of $1,000
• FHA home loans to borrowers with a FICO score (aka credit score) of 579 or less will go up from 3.5 percent to 10 percent. On a $200,000 FHA home loan, that’s an added cost of $13,000
• Many home buyers going with an FHA home loan ask for closing cost assistance from the seller in order to minimize the amount of cash they need to come up with out of their pocket. Currently, FHA guidelines allow seller closing cost assistance of up to 6 percent of the purchase price. The new FHA home loan guidelines will decrease the amount from 6 percent to 3 percent. I typically see closing costs (including pre-paid items) on FHA loans of between 4 to 5 percent. Under the new guidelines, the home buyer would have to come up with the last 1 to 2 percent out of their own pocket rather than asking for all of it to be paid for by the seller.

To put the changes into perspective, let’s see what the difference in cost will be to John and Jane Smith, first-time home buyers in Northern Virginia using an FHA home loan under today’s guidelines versus the new guidelines…

Today’s FHA home loan guidelines

John and Jane Smith are buying a town home in Northern Virginia for $300,000. They will need to come up with 3.5 percent of the sales price ($10,500) for the down payment. They’re happy that they don’t have to come out of pocket for their closing costs because the sellers agreed to credit them back 4.5 percent of the sales price ($13,500) to cover them. John and Jane need a total of $10,500 cash out of pocket to buy the town home.

Upcoming FHA home loan guidelines

John and Jane Smith will need to come up with $10,500 for the down payment if their credit score is 580 or above. If their credit score is less than 580, they will need to come up with $30,000 for the down payment. The seller will only be able to pay up to 3 percent of their closing costs so they will need to come up with the remaining 1.5 percent ($4,500) out of their own pocket. In addition, they will pay an extra .5 percent ($1,500) in upfront Mortgage Insurance Premium (MIP). The total increase in cost to buy the same town home will be either $16,500 or $36,000 depending on their credit score with the majority of it coming out of their pocket in cash.

Under the new FHA home loan guidelines, Jane and John will need at least 62 percent, if not 343 percent more cash out of pocket to buy the same town home.

When do the new guidelines go into effect? No official date has been set. But they are coming and the word on the street is sometime late spring/summer 2010.

If you’re sitting on the fence when it comes to buying a home right now, you may want to jump off and take advantage of the current FHA home loan guidelines (and federal tax credit) before they change. If you don’t, you could be in John and Jane’s shoes and need an additional 62 percent (if not 343 percent) to buy the same home in the future.

If you have specific questions about the FHA home loan guidelines, the housing market or real estate in general, email or call me – 703.582.6900 – danilo.bogdanovic (at) gmail (dot) com.

New RESPA Guidelines and Good Faith Estimate – Good or Bad?

New RESPA (Real Estate Settlement Procedures Act) guidelines have come out and they will change the way Good Faith Estimates look beginning January 1, 2010. The changes will also increase the level of accountability that goes along with the lending process – for both lenders and borrowers. Some are “hootin n hollerin” about the changes while others are happy about them. Here are two people’s reactions to the changes…

“Hootin n hollerin” about the changes…

On the training conference call on Wednesday were originators from across the country who worked for direct lenders, brokers and banks. The common sentiment was that the consumer will in reality end up paying higher costs for loans as originators will not want to risk under-disclosing costs and fees, not just their own but those of escrow companies, title companies, appraisers, surveyors, etc, and be stuck with the tab.

- Excerpt from an article in The Orange County Register by Marilyn Kalfus

Happy about the new Good Faith Estimate and RESPA guidelines…

It completely evens the playing field on both sides of the table.  It also comes with like a definition page that outlines what is encouraged to shop around for and what is not negotiable.  No more “nickel and diming” over every line on the GFE.

The best part is that the definition of “application” has SSN as a REQUIRED field.

There are LOTS of skeptical people out there (rightfully so) that do not like to provide a SSN, but ask us to provide a “ball park” GFE based on the information provided.  RESPA no longer allows a GFE to be offered without a SSN.  This allows lenders to provide a responsible and more accurate GFE and prevents prospects from calling 10 banks asking for GFE’s just to see what their fee’s are.

Ooooh, just lots of good stuff – once again, for both borrowers and lenders…

Honesty, reliability and accountability is what the new GFE provides.

It puts the Good back in Good Faith Estimate!

- Christopher Koegler, Operations Manager – American Funding, Mclean, VA

I think that the new RESPA guidelines and Good Faith Estimate are good in theory, but theory and reality are two different things. We’ll have to wait and see just how they actually effect borrowers and the real estate industry as a whole.

What do you think?

P.S. Here is the new Good Faith Estimate (if you don’t see the embedded document below, click here)…

New Good Faith Estimate beginning January 1, 2010 –

Possible Changes to FHA Mortgage Guidelines Not Good for Home Buyers

The U.S. Government has been touting how the original and now extended (and expanded) first time home buyer federal tax credit has been helping the housing market and overall economy. Yet, at the same time (and on the down-low), they’re trying to pass legislation that will make it harder for home buyers – first and veteran – to buy a home.

“They’re seriously making it even harder to buy a home in this housing market?!”

Yes, seriously. Let’s take a look at what’s going on…

H.R. 3706 – The FHA Taxpayer Protection Act of 2009 was referred to the House Committee on Financial Services on October 1, 2009. This bill would require borrowers with FHA insured mortgages to make down payments of at least 5 percent of the purchase price and would prohibit rolling closing costs into the loan.

Currently, the minimum FHA down payment is 3.5 percent of the purchase price and closing costs can be rolled into an FHA loan.

In addition, the Secretary of Housing & Urban Development, Shaun Donovan on Wednesday outlined further plans to make sure FHA home buyers had more at stake and to put more money in the FHA’s reserves, which are extremely low at the moment.

Here are the highlights of the FHA policy proposal:

• Reduce the maximum allowable seller concessions from 6 percent of sales price to 3 percent
• Raise the minimum FICO score (aka credit score) required to qualify for an FHA loan from 620 to 640 (or more)
• Increase the up-front cash that a borrower has to bring to the table in an FHA backed loan
• Increase in the up-front mortgage insurance premium a buyer is required to pay
• Ask Congress to raise the annual mortgage premium a FHA buyer has to pay

And here’s a scary fact… The FHA can make most of these changes on their own with no additional authority or legislation required. Donovan claims that they will provide detail and public guidance for these changes by the end of January.

We’ll see…

Consider this… The majority of loans in 2009 were FHA (about 80 percent of my buyer clients did FHA financing). If it gets harder to get an FHA mortgage, the number of home buyers could decrease. If that happens, the market could soften. And, on top of that, the extended and expanded home buyer federal tax credit expires March 31, which is about the same time that these new FHA mortgage guidelines would go into effect. The timing of both of those could make things interesting.

Hat tip to Jay Thompson (aka The Phoenix Real Estate Guy)

Putting Mortgage Rates Into Perspective

I’ve heard some folks saying, “Uh oh…mortgage rates are up!” and “Mortgage rates went up a lot (1/4 point) since last week and I’m going to wait for them to go back down.” Yes, mortgage rates may have gone up since last week. Yes, they may (or may not) go back down (though, in my humble opinion, the only way from here is up).

But seriously…do you realize how good we have it right now when it comes to mortgage rates and points?!

Let’s put things into perspective…

Several of my home buyers with good credit recently got sub-5 percent mortgage rates with no points (a point is equal to 1 percent of the loan amount). Not too long ago, people could only dream about single digit rates, let alone sub-5 percent. Here’s the pudding…

- In July 2006, the average 30-year fixed-rate mortgage was at 6.76 percent with .5 points

- In July 2001, the rate was 7.13 with .9 points

- In July 1996, the rate was 8.25 with 1.8 points

- In July 1991, the rate was 9.58 with 2 points

- In January 1982, rates were 17.48 with 2.2 points

When is the last time mortgage rates were below 5 percent with less than 1 point? They haven’t been this low since Freddie Mac started tracking mortgage rates in 1971.

Let’s crunch the numbers on a $400K loan…

• At a 5.0 percent mortgage rate with .7 points, your principal and interest would be $2,147.29  and your points would equal $2,800
• At 8.25 percent with 1.8 points, your principal and interest would be $3,005.07 and your points would equal $7,200
• At 17.48 percent with 2.2 points, your principal and interest would be $5,858.79 and your points would equal $8,800

Aren’t you glad you’re buying a property at today’s mortgage rates rather than those of the last two decades (especially with prices at pre-2000 levels in some areas)?!

And don’t forget the icing on the cake…the $8000 first-time home buyer federal tax credit.

So next time you say, “Rates just went up” remember that it could be worse…MUCH worse.

For a complete list of the average mortgage rate and points per month since 1971, click here.

Next Page »