Comments (0)

By Kim, March 22, 2009

Info from this week’s Mortgage Market Guide:

Last week, the Fed used their regularly scheduled meeting to make a blockbuster announcement.

Over the course of 2009, the Fed will purchase an additional $750 billion of mortgage-backed securities, as well as $300 billion in long-term Treasuries, primarily to help shore up the housing market and keep home loan rates low. On the announcement, bonds exploded higher, leaving bond prices within whiskers of the best levels ever.

How does this really impact home loan rates?

While the Fed’s actions may keep mortgage rates from moving higher, they may not cause them to move dramatically lower. The Fed’s actions create demand for mortgage-backed securities, which should help keep the ceiling on home loan rates from moving much higher in the foreseeable future. That’s good news for homebuyers who are seeing the bargains out there and understand that now is the time to act.

But – and this is very important – what actually happens to mortgage rates depends on which bond coupons the Fed purchases. If they purchase higher rate coupons – as they have done so far this year – their continued purchasing will likely keep a lid on rates, but not necessarily push them significantly lower. Additionally, due to many understaffed lenders and investors currently working at maximum capacity, we could once again see that improvements in pricing may not all be passed through to borrowers.

Another factor that could impact whether mortgage rates see significant improvement are concerns of future inflation brought on by all the recent aggressive moves by the Fed. While we know there is little inflation at the present time, chatter about future inflation could have a negative impact on home loan rates, or at least stifle any improvements.

Although the media is already spinning it differently, this is not a time to stay on the fence, hoping and waiting for lower rates. Home loan rates remain within inches of all-time historic lows, but may not necessarily move significantly lower, so waiting could be a risky move.

Also, an update on Mark-to-Market – the accounting rule which has had a devastating impact on the financial markets: The Financial Accounting Standards Board (FASB) agreed that it will propose to allow companies to use more “leeway” in applying the accounting rules they use to value their assets, and planned a final vote for April 2. If this rule change is approved, it could result in better first-quarter financial statements for companies that have been affected by this rule. Stocks have been moving higher lately in the hopes that Mark-to-Market will be fixed, and a resolution could help stocks further improve.

It’s Good To Have A Friend In The Business®

If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.

4.5% Listings with First-Class Service — Cash Back to My Buyers!

Comments (3)

By Kim, February 14, 2009

You’re thinking about buying a home, but you can’t pay all cash. Gee, join the least-exclusive club we know! Now you have to get a loan secured by whatever home you want to buy, a loan we call a mortgage.

You Lose!

“Oh, I’ll just click on one of those ubiquitous pop-up Internet ads, and lenders will come begging for my business!”  Please, please, don’t! Whether it’s the one where lenders advertise their “best rates,” or the one where you ask for four lender quotes (and get hundreds of them calling you day and night), they won’t be any good at this point. What you need to know first is what loans are available to you, and how much house you can afford based upon those loans. You want someone who will tell you what’s going on in the loan market right now.

You are not ready to sign up for any loan yet. Instead, you are trying to find a loan officer who will be there when you are ready. Will they guide you through the process, and explain how they get from A to B? Taking your income as a starting point, they would subtract from that your current monthly obligations, to arrive at a reasonable monthly budget for housing, using current interest rates, tax and insurance costs. As for what kind of mortgages, they should start with a fully amortized 30-year fixed-rate mortgage with no more than one point of combined origination and/or discount fees. (A “point” is 1 percent of the mortgage amount.) They should then discuss alternative loan types, such as the 5/1 adjustable (see below), but the main purpose here is to ensure you will not be getting in over your head.

You might like the numbers the first lender gives you, but don’t stop looking. You want to have this same discussion with at least three different loan officers. You need to confirm that what you’re hearing is the truth, both in terms of what you can afford and the likelihood that the loan terms are valid. You see, loan officers in general have an incentive to tell you what you want to hear, and despite the existence of a “Good Faith Estimate” and/or “Truth in Lending” documents, they don’t have to deliver what they promise unless and until they provide a loan quote guarantee or “lock.”

What kinds of loans are out there that are worth considering? In the current interest rate environment, where rates are historically low, forget negative amortization (where you pay less interest than the actual loan rate, and the underpaid interest is then added to the loan balance). And forget “teaser” loans, where the first couple of years is at an artificially low rate, like 1.25%. Both of these are sure recipes for disaster – they were the cause of many of the foreclosures we are going through right now.

All the rest have their advantages and disadvantages. The fixed rate loan is almost always at a higher rate. In effect, it’s 30 years of insurance against rate changes. Yet most people either move or refinance in 5 years or less, so why would they pay for a 30-year guarantee? The 5/1 (or 3/1, 7/1, or 10/1) ARM – where the rate is fixed for the first several years and adjusts annually after that – is usually a lower rate.

And why spend money “buying down” your interest rate by paying discount points, if you’re not likely to keep it long enough to recover the money? You might cut your monthly interest charge, but it takes 6-8 years to break even.

Once you have believable info on how much you can afford, then you can start looking at properties. Stay in touch with the lenders you believe would be most reliable. You’ll notice I said “lenders” – keep reading.

You might want to strongly consider having a backup loan. When you’ve decided who your first choice lender will be, ask the next best lender if they will be your backup. They might, if they don’t think the first lender can deliver. If they’re right, you’ll be signing their paperwork at the end. You will need to do everything necessary so that both loans are ready to go. The backup loan is useless to you if it’s not ready to go at the same time as the main one. You may have to pay for an extra appraisal, but it’s $300 or so well spent.

If you decide not to have a backup loan, you will have to sign whatever papers your one lender gives you, whether they deliver on their promises or not – you won’t have a choice unless you decide to renege on your purchase contract, which can be extremely expensive, as you can imagine.

Having said all that, I have only been involved in one settlement where the buyer had a backup loan waiting in case the first one fell through (it didn’t). Most of my buyer clients have used mortgage officers I knew would deliver. I have seen a couple of situations where the settlement (my sellers) was delayed because the buyers’ lender was incompetent or untruthful, and it’s not a pleasant place to be for anyone.

UPDATE: Here is a great post about What To Look For In A Mortgage Lender

Comments (2)

By Kim, October 31, 2008

Not many people have the cash to buy a home. If you do, you already know you don’t need a mortgage preapproval. But for the rest of us cash-poor mortals, mortgage preapproval (before you begin your house hunting) lets you know exactly how much you are qualified to borrow, and thus what you can spend on a home. What is the point of looking for a home until you know how much home you can afford?

Furthermore, when you decide on a home, the seller will want to know that you are able to pay what you are offering before he will consider your offer. Thus when you make an offer, you are expected to provide a letter from a reputable lender saying exactly that.??

The lender wants to understand your personal financial picture, including savings, credit history and income. To help you get a quick idea of what you can afford – which they generally call a prequalification – they will usually run a credit check, and accept your word on your income and assets.

The next step involves having you provide bank statements and such to verify assets, and paystubs or other income verification documents. When they have seen these, they can provide you with a preapproval letter referencing your ability to borrow a specific amount. What is nice about all of this is that most good lenders don’t charge you anything for these services, nor do they require that you use them for your mortgage.

The keys to getting a solid preapproval are:

• establish a consistent record of paying your bills on time, to keep your credit rating up;
• aim for having enough savings to cover your down payment, closing costs if necessary (figure 2-3% of the sales price but often the seller will contribute this), and two month’s expenses in case of emergency. While you wouldn’t want to tap retirement savings for your down payment or other house purchase costs, they do represent reserves that help reassure the lender about your financial stability, so be sure to include these in your assets;?
• a stable employment history is important, but if you’ve recently completed college, or were in the military, you have good reason to have less work history. If you are a freelancer or do contract work, the lender will look for consistency in income over the last two years, so hang on to those tax returns.?