Consumers face less stress when applying for most mortgages as of October 3rd, when the new disclosure rule took effect. The new rule and disclosures ease the process of taking out a mortgage, help you save money, and ensure you know before you owe. Learn more about the Know Before You Owe mortgage initiative here.
After three years of strong opposition from NAR, congressional leaders, and consumer and industry groups, the six financial regulators released the final version of the long-awaited qualified residential mortgage (QRM) rule. The six regulators listened to NAR when finalizing the rule which now equates QRM with the “Qualified Mortgage (QM)” standard. As originally proposed, the QRM rule would have narrowly defined QRMs to require a 20 percent down payment. REALTORS® were among the most vocal opponents of the originally proposed QRM rule and forged the broad-based Coalition for Sensible Housing Policy, which includes nearly 50 organizations, to draw attention to the regulations onerous 20 percent down payment requirement and other credit limiting features such as strict debt-to-income limits. The coalition asked for and received an extension of the proposed regulation comment period in 2013. During that time, NAR and its coalition partners gathered the support of 44 U.S. Senators and 282 House members, who wrote to regulators expressing their intent on QRM and opposing the sizable down payment requirement.
In synchronizing both definitions, the revised rule encourages safe and financially prudent mortgage financing while also ensuring creditworthy homebuyers have access to safe mortgage financing with lower risk of default. In addition, consistency between both standards reduces regulatory burden and gives mortgage professionals much-needed clarity and consistency in the application of the important mortgage standards required pursuant to Dodd-Frank. Read more …
In Mortgage Loans Part 1 we talked about fixed and adjustable rate mortgages. There are additional terms that may be discussed and you may be wondering what the terms mean and how it applies to you.
In addition to the fixed rate mortgage and adjustable rate mortgages, mortgages may also be either “conventional” (meaning funded by the private sector–usually a bank) or a “government-backed” loan. Government-backed loans are backed by the federal government, including the Department of Veteran Affairs or the Department of Housing and Urban Development. The government agency is “insuring” the loan, although the funding may still be by a bank.
So why the two different types of loans? The Department of Housing and Urban Development typically has less stringent lending qualifications, making it easier for some buyers to get a loan. For example, at the time of this writing, the down payment on an FHA loan (by the Federal Housing Administration) can be as low as 3.5%; a private loan generally requires 10-20%, but can be as low as 3%.
Below are the most typical types of government loans:
FHA (Federal Housing Administration) Loan: The three benefits of this loan are the low down payment, lower credit score requirements, and additional monies to fix the home up can be included in the loan amount. Buyers who want to take advantage of an FHA loan first need to find an FHA-approved lender. I have a full list of our local FHA-approved lenders in the event these loan parameters sound like a good match for your needs.
Once the buyer finds a home and makes an offer, FHA will require an inspection of the property the buyer has made an offer on. There is a minimum list of requirements the property must meet in order for FHA to back the loan.
The drawback to an FHA loan? Government mortgage insurance is an additional expense you will need to cover.
VA Loan: These are managed by the Department of Veteran Affairs and are reserved for military service members. The benefit of a VA loan is that it does not require a down payment. If you are a military service member, an agent can help you find a property, but when it comes time to apply for the loan, your Veterans Administration office will point you in the right direction and help you with the application process.
USDA Loan: These loans are managed by the United States Department of Agriculture and are reserved for rural areas. They are available to low-income residents. Please visit http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do to see if a particular property is eligible for USDA financing.
As you can see, there are pros and cons to both conventional and government-backed loans. If you are thinking about buying a home in the near future, let me set up a meeting with a lender who can guide you through the ins and outs of each, and help you determine the best loan for your needs and comfort level. Please contact me at 425•213•3700 or send an email to firstname.lastname@example.org.
Buyers can easily get overwhelmed by the options they are confronted with when it is time to apply for a loan. Conventional? Government-backed? Fixed rate? Adjustable rate? Even within these categories there can be several options.
Before you can determine which loan is right for you, you need to have an understanding of how each one works and the costs and benefits of each. Let’s start with definitions:
Fixed Rate Mortgage: Fixed rate mortgages are exactly that–the mortgage rate remains fixed for the life of the loan. Monthly payments are fixed (for the principle and interest–if property taxes and homeowners insurance are paid as part of your payment, these are paid through an “escrow” account which can fluctuate from year to year).
Adjustable Rate Mortgage: These are also called ARMs. This type of loan has the potential to have monthly payments that change since the interest rate can change. There is usually an initial period of time where the interest rate does not adjust. This might be a “1-year” ARM, 3-year, 5-year, or 7-year. How often the interest rate adjusts will also depend on the loan. Since interest rates do change over time, the payment can either be higher or lower depending on the difference in the interest rate. For example, if someone took out a loan now when interest rates are at record-low levels, it is unlikely that interest rates will continue to be this low when the interest rate adjusts. Furthermore, ARMs generally start out with a lower interest rate than a fixed rate loan.
It is important to know your future plans when determining the type of loan which is ideal for you. For example, if you are planning on staying in your home for only seven years, it might save you money to use an adjustable rate mortgage with the expectation that you will be moving and taking out a new loan before the interest rate is adjusted. However, what happens if there is a health issue or something else which prohibits you from moving in seven years? What if you cannot move into a fixed-rate mortgage? These things must be taken into consideration when determining whether you can afford your monthly payment–now and later.
Below are our current interest rates as of the writing of this article:
*30 Year Fixed Avg: 3.5%
*15 Year Fixed Avg: 2.75%
*5/1 ARM Avg: 2.875%
**Fees and Points: 1.0
*30 Year Fixed Avg: 3.25%
*15 Year Fixed Avg: 2.875%
*5/1 ARM Avg: 2.5%
**Fees and Points: 1.0
*Information provided by Ron Autry, Mortgage Advisory Group.
**Fees and Points refer to the cost of obtaining a loan. For example, on a $100,000 loan, the fees would be 1.0% or $1,000.
***Margin refers to the interest rate added to the measure for the ARM (also called the “index”) to determine the full interest rate charged. For example, if the index is the prime rate, in the instance of the 5/1 ARM above, the interest rate would be the prime rate plus 2-2.5%.
If you are thinking about buying a home in the near future, let me set up a meeting with a lender who can guide you through the ins and outs of each, and help you determine the best loan for your needs and comfort level. Please contact me at 425•213•3700 or send an email to email@example.com.
On January 1, both the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff.” The bill will be signed shortly by President Barack Obama. Click here for a summary of important real estate related provisions in the bill.
Beginning on January 1, 2013, people who lose their home to foreclosure will be required to pay federal taxes on any unpaid mortgage the bank can’t recoup through an auction. The same will be true for homeowners whose loan principal is reduced by a mortgage modification, with the wiped-out loan being treated as taxable income.
The new tax obligation will hit because the Mortgage Forgiveness Debt Relief Act expires at the end of 2012. The 2007 law was passed to save struggling homeowners from getting whacked twice, first by the sagging housing market and second by the Internal Revenue Service. Its expiration could push more people to remain in homes worth less than their mortgages, slowing the housing market’s recovery. Read more …
Many of my clients have asked about the recent settlement by several of the biggest mortgage lenders and what it could mean for their bottom line. This is a historic settlement, representing the largest consumer financial protection settlement in history. What do you need to know about the $25,000,000,000 settlement?
The five lenders involved in the settlement include Ally/GMAC, Bank of America, Citi, JP Morgan Chase, and Wells Fargo. The settlement provides relief for three categories of homeowners:
1. Loan modifications, including principal reduction of both first and second mortgages. Banks must provide up to $17 billion in principal reduction and other forms of loan modification.
2. Homeowners who are current on their mortgages, but are upside down in equity. Borrowers in this category can refinance at today’s historically low interest rates. Up to $3 billion of the settlement is targeted to this segment of borrowers.
3. Borrowers who lost their homes to foreclosure. Up to $1.5 billion of the settlement will go to 750,000 former homeowners. These claims are estimated to be approximately $2,000 per household. Further, these individuals may continue with their private claims against the banks and they retain their right to participate in future reviews–so they can pursue future action against their former lenders.
There is no cost to homeowners or borrowers to participate in the settlement.
Settlement negotiators will be selecting administrators to oversee the settlement, handle logistical details, and monitor compliance with the terms of the settlement. This step of the process is expected to take 30 to 60 days.
In the following six to nine months, three groups–the attorney generals of the 49 states (Oklahoma is not participating), the mortgage servicers, and the settlement administrator–will identify homeowners eligible for a settlement. Depending on which category the individuals fall in, that settlement will be in the form of immediate cash payments, principal reduction, and refinancing.
Eligible homeowners should be contacted by the five participating banks. However, individuals who are interested or concerned may wish to initiate the process by contacting the banks for more information.
• Ally / GMAC: 800-766-4622
• Bank of America: 877-488-7814
(M-F 7:00 am to 9:00 pm Central Time and Saturday, 8:00 am to 5:00 pm)
• Citi: 866-272-4749
• JPMorgan Chase: 866-372-6901
• Wells Fargo: 800-288-3212 (M-F, 7:00 am to 7:00 pm Central Time)
If you lost your home due to foreclosure between January 1, 2008 and December 31, 2011, a settlement administrator will be in contact regarding restitution. Some people may be difficult to locate, perhaps because they’ve made several moves and/or they don’t have a permanent place of address. Those people can contact their state’s Attorney General’s office. If you’re not sure who that is, go to www.naag.org and click on “The Attorney General”. Scroll to the map of the United States, and hover over the black square located on your state. The contact information for your Attorney General will appear in a pop-up box.
It’s important to note that the settlement applies only to loans currently owned or serviced by the five participating banks. If a loan is currently owned by Fannie Mae and Freddie Mac, an individual is not eligible under the terms of the settlement.
If a loan is held by one of these organizations there are links on the site that direct individuals to information about programs they may be able to participate in. This toll-free line (1-888-995-4673) also offers additional information.
Note: Source material for this article came from www.nationalmortgagesettlement.com.
HomePath financing, available only on Fannie Mae-owned properties, offers great benefits — low down payment, no mortgage insurance, expanded seller contributions, and more. HomePath Mortgage is available for move-in ready properties while HomePath Renovation Mortgage provides both the funds to purchase and to renovate in one loan. You also can use the financing of your choice from any lender, such as your local bank, credit union or other financial institution. Click on the image above for more information.
On November 15, 2011, Fannie Mae and Freddie Mac (the government sponsored enterprises, or GSEs) announced changes to their mortgage refinance programs to reflect enhancements to the Home Affordable Refinance Program (HARP) that give more “under water” borrowers an opportunity to refinance their loans. The revised program, known as HARP 2, continues to be available only for borrowers with loans purchased by Fannie Mae or Freddie Mac on or before May 31, 2009. In addition to reducing risk for lenders who refinance eligible mortgage loans, changes to the HARP program include:
• Eliminating the 125% loan-to-value (LTV) ratio cap for fixed-rate mortgages with terms up to 30 years.
• Reducing risk-based fees for borrowers and eliminating these fees altogether if they refinance into a mortgage loan with a term of 20 years or less.
• Requiring that borrowers receive a benefit from refinancing in the form of either a reduced monthly mortgage payment (principal and interest) or a more stable product, such as a fixed-rate mortgage instead of an adjustable rate mortgage.
• Extending the program expiration date to December 31, 2013.
The changes will become effective for mortgage loans with application dates on or after December 1, 2011. To be eligible, borrowers may not have had any mortgage delinquency in the last six months nor had more than one 30-day or more delinquency in the last 12 months (months 7-12). As under the original HARP program, the current LTV ratio must exceed 80% for the borrower to qualify. Borrowers with a GSE loan may contact their existing lender or any other mortgage lender that agrees to handle a HARP 2 refinancing. Servicers will implement the program over the coming months.