First Stop 4 Home Loans

Many people have tried to refinance, only to be stopped by the value of their home in relation to the mortgage debt they carry.  In so many instances, people owe more on their loans than what their home appraises for in today’s market.  Currently, we have options for those that are “underwater.”  This would apply to people where their current loan is owned by Fannie Mae or Freddie Mac. 

Current guidelines allow up to 125% of the home’s value to be financed on just the first loan.  Many folks owe more than this.  The word on the street is that on November 15th, we will have new guidelines for this program, known as HARP (Home Affordable Refinance Program), allowing people above that 125% to refinance.  The details won’t be released until then, so we don’t know the exact parameters of the new program.

There are a few advantages for those with Fannie Mae-owned loans — such as the possibility of NOT needing an appraisal, not needing private mortgage insurance (PMI) if the loan currently doesn’t have it and not having to escrow for taxes and insurance if you currently don’t do that either.  With Freddie Mac, the advantages are the same, BUT, Freddie Mac’s program does require an appraisal. 

Important criteria for the current program:

• You must be current on your mortgage payments (no more than 30-days late in the last 12 months)
• Your home value has DEcreased (pretty typical in today’s market)
• Your first mortgage doesn’t exceed 125% of the current market value (known as loan-to-value or LTV)

Second loans, known as subordinate financing, CANNOT be paid off under this program, even if you used that second loan to purchase the home.  Any subordinate financing would stay in place and be re-subordinated (meaning subordinated again, but this time as second lien position to the NEW first loan). 

There is NO limit as to the COMBINED loan-to-value (CLTV) under this program.  This means that as long as the first loan is under the 125% LTV, the seconds can go above that.  Just know that the lender who has the second loan may NOT be willing to subordinate to the new first loan, which is where we find a lot of these refinances stopping short of closing.  Many second mortgage loan companies prefer to keep BOTH the first and second loans UNDER 90% LTV, which would be impossible for most people attempting this program. 

The occupancy type can be owner occupied as your primary residence, a second home OR even an investment property.  Pricing may be higher for a non-owner occupied home, so keep that in mind.

If you feel this may benefit you now or if you think the new guidelines may help, please let me know.  I would be happy to assist.  At a bare minimum, the following information would be required to process your loan:

• a recent paystub
• 2010 W2
• 2010 federal taxes
• recent month bank statement, all pages
• copy of your mortgage note you received at your closing

Though this option is out there and may be available, not everyone qualifies.  Feel free to contact me to determine your eligibility!

For almost a year, we have been at historically low interest rates.  With 30-year fixed rates under 4.5% and 15-year rates under 4.25%, it’s no wonder people are refinancing their homes or buying new homes.  Though what is surprising is that there aren’t MORE people taking advantage of this. 

Rates are Grrrreat!

For the first-time buyer, the special programs have had LOWER-THAN-MARKET interest rates.  Not only do they offer these competitive rates, most have an option to get down-payment assistance.  The down-payment assistance, in most instances, is actually a second loan that is placed against the home.  The assistance is a zero-interest loan with no payments.  Because it’s a lien on the home, it must be paid when you either sell the home or refinance.  It will be due to a sale since there will be NO reason for you to refinance your loan, ever.  Rates are just too low.

So what about the first-time program rates?  Below is a listing of a few of the most popular programs and what their current interest rates are.  Please keep in mind, these rates are as of this post date and are subject to change at any time.  This is more to show you just how crazy-low rates are.  And yes, these are all 30-year fixed rates, no additional points being charged and no pre-payment penalties.

• Dakota County Bond:  for homes in the Dakota County area — 4.25% — FHA or VA loan
• City Living:  for homes in the city limits of St. Paul and Minneapolis — 4.25% with assistance or 3.99% with no assistance — FHA or VA
• MN Housing:  available in the 11-county metro area — 3.75% (FHA/VA) with no assistance up to 4.5% (conventional) with NO down payment and NO PMI (private mortgage insurance)

A few of these programs can also be used in combination with the FHA 203K rehab loans.  A great way to get into a home that may need some work or that may NOT meet FHA guidelines.  All of these programs have special requirements for owner-occupancy, household income limits and sales price limits.  Feel free to contact me with further questions or to see if you qualify for one of these great programs!

Kind of a silly question, right?  Most people think refinancing makes sense whenever the rate is lower.  I would concur, but the question is, how much lower does the rate need to be to make sense?

General rule of thumb — rate should be at least 1% lower, but usually 1 1/2% lower is the best financial move.  But why?  The rate is lower, so you’re saving money; seems to be a no-brainer, right?  Here’s the deal.  A refinance costs the same as purchasing a home.  Though you can do a no-cost refinance, you’re still paying for it by paying a higher rate. 

No-cost means the lender costs are covered by the rate.  You still have title company charges, county fees, as well as the initial deposit for your taxes and insurance escrow.  The good news is you may essentially get reimbursed for all or a portion of the initial deposit when you receive a check from your old mortgage company with the balance of your previous escrow account.  This happens about 3-4 weeks after your refinance closing.

When looking to refinance, it’s best to get a copy of a good faith estimate or cost analysis to really determine if this financial move is a reality.  Many loan officers will give you the payment to entice you to do business with them.  The payment is absolutely an important piece to consider.  It’s what drove you to consider this, right??  It someone tells you what you want to hear, you just may lock that rate.

You need to know more which is why you need the estimate.  Here are some questions to consider.

• How much are the lender’s costs?
• How much are your yearly savings?
• How long do you intend to stay in your home?
• Do you have more than one loan against the home?
• Will your home value support a refinance?

These are just a few questions to ponder.  It’s my goal to tell it like it is — if a refinance makes sense, then I am all for helping you out.  If it’s not, then let’s talk about what may make sense — paying extra, going to a shorter term or just staying put.  Just know, your financial well-being is my top priority.  It doesn’t benefit me to give you bad advice.

This is a common question now that rates have fallen to the lowest levels in well over 40 years.  This means you can get, as of today, rates around 4.5% for a 30-year fixed rate — WOW!  It would appear that everyone who has a mortgage should refinance because if you can get a lower rate, why wouldn’t you?  In some instances, I would agree; but, the answer is in the numbers.

Currently, I am telling all clients that there will be NO reason for them to refinance.  It won’t make financial sense; their rate is just too low.  As a homeowner, you may get solicitations to refinance because mortgages are public record.  Thing is, the lender doesn’t know your specifics, nor do they have your best interest in mind.  My current clients, from the last year or so,  know I won’t call them to refinance since I DO care whether they do the right thing.

So when does it make sense?  One general rule of thumb is the new rate should be more than 1% lower than your current rate.  This isn’t true for all people though.  If what you owe is less than $150,000, you may need the rate to be closer to 1 1/2% – 2% lower.  And if your loan is less than $100,000, I would say it almost never makes sense to refinance.  You’re better off making principal payments.

Why though?  Since you’re taking out a new loan, you will have origination charges along with all the fees involved with a new loan — title company fees, setting up your escrow account and county fees.  Sure, you may hear that there are no closing cost refinances, but I am here to say nothing is free.  Your charges are either added to your loan, covered with a higher interest rate or being paid out of pocket by you or a combination thereof.  It’s time to run numbers!

To get a true sense if a refinance is a sound financial decision, you’ll want to gather the following information:

• approximate value of your home (tax assessed values are actually higher than current values)
• your current loan balance(s) on any first, second or home equity lines of credit
• your current loan rate(s)
• annual property taxes
• annual homeowner’s insurance if a single family home
• current principal and interest payment
• your goals — reduce rate, take cash out, etc.
• type of loan, i.e. fixed rate, term or ARM
• occupancy of the home, i.e. owner occupied, second home or investment property

These will enable me to run figures and determine the “payback” time frame.  I recently had a past client do a refinance.  They were saving $200/month.  That’s a lot of money!  Their costs were about $4400 which covered lender fees, title charges and county charges.  Setting up the escrow is not figured into this equation.  Escrows are pre-paid expenses that cover future payments of taxes and insurance.  My client would pay for these regardless of refinancing or not. 

Anyway, the calculation I run is based on the savings per year – $2400 – divided by the costs of $4400.  He’s going to re-coup these fees in 1.8 years, so under two.  This is the second rule of thumb.  If it takes longer than two years to recoup the costs, then refinancing may not be the right move.  Now, going to a shorter term or going from an Adjustable Rate Mortgage (ARM) to a fixed may make sense even if the time-frame to recoup is higher.  Biggest question here … how long will you be in the home?  Though we never really know the answer, it will certainly help guide the financial soundness of the refinance.

For those of you with second loans or home values close to or  than what you owe, refinancing may just NOT be an option, regardless of the savings.  Long and short — “maybe” is the answer to the title question.  It’s not right for everyone.  And when you work with me, I will make sure you know whether it’s right for you or not.  I would rather give you the straight scoop than have you upset that you did something you should not have.  

Send me the answers to the bulleted items above.  Let’s see if refinancing IS right for you!!