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

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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

If My Iraq War Veteran Home Buyers Just Got a 3.875% Interest Rate, Why Can’t You?

My Iraq War Veteran first-time home buyers (that’s them in the photo) and I thought we were hearing things when the lender said, “You qualify for a VA loan at an interest rate of 3.875 percent.” But we heard correctly! Qualified Veterans can get an interest rate as low as 3.875 percent on a VA (Veterans Affairs) loan.

Here’s the deal my Iraq War Veteran first-time home buyer clients got just last week:

• 3.875 percent interest rate for first 5 years
• No points
• The rate adjusts according to the Treasury ARM Rate (which is better than the LIBOR ARM Rate)
• The interest rate can’t increase more than 1 percent per year (only after the first 5 years)
• The maximum interest rate they can ever have is 8.875 percent regardless of how high future rates are
• No prepayment penalty

They are not planning on staying in their home for more than 5 to 7 years so this loan is perfect for them. A 30 year fixed rate VA loan is currently in the 5.25 percent range so they are saving about 1.5 percent on the interest rate. That comes out to a savings of $209.02 per month based on the amount they financed.

By the time they move, their rate will be between 3.875 percent and 5.875 percent. I think it’s safe to say that either of those rates will be lower than what the 30-year fixed rates will be in 5 to 7 years.

Besides saving money, why else is the low rate and cap so important?

Because the loan is assumable. This means that rather than a buyer having to go out and get their own financing/loan to buy this home, if they qualify, they can assume the existing loan and it’s terms (aka interest rate).

Let’s say rates are at 10 percent in 7 years. A qualified buyer could purchase their home and assume the loan at no more than 5.875 percent with the cap being at 8.875 percent.

And also because they’re building equity in their home more quickly. The lower the interest rate, the more of the monthly payment goes towards principal rather than interest. This means they will have paid down more principal and they will have more equity in their home than had they gone with a 30-year fixed rate loan at 5.25 percent.

How fast do you think they will be able to sell their house in 7 years when rates are 10 percent with “Current 3.875 to 5.875 percent interest rate assumable loan”?!

Can you say, “FAST!” No matter what the housing market conditions are like in 7 years, this property will stand out above the rest for the assumable low-rate financing alone.

Let’s do the math and see why.

Let’s say the property is worth $350K and rates are at 10 percent 7 years from now…

• If the buyer finances $350K at 10 percent, their Principal and Interest comes out to $3,071,50
• If the buyer assumes the current loan at 5.875 percent (the most it can be in 7 years), their Principal and Interest comes out to $2,070.38

That’s a savings of $1,001.12 per month.

In addition to saving $1K per month, the buyer will be building equity in the home much faster at the lower interest rate than they would at a higher interest rate because more their monthly payment will be applied to Principal rather than Interest.

Now you see why buyers will be all over this property like white on rice!

It’s a “win now and win later” situation for my Veteran first-time home buyers, as well as all Veteran home buyers.

If you are a Veteran and thinking about buying a home, email or call me and I will put you in touch with the loan officer that my clients worked with.

Good News For Home Buyers Using FHA Financing!

Good news for  home buyers using FHA financing! The Federal Housing Administration (FHA) has no plans to implement the Home Valuation Code of Conduct (HVCC), which has been the cause of a wide array of problems for home buyers, sellers and lenders.

The FHA is looking at alternatives to the HVCC it feels would insulate appraisers from pressure from lenders while not hurting consumers and lenders.

I’m all for keeping lenders from pressuring appraisers to “hit the number”, but the HVCC is not the way to do it. Glad the FHA realizes this too and that it’s taking steps other than adopting the HVCC to accomplish this.

If you are thinking about buying a home and using FHA financing, there are several great FHA lenders in the area you can speak with. Email or call me and I’ll send you a list (click here to contact me).

3rd Largest FHA Lender, Taylor Bean and Whitaker Shut Down

If the Federal Housing Administration is trying to send a message, it just did – using an elephant gun. The country’s 3rd largest FHA lender, Taylor, Bean and Whitaker Mortgage Corp., ceased lending and closed its doors yesterday after being barred from making new loan guarantees by the FHA (click here for excerpt of TBW press release).

The FHA, citing concern about possible fraud, plans to sanction two top officials at Ocala-based Taylor Bean for providing “false” information to the agency, according to an FHA statement released yesterday.

Why does this matter to you?

Because TBW will not servicing any of the estimated 30,000 loans it has in its pipeline – and your loan may be one of them. This includes those loans that mortgage brokers used TBW as the originator for. Though it looks like Bank of America will be taking over servicing of these loans, borrowers could still be looking at possible delays.

What lead to this?

FHA Commissioner David Stevens explains,

“TBW failed to provide FHA with financial records that help us to protect the integrity of our insurance fund and our ability to continue a 75-year track record of promoting, preserving and protecting the American Dream. We were also troubled that the Company not only failed to disclose it was a target of a multi-state examination and a separate action by the Commonwealth of Kentucky, but then falsely certified that it had not been sanctioned by any state. FHA won’t tolerate irresponsible lending practices.”

Lesson #1: Don’t mess with the new FHA.

Lesson #2: Be wary of mortgage brokers – you don’t always know who they’re using to fund your loan and it could be a company such as TBW. Using a direct lender is typically safer, less expensive and comes with a higher level of service (click here for more on mortgage brokers vs direct lenders).

Sources: Media-Newswire, Reuters, Bloomberg

Great Loan Opportunity for First Time Buyers in Loudoun County

Beth Perry of Suntrust Mortgage has brought to our attention a great new loan for first time home buyers in Loudoun County.  Here is her description of the loan and its details:

Loudoun County has just released a New "First-Time Homebuyer" program to help increase Home Sales in the area as well as make housing affordable to buyers.  In partnership with Virginia Housing, the County is offering a 1% reduction to their current fixed rate. With this reduction it brings their current 30 year fixed rate as low as 5.375%. 

They offer 100% financing with No Mortgage Insurance or Second Trust  which adds to the homeowners monthly savings.  With the current market changes it allows 100% financing to buyers with a middle credit score of 660 and as low as 620 with 5% down and a maximum Loan Amount of $417,000.

It really opens up the door for first time buyers!  In the past First-Time Homebuyers were limited to Condo’s and lower-priced Townhomes. Now they can even consider a Single Family Home!  This is a limited time offer for these funds until the 30th of June.

For more information or to get in on this program, here is Beth’s contact information:

Office # 703-464-4346

Cell #703-408-7346

Elizabeth.Perry-hauser@suntrust.com

Or you can always respond here and we can answer any questions you might have.