Should I Refinance my 4.5% Mortgage?

February 2, 2012 by Leave a Comment

I'm pricing out a scenario for one of my returning clients where I helped them with their refinance for their home in Seattle in May of 2009 to a 4.5% 30 year fixed rate. During that time, 4.5% was the lowest rate any of us had seen. Now mortgage rates have been in the high 3s to low 4s depending on current pricing and scenarios.  I thought it would be interesting to share the quotes I've provided my client because I know many others have rates around 4.5% and may be wondering the very same thing: should I refi?

This Seattle home owner has excellent credit (scores above 740) and has an estimated loan to value of 80% or lower. It's possible they may qualify for a Home Affordable Refi since Fannie Mae has securitized their mortgage, however they closed right at the time where it's possible the mortgage may not have been securitized before the May 31, 2009 cut-off. Once we run the loan through Fannie Mae's automated underwriting system, we'll know whether or not it qualifies to have the appraisal waived. At this point, I'm assuming not and therefore an appraisal fee is factored into the APR. 

Here's what I quoted as of 10:30 this morning on February 2, 2012:

3.750% will reduce the monthly payment by $150 and has estimated closing cost of $5620 (apr 3.909). My client will return to their current principal balance in approx. 15 months per the amortization schedule.

3.875% will reduce the monthly payment by $133 and has an estimated closing cost of $3660 (apr 3.891). My client will return to their current principal balance in approx. 14 months.

4.000% will reduce the monthly payment by $121 per month with estimated closing cost at $1779 (apr 4.080). My client will return to their current principal balance in approx. 11 months.

NOTE: Mortgage rates change constantly. For your personal rate quote on your Washington home, please click here.

The monthly savings is only one consideration. If this client were to sell in the near future, retaining his existing mortgage may be the better route as the payoff would most likely be lower with the existing mortgage for this scenario. However, if the home owner does not have plans on selling or is considering converting his home into a rental in the distant (more than 12 months) future, or if the home owner is going to use the extra monthly savings to pay off high interest credit card debt or to build savings, the refinance gains more value.

Whether or not someone should refinance is a personal decision where short and long term financial plans should be reviewed. 

If you are considering refinancing your home located anywhere in Washington, I'm happy to help you. Click here for your personal rate quote.

Filed Under: Refinance

President Obama’s Refi Plan for Non-HARP Qualified Homeowners #MyRefi

February 1, 2012 by 3 Comments
Refi

On last week’s State of the Union Address, President Obama announced a plan to help underwater homeowners who do not qualify for a Home Affordable Refinance.  In order to qualify for a Home Affordable Refi (aka HARP 2.0) the home owner’s mortgage needs to have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009 and meet other qualifications.  If the home owner currently has a jumbo loan, they are instantly disqualified for HARP 2.0. since jumbo mortgages are non-conforming (not Fannie or Freddie programs). HARP is also restricted by existing conforming loan limits and in the greater Seattle area, the current conforming loan limit is $506,000.  Even if you have a conforming loan amount of $567,500 (last year’s conforming loan limit in Seattle), current HARP guidelines limit you to a $506,000 loan amount.

President Obama’s proposal is to help underwater home owners who have made their mortgage payments on time and who do not qualify for HARP 2.0 is to allow them to have an FHA insured mortgage without an appraisal.  FHA insured mortgages have different loan limits than conforming. In the Seattle area, the FHA loan limit is $567,500. Obama’s new refi program, should it come to fruition, will be limited to FHA loan amounts. 

FHA mortgages are a great program, however they’re also very expensive when compared to conventional loans.  This is because they have both upfront and monthly mortgage insurance fees, which are constantly being raised by Congress. FHA mortgages have both upfront and monthly mortgage insurance regardless of the loan to value of the property. 

As of 8:30 this morning, an FHA rate on a loan amount of $567,500 in Seattle – Bellevue with a 720 or higher credit score is 3.750% for a 30 year fixed rate (apr 4.767).  Principal and interest with the financed UFMIP is $2,654.46 and the monthly mortgage insurance premium is an additional $515.85 for a total (PIMI) payment of $3,170.31, not included property taxes and insurance.  This PIMI payment equals an interest rate in the low-to-mid 5% range if you compare it to a conventional mortgage.

NOTE: Rates quoted in this post are from February 1, 2012; for a current rate quote for your home located in Washington State, click here.

This program is also costly as Obama plans to pay for it by charging banks additional fees and we all know that this trickles down to the consumer. The Temporary Payroll Tax illustrates how banks have increased mortgage rates AND the cost to extend a rate lock commitment.

It’s reported that the new program will not require an appraisal or proof of income and will be available for primary residences only. Employment will need to be verified and mortgage payments must have been made on time for the last 6 months.  Although this is “Obama’s Refi Plan”, we have to wait and see if Congress approves it and how the big banks and lenders will embrace this program.

If you currently have an FHA insured mortgage, you don’t need to wait and see if Obama’s refi plan will help you. You may already be able to refinance with an FHA streamlined refi without an appraisal. 

If you would like to stay informed of mortgage programs like this, please subscribe to my blog (upper right corner) or follow me on Twitter and Facebook.  You can unsubscribe anytime!

If you are interested in a mortgage for a home located anywhere in Washington state, I’m happy to help you! I have been originating all types of loans at Mortgage Master Service Corporation since 2000.  Click here for your no-hassle mortgage quote on your Washington property.

Filed Under: Current Affairs, Fannie, Freddie and FHFA, FHA, Mortgage, Refinance Tagged With: , ,

Your write-offs may impact qualifying for a mortgage

January 27, 2012 by 1 Comment

From my email bag:

My husband and I are in the process of looking for a lender we are negotiating an offer at this time. We are both paid with W2-s and fear that we will be asked for our tax returns since we have plenty of write-offs as we are in sales. In this case, will the lender look at our adjusted income on our tax forms instead of the yearly salary?  

The lender will most likely have to use a net-income when you have significant write-offs on your tax returns. Since you're in sales, depending on how you are paid (for example, if you're paid commission) the lender may request your income tax returns due to this very example.  

Even if you're paid an annual salary, the 4506T that lenders use on transactions to obtain tax transcripts from the IRS will reveal your write-offs and the lender will most likely require your tax returns and make the appropriate adjustments to your income. This is also true when qualifying for a refinance.

When you're completing your tax returns, you may want to keep in mind that what you report to Uncle Sam is also what the lender will be viewing when you're obtaining a mortgage.  Self-employed borrowers who appear to make little income on their tax returns may also find themselves being impacted with how large of a mortgage they will or will not qualify for.

Remember, I'm not a CPA nor a tax expert. I do specialize in originating mortgages for homes located anywhere in Washington. I have been a licensed mortgage originator since January 1, 2007 and have been at Mortgage Master Service Corporation since April 1, 2000. If I can help you with your home purchase in Seattle or your refinance in Redmond, or anywhere in Washington, please contact me.

Filed Under: Dear Rhonda, Underwriting and Qualifying

Private Mortgage Insurance Options

January 21, 2012 by Leave a Comment

Private mortgage insurance is what lenders may require when a borrower has less than 20% equity in a property. Private mortgage insurance (pmi) protects the lender against default, it does not protect the property owner. 

Private mortgage insurance (pmi) is often something that borrowers do their best to avoid because of the additional cost. However if the 20% down payment (or 15% down payment with a “piggy back” second mortgage) is not possible, a home buyers or home owner who is refinance may opt for pmi or an FHA insured mortgage. Over the past couple years, FHA insured mortgages have become more costly to the point where if a borrower can qualify with pmi, it is probably a more cost effective option. Private mortgage insurance is not only for home purchases, refinances may benefit from pmi considering how low mortgage rates are at the moment.

Many are aware of private mortgage insurance premiums being paid as part of their monthly mortgage payment, however I find that Seattle area home buyers often do not know about the “split premium” option which dramatically reduces the amount paid in a monthly premium.

Let’s compare scenarios based on a sales price of $444,500 with 10% down payment with excellent credit scores of 740 or higher and debt-to-income ratios under 45%.

  • The traditional pmi with the borrower paying monthly in their mortgage payment would be approximately $160 per month (0.48% of the loan amount/12). 
  • A borrower could also opt to pay for the mortgage insurance premium in one lump sum (single premium) and not have it included in their mortgage payment.  Based on this scenario, the cost would be $4,680 (1.17% of the loan amount). A seller can pay for this closing cost or a lender can use rebate pricing to help pay this cost.
  • Another option is the split premium borrower paid mortgage insurance. Similar to an FHA loan, there is an upfront mortgage insurance premium and a reduced monthly mortgage insurance premium. The amount of the upfront premium can vary and the lower it is, the higher the monthly premium will be (and vice versa). For this scenario, if we assume an upfront premium of 1% or $4000, the monthly premium would only be $43.33 (0.13% of the loan amount/12). Just as with the single premium option, the upfront premium may be paid for by the seller as a closing cost or with rebate pricing. 

Private mortgage insurance has risk based pricing that factoring various charactors of the borrowers such as:

  • credit score
  • loan to value
  • program type and term of mortgage
  • occupancy
  • self employed
  • previous bankruptcy
  • location of property

If you have less than 20% down payment saved up to buy your next home or are considering refinancing anywhere in Washington, I’m happy to help.  I’ve been originating mortgages at Mortgage Master Service Corporation for the past 12 years and have been licensed since 2007. If you would you like a FREE rate quote for a home located in Seattle, Redmond, Bellingham or beyond, click here.

Filed Under: Mortgage Insurance Tagged With:

Explaining the “Letter of Explanation”

January 19, 2012 by 3 Comments

preapprovalIt’s not unusual these days to have a lender request a “letter of explanation” from a home buyer or someone who is refinancing their current property.  I letter of explanation (or LOE) is often used to help provide more information to the underwriter or lender based on information that is disclosed on an application or credit report. LOE’s may address anything from gaps in employment to inquires on a credit report and is intended to help explain or add support to the transaction. If a borrower has had an extenuating circumstance and is trying to have an exception made to an underwriting guideline, they may be asked to write a LOE.

[Read more…]

Filed Under: The Mortgage Process, Underwriting and Qualifying Tagged With: , , , , , ,

First Seattle Snow of 2012

January 15, 2012 by Leave a Comment

Here are a few photos from my garden in West Seattle. I ran out to take these photos moments ago when the snow was beginning to look like it was mixed with rain. As I write this post, we're back to big fluffly snow flakes.

2012-01-15_11-50-58_652

 

2012-01-15_11-50-11_972

 

 

 

2012-01-15_11-51-51_452

 

This photo was taken by my son moments ago, as my husband is driving him back to Seattle U, on northbound I-5.

West seattle bridge

 

Stay warm and safe everyone!

Filed Under: Just for Fun, Seattle

LOCK IN SOON!! Mortgages will Cost More thanks to Temporary Payroll Tax Cut

January 10, 2012 by 1 Comment

UPDATE: Since publishing this post this morning, another major bank announced a significant increase in their extension fees as noted below.

If you obtain a new mortgage next year for a refinance or purchase (for any purpose) and it is securitized by Fannie Mae or Freddie Mac or insured by FHA, you're helping to pay for the recently passed payroll tax cut bill.

From the FHFA:

“On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011.  Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac( the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities. This requirement is effective immediately, meaning that the average guarantee fees charged in 2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011 and that this increase be remitted to the U.S. Treasury, rather than retained as reserves by the Enterprises…. FHFA will announce plans for further guarantee fee increases or other fee adjustments that will then be implemented gradually over the two-year implementation window, taking into consideration risk levels and conditions in financial markets…"

What I'm seeing from some of the various banks and lenders we work with ranges from announcements they're increasing their extension fees 0.25% 0.40% across the board and other lenders announcing fee increases to up to 0.5% to take effect in the next couple weeks. 

On a $400,000 loan, a 0.5% fee to interest rate increase means you'll be paying $2000 more for the same rate once the fee increases go into place!  

With a rate lock extension, currently the charge from one bank who has announced the price increase, 7 days cost 0.125% and now with the 0.4% add, the 7 day extension cost 0.525%.  Where an extension before would have cost $500 on a $400,000 loan, now it will cost $2,100 for the same seven days! This will force many borrowers to consider longer rate locks in order to avoid such a hefty penalty.

What can you do? 

If you are considering refinancing your mortgage, contact your local mortgage professional to discuss current rates and securing your lower (pre-fee) rate today. If your home is located anywhere in Washington state, I can help you.  

If you are buying a home and are in contract, but not yet locked, you may want to investigate locking.  

Whether you are buying or refinancing your home, make sure that the lock is for a long enough period to avoid possibly higher extension fees.

Different lenders have different guidelines and ways they're implementing their fee structures. One of the benefits of working with a correspondent lender, like Mortgage Master Service Corporation, is that I work with several different banks and lenders and can filter out who is offering the most competitive price for your program at the moment you are ready to lock.

If you would like a rate quote for your home located in Washington, click here or contact me.

Filed Under: Fannie, Freddie and FHFA, FHA, Interest Rates

Fannie Mae’s Home Affordable Refi HARP 2.0 (DU Plus) Update on LTVs and Appraisal Waivers

January 4, 2012 by Leave a Comment


HARP2mortgageporterYou won't need the luck of the Irish to refinance you underwater home in the Seattle (also known as the Emerald City) or anywhere in Washington after Saint Patrick's Day. The weekend of March 17, 2012 is when the next phase of HARP 2.0 will be officially released. And you may not need to wait until March for your HARP refinance; many are taking advantage of lower rates and refinancing now!

Per Fannie Mae's Release Notes issued yesterday for DU Refi Plus – HARP 2.0, we'll have the following enhancements:

  • No maximum loan to value ratio for fixed rate mortgages with terms up to 30 years
  • 105% maximum loan to value ratio for fixed rate mortgages with terms greater than 30 years and for adjustable rate mortgages 

Even though Fannie Mae states the loan to value caps will be removed, it's also noted the appraisal waiver will be "updated to further increase the number of loan casefiles that are considered for the…waiver".   

This update states the following transactions will be "eligible for consideration" to have the appraisal waived:

  • one-to-four unit properties;
  • primary residence (owner occupied), second or vacation homes and investment properties;
  • loans with a loan to value or combined loan to value (second mortgages) over 125%;
  • attached (condos, townhomes) and detached properties.

You may not have to wait until March to refinance depending on how underwater your home is. I'm currently working with clients from Des Moines, Kent and Seattle who had their appraisal waived and will be closing well BEFORE March as long as Fannie Mae estimates your loan to value is 105% or lower. It's unknown what value Fannie Mae's system will accept for your home until it is submitted to their automated underwriting program (DU).

Another reason NOT to wait until March to start your HARP application is to make sure your credit and debt-to-income ratios are in line.  Beginning your application today will allow us to review your current credit scenario to help assure you're in the best position to proceed with your refi, even if you have to wait until March for loan-to-value reasons.

From reading today's release notes, it looks like not all loans will qualify to have their appraisals waived…however you won't know unless you try!  It's also important to keep in mind that that banks and lenders may have their own underwriting overlays in addition to what Fannie Mae or Freddie Mac offers with this (or any) program.

I am encouraging Washington home owners to contact me for a rate quote. If it looks like we should wait until closer to March to proceed, we can keep your information and try again at that time.

If you have any questions about HARP 2.0 or any mortgage for homes located anywhere in Washington, please contact me!  If you want to stay informed, subscribe to my blog!

I am required to have the language below if I am soliciting your Home Affordable Refi for your home in Washington…and yes, I would love to help you with your HARP (or any) refinance:

Freddie Mac and Fannie Mae have adopted changes to the Home Affordable Refinance program (HARP) and you may be eligible to take advantages of these changes.  

If your mortgage is owned or guaranteed by either Freddie Mac or Fannie Mae, you may be eligible to refinance your mortgage under the enhanced and expanded provisions of HARP.

You can determine whether your mortgage is owned by either Freddie Mac or Fannie Mae by checking the following websites:www.freddiemac.com/mymortgage orhttp://www.fanniemae.com/loanlookup/

Filed Under: HARP - Home Affordable Refi, Refinance
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