Basically, points are up front fees (which I call investment) paid by the borrower to obtain a better interest rate on their loan. One point is equal to 1% of the loan amount. For example, on a $400,000 loan, if you paid a point investment, it would equate to $4000 in costs. Typically paying a point versus not paying a point will lower your interest rate. The key in determining if you should buy down the interest rate (pay points/costs) is how long you will be in the loan and to compare current interest rates to historical market trends.

Let’s take my example a little further. Let’s say paying $4000 on a $400,000 loan over not paying a point (saving $4000 in costs) would save you $50 per month (remember paying the points will get you a lower interest rate thus saving you on your monthly payment). What this means is that it would take you 80 months to recoup your $4000. What you do is divide the savings per month ($50) into what it cost ($4000) you to get that savings. If you decide to refinance or sell you home within 80 months then your money is lost. In this scenario, you would benefit from paying the points if you were to stay in the house for 80  months or longer.

Can I pay more than 1 point investment. Of course, the more you invest in buying odwn the interest rate, the lower that rate will be. Typically, rates are quoted with 1 point or no points..but you have the option to go for it and pay more than 1 point.

It is also important to take a look at where rates are from a historical perspective. If rates are at a all time low (like they are today), and you plan to be in the house for an extended period of time, it makes more sense to pay points and take advantage of the SUPER low rates. If it’s unlikely that rates will go down in the near future, then there will be no need to refinance…one and done!

On the opposite side, if rates are high, and there is a good chance rates will drop down, then paying points may not be in your best interest. The reason why is if rates drop, chances are you will refinance again and you will not have been in your current loan long enough to re-coup the points paid on your current loan.

Another consideration is tax deductibility. Let’s remember I am not an accountant and you should refer to them for advice as well. On a purchase, interest from both your points paid and your mortgage are tax deductible up front. For refinances, however, points are not deductible up front. Instead the deductions are spread out over the term of the loan, making points more costly in comparison.

Ultimately, there is a lot to consider when it comes to points and whether or not they are a worthwhile investment. An experienced mortgage professional will work with you to determine the best course of action based on your SPECIFIC needs. You should always request a loan comparison to see if paying or not paying is best for you. If you would like more information please contact me or your local lender.

Tim Mikel

This is exactly what will happen if you qualify and file for the $8000 credit as I explain below.

This first time home buyer program is available until December 1st, 2009.

What is it? It is a tax credit up to 10% of the purchase price of the home up to $8000 whatever is less. To be a first time home buyer you must have not owned a “main home” for the last 3 years. A “main home” is defined as a home which a person has lived “for most of the time.” For married couples it applies to both home buyers.

Also, there are some income restrictions. If you filed taxes separately and your adjusted gross income was over $95,000 the first time home buyer tax credit is unavailable to you. The same  goes for married couples who filed taxes jointly and your adjusted gross income exceeded $170,000.

Officially the first time home buyer tax credit is under the American Recovery and Reinvestment Act of 2009. Unofficially it is a great opportunity to help replenish the down payment of your new home.

Let me clarify this: you can not claim the tax credit until after you close your escrow. That means that you still need to come up with the funds needed for the down payment on your own. But after you close escrow, you can take the refunded tax credit and put it back into your savings.

How do you get your tax credit? First you must buy a home before December 1st, 2009.  Second you submit IRS Form 5405 with your 2009 tax returns by April 2010.

What exactly will you get as a refund. This depends on your tax situation. Let’s look at 3 different scenarios:

1. You owe $4000 in taxes. You had taxes withheld from your paycheck and at the end of the year had paid $4000 in taxes. Since you have already satisfied your obligation, you will receive the entire tax credit you qualify for (remember 10% of the sales price up to $8000 whichever is less).

2. You owe $4000 in taxes. But you overpaid by $1000 with the taxes withheld from your paycheck. You now qualify to receive the overpaid amount of $1000 and the full tax credit you qualify for.

3. You owe $4000 in taxes. But you underpaid by $1000 with the taxes withheld from your paycheck. You now will qualify for the full tax refund minus the $1000 you owe. If you qualified for the full $8000 you will receive $7000.

Finally, do no wait until December 1st to buy your home.  As a first time home buyer, you need to start the process at least 60 days prior to December 1st. Why, because once you put a house into escrow it could take at least 60 days to close escrow and you have to close on your new home prior the this date. If you are buying a short sale or foreclosure, this could even take longer.

Bottom line, if you are a first time home buyer, and have been thinking about buying, this is a golden opportunity to get some assistance. Please realize that I am not an accountant, please refer to your tax preparer for specifics to your situation. Also, work with a professional mortgage planner to obtain your financing and seek out a Realtor who can help navigate the process for you.

Choosing a home mortgage loan is no small task. As one of your largest financial investments, this is an important decision that deserves full attention. Here’s what you need to know…Continue reading

-Frank Shorter

What do you do?

Well the best approach is to call your mortgage professional that did your past loan, or if you do not have a mortgage then you ask your family and friends for a referral. This in itself could be a challenge due to the exodus of many loan officers from the business due to the “easy pickens” days are over. All that are left are those mortgage professionals that are grounded from years of experience (not so bad). Once you hook up with a professional then you are in good shape to get the best mortgage program and rate possible. Why?

For those that do not have a mortgage source to go to, they will call around and get mortgage rate quotes. This is backwards for a couple of reasons.

First, you may get a quote that you really like, go with it and then find out that the loan officer that quoted the “really nice” rate can not perform or the quote will not work in the time frame needed (I just got a random call today asking if I could refer a mortgage attorney due to failure to perform within the rate lock commitment..basically the customer lost their rate and now that rate does not exist).

Second, calling around and getting quotes does not work in today’s multiple rate sheet environment. What do I mean? Due to the volatility in the market, lenders price rates in the morning, then depending on how the market is performing (the mortgage backed securities..I’ll save this for a different blog post) you can get a mortgage rate re-price. So what? Well if you call my competitor at 10:00 a.m. and then call me at 2:00 p.m. and the market has improved to warrant a mortgage re-price, I will beat out my competitor just due to the improvement in the market.

You need to be able to compare apples with apples. In May, rates changed about every 4 hours. This makes it very challenging to shop for rates.

Back to my earlier point. Find a mortgage professional first, one that is established, has weathered the storm and understands the market, then stick with that professional. You will in the long run end up with the best program and rate.

If you want to follow mortgage rates on a daily basis, follow me on twitter were I give daily updates to how the mortgage market is performing.

-Arthur Ashe

Rates that used to be 4.5% are now at around 5.5%. And it only took about 15 days to move. What does that mean to a homeowner in Ventura County? It means what used to be a payment on a $400,00 loan at 4.5% has increased $245 per month based on 5.5% mortgage rate.

Before I get into all of you in Ventura County who were, should of, was, possible, thinking about purchasing or refinancing let’s talk about why?

First there are many explanations, but I will stick with the simplified version.

1. The economy is improving. Maybe not on a day to day living basis, but on an overall bigger picture basis. With this improvement is the FEAR of inflation. Inflation is mortgage rates worst nightmare.

2. The technical side. This is were the market trades in patterns by traders who watch the market. This gets way to involved for this blog, but just trust me that when the rates seem to move for no apparent reason, there is usually heavy trading going on.

Are the rates going to come back down? Can you take advantage of the dip back down? There might be hope. Due to the quickness of the rise in rates, technical factors should pull back down the rates. The Federal Reserve will do its part to keep its commitment to keeping rates low. And rates seem to be seasonal.

Now, the hand slapping, do not miss the next drop in rates. Do not get caught up in the rumors that rates will always drop to something lower than what you could of taken advantage of when they hit their all time low! Ok, maybe you missed the boat once, but do not miss it again. Get yourself ready today for the dip. Speak to your mortgage professional and put yourself in a position to win. Rates as demonstrated above can move swiftly.

When will you know that rates have dropped so you can take advantage..not by reading the newspaper..that is too late..follow me on twitter were I give daily rate updates or subscribe to this blog.

Finally, if you want to forget about it and let someone else worry about it. Go to www.watchingyourmortage.com, sign up once and let me do the watching for you with my rate watch program.

But whatever you do, to do nothing will surely end up costing you in the long run.

As you can see, you will want to work with a mortgage professional with experience to ensure that you get a smooth transaction.

The other factor is how much of a home loan can you afford. You may want to put down as little as possible, but the loan amount that you are left with may not make sense from a monthly obligation stand point.

While it might be tempting to borrow whatever amount of money your lender is willing to give you, it is important to think carefully about how much you’ll actually need to borrow in order to purchase a new home. From the down payment to property taxes to insurance to interest rates, there are many factors to consider when making this important home loan decision.

Contrary to popular belief, there is no standard formula for accurately calculating the specific dollar amount you should borrow when purchasing a new home. Many web sites offer calculators to help with deciding what amount you should, borrow, but the variables vary greatly from one site to another. Another rule of thumb suggests that you should never borrow more than 2 1/2 to 3 times your gross annual income, or that 28%, 32% or even 40% is the maximum amount of debt you should ever take on (your total housing payment divided by your gross monthly income).

As mentioned above, you may be forced to borrow the maximum due to the amount of saving you have available to put towards the down payment. What you must do in this case is determine if the home loan that you end up with by putting the least amount down is affordable. There are lots of lenders that will provide you with the loan with the least amount down, but you are the one who has to make the payment, and therefore that really becomes the important question. What if you only have the minimum amount of money for a down payment (which is 3.5% on an FHA loan, in most cases), and the payment is not comfortable. Then you need to either seek out a gift from a relative, determine if the city has a down payment assistance program or continue to save for a larger down payment and less of a home loan.

The best advise I can give you is to speak with a mortgage professional and get yourself pre-approved (not pre-qualified) for a home loan. By getting pre-approved for a mortgage, you not only increase your chance of finding the perfect house for your needs, you also become a “cash buyer”, instantly increasing your bargaining power.

As a mortgage professional, I see my role differently than a traditional loan officer. While my job is to match you with the best mortgage available for your specific needs, I feel that it is also my duty to make sure it is the most responsible home loan as well.

Whether you choose to work with me or not, be aware. A lender will often offer you the maximum amount of money that you qualify for, whether you actually need the full amount of not. Because of this, it is vital that you sit down with a mortgage professional who you can trust to figure out your complete financial picture.

Understand, I have worked for direct lenders (big banks) and as a mortgage broker. You can find professional loan officers in both environments.

But the topic of this article is why use a mortgage broker, therefore let me continue.

A mortgage broker is an independent real estate financing professional who specializes in the origination of residential mortgage loans. Mortgage brokers normally pass the actual funding and servicing of loans on to wholesale lending sources. A mortgage broker is also an independent contractor working with (on average) as many as 20 lenders at one time. By combining professional expertise with direct access to hundreds of loan products, your broker provides the most efficient way to obtain financing tailored to your specific financial goals.

In the volatile home lending market, mortgage brokers can serve as safeguards, offering their clients security, safety, and peace of mind. One of the broker’s most important functions is escorting your loan application through the entire process, constantly patrolling the transactions looking for possible breakdowns. A professional mortgage broker can wade through the mountains of rate data and program options, researching current market conditions to find the most accurate and up-to-date information about cost effective options.

There are literally thousands of variables that can affect the outcome of your mortgage transaction. That’s why you need a mortgage broker to act as a liaison between the title and escrow companies, real estate agent, lender, appraiser, credit agency, the underwriters, the processors and any other services which may affect your transaction.

A mortgage broker also:

• Discusses and expain financing program options
• Provide detailed spreadsheets on the total costs of the transaction
• Explains all associated costs to the loan application
• Explains the loan process from application to closing
• Provides you with a good faith estimate of costs and fees
• Communicated with you in a timely manner througout the entire process
• Coordinates the final closing of your transaction

As you can see, when you are preparing to take on your biggest investment, your mortgage, you need a professional handling all the steps to ensure a smooth transaction.

To start with, the lender will need personal information to verify employment for you and your co-borrower (if there is one). This will include work address, phone number,and contact person who can verify your employment. They will also need information regarding all your debts and assets.

In order to expedite the paperwork process, start gathering the following items:

• Most recent pay stubs for the last month or 30 days.
• W2′s from the last two years.
• Signed copies of your last two years tax returns, including all schedules that were filed.
• If you are self employed, a year to date profit and loss statement.
• Most recent bank statements (all pages) for two months.
• Most recent bank statements from any retirement and investment accounts for two months
• If divorced, the divorce decree
• If paying alimony or child support, the divorce decree

You may want to get a copy of your credit report to see were you stand. The costs associated with getting your mortgage rate can depend on your fico score (score given to you by the credit reporting agencies based on your credit habits). Knowing this in advance can help determine if you will be able to qualify for a loan or if you need to fix items on the credit report. An experienced mortgage professional can help you with this.

Upon knowing your credit status and having gathered the information above, you are in a position to get pre-approved (see my post under Home Finance Tips “Pre-qualification or Pre Approval?”). You will need to find a mortgage professional (see my post under Home Finance Tips “Shopping For Rates Loan Officer in Ventura County”) who will help you with this process. Upon getting pre-approved you are ready to work with a Realtor to help locate property to show you. Ask your lender, family members, or work mates for a recommendation for a Realtor. If the Realtor has done their job then they will be in a position to be referred to you.

As always work with a mortgage professional to make this process a smooth transaction.