Archive for the ‘Mortgage’ Category
Current Interest Rates For Home Loans
April 6th, 2012 | 
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Where Are Current Home Loan Interest Rates?
Unless, you’re not a homeowner or aren’t in the market to buy a new home, you probably aren’t aware that current interest rates for home loans are very, very low.
The current interest rates for home loans aren’t all the same, however.
Homeowners I talk to will ask: “What’s your current interest rate?”
I respond saying,”There isn’t just one current home loan interest rate.” Interest rates for home loans vary according to the home loan program.
So the current interest rate for a 30 year fixed home loan will be different from the interest rate for a 15 year fixed home loan.
Similarly, the current interest rate for a 10 year fixed home loan will be different from the interest rate for a 5/1 adjustable rate home loan.
In addition to the variation in current interest rates according to loan type, interest rates vary according to their cost.
That is, a homeowner can buy the interest rate down by paying discount points.
A discount point represents 1% of the home loan amount and is - in effect - prepaid home loan interest that the homeowner is paying upfront in order to realize the benefit of paying less in overall home loan interest over time.
For example, even though it may cost – let’s say – $3000 more at closing for an interest rate of 3%, the overall interest the homeowner will pay at 3% will be less over time than – let’s say – 3.5% they could secure without paying $3000 upfront at closing.
So current interest rates for home loans are low, per the current market and state of our economy.
In addition, the current interest rates for home loans vary according to the home loan type and the amount the homeowner wants to spend on the interest rate.
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How To Get A Home Loan
How To Get A Home Loan
Here is a step by step outline on how to get a home loan.
The first thing you want to do is identify a mortgage company you trust and want to do business with.
You can locate the mortgage company by either going into your local bank or shopping online and finding an online mortgage company.
Unless you are requesting a jumbo home loan, the home loans that are offered from mortgage company to mortgage company are going to be the same.
That is, they are going to be standard Fannie Mae or Freddie Mac backed mortgages. The mortgage rates and lender fees may vary, but the home loan types are the same.
After identifying the mortgage company you want to work with, you’ll complete a home loan application.
This takes about 15 minutes. Don’t worry, you won’t be asked to write an 500 word essay!
After completing the home loan application, you fax, mail or hand deliver copies of your last 30 days pay stubs, copies of your last 2 years W2 forms and last 2 months bank or brokerage account statements.
If you’re self employed or own rental property, you’ll be asked to supply copies of your last 2 years personal and business tax returns.
Once this is completed, you’ll be asked to sign and return the home loan application together with a number of home loan disclosure forms.
Next, if the home loan application is conditionally approved, a home appraisal will be scheduled and a home appraiser will come to your home to do an inspection.
This generally takes about 15 minutes and the home appraiser will come inside your home.
Once the home appraisal is submitted to the mortgage lender, the home loan file will go to a mortgage underwriter who will begin to clear the underwriting conditions.
This process takes about 30 days, depending on how busy the mortgage lender is.
Once the home loan application is clear to close, a close date is scheduled where you’ll have to sign the home loan closing package.
That’s all there is to get a home loan!
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Do You Have To Pay Private Mortgage Insurance On Your Mortgage Loan For The Life Of The Loan?
How Long Does A Homeowner Have To Pay Private Mortgage Insurance?
A lot of first time home buyers as well as non-first time home buyers cringe when they know they have to pay Private Mortgage Insurance, also known as PMI.
However, one item that you want to know is that PMI doesn’t have to stay on the mortgage loan indefinitely.
Private mortgage insurance can be removed from a conventional mortgage, also known as an “Agency” loan, after 2 years.
After 2 years of making PMI payments, you can request from your mortgage servicer that the PMI be removed.
Before removing the PMI, the mortgage loan servicer will verify the home’s value.
They may either check the value using an automated valuation system or may have an appraiser come out and do a new home appraisal.
So, on a conventional mortgage loan, once you’ve made 24 PMI payments and if you have 20% equity in the home, then the mortgage loan servicer will remove the private mortgage insurance.
On a FHA mortgage loan, however, the mortgage insurance “seasoning” is different.
On a FHA mortgage loan, the homeowner will have to pay MIP, which is called Mortgage Insurance Premium, for 5 years.
After 5 years, you can request that the monthly MIP be removed.
However, you’ll need to have 22% home equity in order for the MIP to come off.
In conclusion, on a conventional mortgage loan, you only have to pay PMI private mortgage insurance for 2 years. You also need a loan to value ratio of 80% or lower.
On a FHA mortgage loan, you need to pay MIP mortgage insurance premium for 5 years and you need a 78% or lower loan to value ratio.
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Are You A Florida First Time Home Buyer?
Are You A Florida First Time Home Buyer?
If you live in Florida and haven’t bought a home, there are a few things you want to keep in mind.
First, now is a good time to buy real estate in Florida.
Home values are low, so you’re buying at a real estate “bottom.”
Second, when you own a home, you are investing your housing payment into your home’s equity. It’s like a forced savings plan.
Unlike when you rent, your rent payment will vanish after it’s paid when the landlord cashes your rent check.
When you make a mortgage payment, the money is applied to lowering the mortgage loan amount, and as a result, builds home equity for you.
Home equity is the difference between what you owe and the home’s market value.
So, when you pay off the $100,000 mortgage and you owe nothing and the home is worth $250,000, you are sitting on a $250,000 asset!
Third, you need to qualify for a mortgage loan.
To qualify for a mortgage loan in Florida, you need the following:
1. At least 3.5% of the purchase price as a down payment.
2. There are real estate closing costs associated with buying a new home, so in addition to the 3.5% down payment, you’ll need money to pay your closing costs.
That figure will vary and can range from 0 to thousands of dollars – it just depends on whether you can get a seller, lender or realtor credit to pay for your closing costs. In Florida there is also a documentary stamp tax that is .0055% x the mortgage loan amount that you have to pay as a first time home buyer.
3. You need credit scores over 620 and have not been late on your rent within the last 12 months.
4. Your monthly installment debt cannot be more than 50% of your gross monthly household income.
The monthly installment debt includes the proposed house payment with property taxes and dwelling insurance PITI, any car payments, or student loan payments, or minimums you owe on credit cards.
If you have the down payment, money to pay your real estate closing costs, decent credit, and your debt to income ratios don’t exceed 50%, you should be able to qualify for a mortgage loan.
Now is a good time to buy real estate in Florida.
If you meet the criteria listed above, you may want to look into becoming a first time home buyer in Florida!
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Why Rental Income May Not Be Enough To Qualify You For A New Mortgage Loan
Why Rental Income May Not Be Enough For You To Qualify For A Mortgage
I talk to a lot of homeowners who own rental properties and who want to refinance their mortgages so they can lower their mortgage rate and mortgage payment.
Many of these real estate investors produce positive cash flow from their investment properties. That’s a beautiful thing.
They may collect $2000 a month in rent and only have a mortgage payment of $1000/month, including their property taxes and insurance.
That’s $1000 in cash a month in their pocket or $12,000 per year and definitely positive cash flow.
However, many real estate investors believe they will be credited the full positive cash flow as income when they apply for a new mortgage loan.
Not so.
Here’s how rental income is calculated from a mortgage underwriting standpoint.
Mortgage underwriting will look at the Schedule E in your 1040 tax return and look at line 3, which is the rent received.
They will then subtract the Expenses line 19 from this figure.
They will then add back line 12, which is the Mortgage Interest that was paid and take that figure and divide it by 12 – as there are 12 months in the year.
This is the gross monthly rent.
To calculate the net monthly rent, they will subtract your mortgage payment with property taxes and dwelling insurance from the gross monthly rent figure.
So, if the gross rental figure is $1200 and the mortgage principal interest taxes and insurance PITI payment is $1000, the net rental income for mortgage underwriting is positive $200.
Mortgage underwriters will look at the last 2 years Schedule E.
If the rents have declined, they will use the lower figure. If the gross rent has gone up, they will average it with the prior year’s gross rent.
In the old days, a 75% ”vacancy factor” was used to calculate rental income for mortgage underwriting.
This means that the borrower was credited 75% of the rent received based on a rental lease that was supplied. No more.
If you’re a real estate investor and want to refinance an existing mortgage loan or purchase a new home, know that tax returns will be collected by the mortgage loan officer or mortgage broker and the Schedule E “rents received” will be looked at to calculate your net rent.
Depending on the amount of rent you receive, the mortgage interest you pay, and the rental expenses you write off as tax deductions will determine the net rent figure, which can help or hinder your chances of qualifying for a new mortgage loan.
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Do All Mortgage Companies Follow The Same Underwriting Guidelines?
Do All Mortgage Companies Follow The Same Underwriting Guidelines?
I was asked this mortgage question yesterday and it got me thinking: “Do all mortgage companies follow the same mortgage underwriting guidelines?”
The short answer is “yes,” for the most part.
If the mortgage or home loan is a “conventional” or “agency” home loan, also known as a home loan that is sold to Fannie Mae or Freddie Mac, then yes, the lender has to follow mortgage underwriting guidelines set out by those agencies.
In addition to Fannie Mae or Freddie Mac underwriting guidelines, the individual mortgage companies or banks may put “overlays” on top of those guidelines.
Overlays are additional requirements that the borrower must meet for the mortgage loan to be approved.
The reason mortgage companies add overlays is because if the borrower defaults on the home loan, the mortgage company may be responsible for buying the loan back, which is something they don’t want to do.
So the mortgage lender wants to minimize the risk of default by making the underwriting requirements harder to meet.
In a nutshell, if the mortgage loan is a conventional or agency mortgage, then all the mortgage companies will follow the same underwriting guidelines, with additional overlays added from lender to lender.
If the mortgage loan isn’t a conventional mortgage but a mortgage loan they maintain as part of their mortgage portfolio, then they have set their own underwriting guidelines that may be different from another bank or mortgage company.
Moreover, if the mortgage loan is a non-conforming mortgage loan or a loan that isn’t sold to Fannie Mae or Freddie Mac, then the underwriting guidelines will differ from lender to lender.
If the mortgage loan is a FHA, VA, or HARP mortgage loan, then the underwriting guidelines are the same with additional underwriting overlays added per each bank or mortgage company.
In conclusion, if the mortgage loan is a conventional, FHA, VA or HARP mortgage, then the mortgage underwriting guidelines will be roughly the same from lender to lender. Some lenders may add additional restrictions to minimize the risk of default.
If the mortgage loan is a jumbo (also known as non-conforming) mortgage loan or portfolio mortgage, then the mortgage underwriting guidelines will differ from lender ot lender.
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Can You Subordinate A Second Mortgage That Has A Prepayment Penalty?
Can You Subordinate A Second Mortgage That Has A Prepayment Penalty?
This mortgage question I got the other day and had to do a bit of home loan research to answer.
Here’s the loan scenario:
The borrower had a first mortgage they wanted to refinance and they had a home equity line of credit HELOC behind their first mortgage.
The HELOC was one of those where the lender says that if the borrower pays off and closes the HELOC within the first 3 years, then the borrower is responsible for paying the HELOC closing costs, which amounted to about $2500.
So naturally, the borrower wanted to subordinate the HELOC and refinance his existing first mortgage loan.
I come to learn that the borrower is unable to refinance the first mortgage loan unless they pay off and close the HELOC.
Underwriting guidlines wouldn’t allow him to subordinate the HELOC with the active prepayment penalty.
This means that my borrower has to pay about $2500 to the HELOC lender to reimburse them for the closing costs that the lender paid for the borrower when the HELOC was taken out.
This intuitively didn’t make sense to me.
Why did the borrower have to pay off the HELOC and incur the prepayment penalty?
The reason, it was explained, was that to leave the HELOC open and subordinated constituted predatory lending.
If we required he close and payoff the HELOC and pay the prepayment penalty so we could originate a new home loan, that would seem predatory.
But that wasn’t the case.
In any event, mortgage underwriting guidelines don’t allow you to subordinate a second mortgage or HELOC that has an active prepayment penalty.
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Can You Get A Get A Home Loan If Your Home Needs Repairs?
Can You Get A Home Loan If Your Home Needs Repairs?
A home loan, also called a mortgage or mortgage loan, is a loan that is secured against your home, or the new home you want to buy.
Unlike a credit card, if a borrower or homeowner defaults on the home loan the bank can foreclose on the property. A credit card company can sue you if you default, but in all likelihood, you won’t lose your home
Your home is the bank’s collateral.
With a mortgage loan, if you default on the loan, you lose the house.
So if you’re in the process of buying a new home or refinancing your existing mortgage loan, if the home needs repairs, you may have difficulty getting a conventional mortgage.
The reason why a conventional mortgage won’t work is because the bank that’s loaning the money, wants to loan on a property type that is in good shape.
If the mortgage underwriter sees from the appraisal report that work needs to be completed on the home to complete it or make it habitable, the mortgage loan application may get denied because the lender doesn’t want to loan on the property that isn’t finished.
Even if the homeowner proposes to put money in an escrow account for repairs at a later date, the lender won’t do the loan.
So if you’re buying a new home and the home needs work and the seller isn’t willing to do the repairs, consider a renovation loan, like an FHA 203(k) loan.
Don’t waste your time applying for a conventional mortgage because the lender will want the property repaired before you close.
And it doesn’t make sense to put money out of your pocket to repair a home that you don’t yet own.
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How To Avoid Paying $350 (or more) For A Home Appraisal
How To Avoid Paying For A Home Appraisal When Refinancing
When refinancing an existing home mortgage, a home appraisal is almost always required.
There are some circumstances where the homeowner is eligible for an appraisal waiver, but with a soft housing market, 97% of all mortgage refinance transactions require a home appraisal.
Generally, home appraisal costs range from $325 to $400, or higher, depending on the home value, where the home is located, and the square footage.
Also, when refinancing your home mortgage loan, the appraisal fees are paid UPFRONT.
So, how do you avoid having to pay for the home appraisal if you’re refiancing your existing home loan?
Short of getting an appraisal waiver from your mortgage company, which would allow you to refinance without a full home appraisal, you want to have a good idea of your home’s value before you apply for a home loan refinance.
Why?
The reason is because if you apply for a home loan refinance and pay for your home appraisal upfront and the appraised value of the home comes in lower than you thought, you may not be able (or willing) to refinance the mortgage.
Now you’ve lost the appraisal fee.
For instance, let’s say you’re refinancing your home loan.
The balance you owe on your existing home loan is $100,000.
You think the home value is at least $125,000.
So you apply and pay for your appraisal upfront, which costs you – let’s say – $325.
Now the appraisal comes back and the value is $110,000.
This means that the loan to value ratio has increased to 90%.
You now have to pay private mortgage insurance PMI and your proposed new monthly mortgage payment has now increased by $45 per month.
So instead of saving $200 per month, now you’re saving $155 per month and the $45 you have to pay in PMI is not benefiting you.
Your options are to take $12,000 out of your savings to reduce your proposed new home loan amount to $88,000 and avoid the private mortgage insurance PMI, or walk away and do nothing – in which case you’ve lost the appraisal fee of $325.
In conclusion, you want to have a good idea of your home value before you spend money on a home appraisal.
To do this, ask your neighbors about recent home sales (within 6 months).
Are those homes comparable to yours?
Alternatively, if you know a realtor, ask them if they can give you a conservative value of your home.
If you have no idea about the home’s value, then you have to compare the cost of the appraisal against the benefit of refinancing the existing home mortgage.
If the benefit outweighs the risk of losing the appraisal fee, which is what you stand to lose if the value comes in lower, then move forward.
If the benefit of refinancing the existing home mortgage is marginal, then you may want to think hard about putting up or risking the appraisal fee, which you may stand to lose.
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What Is A Portfolio Mortgage Lender?
A homeowner the other day asked me if I worked for a portfolio mortgage lender.
A “portfolio lender” means different things to different people so I asked her what she meant by portfolio mortgage lender.
She responded saying that a portfolio mortgage lender is a mortgage lender that services their own mortgage loans and may follow different underwriting guidlines than mortgage lenders that don’t service their mortgage loans.
She has it right.
A mortgage portfolio lender is a lender who will originate, underwrite, fund AND service their own loans.
So instead of selling the loan to another mortgage loan servicer, the originating bank “portfolios” the loan and will service it too.
Loan servicing means that the mortgage loan servicer will manage the property tax and insurance escrow account and answer any customer service questions the borrower may have as well as collect the homeowner’s mortgage payment.
One advantage of portfolio lending, or retaining and servicing the mortgage loan, is that the mortgage underwriting guidelines can be more flexible than the mortgage underwriting guidelines set out by Fannie Mae or Freddie Mac.
And that was why she asked that mortgage question.
She had a property on a lot of land.
I believe it was over 100 acres and she was looking for a lender that didn’t have an acreage limitation as part of their mortgage underwriting guidelines.
A portfolio lender, that is.
So, in conclusion, a portfolio mortgage lender is a lender that keeps and services their own mortgage loans and who may have more independent and flexible underwriting guidelines, which may benefit certain niche borrower profiles.
The mortgage rates, by the way, are no higher or lower compared to a mortgage lender that doesn’t portfolio their mortgage loans.
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