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Archive for the ‘Refinance’ Category

Hold on to your seats! Rates are heading up!

Over the past couple weeks, we have begun to see a steady upward trend in mortgage rates. Last week, rates began to worsen and we have not seen any real relief since.

Much like the gas prices, even when good news comes, the prices seem to still climb. Mortgage rates have tended to follow the news. Good economic news such as a down turn in unemployment and an improvement in the stock market would usually push mortgage rates upward. Conversely, if unemployment rates rose and the stock market fell, rates would decline. However, over the past week, we have seen a steady increase regardless of what the news says.

This makes one wonder if we have seen the bottom of mortgage rates for a while.

Last week, you could find 30 year mortgage rates hovering around 5.875%, where today given the same pricing criteria, you might see rates more along the 6.375%. (This is not an advertisement of any rate or program; rather it is for illustrative purposes to explain the rise in mortgage rates lately.)

If you are on the fence waiting to see if rates will get better, get off the fence now! Mortgage rates in Charlotte may have seen the lowest rates we will see for some time to come.

New Risk Layering Added to FHA Mortgages

Effective July 14, 2008 FHA mortgage loans will charge new mortgage insurance premiums based on a combination of credit scores and percentage down. Currently all FHA mortgage loans enjoy the same premiums.

Right now, an FHA mortgage loan requires 1.5% of the loan amount to be paid up front for mortgage insurance, plus an annual mortgage insurance premium 0.50%, paid monthly. Using a $100,000 loan amount, the upfront mortgage insurance premium would be $1,500 and the monthly insurance premium would be $41.67. (0.50% annual = $500 / 12 monthly payments = $41.67 a month.)

Lets see how this new Risk Layering will impact FHA mortgages after July 14.

Most FHA purchases are done using the minimum 3% down. So with the new risk layering, someone with a credit score of 640 would see an upfront fee of 1.5% and an annual rate of 0.55%. Not bad! Realistically you are talking a difference of roughly $4 a month.

However, someone with a credit score of 550 would see an upfront premium of 2.25% and an annual premium of 0.55%. On a $100,000 mortgage loan, this equates to an upfront premium of $2,250 and $45.83 a month for the annual premium.

The good news is that the upfront premium can be financed back into the loan amount, so the additional $750 won’t be required in cash! And this small amount won’t make any significant monthly payment changes that will hurt your wallet!

This is a small change and not one to be too upset about. Yes, its an increase in premiums, but with the increase of foreclosures across the country, HUD has to ensure that they can continue to offer these great FHA mortgage loans!

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Joe and Susan wanted to buy a home in Charlotte. They spoke with a loan officer and began the credit application. Joe had been on his job for just over a year, and Susan almost a year. 

John went on to explain that he had worked for Widgets Inc for 6 years, but got caught up in downsizing. After losing that job, went to work for Wares LTD and has been there for about 14 months. Susan worked for Dr. Bones for 3 years, but when he retired, she went to work for the Miracle Hospital and has been there for 10 months. Their loan application was signed and a closing date was set.

As the processing of the loan got under way, the lender approved the mortgage loan and all that was left was final verification of employment dates. With that done, the excited couple could soon get the keys and move in! But wait… uh oh… we have a small problem.

Duirng the final verification of employment, Widgets Inc reported back that Joe had left in August of 2006. Wares LTD’s records have Joe starting his job with them in Jan 2007. As well, Dr. Bones reported that Susan had left his employment in Feburary of 2007 while Miracle Hospital has a start date of July 2007. So on both accounts we have some serious job gaps!

The loan officer requested clarification from Joe and Susan and they explained… “Yes, we did have a few months in between those jobs. During that time Joe worked through a staffing company until a solid job came and Susan worked at a Nurses on Call company until the Hospital came through.”

When asked why they did not explain this up front, they simply did not think it mattered because they considered the jobs “part time”, held them for just a short time between their “main jobs” and neither of these “part time” jobs were anything they would include on their resume.

At this point, everything with exception of the job times was cleared and ready to go. Since lenders want to ensure that a borrower is still on the job when they close a loan, this is usually one of the last items verified. Needless to say, the brakes got put on the mortgage loan.

With further information and documentation, all employment was finally verified and Joe and Susan closed on their Charlotte home. However, they closed 5 days later than expected and those 5 days were the most frustrating days for everyone involved.

When you are applying for a mortgage loan in Charlotte (or anywhere for that matter), it is important that you disclose all jobs you have had that cover the past 24 months. Even if it is a job that does not seem to fit your resume, give the information to your loan officer. Be prepared to have dates of employment and a reasonable explanation for any job gaps.

Getting the most accurate information up front will make the entire process go much smoother and make your closing happen faster. Leaving out “unimportant” details can actually delay (or in some cases prevent) closings.

Documenting Assets is Important

Mortgage lenders have tightened up on underwriting criteria since the subprime fallout. One area that is increasingly looked at is the documentation of assets.

Asstes play a key role in qualifying for a mortgage loan. In many cases having assets may help a home buyer get approved when job time or income is less than desired. And while horrible credit is hard to overcome, tremendous assets can also help overcome some credit chellenges.

Assets can be used for paying towards money down or closing costs on your mortgage. They can also be used to provide mortgage “reserves.” Reserves of cash make a lender feel more comfortable should you run into a tight spot financially. With a reserve cushion, you would still have funds to make your mortgage payment, possibly for a few months!

Assets must be “liquid”. In other words, you must have access to get your hands on the funds. Certain retirement plans (like pension plans) do not allow any withdrawls at all, and therefore can not be considered assets. Other property owned, regardless of the amount of equity available, would not be considered assets. (Until you sell the property there is no guarantee as to how much money you would have, and taking a loan out against the property creates another liability.)

So for a mortgage application, acceptable assets would be items like savings accounts, checking accounts, money market accounts, stock shares, 401k and IRA accounts… any account that can be easily liquidated. For certain accounts such as 401k and IRA accounts, you may need to document the terms in which you can get the funds as well as the funds available.

Do you have money spread accross 4 different accounts? You may be tempted to consolidate them all to one account to make things “easier”… don’t do it! Leave the money in the accounts as they are. Any time accounts are opened, closed or money is transferred, it can become a headache having to not only document the accounts but also the source of all the deposits, withdrawls and transfers.

You may ask, why does this all matter? After all, it’s your money, right? It may well be your money, but from an underwriter’s viewpoint they need to be sure there are no unusual deposits that can not be documented. Their fear is that a borrower may have gone out and borrowed the $5,000 deposit that can not be documented creating another monthly payment not showing on credit yet.

So when you are applying for a mortgage loan in Charlotte (or anywhere!) be sure to provide every source of money you have saved. But don’t try to consolidate them into one particular account. It is easier for a processor to verify 5 accounts than to try and document 5 accounts plus 15 deposits and withdrawls.

Special Mortgage Loans for Teachers of North Carolina

I know first had how under paid, under appreciated and under supported teachers are. (My wife is a teacher in North Carolina.)  While I can’t solve all the problems in the education system, I can help North Carolina Teachers with mortgage loans!

(My wife is a N.C. teacher, but this is not my wife.)

So, this summer I want to reward North Carolina teachers with a special mortgage program. In addition to great mortgage rates and programs, I will provide reduced fees and preferred processing to my NC teacher mortgage customers!

Add this to the Teacher’s Good Neighbor Next Door program that allows teachers to buy a home for half price and you have the best possible deal for Carolina teachers! Think about that… no money down, 100% equity from day one and a low mortgage rate to boot! Aren’t you gald you are a teacher?

North Carolina teachers, you deserve the best. Let me do my part in giving back by helping you in the best way I possibly can. No matter if you are a first time home buyer or a seasoned home owner, I am here to help you buy the home of your dreams!

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How close an estimate are you given?

When you apply for a mortgage loan, lenders are required to offer a form known as the “Good Faith Estimate.” This form is supposed to provide the borrower with a realistic estimate of the costs involved in obtaining a mortgage loan. This should provide the borrower with the knowledge up front to know if they can afford to obatin the mortgage. However, some argue that these should be used to compare and shop lenders. But could this be just a “fantasy” notion which can backfire on the borrower? Let’s consider this…

The Good Faith Estimate (commonly referred to as the GFE) is designed to be a disclosure of what to expect. But becuase so many “experts” and “talking heads” have preached and continue to instruct borrowers to compare GFE’s between lenders, many lenders have begun to go “skinny” on their estimates. As a result, many do not provide a real estimate to the consumer in ‘good faith.’ Since these lenders are afraid of the consumer using it to shop them against other lenders, many will play a kind of ”bait and switch” game just to look the best and get the application.

The problem is that when a good faith estimate does not provide realistic numbers, borrowers get hurt. Let’s say for example that you are looking to buy a home and obtain a good faith estimate from “Big Bank USA”.  On this GFE, the money you need to have ready to close on your loan is roughly $2,500. You evaluate your money and feel confident you can handle this. So you begin the home buying process and find a home. After inspections and appraisals (which you ususally pay upfront out of your pocket) you are finally about ready to close. But when you get to the attorney’s office you find out that your closing costs are actually $4,000 and you need $1,500 more to close on your loan, or lose your home! Yikes!

What happened? Well, the loan officer at “Big Bank USA” was afraid that you might shop his GFE against other lenders. So he did a “skinny” verison of an estimate. He “miscalculated” the amount of money needed to establish your escrow account. Although he knew the closing would be mid-month, he only figured 1 day of pre-paid interest instead of 15. The estimate for home owner’s insurance and taxes were “low balled.” The attorney, title insurance and other fees related to the closing were “slightly off”. All of which adds up! (Of course, he won’t actually be at the closing, but over the phone he will “confess” that these items were all “outside of his control.”)

So I wonder if using a Good Faith Estimate for “shopping” is what it should be used for? Regardless, I would suggest that you should definetly review the estimate and see if it is something you can afford. And be sure to ask some questions…

• Is this accurate?
• What on here might change?
• Which are actual lender fees and which are “outside of your control?”

Listen to the responses and you will quickly see if the one you are talking to has provided you something you can be confident in. After all, its not what someone “promises” when you apply… it’s what they deliver when you close.

How to Avoid Unsoliciated Mortgage Calls

This article will address some items that you, the general public, may not be aware of. When you apply for a mortgage loan with any lender, your information may be getting sold. And not by the lender you applied with either!

Here’s the nightmare scenario…

Let’s say you apply for a mortgage loan in Charlotte. During the application process your credit report is requested from the 3 major credit bureaus. This is normal and so far so good. But what happens next is what gets scary for you…

Since a mortgage lender has pulled your credit, your information can now be sold to other mortgage companies nationwide as a “trigger lead.” A trigger lead is a lead that is sold when someone is actively seeking credit. When the report is pulled, it “triggers” that you are looking. The credit bureaus then sell your information to multiple lenders across the country, all geared to call you and pitch their offer to you. This can become a telemarketing nightmare!

Sure, you may want to compare lenders, rates and programs. But do you want 20 unsolicited phone calls from various lenders across the country?

So how do you stop this from happening? Actually, it’s fairly easy! But you need to be proactive.

Before calling a lender, do this:

1. Visit OptOutPreScreen.com. This is the official website for all 3 credit bureaus to request them NOT to sell your information for what they call “prescreened offers.” You can opt in, opt out for 5 years and opt out permanently.
2. Visit DoNotCall.gov. This is the official National Do Not Call Registry which instructs telemarketers that they are NOT permitted to call your phone for unsolicited purposes. In other words, if you did not ask them to call, they can’t call. If they do they face possible fines up to $11,000.

The beauty of these two sites is that by Opting Out of “prescreened” offers, you should not be sold to other lenders. But if by chance it gets through, 99% of the lead sources will compare your number to the Do Not Call list and if your number is there, they “scrub” your name off the list.

There is one added benefit… your home mail box will get less junk mail as a result!

Acceptable types of Alternative Credit for FHA Mortgages

According to the HUD Mortgagee Letter 2008-11, HUD has created two groups of references that can be used as alternative credit for FHA mortgage loans. These are used when the borrower’s credit file does not have enough information to create a credit score, or when the credit file produces a score with very limited credit. HUD stressed that these are not to be considered as an alternative to “poor credit.”

Basic Guidelines for FHA Alternative Credit

There must be at least 3 references that can show a solid bill payment history. All of these should cover the payment history of the most recent 12 months. At least one of these should be from the “Preferred” Group with the focus of references being mainly in the “Preferred” group. Once all options have been exhuasted with the “Preferred” group, then references from the “Secondary” group can be considered.

The “Preferred Group”

rental housing payments (subject to independent verification if the borrower is a renter), utility company reference (if not included in the rental housing payment), including gas, electricity, water, land-line home telephone service, cable TV. If the borrower is renting from a family member, request independent documents to prove regularity of payments, such as cancelled checks.

The “Secondary Group”

insurance coverage, i.e., medical, auto, life, renter’s insurance (not payroll deducted); payment to child care providers – made to a business providing such services; school tuition; retail stores – department, furniture, appliance stores, specialty stores; rent to own – i.e., furniture, appliances; payment of that part of medical bills not covered by insurance; Internet/cell phone services; a documented 12 month history of saving by regular deposits (at least quarterly/non-payroll deducted/no NSF checks reflected), resulting in an increasing balance to the account; automobile leases, or a personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the payments.

These alternative credit references must be verifiable. HUD’s preference is that they are verified by a credit reporting agency and that they create a “nontraditional mortgage credit report.” This report would be used by the lender just like a standard credit report would be used.

If a nontraditional mortgage credit report is not possible, HUD further requires that each reference be independantly verified and should be backed up by cancelled checks covering the last 12 months’ payment history.

In my next posting I will address what can be done if no references can be found, or if there no “Preferred” group references available.

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HUD Clarification on Alternative Credit

A while back, I wrote an article dicussing how FHA mortgage loans are not Subprime Mortgage Loans. Obviously, too many loan officers are not getting that point very clear in their minds. With the lack of mortgage loans available to individuals with very poor credit, many loan officers that worked strictly in subprime lending have turned to FHA as their savior. This is causing a lot of trouble and a major backlog with many lenders in their government underwriting departments.

The mess has gotten so bad with many lenders that loans can take up to 30 days just to get their government deals looked at! This includes both FHA and VA mortgage loans!

So in an attempt to help bring loan officers back to reality, HUD has released a Mortgagee Letter (#2008-11) to clarify Nontraditional Credit Verification and Evaluation. In this letter HUD addresses using alternative credit references, when they can be used and how they should be verified.

The idea is that using these alternative tradelines is appropriate when a borrower does not have sufficient credit to create a credit score. Alternative credit can also be used to help support what is considered to be a “thin” credit file where a credit score is created but based on very limited credit. HUD does clairify that if the credit is in bad shape, you can’t simply turn in a payment history for a light bill and get it approved!

“nontraditional credit reports may not be used to enhance any poor credit history on a traditional credit report.” HUD Mortgagee Letter 2008-11

Alternative credit lines must have a solid 12 month history and be one of two groups of trade line references. In the next couple postings, I will go more into what these groups are and how HUD wants these references to be verified.

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Fixed Rate Mortgages Better Than ARM

Charlotte Home Owners… Do you currently have an Adjustable Rate Mortgage (ARM)?  Today’s fixed rate mortgage loan may be a better option. Refinancing your old adjustable rate mortgage to a low fixed rate Charlotte mortgage could make more sense than you realize!

Yesterday’s ARM mortgage rates were unbeliveably low attarcting many home buyers and home owners decided to go with an adjustable rate mortgage to capitalize on the savings. But now many of those ARMs are getting ready to reset. It’s time to explore options.

Today’s fixed mortgage rates in Charlotte are still near historic lows. As a matter of fact, they are so close to ARM mortgage rates that it just makes more sense to go with a fixed rate. And as Charlotte mortgage rates begin to rise over the coming months, waiting could cost you a lot of money later.

If you live in the Charlotte area and currently have an ARM mortgage, now is the time to check out your options. Call today and find out how much you can save by refinancing your mortgage loan to a low Charlotte fixed rate mortgage.