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Cost of FHA Mortgage Insurance to Increase October 4th
Posted by Paul Gonzales | Leave A Comment »
With the passage of HR 5981 Congress has given the FHA the ability to change the mortgage insurance premiums it charges on FHA-insured loans without any further “acts of Congress”. As a result, the FHA has announced that effective October 4th, the Up Front Mortgage Insurance Premium (UFMIP) charged to home buyers will be reduced from 2.25% of the loan amount to 1.00%. However, the Annual Premium (which is paid monthly) will increase to 85 to 90 basis points. What this boils down to is a higher monthly payment on FHA-insured home loans for the same purchase price. On average the increase in the total monthly payment will be approximately 3.7% higher than under the current FHA insurance scheme.
- For Example: assuming that the buyer rolls the UFMIP cost into their new loan (as the vast majority do), on a $400,000 purchase with the FHA-minimum 3.5% down payment, this change will translate to an increase of about $85 in the total monthly payment of principal, interest and mortgage insurance premium. This change will not apply to certain rare situations such as Title I, HECM, HOPE for Homeowners, Section 247 (Hawaiian Homelands), Section 248 (Indian Reservations), Section 223 (e) (declining neighborhoods), Section 238(c) (Military Impact areas in Georgia and New York).
The intent is to help the FHA rebuild its depleted insurance reserves. An unintended consequence, however, may be to put yet another drag on efforts to rebuild the housing market as the increased monthly cost of an FHA loan means fewer home buyers qualifying at any given purchase price point.
Paul Gonzales, CW Mortgage Lending (760) 746-7388 or paulforloans@aol.com
Related Posts: San Diego
When Does It Makes Sense to Refinance?
Posted by Paul Gonzales | Leave A Comment »
Trying to decide whether or not to refinance your mortgage can be like trying to find treasure on a deserted island. You can shovel a lot of sand and still come up empty-handed at the end of the day. However, you can sift it all down and find that nugget of wisdom rather quickly if you know how.
There are three primary reasons to refinance your mortgage:
(1) To take advantage of a lower interest rate and/or smaller monthly payments
(2) Pull cash out of your equity to consolidate other more costly debt, like credit cards, car loans, student loans and such, thus saving a lot of money each month
(3) Pull cash out to invest or pay for other expenses such as college tuition, home improvements, medical expenses or taxes.There are other reasons to refinance that you might consider such as swapping an adjustable-rate loan for a fixed-rate mortgage, but they all boil down to the three primary reasons noted above.
Refinancing to consolidate debt, invest or meet other obligations is usually straightforward and the numbers are easy to grasp. But how do you know when refinancing just to lower your interest rate or monthly payment really makes financial sense?
Back when the Beach Boys were Surfing USA, the “rule of thumb” was that it made sense to refinance your loan if you could lower your interest rate by 2 percent (say from 12% to 10%). But that was in the days when the typical middle-class home loan was $65,000.
Today, with most home loans considerably larger than that, a good standard rule is that if you can recover the cost of refinancing within 24 to 36 months, you should consider doing so.
For example, if you can refinance your $300,000 loan and reduce the interest rate by just three-quarters of a percent from 5.5% to 4.75% you will save at least $138 per month. If the cost to refinance is $2,900, dividing that cost by your monthly savings of $138 results in a payback of your initial $2,900 cost in about 21 months.
This simple calculation is called a “break-even analysis”. After 30 months, you are making money on your lower interest costs – and that makes sense for most people. As I have said before, consult your trustworthy loan officer and ask him or her to work up a break-even analysis for you. Then you will quickly be able to sift a beach-full of sand and discern that golden nugget!
Call Paul Gonzales at (800)775-7334 or email me at paulforloans@aol.com to see if refinancing makes sense for you! NMLS#290493
Related Posts: San Diego
Shopping for a Home Loan – Be Sure to Compare Apples to Apples
Posted by Paul Gonzales | Leave A Comment »
You’re a smart cookie, so you called five different lenders and “shopped” for your home loan. If you are like most folks, you asked “what’s your rate?” and each lender tossed you a quote. What’s your next move – do you go with the guy that quoted you the lowest rate? You probably shouldn’t and here’s why – you didn’t ask enough questions, and probably didn’t speak to all of them on the same day.
Interest rate quotes by themselves literally mean nothing. This is because, all other things being equal, you can get a lower rate by paying ‘points’ or other closing costs. On the other hand you may reduce or even avoid those extra expenses by accepting a higher interest rate. The problem you have when you ’shop’ is that each lender may be simply tossing you an interest rate without explaining what it will cost you to get it. They simply want to take you off the market with whatever you want to hear – they’ll clue you into the full picture later.
Your job is to get the full picture right up front! Here’s how:
- be very specific about the kind of loan you want (30 year fixed, interest-only payments etc.. Rates very depending on the type of loan you are seeking)
- When they quote you an interest rate, ask them if that particular rate requires your payment of any discount points, an origination fee or application fee.
- Also ask what the Annual Percentage Rate (APR) is for that particular quote (see below for more information on the APR)
- finally, ask them to give you an estimate of your final and total closing costs including an appraisal and credit report
The Annual Percentage Rate (APR)
In addition to the interest rate being offered, the APR takes into account the costs necessary to actually get that rate. It does this by mathematically spreading those costs over the life of the loan (say 30 years) and treating that cost as an added interest burden. For example, if you are quoted a rate of 5.50% for a 30-year fixed loan of $300,000 and the total costs incurred to get that loan are $2,700, the APR might be 5.58%. This device is intended to help you better compare quotes from different lenders. If you talk to two different lenders about the same loan and each one quotes you the same interest rate but different APRs, you might conclude that the lender quoting the lower APR is estimating a lower closing cost figure. On the other hand, if one lender quotes a lower interest rate than another lender, but both APRs are about the same, the lower rate may involve paying discounts points that the second quote doesn’t incur.
A final word about interest rates
Mortgage rates for all lenders are subject to the frequent and rapid changes in the financial markets. They can (and commonly do these days) change literally hour-by-hour, much as the stock market does. In recent months we have actually seen interest rates on mortgages rise and fall as much as a half of a percent in the same day. The point is that if you are leisurely “shopping” for the best deal over a period of several days or weeks, your information has already gone out of date and you have no basis for a sound comparison.
The key is to recognize that rates alone are only half the picture. You also need to know the costs involved in getting those rates and talk with lenders preferably on the same business day, so you can compare “apples to apples”, instead of “soup to nuts”. The bottom line, however, is still choosing to work with a lender whom you can trust and who will work hard to get you the best interest rate-and-cost package you can qualify for. And that may definitely not be the the person tossing out the lowest rate of the day!
Paul Gonzales, Countywide Mortgage Lending, (760) 746-7388 or email at paulforloans@aol.com
Related Posts: Buyers, CW Mortgage, Home Loans, Interest Rates, Mortgage News, Real Estate News
BEWARE! The Type of Property You Choose May Affect Your Loan Approval!
Posted by Paul Gonzales | Leave A Comment »
Most people know they need to look their best when trying to get approved for a mortgage. Like brushing our teeth and combing our hair for a family portrait, we know that our credit scores, job history and general financial health are important. (To see how to avoid common pitfalls after you have been approved for a loan, see my recent post Your Loan is Approved! Now Avoid These Four Pitfalls That Can Really Ruin Your Day).
However, did you know that the type of property you choose may also have a major impact on your loan approval? If not, dear reader, then Press On!
Let’s say you start out thinking you’re looking for a cute house with a white picket fence. But then you begin to see different options. Let’s see how those choices may change, limit or even eliminate your financing options:
A Planned Unit Development, or PUD
A what? They look like a regular house, but are part of a large, master-planned community. Most homes built in recent years by major builders are PUDs. This property choice invariably comes with a required membership in a Home Owners Association (HOA). The monthly HOA dues can commonly run into the $200 to $400 range, especially in Southern California. This will reduce the amount of financing you qualify for because it will be included as part of your debt-to-income ratio.
Condominiums
- Non-Warrantable Condo Projects – This is a condominium that does not have official Fannie Mae or FHA approval (required to get financing from these agencies)
- Condo Conversions – These are condos that started life as apartments and then were converted to condominium building codes. Most are OK, but a few may be little more than cosmetically-enhanced apartments. Again, look for that all-important Fannie Mae or FHA approval on the project
- High-rise Condos – commonly defined as a condo above 4-stories tall. Some lenders won’t do mortgages on them
- Those ubiquitous HOA dues will change your qualifying debt/income ratio
Manufactured and Modular Homes
This can be a tricky area with regard to financing. These types of homes are partially built and assembled in a factory and then moved to the property site where they are permanently affixed to the land. Such homes manufactured in recent years can look like a traditionally-constructed or site-built home except to the most discerning eye (like an appraiser). However, lenders definitely make the distinction and the types of loans available to purchase or refinance this type of property are quite limited, especially in the current financial markets. Where available, a mortgage on this type of property will likely require a greater down payment. Options such as interest-only payments will be almost impossible to find. While this type of housing can be ideal for the right Buyer, be aware that it will limit the financing options for you now, and most likely for the next person looking to purchase it (from you)
Large or Unusual Properties
This one can catch you by surprise. A common example might be a home built on 18 acres of land. Regardless of how big or nice the house is, a large tract of land may actually dominate the total value of the property. Conventional mortgages are intended to finance residential property, not land. As a result, some lenders will limit the maximum size of the property they will finance; 5 acres is not uncommon. Other lenders will allow larger acreage but will require the appraisal to consider the value of the improvements (house) and limit land value to 5 acres. Another issue can arise if the property includes improvements other than what is common to residential property. Examples might be a home on 4 acres that includes 300 avocado trees, or a duplex where 1 of the 2 units actually houses a business such as a barber shop. These properties may be viewed as commercial or mixed-use in nature, rather than residential.
Multi-Family Property (Duplex, Triplex etc.)
Conventional financing is still widely available for 2 to 4 family properties. However, recent changes in the mortgage markets have tightened a number of requirements to qualify for financing on these property types. Examples include larger down payments, higher credit scores, higher interest rates and more conservative debt-to-income ratios.
The important point to draw here is that one size does not fit all when obtaining financing. It’s best to have a reasonably clear idea of the type of property you are seeking to purchase before you obtain loan approval. And if that idea changes, be sure to let your mortgage professional know as soon as possible. That will avoid unpleasant surprises and assure that your approved financing will work for the home of your dreams!
For questions about matching your loan to your home, call Paul Gonzales, Countywide Mortgage Lending at (760) 746-7388 or email me at paulforloans@aol.com
Related Posts: CW Mortgage, Find A Home, Home Loans, Mortgage News, New Homes, Real Estate News, homes for sale
Foreclosures In My Neighborhood – How Do They Affect My Value?
Posted by Paul Gonzales | Leave A Comment »
Foreclosed properties and “short sales” are certainly in the news today. We are all aware that they exist in every community right now including our own neighborhoods. Properties that have been taken back by a bank or lender and held on their books are known as “real estate owned” or REOs. For both regulatory and business reasons they must work to sell them as soon as they can and get the REOs off their ledgers. So-called short sales are where the private owner and the lender agree to sell the property for less than what is owed. In our current markets, this need to liquidate properties often forces the lender to sell at a loss. As seen in recent sales figures for many areas, this practice has at least the potential to drive market prices lower in some areas.
OK – So how can the sale of a nearby foreclosure or short-sale affect me?
Any individual home sale in the area is only one statistic, not the entire local market. In fact, a common misperception is that the lowest recent home sale “sets the price” for similar properties around it. Not so. Understanding just a couple of basics about how a professional appraiser determines value can illustrate the impact that recent nearby sales have on your home’s value.
Appraisers are required to identify recent sales of properties that are similar and near in proximity to the home being appraised; these other sales are called comparable sales, or “comps“. There are extensive rules and formulas that they use to accomplish all that but those are the general criteria that they seek. After adjusting the sales prices for considerations such as age, size, amenities, quality and condition (among many other issues) the appraiser then has a finely-tuned range of prices that he or she will use to determine the value of the subject property being appraised. While not impossible, it is rare that the final value ascertained will be equal to the lowest comparable sales price (REO, short-sale or otherwise). Most commonly, the final value will be somewhere within the range of prices analyzed.
Which brings us back to the topic of the sale of a nearby REO or “short“. If the lowest sales price in the pool of comps used by the appraiser is an REO and is also significantly lower than the rest of the comps in the pool, the appraiser has the latitude to comment on that aspect. Depending upon how solid the remaining sales comps are, the REO or short-sale could have only a minimal impact on the value of the subject property. It may thus represent only the low end of the value range for that particular market. On the other hand, if the majority of recent comps happen to consist of REOs and/or short sales, then they may well define that local market and collectively have a significant impact on the value of the subject property.
In the final analysis, the value of your property is determined by your local market and is usually defined by recent multiple sales. Regardless of whether comparable sales are private sales, short sales or REOs, the market “is what it is” at that point in time. What’s most important to remember is that for the vast majority of markets, value is not defined by any one single sales transaction!
for more information contact Paul Gonzales, Countywide Mortgage Lending (760) 746-7388 or paulforloans@aol.com
Related Posts: San Diego
