H - Homeownership

The final piece in our philosophy.  H is for homeownership.  We are in the business of financing the most important (and largest) transacation that most people will have in their lifetime...and we don't take that responsibility lightly.  It's immensely important that we always remember that we play a huge part in ensuring a successful outcome for all of our clients.  If we fail to remember this, then we have missed the point.

H - stands for Homeownership.  We take pride in being able to hlep people complete the most important financial transaction they will ever have.

It can be about the commission, it can be about the prestige, it can be about being the best - but when it's about those things and not about the client, then something will most likely go wrong.  How do we keep it about the client?

1. Communication/Teaching - Sure not everybody wants to know the details of what we do, but they do need to know that the file is important.  We show them it is important by communicating weekly the status of their home loan so they will rest easy that the home will soon be theirs.  When we run into snags, we find the solution and work the borrower through the process to reach the solution so they don't have anxiety.  We make sure they know what is going on and we are kind and considerate understanding that a lot is on the line. 
2. Being Honest and Having Integrity - In the spirit of being honest - it's not always that easy.  It's easier sometimes to not make the "bad news" or "tough news" phone call  and instead opt for an impersonal email.  It's easier to ignore a red flag, then to be honest with what the borrower may be facing early in the process to make sure they know what may happen.  And in short, it's harder to be honest and have integrity then it is to be the opposite.  However, that is what we are called to do.  We stay honest, humble and gracious in order to help the client know we mean to work with them and not against them in the transaction.  In the end, the borrower should never fight their mortgage lender to secure the home they want to buy. 
3. Listening to what they Need  - We have all been there, the sales guy across the table or on the phone, not hearing whatever it is you are telling them.  All they hear and see is that you are a potential sale or closing that earns them money.  They have missed the boat...you don't need to buy the biggest house on the street, you don't need to do a 30 YR Fixed loan because you want to pay the home off in 15 years, you don't want an ARM program to drive the rate down.  You want what you need and it's our job to help you work through your desires, wants and needs and find the right solution for you.  If it was about us and our team, then we wouldn't listen.  But it's not - it's about you, your family, your finances, and your new home.  So we listen and we help direct you to what fits you.  That's the key to listening.

These are but snapshots of how we work to help the client.  But most importantly, a wise man once told me, the real estate process is full of anxiety and we are defined by whether we help reduce that anxiety in the transaction or foster it's growth.  We work to reduce the anxiety, because with transactions that have so much meaning - if we don't, then we missed the point.  And missed it entirely.

Here's to continued homeownership for many clients in 2014 and beyond.

F - Is for Family.

I am going in reverse order - but it keeps things interesting.  Homeowners Financial Group USA, LLC - is committed to delivering 3 key concepts withing our business.  They are creatively crafted out of our initials...H...F...G.  Last week I spoke about the "G" and giving back and today the "F" - Family.  It's thrust comes in who we hire and how we do business.

F - Stands for Family.  We hire only likeminded individuals who value our family style culture, treating other employees like family members. 

The idea is that we are a family: working together for the goal of growing in every aspect of what we do.  This growth can be seen in the way we originate loans, in the strength of our numbers and in the way we lead in the industry.  This plan for growth allows a truly cohesive family to emerge where each individual wants the best for each other member and gives respect in each of their defined roles.  At HFG, we experience that daily as we strive for each LO to excel to their highest potential and each member, from Quality Control to President, to know they bring value to the overall experience of all our clients.

As our customers, you are a part of that family.  As soon as you begin working with a LO - we understand you deserve the respect, understanding, and care to be given just as if you were an immediate family member.  We know how important it is to feel wanted, needed, and ultimately respected by all parties in the transaction and so we value each client in a way that brings them into our family.

This is a goal that is not without merit and it's also a goal that is sometimes hard to achieve.  All families struggle, fight, and disagree - but the families that stay together and unite for a common purpose, achieve a great deal more than those who don't.  Sure we have our disagreements, sure we have difficult situations that we have to work through, but more importantly than that - we believe in each other and what each person means to our company.  All we work to do is extend that family feel to our clients.

So as you share your lives this week with family, whether near or far, remember that we value each other and our clients, the way you value the time you spend with yours.  Our goal is to be more than just a financial piece to your puzzle...it is to be the family that stands behind your needs and works to help your reach your dream of homeownership, debt free living, investment building, or whatever you choose to do with real estate.

In short, thank you to the team of people I work with at HFG - I couldn't do what I have done to this point without their love, care and support.  And thank you to my clients, who have allowed me into your family and thus have joined our family at HFG - without each other, it would make for a much less enjoyable experience.

From our Family here at HFG to all our extended Family clients - Happy Holidays and Merry Christmas!

G stands for Giving Back - It's not just about us...

What's it mean if we aren't giving back?  We spend too much time concerned about our needs, our wants, our desires, that we miss out on valuable opportunities to help those around us who may truly be in need.  I believe that we must see the need in others and work to meet that need.  As part of Homeowners Financial Group USA, LLC - we are serious about that statement above.  Our committment to giving back to the community is so ingrained in us, it's part of our philosophy.

The G - stands for Giving Back.  At the core of our corporate culture is the concept of giving back to the communities that have been so important to our success.

We are more than just about growing our company and reaping the rewards, we want to in turn give that back in a way that provides lasting impact.  This has been done through numerous events this year:

• Volunteers for Paul's Car Wash -a- thon with Channel 5 News to support Big Brothers/Big Sisters
• Key Sponsor for Chrysalis Non-Profit - Supports battered women and families affected by domestic abuse
• Volunteers for "A Celebration for the Arts" - We support this as part of our community involvement.

But nothing shows where are heart is more than THE CARE FUND.  As a mortgage bank we get the great responsibility of supplying hundreds of thousands of people the opportunity of owning their own home.  We take that responsibility seriously and we also take family seriously.  The Care Fund grew out of desire to ensure that whether good times or bad - we help people stay in their homes.  The Care Fund was designed to help families with children who are suffering from various illnesses to continue to make their mortgage payments while working through the illness.  As the motto goes, "A parent should never have to choose between working to pay the mortgage and caring for their child."  So we raise money in an effort to help/assist families all across the valley who are in need. 

We are nearly close to our goal of raising $1MM and I am fortunate enough to be a part of this company and have contributed nearly $4K based on the transactions I have closed this year.  It's an honor to be a part of our giving back in a way that is tangible to those we mean to serve. 

Before the year ends, take a look at The Care Fund as it may be something that you have a heart to contribute too. 

We aren't just about us - we stand for more than that!

Preparing for 2014

The mortgage market has pulled through what was the longest stretch in refinance history.  Often times, "refinance booms", last a few months to maybe a half a year, but we have seen the most recent refinance wave last almost 18 months.  This has definitely freed up liquidity for clients that were able to take advantage of rising home prices and lower rates.  It also helped borrowers secure a better long term outcome with their mortgages as 15 YR fixed rate loans were used by many to help rid themselves of their debt sooner rather than later. 

As a Licensed Mortgage Loan Officer - I have been fortunate enough to help new clients and past clients better position themselves with their current mortgage.  As rates trend higher, I know they will look back and be extremely happy with their current position.  Additionally, I have seen and heard from many clients that are ready to sell their current homes and move on to "bigger and better" things as their families grow.  With all of this information in mind, it helps to begin preparing for 2014.

As the consumer, what can one expect:

• Increasing Interest Rates - sure, everyone would love to keep rates at these historic all time lows, but the longer they remain at these levels, the more it shows the economy is still stagnant.  A growing economy should be seen as a positive because we are in a lot better position in 2014 then we were in 2008.  Look for rates to continue to rise and most likely by the end of 2014 in the upper 5% range.

• QM and Ability to Repay - This will impact some sectors of the overall mortgage market.  The main point to consider is that we have been working under most of these rules for the last several years.  Low DTI, strong Credit score and more down payment will always make for a safer client and overall risk when buying a home.  In a perfect world all homes would be bought with 20% or more down and they would be set to be paid off within 5-7 years.  In the recent ERA of 30 YR Loans - nobody remembers when homes were bought and if anything was financed it was paid off within 5 years or restructured. Only since the mid-30's (after the Great Depression) did these mortgages come to be.   So, what do we do with QM and Ability to Repay - we qualify clients with the peace of mind that they can actually afford to buy the home they are living in.  Look, will there be some clients that are impacted...sure the jumbo Interest Only loans won't exist and excessive credit risk will be scrutinized - but homes will still sell and people will still want to own their own home.

• Balanced Housing Market - For the first time in years, the market may have some balance.  That will mean accurately priced homes and a balanced amount of buyers and sellers.  Short sales and foreclosures will continue to stay flat, like they were this year, and less investors will be looking to get "deals".  All of this means, that there will be "normal" sales (if there is such a thing) with hopefully happier clients.

2014 is a promising year - one that will define how the economy is really progressing and I believe the mortgage market is going to excel.  Here's to 2014.

Street of Dreams - Not just for the rich.

Since late October, the "Street of Dreams" as been open in Gilbert, AZ.  The last "Street of Dreams" in AZ was back in 2007 and so there has been pent up demand for homes like these.  They range from $1.7MM - $2.7MM in price and are absolutely exquisite.  Everything from two story waterfalls to kid-size chess sets on a balcony over looking the San Tan Mountains.  From garages with car lifts to chandeliers that hang from ceiling to floor: these homes show not only what a design team can do for these amazing estates, but what is possible in custom construction.

As part of Homeowners Financial Group USA, LLC, we have supported the Street of Dreams through the entire event and are ready and able to help make the dream become that reality.  With financing options for borrowers who don't want to use their cash to make the purchase, we can take care of everything from your lot purchase all the way through to completion.  Or if you find the home you love, we can finance the end purchase as well.  For a few years construction lending took a back seat while we worked through the mortgage crisis of 2008-2010, but in AZ where you can still find land to build on - custom home construction lending is making a come back.  The process is never easy, but if you want to build that dream home, instead of going to the cookie cutter lender down the street, then you have found  

Ultimately, you have to make the decision to come out and tour these amazing homes.  If it isn't your price range, no worries.  They have great ideas for those DIY'ers that want to renovate or rehab that bathroom or kitchen.  And if you are so inclined maybe on a smaller scale you want to buy a home and do some rehab but finance it (we have the option for that too). 

Don't miss out.  The event runs throughout November until December 1 and it costs $12 for general admission tickets.  If anything, it's a great couple of hours dreaming about putting yourself into that new home and seeing what is possible.

Here is the website for Whitewing Estates - they still have lots for sale.

Happy Dreaming!

Government Shutdown - Impacting Mortgages

With the prolonged government shutdown, and it appearing as though it won't be resolved for the next few days, here are some helpful tips as we work through the shutdown.

·         FHA and VA are the most commonly affected programs as they are funded by the government.  However, there is no change to the ability to complete VA or FHA loans due to the government shut down.  Both departments will continue to operate and since most of what is needed is automatic, there should be little noticed as a result of the shutdown. 

o   Word of Caution – if the file has a “hair” on it or is difficult and an UW needs to speak to a live FHA person or get a specific answer from FHA – this is where it could take a bit longer.  Normally they return calls and answer questions in 24-48 hours, with the shutdown and running a “skeleton” crew for FHA, then plan for longer time.

o   I would give the deals an extra week or so to close if the government shutdown continues.

·         4506T – Tax Transcripts and SSA Form

o   The 4506T is an internal item completed for all loans but the lenders rely on the IRS to get these back.  Again, with the shutdown, we have waived the need to have the transcripts for loans with note dates after 09/26 until the government shutdown has ended. The SSA Form also impacts loans.  Most often there are no issues when a lender pulls the SSN from a borrower.  In the event that there is a discrepancy or verification is needed on the borrower from the Social Security Administration, due to the shutdown, this loan scenario would not be able to close.  This has to do with the fact that the lender doesn't want to complete a loan to the wrong person and the SSA form helps verify the identity of the borrowers on the transaction.

 

·         Rural Development

o   Due to a lapse in appropriations for Rural Development as of October 1, Rural Development has initiated the process of orderly shutdown of nonessential operations.  You can view USDA’s plans for a lapse in appropriations at http://www.whitehouse.gov/omb/contingency-plans.

·         Market Changes

o   The longer the shutdown continues the greater impact will be felt in the market.  As we approach the debt ceiling deadline of 10/17/2013, the markets continue to be influenced by this prolonged stalemate.  Ultimately a decision will be made and when it does, that decision will have an influencing factor on the mortgage market.

 

How are Mortgage Interest Rates determined?

What drives mortgage interest rates?  In a very general sense, mortgage rates are determined by the overall economic environment.  Since 2008, and the Great Recession, we have seen a steady drop in the mortgage interest rates for consumers.  As the overall economy has begun to see some improvement, we have started to see those borrowing costs increase.  But what contributes to these changes?

1. Inflationary Pressure - When inflation is likely to occur, the future value of the money that is lent now will be worth less.  Inflation, on average since the creation of the FED, is somewhere between 3%-5% per year.  The greater the rise in inflation, the higher the mortgage rates will be.  Since April of 2013, we have continued to see the inflation rate increase.  Inflation isn't bad though as it points to a healthier economy. 
2. Bond Prices - As Bond prices drop, the rates increase and alternatively, as bond prices rise, mortgage rates decrease.  Since most loans are paid off via refinance or other method within 7-10 years, most lenders base their mortgage rates (even the 30 YR Fixed rates) on the 10 YR Treasury.  The higher the Yield the higher the mortgage rates to make the investor money (who owns the note).  We have seen yields increase from low's in April 2013 of 1.636% - since then it has raised to as high as 2.98%.  This change has increased rates from the low - mid 3% range on a 30 YR fixed to a higher rate of the upper 4% range.
3. Employment Data, Jobs Reports, Fed Monetary Policy - As the overall economy improves mortgage rates for home loans will continue to go up as well.  Some of the key factors to watch are employment data.  How many people file for unemployment - the more unemployed the slower the economy will grow.  How many new jobs are being created - again, the more new jobs, the less unemployed and the healthier the economy.  What is the FED doing with the FED funds rate, their quantitative easing policy, etc.?  As the overnight FED funds rate stays low, rates will do the same.  If they pull bank on their bond purchases, which keeps prices up, mortgage rates will increase as well.

Mortgage rates have many varying factors as to the overall picture of average rates.  The factors not discussed are the specific client factors that impact rates.  These include credit score, down payment, type of mortgage loan, etc.  All of these will also influence mortgage rates, however, they will be in about the range of what the economy is dictating.

While this is very rudimentary, it gives an idea of what types of economic factors to watch when determining interest rates.   

Foreclosure and Short Sale Waiting Periods - New FHA Changes

"How long do I have to wait until I can buy a new home after..." - the question that begins with a heavy pause and usually ends with a heavy sigh.  However, there have been some great new programs that can help borrowers who have faced difficult financial times and are ready to buy a new home.

Let's start with the bad news - in 90% of the cases, you will need to put down a significant amount of money to get into a new home (20% +).  This is because the lenders are private lenders who definitely don't have access to mortgage insurance and they don't want to lend without a fallback option if the borrower goes belly up again. (the fallback option being to sell the home and recoup the money lent out.)

Here is the good news...if the 20% down is available, Homeowners Financial Group, USA, LLC, has a "Clean Slate" program designed for borrowers who need a little help.  Essentially, the only waiting period is they must be 6 months from the BK.  There is no waiting period for Short Sale or Foreclosure.

Now onto the new FHA "Back to Work - Extenuating Circumstances" program.  While, in my own personal opinion, this new Mortgagee Letter 2013-26 is about 2 years too late.  Perhaps when a borrower faces a difficult "economic event" in the future, they will be able to get into a home sooner rather than later.  The idea behind this mortgagee letter, aptly titled: Back to Work - Extenuating Circumstances, is that if a borrower can establish credit history for 12 months, they are potentially eligible for FHA financing. 

• This is important because FHA allows only 3.5% down payment and so the borrower who doesn't have the 20% down - could essentially get into a new home sooner.

Here are a couple key items to be aware of:

• 12 months must have passed since the short sale or foreclosure
• Must be able to document credit impairment, i.e loss of employment or significant loss of Household Income (20% or greater) - Prove the economic event that was the trigger for the short sale/foreclosure
• Additional layers of credit requirements
• Each borrower has to go through Housing Counseling

Those you can read directly from the Mortgagee Letter.  The letter gets even tougher because they really only consider those borrowers with stellar credit history who had this one time event.  They can't have a history of other delinquencies with housing, no other collections, no more than 1x30 day delinquency on any debt.  While this makes sense, most that have these economic events probably have had trouble with other credit lines as they worked through their difficult circumstance.  Furthering the complication - it all has to be proved!  That's right - the previous employer will need to show when the borrower was terminated and the loss of income will need to be proven as well (which is standard so this shouldn't be too difficult if there was in fact a loss in income).

It's not that the program won't work - it's just once again, the masses tout it as a great thing for borrowers and then we come to find that only a handful actually had this occur.  Some people definitely will benefit but too many people will have one thing that doesn't quite fit and it will be more heartache to that borrower. 

Ultimately, it's a good start for FHA.  When life circumstances that are unexpected hit families, they shouldn't be unnecessarily punished.  This will help those people who faced an economic event and had no option but to short sale or foreclose.  Let's just not get too excited - it's definitely not a "Get out of Jail Free" card.  If you choose to foreclosure or short sale strategically - well then, be ready to wait.

FHA Mortgage Insurance - What's all the fuss?

In the last post we discussed Mortgage Insurance - what it is and why it is needed?  We dealt specifically with the conventional loan requirements on Mortgage Insurance and hinted at FHA - the Federal Home Administration program.

How do they differ? 

• FHA - requires a two step process with Mortgage Insurance. 

• They have an Upfront Mortgage Insurance payment that is equal to 1.75% of the base loan amount.  This mortgage insurance can be added back to the loan amount so it isn't a cost out of the borrowers "immediate" pocket.  However, it changes the LTV on the loan from 96.5% to 98.25% - essentially leaving the borrower with very little equity.

• The 2nd part is the monthly MI.  Currently at 1.35% of the loan amount.  This is a monthly figure and is paid out every month to FHA for the use of the program.  Changes in June of 2013, which you can read on the Mortgagee Letter 2013-04 - HUD, state that the Mortgage Insurance will never be removed from the mortgage except by way of refinance to a conventional program or paying off the loan.

• Conventional - this allows for either an Upfront Mortgage Insurance amount to be paid 1x (cannot be financed in most cases - though it can be in some) or the monthly MI.  The monthly MI still automatically falls off when the borrower reaches the 78% threshold in LTV.  Fannie Mae requires the monthly be kept for a minimum of 2 years but after that the borrower could request that it be removed.

How does this impact the borrower?  - The long term borrowing costs for the FHA deal are quite a bit higher than the Conventional program now that the MIP is up to 1.35% for all FHA deals (with the minimum down payment) and that the MIP will never go away. 

FHA is still a viable option for first time home buyers, borrowers that are 3 years from a foreclosure, and for borrowers with limited asset resources.  However, if the borrower can use conventional financing, both short term and the long term advantages are beneficial.  (i.e. more equity in the property, less borrowing costs, and flexibility with removing the MI - which will save thousands in the long run.)

Mortgage Insurance - What's it for?

Everyone has heard of Mortgage Insurance, but it often is confused with Homeowners Insurance when people initially start the mortgage process.  Because of that I want to clarify a couple types of insurance and then speak to the main point of Mortgage Insurance; what it is and what it is for.

The main insurance that any borrower is going to need when buying a home is "Homeowners Insurance".  This insurance protects the borrower against damage to the home via fire, robbery, etc.  It is necessary, when there is a mortgage, to carry Homeowners Insurance as it protects the owner and the lender in the event of a catastrophy (like a fire) to recoup the loss. 

Another type of insurance that is sometimes required is Flood Insurance.  This insurance protects against a flood.  The lender will require this, if during the home loan process, the lender discovers through the Flood Certificatet that the home is located in a flood zone.  Note:  Not all homeowners policies protect against flooding, so this is why the lender requires it if the home is in a flood zone.

The insurance in question - Mortgage Insurance.  Since you have a homeowners policy, and a flood policy (if required), why the need for extra insurance.  To start - not all loans require mortgage insurance.  Any loan that results in an equity position of 20% or more, does not require Mortgage Insurance.  (Essentially, if you buy a home with 20% down or more, 99% of the time the MI will not be necessary - the 1% of the time is if you are using FHA, but that is a story for a different day).

Let's say that the down payment is less than 20%, what happens next.  The lender will require Mortgage Insurance. 

• Mortgage Insurance is a policy can be defined as follows: An insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is otherwise unable to meet the contractual obligations of the mortgage. 

Basically, the lender takes out an insurance policy (that the borrower pays for through monthly or single installments) to protect against the risk of default.  But the lender doesn't want to pay for the policy, so the borrower puts less money down and then makes monthly payments to cover the cost of the insurance.  Historically, when the value of the home gets to 78% LTV based on the Amortization schedule, the mortgage insurance policy is satisfied and the borrower no longer has to pay the monthly premium.  - This is the standard way people use MI.  There are other types of MI (Single Premium, Lender Paid, etc) but we will save those for a different post.

Quick Review:

• Mortgage Insurance - protects lender against default when borrower puts less than 20% down towards the purchase
• Borrower pays mortgage insurance monthly as part of the monthly payment
• Once loan reaches 78% LTV based on the Amortization schedule MI automatically is removed (unless FHA loan - then continues for the life of the loan)
• Can get MI up to 97% of LTV on a purchase (so 3% down payment required)

Is Mortgage Insurance a good option?  -- In short, yes.  When borrowers don't have the full liquidity to put 20% down, but can afford the monthly mortgage payment (including the MI), then Mortgage Insurance can help them begin their purchase process sooner rather than later.

I will explain the difference with FHA mortgage insurance in a different post later this week.

I am buying my first home - Now What?

The joy's of buying your first home are sometimes overwhelmed by the frustrations of buying your first home.  But with the right team of people, working for you, the process can be worked through without too much headache.

The basic steps:

1. Find the right Realtor - This point cannot be overlooked.  There are bad realtors.  It's a fact.  There are realtors that care only about their needs and don't understand the needs of the buyer.  There are realtors that don't know the market or care to understand the trends, future outlook, etc.  Then - there are also very good realtors.  Realtors who understand the market, understand the buyers needs, and work to make it a transaction that is smooth for the buyer.  Choose the agent that fights for the best purchase price, best conditions and has things fixed based on the home inspection.   Find that Realtor.
2. Find the right Loan Officer - Okay - so I am a bit biased on this account.  But this is for sure the most important aspect of any transaction.  (Unless of course you have the $250K in cash to purchase your home free and clear.)  The financing is what makes the close possible.  Without the loan, then the reality of homeownership is a harsh non-reality.   The loan officer that listens, communicates, and works hard for the homeowner, is going to be the best asset to the transaction.  They will ensure that you know what each step will look like, they will do the work upfront to head off any future concerns for an UW and they are well versed in the industry to help should any trouble arise. 
3. Choose the Right Loan Program - How do you know what the best loan program is?  It's all going to depend on the needs of you, the buyer.  Do you have a good amount of money to use for the down payment?  Do you need assistance with closing costs or do you have the cash to pay for those?  Do you have excellent credit or is your credit lacking in some areas?  Do you plan to stay in the home long term?  Do you have a monthly payment amount that you want to stay within or are you looking to be qualified for the most amount possible?  Do you have gift funds from family members?   The questions are plentiful, and I could go on and on with the list, but you can see that the answers to these questions may define what you choose to do.

  Here is a quick overview of the most common choices for first time homebuyers:

1. FHA Financing - This program allows the borrower many benefits, including low down payment options (as little as 3.5% of the purchase price), pricing incentives to offset the closing costs via the lender or requested from the seller, gifts allowed for the entire down payment.
2. Conventional 5%  - This program allows for slightly more in down payment and requires that the 5% come from the borrower's own funds.  It has a lower mortgage insurance payment amount as well as no upfront Mortgage Insurance premium.  (The Mortgage Insurance can also be removed with this loan vs. FHA where the Mortgage Insurance will be on the loan for the entire life of the loan or until you refinance.)
3. Other Options - There are other programs that allow for grants, lower down payment, etc, but these are very property and borrower specific.  Depending on the borrower's situation, these options can be explored.  However, if the borrower has the ability to do either FHA or Conventional, they usually find these ancillary options are really not that favorable for them in the long run.

There really isn't a best loan program for a first time homebuyer and if the lender tells you there is...then run the other direction.  They aren't evaluating your needs and finding what will work best for you, they are pigeonholing you into something that may not be the best long term.  Remember, finding the right home and getting the right financing all starts with the right Real Estate Agent and the Right Loan Officer.  Make sure you do that work first and the joys of buying your first home will completely negate any potential negativity.

Common Mortgage Questions - Part 2

This is about a week later than I wanted, but I was able to implore the help of one of our newest colleagues- Sarah Stedman.  She is an up and coming LO and so her insight into questions from potential clients was greatly appreciated.  So without further ado - Part 2:

1. What is the difference between an ARM and a Fixed Rate?

• ARM (Adjustable Rate Mortgage) is a mortgage product that typically involves an introductory interest rate that in the future will adjust based on a variety of factors.  The most common ARM loans are 3/1, 5/1, 7/1, 10/1.  The first number means the introductory rate is fixed for the first 3, 5, 7, or 10 years respectively.  The second number following the "/" mean that every year after the introductory fixed period the rate could adjust based on the current market.  For example:  On a 3/1 ARM the introductory rate of 3.00% is fixed for the first three years and then every year after that for the next 27 years the rate could adjust.  Within the ARM program there are varying items that will affect the adjustment.  These include the Margin, Floor, Caps, Max Rate and whether it is based on the CMT or LIBOR.  We will explore these items in depth at a later time.

• Fixed Rate is a mortgage product where the rate is fixed for the entire term of the loan.  The most common fixed rate options are the 30 YR Fixed Rate and the 15 YR Fixed Rate option (though you can choose varying terms, i.e. 20 YR, 25 YR etc.)  For example: On a Purchase or Refinance you lock the rate at 3.75%, it will never change or adjust until the full 30 years is up.  This means that the only items that will change on your payment could be a change to your homeowners insurance premium and/or if the county property tax rate changes for the property you own.  Your principal and interest payment will always be the same.

     2.  Is there a situation where an ARM loan a better option than a fixed rate loan?

• That's a difficult question to answer.  Mostly because each borrower, situation and set of circumstances surrounding the purchase or refinance on a property are always different.  There is no "one size fits all" category to mortgage loans.  However, the duty of the Loan Originator is to provide the best options for the clients for their particular set of needs.  With that in mind, let's look at some key pros and cons to the differnt programs.
• ARM Loans
• PRO - Typically a Lower Interest Rate with the shorter term ARMS is evident.  A lower interest rate does lessen the interest cost that is paid to the bank during the introductory period and this reduces the principal balance faster.  Remember - less interest to the bank means more that can be applied to your principal balance.
• CON - Rate may adjust higher in the future which means more money to the banks and less towards principal.
• PRO - Borrower plans on selling within the timeframe on the loan.
• CON - Life, circumstances and markets can change so they may not sell.
• PRO - Lower payment could mean that a borrower could afford the payment
• CON - Any changes in the market could render the home no longer affordable which could leave the borrower in a bad situation.
• Fixed Loans
• PRO - Certainty of the same payment every month.
• CON - Rates are typically higher than the shorter ARMS so more interest is being paid to the banks and less towards your principal balance.
• PRO - Most common Programs - allows the borrower to set a budget for home affordability
• CON - Could limit your buying power because of the higher rates
• PRO - Simple and Effective
• CON - Most buyers don't keep their loans for 15 or 30 years.  The average homeowner refinance or moves every 5-7 years.  This means that more interest was paid out and less towards principal in the early stages of the loan.

Overall, the 15 and 30 YR Fixed rate options are the most common programs used today.  They allow certainty which, in this market, is great.  The rates are historically low so affordability shouldn't be a hinderance.  Plus, one should never switch to an ARM program to try and squeeze into the box so they can qualify.  This will inevitably lead to a bad situation. 

The best answer must come from each borrower individually.  Experts can predict the future, we can plan the future, but nobody really knows the future.  If you understand the loan program (whether it is Fixed or ARM) and you are comfortable with what the potential future holds with the loan you choose, then either option is valid.  I don't believe there is a specific situation where an ARM loan is "better" than a Fixed Rate loan.  I think they are different options to choose from and education is the key to making the best decision.

Changing Mortgage Perceptions

Everyone asks, when is it going to be easier to get financing?  Why do we have to jump through so many hoops to get a loan done?  Keep asking those questions and you may never like the answers.  Start asking questions like: How CAN we get financing on this new home purchase?  What ARE the options for my particular situation?  We have to continue to frame things properly.  The market isn’t bad – it’s actually much improved.  Financing isn’t difficult – it’s just work.  The place from which we question the system and view the world greatly impacts our reality.  The saying is that if we change our perception we can change the reality.  Our perception must be an understanding of all that it takes to work in this industry and then embrace that…don’t leave yourself at the mercy of your bad perceptions.

 

For example, our company alone has more loan products and programs to help people in all various stages of financing than even you can imagine.  Let’s see:

 

·         Clean Slate Program (for borrowers with short sale or foreclosure under 2 years)

·         Jumbo Loan Portfolio Option (quick closes for those quick deals)

·         Home in 5 FHA Grant Program (First time home buyer who needs a grant for down payment)

·         Canadian Financing (Looking for a 2^nd home – no problem)

·         95% LTV to $625,500 Loan Amount (Move up Buyer with a growing family)

·         90% LTV to $729,000 Loan Amount (Move up Buyer wants to keep some cash available)

·         80% LTV up to $2MM Loan Amount (Saavy individual who understands the time value of money and wants to leverage with current rates)

·         Brokered Options for your Underwater clients (Fannie and Freddie HARP deals) – Still stuck – we can help with that too!

·         Standard 30/15 YR Fixed Loans – (For the everyman/woman)

·         FHA between 580-620 (For those who hit a rough patch due to unusual circumstance)

 

And on and on the list goes.  ARM Programs, Construction Loans, Lot Loans, and more.  You see, it’s not that there isn’t financing available as some may say.  In fact there are many financing options available…it’s more about finding the right fit for the buyer than anything else.  You don’t have to go elsewhere to have the financing needs of your clients met…trust me, we run the gamut from top to bottom.  The only thing your clients need to know…is it will be work.  But hey, since when should asking for hundreds of thousands of dollars be easy.  Think about it, would you lend your $200K to the guy next door with 540 credit, who doesn’t pay his debt and can’t provide any documentation as to why that happened.  I venture to say no.  So, let’s call it like it is – work.  Are we really that afraid of a little work? 

Common Mortgage Questions

Mortgages are complicated - Truth.  Buying Real Estate is complicated - Truth. 

But just because something is complicated, doesn't mean it can't be understood.  My suggestion on the Real Estate side of things - find a competent and well versed Realtor in your target market area that works hard for you. 

As far as mortgages go - here are a few of the common mortgage questions:

1. How does my credit score affect the mortgage?

• Your credit score affects the ability to get a mortgage in different ways.  For example, with a score between 580 - 620, this typically means there was some type of derogatory credit (i.e. Bankruptcy, Short Sale, Foreclosure, Collection, Late Payments).  This derogatory credit influences the Underwriters (UW) decision to approval the loan.  In some instances, scores between 580 -620 are eligible, but they will require significant areas of strength in the file to overcome the credit hurdel, as well as a solid explanation for why the score is where it is.  Important Note: Financial mismanagement or choosing to not pay on an existing credit obligation is not a solid explanation.

• Your credit score will also affect the Interest Rate that you may receive on a loan.  Most lenders have "pricing hits" based on the credit score.  They typically go in increments of 20 or 40, depending on the lender.  For example, 620- 640 might have an interest rate at 4.00%, while a score above 740+ might garner a rate of 3.75% or lower.  With a lower score there is more potential risk so the lender will want to mitigate that risk with pricing differences. 

      2.  What's the difference between Origination Fee and Discount Points?

• The Origination Fee encompasses all the costs associated/charged by the lender for their services.  For example, the processing fee, underwriting fee, document preparation fee, etc. all comprise to give a final origination fee.  In some cases, the lender may even charge 1% of the loan amount just as a cost of doing business.

• The Discount Point is the charge the borrower (you) choose to pay for a specific rate.  Not all rates are created equal.  To keep it simple, I begin all rate quotes from the "Par" pricing.  This means the borrower pays the customary fees (i.e. uw fee, processing fee, etc.) but they aren't paying anything extra to secure a lower rate.  However, the choice is the borrowers.  They can offer to take a higher interest rate or a lower rate.  The higher rate will include a credit that will offset the customary fees or they can pay more above the customary fees to secure a lower rate.  There are pros and cons to both but we can save that for a later post.

      3.  Can I finance the closing costs in the loan amount when I am buying or refinancing?

• Another common question with a simple answer when you are buying a new home.  No.  In the "old mortgage world", lenders would allow borrowers to increase their loan amount to cover the costs on a purchase, however, that brings increased risk as the loan amount vs. the value of the home ratio will be higher than a lenders risk tolerance.  You can, however, take a higher rate to offset the costs (see #2 above) or include a seller credit to offset the costs.

• For refinancing - the answer is yes, in some cases.  If there is enough equity in the property, the lender may allow you to roll the costs into the new loan.  The most basic equity ratio is anything less than 80% will allow the borrower to roll the costs into the new loan.  However, if there isn't enough equity in the property, the answer is then no.

While these are a few of the common questions, there are many more that are asked.  What is the Seller's Owners Title Policy?  Does paying a discount point make sense?  Can I buy a new home if I currently own a home? What is a pre-payment penalty?  What is the escrow for taxes and insurance? What is the least amount of down payment one can contribute to a new purchase?  As the month of April continues I will work to answer a few questions each week in an attempt to let the mortgage process be better understood.
  

Homeowners Financial - Hosting Steve Richman

Join us at the Scottsdale Civic Center!

April 2nd, 2-4 PM

Civic Center Library Auditorium

3839 N. Drinkwater Blvd.

Scottsdale, AZ 85251




National Guest Speaker:

Steve Richman

Steve Richman is a national speaker who has energized, taught and motivated more than

100,000 professionals in every state in the US. Steve has trained Real Estate professionals through

state accredited continuing education classes on topics including Real Estate Negotiations,

Understanding the Real Estate Contract and Making Settlement Simple.

Reserve Your Spot Today!

R.S.V.P. to Katie Goldberg

katie@homeownersfg.com

480.305.8500

© Homeowners

5 Questions for a Mortgage Professional

Jon Enright - Kings and Associates Realty, has been hard at work putting together a great website with Chaz Boyce of David Stone's Production and Design.

I was lucky enough for them to let me participate in building a video that will help explain some often asked questions of mortgage professionals.

The link to the video is here: http://www.youtube.com/watch?v=iAfQum2wsts

So if you need a great West Valley Realtor or help building your new website/video marketing...look no further than Jon Enright and Chaz Boyce.

Leave your comments and I hope that you find the video useful.

Tax Returns - How do they factor into Loans?

The old saying goes, "In this world, nothing can be said to be certain except death and taxes."  Famously credited to Benjamin Franklin in 1789.  And while this has been true for over 200 years...we can add one more to the list - an Underwriters request for tax returns.

In 95% of cases in the current Mortgage Loan Underwriting climate, tax returns are needed and not only are they needed, but the 4506-T form (completed by the borrower and allows for the lender/underwriter to have a copy of the transcripts to insure what was provided is what was actually filed) is always required.  So, what does this have to do with the borrower?  Simply put, loans that are in process now or will be soon, will need to have documentation of the current year's tax return filing in some form in order to close the loan.

The tax deadline is 04/15/2013 for the 2012 tax year and if you have a loan in process that is set to close before the 15th, keep these tips in mind:

• W2 employees
• Provide the 2012 W2 from their current employer
• If taxes have been filed, then proof they were filed will be needed (tax transcripts). If they aren't available then the borrower will need to show they the taxes were electronically received or stamped by the IRS as "officially received".If they haven't filed taxes, then nothing will be needed unless it is after the 15th.  If taxes haven't been filed after the 15th, then must provide copy of extension and proof taxes owed have been paid and will need 2011 Tax Transcript.

• Self Employed borrowers
• If taxes have been filed, they need to get 2010 and 2011 transcript as well as povide proof that taxes were submitted (i.e. stamped by IRS, evidence electronic return received, or evidence of refund check received or payment made
• If taxes have not been filed, after the 15th of April, an extension must be provided and any taxes owed must be paid.

Basically, your loan will be underwritten according to the timeline of when taxes are completed.  So don't be surprised if the UW asks for updated W2's for 2012 or if we get close to the 15th to get clarification on the status of the tax returns.  While the UW can't make anyone file prior to the 15th of April, they can and must do their due diligence, especially for self-employed borrowers, when making credit decisions.

So while, only death and taxes are certain.  You can now be certain that if you are qualifying for a loan in late February through early April, your new tax return will play a factor in the decision making.

Assumable vs. Non-Assumable Loans

Can someone assume my loan?  In most cases, the answer is no.  The main reason is due to 2 predominant factors: 1) Since the mid -80's conventional financing does not allow the loans to be assumable and 2) Due on sale clauses within the Deed verbiage now forbids the transfer of the loan to the new buyer without recourse from the current servicer/lender.

Of course, assumable loans - with rates in this current market, may become very attractive for buyers in the next 5-10 years as interest rates rise from their current levels.  However, the dangers and risks with assumable loans are too great for lenders and so they are rare.  Below are some good tips on assumable loans and what they mean.

• What does it mean to have an assumable loan?  Basically an assumable loan allows the new buyer to "assume" the responsibility of the seller's loan obligation.  The benefit would be that the new buyer can take advantage of the seller's interest rate and remaining loan term, without having to "re-start" the process.
• What does it mean to have Non-Assumable loan?  A non-assumable loan is when the buyer must find their own financing in order to purchase a home from the seller.  The seller must pay off their loan in order to sell their property.

Now that we have an understanding on "Assumable" vs. "Non-Assumable" loans, let's look at the benefits and what type of programs allow for an "assumable" loan.

The main loan types that offer assumable loans are FHA and VA loans.  Most of these types of loans can be transferred and assumed by a new buyer per the loan guidelines.  However, servicers/lenders typically put restrictions on the potential buyer that will be assuming the loan.  For example, they require the buyer to go through the credit and income underwriting process to ensure they will be able to make the payment.

If the loan is assumed, then there are 3 common ways this is completed:

1. Assignment - this is where the loan is assigned to the new buyer, however, in the event of a default, the original owner could be "secondarily liable" for the resulting default of any remaining obligation.
2. Subject to - this is again, the same as above, however, the original owner could be found liable for any deficiencies if the property is sold and the loan remains outstanding...think short sale.  So a new buyer assumes the new loan and when they sell the property, $30K is still remaining.  The original owner would be responsible.
3. Novation - the least common type of assumption, but the best kind because the original owner/note holder is released from all obiligations of the loan from the time the assumption is completed.  Again - this would require a full underwrite on the new borrower and a very good reason for why they are assuming the loan.  Because, remember, the lender, if the borrower qualifies, would be better served to just enact a new loan at new market rates, etc.

Assumptions, while common in the late 70's and early 80's, are no longer the process that people think it is.  It's never going to be an easy process, but if you have a FHA or VA loan and it is assumable, perhaps in 5 years or so when you go to sell the property, this could be a great selling point for a new buyer.

For more questions and more anwers, you can read up on assumptions: http://web.finweb.com/mortgage/understanding-assumptions.html

FHA - Changes Coming

April 1, 2013 - FHA will be making changes to it's programs in order to continue to create capital and strengthen FHA and its insurance program for many years to come.

If you weren't aware, FHA (the Federal Home Administration) was originally created to help new and first time home buyers purchase a new home using a program that required little down payment and used Mortgage Insurance, both upfront and Monthly Mortgage Insurance, backed by FHA to support these low down payments. 

Over the years the Upfront Mortgage Insurance has changed from 2.25%, to 1.00%, to 1.50%, to the current 1.75%, as well as the monthly mortgage insurance fee from .55% to multiple levels up to its current level of 1.25% per month.  In addition, the Monthly Mortgage Insurance amount, while it was required to be paid for the first 5 years, it would be fully removed once the outstanding principal balance vs the original purchase price reached 78%.  Those above items will be affected by the upcoming changes on April 1, 2013.  Here is a list of the new changes for FHA that will affect new home buyers or anyone looing to use FHA:

• Monthly Mortgage Insurance fee increasing from 1.25% to 1.35%.
• Borrowers will be required to pay the Monthly Mortgage Insurance for the life of the loan

Those directly affect the borrower.  In addition, there are internal changes as well that will have an effect on some but not all borrowers, i.e. manual underwrites are required when credit is below 620 and a total debt ratio is greater than 43%, potential increase to the down payment requirement for principal balances above $625K (probably won't affect AZ market - max FHA is still $362,250).

All of this just points to a more expensive option for borrowers who seek to use FHA.  It doesn't mean that FHA isn't an option, it just means that the option will be more costly come April 1, 2013.  For further reading you can read the HUD mortgagee letter at:

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-010

Changes...

One of the first books I was given to read when i entered into the banking world was, "Who moved my Cheese." by Spencer Johnson.  While simplistic in its approach, the message is loud and clear to all who have read it - change will come.  So, when whange comes - which inevitably it does...what do you do with that change?

I bring this up to enlighten past readers of this blog as to why it has been almost 14 months since I wrote anything.  In a word, "Change".  In late February/early March of 2012 my manager came to our group and invoked the idea of changing to a new company, located out of Arizona.  My trust in him, made the decision easy.  I was on board, and I paved the way by making the move first.  Let's just say it was a hectic 6 months and while business continued to boom, I spent coutless hours managing the deals I had while learning a new process.  It didn't come without moments of, "What was I thinking?"  but in the end it has turned out to be a great move.

Homeowners Financial Group is more than just a company that specializes in mortgages.  It is a community of people that believe in the community they work in and most importantly see that mortgages are necessary for our clients to build lasting memories with their friends, families, and loved ones.

I couldn't be happier about the move and now that the "changes" are not as dramatic as the last 7 months of 2012, I look forward to getting back to providing good information that helps others navigate the waters of financing a new home purchase.