5% down payments are back!
By Angela Capodanno | June 18, 2008
Great News… I no longer have to reduce loan amounts by 5% for “distressed markets.” This means I can easily do 95% conforming loans again. Without an FHA loan, most buyers were in need of a 10% down payment. Not everyone has that kind of cash sitting around, ready to invest. As of a few days ago, we’re back to only requiring 5% down. (For FHA loans, only 3% is required.)
Guidelines have been getting more and more strict, so it’s a pleasant moment to report a change that will help more people become homeowners.
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“No Closing Costs”
By Angela Capodanno | May 22, 2008
Another confusing element to shopping for a loan is the subject of closing costs. Closing costs include fees like appraisals, escrow fees, lender fees, and discount points. Many lenders and brokers advertise a “no closing cost” loan. So, my clients come to me thinking they don’t need anything but the down payment. This is incorrect.
These “no closing cost loans” tend to cover:
- appraisal fees
- escrow & title fees
- origination points
- notaries
- county recording fees
- and other “junk” fees such as processing fees
These loans do NOT cover the following examples, and these amounts will still be collected as closing costs:
- Prepaid interest
- Mortgage Insurance
- Homeowners Insurance
- Funding of escrow/impound accounts
- Discount points paid, used to purchase a lower rate
Borrowers should consider that appraisers and escrow companies and notaries don’t actually work for free. Someone is paying them for their services. How? Typically, in one of two ways:
1. The third parties (such as title or escrow companies and appraisers) are owned by or affiliated with the lender, so the fees are built into the cost of doing business. This is reflected in the rates they offer you.
2. The third party companies are paid by the lender or broker. When a lender or broker charges a higher rate, they get extra compensation. This compensation is used to pay these third party fees, without directly charging them to you as closing costs. For many people, this can be an excellent option, because it’s valuable to not have to come up with the extra money at closing. Just make sure to weigh this option against the long term costs of a paying higher interest rate, which makes your monthly payment higher.
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Higher Conforming Loan Limits Mean Better Rates
By Angela Capodanno | May 6, 2008
There are two types of conventional loans, “conforming” and “non-conforming.” Conforming loans refer to mortgages up to $417,000. Non-conforming loans are larger than that, and are therefore also known as “jumbo” loans.
The benefit of a conforming loan is usually a much better rate. For example, today’s conforming 30 year fixed rate is around 5.75% compared to as high as 8.125% for a “jumbo” loan. Big difference!
For the rest of 2008, many counties are enjoying a higher temporary conforming loan limit. There are special conforming rates for those loans between $417,000 and the new limits. Today’s 30 year fixed rate for these types of loans is approximately 6.25%. That’s a whole lot better than 8.125%! To take advantage of this temporary increase in conforming loan sizes, your purchase or refinance must close by December 31, 2008.
Conforming loan limits have increased up to $729,750 for counties like Los Angeles, Orange, and San Francisco. My friends in Hawaii are enjoying loan limits all the way up to $793,750. Aloha!
Search for your county’s limit in the national list here: Be sure to choose “Fannie/Freddie” from the “Limit type” list.
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100% Financing
By Angela Capodanno | May 2, 2008
Does 100% financing still exist? Can I still buy a home with no money down? Tricky questions. The short answer is “no.” Although there is a way to make it feel like you didn’t put any money down.
Most lenders’ programs allow you a maximum of 95% LTV, with some allowing 97%. Some lenders’ guidelines will allow 100% maximum CLTV (combined loan to value.) This means that they may only give you 95 or 97 percent of the money you need as your first mortgage, but they will allow you to get another loan for the last 3 to 5 percent from another institution, or sometimes from the seller. In this market, the seller is usually the only option since guidelines for second loans are currently even stricter than guidelines for first mortgages.
Here’s the problem, why 100% financing doesn’t really exist: Deep in the guidelines to a loan, I’ll find a problem that won’t allow you to reach 100%. The guide may say “100% CLTV allowed” but it won’t let you get there with any available product. This is done just to make life more complicated for your loan broker. It keeps us looking in the haystack, but I swear the needle doesn’t exist!
One of the biggest obstacles to 100% financing is a “declining markets policy” or “soft market policy.” There’s currently a list of counties that require a reduction in maximum financing. Here’s the whole list, for all 50 states: Soft Markets List. In California, more than 85% of the counties are on that list, and require a 5% reduction to the maximum you can finance. That means an increase to your down payment. Some lenders are allowing a way around this policy, by waiving the 5% increase requirement if it’s your primary residence, and you meet certain other requirements. So 5% down may still be all you need.
Make it feel like a 100% loan: FHA loans allow up to 97% financing. This is a little bit better than the 5% usually required for other loans. Down payment assistance programs are available to contribute the remaining 3%, so this feels like 100% financing to the buyer, since they didn’t have to come up with any money as a down payment. These programs are tough but not impossible to find in today’s market.
Is it becoming obvious why you need a good mortgage broker to help you through this confusing mess? Instead of you making a zillion phone calls to different banks and having 50 credit inquiries, a loan broker can take your application once, and quickly find the best option for your unique situation. We have multiple lenders to work with, and are most familiar with the different guidelines, to place your loan with a lender that most closely meets your needs.
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As Good as it Gets?
By Angela Capodanno | May 1, 2008
The bond market followed my predicitions yesterday, with the rate cut actually improving things slightly. The cost of your mortgage rate improved about .5% yesterday. Today, it’s been an up and down ride influenced by other factors, but overall, we are about even with yesterday’s gains.
The general concensus is that the Feds have stopped cutting rates, or at least paused for awhile. This may be as good as it gets. Mortgage rates will have to ride on other influences for the coming weeks such as Personal Consumption Expenditures and Jobless Claims.
In the coming days, I’ll be discussing a few of the many other things that cause mortgage rates to go up and down on a daily basis. I wonder what you think? Do you think it’s a good idea to get off the fence and refinance now? What are your concerns and ideas moving forward? How may I help make your decisions clearer?
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Federal Reserve’s Effect on Mortgage Rates
By Angela Capodanno | April 30, 2008
The Federal Reserve meeting today at 2:15pm EST is expected to produce a cut of .25% to the Federal Funds Rate. As you may have noticed with the most recent cycle of cuts, this does not always translate into mortgage rates going down. Prior to today’s meeting, the Feds already cut the Federal Funds Rate by 3% since September 2007. Prime rate dropped from 8.25% to 5.25%, so many people with a home equity line of credit or other loans tied to prime have benefitted from the cut. But for traditional mortgages, this cut has not translated into rates decreasing much at all. Initially, after most of the meetings, rates actually increased dramatically.
For example, the Feds cut the rate by .5% on September 18, 2007. The cost of your mortgage rate increased by 1.4% over the next two days. The worst of it came with the most recent cut of .75% on March 18, 2008. The cost of your mortgage rate increased by 2.14% over the next three weeks. What do I mean by “the cost of your mortgage rate?” Mortgage rates didn’t increase by 2.14%, but it would cost you 2.14% of the loan amount to purchase the same rate than it would have 3 weeks ago. Let me know if that concept is unclear.
I know this doesn’t make logical sense at first, but we must understand that concerns over inflation are an enemy to the bond market, and it’s the bond market (not the Federal Funds Rate) that controls traditional mortgage rates. Any time the Feds cut rates, it’s more likely to cause inflation concerns. So the investors think, “Oh no! Inflation risks are higher, let’s get out of here!” Their mass exodus causes bond prices to go down, which causes mortgage rates to go up.
If you can call concern over inflation a good thing, the Feds are expected to direct comments at this cycle of rate cuts coming to an end soon. Those comments should cause the bond market to react more positively to today’s rate cut.
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Let’s Talk Value: An Explanation of LTV
By Angela Capodanno | April 28, 2008
In the mortgage business, we use many crazy abbreviations and acronyms. FHA, DTI, SFR… But today, we’re going to talk about LTV. LTV stands for Loan To Value, and is always expressed as a percentage. Stick with me, it’s just a short math problem. I promise I won’t do those often! For our example, let’s say you are purchasing a home for $250,000. You are using $50,000 as a down payment, so you will need a loan for $200,000. Follow me so far? Now use the formula:
LTV = Loan Amount ÷ Home’s Value
LTV = $200,000 ÷ $250,000
LTV = .80 or 80%
The $200,000 loan is 80% of the $250,000 home’s value. That’s it! That’s 80% LTV.
When you purchase a home, the lender looks at two different values: the appraisal value and the purchase price, which are sometimes the same but often different. The lender will use the lower of these two values in their calculations. In our example, if the home appraised for $260,000 you got a great deal, but still only an 80% loan, since the lender will still use $250,000 as the lower of the appraised value or purchase price.
I must be crazy to have one of my first entries be a math lesson. Please forgive me, but I intend to build upon my previous articles, and we can’t talk confidently about maximum loan amounts until this concept is understood.
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What’s this blog about?
By Angela Capodanno | April 27, 2008
Greetings Everyone!
I’ve decided to remove my typical mortgage website, and replace it with a more informative place for people to learn about real estate loans. So, welcome to my blog! My mission is to provide interesting and easy to understand articles about topics that are often misunderstood. Things like, “I thought the Feds have been cutting rates. Why didn’t mortgage rates go down so much?” Or, “Can I still get 100% financing?” As a Loan Officer and Branch Manager, my goal is to help my clients understand exactly what they are getting, and provide them with the right information to make informed choices for their future. Too many people come to my office trying to get out of a bad loan they didn’t understand. This motivates me to help change the perception of Loan Officers as evil, money grubbing monsters who are out to get you! I’ve built my business based solely on referrals, because I provide excellent rates, excellent customer service and a quick, easy process that delivers what it promises.
Picket Fences Home Loans is a branch office of a mortgage brokerage based in California. We offer real estate loans of all shapes and sizes for our California clients. We also do loans in all 50 states, including money for purchases, refinances, home equity, commercial loans, reverse mortgages and FHA/VA. Most of our local clients are first time home buyers, but I also assist many people wishing to buy a vacation home or an investment property. You might say we do it all!
I welcome you to join the conversation, and hope you will become a subscriber. I look forward to sharing information in a market that is rapidly changing. Let me know if there’s a specific topic you’d like me to cover.
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