Monday, December 28, 2020
Wednesday, December 23, 2020
Question: How does refinancing save homeowners money?
There are two categories of refinancing, "rate-and-term" and "cash-out." Both can save you money.
The first type, rate-and-term, replaces your existing loan with one that has a better rate and/or terms. You might replace an ARM or balloon loan with a fixed-rate loan, for example. Or you may decide to lower your rate AND shorten your term. Some borrowers have been able to refinance from a 30-year loan into a 15 or 20-year loan, reducing the term, without appreciably raising their payments.
A borrower does not receive any significant amount of cash in a rate-and-term refinance; lenders generally consider that any cash proceeds above $2,000 pushes the loan into a cash-out category.
There are always certain costs involved in any mortgage transaction; there will always be fees for title, escrow, underwriting and document preparation, for example. Borrowers can add these fees to their new loan so as to avoid having to pay them in cash. Financing these items is not considered cash-out.
When you are deciding whether to do a rate-and-term refinance, you should evaluate it in two primary ways: first, how long will it take to recover the cost of doing the loan? For example, if the closing costs amount to $3,000 and the reduction in rate gives a saving of $1,500 per year in the first year, it will take approximately two years to "break even." For most people, this time frame is more than satisfactory, but you should make your own decision. The second criterion is net savings over some time period, say five years, ten years or more.
Homeowners with adjustable rate mortgages (ARMs) may decide to refinance into a fixed rate loan, even though their rate may initially be higher, they might feel more secure knowing that their rate will never change. This is more of a defensive strategy to guard against the possibility of a higher rate in the future, but it may not "save money."
Hope this is useful.
Friday, December 18, 2020
Wednesday, September 30, 2020
I take "realistic" to mean whatever makes sense for a buyer. There are some who believe that 20% is a "realistic" minimum down payment because it avoids mortgage insurance. Lenders view borrowers who make a smaller down payment as presenting more risk. Because of this, lenders require mortgage insurance to manage their risk. That insurance costs the borrower money.
If a buyer has enough money for a 20% down payment and closing costs and has something left over for cash reserves, 20% is fine. I say that with one caveat: if you carry any consumer debt with rates higher than that of a mortgage, it is FAR better to pay those more expensive items off with available cash than to put it into a home down payment.
If a buyer doesn't quite have enough cash for a 20% down payment plus closing costs, waiting to save up the money can be very expensive. First, home values are increasing in most areas of the country today. This means that if there is an appreciation rate of 4%, the $300,000 home you have your eye on today will cost $312,000 a year from today. There is also the matter of rising interest rates.
If you have the ability to buy today regardless of the amount of cash you have—as little as 3% plus closing costs can get you into a home—buying now is a good idea. Yes, there will be mortgage insurance (MI), but that is temporary; once you can demonstrate to the lender that your loan balance is 80% of the home's market value or less, if you have an FHA loan you will need to refinance to remove your mortgage insurance.. but generally once you have 20% equity you can get your MI removed.
I hope this is useful. Call me if you want to get pre-approved and see how much you qualify for, then you just need to find a home.
Thursday, September 3, 2020
This is especially important when we are doing a "rapid rescore" or "credit bureau update." These both mean the same thing: using documentation acceptable to the credit bureaus, we can bypass the normal monthly reporting cycle for creditors. If we are paying down revolving debt, for example (credit cards), we will get a current statement from the borrower reflecting the lower balance. The credit report vendor will submit that document to the bureaus and get a new FICO score within about five days based on the lower balance. FICO scores begin to suffer when credit card balances exceed about 30% -50% of the credit limit. The credit report vendors charge a fee for the rescore service, and since we are only looking improve the mid score, only one or two bureaus need to be updated. This saves the borrower a couple of hundred dollars. I also have tools available that help to analyse your accounts and simulate a what if situation, meaning if I pay down this or that account how will it effect my credit scores.
If you have questions about our credit, reach out. I'm here to help.
Friday, August 7, 2020
Sometimes it’s not the big real estate news about trends and statistics that send us falling onto our backsides — it’s the lesser-known facts that make us smile, make us think and realize the world is a crazy-messy place.
Tuesday, July 28, 2020
Thursday, July 23, 2020
Monday, July 13, 2020
Thursday, July 9, 2020
It's important to know this as a consumer so that you realize that there isn't a huge spread in rates between one lender and the next. You should be looking for different criteria for choosing a lender to purchase or refinance a home.
You asked about mortgage brokers, but it might be a good idea at this point to talk about some terminology. A mortgage broker is a licensed person who acts as a go-between for lenders and consumers. The broker will typically receive a fee from the lender for those services. It does not usually cost more to use the services of a mortgage broker.
There are also mortgage bankers. Although you might think a "banker" is someone sitting behind a fancy desk in your local Too Big To Fail bank, the term is actually broader than that. A mortgage banker is someone who originates and funds mortgages in the name of his or her company. They will then sell the funded loan to the investor for a small profit. It does not cost more to use the services of a mortgage banker or a commercial bank when you are seeking a mortgage.
You might ask what the difference is between a "banker" and a "broker." Both do essentially the same job, but under today's regulations, there are minor differences between the two types of loan originators. A broker is considered the "originator" under the new regulations. A banker is seen as a "creditor." The disclosure documentation is very slightly different between the two, but in most cases, there are functionally the same. A banker, however, may have a bit more flexibility when it comes to getting your loan funded.
Let's consider that "broker" and "banker" are essentially interchangeable terms. Many people who used to be brokers are now bankers. Some don't even change the name of their company or their location.
I'd suggest that a better way to ask your question might be to ask, "Am I better off going to my neighborhood Too Big To Fail bank or finding an independent lender (broker or banker)?" Here is what you should look for when you look for a mortgage.
First, you should be aware that getting a mortgage today involves more moving parts than previously. This means that having a loan officer to guide your application through the process is very important. It doesn't matter whether your loan officer is a banker or broker; what matters is that you have a point of contact to answer questions and let you know how the process is going.
A good loan officer will also help you as a trusted advisor; they should be able to let you know if there are ways where you might tweak your credit score so as to get better pricing on your loan. For example, raising a credit score from 735 to 740 could save $1,000 on a $400,000 loan. Accomplishing that could be as simple as reducing the balance on a single credit card.
Your loan officer should also have a good feel for the performance of the market. Mortgage rates change every day, based on the price of a type of bond called a Mortgage Backed Security (MBS). The price of the MBS changes during the day according to market activity. It directly affects the rates for mortgages. To give you an idea, if the price of the MBS goes up from one day to the next by .25% (that would be $.025 per $100 of bond value), the cost of a mortgage will improve by .25%. That means that a $400,000 mortgage would be $1,000 less expensive.
This doesn't mean that the cost of your loan is constantly fluctuating. There will come a time in the mortgage process when you have to "lock" the rate. This means that the lender is now committed to fund the loan at an agreed price and terms, regardless of what happens in the market. If your loan officer believes, from being aware of the market activity that rates might improve over the near term, he or she may advise you not to lock right away. Conversely, your loan officer may believe that rates may increase soon based on market activity and would encourage you to lock early, thus protecting from rising rates. No one is right all the time, but you're far better off dealing with a lender who understands the mortgage markets.
To answer your question—FINALLY—the answer to your question is no…but regardless of whether you go to a Too Big To Fail bank or an independent lender (broker or banker), your interests are best served by finding someone whom you can trust as a resource and trusted advisor.
I hope this is helpful. Good luck!