Money

Mortgage Myths Busted

December 30, 2011

Myth: A 30-year fixed rate mortgage (FRM) is always the best option.

The 30 Year FRM is attractive because, right now, it provides long-term rate protection for low payments. However, a FRM is the most expensive option in terms of the interest-to-principal payment ratio. Other loan products offer borrowers greater savings—for example, a 5/1 adjustable rate (ARM) can be more beneficial to a borrower over 7 years when compared to a 30-year fixed, given today’s rates. Consider how long you expect to keep the mortgage before moving or refinancing.

Myth: At least 20 percent down is required for a home loan.

A 20% down payment will often come with the lowest rates, without mortgage insurance, and give you the best shot at qualifying for a mortgage. However, cash-poor but good- income home buyers can get a good loan for as little as 3.5 percent down and mortgage insurance through many lenders. Sometimes it makes sense to pay the mortgage insurance in a lump-sum up front to keep your payment lower.

Myth: The rate must drop by 2 percentage points to make refinancing worthwhile.

Cutting the interest rate by even half a point can be a prudent decision. Also, do the math and check your budget. Even switching from a lower ARM to a slightly higher FRM can be a viable option that allows you to lock in your mortgage payment and not worry about interest rates inevitably rising, if not for a year or more down the road. The key is to sit down and run the numbers to find the break-even point to see if refinancing makes sense for your given situation. Don’t forget closing costs, and the amount of time it’ll take to recoup them after refinancing to a rate that saves you money each month. You’ll have to remain in the home for sufficient time after refinancing if you want to recoup your closing costs and not cancel out potential savings.

Myth: There’s no point in shopping around for a mortgage when all lenders offer the same programs.

There may be fewer loan programs available today then there were 5 to 10 years ago, but lenders continue to offer a host of different home loan programs. And rates can vary by more than a point from one lender to another. Always comparison shop for home loans, but not just the interest rate. Look at closing costs and other fees that can amount to thousands of dollars.

Myth: A pre-qualification is the same as a pre-approval.

A mortgage loan pre-qualification is simply an estimate of how much house you likely can afford and, based on that, how much money a lender might be willing to loan you. Pre-approval means that a borrower has a commitment from a specific lender for mortgage funding based on actual credit, income and asset verification. Most sellers won’t consider your offer if you don’t have a pre-approval from a well-known lender.

Please let me know if you would like a referral to a trustworthy lender.

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Upside Down Back Flip?

December 16, 2011

Are you upside down on your mortgage (owe more than your house is worth)? Do you have a “Jumbo” mortgage (over $500,000)?

How would you like to:

  • Keep your home
  • Drastically reduce the debt owed on your home
  • Drastically lower your payments
  • Take advantage of historically low rates
  • Create equity in your home, and
  • Not damage your credit in the process?

There is a solution for you! Many lenders are selling upside down jumbo mortgage loans at steep discounts to investors with cash without holding you responsible for the difference! If you’re unable (or unwilling) to keep your upside down mortgage any longer and would like to drastically reduce your loan without damaging your credit, then you need to know more about some of the residential workouts that are going on “behind the scenes.”

The lenders who hold these loans are very concerned about them. They represent large chunks of these lenders’ lending portfolios, and they know the high risk of default they carry. Now more than ever these lenders are willing to sell, and they are willing to sell these loans off one at a time due to their large balances. After these loans are purchased by a cash investor, the new loan holder is able to discount the loans and sell them back to the original homeowner at prices good enough to allow 75-80% refinances—and the homeowner winds up with 20-25% equity, with no impact on credit!

I am familiar with a private investment group that specializes in assisting upside down homeowners to keep their properties by negotiating to purchase jumbo residential mortgages notes at a discount from the current lender. They are specifically looking for residential loans that meet the following criteria:

  • Owner is upside down but wants to keep property
  • Primary Residence only
  • Non-Conforming (“Jumbo”) Loans only – from $500,000 to $5,000,000
  • Mortgage must not be in default, and
  • Owner must meet credit and income requirements to be able to refinance immediately after the investment group purchases the mortgage note.

Recently the investment group negotiated and purchased a discounted note on a home that had a $1,200,000 mortgage. The owner refinanced with a new loan amount of just $800,000, reducing her debt $400,000! She now has at least 20% equity in her home, a lower interest rate, a much lower payment, AND her credit was not dinged. They have arranged several of these purchase/refinance deals in the last few months.

The window of opportunity for these arrangements may only last for a short time, so if your situation fits these criteria, or if you need additional information, please contact Jennifer DuPlessis at 703-864-4597 or jendup1124@gmail.com.

It’s unfortunate, I think, that Fannie Mae- and Freddie Mac-backed mortgage loans can’t benefit from this program, but so far they are not eligible. For information about mortgage modification on non-jumbo mortgages, try the Making Home Affordable program.

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