Archive for the 'Mortgages Today' Category

President Obama:7-9 Million Homeowners should take advantage of Low rates

President Obama speaks to the nation on today’s low Mortgage Rates. Check it out here: http://www.msnbc.msn.com/id/30135793/

The rates on mortgages have been all over the board but they have remained low. If you have not talked to your mortgage professional about your loan you may be missing the boat. Don’t wait for the perfect moment because it does not exist. The math will tell the truth.

Consult your Mortgage Professional Now!

As Always thank you for Reading,

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Don’t pick up pennies while dollar bills fly over your head!

Recently Market Watch published a statement that read: Freddie Mac: Fixed mortgage rates hit another low (Marketwatch Bulletin Published 7:29 am Thursday). At this point we are generally begging borrowers to take the lowest rates that we have seen. The paper is yesterday’s news people so when you call the following day as they publish the good rates they are gone.

Many times I cannot get a borrower to lock their rate because the media makes it appear that rates will continue to go lower. If not the media the government makes it seem that they will continue to slide. At this time I had mid to high 4’s available. Fast Forward to Friday at 3pm. The rates were low to mid 5’s. A movement of .5% in less than 36 hours.

The Moral to the story is simple: Lock Profit. If your mortgage professional says I can save you $319 don’t try to get to $350. Walk away from the table sir/mam. Don’t bend over picking up pennies while dollar bills fly over your head!

I am sorry to be out of character and rant for a moment but I cannot understand why we choose not to lock in savings and say in the same sentence that money is tight.

As always thank you for reading,

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Mortgage Locks: Certainly Uncertain! 3 Tips on locking your Mortgage.

When is the best time to lock in my mortgage rate? After all rates are at 3.95% are they not? Heck I think I should wait because the stimulus package is going to help me out and lower the rates to zero. My friend said that they got 4.5% yesterday and I want that rate. I heard that the fifteen year fixed mortgage is 4%. I read in the news that my loan can be modified to as low as 2% and I would like to do that right now can you help me.

OK, I am getting a little redundant but the point to all of the above ranting is simple. Rates are all over the map and they are custom tailored to the individual, the property, and the time that you are acquiring your loan. It is a common question to ask your professional is today the day that I should lock? If they state that absolutely without a shadow of a doubt today is the best day Run!

Larry Baer of Market Alert has this to say: The Market is always right! You and I are some of the time.

In layman’s terms that means to me that you will never be able to time the market and there will always be a rate lower than yours and there will always be a rate higher than yours. Here are three tips that will help you in your decisions to lock your mortgage:

1) If you like it, Lock it – I am a huge proponent of this tip alone. It is your mortgage and your payment that you have to live with for the next thirty years. If there is a payment that you are comfortable with and you like the rate then lock and never look back. Rates are changing by the minute. A swing is rate of a .5% for the worse on 200K is about $62 a month. We tend to think about how much it could go down but I encourage you to remember that we are at historically low interest rates and any rate is a good rate.

2) Don’t Share your business with Friends and Relatives – I am not saying not to be excited about your new home purchase but I am saying to be selective about your excitement. Comparing rates and down payments and programs is certain to hurt someones feelings. As I said before there are always lower and higher rates than your own. If you are the higher rate you wonder why and second guess a good thing and if your lower your celebration has caused others to second guess their dealings. How often do we share our retirement funds or down payment options, or income and credit? That is right we keep the information that tailors our mortgage to ourselves and shout out our rate. Only you and your family have to be excited about your finances and the rest of the world can remain in the dark.

3)  Ask your Broker or Banker about Float Down Policies or Rate Renegotiation Prior to Locking – Many of the wholesalers have taken a proactive approach to the market changes. They do not want to lose your business because that costs them money. In order to keep the loan active they are  sometimes willing to renegotiate the terms of your lock. Other wholesalers have a float-down policy in place. They will allow for a float-down of the rate to current market. There is almost always a cost to do this so consult with your Mortgage Broker or Banker on how this applies to your Mortgage.

Just Remember that your Mortgage is yours. It has to work for you and noone else. It is important to be educated and confident in your choices. Choose a Mortgage Professional that makes you feel comfortable with those decisions. You have made a great choice to buy in the current market environment. Take control of that choice be proactive in your education and trust your choices.

As Always thank you for reading,

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Free Mortgage Step Right Up!Definitions Continued:Origination, YSP, and Discount

Extra, Extra, read all about it! We got your free mortgages over here! No cost, no fees all we need is for you to apply and voila. I am sure that you have heard of the infamous no cost mortgage. You know the one that costs you absolutely nothing. Yeah that one. Oh you got one of these before. I am so sorry to hear that.

The truth is there is no such thing as “no cost.” I know surprise surprise. It is quite often that we come across consumers that have been told about the “no cost” mortgage. It could not be any further from the truth. You see the illusion in the trick is that there are third party vendors that are not part of the Mortgage per se that want to be paid. Examples of those professionals would be the appraiser, the title company, the termite guy and the credit vendor to name a few. Ask you mortgage consultant about the “no cost” mortgage and see what they say. 

This blog is not about the “no cost mortgage though. It is a continuance on the series of definitions. Today we will take a look at the different types of ways that your mortgage professional is paid. There are three terms that you will commonly hear:

Origination –  Loan origination is the fee that is charged by the Broker or Banker that you are working with. Commonly, this makes up a portion of the broker or bankers commission. When applying for an FHA mortgage it is common to see 1% origination.

YSP or Yield Spread Premium – yield spread premium is an incentive that the wholesaler pays the broker for delivering a quality loan package and for locking specific rates. In general the higher the rate the higher theYSP. However, today’s market has changed YSP and many times the previous statement no longer holds true. There are several reasons for this but one of the reasons is that investors are afraid of an early pay off. See if they are to offer large incentive to sell higher rates and the rates remain low, there is a likelihood that the consumer would refinance to a lower rate. When the consumer does this early on in the loan it is called an early pay-off. An investor who has paid a large incentive for the higher rate will not have held the investment long enough to recoup the pay out resulting in a loss on the investment. It is common to see incentive be offered at the rates that are selling in the secondary market.

Discount – This is the opposite of YSP. Discount is paid to the investor to obtain a lower rate. It is essentially pre-paid interest. If you are willing to pay more money up front to the investor then they are willing to discount the note rate. This process lowers your monthly payment but increases the upfront costs of the loan. Discount will be made payable to the wholesaler that you are obtaining the loan through.

You cannot have discount and YSPon the same loan. However, origination can be seen with both discount and ysp. The broker has a percentage that they make on the loan. Many times that is with a combination of loan origination and ysp. In some cases the math would point to paying all origination for the broker/bankers fee so that the rate is lower and there is no YSP.

How do you know what is right for your loan? Consult your professional but also ask yourself the following question? How long do I see myself in this home and this loan? The answer to that question will help your professional show you the appropriate combination. After all, it is simply mathematical. The numbers never lie and they will tell you what is right and what may not work.

As Always thank you for tuning in.

All the best,

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Mumbo Jumbo Money Game! Where is the money?

I am trying to buy a home for 1.2 million. I have great credit and I make awesome money. I can put 20% down and I will need a loan for 960K. Can anyone out there help me?

Buyers in the mumbo jumbo arena are finding it very difficult to get financing. There are a few lenders out there that are willing to give out the money but there are a ton of strings attached. The losses that the investors have taken over the last few years has everyone gun shy. An investor does not want to tie up a million dollars in an economy where job loss, dividend cuts, and bonuses are being stripped.

Check this out directly from one of our sources today regarding what they will do for the Jumbo Market:

Max LTV is now 70% for Purchase or Cash Out.

Minimum score is now 680 to 700 depending on loan amount.

Reserves required are now from 6-12 months depending on DTI. Max DTI is 45%.

This is only for loans to 1 million. Imagine those that are trying to buy over this. Inman News posted a great article on how Bank of America is trying to buy the jumbo market. Check out the article: http://www.inman.com/news/2009/03/20/bofa-out-make-jumbo-loans  

There criteria is no different than the rest but they do not have to have Fannie Mae or Freddie Mac buy their loans. They have the ability to keep the loan in their portfolio and service the debt. The ability to service the debt as well as keep it in the portfolio gives Bank of America the option to pick and choose who they do business with and whether or not they feel comfortable with the risk.

Another Great article tackling this issue is from the Washington Post check it out:  http://www.washingtonpost.com/wp-dyn/content/article/2009/03/20/AR2009032001447.html

One may ask why are you showing information that limits your ability to do Jumbo loans? The reason is simple I specialize in Purchase money for buyers in the market to purchase a home. As you will start to see as soon as I launch Cahomestrategies.com in the middle of April, I am all about educating my buyers. To be a great educator you have to have a limited number of subjects that you know well. I know Government Purchase money and I know conventional purchase money up to the Revised temporary loan limits. I do not know Jumbo but I can point you in the right direction. The goal is to make sure that you get the highest level of service and that you end up with the right mortgage. 

Your mortgage success is my commitment!

As Always thank you for reading, 

freeman_signature 

 

Mortgage Insurance: Definitions in Mortgage

Mortgage Insurancecan be like gum on your shoe on a hot day. In the years 2002-2007 everyone would avoid Mortgage insurance like is was a plague. The way that we would avoid Mortgage Insurance was by getting an first mortgage and combining with a second mortgage. This type of structuring was commonly referred to as 80/20, 80/10/10 or 75/25. This numbers referred to the LTV/CLTV (https://mattfreeman.wordpress.com/2009/03/19/loan-to-value-definitions-in-mortgage-continued/) .

The break-even of an investor that is lending money is considered to be 80% so if you borrow less than 80% than the investor does not need any protection. If you borrow more than 80% on one loan then the investor wants to have protection in the event you default. When you default and they have to take back the property and they have giving 90% of it’s value their loss can be 10% or greater after all the expenses to foreclose. Please be aware that there are a few exceptions to the rule namely VA and USDA loan programs.

This is where Mortgage Insurance comes into play. The mortgage insurance protect the investor when a consumer defaults and repays them for any losses that they may take. Mortgage Insurance can take on many forms and I suggest that you talk to your Mortgage Professional for the one that may best suit your situation. A few of the types of Mortgage Insurance are as follows:

BPMI – Borrower Paid Mortgage Insurance – commonly used with an FHA loan borrower paid mortgage insurance is paid by the borrower on a monthly basis. For FHA there is an Upfront Mortgage Insurance Premium and then the monthly expense. This monthly expense is in addition to your principle and interest payment, your taxes and you homeowners insurance.

LPMI – Lender Paid Mortgage Insurance – As the name states the lender pays the mortgage insurance premium for you in theory. What they do is raise the rate that you would have gotten by a said amount to cover their risk. The increased rate that you pay covers the losses because the rate is above market. (Why would you want this?)

I am glad you asked that question. In 2007, Mortgage Insurance,  became tax deductible. (please note that I am not a CPA and any information here is strictly to illustrate my point. Please consult your CPA for your situation prior to making a decision). However, there were some provisions to what and who could deduct this premium. If you make greater than 100K gross you cannot deduct BPMI. Those that are in that category would have better tax benefits going with LPMI because the MI is built into the rate and Mortgage Interest is always deductible(primary residence).

The reason that 80/20 or 75/25 or 80/10/10 were popular was because the first mortgage was under the 80% break-even and the second mortgage would generally attach a higher rate by 2-3% to absorb the risk they were taken. Second Mortgage were also smaller loans.

You may here the terms PMI(private mortgage insurance), BPMI, LPMI, MIP(mortgage insurance premium) and it can get very confusing. I always recommend that you consult your professional to help explain anything you may be unsure of.

To end this summary of Mortgage Insurance I like to always give a few examples of what I might recommend and when we need or do not need mortgage insurance.

Ex. 1 –  Purchase Price 100K and you need a loan for 85K. Do we need Mortgage Insurance? The answer is yes. Since we are borrowing over 80% of the value of the home BPMI or LPMI would be needed. Another way to finance this to avoid Mortgage insurance would be to do an 80% first mortgage and a 5% second mortgage and putting 15% down. However, second mortgages are the 2009 dinosaur equivalent. They are almost extinct.

Ex. 2 – Purchase Price 200K and you need a loan for 160K.  Do we need Mortgage Insurance? The answer is no. In this case the LTV is exactly 80% and at this LTV and below there is no need for Mortgage Insurance.

In summary, Mortgage insurance is a fee that is paid by you and it is to protect the investor that is taking the chance on lending you more that 80% of the value of the home. It can be dropped when your home reaches that 80% LTV range but can be difficult to do. If you have an FHA mortgage they require 60 payments and a LTV of 78% before you an get rid of it.

If you have any questions regarding what is in this post please leave a comment or call me in the office. Thank you for your time.

As Always, Thank you for reading.

Matt Freeman

Loan to Value: Definitions in Mortgage Continued

Buying a new home or refinancing your existing mortgage is something that hopefully everyone will experience at one point in their life. Mortgages are tailored for the individual or couple that is buying the home. They are assessed by the overall risk the investor will have on the loan based on the qualifications of the consumer. Yesterday we discussed DTI or Debt to Income which is the borrowers ability to repay the debt. Today I would like to take a look at the collateral side of lending commonly referred to as LTV or Loan to Value.

Like DTI, Loan to Value is also expressed as a ratio. It is the amount you will finance for the purchase or refinance divided by the value of the home. The home is what is used as collateral and the greater the equity the lower the risk. Another way to put that would simply be low LTV lowers the risk and high LTV increases the risk.

Let’s look at an example for a refinance transaction. You currently owe approximately 150K on your home. An independent appraisal has determined that the value of your home is approximately 300K. The loan to value on your home would be:

loan amount / appraised value = LTV   150K / 300K = 1/2 = 50%.

We never would use the 1/2 in the example as the number is always expressed as a percentage however, for the example I wanted to illustrate the correct math. 50% LTV would be considered as a low risk loan to value. That means that you have 50% equity in the home and in the event the lender had to take back the property via Foreclosure they would be able to sell for a profit.

80% LTV is considered the break even point for an investor that has to foreclose on a property. They spend approximately 20% of the equity in fees, marketing and reduction of price as well as the holding costs if they are to retake the property. This is exactly why they need insurance know as Mortgage Insurance when our LTV exceeds 80%.

Let’s take a loook at another example. You are buying a home and you have 3.5% to put down as a down payment. The home that you would like to buy is selling for 100K. This means that you would need to finance 96, 500K of the purchase:

LTV = Loan Amount/Appraised Value = 96,500k / 100,000k = 96.5% LTV(please note that purchase price and appraised value can be different. In the event they differ on a purchase the investor will base LTV off the lower of the two.)

We have looked at a few basic examples of LTV here today. The last thing that I would like to dicuss briefly is CLTV. CLTV stands for combined loan to value. This is when you have two or three loans on a property. If you have a loan for 100K and a second mortgage for 50K and the value of the property is 300K how would you determine the combined loan to value? Let’s look at an example:

Loan 1 + Loan 2 / Appraised Value = CLTV; 100k + 50k / 300k = 150k / 300k = 50% CLTV.

These are very basic examples and I must tell you that there is always an LTV and sometimes a CLTV. You will have both in many cases:

Example above the LTV = 100k / 300k = 33% and the CLTV = 100k + 50k / 300k = 50%.

CLTV may also be referred to TLTV or HCLTV which are total loan to value and heloc combined loan to value.

I hope that you enjoyed this information on LTV. Stay tuned for definitions of credit and mortgage insurance coming soon.  As always thank you for listening.

 

 


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