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…]
Refinancing with FHA…now that’s Paris Hilton HOT!
July 23, 2007 by 2 Comments
Are You Preapproved for an Interest Only Mortgage?
July 20, 2007 by Leave a Comment
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:
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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).
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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.
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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.
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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.
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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.
Those Amazing Low Rate Offers to Refi Now in the Mail
June 9, 2007 by 1 Comment
Even at our home, we’re getting more and more amazing offers from lenders. Recently one of my clients asked,
"We keep getting info in the mail from some odd place that says that we have a mortgage through Mortgage Masters and that they can reduce our house payment to $900.00 per month. We shred them every time we get them but now I am curious if it is true? It does not have the Mortgage Master logo on it, it just says that they know we have a mortgage balance of $266,000."
It’s amazing how much personal information that you would assume is private, is actually public. Any lender or real estate agent can obtain a fine tuned list from a title insurance company or various other marketing companies for a fee. It’s my opinion that if a Loan Originator has to use "cold marketing" (letters, post cards and phone calls to people they don’t know) to drum up business, it’s because they lack referral and/or repeat business from their past clients. No one wants to work with them or their company again nor refer someone to them…therefore, they must buy leads and mail to strangers (you and me).
Many of these offers are suspect…if it seems too good to be true, it is. Bait and switch tactics of offering low rates like 1% or skipping several months of your mortgage payment are hung out in order to have you call "Slick" at the mortgage company. Often times, the ads will appear as if they are coming from the mortgage company you obtained your financing from (check the very small print at the bottom of the letter). The gimmick marketing may even appear to be from a government agency or as if it’s a "special limited time offer". Chances are, it’s a hoax.
As I mentioned at the beginning of this post, we are personally getting deluged with "amazing offers". I think it’s because we have an adjustable rate mortgage. And, the mortgage marketers know this…many of the pieces we receive state that and have emotional rich phrases such as "stabilize your monthly mortgage payment…it’s urgent to refinance now." Our ARM is fixed for seven years. We have five years left on it. It’s not urgent for us to give up equity for closing cost to have a 30 year fixed mortgage at this time.
Another beauty, which I am going to send in to DFI to see if any actions will take place…came in a gold envelope from the "Department of Public Records" appearing as though it’s a check for $660,000. When you open this piece (of crap…sorry, this bugs me) it claims that the "sponsored lender" is Mortgage Master Service Corporation. I can assure you, this is not true. It also offers us a 1% interest rate and that this loan will fund in 10 days. This piece is from a Consumer Loan Lender. They have different guidelines they abide by than Mortgage Bankers or Mortgage Brokers.
The bottom line is that there are a plethora of mortgage marketers out there who are trying to take advantage of home owners fears of rates adjusting or debts…you name it. Don’t fall for it. If you need help with your mortgage or have any questions, contact a qualified Mortgage Professional.
Hopefully you had a good experience with the person who helped you with your original financing…if not…contact someone you respect and trust for a referral to one. What ever you do, don’t fall for misleading junk you receive in the mail.
UPDATE: If you have misleading advertisements sent to your Washington State home, mail it to:
Enforcement Unit, Division of Consumer Services, DFI, PO Box 41200, Olympia, WA 98504
Debt and Your Mortgage
May 9, 2007 by Leave a Comment
This is the second part of my series on debt inspired by the blog Dollar Buy Dollar. Before I get too deep into my posts, I want to stress that if you have a mortgage and you are sliding further into debt, please contact your Mortgage Professional as soon as possible. Don’t wait. It may feel better to dig your way out without help, however, credit card lates and even worse, mortgage lates, will ding your credit score down to where either:
- Your rate for a possible refinance or equity loan is much higher as rates are credit score based.
- You no longer qualify for a mortgage at the loan to value you need for debt relief. (The amount of equity-loan to value-that is allowed to borrower is also credit score based).
I’m not a huge fan for using one’s equity as a cash card. However if your equity can bail you out of a desperate debt situation and if you are capable of changing your spending and savings habits so you don’t wind up having to tap your equity again, then it makes sense.
I cannot emphasize enough how important it is to take action right away. Especially in our current mortgage "subprime" climate where it is tougher to qualify for loans with lower credit scores. If your scores plumet too low and if you are not able to access your equity, you may be forced to sell your home. A mortgage late is more devistating to your scores than a credit card late and any recent lates will zap your score (mortgage lates carry more weight than a credit card late). Credit is reflective, so the more time since a late payment, the more your score will rebound.
Recently I helped a couple where the homeowner, who was self employed successfuly for over 20 years ran into hardships with his business. He wound up relying on credit cards to try to "bridge" his lack of income. In a short period of time, he was not able to pay his credit cards or keep up with his mortgage. He has a beautiful home valued around $700,000 and a mortgage balance of $250,000. He wound up with a 120 day late (3 months of not paying a mortgage–preforeclosure). His then Fiance helped to get him current on his mortgage, he was lucky! However the mortgage he had was ugly. The Fiance contacted me about refinancing their high rate subprime loan he was currently in. She had credit scores over 700 and his were around 400. In addition to the "preforeclosure" on his mortgage, his credit report was full of collections and late payments. Here’s what we had to do in order to help this couple in order for them to receive the best rate and program available:
- Wait until the 120 day late was 1 year old. (We were six months away and were waiting for the underlying mortgage’s prepayment penalty to expire).
- They married and she was added to the title. The lender wanted to wait until she was on the title for 6 months before they would close.
- He remained on the title (is still a vested homeowner) and is not on the new mortgage.
- His judgments had to be paid at closing. (This was a cash out refinance to pay off all remaining derogotory debts).
We did a no income verifed loan with just her on the mortgage. The new rate was just 0.25% over the available conforming rates with no prepay penalties. Bottom line, he was fortunate that when he disclosed his situation to his partner, she was willing to stick around and help bail him out. He’s also lucky that he owned a home and had enough equity that he could do the cash refinance or, if he had to, sell the home and have enough proceeds to pay off debt and have a savings left over.
If he didn’t have the mortgage lates, we could have refinanced his loan much sooner. It all worked out for the couple…now newlyweds! Restructuring the mortgage to eliminate the debts has made a dramatic difference in their lives. Your Mortgage Professional may or may not be able to help "bail you out". At the very least, a qualified Mortgage Professional can help you decide which debts to pay first. I’ll address that issue in my next post for this series.
Watch CNN’s video on Dollar Buy Dollar and couples who hide debt from each other.
Related Post: The Debt Disease…Dollar Buy Dollar; Borrower Beware
Mortgage Interest Rate Locks 101
May 8, 2007 by 22 Comments
EDITORS NOTE: With changes to the 2010 Good Faith Estimate, a lot of the information below is no longer relevant (relating to the GFE). However, the pricing is still a good example of how locks work.
I love it when I’m asked an excellent question from a potential client. This person 
is still shopping for his next home and who the lender will be to provide financing. At this point, I have provided several good faith estimates and a total costs analysis to compare possible scenarios side by side along with how the mortgages may be working for him in 5 and 10 years.
Here are a few of his questions:
What level of guarantee can you offer me with these rates you have provided on the Good Faith Estimates?
Until your loan is “locked” the interest rates on the Good Faith Estimate (GFE) is simply a reflection of what the rate is at the moment the Loan Originator prepared the GFE. In fact it’s possible that the rate may have changed just moments after the GFE was provided to the client. Mortgage interest rates can change throughout the day. The GFE is not a guarantee of the mortgage interest rate, costs or that one is qualified or approved for a loan program. (I have addressed guarantees towards the of this post).
Can I lock in my rates and closing costs before I find my new home?
Typically, the buyer has a signed around (agreed to) purchase and sale agreement. Most locks require a property address along with the borrowers full legal name, social security number, program type, purchase price/loan amount and credit scores along with the length of time required to close the transaction.
Some lenders, like Mortgage Master, have a “lock and look” feature which does allow buyers to lock their interest rate before finding their next home. Unless the market is experience ramped rate increases, I recommend not doing this. The locks are for longer terms (so they are more expensive) and should rates improve, odds are the buyer is not going to want the long term rate they’ve committed to with the lock.
How long is the lock period?
Locks have various time periods that are available to accommodate a borrowers needs. The most common for a purchase is a 30 or 45 day lock. Again, loans are locked in based on how many days are needed to accommodate the transaction closing date. The longer the lock period, the higher the costs is for a specific rate.
For example, here is what the difference in fee may look like based on various lock times assuming the 30 day lock is par or neutral (comparing the other locks to 30 days):
- 15 day lock = 0.125 better over the 30 day price
- 30 day lock = 0
- 45 day lock = 0.05 cost over the 30 day price
- 60 day lock = 0.150 cost over the 30 day price
- 70 day lock = 0.270 cost over the 30 day price
- 90 day lock = 0.400 cost over the 30 day price (may have to pay additional upfront lock fee for this long of term)
So if you have a loan amount of $400,000 and a closing date that was just shy of two months away, and you want to have the 30 day rate, the cost may be $600 (400k x 0.15). If you have a longer closing, a Mortgage Professional should advise you of your options of locking now or waiting until your close date is more near and what the risk are (rates changing). At 70 and 90 days, instead of paying an increased cost for the 30 day rate, you could also opt for a slightly higher rate (0.125%) and still have the 30 day pricing (it would be factored into the rate). Again, the above numbers are just an example of possible pricing. Rates and pricing do change constantly.
You can lock 90 days and beyond. However, the cost increased (as you can see from my figures above) and there is often an additional upfront lock fee that is non-refundable.
Click here for your rate quote for homes located in Washington.
It’s important that the loan is locked in for the right amount of time. If a loan does
not close before the lock expiration date, the lender is put in a position to where they may need to extend the lock. The price of a lock extension varies from lender to lender and, if the market has improved from when the loan was originally locked, there may not be a cost for a shorter extension. Some lenders charge 0.015 per day of the extension; so if 10 more days were required to close and fund the loan, the cost could be 0.15% (0.015 x 10 days) of the loan amount. On a $400,000 loan amount, this is an additional cost of $600. You can see why it’s important to lock your loan correctly in the first place.
I recommend that when you lock in your loan, you ask your Mortgage Professional to guarantee the closing costs associated with the loan. Third party costs, such as the appraisal title and escrow fees, the Mortgage Professional has no control over. I would not work with any Loan Originator who is not willing to stand by their closing costs. As a borrower, you should be able to bring your Good Faith Estimate with you to closing (your signing appointment) and have the lender’s fees be reasonable close.
Once you have locked in your loan, you should receive:
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Written lock confirmation stating what the rate and points are associated with that rate.
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Request an updated Good Faith Estimate (and ask the lender if they are going to guarantee their loan costs) to correspond with the lock. [2010 UPDATE: You may find that mortgage originators will provide a written rate quote prior to providing a Good Faith Estimate with an actual Good Faith Estimate to follow.]
What ever you do, please do not select the person who will be assisting you with your largest investment (your mortgage) by interest rate alone.
Is your agent in bed with a title company?
April 30, 2007 by 3 Comments
In the Sunday issue of Seattle Times, Ken Harney addresses the cozy set ups (affiliated business arrangements) that drive up the costs of title insurance. Before I dig into this topic, I thought I’d give you a little bit of title insurance 411.
Title insurance is required by lenders when you purchase or refinance a home. With a purchase, the seller pays for the buyers policy (owners policy) and the buyer pays for the lender’s policy. With a refinance, a new title insurance policy is again issued to insurance a lender for the new mortgage. Unlike other forms our insurance, such as life or auto, a consumer only pays for title insurance when they have a real estate transaction utilizing a mortgage. Most title insurance policies are the same, regardless of which company they are issued from. They are all ALTA policies (American Land Title Insurance Association), typically 1992 Standard or 1998 ALTA which provides additional coverage yet sets deductibles on certain coverages. Expect to pay 10% more for this policy (1998 ALTA) which is most commonly used and is the default on purchase and sale agreement. There are also various amounts of coverage available (standard, extended, etc.). Title insurance rates in Washington State must be approved and filed with the State Insurance Commissioner.
With a purchase, typically, the listing and selling agent negotiate on the purchase and sale agreement who the title insurance and escrow company will be. Currently most title commitments are ordered when the property is listed. Rarely does the consumer have the opportunity to select the title insurance. Even when there is not an “arranged relationship”, real estate agents want to choose “their preferred” title company. When real estate companies have an “affiliated business arrangement” (aba or joint venture), odds are, the consumer will have even less say in where their title insurance will be.
Locally, Coldwell Banker Bain, John L Scott and Windermere have aba’s with LandAmerica Title Insurance Company which operates under Commonwealth of the Pacific and Rainier Title. These companies are required to disclose their interest in the title company by an addendum on the purchase and sale agreement. Most office managers will lean heavily on the real estate agents to use their affiliate title company. In addition, these managers will not allow competing title companies to present materials within their office to their agents even if it is promoting lower rates and fees to the consumer. It is common knowledge within the industry that there is significant incentive for the managers to control this relationship. Other real estate companies have also entered into various marketing agreements with other title companies. Many real estate companies will also try to steer mortgage and escrow for the same reasons (business arrangements).
Ken Harney’s bottom line to consumers it to not “roll over when it comes to title and settlement services. Be aware you can shop for lower-cost alternatives.” One way to have the most significant savings (in Washington state) is to find a title company that offers a 10% discount off the owners policy (this saves the seller money) when using their escrow in conjunction with their title insurance company. The lenders policy (what the buyer pays for) typically varies 5% from company to company. Although there the variance in cost is not huge, the level of service from title companies can vary significantly. It’s been my experience that when the business is arranged (when there is no competition), the service from that title company suffers.
Many consumers want to rely on their real estate agent or mortgage professional to help guide them on selecting a title insurance company. It is important to know exactly what the relationship is between the title company and your agent or lender.
The State Insurance Commissioner is expected to come out within a few weeks with findings of their most recent audit of local title companies along with possible fines…stay tuned!
Why I Don’t Like Stated Income Loans
March 31, 2007 by 11 Comments
Let me start by saying, I prefer a “No Income” over a “Stated Income” loan. If you 
have to “state” an income, you’re potentially setting yourself up for committing fraud. A “no income” verified loan (where your income is blank on the loan application) does come with a slightly higher rate than a stated income loan, however, there are no questions about what is questionable…your income!
Recently, a home buyer contacted me for a second opinion on their good faith estimate. They had just made an offer that was accepted on a home. After reviewing his information, he revealed that the loan was stated income. I did not have all of their documentation needed for self employed borrowers (2 years complete tax returns, for starters) since I was just looking at closing costs and the rate. So I asked why they were going stated income. Here is his actual response:
“Let’s just say it’s income we’re hoping to achieve, but higher than what is on our tax return.”
Does that sound a wee bit concerning to you? For one, they are stating income they don’t make in order to qualify for a mortgage. When you’re self employed your income can vary quite easily. What happens if they don’t make the income they “hope to achieve” and they cannot swing their new mortgage payment?
I asked if his Loan Originator was going to have him sign a 4506 or 4506T. These forms are sent to the IRS so the lender (and what ever company your loan is sold to) can verify the income you are stating on the loan application by accessing your tax transcripts directly from the IRS.
“I did ask [our LO] about that, and she said it’s basically a formality – that they don’t actually pull the tax return…it’s just put [the 4506 form] in the file.”
Often times, the 4506 may stay “in the file”. However, if the borrower defaults on the loan, you can bet the first thing the lender will do is to grab the 4506 to compare what was stated on the loan application to the actual income reported to the IRS.
“Since I certainly don’t plan on defaulting, I’m going trust [the LO] and the bank on this one. She’s got an interest in this as well!”
The LO certainly does have an interest in the loan. She’s going to get paid and keep her real estate agent happy. Stated income and no-income verifiers are very easy loans to do as compared to doing a full document loan for a self employed borrower where you have to review and average incomes for the past two years. Yikes…the LO might actually have to pull out their calculator and do some hard math and go through someone’s tax returns. Oh dear!
Let’s assume worse case scenario for this borrower who is all ready admittedly overstating income at what he hopes to achieve…what he suffers a loss with his business and and is not able to keep up with his mortgage? As a self employed person, your income and costs are not secure or stable. This could quite easily happen to the best of people. Now you’re in a mortgage that you could not afford to begin with because you had to over state lie about your income. Should your mortgage go into default, will the LO who put you into this loan stand by you? I doubt it. Plus, she’ll probably state something like “I had no idea they didn’t make that income.” She won’t go down holding the borrower’s hand in this case, far from it.
If you are considering a mortgage where you “state” your income on the loan application, you should know:
- Stated income loans are not created to exaggerate your income so you can qualify for a mortgage.
- Your stated income should compare to what you have reported on your gross income tax returns.
- Consider a “No Income Verified” loan vs. a “Stated Income”. The difference to rate, with good credit, is often not that significant. With no income stated, there are no figures to lie about. You’re qualifying on credit and down payment alone.
- Don’t lose sight on whether or not you can actually afford the mortgage payment. Qualifying for a mortgage does not mean that you should have the mortgage if you cannot make the payments.
Lying about your income, or anything on the loan application, is mortgage fraud. There are many other types of documentation available so that borrowers do not need to go this route (unless it makes sense–ie they actually have the income).
Still thinking about stated income? Watch this video from CBS.
The Low Down on Fannie Mae Flex
March 28, 2007 by 2 Comments
Update: This is a classic example of the trouble with writing about mortgage programs…some are no longer available. When researching about mortgages on the internet, please be sure to check the date of the article.
With many of the zero down options tightening up, it's time to return to the mortgage programs that were popular a few years ago before the 80/20s were all the craze. One such program worth considering is the Fannie Mae Flex (97 and 100). This is truly a low down program offering either a minimum $500 borrower contribution or 3% flexible contribution.
The Fannie Mae Flex allows for flexible sources of funds for closing costs and prepaids:
- Borrowers own funds (including loans against a 401(k) account or cash-valued life insurance policy.
- Gift or unsecured loan from a relative.
- Grant from non-profit or employer.
- Interested party contributions (to be applied to closing costs and prepaids) such as a Builder or Real Estate Agent.
The Flex program utilizes automated underwriting so minimum credit scores, reserves and qualifying ratios are determined by Desktop Underwriter.
There are no income limitations, such as with My Community programs. The program is limited to conforming loan limits (currently $417,000 for a single family dwelling).
There is private mortgage insurance with this program. However, with a credit score of 620 or higher, a borrower may qualify for LPMI (Lender Paid Mortgage Insurance). The rate with LPMI may or may not pencil out, depending on the credit score and loan to value. Also, private mortgage insurance is tax deductible this year if you meet income limitations.
Sorry folks, this program will not work for manufactured homes.
Currently, I'm helping a couple buy their first home with this program. They are utilizing a gift from their parents for the down payment and the real estate company they are working with rebates part of the commission which will cover their closing costs (including a 1% discount towards their interest rate). The couple will not have to dip too deep into their savings or 401(k). The current interest rate for the 30 year fixed rate is in the low 6%s with a loan to value of 97%. They will pretty much be getting into their first home with the earnest money investment of approx. $2,500 (special thanks to Mom and Dad).
Here's a quick re-cap of the Fannie Mae Flex program:
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Low down payment
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Higher debt to income ratios allowed
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Forgiving of credit scores
Remember, always check with your Mortgage Planner to see which strategy for your home financing best suites your personal needs.
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