Category: Mortgage (Page 54 of 63)

Don’t Fear Multiple Credit Inquiries When Mortgage Shopping

February 6, 2017 / Tom Bonetto

Can a borrower have multiple credit inquiries without hurting their FICO score?

This question regarding credit inquiries is one that I receive all the time from borrowers and agents alike. Rightfully so, the borrower should be able to shop lenders for the best available rates and services. FICO scores play a big role in borrower’s ability to secure affordable financing. Too many hard credit pulls lowers credit scores. It is certainly a logical question – how does a borrower shop lenders when each lender needs a credit pull in their name?

Actually, there are laws in place to protect the consumer who wants to shop around for the best mortgage rate.

Credit bureaus don’t ding you for “too many credit inquiries” when you shop for a mortgage.

Source: Don’t Fear Multiple Credit Inquiries When Mortgage Rate Shopping | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

The good news is this. A borrower can pull a tri-merge credit report multiple times in the same 45-day period. Click on the article above for more details. Rest assured, you have the ability to have multiple lenders pull your credit so you can shop for the best financing for your personal situation.

According to the Consumer Federal Protection Bureau (CFPB), the impact on your credit is the same regardless of the number of inquiries, as long as the inquiries are made by mortgage brokers or lenders within a 45-day window.

However, it’s important to note that some companies are still using older FICO models. These older FICO models allow for just 14 days for multiple inquires to have the impact of just one.

For this reason, a good rule of thumb is to try to limit your credit pulls for rate shopping to two weeks.

Seeking too much credit in a short period does, however, drag down your credit score. A lower credit score typically means a higher interest rate, and a harder time getting a mortgage.

For most people, though, a credit inquiry affects their credit scores by less than 5 points.

As always make sure you get the best advice possible from qualified real estate professionals, lenders, and financial advisors.

“Your Home Is A Better Investment Than Bonds” – US News

January 30, 2017 / Tom Bonetto

Believe it or not, there’s a nice way to measure the “investment value” of your home – and you can do it via the bond market. Jeff Brown from US News and World Report has written an interesting piece on how to quantify your home as an investment – and it’ really worth the read!

Find out more from Jeff Brown at US News and World Report here…

Many homeowners look upon their homes as a valuable asset they can utilize for retirement through downsizing or a loan. They count on building equity in the traditional way, by paying off the debt month-after-month and enjoying some price appreciation.

“There’s another option: making extra principal payments on the mortgage to reduce the debt faster. Every dollar used to pay down the loan earns a “yield” equal to the loan rate, since it saves you from having to pay that amount of interest.” – Jeff Brown, US News and World Report

“If your loan charges 4 percent, prepayments earn 4 percent, a lot more than you’d get in bank savings or a 10-year Treasury note, now yielding a paltry 1.8 percent.”

“A very conservative investor who is averse to debt may find paying off his or her mortgage is the right choice,” says Eric Meermann, a planner with Palisades Hudson Financial Group in Scarsdale, New York. “If the alternative is sticking your money in a money market or savings account, you’re better off paying (the mortgage off) early.”

Brown uses the example of a homeowner with a $300,000 mortgage for 30 years at 4 percent would pay $1,432 a month in principal and interest.

By adding about $150 a month in prepayments, the loan could be paid off five years early, reducing total interest charges by about $40,500. Without the prepayments, the homeowner would still owe nearly $78,000 after 25 years.

With that said, although today’s bond yields make mortgage prepayments appealing, stocks returns could beat prepayment yields substantially. Index funds tracking the Standard & Poor’s 500 index are up nearly 8 percent this year, and averaged 6.7 percent a year over the past decade.

That’s generally much better than you’re likely to do with a mortgage prepayment.

While Americans have traditionally thought of the home as a rock-solid investment, many homeowners suffered deeply from the home-price plunge in the Great Recession, when millions ended up owing more than their home was worth.

So you can lose money investing in your home, though there’s less chance of ending up underwater if prepayments have trimmed the debt.

In most of the country, housing markets are a lot stronger than they were in the years after the financial crisis. But although a nationwide price collapse is very rare, they do occur here and there from time to time, so assess your local market before committing more money to your home.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc

FHA Appraisals and Inspections

January 23, 2017 / Tom Bonetto

Appraisals are used by lenders to determine a property’s value to protect their own interest and the homebuyer’s investment. Interestingly, there are different types of home appraisals based on the type of financing used for the home, including conventional mortgage loan appraisals and Federal Housing Administration (FHA) appraisals.

If you are planning to use an FHA loan to buy a house, the property will have to be appraised by a HUD-approved home appraiser. This individual will determine the current market value of the property, and will also inspect it to ensure it meets HUD’s minimum property standards.

Conventional Mortgage Appraisals

Mortgage loans issued by private lenders like banks and credit unions are called “conventional loans”. The appraisals used for conventional mortgages are typically focused on the value of the home and property being appraised. Conventional mortgage appraisals use one of three valuation methods to determine a point of value.

During this process, the appraiser will look at comparable properties that have sold recently, in the same area as the one being purchased. They will also visit the “subject property” and evaluate it both inside and out. After this review process, the appraiser will write a report to detail his findings. It will include an estimated value of the home, as well as any required repairs.

The report will then be sent to the mortgage lender for review.

FHA Mortgage Appraisals

Because the FHA insures their mortgage on behalf of eligible borrowers, the FHA requires their home appraisal address certain factors of the home before granting financing. While the FHA orders an appraisal to protect their investment, the basic concept of these appraisals is that everything in the home functions as intended. For example, windows should close tightly and doors should lock properly.

FHA appraisals aim to ensure the home the FHA is insuring is safe and secure for its occupants.

When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development (HUD) requires the current market value be determined, as with any appraisal. But they also require a property inspection to make sure the home meets HUD’s minimum standards for health and safety. That’s what makes the FHA appraisal process unique.

Overview of FHA Appraisal Guidelines

According to the 2016 FHA appraisal guidelines, a licensed, HUD-approved home appraiser must appraise all properties being purchased with an FHA-insured mortgage loan.

At a minimum, the appraiser must complete the following steps:

Visually inspect the subject property both inside and out.
Take photos of the property to be included within the loan file. The photos must show the sides, front and rear of the home, as well as any value-adding improvements such as a pool or patio.
Take a photo of each comparable sale transaction that is being used to support the appraisal.
Obtain and provide a copy of a street map that shows the location of the property and each comparable sale used during the valuation.
Take photos that show the grade of the lot, if it’s a proposed construction.

What does an FHA Appraiser Looks for During an Inspection?

Certain things will be noted in an FHA appraisal, but due to the unique characteristics of each individual home, certain items may be subjective to the appraiser’s opinion. In general, FHA appraisals are meant to determine if everything is in working order, if there are any issues that present a safety or health concern, and if there are any issues that would affect the marketability of the home.

Here is a comprehensive list of what an FHA appraiser generally inspects during the appraisal of the home:

Utilities must be turned on to test the systems and appliances for functionality
Proper drainage must be found around the perimeter of the home
Active termite infections must be addressed and cured
Windows must open and close with no broken panes
No chipping, peeling or flaking paint on homes built before 1978 for danger of lead-based paint
No defective paint or bare wood for homes built after 1978
No dangling wires from missing fixtures
Smoke and carbon monoxide detectors must be present and meet local ordinances
Adequate water pressure and testing of both hot and cold water
Water heater must be in working order and meet local code requirements
Attic must have appropriate venting, no damage, no exposed or frayed wires, or sunlight beaming through
Crawlspaces must have no signs of standing water or foundation issues
Electrical outlets must be in working condition with appropriate cover plates
Firewall from the garage to the home should be intact
Roof should not be leaking and must have at least two years of economic life left. The FHA will not accept roofs with over three layers of existing roofing.

Making Repairs After the Inspection

There’s a common misconception that FHA appraisals are unnecessarily strict, and that any inspection “hits” will end your chances of getting a loan. This is incorrect, as most discrepancies are fully correctable. If they are corrected before the final inspection (when the appraiser follows up on the original list), the loan can still move forward.

In most cases, the only real issues that would prevent a closed sale are serious safety issues that cannot easily be corrected. An example would be a bedroom with no windows or doors, and therefore no egress in the event of a fire. Another example would be an older home with a deteriorated roof and holes in the floor. In both of these cases, the discrepancies create hazardous conditions and most likely cannot be quickly fixed.

In most cases, however, discrepancies can be resolved fairly easily — if the seller is willing to fix them. If the items are repaired or corrected to the appraiser’s satisfaction, the sale can move forward.

FHA standards are quite firm, but there may be instances when the appraiser must use their best individual judgment in how the spirit of FHA might apply. A home can also be rejected if the site is subject to hazards, environmental contaminants, or excessive noxious odors or noises affecting the safety and livability of the property.

Understanding Closing Costs

January 16, 2017 / Tom Bonetto

Closing Costs for Home Buyers

In addition to the down payment, you’ll also have to pay closing costs — miscellaneous fees charged by those involved with the home sale (such as your lender for processing the loan, the title company for handling the paperwork, a land surveyor, local government offices for recording the deed, etc.).

On average, homebuyers pay closing costs ranging from 2% to 5% of the purchase price. Unfortunately, this is only a ballpark figure, as there are many variables in each individual transaction. Many lenders will require that you apply for a loan prior to receiving a more precise estimate of closing costs; however, some lenders are more transparent with their available options and will do the necessary legwork to provide you a better idea of those costs.

The key factors in determining the closing costs you will pay include the loan program, your credit scores, the escrow and title company, the down payment, and any negotiated seller concessions. Let’s take a closer look at the typical closing costs paid by homebuyers.

What Are Closing Costs?

As mentioned previously, “closing costs” is a collective term for the various fees and charges you’ll encounter when buying a home. Some of these fees come from the lender and others come from third parties that are involved in the transaction, like home appraisers, homeowner associations (HOAs), and title companies.

The types of closing costs you pay will depend on the kind of loan you’re using, as well as other factors.

Typical closing costs include:

Fees relating to obtaining a credit report
Loan origination and processing fees
Home appraisal fees (though more often than not, they are paid in advance)
Discount points, which can be used to secure a lower mortgage rate
Title search and escrow service fees
Title insurance fees, to cover both the lender and the homebuyer
Mobile notary fees
Pre-paids: escrow deposits to cover first two months’ property taxes and homeowners insurance.
Recording fee paid to the city or county for recording the new land records.
HOA transfer fees

Again, these are just some of the typical closing costs for homebuyers. Depending on your situation, you might encounter additional costs that are not on this list – and some of these fees might not apply to your situation.

Finalizing Closing Costs

As mentioned previously, closing costs tend to average between 2% and 5% of the purchase price.

So, if you’re buying a house that costs $200,000, your closing costs might fall between $4,000 and $10,000 (on average). That’s a pretty wide range and isn’t something you can really use for planning purposes. That’s where the new Loan Estimate can give a much more detailed breakdown when you actually start the loan process.

Soon after you apply for your home loan, the lender will give you a document known as a Loan Estimate. This standardized, three-page document gives you a lot of important information about your new loan. Page 1 includes your loan amount, mortgage rate, and estimated monthly payments, as well as an estimate of your total closing costs. Page 2 provides an itemized breakdown of the various costs associated with your loan.

Discount Points and Lender Credits

There are other factors that can affect the amount paid at closing. For instance, consider the different scenarios below:

Borrower ‘1’ might decide to pay mortgage discount points in exchange for a lower interest rate.
Borrower ‘2’ might avoid paying points in order to reduce the upfront costs.
Borrower ‘3’ might forego the discount points and opt for a slightly higher rate, in order to get a lender credit to further reduce closing costs.

These choices could result in a difference of several thousand dollars in the amount these buyers pay to close their loans. That’s why it’s best to take the time to sit down with your mortgage lender so they can understand your situation and what’s most important to you, the borrower!

In closing, here’s a great tip – ask the seller to pay some of the closing costs. If you’re short on cash for the closing costs and can’t roll the closing costs into the mortgage, ask the seller if they’re willing to pay part of the closing costs. It’s not unusual for buyers to ask for this. Usually the worst that can happen is that they say no.

Disclaimer: Your closing costs could differ from the examples provided above, based on a number of factors – and the views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

Shopping Mortgages – A Primer

January 3, 2017 / Tom Bonetto

Simply put, mortgage rates are the interest rates assigned to a home loan. These rates are actually based on the price of mortgage-backed securities (MBS), which are bonds backed by U.S. mortgages. These rates vary between conventional, FHA, VA, USDA, and jumbo loans – and by mortgage lender.

How Mortgage Rates Are Created

Mortgage rates are “made” based on bonds traded in the mortgage-backed securities (MBS) market. Similar to corporate bonds, mortgage-backed bonds trade all day, every day – and their pricing changes constantly.

In general, as the price of a mortgage-backed bond changes, so do mortgage rates. This is true for conventional mortgages backed by Fannie Mae and Freddie Mac mortgage bonds; and for FHA loans, VA loans and USDA loans, which are backed by Ginnie Mae mortgage bonds.

The price of a mortgage bond is based on supply and demand. All things equal, when Wall Street’s demand for mortgage bonds increases, mortgage bond prices rise, which causes mortgage rates to fall.

A large number of U.S. consumers research mortgage rates every day. Most just want a ballpark figure to help do the math on what buying a home would cost, or to see what a home refinance would look like.

Others need more details on particular mortgage rates – most importantly, when they’re close to making a decision about what to do next.

To everyone, though, getting a good, low rate should be a major focus. A mortgage is not something on which you want to overpay, as paying “too much” for the most valuable asset you own isn’t a great idea!

For an in-depth review of this process, check out Dan Green’s article at The Mortgage Reports for more….

How To Be A Good Mortgage Rate Shopper

Mortgage rates move randomly, and change with little or no advance warning. When you’re shopping for a mortgage, then, it’s important to know the nuances – and also to have a plan.

This means understanding that shopping for a mortgage rate is really about shopping for a mortgage rate and its associated closing costs. You can’t get one without the other.

A mortgage lender should never quote you a rate without telling you the fees that go with it – so pay attention when you get your quotes – because an extremely low rate means nothing if your closing costs are ridiculously high.

There are two ways to shop for mortgage rates, then.

1. You can shop for a particular mortgage rate that you want

2. You can shop for a particular closing cost that you want

Sure, you can try to shop for both at the same time, but why bother? Don’t get caught-up in the game of trying to have it both ways – because you can’t – and here’s why:

When you can isolate a single loan variable for comparison such as “cost” or “mortgage rate”, it’s really easy to know which mortgage lender is giving the best deal.

As an illustration, let’s say you want a rate of 5.00%. That’s your “fixed” variable. All you have to do, now, is to ask mortgage lender for their lowest closing costs, assuming a 5.00% rate.

Whichever lender offers the lowest costs is the lender with the best overall price.

Or, to work it the other way, let’s say you want a zero-closing cost mortgage. In this instance, closing costs are your fixed variable — they’re $0.

To find the best mortgage lender, then, simply ask each lender what the interest rate would be assuming no closing costs whatsoever.

The lender with the lowest rate is the lender you choose, providing they offer the service levels that will allow you to close the transaction on time! If you can’t close on time, that’s more out-of-pocket costs to you, the borrower.

Choosing The Right Lender

The best mortgage lenders will help you understand the complexities and help you choose the right mortgage for your circumstance.

Is it a low payment that you are looking for? Well, then paying a discount point or two will lower that interest rate and reduce your payment.

Are you a little short on cash for closing costs? Well, choosing a higher interest rate can give you that much needed closing credit that can offset some of those costs!

Again, make sure to reach out to the right lender and take the time to outline your current wants and needs.