October « 2011 « Home Loan Information

31Oct/110

HARP changes to allow a greater number of refinances

While some of my industry friends rushed to be the first to get this information to the streets it seemed more prudent to verify the information found in the FHFA letter dated October 24. Now that a week has passed and the initial smoke has cleared here is a bullet point review of the important factors covered by this revamp of HARP.

The existing loan must have been sold to Fannie or Freddie on or before May 31, 2009
The current loan amount must be greater than 80% of the current value (LTV)
This revamp removes the 125% LTV limit for fixed rate loans (there is no new ceiling)
Lenders will get a new set of Representations and Warranties (this will affect some who may not participate)
This eliminates the need for a new appraisal when there is a reliable Automated Valuation Model (AVM) available
The program extends through December 31, 2013 (and you can bet some people will wait that long)
This allows people to also refinance into a shorter loan term (because of the lower rates and their DTI)
The mortgage cannot have been previously refinanced under HARP unless it was from March-May of 2009
The borrower must be current on their loan payments at the time of refinance
The borrower cannot have been late on payments in the previous six months and not more than once in the previous 12 months
If refinancing into a fixed rate there is no maximum LTV
If refinancing into an adjustable rate (ARM) there is a maximum LTV of 105%
Condominiums are eligible under Enterprise requirements
When this becomes available will vary by mortgage lender
Program participation by lenders is not mandatory

Those are straight from the horse’s mouth. There has been a lot of speculation and some of it is not in the official document.

I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site

Tagged as: harp, ltv, no maximum, refinance No Comments

11Oct/110

No Cost or Zero Cost Home Loans

Once there was a young prince who sat for hours waiting on his chance to capture the great, white unicorn. The sorcerer from the other side of the mountain decided to trick the young prince and duct-taped a stick to a horse’s head and sent him into the forest. The prince, seeing the horse with the duct tape, thought he had finally found his unicorn …

Once there was a young home owner who heard an exciting story about the “no-cost home loan” and rushed to his computer to apply online. When he received his Good Faith Estimate he was so sure he was getting the best of all worlds he did not even bother to notice his loan amount was higher than it should have been and his interest rate was a little higher than he had heard from the reputable lender he had spoken with earlier …

Okay so the tale really isn’t always that grim. It is, however, always about that technical. There is no such creature as a “no-cost” or “zero cost home loan”. There are closing costs and somebody pays them. Not the sheriff of Nottingham, not the prince … the home owner or buyer. The person who is about to become the mortgagor, also referred to as borrower, is the one who always pays the closing costs.

There are three ways to pay closing costs:

The buyer or seller can pay the costs in cash at the closing and they’ll be shown on the HUD 1
The loan officer can increase the interest rate a little to get a higher yield and pay the closing costs
The loan officer can increase the loan amount, when possible, and pay the costs from the refinance proceeds

The second and third bullet points in the list above are the ones used to cover the costs in the so called no-cost closings. This does not make these evil, bad or even suspect. In fact there are times when this method makes great business and can work in the favor of the borrower.

Borrowers generally keep the same loan for no more than 5 to 7 years. There are some instances, say when someone intends to live in the home only for a couple of years, where the methods can be beneficial. With that in mind the spread sheet below should illustrate the point nicely and help the borrower make the decision of which method is best to use for their immediate circumstance. See Figure 1 comparing a vanilla closing to a no closing costs home loan.

Figure 1: No closing costs home loan chart

While this chart is not 100% accurate to today’s interest rates or closing costs it is accurate enough to illustrate the point. The best you can do for yourself is to ask your loan officer for a quote in all three ways to help you make up your mind how you wish to proceed. With rates higher than personal yield from most stock investments and certainly CD’s you can see paying the costs at closing is generally a more fiscally sound decision, especially long term, than going for the exciting sounding no cost home loan. Your mileage may vary.

I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site

Tagged as: home loans, no closing costs, zero cost No Comments

6Oct/110

Can a Mortgage Have a Co-signer?

A parent can be the non-occupant co-borrower for a child with an FHA home loan

No. Well, yes. Sort of. Mortgages can have co-borrowers. Instead of getting all wrapped up in the differences and similarities let’s simply cut straight to what a mortgage can have and when and how it is used. More specifically let’s look at the non-occupant co-borrower. In other words someone will be on the loan but not living in the property.

While a NOCB is not exclusive to FHA home loans that is the most common place to find them allowed. Some smaller lenders who portfolio or have special products may also allow them but generally this technique is permitted only FHA home loans.

The NOCB must have qualifying credit and so must the occupant borrower. The reason for using a NOCB is for income calculations. The upside is a borrower who does not have enough income to qualify on their own can have a family member or significant other help them to meet their monthly expenses. The non-occupant is equally responsible in making sure the mortgage is paid on time as is the occupant.

Non-occupant co-borrowers cannot overcome bad credit on the part of the occupant borrower. In fact if the occupant borrower is not credit qualified a non-occupant is moot because the loan will not be approved.

An ideal situation for a NOCB would be if the occupant is a student and has good credit scores but limited income and the parents would serve as the co-borrowers to make sure the debt-to-income ratio is within specifications. In this case the credit of both and the income of both will be used and the income of the child (occupant) can be zero provided the parent’s income is high enough to cover all of their existing obligations and well as the new mortgage.

Image: photostock / FreeDigitalPhotos.net

I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site

Tagged as: co-borrower, fha, home loans No Comments

4Oct/110

How the Lowest Interest Rates Affect Your Ability to Buy

During this time period we are experiencing the lowest interest rates in Atlanta’s history for home purchases. Add that to the abundance of homes for sale in the Atlanta area and the low demand and it soon turns into a home buyer’s opportunity like not experience in our lifetimes. Home values have continued to decline since 2007 and, according to Yale economics professor and housing specialist Robert Shiller, the end is not nigh.

For people who need to purchase a new home in the Atlanta area the numbers do line up well for the buying opportunity. The oversupply of available home listings, fixed 30 year interest rates at or near four percent, and underwriting guidelines trending toward “reasonable” it certainly is time to consider the move. Now here is some really good news: lowest interest rates results in lower monthly payments which changes the buyer’s debt-to-income ration resulting in the ability to buy more home for less money.

Debt To Income Ratio (DTI)

Debt rate is a key factor in home loan approval. When the processor or underwriter calculate the applicant’s actual debt ratio they compare all payments included on the credit report against all verified income as displayed as adjusted gross income on the applicant’s federal tax returns with a couple of small caveats. For most individuals calculating DTI is rather simply dividing monthly expense by gross income (See the graphic).

Here is how the debt ratio is affected by interest rates. Using a home loan amount of $300,000 let’s look at a table that shows the monthly payment (principle and interest) based on a range of interest rates from 4% to 8% and it should become self evident. Let’s use the magic DTI ratio of 45% meaning a maximum of 45% of your gross income may be obligated for monthly payments. In fact many loan programs since the collapse of sub-prime lending require a maximum DTI of 45%. See the image for a self-explaining example of what happens on a $300,000 as the interest rates begin to rise.

Affect of lowest interest rates on buying power

It becomes quickly obvious that as interest rates rise the buyer qualifies for less home. This is the primary reason today is a very good time to buy because rates are incredibly low (and will not stay that way) and home values are “in the tank” (and will not stay that way).

Call me today and let’s talk rates, cost and effect on your buying power.

I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site

Tagged as: debt to income, lowest interest rates, ratio No Comments

Live Desk

Daily Rates for Qualified Buyers

	Today	Last Week
30 Year Fixed	3.59%	3.65%
15 Year Fixed	2.91%	2.89%
5/1 ARM	2.81%	2.57%
See more mortgage rates at Zillow.com

(Note: These are the lowest rates possible offered through advertisers and lead buyers at the company providing the data. They may require discount points.)