Category: Refinance (Page 8 of 10)

Years ago, conventional wisdom said potential home buyers should make a down-payment of 20 percent.

Doing so, the logic went, would help them secure a great interest rate and make monthly mortgage payments less costly.  These lower payments would help home buyers afford the expenses of home ownership — from closing costs to homeowner’s insurance to emergency funds.

But 20 percent down proved too large a hurdle for many potential homeowners as housing prices rose in the 1990s and beyond.

Today, large down-payments are nothing more than suggestions.

Source: The Mortgage Reports – Barbara Ballinger

Today, down-payment options from zero to 15% are completely reshaping the way people buy homes, especially first-time home buyers.  Regardless of financial status, age, background, or nationality, home buyers are learning how to make a down-payment that suits their needs. They are no longer worried about adhering to outdated ideas about a “normal” down-payment.

There are equally good reasons for you to make a much smaller down-payment. By doing so, you retain available cash in the bank for emergencies, expenses, and other financial goals.

Conserve cash:  Many say that “cash is king”.  Experienced investors want to protect what they have and use the extra income to invest in other projects or the market.

Pay off debt: Many lenders advise using available cash first to pay off credit card debt. That debt is calculated at a higher interest rate than a mortgage and doesn’t offer the same tax deduction.

With debt paid off or lowered, you’re also likely to see your credit score climb. You need a minimum of between 640 and 680 to secure the most reasonable loan rates. Improve your score and hit 740, and you’ll secure an even better rate.

Tackle repairs: Having cash on hand will allow you to make essential repairs and upgrades. Few homes are so perfect that you move in without wanting to do some work.

Set aside for an emergency:  Emergency funds are important to cover unforeseen repairs or other non-home related issues. If your car breaks down or furnace goes out, it’s better to have cash on hand rather than finance repairs with a credit card. That can lead to higher expenses later.

You can find the complete article here…..

The need for non-prime products is growing, as conforming loan rules have tightened.  Working with a lender that can only provide standard QM products will limit a legitimate and legal funding resource for many customers.

When non-prime (or non-QM) lending returned to the market again a few years back, it wasn’t welcomed back with open arms. Many critics were concerned that these products were the same as the sub-prime loans that led to the housing crisis and were afraid that history would repeat itself. In fact, sub-prime and non-QM are quite different. New regulations have helped to ease non-QM loans back into the market.

A Few Non-QM Options

• Bank Statement Loans – utilize bank statements for income qualification, not tax returns
• Asset Depletion Loans – utilizes assets, such as stock portfolios or retirement funds, for income qualification
• Debt Service Coverage – allows investors to utilize expected rents as income with no need for tax returns or debt-to-income restrictions

Some non-prime products are misunderstood and are much maligned.  Yes, it is true that the financial crash was caused by non-prime products – you can decide if it was the government, or borrowers, or the banks or a combination of all three.  I am frequently asked if these products are legal and are these loans “above the table”.

The answer is a resounding “yes”.  These products are certainly legal and they are certainly above the board.  For starters, a reputable lender and reputable mortgage loan officer is not going to put their license at risk and knowingly originate a bad loan.  I understand there are exceptions to this, but if you ask questions and spend time working with the loan officer you will know if you are working with a LO who has your best interest in mind.

Second, these products still have regulation attached, they have to be underwritten, and they have to fulfill certain requirements of ability to repay, down-payment structure, no prepayment penalties, and FICO scores.  These features are different than the days of old.  I have attached the article above to provide additional information.  Make sure you take time to give it a read.

Source: Why Non-Prime Loans Are Safer Than You Think

A bank statement loan or a loan on a non-warrantable condo are examples of “non-prime” products.  A bank statement loan, among other things, can support the private business owner who has significant expense associated with their business and can still satisfy credit and ability to repay. These are individuals who will not qualify under the conventional guidelines of Fannie/Freddie but still have the ability to service a mortgage on time.

Naturally, there are other characteristics of non-prime products which ensure an appropriate level of risk.  Interest rates are typically higher than QM products.  Required down payments, Loan to Value, and FICO scores usually are more restrictive as well.

Make sure your loan officer has the expertise, products, and processing staff to support your borrower needs.  Feel free to call, text, or e-mail me any questions.  I am happy to help if I can.

When you’re buying a home — whether as a first-time home buyer or an experienced one — there’s a better-than-average chance you’ll encounter confusing jargon, and unfamiliar terms and phrases.

One such term is “escrow”.

Escrowing your taxes and insurance reduces your lender’s risk, and can earn you a lower, better mortgage rate quote. Escrow can also simplify your life.

In mortgages, escrow refers to the accounts used to pay a homeowner’s property taxes and hazard insurance.

Each month, you send to your lender 1/12 of the annual amount due for taxes and insurance along with your usual mortgage payment. Then, when the bills come due, the lender pay them on your behalf.

Believe it or not, you will actually get a lower rate on your mortgage, because escrowing your taxes and insurance makes it less likely your home’s tax bill won’t get paid; or, that its insurance coverage will lapse. When you escrow, the lender doesn’t have to worry about a seizure on the property by tax authorities, nor do they need to fear losses from property damage resulting from inadequate insurance coverage.

Escrowing reduces your lender’s risk, so your lender rewards you with a lower, better mortgage rate quote.

Source: All About Mortgage Escrow Accounts For Mortgages

My good friend and colleague, Mike Nelson, has put together a fantastic primer regarding the importance of the term of the mortgage loan versus the interest rate of that same loan.  I’d highly recommend clicking HERE for more.

Mike’s point is a very good one  – don’t get emotionally invested in the lowest possible interest rate.  It’s a big factor, for sure, but it isn’t the be-all-end-all of the conversation.  It’s very important that you identify your goals before you make any binding decisions.

“Customers always want to talk about interest rates.  It is the first question I get – how low are your rates?  My answer is this: the interest rate is important for sure, but the term of the loan should get equal consideration.”

Is it the single lowest possible monthly payment, or the lowest interest to be paid out over the course of the loan?  These are just a few questions to consider – so make sure you get with a reputable mortgage professional in order to find the best loan for you.

“I can’t tell you how many times I have worked with borrowers who are so fixated on the lowest possible interest rate that they will finance $5,000 in points to have a rate discounted by 1/8 or 1/4 – without a considering the term of the loan.”

As Mike talks about, if you are sure you will stay in the house over the course of the next 25 to 30 years – spending thousands of dollars on discount points can be a financially sound decision.

However, if there is a possibility that you will sell or refinance a 30 year mortgage in the first 7 to 10 years of the loan – have your loan officer do the math and calculate the “actual” cost of the $5,000 discount.  Most of the time you will be surprised at just how much more money that “low” interest rate actually costs.

It would be my privilege to help you and anyone you know find the right mortgage product that best suits their needs!

Source: Mike Nelson’s “Observations From A Loan Officer” – Efficient Selling Blog