Mortgage
Home loan borrowing costs had reached their best levels of the week as of
yesterday afternoon, but were unable to improve further today. That leaves the Best-Execution rate decidedly
unchanged and bumps costs back up closer to their mid-point of the week, increasing the level of risk heading into tomorrow when several economic reports will be released.
CURRENT MARKET*: The “Best Execution” conventional 30-year
fixed mortgage rate is 4.625%. While this was the case last week, few lenders
were readily quoting it. More lenders were instead offering 4.75% (extra
margin in rate sheets). When taking into account loan pricing improvements
awarded over the past four sessions, a greater number of lenders are now actively quoting 4.625%. Some are even offering 4.50% again. On FHA/VA 30
year fixed “Best Execution” is 4.375% and in some cases 4.25%
is on the table. FHA quotes at 4.50% are widespread. 15 year fixed
conventional loans are best priced at 3.75%. Five year ARMs are still best
priced at 3.25% but the ARM market is more stratified and there is more
variation in what will be “Best-Execution” depending on your
individual scenario.
PREVIOUS GUIDANCE: With four consecutive days of rallying
behind us, lenders are now teetering on a shift lower in Best Execution
mortgage rates. We’re now more open to the idea of short-term floating than we
have been over the past three weeks. One important factor that will play a role
in Best Execution quotes moving lower is a continued “flight to
safety” into the bond market.
A “flight to safety” happens when investors are nervous
about owning risky assets like stocks, but do not want to miss out on earning a
return on their funds, so they allocate their money into risk-free government
guaranteed U.S Treasury debt to provide a safe-haven AND an investment return.
As benchmark Treasury yields fall on “flight to safety” buyer demand,
prices of mortgage-backed securities move higher in unison. This allows lenders
to reprice their rate sheets for the better and gives originators an
opportunity to offer fence-sitting borrowers lower mortgage rates or more
competitive closing costs.
CURRENT GUIDANCE: With the week’s major auctions over, bond
markets have turned out to be heavily predisposed to the sideways movements
that have been responsible for closing costs merely shifting around while
Best-Execution remains unchanged. With
those costs having been about as low as they were going to get before reaching
the next notch lower in Best-Ex, floating made better sense last night than it
does today when closing costs have risen back toward the middle of the week’s
range. Floating here is a crapshoot that
is probably based on tomorrow’s economic data, although there are other factors
in play which don’t adhere to a set release schedule including the debt ceiling
debate and ongoing potential of headlines out of the EU. Those two things present some uncertainty
against the “scheduled surprises” offered by economic data. Bottom line, there’s still room for personal
preference regarding floating/locking, but if borrowing costs rise tomorrow, we’d be a step closer to the next notch HIGHER in Best-Ex to more
certainly advise locking up short-term floats.
READ MORE: Rate Movers: Political Gamesmanship and Curve Spreads
—————————-
BEWARE: MND guidance is speculative in nature. We don’t have a crystal ball,
we can’t predict the future, we can only share our outlook. Making the
following considerations extra important……………………
What MUST be considered BEFORE one thinks about capitalizing on a rates rally?
1. WHAT DO YOU NEED? Rates might not rally as much as you
want/need.
2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you
want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready to make tough
decisions?
*Best Execution is the most cost efficient combination of note rate offered
and points paid at closing. This note rate is determined based on the time it
takes to recover the points you paid at closing (discount) vs. the monthly
savings of permanently buying down your mortgage rate by 0.125%. When
deciding on whether or not to pay points, the borrower must have an idea of how
long they intend to keep their mortgage. For more info, ask you originator to
explain the findings of their “breakeven analysis” on your permanent
rate buy down costs.
*Important Mortgage Rate Disclaimer: The “Best Execution” loan
pricing quotes shared above are generally seen as the more aggressive side of
the primary mortgage market. Loan originators will only be able to offer these
rates on conforming loan amounts to very well-qualified borrowers who have a
middle FICO score over 740 and enough equity in their home to qualify for a
refinance or a large enough savings to cover their down payment and closing
costs. If the terms of your loan trigger any risk-based loan level pricing
adjustments (LLPAs), your rate quote will be higher. If you do not fall into
the “perfect borrower” category, make sure you ask your loan
originator for an explanation of the characteristics that make your loan more
expensive. “No point” loan doesn’t mean “no cost” loan. The
best 30 year fixed conventional/FHA/VA mortgage rates still include closing
costs such as: third party fees + title charges + transfer and recording. Don’t
forget the fiscal frisking that comes along with the underwriting process.
…(read more)
Category : author &Blog &home loan rates &MG &Mortgage &Mortgage Rate Outlook &mortgage rate prediction &mortgage rates
By Peter Gorenstein | Daily Ticker – 22 hours ago
Stocks rallied Wednesday after Federal Reserve Chairman Ben Bernanke suggested the central bank would go ahead with another round of stimulus — aka quantitative easing — if the economy continues to slump. In this scenario, the Federal Reserve would once again purchase assets to keep interest rates low in an attempt to support the economy and prop up asset prices.
So far, the Fed’s actions have done more good for asset prices like stocks (see: S&P 500 chart since 2009) while doing less to help the economy (see: June jobs report). U.S. gross domestic product grew just 1.9% in the first quarter of the year. For 2011 as a whole, the Fed forecasts U.S. GDP growing at 2.7% to 2.9%, which is lower than the plus 3% forecast they made in April.
Today’s guest, Gary Shilling, President of A. Gary Shilling & Co. and author of the Age of Deleveraging says another recession is brewing — no matter what action the Fed takes. “Economic growth here and abroad is slipping, making a 2012 recession a distinct possibility,” he writes in his July newsletter. And, “when you have slow growth it doesn’t take much of a shock to throw you in negative territory.”
Shilling says the shock to trigger the next recess is “another big leg-down in housing.” (An asset class the Fed has not been able to reflate.) As those familiar with Shilling know, his forecasts are generally bearish. However, in his defense, Shilling was one of the few economists who correctly predicted the dangers of the subprime mortgage market and its impact on the broader economy.
The problem with the real estate market remains excess inventory. Based on Shilling’s research, there are 2 million to 2.5 million excess homes in the country — a supply that will take 4-5 years to work-off. The result: Housing prices will fall another 20% and underwater mortgages will balloon from 23% to 40%, he says. With housing slumping again, Shilling says recession is coming to a town near you in 2012.
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Home loan borrowing costs moved slightly lower today. This is the fourth consecutive day where borrowing costs have declined in the primary mortgage market. With this positive progress, we’re now teetering on a shift lower in Best Execution* quotes…
CURRENT MARKET*: The “Best Execution” conventional 30-year
fixed mortgage rate is 4.625%. While this was the case last week, few lenders
were readily quoting it. More lenders were instead offering 4.75% (extra
margin in rate sheets). But when taking into account loan pricing improvements
awarded over the past four sessions, a greater number of lenders are actively
quoting 4.625%. Some are even offering 4.50% again.
On FHA/VA 30 year fixed “Best Execution” is 4.375% and in some
cases 4.25% is on the table. FHA quotes at 4.50% are widespread. 15 year fixed conventional loans are
best priced at 3.75%. Five year ARMs are still best priced at 3.25% but the ARM
market is more stratified and there is more variation in what will be
“Best-Execution” depending on your individual scenario.
PREVIOUS GUIDANCE: Today was the first significant day of data
for bond markets to digest this week.
And that went over fairly well with no major changes to bond prices in
the secondary markets. If you floated
through Friday’s Jobs report or are a first time reader as of yesterday, the
chances of Best-Execution rates improving from 4.625% to 4.50% are better than
the chances they’ll rapidly evaporate to 4.75%.
Although this outlook can change very quickly, we’re more open to the idea of
floating than we have been recently. We’d
urge inclined floaters to pay careful attention to market movements for an
unfriendly turn-around, but for now, there are a wide variety of scenarios that
may be able to grab another .125% lower in rate while only risking increased
closing costs if markets move against you.
CURRENT GUIDANCE: With four consecutive days of rallying behind us, lenders are now teetering on a shift lower in Best Execution mortgage rates. We’re now more open to the idea of short-term
floating than we have been over the past three weeks. One important factor that will play a role in Best Execution quotes moving lower is a continued “flight to safety” into the bond market.
A “flight to safety”
happens when investors are nervous about owning risky assets like stocks, but
do not want to miss out on earning a return on their funds, so they allocate
their money into risk-free government guaranteed U.S Treasury debt to provide a
safe-haven AND an investment return. As benchmark Treasury yields fall on
“flight to safety” buyer demand, prices of mortgage-backed securities
move higher in unison. This allows lenders to reprice their rate sheets for the
better and gives originators an opportunity to offer fence-sitting borrowers
lower mortgage rates or more competitive closing costs.
—————————-
BEWARE: MND guidance is speculative in nature. We don’t have a crystal ball,
we can’t predict the future, we can only share our outlook. Making the
following considerations extra important……………………
What MUST be considered BEFORE one thinks about capitalizing on a rates rally?
1. WHAT DO YOU NEED? Rates might not rally as much as you
want/need.
2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you
want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready to make tough
decisions?
*Best Execution is the most cost efficient combination of note rate offered
and points paid at closing. This note rate is determined based on the time it
takes to recover the points you paid at closing (discount) vs. the monthly
savings of permanently buying down your mortgage rate by 0.125%. When
deciding on whether or not to pay points, the borrower must have an idea of how
long they intend to keep their mortgage. For more info, ask you originator to
explain the findings of their “breakeven analysis” on your permanent
rate buy down costs.
*Important Mortgage Rate Disclaimer: The “Best Execution” loan
pricing quotes shared above are generally seen as the more aggressive side of
the primary mortgage market. Loan originators will only be able to offer these
rates on conforming loan amounts to very well-qualified borrowers who have a
middle FICO score over 740 and enough equity in their home to qualify for a
refinance or a large enough savings to cover their down payment and closing
costs. If the terms of your loan trigger any risk-based loan level pricing
adjustments (LLPAs), your rate quote will be higher. If you do not fall into
the “perfect borrower” category, make sure you ask your loan originator
for an explanation of the characteristics that make your loan more expensive.
“No point” loan doesn’t mean “no cost” loan. The best 30
year fixed conventional/FHA/VA mortgage rates still include closing costs such
as: third party fees + title charges + transfer and recording. Don’t forget the
fiscal frisking that comes along with the underwriting process.
…(read more)
Category : AQ &author &Blog &home loan rates &Mortgage &Mortgage Rate Outlook &mortgage rate prediction &mortgage rates
Article highlights:
- Selecting a mortgage lender
- Prequalifying and getting pre-approved for a loan
- Collecting information for the loan process
- Cleaning up credit report problems
You found your dream home and you can’t wait to move in, but then the butterflies start fluttering in your stomach: The dreaded mortgage loan process looms large. Don’t let bad news about the mortgage crisis discourage you from what has been the most frequent and tried gateway to homeownership for many decades. Very reasonable loan rates are on your side right now, and remember, behind every contract is a human being who, if he or she is a respected and trustworthy professional, has your best interest in mind.
By now you know not to make the mistake of shopping strictly for a low interest rate that sounds too good to be true. Many lenders offer low rates, but stuff their loans with hidden fees to offset the low rate. Remember to read the fine print before signing the contract. Selecting a mortgage lender should be based on his or her track record of quality of service, length of time in business and, of course, how attractive his or her mortgage rates are.
Not all mortgage issuers operate in the same way. You have a choice between three types of mortgage issuers:
- A mortgage lender, be it your local bank or a national bank that specializes in mortgage lending.
- A mortgage broker, who represents many different mortgage lenders and shops your loan around for the right fit. Mortgage brokers only originate loans. Once you have closed the deal with the broker, the mortgage contract is sold to another lending institution that collects your payments and escrow deposits, and distributes your property taxes and homeowner’s insurance premiums when they’re due.
- An online lender, whose headquarters may not be where you live, but it can execute home loans anywhere in the United States though its online operations.
Prequalification
Once you have done your research and found a reputable mortgage broker or lender, you will have to be prequalified or pre-approved for a loan. You may think you can afford a $1,000 payment with your $70,000 annual pay check, but it’s the mortgage broker’s job to look at the purchase price of your dream home, add up your income and assets on one side, and your debts on the other and run all the numbers through a computer program to finally tell you if you qualify.
Congratulations if you’re prequalified, but you still have to be pre-approved by the lender. The loan officer asks you for documentation that supports the claims you made on your application. Sometimes, if he feels aspects of your financial disclosures are questionable and may make you a risky customer to the lender, a mortgage underwriter has to sign off on the pre-approval as an extra step. The good news is, these steps shouldn’t cost you a penny. You can give several mortgage brokers a run for their money and let them make you competing offers. Don’t give the loan officer any money for a credit check or other fee until you are sure you want to work with this person.
The paper chase
Be prepared for your first meeting with the mortgage lender you’ve selected to avoid any delays by bringing the following documents:
- A list of your credit cards you have by issuer and balance due
- Payroll stubs from the last six months
- Tax returns from the previous two years
- A list of your assets, such as IRA accounts, securities, bank accounts, personal property, including jewelry and furniture. If you own other real estate, list the addresses and if you can, information about each property’s assessed market value
- Copies of any divorce decrees, bankruptcy discharges, student loan documents, alimony and child support obligations
- A list of places of employment and residences spanning the last two years
- Copies of the contract and of any earnest money checks, if you have an accepted offer to purchase a property
Bring your check book with you to the application meeting. It’s likely your lender will require application, credit check and appraisal fees for his services. You don’t want to cause unnecessary delays in the processing to your loan.
Act fast on your loan application
Don’t sit on your loan application. You wouldn’t want your loan officer to lie to you, as he depends as much on the trustworthiness of your information as you do on his. Besides, every piece of information you hand over will be verified through credit report agencies, and a loan officer will find out if you have past due balances on your credit cards. Loan underwriters look for your ability to repay regularly on time. Late payments on your credit report might need to be addressed in a letter to the underwriter.
Sometimes, you may be in for a bad surprise on your credit report for which you are not responsible. Other creditors, such as car leasing companies, fail to update their records to show you paid off your loan in full. A call or letter to that business can take care of these hiccups. A mortgage loan officer can assist you in clearing up credit report problems.
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Category : Mortgage
Article highlights:
- Affordable programs for first-time buyers
- Different types of seller financing
- Subprime loans and negative amortization
Can’t get a standard mortgage, one that conforms to Fannie Mae or Freddie Mac guidelines? Not to worry. You can consider alternative types of home financing. Some of these carry higher interest rates, because the person or institution loaning you the money feels that there is a higher risk involved. Higher risk equals higher interest rates and terms that are not as attractive. Here are the alternatives:
Affordable housing loan: An umbrella term used to cover various loan products targeted to first-time home buyers. Many states, counties and communities offer attractive mortgage programs to newbie buyers. Ask you real estate agent or mortgage loan officer about the programs and if you can qualify.
Assumable loan: An existing mortgage loan that can be “assumed” by another person. Most conventional loans are not assumable; government loans — Federal Housing Administration (FHA) or Veterans Administration (VA) loans — are assumable with qualification of the new borrower.
Installment sale, also called a land contract: Usually a private agreement between a seller and buyer in which the title is not transferred until all payments have been made. These are more popular in slow housing markets. If you’re considering an installment sale make sure that a real estate attorney reviews all the contract details before you sign.
Carryback financing: When a seller agrees to finance either the first or a second mortgage on the property. This might be attractive if you only qualify for 90 percent of the value of a home. Ask the seller if he will carry back or hold a 10 percent mortgage. In this arrangement, the seller basically assumes the role of a bank.
Purchase money mortgage: Any loan used to purchase the real estate, also referred to as “real property,” which serves as collateral. This is another form of seller financing.
Blanket mortgage: A mortgage secured by more than one piece of property. A lending institution may require you to use another piece of property owned by you or another member of your family as collateral for the new house you want to buy.
Blended rate (or wraparound) mortgage: A refinancing plan that combines the interest rate on an existing mortgage loan with the current interest rate for an additional loan amount.
Subprime loan: A loan for home buyers who have low credit scores, or minimal or zero down payments. Because of the higher risk to the lender, he will charge you a higher interest rate and may require you to agree to stricter loan terms, including prepayment penalties, higher loan-interest adjustments and negative amortization. Some subprime loans come with negative amortization. When a loan is negatively amortized, you never pay the full interest and principal payment each month, which requires the unpaid amounts to be attached to the end of the loan. Avoid a loan that has negative amortization.
Interest-only loans: Your monthly payments only cover the interest on your mortgage loan. Your payment does not include any principal payments to create equity. In a market with declining home vales, you might lose money on the sale of your home, especially if you sell in the fist two to four years.
Package mortgage: A mortgage secured by a combination of real and personal property. It’s often used for vacation property such as a cabin, beach condo or ski chalet.
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Category : Mortgage
Article highlights:
- Adjustable-rate mortgages (ARMs) in today’s market
- Knowing if an ARM is right for you
- ARM pitfalls and other things to consider
By now, you’ve heard plenty about the housing credit crises spurred by a high number of defaults on adjustable-rate mortgages (ARMs), notoriously known as “subprime mortgages.” These mortgages were given to low-income borrowers with subprime credit ratings, causing many of these folks to foreclose on their homes. Due to this current crunch, ARMs have become less appealing and available. And with today’s falling interest rates, fixed-rate mortgages are the way to go. Still, you should know about ARMs to see if they are a viable financing option for your home purchase, if not now, then in the future.
An ARM is a mortgage loan that has an interest rate that periodically changes or adjusts. The rate can remain static for an initial term — called a “teaser period” — and then it adjusts annually, based on various economic indexes. The initial, or teaser, rate may last anywhere between one to several years. And here’s where the risk-taking aspect of ARMs comes in: Interest rates can go down, but they also can go way up — which has been the case recently and the reason why many homeowners with ARMS have had a tough time meeting their monthly payments.
ARMs have caps or limits on how much the interest can rise with each adjustment, as well as an overall cap over the term of the loan. The caps are an important area to consider before you sign a mortgage note. You might easily qualify for the introductory interest rate, but with the first or several subsequent adjustments, your payments may become unaffordable.
When ARMs work
ARMs are a good idea if their initial interest-rate is more than 1 percent lower than that of a fixed-rate mortgage. Also, if you only plan to be in the home for only several years or a shorter time before the first rate adjustment, the lower rate in the teaser period may significantly decrease your monthly payments — something a fixed-rate mortgage wouldn’t do. On the other hand, if the going rate on a fixed-rate mortgage is only 0.15% higher than an ARM, you’re better off with a fixed.
Some first-time buyers like ARMs, because their loan payments grow as their income does. If you know that a job promotion is coming or you’ll be receiving a large gift or inheritance, an ARM may be a good loan to help you jump into homeownership and then transition financially in steps as your income increases. On the other hand, if you’re not a risk-taker and will lose sleep worrying if your rate will adjust higher, then get a predictable fixed-rate.
ARM pitfalls
Not all ARM’s are equal. You have to be well aware of their ups and downs. Never agree to a prepayment penalty, this locks you into the attractive rate, typically, until it readjusts to a higher one. Prepayment penalties can be steep, and if for some reason you have to sell, the penalty can wreak havoc with the equity you’ve built up in your home. Also, ask how much the maximum interest-rate caps are.
Keep in mind that your first adjustment typically occurs after one, three or five years. After the initial adjustment, it could reset as frequently as every year. The adjustments are tied to financial indexes, which you can’t control. So if you want peace of mind, you’re better off with a fixed-rate mortgage than a riskier ARM.
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Category : Mortgage
Article highlights:
- Term limits of a fixed-rate mortgage
- When fixed-rate is better than adjustable-rate loans
- How to shop around for the best rates
A fixed-rate mortgage is a loan where the interest rate on the mortgage note remains the same through the entire term of the loan. Fixed-rate mortgages are available in 15-, 20-, 25- and 30-year terms. Some mortgage loans are available for shorter terms with a balloon, lump sum payment, at the end of the term. A newer type of mortgage is called a hybrid fixed-rate — combining fixed-rate and adjustable-rate mortgages (ARMs) — meaning the rate is not fixed for the entire term of the loan. These loans offer lower introductory rates for the first several years and then change to a higher rate for the majority of the loan term.
Fixed-rate mortgages are the way to go if you plan on staying in your home for more than five years. Also, they are currently the preferred loan vehicle, seeing that ARMs are much harder to come by due to today’s credit crunch. When comparing interest rates between a fixed-rate and ARMs, if the difference is less than 0.5 percent, you’re better off with a fixed-rate. Unless you have a crystal ball, it is often difficult to predict interest-rate cycles. A fixed-rate assures you a predictable monthly payment for the term of your loan. Make sure any loan you are interested in does not have a prepayment penalty clause in the mortgage note. Without one, you are free to shop for a better rate if you decide it is a good time interest-rate-wise to refinance.
Be careful of teaser rates
Mortgage interest rates are a competitive arena. Don’t be lured in by teaser rates by some loan brokers. Those low rates come attached with high fees, points (interest charges you pay upfront when you close on your loan) and ancillary costs related to the mortgage. You should remember to shop for the lowest rate accompanied by the lowest fees. National mortgage lending companies who originate and loans and hold them in their own investment portfolios, typically offer the lowest rates and fees.
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Article highlights:
- Putting down 10 to 20 percent is the norm
- How to avoid paying private mortgage insurance
- Other ways to get a down payment
The days are gone of 100 percent financing on homes. Most lenders require home buyers to put at least five percent down. Even these programs are rare and require you to have an excellent credit score. The most common down payments are between 10 and 20 percent. Keep in mind that if you put less than 20 percent down you will be required to purchase private mortgage insurance, or PMI. This is an additional monthly payment, which basically means that you’re considered a greater risk to the lender with less than 20 percent equity in your home.
Some buyers need to be creative in coming up with their down payment. Don’t underestimate mortgage lenders who follow a paper trail in order to find out how you came up with your down payment cash. If it didn’t come out of a bank, retirement, or money market account, they will demand to know where it came from. Don’t use a charge card to receive a cash advance as your source of all or part of your down payment. This will only increase your debt ratio and may disqualify you for the loan. Following are some additional ways you can come up with the down payment.
Mom and dad
Most lenders will allow your parents to “gift” you the down payment. The lender will require them to sign what is known as a “gift letter,” which will prevent you from taking on additional debt to repay your down payment to your parents.
Individual Retirement Account (IRA) funds
If you are a first-time home buyer, the Internal Revenue Service allows you to withdraw and use $10,000 from an IRA towards your down payment. You don’t pay the early withdrawal penalty, but different IRA’s products may be considered income, which means you may get taxed. Check with your tax accountant before withdrawing funds from an IRA. If you are married you and your spouse can each withdraw up the maximum amount of $10,000. IRS rules define a first-time homebuyer as one who has not owned a home as a principal residence in the previous two years.
401(k)
You can borrow from your 401(k) retirement plan for a down payment. However the IRS does not allow you any tax breaks if you do this. And, you have paid the money back into your 401(k).
Down-payment assistance programs
Some states, counties and local governments have down-payment assistance programs for first-time home buyers who meet certain income guidelines. They might require you to purchase a home in a targeted area being redeveloped. Ask your loan officer if where you plan on buying has any of these lucrative down-payment assistance programs.
Home seller assistance
In some situations, home sellers might “gift” you the down payment. But beware of programs where the seller makes a contribution to a nonprofit charity, and the charity gives a portion of the contribution to you as a gift. The program itself is not a problem, but the IRS has had issues with these programs and has contested tax exemptions in some cases.
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