Second Mortgages and Home Equity Lines of Credit

Mortgage Master Service Corporation has second mortgages (home equity lines of credit aka HELOC) available for homes located anywhere in Washington state. The second mortgage/HELOC is limited to owner occupied/primary residences and second homes. They are not currently available for investment property.

HELOC’s allow you to have access to your home equity without refinancing your first mortgage. The rates are based on the prime rate and will vary whenever prime rate is adjusted. The “prime rate” follows the Fed Funds, so whenever you hear that the Fed has moved the Fed Funds rate, home equity lines of credit have adjusted higher or lower (or stayed the same when there is no change to rate). In our current economy, I would plan on prime increasing since the Fed has held the Funds rate at extremely low levels for so long. So if the idea of your rate adjusting higher makes you squeamish, this product may not be the right for you.

With our current increased home values, if you’ve been considering remodeling your home, consolidating debt or wish to extract equity for any reason, you may want to consider a home equity line of credit.

Home equity loans may also serve as a strategic tool when you’re buying a home if you’re trying to avoid private mortgage insurance or want to keep your first mortgage loan amount at a conforming loan amount. When a second mortgage follows a first mortgage, it’s often referred to a “piggy-back” second mortgage. In order for Mortgage Master Service Corporation to provide a second mortgage/HELOC on a purchase scenario, we must be originating the first mortgage as well.

The HELOC has an interest only period for the first 10 years and then converts to a 20 year amortization after the first 10 years. This is a payment jump so a good plan is to have enough funds to pay off the HELOC in 10 years (or refinance or sell in 10 years).

If your home is located anywhere in Washington state, where I’m licensed, I’m happy to help you and review your mortgage options.

 

Are you remodeling your greater Seattle or Tacoma area home?

We’re getting ready to remodel our kitchen and recently discovered Second Use. Second Use is locations in Seattle Tacoma. They sell second-hand items for your home from furniture to all types of fixtures. [Read more…]

80 – 10 – 10’s now are back… at Mortgage Master Service Corporation!

It’s back… the 80/10/10 mortgage program which allows home buyers to put just 10% down and avoid having private mortgage insurance via a second mortgage/home equity line of creedit.  The second mortgage/home equity line of credit technically does not have to be at 10% with the first mortgage at 80% of the loan to value (sales price). Often times, the mortgages may be structured around conforming loan limits, as long as the total combined loan to value is 90%.

[Read more…]

Refinancing when you have an existing Second Mortgage or HELOC

When you are refinancing your primary mortgage and you have an existing second mortgage or HELOC (home equity line of credit), the new lender will require to stay in “first lien position”. This boils down to who has first dibs on a property in the event of a foreclosure. Lien position is determined by the date the mortgage was recorded. When you refinance your first mortgage and you have an existing second mortgage, the new mortgage will have a recording date that is after the existing second mortgage. Technically, that would put the second mortgage or HELOC in “first lien” position, which would not be allowed with the new lender.  Click here for a no-hassle mortgage rate quote for your Washington state home. [Read more…]

The Difference One Dollar Makes: Conforming vs Jumbo Rates

This morning via Twitter, Talon Title asked me what the difference in rate is between a conforming and jumbo mortgage. Currently, as of October 1, 2011, the jumbo loan limit is set to be reduced unless Congress passes an extension.  In the Seattle area, the loan amount for jumbos will be anything over $506,000 (currently the loan limit is $567,500) for a single family dwelling. Ben Bernanke has stated that private banking will step in to finance these borrowers needing a mortgage over the conforming loan amounts…this is at a price.  He doesn't feel this will squeeze those borrowers out of the market.  I wonder if this will squeeze more buyers into adjustable rate mortgages.

Here's the difference in rates based on current pricing (as of 8:30 a.m. on July 14, 2011) with 740+ credit and an 80% loan to value.  We know the difference in the greater Seattle area between a jumbo and conforming rate will be $61,500 in down payment or equity.

Conforming loan amount of $417,000 or lower.

30 Year Fixed:  4.500% (apr 4.602).  

5/1 ARM: 3.000% (apr 3.292).  With 5/2/5 caps, this product is fixed at 3.000% for 60 months (P&I $1686) and then may adjust up 5% to 8.000% at the 61st payment (P&I $2744) or as low as 2.25% (P&I $1114). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8% or lower than 2.25%. Based on a $400,000 loan amount.

Conforming High Balance loan amount of $417,001 to $567,500 (for King County, Snohomish County or Pierce County).

30 Year Fixed:  4.625% (apr 4.602).  

5/1 ARM: 3.875% (apr 3.912).  With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2379) and then may adjust up 5% to 8.875% at the 61st payment (P&I $3786) or as low as 2.75% (P&I $2102). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%.  Based on a $506,000 loan amount.

5/1 ARM: 2.875% (apr 3.231).  With 5/2/5 caps, this product is fixed at 2.875% for 60 months (P&I $2099) and then may adjust up 5% to 7.875% (P&I $3420)at the 61st payment or as low as 2.25% (P&I $1953). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 7.875% or lower than 2.25%.  NOTE: 5% additional down payment (75% LTV) is required for this scenario. Based on a $506,000 loan amount.

Non-Conforming – Jumbo loan amounts $567,501 and higher (until October 1, 2011).

30 Year Fixed:  5.250% (apr 5.371).  

5/1 ARM: 3.875% (apr 3.904).  With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2669) and then may adjust up 5% to 8.875% at the 61st payment (P&I $4246) or as low as 2.75% (P&I $2358). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%.  Based on a $567,501 loan amount.

Let's pretend that it's October 1, 2011 and that the changes to conforming loan limits are in place and somehow, mortgage rates are exactly the same as what I've quoted above.

The difference between the conforming high balance and jumbo rates are currently 0.625% in interest rate with the 30 year fixed mortgage. A loan amount of $506,001 or more (proposed future jumbo) would have a $193 higher mortgage payment with the jumbo rate over the conforming high balance based on rates above.

Are people going to stop buying homes that are in the current conforming high balance price range?  I don't think so… I do think that when the conforming loan limits are reduced later this year, it will cause some to select mortgage programs they might not have considered such as adjustable rate mortgages or piggy-back second mortgages.  It seems to me that Congress should allow the temporary higher loan limits to stay in place until housing becomes more stable.  There was some discussion during testimony yesterday by Congressman Miller in California, however as I mentioned, Ben Bernanke doesn't seem to think that the reduction in loan limits will impact housing significantly.  We'll know more in a few months…and don't forget, Fannie has issued "warnings" via their FAQs that we may see loan limits further reduced effective January 1, 2012.

Just for fun… since we're pretending to be in the future, here's a trip down 80s memory lane: 

Piggyback Combo Mortgages are Back

I’m pleased to announce that we now have second mortgages and home equity loans available in combination with a first mortgage at Mortgage Master Service Corporation. I see this being very useful with keeping loan amounts under conforming limits (especially once they’re scheduled to be reduced on October 1, 2011).  Here’s some quick points on this program:

  • maximum allowed total loan to value is 85% with a mid-credit score of 720 or higher for owner occupied.
  • maximum allowed total loan to value is 70% with a mid-credit score of 700 – 719 for owner occupied.
  • maximum allowed loan to value of 80% with a mid-credit score of 720 or higher for a second home.
  • available for purchases or refinances.
  • maximum allowed debt-to-income ratio of 45%.
  • available as a HELOC (home equity line of credit) or fixed rates.  

Should you consider using a first and second mortgage combo for your home financing? That’s up to you!  What’s important is knowing and understanding what options are available to you so you can make an informed decision.  If you are buying or refinancing a home located anywhere in Washington state, I’m happy to help you with your mortgage needs. 

New Conforming Loan Limit Won’t Help Refi’s w/2nds…FHA May Save the Day

Fannie Mae’s underwriting guidelines for the temporary conforming loan limits have been released and it looks like the new loan amounts are not going to be as helpful as many had hoped.   The new guidelines for loan amounts between $417,001 – $567,500 in King, Snohomish and Pierce Counties are far more strict.

The biggest whammy is that if you were hoping to combine your first and second mortgage (or heloc) into one new conforming-jumbo mortgage, you’re out of luck.  Fannie is not allowing any "cash out" refinances.  This means that even if you were just paying off the two mortgages and not receiving a nickle back at closing–it’s not going to fly. 

You must have a minimum of 660 credit scores for a fixed rate purchase for a LTV of 80% or less for a purchase using a fixed or adjustable rate.

Limited cash out refinances are allowed up to 75% loan to value with a minimum 660 credit score.  Limited cash-out means that you are allowed to roll in the closing costs to the refinance and receive no more than $2000 cash back at closing (no second mortgages/helocs can be included in the refinance).

Update:  it appears that Freddie Mac will allow cash out refinances up to a 75% loan to value with a 720 minimum credit score.

Adjustable rate mortgages are qualified at the fully amortized PITI at the higher of the note rate or fully indexed rate (worse case rate). 

Be prepared for a "full doc" mortgage.  There is no "stated income" allowed.   You will also need two months of reserves (PITI) and are limited to a 45% DTI (debt to income) ratio.

You can only have four financed properties, including your principal residence.

On Monday, I believe lenders will finally unveil pricing…which again is said to not be as exciting as consumers had hoped.  I’m hearing that the rates will fall between current Jumbo and conforming.   

Rumor has it that the FHA-jumbo will be more friendly to "jumbo" homeowners…if they can get over paying the upfront MIP (1.5% of your loan amount) and monthly mortgage insurance (0.5% of your loan amount/12 months).   For example, on a $500,000 loan amount, the upfront MIP would be $7500 (typically financed into the loan) plus monthly mortgage insurance in the amount of $208.33…even if you have an 80% loan to value.  We’ll just have to wait and see a couple more days.

Remember, these loan limits only last through December 31, 2008.

More to follow. 

Second Mortgage Subordinations May Cause Huge Delays with Refi’s

If you have a second mortgage (home equity line or fixed term), and you are not going to pay it off during a refinance; it needs to be “subordinated”.   This is because of lien position with your mortgages…who gets to be first.   Lien position is determined by when a document (such as a Deed of Trust) is recorded at the county.   If you have two mortgages and are only refinancing the first mortgage, the second mortgage will need to be “subordinated”.  The subordination agreement is a recorded document with the second mortgage lien holder and the borrower that the second mortgage will go back into second position after the new first mortgage is recorded.   If this document was not recorded, than the old second mortgage would be in “first lien position” and the new refinance would be in “second lien position”.  This boils down to which mortgage has more rights in the event of a foreclosure…everyone wants to be first as the further down the line you are, the higher the odds are that the lien may not be cashed out (again, in a worse case scenario). 

Prior to our current mortgage crisis, a subordination agreement typically was not an issue.  We send a request for subordination along with a copy of the appraisal from the refi.  The second mortgage lien holder would review the request, consider the amount of equity remaining in the property and 9 times out of 10, agree.  This process would take a couple days.

With more banks being concerned about depreciating or soft values, they are now taking much much longer to consider if they will all allow a subordination to take place. In fact, I recently closed a transaction where the bank took over 10 business days (this eats away at your lock) for a borrower with 800 credit scores and a loan to value of just over 50% to subordinate a HELOC that with a zero balance.    An Account Manager from a bank that does a large amount of second mortgage recently sent out this memo:

“UPDATE on SUBORDINATIONS:   Please get your files in early… the subordination dept is running approx 20 business days.  I do not have any contacts for rushes etc.  They are trying to work date sensitive deals, but they have not been able to get caught up…”

Folks…20 business days is a month! 

If you are refinancing and have a second mortgage or HELOC that will not be included in the refinance, make sure your loan originator is aware and that they know how long subordinations are taking so they can lock your rate in appropriately.   A 30 day lock with a 20 day subordination is not going to cut it.  You’ll be looking at having to deal with a lock extension.

If your loan to value is higher, there is a possibility that the subordination may be declined.  Discuss this with your loan originator upfront.  Lenders are looking at any way to protect themselves from additional risk during these historic times.  If your loan amount qualifies and you have enough equity, you just may have to include that second mortgage in your refinance.