Why Aren’t Rates As Low As Advertised Elsewhere?

It’s frustrating!  You read the headlines, “Mortgage rates lowest in 60 years!”  Then, you call the lender and the rate quoted is higher than what you‘ve seen online.  You wonder, “What’s going on here?”

There are a lot of reasons that the rates you are being quoted may not be as low as the rates you see advertised.  Here are a few of them:

  1. They aren’t real.  This is probably the most common reason.  A lot of internet rates are not honest quotes.  And, those that are may already be expired or may have conditions on them that only a tiny fraction of borrowers can meet.
  2. You have to pay discount points.  Fannie Mae and Freddie Mac Weekly rate surveys show rates from the previous week and will likely require you to pay discount points.  A discount of 1.0% (1 Point) can be a 0.125% – 0.500% difference on the interest rate.
  3. Your credit score isn’t high enough.  Fannie Mae & Freddie Mac have Loan Level Pricing Adjustments.  If your interest rate is below 740 and your Loan to Value Ratio (LTV) is greater than 80% there will be adjustments to your interest rate.  For example, if your middle credit score is 700 and your LTV is 75.01% – 80.00%, there will be a loan level pricing adjustment of 0.75%.  This is an additional fee (points) that will have to be paid with your mortgage.  Since most people do not pay points on their mortgage, this will result in a higher interest rate.
  4. Your loan isn’t large enough.  The rates you see listed are often for very large loan amounts.  Larger loan amounts provide more revenue but don’t cost more to originate than smaller loans, so the lenders can make the same or more profit, even at a lower interest rate.
  5. You have more than one loan.  If you have subordinate financing on your transaction (either purchase or refinance) there may be LLPAs as a result.  This could result in a rate increase of up to 0.5%.  A lot of people who want to refinance their first mortgage, and already have a second mortgage, are noticing significantly higher than those they read about.  Many homeowners took out large second mortgages when their home values were at their peak.  Now, they either have little to no equity in their property or they may even be upside down on their property (they owe more than the property is worth).  If these borrower are able to refinance, their rates will surely be higher that the best possible rates.
  6. Property type.  If you own or are purchasing anything other than a single-family, detached residence your rates may be higher.  Condos, townhomes and 2-4 unit buildings may have add-ons to the rates or points.
  7. Refi versus purchase.  Also, the best possible rates are usually for purchase transactions. If you are refinancing, or taking cash out on your refinance, you will see higher rates.  Some of our lenders run purchase incentives that can reduce your rate by .125% or more.
  8. Occupancy.  Last, the occupancy of the property will affect the interest rate. If the property is an investment property your rates will be higher.

This list is by no means an all-inclusive list of the reasons you may not be able to get the rock-bottom, lowest-possible rates you’ve been reading about, but it gives you some ideas. Make sure you are working with a reputable, experienced lender who will give you knowledgeable and honest answers to the rates you are being quoted.

And you can always reach out to me at jkincaid@avenuemortgage.com or by calling 630-470-6722 to answer any questions you have or to help you with your financing needs. There’s never an obligation, and always free information!

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Short Sales

Short sales are often the only way some homeowners can get out of a mortgage they can no longer afford without going into full foreclosure. A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. (Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure.)

When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property. With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.

It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.

How does it work?

The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. If you cannot resolve the default with the lender, and you want to see if they will accept a short sale, they will direct you to the department that handles short sales.

The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:

  • Income documentation such as W-2s and pay check stubs to verify the borrowers’ income.
  • Bank statements to verify the borrowers’ assets
  • Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.
  • Fair market value for the property – depending on the lender they may require an appraisal or may accept an opinion from a local Realtor know as a Comparative Market Analysis (CMA).
  • Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
  • Listing agreement and purchase agreement when they are available.

When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.

So, is the borrower off the hook?

Not necessarily. The lender still has options to try to collect this shortage. As a condition of the short sale the lender may require the borrower to sign a note to repay the shortage. They may also file a collection or a judgment for the amount of the shortage. This is something that an attorney with expertise in this area of real estate needs to be consulted.

Also, the IRS may come after the borrowers for income taxes on the amount of the shortage. If the shortage was forgiven, the lender will report the shortage as income to the IRS and the IRS will collect taxes on this amount. Again, for the specifics on this please consult a tax professional.

Waiting Periods for Derogatory Credit Events

We all know that we are coming out of a tough economic environment. And tough economic environments cause tough credit situations for a lot of folks.

I run across many good people who through no fault of their own have run into financial hardship but want to purchase a new home.  Many are amazed at how quickly they can qualify to purchase a new home provided they re-establish credit and don’t have any further credit problems.

Here is a quick GUIDE to the various loan programs and the waiting periods for the various credit issues:

Conventional Loans

(Conventional Loans are loans the conform to Fannie Mae and/or Freddie Mac Guidelines)

  • Foreclosure:  7 year from the date the foreclosure was completed (or, 3 years from the foreclosure date with extenuating circumstances and with 10% down payment.).
  • Short Sale:
  • 7 years from the date the sale was closed and the title transferred to the new owner for less than 10% down payment.
  • 4 years from the date the sale was closed and transferred to the new owner with 10% or greater down payment.
  • 2 years form the date the sale was closed and transferred to the new owner with 20% down payment.
  • Chapter 7 Bankruptcy: 4 years from the discharge date.  2 years with extenuating circumstances.
  • Chapter 13 Bankruptcy: 2 years from the discharged date.  4 years from the dismissal date.

FHA Loans

  • Forclosure (or Deed in Lieu of Foreclosure):  3 years from the date of the foreclosure, with re-established credit.
  • Short Sale: 3 years from the date of the closed sale when the deed transferred to the new owner.
  • Chapter 7 Bankruptcy:  2 years from the date of the discharge of the bankruptcy.
  • Chapter 13 Bankruptcy: 1 year after the payout period has begun, so long as everything has been paid on time, and with court approval.

VA Loans

  • Foreclosure: 2 years from the date the foreclosure was complete.
  • Other Circumstances: All other derogatory credit situations mirror the time-frames of an FHA loan.

USDA Rural Housing

  • Chapter 7 Bankruptcy: 3 years from the discharge date.
  • Other Circimstances:  All other derogatory credit situations mirror the time-frames an an FHA loan.

All of these rules allow for shorter time periods from the derogatory event, given ‘extenuating circumstances’, such as extended job loss, death of a primary wage earner, etc.  Extenuating circumstance will require some documentation about the circumstances.

The good thing here is that many, many people think that a bankruptcy or a foreclosure will damage your credit for great lengths of time, if not forever.  That, I am happy to say, could not be further from the truth.  If you or someone you know has gone through a major derogatory credit event, then I would be happy to help you rebuild and get ready to buy a home when the time comes.

What’s Ahead For Mortgage Rates This Week : June 25, 2012

Fed Funds Rate 2006-2012Mortgage markets worsened last week as Greece tentatively formed a government and the Federal Reserve extended its Operation Twist program by $267 billion.

Neither event, however, removed the uncertainty surrounding global markets.

First, Greece must still adhere to stringent austerity measures in order to meet the terms of its IMF bailout. Its new government, however, may seek to revise the terms of its fiscal austerity, a move that would keep the nation-state — and the European Union — in fragile balance.

As Greece comes closer to resolution, U.S. mortgage rates are likely to rise. This is because economic uncertainty in Greece has helped to keep mortgage rates down since 2010. A reversal in policy would cause mortgage rates to reverse higher.

Second, it’s clear that Wall Street expected more from the Federal Reserve.

The nation’s central banker made moves to pressure long-term rates lower last week, but did little else to prop up an economy it believes will grow only “very gradually” over the next few quarters. Stock markets got a gentle boost from the Fed’s new stimulus, and mortgage rates suffered only slightly.

Overall, conforming mortgage rates in Illinois rose slightly last week, and much of the action occurred after Freddie Mac’s weekly mortgage rate survey concluded Tuesday afternoon.

According to the government-backed mortgage-securitizer, 30-year fixed rate mortgage rates fell 5 basis points to 3.66% nationwide, on average last week. This was the lowest recorded 30-year fixed rate mortgage rate on record as this year’s Refinance Boom continues.

The 15-year fixed rate mortgage rate also dropped, stopping at 2.95%, on average. This is 0.01 higher than the benchmark rate’s all-time low — a record set two weeks ago.

Buyers and would-be refinancers trying to lock a rate this morning may find pricing to be slightly worse.

This week, mortgage markets will continue to take cues from Europe, and from a bevy of U.S. economic data including the New Home Sales report and the release of the Pending Home Sales Index.

Mortgage rates remain near all-time lows. If you’re considering a home purchase or refinance, the timing looks good.

Apartment rents heading higher for 3rd year in a row

Saw this article on USA Today – Article.  Just another reason to buy versus renting.  Mortgage rates are incredibly low, home prices are still depressed and rent is going up…

Apartment rents are expected to jump again this year as the U.S. economy creates more jobs and demand for rental housing grows.

A 2012 increase would make the third straight year of rising rents. More annual increases are expected as apartment builders hustle to catch up with demand.

“You could see 10 years of a strong apartment market,” says Ronald Johnsey, president of apartment market researcher Axiometrics.

The firm, which surveys 20,000 properties a month, expects apartment rents to jump 5.5% in 2012. MPF Research sees a 4.5% increase, while researcher Reis expects a 3% increase, although that forecast may change, says senior economist Ryan Severino.

Reis estimates rents rose 2.3% last year. Axiometrics says 4.4%, and MPF says 4.7%.

Driving rents higher:

Job growth.IHS Global Insight expects the U.S. to add an average of 150,000 jobs a month this year compared with about 133,000 a month last year.

New jobs spur household formation. But with home prices still falling in many markets and tight lending standards making it harder for many to buy homes, more consumers will rent, Severino says.

Declining homeownership. The homeownership rate rose slightly in the third quarter to 66.3%, the Census Bureau says. That’s still down from 69% in the same quarter in 2006. RBC Capital Markets anticipates that homeownership will fall to 65.5% by year’s end. Moody’s Analytics says it’ll drop to 65% by the end of 2013 or start of 2014. Fewer homeowners means more renters.

Little new construction. The apartment market — about half of all rental housing — added 37,678 units last year, the smallest increase in 31 years, Reis says.

Construction is picking up, but new units take time to complete. As they arrive, apartment rents will return to more normal appreciation rates of about 3% a year, says Greg Willett, MPF Research vice president.

Rents are rising fastest in San Francisco and San Jose. MPF and Axiometrics show San Francisco rents up about 14% last year and San Jose rents up 12%.

Preliminary Reis data show rents up 5% in both cities last year. In Austin, rents rose more than 7%, say Axiometrics and MPF.

FHA Lifts Ban On Homebuyers Who Have Credit Disputes

By Jon Prior

The Federal Housing Administration rescinded a rule that would have denied financing to potential homebuyers with ongoing credit disputes of more than $1,000, according to an alert sent to lenders Friday.

The FHA quietly drafted the rule in March to mitigate risks to its emergency fund. The rule went into effect April 1. Borrowers had to either pay off the outstanding balance on collections accounts or document an arrangement to pay before the mortgage was approved.

Industry experts pushed back, particularly homebuilders and lenders with much of their business tied to first-time homebuyers.

Read more on this story at HousingWire.

HARP 2.0

HARP 2.0 has been available since December, 2011 but I still find that there a lot of people have never heard of the program and don’t realize how it can help them even if their homes are underwater.

For those of you who don’t know, HARP 2.0 is an extension of the original Home Affordable Refinance Program (HARP).  This is a program that the Government put into place to help homeowners that are underwater take advantage of these record low rates.  The 2.0 update extends the program until December 31, 2013, and allows refinances no matter how much you owe (limitations apply) or how far your home’s value has dropped – and often without an appraisal.

Just yesterday I helped a borrower drop her rate from 5.75% to 3.75% with no closing costs and no appraisal.  This change saved her more than $450 / month (over $5,000 per year!).  Not bad for no costs and about 1 hour total out of her life.  Wish I could get that type of hourly wage.

There are a number of guidelines for using this program but the main requirements are:

  • Your loan must be owned by Fannie Mae or Freddie Mac.  This is different than who services your loan.  Since Fannie and Freddie own about 75% of the loans there is a good chance they do own your underlying mortgage.
  • Fannie Mae or Freddie Mac must have bought it on or before May 31, 2009.
  • You can’t have refinanced previously under HARP unless it was during March-May 2009.
  • You must be current on your mortgage, have no late payments in the last 6 months and have one late payment or less in the last 12 months.

Other HARP 2.0 Facts

  • You may not need an appraisal to refinance.  We’re seeing more than 50% of our HARP 2.0 clients receive an appraisal waiver.
  • This can be used for primary, secondary and investment properties.
  • No mortgage insurance is required if your current loan does not have mortgage insurance.
  • You can only refinance your first mortgage under HARP 2.0 but most 2nd lenders are willing to subordinate the 2nd mortgage.

Please let me know if you want to find out more about this great program.