Valerie's Mortgage Basics

Instead of a Helping Hand....how about a Helping ARM???

2011-02-23T14:28:00.000-08:00

I know, ARMs are evil....or so one would believe.

After all, they accounted for almost 70% of all mortgages issued during the "boom"....but now they are making a come back! They are a bargain now - especially for first time home buyers. If you think about it - the average first time home buyer is in their home 5-7 years. A 5/1 ARM (the most common) is currently at about 3.5% (fixed for the first 5 years) compared to 5% for a 30 year fixed rate mortgage. Even at the 5 year anniversary when it adjusts, it cannot adjust more than 2% so the rate can only increase to 5.5% if you lock it today at 3.5%. Freddie Mac predicts by December they will make up approx. 10% of all loans issued.

Most people shy away from ARMs because of their stigma - they don't seem as "safe" as a 30 year fixed loan. The truth is that ARMs aren't for everyone. It really depends on your situation. They are definitely worth considering if you think you will only be in your home for a few years. Why pay the higher rate for 5 years if you don't plan to stay in the home for the long haul?

The next time you are looking for a mortgage loan - ask about the ARM products!

Think of us as TSA Agents....it may help soften the blow....

2011-02-16T19:09:00.000-08:00

I was thinking today about the current state of our mortgage loan environment and it dawned on me....loan originators are sort of like TSA Agents. It's not the most flattering comparison in the world, I know, but it comes with the territory.

Going to the airport to board a flight used to be a pretty simple process: arrive, park, check bags, receive boarding pass, walk through the security gate, wait for your flight and row to be called, board. Now, it's so complicated, you almost try to think of reasons not to fly. Can I get there by car? Do I really need to go? It almost seems not worth it with all the hoops you need to jump through. Limited luggage, carry on restrictions, weight of liquids restrictions, stripping down to practically your birthday suit while loading all of your belongings into a bin to watch them ride down a conveyor belt while you walk through a full body scan, and if lucky enough, possibly a full body pat down. But it's for our own good right? It's for our safety. I mean, all it took was a handful of people who did something awful to ruin it for the rest of us. It doesn't seem fair. But, in the end, when you get to your destination without incidence, you have to admit, as difficult and ridiculous as the process seems, you are relieved you made it safely. It was all done for your own good and the good of those around you.

The mortgage industry is much the same. A few bad decisions made by some, made it difficult for the rest of us. Yes, you do need to provide everything AND the kitchen sink in order to qualify for a loan - but in the end - it's for OUR own good. We all want to come out in the end safely and in order to do that we all have to cooperate and comply. Whatever your lender asks for, understand that it is necessary to the process. Remember the TSA Agent at the airport asking you to remove your shoes, belt, watch, wallet, cell phone, ring (you get the picture) when you are clearly not a risk - everyone has to be examined with the same pair of glasses.

The next time you apply for a mortgage loan, remember, we are just trying to help you reach your destination!

It's either the car or the house - you can't have both!

2011-02-10T19:44:00.000-08:00

What I mean to say is this: If you have a loan application in process, do NOT - I repeat - do NOT buy a new car! I am sure many of you find it odd that I say this, but believe it or not, I have been faced with this situation more times than I'd like.

My words of wisdom - if you are in the process of purchasing a home or re-financing an existing home - do not open up a credit card account for that new living room furniture you've been eyeing, do not replace your car with this year's model....well, you get the picture!

Any line of credit, whether revolving, auto or loan of any type, can cause your credit score to drop. If it drops enough, it can actually cost you. Your credit score along with other factors determine the interest rate for which you qualify. Not only do you jeopardize your rate, you may also cause your debt-to-income ratio to increase and that may hinder you from qualifying for a loan that you once qualified for. Hold off on any major purchases that require you to open a line of credit until AFTER your home purchase or re-fi settles.....the new living room furniture can wait - you want to be sure you actually have a living room to put it in 1st!

Psssssst! In case you haven't heard.....rates are going up!

2011-02-07T05:00:00.000-08:00

That's probably not what you want to hear....but it's the truth - there, I said it.

I actually had someone inquire this week about rates on a refinance who, after finding out what the rate would be, stated they would wait until 2012 for a lower rate. They were looking for a rate close to 4%! I wasn't sure what to make of that comment. I think everyone is so "spoiled" by the low rates - I mean, come on....lowest rates in 50 years....who wouldn't be spoiled! But as they say, all good things must come to an end.

Really, this isn't completely true. While everyone likes a good interest rate, the increased rates are actually a good sign. Higher interest rates show that there is economic recovery happening....and isn't that what we all want? Think about it. The slight increase in rate isn't nearly as much of an impact on the consumer as a stimulated economy. If unemployment drops and housing values rise - won't that have much more of a positive impact? Rising rates are a sign of better things to come.

Truly, I would be more concerned with actually qualifying for a mortgage than the interest rate itself. Underwriting standards are the tightest they have ever been with no sign of loosening anytime soon.

Don't put the cart before the horse!

2011-02-06T10:39:00.000-08:00

You don't put on your shoes before your socks do you? That's just silly!

CNNMoney.com has a very interesting series entitled "Money101". I find myself browsing the CNN website often. I have it saved to my desktop. They always have interesting articles related to Real Estate, Finance and the economy in general.

Money101 Lesson 8 caught my eye recently. It is a list of the top 10 things one should know before buying a house. I read the list over and, while all were excellent points, #8 jumped out at me. And I quote, "8. Before house hunting, get pre-approved". Hmmmm, sounds reasonable, doesn't it? I cannot tell you how many times agents have complained to me that someone called on one of their listings wanting to see it right then and there. The agent meets them to open the door, shows the property only to find out later that they haven't even spoken to a lender yet and, often times find out, they can't afford the house.

Educating yourself is the first step to homeownership - this requires talking to a lender. I mean, if you truly have a Honda budget, are you seriously going to the Mercedes Benz dealer looking for a car? Of course not!

Most people do not realize that getting pre-qualified or pre-approved for a loan requires more than just a good credit score or good assets. There are so many facets and every situation is different. A lender will initially look at the basics:

Credit: Not just the score itself but your credit history. Do you have any late payments, disputed accounts, judgments, liens, bankruptcies, foreclosures, etc.?
Income: How much do you make? That can sometimes be a complicated question. There are very specific rules for income and it has to be analyzed on a case-by-case basis.
Assets: How much money do you have to work with? We are interested in where the money is coming from to purchase a house. We must fully document it's source and show that you have enough to cover down payment, any closing costs you may be responsible for and then some. Again, this is analyzed on a case-by-case basis.
Liabilities: How much do you owe? We will look at your credit report and count all current debt owed (usually includes car loans, credit cards, mortgages, liens, student loans, etc.) plus the purposed payment on a new house. In most instances you are required to stay within a very specific DTI (debt-to-income ratio). We must balance your current responsibilities and purposed new house payment against what you bring in each month for that calculation.

There are other things to consider as well. Often times, if ratios are tight, a high HOA and/or Condo fee can put a buyer out of range on a specific property.

Now, don't get me wrong. I enjoy trolling the open houses on a Sunday afternoon for fun like the next person. This is not what I am talking about. I am saying, don't drive by a home with a "For Sale" sign in the yard at 7pm on a Wednesday, call the agent's number on the sign demanding to see inside right then and there unless you KNOW you can afford the property. Can you call and ask questions, sure. But when you take it to the next level, needlessly inconveniencing the agent and owner, to view a property that you have no idea if you can afford is a bit inconsiderate. Imagine how you would feel!

The application process can be intimidating. I think this is why most people put this step in the process secondary. Avoiding it doesn't make it easier. It is actually smart for you to know up front what your buying power is so you can make the best educated decisions regarding your home purchase. This is so much better than guessing and wasting everyones time - including your own.

Don't put the cart before the horse!

Valerie Hall

Embrace Home Loans

NMLS #238553

10306 Eaton Place #101

Fairfax, VA 22030

vhall@embracehomeloans.com

703-309-2005