Time for a Mortgage

Well Intentioned new HUD rules went in to effect January 1, 2010. The intention was to provide a new standardized GFE that would empower the buyer and make it easier for the buyer to shop for a loan.

To some extent I think that they have accomplished their goal with one huge problem.

The problem now is that with the new rules the lenders have become much less free with the GFE.

We are now getting estimates with all kinds of names except for GFE.

I will write more on this as the industry sorts it out. Until then you will find below some info.

Sample of the new GFE

http://www.hud.gov/content/releases/goodfaithestimate.pdf

Explanation of the new GFE

http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf

To Qualify you:

Must be in a binding contract to purchase a house prior to April 30, 2010 and settle on the purchase prior to June 30, 2010.

The Maximum Amount of the Credit is:

$8,000.00 for first time home buyers.

$6,500.00 for the “long time resident” credit. (To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence)

You may claim an eligible 2010 credit on your 2009 or 2010 taxes.

To qualify for the full tax credit your income(MAGI) must be less than:

$125,000.00 if you are filing single.

$225,000.00 if you are filing jointly.

You cannot get the credit if:

You are a dependent.

You are buying a home  with a purchase price of more than $800,000.00.

You are under the age of 18 on the date of the purchase.

You are buying a home that is not going to be your primary residence.

Some Useful Resources:

http://www.irs.gov/newsroom/article/0,,id=215791,00.html

http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit

http://www.nahb.org/generic.aspx?genericContentID=128298

http://www.federalhousingtaxcredit.com/

New Down Payment Assistance money should be available at the end of this month.  It seems that there are two components of the new issue.  One will be the normal issue which gives first time home buyers the down payment needed with an FHA Loan.  The other will be for first time home buyers too, but will be an advance of the Tax Credit.

Much like the Cash for Clunkers program this money will go fast.  Once the money is gone this program will no longer be available until the next issue which will probably be next year.  First time home buyers that qualify may receive both the Down Payment Assistance and the $8,000.00 Tax Credit. 

If you are looking for the deal of the century then the time to buy would be between 8/25/2009 and the time the bond money runs out which will be about 30 days later(based on the time it took the last issue to be used up).  In order to reserve this money you must be in a contract to purchase on a specific property, which means if you are looking to take advantage of the double benefit then you should contact a Realtor and begin looking at houses immediately.

According to OHFA:

Projected opening of 08/25/09 at 10:00 am.  $32.8 million bond
       issue with 6.10% interest rate. 1st Gold and OHFA Shield/4Teachers funds with
       3.5% DPA or Oklahoma Tax Advance Credit funds will be available.

That is the name that many in the industry have given to the new Home Valuation Code of Conduct (HVCC) that went into effect May 1, 2009.  The intention of HVCC  was to increase the independence of the appraisal process.  It was meant to free appraisers from pressures to increase appraisals at the behest of Mortgage Brokers and Real Estate Agents.

The code of conduct is the result of a legal settlement with the attorney general of New York. It is applied nationwide. And it should be considered a case study in the value of the legislative process: If the HVCC had been a bill introduced into Congress, it would have never passed without having undergone drastic changes. But it wasn’t a bill and it isn’t a law; it’s a legal settlement by one state’s attorney general, imposed on all 50 states.

As often is the case with government intervention we get not the intended goal but instead a lot of messy side effects.  So far this what I have observed as unintended effects:

1)  Appraisals now take much longer resulting in the need for longer rate locks which results in the consumer ultimately paying a higher rates.

2) Out of fear of compliance many banks have outsourced hiring appraisers to third party companies who charge more and pay appraisers less.  So the amount spent by the consumer has increased while the amount of money given to the appraiser is reduced while companies who only job is government compliance has increased.  Also, the third party companies looking to make the most profit often hire appraisers that are unfamiliar with the area of the property resulting in bad appraisals.

These are two of the effects noticed so far.  As the industry adjusts to HVCC I will keep you updated.

I just got off the phone with one of my favorite Lenders and he just received an e-mail this morning that his bank is lowering the boom (or raising the bar) on construction loans. It looks like people trying to get this type of loan will have to do a lot more jumping through hoops now. This Lender will now only work with you if you are using a well known Builder and will now use actual value instead of appraised value. You will probably have to have a lot more of your own money in the pile now as well. The bottom line is you will probably be better off buying an existing property unless you have money to burn.

So you are looking to buy a new home and you are hearing about discount points.  Or you already know something about discount points and you think you have the answer.  Here is the mistake buyers often make is they base decisions on their past experience.  They don’t realize how fluid the mortgage market is.  The problem is more than likely their experience is take from their experience with very few real estate transactions.  What you need to understand about the real estate industry is that there are no timeless universal correct answers.  

The game of real estate changes dramatically year to year, month to month, and even week to week.  This is why you cannot rely on your own experience of the past.  You cannot rely on experience of others from their past.  You need to educate yourself the best you can with current information and find a Realtor that is honest and actively selling houses every month that can help guide you.

Discount points are pre-paid interest that change the interest rate you pay over the term of the loan.  Here is the question, “Are Discount Points a good Idea?”.  Well it depends.  First, let me tell you upfront I am writing this because Discount Points have become a much better idea in the past few months.  Why?  Well.  It is all just math.  How much is a Discount Point.  One point is equal to 1% of the loan amount, so if you have one point on $150,000.00 then you will pay $1500.00 at closing.   Take for example the following choice.  One loan has one discount point and an interest rate of 5% and the other has no discount point and a 6% interest rate which one do you want?  Well, let’s look at it.

You would calculate it this way.  First you figure out the difference.  With the loan up front you will pay $1500 at closing but your monthly payment will be $805.00(refer to chart from previous post).  With no points you will not have the $1500.00 at closing but with your interest rate at 6% your monthly mortgage payment will be $899.00(refer to chart).  So which is better?  Well it depends on how long you will be living in your new home.  With one you save $1500 but pay $94 more a month.  A simple calculation 1500/94=15.96, shows that if you are going to be there for more than 16 months you will be saving quite a bit money with the first choice of the discount point.  If you plan on moving in less than f16 months than you should choose the one with no points.

The difference a point makes in the actual interest rate will vary at different times.  In the current market the above example is about right.  You save a point on interest for every discount point.  Three years ago it was more like you save 3/8 of a point on interest for every discount point.  You can see the calculations would be very different.

This is just a very small part of understanding which is the best loan right now.  So again I would recommend that you do lot’s of homework and find a knowledgable Realtor.  Selecting the wrong loan could cost you thousands over the life of the loan.

Ask questions.  Don’t be shy.  Very few have a full understanding of all the complexities of the process.  Even the veterans we see that think they have it all down usually only have a working knowledge of the surface.

Just between you and me.  I think Lenders purposely try to make it complicated to make it easier to sell you a product that may be good for them but bad for you.  Don’t let this happen.  Knowledge is Power.

There has been so much talk about the super low interest rates that I thought you might be interested in seeing how it affects your payment.  So, I calculated these payment amounts as principle and interest in a matrix with loan amount going down on the left and interest rate across the top.  So if you were getting a $150,000.00 30 year fixed rate mortgage loan at 8.00% your payment would be $1,101.00.  What is striking is that you see that your payment almost doubles from 4.5% to 10%. Read the rest of this entry »

This in from the Associated Press

NEW YORK — The price of money for American consumers went on sale in a spectacular way Tuesday after the Federal Reserve cut interest rates to their lowest level on record and promised to keep them low for a long time.

In response, most banks cut the rate they charge their best customers, known as the prime rate, to 3.25 percent from 4 percent. The last time it was that low was in 1955, according to data from the Federal Reserve Bank of St. Louis.

What does this mean to you as a Buyer?  It means that the money you need to buy a new house is cheap.

How Low are interest rates you ask?

Here is what a local lender here in Oklahoma City was quoting today with no points.

5% Fixed Interest Rate on an FHA Loan. And are you ready for this on a 95%LTV with a 740 FICO score we are at (drum roll please) 4.875% Fixed Interest Rate.

That is right 4.875%!

These rates are historically speaking about as low as they get. See chart below from  Freddie Mac.

Monthly Average Commitment Rate And Points On 30-Year Fixed-Rate Mortgages Since 1971

If you took a close look at the above table you will notice that you did not see any loans under 5% and you definitely did not see any under 5% with no points.

If you were looking for the perfect time to buy a house.  Look no Further.

It was reported today that new housing starts are at their lowest since they started tracking them in 1959.  What does that mean?  That means there are very few new houses being put out there which will lead to decreasing inventories leading to a stabilization of home prices and possibly in the near future increasing house prices.  In short it means we are at or near the bottom of housing devaluation.  Throw in the lowest mortgage interest rates ever and a $7500.00 Tax Credit and those sitting on the sideline are going to look back on today with regretful nostalgia.

Don’t miss out on a once in a lifetime opportunity and I won’t have to say “I told you so.”

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Get a Loan Quote Here.