Your mortgage payment may be going up

July 31, 2007 by Leave a Comment

Last week we received a postcard from our friendly tax assessor informing us that our assessed value increased 14% over last year.   When I owned my first home, this news would probably excite me.   What it really means is that our mortgage payment is going to increase.

Your note rate determines the principle and interest portion of your mortgage.  However, property taxes and home owners insurance can and do change…count on it.   Your mortgage company received the same notice about your property taxes, too (this is one reason why you pay the "Tax Service Fee" when you obtain a mortgage).   

Our new assessment is effective for our 2008 real estate taxes.   Once this rolls into place in the beginning of the new year, our mortgage company will contact us and may offer the following options, after reviewing our escrow account:

  1. Increasing our mortgage payment to cover the difference in the account.
  2. Allow us to pay the difference in a lump sum.

We will most likely opt to have our payment increased.   

Please do be aware when you’re buying a home, that even if you have a fixed rate mortgage, the taxes and insurance are not "fixed".   If you currently own a home in the Pacific Northwest where our values are still strong, be prepared to have your mortgage payment increase in 2008.   

And for those of you who are squeaking by making your mortgage payment, this is even more reason to put away your credit cards and to have your credit reviewed by a Mortgage Professional in the event you need to restructure your current financial position (do this at least 6 months before you need to refinance so you have a chance to make any corrections or improvements to your credit).   Don’t wait.

Filed Under: Credit Scores and Reporting, Financial Planning, Mortgage, Seattle

Refinancing with FHA…now that’s Paris Hilton HOT!

July 23, 2007 by 2 Comments

Parishiltonthatshot What?  You’ve never thought of FHA mortgages as “hot”?  Read about this scenario of a client I recently helped and you just might be cooing “that’s hot”, too! [Read more…]

Filed Under: Debt Restructuring, FHA, Mortgage, Refinance

Are You Preapproved for an Interest Only Mortgage?

July 20, 2007 by Leave a Comment

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You better double check with your Mortgage Professional.  As of Sunday, July 22, 2007 underwriting guidelines are tightening up for interest only conventional (loan amounts $417,000 and lower) mortgages.

  • Fixed Rate Mortgages (ex. 30 year fixed with 10 year interest only payments) will be based on the full PITI payment using the Note Rate.  (If there is a temporary buy down, the qualifying is still based on the Note Rate).
  • Interest Only ARMs:  Qualifying is based on the full principal and interest payment (PITI) at the fully indexed rate (index + margin).
  • Negative Am. (deferred interest) ARMs:  Qualifying will be based on the full PITI at the fully indexed rate amortized over the full repayment term using the loan amount based on the amortization cap.   (I am not a fan of Option ARMs and I have never provided one to any of my clients.  For some people, they have probably been very successful tools…most of my clients, once they understood how the mortgage works, would opt for an interest only ARM instead of this mortgage).

So what does this mean?

Previous Guidelines:  If a buyer was preapproved using a 5/1 Interest Only LIBOR ARM based on an interest rate of 6.125% (note: this is NOT a rate quote and is only for purpose of illustrating the guideline changes) earlier this week qualified for a payment in the amount of $2041 (plus taxes and insurance), they could borrow $400,000.

New Guidelines:  The current index for LIBOR is 5.4 plus the margin of 2.375% for this particle loan program = a fully indexed rate of 7.775% for the same ARM mentioned above.   Qualifying the borrower for a $2041 payment based on a 30 year amortization at 7.775% means the borrower now qualifies for a loan amount of $284,200.

This will obviously have a dramatic impact on purchases and refinancing out of interest only products.   This is still very new and we’ll see if non-conforming products follow suit.

Here’s what you need to do:

  1. Agents:  Contact your Mortgage Professional today to see if you have clients who are preapproved for conventional financing with any interest only payments.   Confirm your buyer is still qualified.  (Your LO may need to check Fannie Mae guidelines).
  2. Buyers/Borrowers:  If you’re using interest only products with loan amounts of $417,000 or less, contact your Mortgage Professional to verify you are still approved.
  3. Buyers:  Now more than ever, it’s crucial that you meet with a Mortgage Professional prior to buying a home to become preapproved.   With mortgage programs and underwriting “tightening”, there will be less options compared to just a few months ago.
  4. Buyers/Borrowers:  Having solid credit is also more important.   You should review your credit a couple times a year.  If your scores are below 680, work on improving your credit.
  5. Borrowers who currently have ARMs:  Do not wait until just before your ARM is about to adjust if you are considering retaining your home.   Contact your Mortgage Professional six months in advance to review your credit in case you need to make adjustments and/or repairs.

This is not the time to be hiding or not dealing with your mortgage…guidelines are changing quickly and you need to be proactive and responsible with your largest investment.   If you need help, find a qualified Mortgage Professional such as a Certified Mortgage Planning Specialist, who has been acquired additional training and education or get a referral from someone you trust and respect.

Filed Under: Adjustable Rate Mortgage (ARM), Interest Rates, Mortgage, Refinance, Residential Purchase

Ben Bernanke Bits

July 20, 2007 by Leave a Comment

Benb

I have been glued to the television watching two days of testimony from Fed Chairman Ben Bernanke to the House and Senate.   Maybe I’m a mortgage nerd, I find this amazing.   

I’m convinced a majority of our elected officials are there just to grandstand and don’t have a clue about their personal mortgages!   Many of our representatives are treating Mr. Bernanke as if he personally doled out inappropriate subprime mortgages in an abusive fashion.    Other random tid-bits that I found interesting from the Q&A sessions are:

  • Bernanke mentions the "wealth effect" that home ownership provides Americans. 
  • The lower third of Americans have less than $500 in savings.   It is crucial to have at least 3 months of gross income in savings in the event of an illness, unemployment, etc.   
  • Bernanke stated that home owners with ARMs (adjustable rate mortgages) should call their lenders well in advance prior to their rate/payment adjusting.   I recommend calling at least six months prior to a scheduled rate increase to have your credit reviewed in the event corrections or repairs need to make sure you’re in the best position to refinance.
  • Suitability was defined by Bernanke as being more about affordability and the ability to repay a mortgage and less about selecting the right program out of the dozens or so available for a borrower.
  • Many borrowers took out mortgages without understanding the terms. 

I watched as much of the two day testimony as possible…ah, I’m glad I’m not Ben!

To read his prepared testiomony, click here.

Filed Under: Mortgage

Rescuing Homebuyers from Lending Tree

July 16, 2007 by 4 Comments

Wonderwoman

I have a couple of clients who did not feel like “winners” having banks compete for them via Lending Tree.  Recently, I helped a family by closing their purchase in 5 days…the lender they obtained from Lending Tree did not perform after having their loan for over 30 days.   Here are a few nice words from my new clients:

[Read more…]

Filed Under: Interest Rates, Mortgage, Residential Purchase, Testimonials Tagged With: ,

How Returning an Overdue Library Book Declined a Mortgage Loan

July 10, 2007 by 5 Comments

Librarian

Okay…it’s not just the overdue library book…we have a few other factors involved with this scenario.   In February I began working with buyer who was contemplating buying his first home, a condo to be exact.   We were able to offer a preapproval based on:

  • mid-credit score of 705
  • 100% LTV Fannie Mae My Community with LPMI (Lender Paid Mortgage Insurance)
  • 5 year fixed 10 year interest only payments (he qualified for fully amortized but opted to have flexibility with his payments)

The buyer, we’ll call him “Joe”, makes an offer on a condo that is in the process of going through a conversion.   The builder also has a “preferred lender” and will only provide a seller credit to the buyer if the buyer uses their lender.   Joe elects to stay with me because the builder’s lender cannot offer the same product and payment options, even though the seller credit was significant. 

Here’s all the scoop:

Joe had an old collection on his credit report from a library book that was overdue.  We had loan approval so I advised Joe to not pay it off until after closing.   Paying off collections lowers your credit score: the credit scoring system recognizes it as new activity on a collection.    Joe finds the book a few months into the transaction and returns it to the public library and paid his overdue collection.   It’s a noble action and would have been perfectly fine…had he done it after closing.

Joe also wanted to make sure he was getting the best deal and decided to continue shopping lenders even though we were locked and approved with his mortgage.  Shop, shop, shop…he did…and the lenders ran his credit report over and over again.   30 inquires over a couple of months HURTS your credit scores.

The condo conversion took months to complete (it was suppose to be done in early May and it won’t be finished until later this month)…so Joe’s credit report expired.   Typically, credit reports are valid for 120 days.   This is when we made the discovery that Joe’s credit score had dropped 40 points.   Forty points may not sound like a lot to you, however…zero down financing is very sensative to credit scores.  There is a tremendous difference between 660 and 700 with regards to your credit score…especially when you’re looking at 100% financing (zero down).   

Joe is a great candidate for FHA financing, however the condo (being a conversion) is not.   Zero down financing with a 660 mid score is not a pretty option.

Lessons (if you’re getting ready to buy or refinance a home…if you’re not, a different strategy may better suit you):

  1. Don’t pay off collections prior to closing UNLESS it is required by the underwriter.   (Pay them off after closing and be sure to get a documentation that they are paid).
  2. To have the best credit score, try to have 3 established accounts that you use at least every 30 days.  This could just be charging a tank of gas and then paying it off every month.   When revolving accounts go “unactive” for a couple months, they are considered “closed” by the scoring system which does not help your score. 
  3. Keep your credit balances below 30% of the available credit line.
  4. If you’re going to shop your Mortgage Professional, don’t let other LOs pull your credit.   You all ready have your scores and that is all the information a LO needs for a rate quote.
  5. Your documentation (such as credit reports, paystubs, etc.) are only valid for a certain time period.   With longer transactions,  be aware that your credit report may be re-pulled and/or employment may be re-verified.
  6. Return your library books before they become overdue.
Filed Under: Credit Scores and Reporting, First Time Home Buyer, Mortgage, Residential Purchase Tagged With: ,

My Community is now more expensive

June 28, 2007 by 2 Comments

Earlier this month, Fannie Mae changed the pricing on their My Community program across the board to all lenders by 1% increase to fee.    If you’re using a My Community program and you’re transaction is not yet closed, you may want to check with your Loan Originator to make sure your lock is still valid.

[Read more…]

Filed Under: Adjustable Rate Mortgage (ARM), Mortgage, Residential Purchase

Buying a home contingent

June 11, 2007 by 2 Comments

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I’m noticing more contingent offers lately.  This is when someone makes an offer to purchase their next home and the offer is contingent on the successful closing of their current residence.   Contingent transactions may occur for several reasons:

  • The net proceeds (equity) of the former house may be needed for the down payment on the new home.
  • The buyer may not qualify (or want) to risk having two mortgage payments while waiting for the former house to sell and close.
  • The equity in the former house may not be enough to facilitate a bridge loan.

In fact, I just had an excellent question from one of my clients that is worthy of sharing with you:

“Since our purchase is contingent on sale of existing property, when does the loan actually close and what are our liabilities in the event our home fails to sell?  The only other time I bought a house there wasn’t the issue of selling one so it never came up for me.”

With this scenario, without a bridge loan to tap into the equity of the former home, the loan on the new home will not be able to close until the old home is closed. This is because the proceeds of the old home are needed for the down payment on the new home.   This typically takes place the same day, however, I recommend having the closing take place the day after the day after the old home closes, if possible, to allow for transfer of funds.   This is referred to as a simultaneous closing.   

A bridge loan allows you to close on your new home quicker, without waiting for the old property to sell and close.   Knowing your closing date, also enables you to secure your interest rate by being able to lock your loan.   A home equity loan on the current residence is also a possibility.   However, the advantage with the bridge loan is that there are no monthly payments due (interest is deferred until the home is sold).

Check with your Real Estate Agent to see what your liabilities may be if your home does not sell.   There should be an addendum to the purchase and sale agreement addressing what happens if your home does not sell.    The purchase and sale agreement may also address when the closing date will be on your new home (for example, “x” days after the closing of your old home) and what happens if someone else makes an offer on the home you’re buying “non-contingent” (without having to sell their home to close on the new home)…also referred to as being “bumped”.

People buy homes contingent all the time.   It’s important to have an understanding of the process, what your options are and to have a game plan in the event of a “bump” so you can be ready with your ducks in a row!

UPDATE 2012: We currently do not have bridge loans available as of 4/20/2012.  

If you would like me to review your current scenario to help you be preapproved for your home purchase anywhere in Washington state, please contact me.

Filed Under: Mortgage, Residential Purchase Tagged With: ,
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