Steps in the Mortgage Process

iStock_000003709509SmallThe process of getting a mortgage consists of several stages and typically takes anywhere from 20 – 40 days (or more) depending on how prepared you are, what mortgage program you have selected and if it’s a purchase, the closing date may dictate how long the process will take. The steps below may not take place in the exact order I have listed and some steps may happen simultaneously.

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Seattle Rising Home Prices is Good News for Refinancing

If you have been waiting for Congress to pass HARP 3.0 or have been previously turned down for a refinance because of lost equity in your home, you might consider trying to refinance again.

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Reader Question: Should I Wait to Refi?

One of my returning clients is considering a refinance, however, they’re not sure if they should wait or not.  Their Seattle area home is really close to that magically 80% loan to value – based on best estimates – which would allow them to avoid private mortgage insurance if their home’s value increases.

There are pros and cons to waiting to a refi, similar to those with having an extended closing when you’re buying a home.  Here are a few:

  • changes to home value. Your home’s value may increase as the Seattle markets seems to be doing well with purchase inventory… or a home in the neighborhood that’s a potentially a strong comparable for your appraisal might become a short sale or foreclosure, which may negatively impact your home’s appraised value.
  • changes to employment. If your or your spouse decides to change jobs and it’s not in the same line of work or the new job has a different pay structure, this may impact qualifying.
  • credit scores vary. Credit scores impact the pricing of your rate and underwriting decisions. Lately I’ve been encountering clients who have paid off credit cards and closed them which sounds great, however they now have “shallow credit” and lower credit scores. I’ve also seen late payments on a credit report caused by a parent co-signing for their child. Sometimes it may be worth deciding to delay a refi if you’re trying to improve your scores, or proceeding with the refi and rechecking scores prior to closing.
  • interest rates. Mortgage rates change daily. Sometimes rates change throughout the day. Although it’s anticipated that mortgage rates will remain low for the remainder of the year, members of the Fed have hinted that the Fed should consider no longer buying mortgage backed securities, which has kept rates at their manipulated lower levels. As the economy improves, mortgage rates tend to trend higher.
  • loan programs and guidelines may change. Currently, unless our elected officials take action, HARP 2.0 is set to expire at the end of this year. Banks and lenders currently adjust their underwriting guidelines (aka overlays). And we’re waiting for FHA to increase their mortgage insurance premiums which impacts FHA streamline and non-streamline refi’s. 

Refinancing now is gambling that your home will appraise high enough or you may be out the appraisal fee unless mortgage insurance or a piggy-back second mortgage makes sense to proceed with the refi.

Delaying the refinance adds other potential risk factors assuming you’re satisfied with the current low mortgage rates and you qualify.

I recommend reviewing possible refinance options that are available now and weigh out the pro’s and cons. Refinancing now, should you decide to, also means that you’re reducing your payment and higher interest sooner. 

If you are interested in a mortgage rate quote for your refinance or purchase of a home located anywhere in Washington, click here.  I’m happy to help you!

How loan to values impact pricing for refinances, including HARP 2.0

I thought it might be interesting to share a few examples of mortgage rates that are available for rate-term refinance, including HARP 2.0, illustrating different loan to values. The loan to value is based on dividing the new loan amount by the value of the home. 

Rates quoted below are as of 8:00 am on September 5, 2012 and may change at any time. All rates are based on a 30 year fixed with a loan amount of $400,000 and credit scores of 740 or higher on an owner occupied home in the greater Seattle area assuming no existing private mortgage insurance.  If you would like your personal rate quote for a home located anywhere in Washington state, where I am licensed, please click here.

I’m also quoting rates that are as close to “par pricing” as possible. This means with as little rebate credit or discount points possible. If you would like to have your rate lower, you can pay discount points to reduce the rate. If you would like to have your closing cost reduced, the rate can be increased to create rebate credit.

For loan to values 80% and lower, I’m not quoting the HARP 2.0 program even though it may be available and often has reduced cost since the appraisal may be waived. Closing cost quoted below up to 80% include an appraisal fee of $500 – should the borrower elect for a HARP 2.0 refinance, the closing cost quoted below would be reduced by $500. HARP 2.0 is available for homes that were securitized by Fannie Mae or Freddie Mac prior to June 1, 2009, click here more information about HARP 2.0 mortgages in Washington.

Quotes in this section are scenarios we are able to close as a correspondent lender (we process, underwrite, draw loan documents and fund the loan from our credit lines at our King County office):

Loan to value (LTV) 60% or lower:  3.500% (apr 3.557) with closing cost (not including prepaids and reserves) estimated at $2432.

LTV 60.01% to 75%: 3.500% (apr 3.566) with closing cost estimated at $3432.  NOTE: The difference in closing cost is caused by the difference in pricing the rate (slight rebate or a discount).

LTV 75.01% to 80%: 3.500% (apr 3.586) with closing cost estimated at $4432. 

LTV 80.01 to 95%: 3.625% (apr 3.710) with closing cost est. at $4356 or 3.750% (apr 3.809) with closing cost estimated at $1708.

LTV 95.01 to 105%: 4.125% (apr 4.206) with closing cost estimated at $3932. NOTE: at this loan to value, this bank is permitting “same servicer” HARP 2.0 refinances only. Options thin out the higher the loan to value.

The quotes below are scenarios we are able to close by brokering to a lender who underwrites and funds the loan. Brokering high loan to value HARP loans have proven to take a lot of time and patience to close…I won’t sugar coat it. Closing cost below are assuming the appraisal has been waived. 

LTV 95.01% to 97%: 4.000% (apr 4.049) with closing cost estimated at $1504.

LTV 97.01 to 125%:  4.125% (apr 4.174) with closing cost estimated at $2004.

LTV 125.01 and higher:  4.125% (apr 4.206) with closing cost estimated at $4004.

The rates quoted above are merely a sample to illustrate the differences various amounts of home equity has when pricing a mortgage rate.  

If you would like a mortgage rate quote for your personal scenario on a home located anywhere in Washington, please contact me.

FHA Streamlined Refinance: Credit vs Non-Credit Qualifying

With an FHA streamlined refi, most folks have the misconception due to the program name “streamlined” that the refinances are close very quickly and are a slam dunk with little to no paperwork. While they do close quicker than a typical refinance since more often than not, you’re not waiting on an appraisal, if you’re going for a lower cost or better rate, you’re probably opting for a “credit qualifying” FHA streamlined refi. What’s the difference?

FHA streamlined credit qualifying basically means that the borrower is providing income and asset documents, just like a regular refinance. By providing documentation that shows they actually qualify for the new mortgage, lenders provide preferred pricing. Since it is a “manual” underwrite (a real human is underwriting the loan and not a computer program) the debt to income ratio is limited to 45%.

FHA streamlined non-credit qualifying is when income documentation is not provided and not stated on the loan application. The borrower’s income is not a consideration. Because of the higher risk, the rate or pricing is often slightly higher.

Right now (July 25, 2012 at 11:00 am) I’m working on a quote for an FHA streamlined refinance for a home located in Seattle. The rates quoted below are based on mid credit scores of 680 –  720 with no appraisal and the base loan amount is $289,000.

FHA credit qualifying 30 year fixed: 3.375% (apr 4.548) priced with just over 1 point in rebate credit which will cover closing cost and some of the prepaids/reserves. Principal and interest payment is $1300.01.

FHA non-credit qualifying 30 year fixed: 3.750% (apr 4.934) priced just under 1 point (about 0.25% difference in fee) which covers closing cost and some of the prepaids/reserves. Principal and interest payment is $1361.82.

NOTE: for a current rate quote on a home located anywhere in Washington state, based on today’s pricing and your scenario, click here.

What type of supporting documentation is required?  This is in additional to a complete loan application and credit report.

Non-credit qualifying:

  • Copy of your existing mortgage Note
  • Copy of your mortgage statement (we need to document a “Net Tangible Benefit”)
  • Bank statement (all pages) if funds are due at closing. Large deposits may be required to be documented.
  • Drivers license
  • Social security card
  • Payoff obtained from escrow company documenting that the current month’s mortgage payment has been made

Credit qualifying: all the above, plus…

  • last two years W2s
  • last two years tax returns (if self employed)
  • most recent paystubs documenting 30 days of income
  • most recent bank statements (all pages) documenting at least funds for closing. Large deposits may be required to be documented.

Additional documentation may be required depending on your personal scenario.

Whether you opt for non-credit qualifying or credit qualifying is your choice and depends on your financial scenario. When rates and pricing are the same for both scenarios, most would opt for “non-credit” qualifying. Since recent changes with how HUD prices FHA mortgage insurance for some loans, there has been major changes with which banks are offering FHA streamlines and how they’re pricing them.

If I can help you refinance your FHA loan on your home located anywhere in Washington state, please contact me.

How an appraised value can impact the pricing of your refi

I’m working with a homeowner in the Wedgwood neighborhood of Seattle who’s interested in refinancing his existing 30 year fixed rate to a 20 year. Mortgage rates are so low that he’ll actually reduce his payment while not extending his mortgage term. The only real mystery is what the home may appraise for.

We have Zillow zestimates, taxed assessed value and we even have our own opinions on what our home should be worth. We don’t know the value the lender will use until the appraiser visits your home. (NOTE: some refinances, like an FHA streamline or HARP 2.0 may not require an appraisal).

The appraised value determines the loan to value (LTV) of the refinance. Loan to value is determined by dividing the loan amount by the appraised value.  The best pricing available is for LTVs 60% or lower.  If an appraisal comes in at a value that is lower or higher than estimated when the refinance was locked, the pricing may be adjusted if it falls into a different bracket. Conventional loans have what is called “LLPA”s (loan level price adjustment) which is essentially risked based pricing.

Here is an example of different price points based on a rate-term refinance for a 20 year fixed mortgage  with excellent credit.  Rates are as of 9:00 am, June 27, 2012 and may change anytime.

  • 3.500% (apr 3.636) with a loan amount of $213,700 and a loan to value of 60% or lower. This would require an appraised value of approx. $358k or higher. Principal and interest (P&I) payment is $1239.37 and net closing cost is $2652.86.
  • 3.500% (apr 3.647) with a loan amount of $213,700 and a loan to value of 60.01 – 75%. The appraisal came in at less than $358,000 to as low as $285,000. P&I is $1239.37. Net closing cost is $3187.11.
  • 3.500% (apr 3.676) with a loan amount of $214,700 and a loan to value of 75.01 – 80%. The appraised value came in below $285,000 to as low as $269,000. P&I is $1245.17. Net closing cost is $3724.89.

A loan to value over 80% may require private mortgage insurance or a second mortgage. For this Seattle home owner, I’d be quite surprised if his LTV came in below 80%.

If an appraisal comes in lower than expected and you want to keep your same pricing, you can always opt to bring cash in to closing in order to maintain your same loan to value.

If you’re interested in refinancing or buying a home located anywhere in Washington state, I’m happy to help you.

FHA Streamlined Refi Revamped and Revisited

There is a lot of interest in the FHA streamlined refinance since HUD has greatly reduced the mortgage insurance premiums for some home owners who originated their existing FHA mortgage May 2009 and earlier. FHA streamlined refinances are designed to reduce mortgage payments and borrowers are not allowed to take “cash out” or pay off existing helocs or second mortgages. In order to qualify for an FHA streamlined refiance, the borrower must have made at least six payments on the FHA loan and needs to be current with the mortgage.  Here are a few tips on FHA streamlined refinances I thought I’d share with you.

No appraisal required. If you opt to not have an appraisal, then your new loan amount may not exceed your current loan amount. This means that your closing cost and prepaids/reserves cannot be financed (upfront mortgage insurance is still allowed to be rolled into the loan). Closing cost and prepaids/reserves may be paid for with interest rate rebate credit or cash at closing.  If you opt to have an appraisal, then your loan amount may be increased.

Credit qualifying vs non credit qualifying.  FHA streamline refi’s may not require verification of your income or assets (non-credit qualifying). Did you know that you may qualify for improved pricing if you opt for a credit qualifying FHA streamlined refi? Pricing varies throughout the day and when I’m locking an FHA streamlined refi for a Washington area homeowner, if pricing is the same, I’ll opt for non-credit qualifying. However if pricing is improved for a credit qualifying streamlined refinance, I’ll advise my client of the pricing differences and let them decide which route they prefer.

Underwriting overlays. Although HUDs guidelines might state something different, the banks and lenders we work with allow us to help home owners who have a low-mid credit score of 640 or higher. If your credit score is below 640, you may want to consider working directly with your bank.

Net tangible benefit. HUD requires that the loan “makes sense” and that is defined as a reduction in your mortgage payment (principal, interest and mortgage insurance) of at least 5%. It may also mean refinancing your FHA ARM into an FHA fixed rate product. Unfortunately, if you’re refinancing an FHA 30 year to a FHA 15 year fixed rate product, and your payment does not go down by 5%, you will not meet the current “net tangible benefit” requirement – even if you’re doing a “credit qualifying” FHA streamlined refinance and fully disclosing your income. This is something HUD needs to correct, in my opinion.

Reduced mortgage insurance premiums. HUD has announced reduced mortgage insurance premiums (both annual and upfront) for FHA loans that were endorsed (insured) by HUD prior to June 1, 2009.  FHA loans are endorsed by HUD after closing – sometimes several weeks after closing so it’s possible your FHA mortgage closed in May of 2009 and not endorsed until after the cut-off date.

Credit of your existing upfront mortgage insurance premium (UFMIP). If your existing FHA insured mortgage was originated over the past three years, it may not quaify for qualify for the reduced mortgage insurance, however, you probably will receive a refund of a portion of the original UFMIP. The refund is credited towards the closing cost of your new FHA loan and ranges from 80% to 10% of the original UFMIP by the 36th month.

FHA streamlined refinances are available for non-owner occupied homes too! If you have a home that has been converted to a rental property and the underlying mortgage is FHA, it’s eligible for an FHA streamlined refinance as long as the owner occupied it for a least 12 months.  With a non-onwer occupied FHA streamlined refinance, it must be done without an appriasal so no closing cost may be financed (except the upfront MIP).

If you are interested in refinancing your existing FHA insured mortgage on a home located anywhere in Washington, I’m happy to help you. I’ve been originating FHA home loans at Mortgage Master Service Corporation since April 2000, where we have in house FHA underwriters at our main office in King County.  Click here for your FHA rate quote.

HARP 2.0 Questions to ask your Mortgage Originator

HARP 2.0 (Home Affordable Refi Program) was revamped late last year to remove loan to value restrictions allowing more underwater home owners to refinance. So you may be wondering, why should you need to ask your mortgage originator if they have any loan to value restrictions with the HARP 2 program. In two words: UNDERWRITING OVERLAYS.

HARP 2.0 overlays are underwriting guidelines that are in addition to Fannie Mae or Freddie Mac’s program guidelines. Underwriting overlays are mandated by the bank and/or lender.  For example, as a correspondent lender, I work with several big banks, wholesale lenders and I can broker loans too. Currently most of the banks I work with have underwriting overlays that limit my maximum loan to value with HARP loans anywhere from 95 to 105% depending on the bank and scenario. Thankfully I also work with lenders who offer unlimited loan to values with no underwriting overlays for HARP 2.0, as the program was intended to be. 

Before you submit a loan application for HARP 2.0, ask the mortgage originator what is the max loan to value they can lend on.  If they are limited to 105% and your loan to value exceeds 105%, find another mortgage originator. HARP guidelines have an 105% ltv limit on adjustable rate mortgages and loans with a term greater than 30 years.

If you have PMI or LPMI, ask your mortgage originator if they are accepting transferred pmi BEFORE you start your application. Many lenders are not accepting HARP loans with existing pmi or lpmi (lender paid mortgage insurance). If you’ve been told this by your bank, seek another lender.

There are some scenarios where because of certain “credit enhancements” a loan may not be available for a HARP 2.0 – it’s more the exception than the norm.  And I’m hoping when (if) HARP 3.0 becomes available, those loans are allowed to take advantage of this program.

If your LO has told you that an appraisal is required, get a second opinion. Appraisal waivers are not automatically provided on all HARP 2.0 loans. It is not determined until your loan is ran through Fannie Mae or Freddie Mac’s automated underwriting systems (DU or LP) whether or not an appraisal is required. Sometimes the smallest detail may impact whether or not an appraisal waiver is granted, such as how your address is entered into the AUS. You many not need to spend money on the appraisal and it’s possible that you may receive an appraisal waiver at a later date as the valuations that Fannie and Freddie use change.

Because of the increased refi volumes created by expanded guidelines with HARP 2.0 and the reduced mortgage insurance now available for some FHA streamlined refi’s, banks and lenders are “cherry picking” what refinances they want. One way of doing this is by creating underwriting overlays. Due to these increased volumes, large banks and credit unions have hired on loan originators (or “mortgage tellers”) who may lack experience in the mortgage industry. (Remember, LO’s who work for banks or credit unions are not required to be licensed per the SAFE Act). They’re simply hired to fill out an application and are not savvy to actual guidelines.

I’ve been helping home owners who have been told by a mortgage originator that because they have pmi or their loan to value is 108%, that they don’t qualify for HARP 2.0 when actually, they do.  I’m not sure if LO’s don’t read Fannie/Freddie guidelines or if because they cannot offer it, they prefer to portray certain features are not available when what they should do is convey that they do not have access to those features (such as ltv’s over 105%), however another lender may.

If you’re considering refinancing or buying a home located anywhere in Washington, I’m happy to help you.  Click here if you would like me to provide you with a mortgage rate quote.

EDITORS NOTE: Since this was published, most of the banks we work with as a correspondent have pulled back their LTV guidelines to 105%. Wholesale lenders where we can broker have also made changes to guidelines or policies or have stopped accepting applications due to extreme volumes. Hopefully Congress will pass HARP 3.0 to help the Home Affordable Refi become more available.