Category: Refinance (Page 7 of 10)

Cancel Your Mortgage Insurance – Right Now!

November 5, 2016 / Tom Bonetto

If you bought a house with a down payment of less than 20%, your lender required you to buy mortgage insurance. The same goes if you refinanced with less than 20% equity.

Private mortgage insurance is expensive, and you can remove it after you have met some conditions.

How to get rid of PMI

To remove PMI, or private mortgage insurance, you must have at least 20% equity in the home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home’s original appraised value.

The process to do so is straightforward. Get an estimate of value from a local real estate agent or loan officer. Online home valuation websites can be inaccurate, so be careful with those.

See if you have around 20% equity based on your home’s estimated value. Be sure to add closing costs onto your existing loan balance if you do not wish to pay them out of pocket.

Then, reach out to your lender and begin the refinance process!

Refinancing to get out of PMI

When mortgage rates are near record lows, as they are now, refinancing can allow you not only to get rid of PMI, but you can reduce your monthly interest payments. It’s a double-whammy of savings.

The refinancing tactic works if your home has gained substantial value since the last time you got a mortgage. Let’s say you bought your house 3 years ago for $100,000, and you borrowed $90,000. That means you have a loan-to-value ratio of 90%, and you pay for PMI.

Three years later, you’ve made all your payments and you have chipped away at the loan balance. Now you owe $85,000. And your home’s value has gone up — now it can be appraised at $112,000. Its value has grown 4% a year.

At this point, you owe $85,000 on a $112,000 house. This means you owe 76% of the home’s value — well under the 80% loan to value that triggers the need for mortgage insurance. Under these circumstances, you can refinance into a new loan without having to pay for PMI.

Here’s a great piece from Craig Berry at the Mortgage Reports for those who have FHA loans and are paying mortgage insurance (MIP). He outlines the benefits of the FHA loan – and examines why right now is a great time to move to a conventional loan.

Now is the time

With rates near historic lows and home values rising consistently, now is a fantastic time to look at refinancing away that PMI. I’d be happy to sit down with you and talk about alternatives and programs that could fit you needs!

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

Closing Timeframes Continue to Lengthen

October 24, 2016 / Tom Bonetto

Since the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule last October, continuing evidence shows the impact of TRID in lengthening the time to close real estate transactions. Both purchase and refinances have been severely impacted by these new regulations.

Now, a report from Ellie Mae shows more statistical evidence on how deeply the impact of TRID is being felt, with the time to close a mortgage loan climbing yet again. Additionally, 2016’s average time to close a loan is 10 days longer than just one year ago in 2015, when the average time to close a loan was 40 days.

If you find 50 day closes unacceptable (as I do), please reach out to me so we can get your customer in their new home sooner rather than later! Take advantage of Equity Prime’s 30-day On-Time Closing Guarantee.

The gist of TRID is that mortgage lenders must send particular paperwork to mortgage borrowers 72 hours prior to closing, and that changes to any of the documents require a re-disclosure of said terms and another 72-hour waiting period.

Since October 2015, then, closings have had an additional 3 days tacked on; a government-mandated delay affecting all closed loans. But Equity Prime is still holding to it’s 30 day on-time closing guarantee!

The faster you can close on a mortgage, the lower the mortgage interest rate can be and the faster your client gets into their new home! Know the steps in a mortgage approval, and where you cut time and corners to get to closing quicker.

Source: The Mortgage Reports

The Bank Statement Mortgage – A Great Option

September 19, 2016 / Tom Bonetto

Borrowers that have incomes that are less documented have a much more difficult time qualifying for a traditional home loan. In general, self-employed borrowers or those who write off 2106 un-reimbursed expenses will be the most likely to benefit from the bank statement program. These programs can be used for a primary residence, a second home or an investment property.

“Bank Statement loans are designed specifically for the self-employed and others whose tax returns and employment history may not adequately express their financial viability”

As its name would suggest, the concept is predicated on providing evidence of future payment ability, in the form of bank statements from the past 12 to 24 months. These can serve as the means for a down payment, in addition to taking the place of a traditional employment history for the years of W -2 forms typically required of buyers during the application process.

The bank statement program is designed to alleviate this shortfall of standard documentation. We will determine an applicant’s ability to repay based on a more pragmatic, case-by-case approach.

Bank Statement Program Verification

Lenders may allow the use of personal or business bank statements to support a self-employed borrower’s income for qualification purposes. The documentation provided needs to document that the income is stable, likely to continue and sufficient to enable the borrower to repay the debt.

The income presented must be reasonable for the profession or type of business. In addition, when using business bank statements to support the borrower’s income, the nature and structure of business must be evaluated to determine if the applied expense assumptions are reasonable.

The borrower’s business may be a sole proprietorship, a partnership (general or limited), or a corporation. They may also receive income documented by Form 1099, or filed on a Schedule C.

Borrower must have been in the same line of work or own the same business for two years. Self-employed borrowers must be able to document by a neutral third-party that the business has been in operation for the last two years and that they have had ownership for that period of time. Third-party verification generally includes:

A letter from a certified public accountant (CPA)
A letter from a regulatory agency or professional organization
Copy of business license

Borrowers that are employed by the seller, property seller, realtor, or receive foreign income are ineligible.

Income Documentation Requirements

The Borrower’s application must include all sources and amounts of income. The bank statements must support income listed on the application. Deposits from income sources that are not reflected on the 1003 or those not needed to qualify will not be included in the qualifying income calculation.

Income sources separate from self-employment must be verified. Examples of verification include social security letter, employment verification, or divorce decree. If tax returns are provided for the borrower using bank statements to support their income, the loan must be fully documented.

Income may be documented by either personal or business bank statements. However, the co-mingling of personal and business or multiple business accounts is prohibited. If multiple accounts are used to show income and reserves, documentation must be provided to show evidence that the funds are separate and distinct.

Here are a few of the key features of this type of loan:

Up to 45 percent debt-to-income ratio
5/1 & 7/1 adjustable-rate mortgage options
Loan-to-value ratios of up to 75 percent
Cash-out options of up to $350,000 for a primary residence
Loan amounts of up to $2 million

While the bank statement program is truly unique, there are signs the rest of the mortgage market is catching up to the evolution. These types of transactions are becoming more and more common – and for good reason!

What is APR….and is it all that important?

August 26, 2016 / Tom Bonetto

There is a lot of regulation around APR and home mortgages – and anything with this much regulation must be important, right? Lenders and loan officers spend a lot of time calculating, managing, and disclosing APR. It is a big part of everyday life in the lending industry.

Candidly, APR is confusing and hard to understand. I have heard it called many things – average percentage rate, about percentage rate, approximate percentage rates…for the record it is Annual Percentage Rate, so let’s clear up some of the confusion.

Source: The Mortgage Reports

What is APR and is it all that important?

APR (annual percentage rate) is the interest rate plus the costs associated with the loan. This mysterious number is intended to give an apples to apples comparison between two different loans.

Theoretically, if the consumer compares the APR of two loans, the loan with the lowest annual percentage rate is naturally the best loan for the consumer. APR is designed to protect consumes from hidden costs, bait & switch, and deceptive marketing schemes which have been used in this industry.

Hang On A Minute – Does APR Tell the Whole Story All Of The Time?

APR is certainly helpful and an important part of the lending process. However, loans are complex and ultimately one number alone does not automatically find the best loan for a particular borrower. Please do check out the article I have attached with this post that details APR – the good and the bad. APR is a complex calculation with many variables. If these variables are not exactly the same between loans, the loans are not apples to apples comparisons.

Remember, the borrower must look at a refinance or purchase of a new home relative to their particular needs. The borrower’s debt, savings, down payment, anticipated time in a home, family, etc all play an important part in selecting the right mortgage. While APR is important, one number can’t take into account all the variations and nuances in the life of a borrower.

We Need to Help Our Customers Understand Hard Concepts!

I have said this before and it is worth repeating – lenders (such as myself) and real estate agents must educate clients on appropriate real estate and lending options. If you are a borrower – make sure you have the right professionals supporting your real estate needs. The right professionals care about your needs and take the time to do the research required to recommend the correct products.

A big thanks to my friend and colleague, Mike Nelson, for really bringing together the key pieces of APR!

Discount Points & Mortgages: Good idea or wasted money?

August 15, 2016 / Tom Bonetto

My good friend and colleague, Mike Nelson, has put together a fantastic piece on understanding the pros and cons of paying discount “points” or fees to obtain a lower interest rate. I’ll warn you, this is some real “inside baseball” type of stuff (and as Mike states, “I recommend this blog and a smart phone as you try to go to sleep…if you have insomnia”), but he does a fantastic job of highlighting the key reasons to either buy down your rate, or not.

Source – Mike Nelson’s Efficient Selling Blog

Let’s start at the beginning – with a definition. This definition comes to us from Investopedia along with an article they penned on the topic.

Discount points are a type of fee mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments. Each point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. Discount points are tax deductible in the year in which they are paid.

How long the customer stays in the house or re-finances ultimately determines if a discount is worth the cost!

Most borrowers and lenders will immediately conduct a break-even analysis to determine the benefit of the discount. In Mike’s example, the $10 difference in monthly payment is recouped in 100 months, or 8.4 years. The borrower then considers how long they will live in the house – if it’s more than 8 years, the discount seems like a good deal. Do click on Mike’s link to find out more.

The average 30 year mortgage in the US is refinanced every 7 years.

So what is the conclusion?

Generally, if the borrower believes they will be in the house more than 10 years they should give strong consideration to paying the discount on the rate with cash and not financing into the mortgage. After 10 to 15 years the discounted interest rate is generally better for the borrower. Interestingly, however, the average loan is refinanced every 7 years, so take that into consideration, as well!

One other thing to factor in, are the tax ramifications to the mortgage. It’s important to consult with a financial advisor or CPA for the complete tax implications.

Work with a lender who can do the math!

If you are working with a lender that does not understand these concepts, you are working with the wrong lender! It’s the responsibility of the lender to calculate the implications of discounts and pass that on to you.

Finally, remember this: lenders are not giving discounts because they save you money at their expense. The lenders (or at least the one’s who are doing it right) are doing sophisticated calculations determining the risk of discounting rates over the lifespan of an entire portfolio of loans. Lenders will price accordingly – just make sure you as a borrower have don the analysis to know which scenario is best for your situation!