As we embark into another year, Most of us are always wondering about which mortgage options are available and what kind of rates and fees are tied to those specific products.  So let me share what I think will be the best mortgage options for 2012.

Best Refinance Mortgage Options:

Rate/Term Refinance:

This year refinances will be driven by rates.  Right now we have historical low rates.  We are now seeing some equity in properties.  With equity the banks are approving these rate/term refinances.  Also, if you are in a property that still has quite a bit of negative equity, we have a new program coming out in March 2012, that will allow us to refinance quite a few more clients with high negative equity.  This program was first shared with the public in an announcement made by President Obama under the “HARP” program (Home Affordable Refinance Program).  At the time he announced the program, the market was not ready to implement it to the public.   This will be rolled out March 2012.

Cash-Out Refinance:

Yes for you lucky ones that have equity in your home, this option will be available.  With interest rates staying low, this is not a bad option by any standards.

Adjustable Rate Mortgage (ARM) conversion:

Some of you will be having your adjustable rate mortgages reset this year.  The rate could go up or down but knowing your best option of either staying the course with will be important to know.  I can always do a mortgage review and help you determine if a refinance option into a fixed option makes sense for you.

Term Limit Mortgage Conversion:
30 to 15 year conversion:  This is a great option to get that mortgage paid down with the historic low interest rates.
15 to 30 year conversion:  This can be a great option to help with having more cash back in your pocket.

Best Purchase Options:

Right now home prices in Arizona are at record all time lows and so are interest rates, so the timing could not be any better to buy some property.  Here will be the hottest options for 2012.

Primary Home Mortgage Option:

If you are a first time home buyer or want to convert your current home into a rental and buy a bigger home now is the time.  Rates are now at historic lows.

2nd Home Mortgage Option:

Arizona is a great place to own a 2nd home, we have excellent retirement communities for 2nd homes and great vacation homes in the mountains.  Rates are excellent and so are prices.

Investment Home Mortgage Option:

This one is got to be one of the best for investors.  Not only is our inventory of rental units affordable but our 2010 census report showed a huge growth in population statistics in the last 10 years.  Sharpen those pencils and lets make the math work out.

As your 2012 year comes together, as always, I hope you think of me for your next mortgage, where I stand behind my advice, products and services.

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”, Chinese proverb

I was watching Fox Business News yesterday and confirmed it that MetLife is pulling out of the mortgage business.  MetLife entered the market back in June 2008 when it bought a bunch of divisions of First Horizon Corp.  They are now exiting out of this market 3 and 1/2 years later.  This is good for me, because it is less competition, but this brings me back to my first thought after hearing this information.  I am curious to understand why consumers continue to trust these big companies for their mortgage needs.  Working for a very small mortgage bank, we could never afford to make the kind of splash MetLife made when they entered our market.  Heck they have “Snoopy” to help get a brand message across.  What can I offer?,  just old fashion good service, honesty and a reputation for getting mortgage loans approved for clients.

MetLife is not the only big company making changes in their mortgage business.  More big banks are rethinking their positions in being entrenched in this business.  I know of 2 bigger mortgage players that are either scaling back their mortgage operations or looking at exit strategies all together.  Does the one stop banker for all your financial needs really work?  The market is showing signs of no.  Heck my philosophy about this business has been simple.  Focus on what you do best.  I know my company does one thing great and that is originate mortgage loans for our clients.

In the last 60 days I’ve had 2 clients call me about looking into a reverse mortgage. I am not sure if I even shared with most that I actually DO offer this product and service.

First of all the Reverse Mortgage is NOT your traditional type of mortgage product. It does not follow the basic guidelines of lending, so most lenders do not offer it.  Secondly, it does require that the loan originator has taken some additional courses and classes and stays up to date on the rules and regulations that go along with this product.  I decided early last year, to get educated on this product because it started coming up in a lot more loan product discussions.  The reverse mortgage product basically allows you to take a portion of your equity in your home and help free up cash or income during your retirement years.  It’s a non-recourse loan, so if qualified, payments are also not required.  The title stays in the borrower/borrowers name.  The loan has certain triggers that do require the loan to be paid back.

The basic qualifications are:

• age of the borrower (must be 62 years or older)

• equity in the property vs. value of the property

• Property must be owner occupied (no 2nd homes or investments)

Let me give you an example of a qualified person.

Let’s say you are 65 years of age and just retired.  Your home is worth $300,000.00 and you owe only $40,000.00 on the home.  You plan on living in your home but want your mortgage to go away and have that extra cash for retirement to travel.  You should qualify.

The basic reasons to get a reverse mortgage:

• No repayment of the loan as long as your occupy your home
• Frees up your equity trapped in your home for your benefit
• Social Security and Medicare benefits are not affected by reverse mortgages
• You retain the title to the deed of your home and you may sell later if need be.

Using the example from above,

the homeowner could free up quite of bit of their equity to eliminate the mortgage payment, have free income to travel and put some extra money away for a rainy day.  It helps give comfort during those retirement years.

Now again, I will be the first to say that this product is NOT right for everyone, but for others with certain situations, this product can be a great option.

I am not the first to report this good news, but felt it was worth sharing.  The Obama Administration announced on October 24, 2011 details of expanding a government sponsored refinance program to help more underwater homeowners refinance to reduce their payments.

Many clients of mine wanted to refinance in the past, but due to the lending guidelines only clients that could prove certain equity in their property were eligible.  Under this new rule, the caps for negative equity will be lifted and the pricing add-ons will be going away.

Stay tuned, because the lending guidelines have NOT rolled out yet, but are supposed to be available by November 16, 2011. Borrowers can start applying by December 2011.

So if your house had more than a 25% negative equity loss, you could be eligible under these new changes.

Once this happens, I will again share all the new details.

As we enter the month of October, and Halloween draws near, we wonder if a goblin, ghost or something scary is about to pop out at us. Many clients feel this same way with their home mortgage these days.  Some of my clients are not even aware of what type of mortgage product they have until things can get very scary for them.

I had a past client the other day realize that he had an interest only product. The product made sense 6 years ago, but today the product scares the heck out of him, and I do not blame him.  The market shifted and he needed to run away from this scary monster.  We are now getting his interest rate reduced and putting him back into a principal and interest loan.  His payment will be roughly the same, but now, part of his payment will start to amortize out the remaining balance.

I had a new client that had a scary situation when they found out that the previous lender put him into an adjustable rate mortgage. Because he was upside down on his home, he knew he could not refinance.  He was really scared of what kind of rate and payment was going to increase on him.  After I reviewed it, we realized that his adjustable rate mortgage was tied to a low margin and a low index.  I took the scary out of his situation when we figured his payment was going to go down by about $250.00 a month.

What I am saying is do not let scary mortgage concerns get out of hand. Remember, I am always just an email or call away from investigating if we are
really dealing with a goblin or not.  I always offer this service for free to evaluate your current mortgage situation and make sure it is in proper order.

Basically, I try to help take the scary out of your mortgage.

With a struggling economy and an extremely weak real estate market, clients have been looking for real options to make their ugly real estate situation go away.  Here are some questions from the unspoken that no one wants to talk about: 

Should I Short Sale my Home?

Can I get approved for a Loan Modification?

How does a Foreclosure effect my credit?

When can I buy again after a Short Sale?

Is there a way to buy again right after a Short Sale or Foreclosure?

These are all great questions and getting the right advice is the key word here.  I just try to advise all my clients about the best options based upon your unique situation.  I do not judge any of my clients no matter what your situation is.  I listen and answer what can and cannot be accomplished.  I then help you with figuring out what is best to help you out.  I will answer your questions honestly with real answers.

So if you feel like you need a question or two answered, please feel free to contact me.

Did you know that conventional loans are now offering very favorable terms to buy property with only a 5% down payment. Conventional loans still require higher credit scores to qualify, but if you have the excellent credit and are buying a home the Conventional option might pencil out better than the FHA option.

Let me try and share some loan option comparisons.

Conventional Loans:

Minimum Down Payment:  5%
Credit Score:  660 or higher
Mortgage Insurance Premium:  Vary
Competitive Rates

FHA Loans:

Minimum Down Payment:  3.5%
Credit Score:  600 or higher
Mortgage Insurance Premium:  Upfront 1% of loan amount financed, monthly, 1.15% factor
Competitive Rates

VA Loans:

Minimum Down Payment:  0%
Credit Score:  600 or higher
No MI, but a VA funding fee of 2.15% or 3.30% financed into the loan
Competitive Rates

I think the Conventional loans outshine the Government loans when you have excellent credit. Let me show you the math between a 740 credit score client going Conventional financing vs. an FHA 740 credit score client.

Mr. buyer is buying a home for $150,000.00, with a 755 credit score,

Here is how the scenario will pencil out for FHA:  $150,000.00 purchase price, 3.5% down payment:  $5,250.00, 1.00% upfront mortgage insurance financed into the loan gives you a final loan amount of $146.197.50 rounded to $146,198.00.  Lets say the rate is .125% better than Conventional rates.  The interest rate is 4.375%

FHA P&I:  $729.95, and the monthly FHA insurance is a factor of 1.15% of the loan amount:  or $140.11 per month for FHA insurance.

Total P&I payment with FHA insurance per month is $870.06

Here is how the scenario will pencil out for Conventional:  $150,000.00 purchase price, 5% down payment:  $7,500.00, no upfront mortgage insurance financed into the loan give you a final loan amount of $142,500.00.  The interest rate is 4.5%

Conventional P&I:  $722.03, and the monthly Conventional insurance is a factor of .64% of the loan amount with a credit score above 740:
or $76.00 per month for Private Mortgage insurance.

Total P&I payment with Private Mortgage insurance per month is $798.03.

Bottom line is that the Conventional option gives you a payment of $72.03 a month less.  What was the cost to you?  Good Credit and 1.5% more down payment.

Again there are other factors to consider when financing, but working with a lender who truly understand the mechanics of your best mortgage options is the most
important thing.

Can I buy another home if my house is underwater?

Did you know that about 50% of all homeowners in Arizona owe more on their current home than what the home is valued at. This is a shocking statistic, but this information becomes very important once a decision is made that you need to move.  Every week I get calls from clients wanting to know if they can get approved to buy another home and rent out their current home.  The answer is Yes, but with many lender guidelines.  Since most homeowners are  underwater, the banks are being very careful on these guidelines.  If you fit the guidelines correctly, then buying a new primary home and renting your existing home is going to be acceptable, but if those guidelines are not being met, then the loan will be declined.

First of all the property being purchased must meet Occupancy Guidelines.

Occupancy Guidelines:  A primary residence is the residential property physically occupied by an owner as the principal home domicile.  Among the criteria
one should consider in evaluating whether a property is a principal home are the following:

• It is occupied by the owner for the major portion of the year
• It is in a location relatively convenient to the owner’s principal place of employment
• It is the address of record for such activities as federal income tax reporting, voter registration, occupational licensing, and similar functions
• It possesses the physical characteristics to accommodate the owner’s immediate dependent family.
• The borrower states an intention of occupy the property as a primary residence.

If these guidelines cannot be met on the new home purchase, then the loan cannot be approved for a primary residence use.  The loan approval for home financing would need to be classified as either a 2nd home or investment property.

Once occupancy is established to be legitimate, then the guidelines will fall either under FHA or Conventional Guidelines:

FHA Guidelines:  Converting Existing Homes to Rentals

Rental income from the borrower’s current primary residence is permitted, provided at least one of the following FHA requirements is met:

• The borrower obtains new employment or a job transfer that is not within a reasonable commuting distance of the current primary residence or
• The borrower has a 25% equity position in the current primary residence as evidenced by an appraisal or sales price with the most recent six months
• If one of both of the requirements above are met, all of the following documentation is required:
• Fully executed lease agreement (a 25% vacancy factor will be applied to the monthly rent stated on the lease agreement) and
• Evidence of the borrower’s receipt of the security deposit and
• Evidence of the borrwer’s deposit of the security deposit to his or her bank account

Basically if there is 25% equity in your current home, we can use rental income to offset the debt.  Otherwise both debts would have to be counted against the borrower.

Conventional Guidelines:  When converting a primary residence to an investment property

The underwriting guidelines will use 75% of gross rental income as stated on the lease as evidence of rental income or to offset the payment if the
following conditions are met:

• There must be documented equity of at least 30% in the existing property derived from at least a 2055 exterior-only inspection (drive-by appraisal), dated no more that 60 days from the Note Date.
• The rental income must be documented with a copy of a fully executed lease agreement and
• The receipt of a security deposit from the tenant and deposit into the borrower’s account.

Basically if there is 30% equity in your current home, we can use rental income to offset the debt.  Otherwise both debts would have to be counted against the borrower.

Last, the underwriter will require a letter of intent for moving and the reasons have to meet a common sense approach of why someone would be moving such as upsizing, downsizing, moving closer to work, etc.   If the intent is not clear or does not makes sense, the underwriter could decline the loan.

If you are thinking of buying again and want to convert that current home into a rental and have questions if you can qualify, please do not hesitate to give me a call.

The telemarketing calls, billboards and radio radio spots all advertise to refinance your mortgage rate before it is too late. Is this all just hype and marketing to get you to call, or is there a true need to get that interest rate and  mortgage payment lowered.  Let me help uncover some of the facts about refinancing  your mortgage.

First of all, there has to be a long term benefit to outweigh any short term costs involved with refinancing.

A good rule of thumb in the past was if the current interest rate could be lowered by 1% or more, then it usually made sense to look into refinancing.  Today, with loan balances being low, mortgage insurance premiums going up and equity issues in the home, that past formula may not be a good indicator.

There are usually 2 main reasons to refinance:

1.  A straight forward rate and term refinance. This is when you are not looking to take any equity out of your home but just want to lower the current interest rate and possibly the length of the loan.  This can be very beneficial in getting the payment lowered.

2.  A Cash out refinance. This is when you want to cash out part of your equity of the home and use that money for other things, such as home improvements projects, paying down other debt or maybe taking that once in a lifetime vacation.  These days equity is hard to come by with the current real estate market.

Should You Refinance?

It just really depends on your unique situation,

When I sit down with clients we discover if the refinance makes sense for all parties involved and then we either proceed with the refinance. During this discovery phase is when the advise from a professional licensed mortgage consultant can make or break a deal.  Bad advice might force you into a refinance that will cost you money but provide no real long term benefit.  Good advice might either save your hundreds of dollars a month in a payment or save you on closing costs.

This will be the fourth loan in the last 12 months that I approved using some sort of down payment assistance.  Even though seller assisted down payment went away using programs such as Ameridream and Nehemiah, HUD has been allowing buyers to use FHA financing with down payment assistance from a 501(c)(3) nonprofit corporation.  Two companies that come to mind that I have worked with now has been Newtown Community Development Corporation Community Land Trust and Desert Mission Neighborhood Renewal.  Both nonprofits have certain guidelines that have to be met and will require home-buyer education.

Free Money!!

So far my favorite program from the nonprofits is the Individual Development Account (IDA).  This program will match buyer saved dollars of up to 3 times what they saved up. The
cap is $15,000.00.  For instance if your client saves up $2,000.00 for down payment, they can get matched up to $6,000.00 from this (IDA).  Also, FHA loans will allow the buyer to use the funds for both down payment and closing costs.

This is just one of  the many programs that are still available out there for home buyer assistance.   For more information about this mortgage program or many others, please feel free to contact me.