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.

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

Beazer Homes to Pay $50M to Victimized Home Buyers

I’ve warned homebuyers before, “Don’t get taken to to the cleaners by home builders and their lenders”. And here’s why: In order to avoid prosecution on criminal fraud conspiracy charges, Beazer Homes agrees to pay $50 million in restitution to homebuyers who were allegedly victimized by the builder’s mortgage company.

Beazer and its subsidiary, Beazer Mortgage Corp., admitted to engaging in several fraudulent mortgage origination practices, prosecutors said, including keeping discount points that should have been used to provide some homebuyers with a reduced interest rate.

Other homebuyers were told they were receiving a “gift” from a charity to cover their down payment when, in fact, the purchase price of the home they purchased was increased to offset the supposed “gift.”

Beazer also accepted responsibility for fraudulently circumventing HUD’s “Neighborhood Watch” and “Credit Watch” programs, and of instituting a strategy of “willful blindness” with regard to some stated-income loans, prosecutors said.

Beazer Homes said Wednesday that it also reached a settlement agreement with the Department of Housing and Urban Development and the civil division of the Department of Justice. The company also said several of its subsidiaries have entered into a settlement agreement with the North Carolina Real Estate Commission.

Despite the $50 million agreement, neither Beazer nor homebuyers may be out of the woods. Prosecutors are also accusing Beazer Homes of mortgage and accounting fraud. And sources say that Beazer may declare bankruptcy, which would put homebuyers at the bottom of the list for getting money once the builder’s assets are liquidated.

And if you think that Beazer was the only one doing this and you’re in the clear because you bought from different home builder, you may be in for a rude awakening. There have been several state and federal lawsuits over the past few years involving many other home builders, small and large and I’m willing to bet more will follow.

The more of the story?

If you don’t know exactly what you’re doing nor what pitfalls and shady practices to look out for, you can, and as in this case, will get taken to the cleaners. Hire a Buyer’s Agent who is familiar with new home builders (aka has done numerous new home builder transactions) and take them with you whenever you visit a new home builder’s sales center.

A Buyer’s Agent who knows the ins and outs of new home builders will help you avoid getting ripped off and keep you out of trouble. They will be able to tell you if the builder is telling the truth or feeding you lies or if their “special deal” is really a deal or just fluff (as was the case with Beazer). Your Buyer’s Agent will also be able to guide you through the builders gazillion page contract and addenda, mortgage/financing process, builder’s Design Center process, pre-drywall inspection, final inspection, settlement, etc.

What will your Buyer’s Agent cost you? Not a penny more than what you would pay if you did not have an agent - the builder has already built the commission into the sales price. And no - the builder will not refund or credit you that amount of commission if you don’t have an agent.

Additional sources: Inman News

Say “Goodbye” to sub-5 percent Mortgage Rates?

Mortgage rates are ridiculously low right now. Words such as “historically” and “unbelievably” are being put in front of “low rate of…” by lenders, the media and consumers alike. But that may changing. And quickly.

Mortgage rates have already gone up well over half of a point in the past few weeks and are over 5 percent. Heck, mortgage ratest recently went up half a percent in just one day! The increase in mortgage rates could be a sign of things to come.

Why? Because mortgage rates are artificially deflated. That’s right, I said it - artificially deflated.

The government has been pumping money into the markets to artificially keep rates down in order to stimulate the housing market and keep the entire US economy from collapsing. Aside from this infusion of borrowed money, there is very little, if anything, that justifies rates being this low.

Here are 3 major issues with what’s going on right now…

1. The government is running out of money to pump into the market. Once there’s no more to dump into the market, you’ll see rates increase almost immediately (funny how the government is starting to run low on cash and rates are already on the rise)
2. The more the US goes into debt by pumping borrowed money into the market and buying up mortgage backed securities (MBS), the more interest rates will go up in the future (for a variety of economic reasons). This problem will be even greater if the government now borrows even more money to keep mortgage rates down even longer (which they’ve already done a few times)
3. The government can only buy so many MBS and once they can’t buy any more, the MBS have to be sold on the traditional secondary market and investors. Investors are becoming less and less eager to buy MBS at such low rates and will stop buying them up until they come with a higher rate of return (aka higher mortgage rate)

Many (including the government) have previously said that rates would stay low for the remainder of 2009. But even some of those folks are starting to question that theory and are now saying that rates will start to rise well before the end of 2009 - as they’re already doing (see the following chart courtesy of BankRate.com).

Nobody has a crystal ball and can say what will happen with certainty. But many signs point to a low chance of rates going down from here or staying put and a much greater chance of them going up. We could very well be in the perfect storm and see 6 or even 7+ percent mortgage rates by the end of the year.

Related Articles

Rates Rocket Up Quickly - BankRate

Mortgage Rates Rising - CNN Money

Mortgage-Backed Securities, the Fed, Ben Bernanke and more - Mortgage News Daily

Mortgage 101 - Resources and Information

Buying a home and obtaining a mortgage can be stressful, particularly for first time home buyers. You probably have tons of questions especially when it comes to mortgages and lenders.

"What type of mortgage loan should I get?"

"What does PITI mean?"

"What's the difference between a conventional and an FHA mortgage loan?"

Well, here are links to some resources that will help answer your questions when it comes to mortgages:

http://www.bankrate.com/brm/green/mtg/basics-toc.asp

http://www.forbeginners.info/mortgage/mortgage-glossary.htm

http://realestate.yahoo.com/info/guides/mortgage-basics

http://www.nahb.org/generic.aspx?genericContentID=303

https://www.wellsfargo.com/mortgage/buy/learn/basics

http://www.mortgageguide101.com/

Mortgage Rate Round-Up - August 9, 2008

This week saw mortgage rates mixed. Here are the national figures:

• Conventional 30-year fixed-rate mortgage rates rose slightly to a national average of 6.74 percent
• Jumbo 30-year fixed-rate mortgage rates rose to a national average of 7.68 percent
• 15-year fixed-rate mortgage rose slightly to 6.27 percent
• 5/1 ARMs fell slightly to 6.32 percent
• 1-year ARMs fell slightly to 6.24 percent

Though rates didn’t move much at all, there’s some not-so-good news for borrowers. Fannie Mae announced this week that it will be doubling their "adverse market delivery charge" fee which will be passed on to borrowers.

Source: Bankrate.com

Weekly Mortgage Rate Update

This is the first in a weekly series of posts regarding mortgage rates. The posts are aimed at keeping you in tune with what’s going on with mortgage rates currently and why.

The weekly mortgage rate update will be published every Saturday beginning this Saturday. The source of the information will be Darran Anthony of Suntrust Mortgage in Leesburg, Virginia, as well as other local and national loan officers and sources.

So here’s today’s mortgage rate update:

• Mortgage rates are rising this week
• The national average on a 30 year fixed is up from 6.125% to 6.375%

Here are some of the reasons why rates have are rising:

• A weak employment report last Friday
• Federal Reserve worried about inflation
• Soft demand for mortgage back securities

In a nutshell, rates are climbing due to weak economic figures, supply and demand and fear. But a mortgage rate of 6.375 percent is still great when compared to rates over the past 30 years. Buyers are still sitting pretty when it comes to mortgage rates.

Mortgage 101 - Closing Costs and Good Faith Estimates

Home buyers who obtain a mortgage have to pay "closing costs". Closing costs is the general term used to describe the various fees and expenses paid in order to obtain a mortgage. As a general rule of thumb, closing costs are between 2 and 3 percent of the gross purchase price. In order to see a break down of closing costs, you need to get a "Good Faith Estimate" (GFE) from the lender(s) you’re working with or comparison shopping. A GFE shows all the closing costs line by line. It also shows you your estimated total monthly payment.

Here’s a sample Good Faith Estimate (click on picture to enlarge):

   

Note: If a lender drags their feet or gives you a hard time about providing you with a GFE, do not work with that lender.

Once you get the GFE, ask your lender to go over it with you in detail. You may also want to go over the GFE with your real estate agent to make sure you didn’t miss something and that the lender didn’t hide any fees.

In order to better understand the Good Faith Estimate prior to going over it with your lender/agent, here’s a list of some common items and their fees and what line they can be found on.

Items that must be paid in order to close the loan. Neither the lender nor broker have control over these charges:

• Title Settlement Fee - line 1101
• Title Insurance - line 1108
• State Recording Tax/Stamps - line 1203
• Property Tax Escrows - line 1004
• Hazard Insurance (Home Owner’s Insurance) Escrows - line 1001

Items that can change, but are associated with all lenders:

• Pre-paid Interest - line 901
• Underwriting Fee - line 811
• Processing Fee - line 810
• Flood Certification Fee - line 815

Items that are specific to the broker/lender:

• Origination Fee - line 801
• Discount Fee - line 802
• Broker Processing Fee - line 813
• Broker Administrative Fee - line 814

The last set of fees (specific to the broker/lender) are directly controlled by the broker/lender and can be negotiated. But understand that if these fees are reduced or waived, the interest rate usually goes up since the broker/lender has to make a profit somewhere. And remember…you get what you pay for.

When looking at GFE’s, don’t simply look at the bottom line. You must compare lender fees to lender fees as these are the only ones that the lender controls. Make sure there aren’t fees hidden among the title or state tax fees, a tactic used by some shady lenders out there.

Lenders are also responsible for quoting other fees involved with a mortgage loan. Since many of these are third party fees (title search, survey, etc), they are often under-quoted up front by a lender in order to make their bottom line appear lower. 

Important note: Lender’s Good Faith Estimates are not held to much of a standard by law. The total amount of closing costs listed on your GFE can vary greatly from what your actual closing costs are on settlement day. Unfortunately, you will probably not be able to back out of the purchase due to a change in closing costs and/or your interest rate (check with your agent/broker/lawyer for further guidance). That is why using a reputable lender with a proven track record and high customer satisfaction is so important.

For more about Good Faith Estimates and why you should be careful, read Lenders versus Mechanics.

Special thanks to Christopher Koegler of America Funding in Mclean, Virginia.

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