Mortgage myths debunked

With mortgage rates still extremely low, I thought it was important to talk about some common myths people have about mortgages and the lending process.  I don’t want any potential buyers to become dissuaded buying a house because of what they think might be true.

1. 30-year fixed rate mortgages are always the best choice.  Well, they may be for some.  It truly depends on your situation.  If, for example, you know you’re going to move (because of work, etc.) within a few years, an adjustable rate will be even lower and a better choice for you.  If you don’t plan to move for a long time, the 30-year might be best.  And also know that while the mortgage rate adjusts in a certain time frame for an ARM (usually 3, 5, or 7 years) there is a limit to how much the rate can go up (or down) over time and that you can always refinance at any time.

2. You need to pay off your mortgage as soon as possible.  I had talked about this several weeks back when I was discussing which long-term debt should be paid down first.  It’s very likely in this day and age that your mortgage rate is not the highest interest rate you have.  Usually the highest-interest debt should be paid down first.  Plus, mortgage interest is tax deductible, which is a benefit that other types of debt (credit card, for instance) doesn’t have.  As always, if you have extra money to put toward it, by all means, do so.  Just make sure you apply the extra money to the principal only, not the interest.

3. I’ve already chosen a lender and can’t choose a new one in the process of applying.  Until your loan is officially closed, that’s not true.  If you’re not happy with the lender or the rate or the process, you’re free to switch.  I’ve had clients switch lenders 30 days after signing a contract and 15 days before closing.  To make your life easier, provide your new lender with as much information as you can to ensure the process continues going smoothly.  And it’s best to shop around before signing a contract.

4. You don’t want to refinance because your 30-year loan starts all over.  It’s possible that 30 years will begin on the date of your refinance.  But you can work with your lender so that payments can be adjusted.  Since you’re refinancing for a lower rate, there’s still a good chance that your monthly payments will be lower by doing this, and, therefore, you can pay your mortgage off sooner.

5. I can find a better deal online.  I do know some clients who have closed on homes with online lenders that did a great job.  However, I also know some where it didn’t work out at all.  By finding a loan online, there’s no personal service and no one to guide you through the process or assist you if there’s a problem.  If you do go this route, make sure to verify and ask about all specific fees and read the fine print on everything before agreeing to it.

If you have more questions or need the name of a reputable lender, be sure to contact me online.

Be aware of this when applying for a mortgage

With all the extra housing inventory available, it’s a great time for someone looking to invest in real estate to buy a home.  We all know, though, that it’s becoming tougher to obtain a mortgage these days.  Mortgage brokers and banks want solid credit scores and higher down payments.  So if you are making an application for a mortgage, here’s a list of what you want to be aware of during this typical 45-day period to make sure the mortgage goes through.

1. Now is not the time to make any big purchases.  That includes high-ticket items such as cars, appliances, TVs, and furniture for your new home.  A lot of people don’t realize that when you make your purchase, you’re creating more debt for yourself (if you’re charging the item rather than paying cash) and becoming a bigger liability for the bank.  So it’s been known that the mortgage can be pulled in this instance.  Wait until after you sign the closing papers to make the next purchase.

2. It’s not a good time to switch jobs.  When applying for a loan, the lender looks to make sure you have job stability and knows what type of salary and/or bonuses and commissions you receive.  If you switch jobs in the midst of the application, they’re going to have a hard time verifying salary information, which could affect your loan.  Again, wait until after you sign the closing papers to make any career moves.

3. There could be multiple credit checks.  The lender obviously checks your credit at the loan application before they decide if they can pre-approve you.  However, now lenders are often going back to check credit scores again right before closing.  So know that you want to continue making all your payments.  Avoid applying for a new credit card or making a big purchase.  Any upset to your score could affect your mortgage.

4. Have money ready for closing costs.  Don’t take every last penny you have to use toward a down payment.  Closing costs could cost you an additional 3% out of pocket.  You’ll want to check in with your lender within a few days of closing to get a rough estimate of the amount you’ll need to bring to closing.  It’ll most likely have to be in the form of a cashier’s check made out to yourself.  Your lender can give you the exact information.

These tips will help keep the mortgage application going without any hiccups.  Of course, if you have questions or problems along the way, be sure to contact your lender.  They will be able to guide you through the process and give you other tips to make sure there are no problems prior to closing.

I can be reached via my Web site.

The mortgage rate puzzle

Mortgage rates are low.  Way low.  Compare this to what it was like in the ’80s and you might have never imagined this time period happening.  Even a few years ago when rates were hovering around 6%, it was low.  But rates at 4.25%?  4%  That’s LOW.

So the big question is if rates will continue to drop.  Are buyers waiting for rates to be 3%?  Are people willing to risk losing a lower rate by locking in a mortgage at 4.5%.  I had a colleague told me he has buyers waiting to make a move until rates drop below 4%.  I was shocked.  People who have rates at 6.5% are trying to refinance for under 4%.  If you have a good credit score and meet the criteria, it makes sense.

Federal Reserve President Ben Bernanke has pretty much made it clear that we’re going to see another period of quantitative easing, also known as QE2.  The Fed is meeting at the beginning of November to discuss this.  This easing is basically where the U.S. would buy billions of dollars worth of U.S. Treasuries in order to circulate more money into the economy and keep rates low.  So some lenders believe rates will drop in anticipation of this.  The last time the government did this was in August and rates started to go down.

And as rates stay low or drop even more, it definitely would boost the housing market with more buyers able to afford a home.  On the other hand, more people might choose to stay in their current home instead of upgrading or downgrading because they can get an excellent deal on a refinance.

So are we just not satisfied enough with where rates are now?  Are we hoping they drop even more?  Will this help or hurt the current housing situation?  I’d really like to hear your thoughts on this.  Please leave a comment or visit me online.

Tips to ensure first time buyer tax credit

Just a reminder that the deadline to be under contract on a home to still obtain the first time buyer tax credit is April 30th.  This is up to $8,000 in tax credits for any buyer who hasn’t owned a home in the past 3 years.  Of course, move up buyers are also eligible for up to a $6,500 credit.  Since that’s not very far away, I know that many people have just signed contracts or are still looking for their perfect place.  The property must close on or before June 30th.  And that April 30th contract must be signed by both the buyer and the seller, or one of their representatives, to make it legal and binding.  I wanted to give you some other tips to make sure you got through this process without a hitch.

1. Use your contingencies wisely.  In Illinois, you’re allowed an attorney review contingency, mortgage contingency, and home inspection contingency.  You’ll most likely want to take advantage of all three.  But don’t use them as just a stall tactic to buy more time.  Make sure you meet your deadlines.  Get the contract to your attorney as soon as its signed – give them as much time as possible to review it.  Order a home inspection upon signing it, too.  You don’t want to have to ask for extensions because you want to be able to close in time.

2. Don’t wait for better weather to go out looking.  You’re already in a serious time crunch, so delaying something even further could mean the home that’s meant for you is already sold or off the market.  Schedule appointments if it’s snowing if you need to find something quick.

3. Make sure you’re pre-approved before you go out looking. You don’t want to find out after you’ve finished negotiating that there’s a problem with the purchase price because you won’t qualify for a loan.  Make sure your mortgage broker has all of the documentation they need from you (tax returns, pay stubs, bank statements, etc.) well ahead of time.

4. Be wary of short sales in this situation.  The process to hear back from the lender could be a very long one, and you don’t want to risk losing your credit because of it.  At this point, that may not be the best way to go.

More great tips can be found here.

Let me know if you’re still looking.  I’m happy to help you find your dream home.  Visit me online.

Fixed rate vs. adjustable rate mortgages

So for those of you who are looking to purchase a home and are not sure where to start in terms of getting a mortgage, I hope this blog will help you out in determining which type of loan may be best.  Two of the most common mortgages are a fixed rate (where the interest rate stays the same over the entire course of the loan) and adjustable rate (where the interest rate fluctuates).

gpq-mortgage-calculatorsFor the fixed rate mortgage, you most commonly see this is as a 30-year fixed rate.  Meaning, you have a monthly payment every month for the next 30 years and your interest rate remains the same the entire time.  So your monthly payment will also remain the same, although over time, you will be paying more toward your principal and less toward interest. 

One of the bonuses to this is that if interest rates start to increase, your payment will never go up.  These mortgages are good if you plan on being in your home for a long time.  It’s also good if you see interest rates starting to increase while you’re looking for a home to purchase. 

They do have fixed rate loans that have time periods besides the 30 years.  Other common loans include a 15-year fixed rate (your monthly payment will be higher) and a 45-year fixed rate (your monthly payment will be lower).  Just know that that’s the amount of time it will take to pay off your house.  If you do sell prior to your loan being paid off, the money you make on your house will first go toward paying off your mortgage and short of other expenses (attorneys’ fees, title fees, etc.) you will keep the remainder.

An adjustable rate mortgage, on the other hand, has an interest rate that can change over time.  You usually see this rates listed as 3/1, 5/1, and 7/1.  That means that the rate will change in either 3 years, 5 years, or 7 years.  The lower the time before the interest rate changes, the lower the initial rate.  If rates are lower than when you applied for the loan, your payment will actually go down with a lower interest rate.  However, if rates are higher than when you applied, your payment will increase with a higher interest rate.  That’s the gamble you take with these loans.

There are pros for an adjustable rate mortgage.  If you know you’re going to be in your house for a short time, this might be a great idea because your payment will be a lot lower than with a fixed rate and you could often move out prior to your rate changing.  So if, for example, you know you’re only going to be in your home for 2 years before your employer relocates you, this can be the loan you want to choose.

So some questions to determine which loan is right for you:

1. How much can you afford?  Can you afford your monthly payment if rates go up by 1%?  3%?

2. How long to you intend to stay in this home?

3. What have interest rates been doing over the past 6 months to a year?  Have they been increasing?  Decreasing?

You will want to speak with your mortgage broker or lender to determine which loan is better suited for you.  If you have further questions or need the name of a good mortgage representative, please visit me online.

New appraisal rules can hurt borrowers

houseNew rules have been developed by the Federal Housing Finance Authority, Fannie Mae, Freddie Mac, and the New York State Attorney General to ensure there’s a solid boundary between the mortgage industry and the home appraisal process.  It’s called the HVCC, or Home Valuation Code of Conduct.  The new rules apply to all conventional single-family loans that began after May 1st and were sold to either Fannie Mae or Freddie Mac.  It does not apply to VA or FHA loans.

Here is some more of what’s covered under this new policy:

1. It forbids anyone from the lender’s staff choosing an appraiser or heavily communicating with an appraiser about the home valuation.  The lender can now get a middleman to order an appraisal from a management company which will then choose an individual appraiser. 

2. Real estate agents and mortgage brokers can not order or pay directly for an appraisal.

3. Lenders can not conduct value checks prior to an appraisal being ordered.  This is where they pulled comps to see if the numbers would work.  Many were doing this prior to appraisals being ordered.

4. Borrowers will receive a copy of their appraisal at least 3 days prior to closing and it will be free of charge.  This gives them some time to fight the number if they believe the appraisal was incorrect for any reason. 

So what are the negatives?  Realtors and mortgage brokers can no longer “recommend” an appraiser they’ve worked with in the past to conduct the appraisal.  Obviously, this prevents anyone from pressuring appraisers to determine a certain value, but it comes at a cost to everyone else. 

More appraisers are going to earn less money by working directly with the management companies instead of on their own. 

Appraisals will begin to cost a little more money.  And, now the whole process is almost guaranteed to take longer.  This means that borrowers will have to lock in rates for a longer period of time which could cost them more money. 

At least this will prevent some more foreclosures by allowing people who aren’t qualified to pay for a house to obtain it.  And appraisals should be much more straightforward and not influenced by any particular individual.  This Chicago Tribune article does a really good job of explaining more of the positives and negatives.

If you do have more questions, please be sure to visit me online.