Wow, has 2015 been a wild mortgage ride or what? We have seen huge property value increases, record low mortgage rates, FHA MI reduction program, HARP, TRID, QM and reasonable regulation from the CFPB, imagine that! I know all of this banker talk can get confusing as what is TRID, QM or CFPB? Let’s slow things down a bit and look ahead to the coming 2016 year and how real estate will impact the economy.
We all remember the mortgage meltdown fears of 2009? We heard terms like Alt-A, Stated and Sub-Prime all were bad. Well truth be told all of these programs did work and would still work if the original program guidelines were followed. For example, how does a person with a part-time job allowed to purchase a home with no money down with a $400,000 mortgage? This was done with 100% financing and the stated income program. The program was intended for people that are self-employed and only take from their business the amount of money needed to live. This allows for a business owner to invest in their business to help it grow and not penalize them for mortgage qualification in terms of income. These borrowers would still have to have assets and credit scores higher than full doc borrowers. This became an issue when the program was allowed to be opened up to everyone business owner or not. If you have a strong credit score you are good to go. Brings back memories of my parents saying cough, congrats, you are in.
The industry is moving toward helping people getting back into their dream homes. So how is this going to work? The primary mortgage options will be the Alt-A or NON-QM programs. These programs will have a little higher mortgage rates but will offer people one day removed from BK or Foreclosure the chance to obtain a new mortgage. Yes you do have to qualify for the program and it is paperwork heavy. These programs, with most Lenders, offer rates are .5% to 2% higher than the preferred Fannie Mae programs that we seen advertised everywhere. The more resent the negative event the higher your rate will be. The Fannie Mae programs are very good but life does get in the way which makes us choice a different path than some people.
Most of the bank Loan Officers/Mortgage Bankers that I have spoken with say their companies will not be offering these programs. Your best option will be to speak with a Direct Mortgage Lender or a Mortgage Broker as they can offer multiple options vs a single option as a bank LO. To find these companies I would do a google search for a direct lender or mortgage broker in my local area. This way you are speaking with a person that understands, in detail, how to address a mortgage on a property in the area you want to purchase or refinance. Many times the larger companies become factories and just push paper with no idea of the local market of the subject property. It is in your best interest to be sure you know a little bit about whom you are speaking with for your next mortgage.
If anyone would like more information on these mortgage programs of other programs please let me know.
So what is the going on with the real estate market? Do you find yourself asking should I buy or should I rent? The easy thing to do is to do nothing but that is not in your best interest. With the real estate market in Southern California it is often difficult to determine which direction it is going to move. The best way to determine if you are in a position to purchase is to look at your monthly rent payment vs a monthly mortgage payment. Keep in mind that you have a huge tax write-off with a home mortgage. In most cases your monthly savings is more than you think even without the tax savings factored in.
You can find real time mortgage information online with many companies that all want you to call them. Personally I do not like talking to sales people so it is important to find a true mortgage professional and not a mortgage sales person. Here are a few ways to know if you are speaking with a true mortgage professional, in my opinion. First make sure they work for a solid company, check them out with the BBB or other such company. Second make sure the mortgage professional you are speaking with has both a BRE and MNLS license. No one person will know every mortgage program but if they do not have both licenses then there is a high probability that this person can only offer limited programs. You want the best program for your personal needs and not the one size fits all program.
There are many mortgage companies that post their rates online but it is important that you look for a company that post real time rates as the market moves and rates adjust quickly. This is why a broker is often your best option for a mortgage as they see all investors rates in a single screen.
For an example of real time mortgage rates click here.
I am a little off topic as we primarily speak about mortgage options here at the HB Mortgage Oracle but this is exciting news for those in the business. Orangetee Realty will be opening their first Orange County office in the City of Costa Mesa in the Metro Point Business Center. Orangetree is set to begin operations in August of 2014. Orangetree Realty has a proven track record of getting their listings sold for listing price or better. For additional information on Orangetree Realty you can visit them at http://www.facebook.com/pages/Orange-Tree-Realty or http://www.otreehomes.com.
With all of the mortgage options available to home buyers today what is the value of prequalifying for a home mortgage? Simply put it shows that you are a qualified buyer. What is important, is that you obtain an actual fully underwritten approval and not one of those five minute computer generated online preapprovals. An actual fully underwritten approval indicates that all of your documentation has been reviewed and you are good to go. So what is the process? MN Capital has a simple breakdown on their website, click here to view. The process is a bit different than in years past and I have outlined the process today in earlier postings.
Now that you have your preapproval and you begin making stronger purchase offers than a buyer that is not prequalied. Do not get discouraged if you encounter properties with agents that want you to get prequalified with their Lender before they will accept your offer. Frankly this is a complete waste of time and can, in some cases, hurt your current loan approval as multiple credit inquires will bring down your credit score. A fully underwritten approval should eliminate this requirement but some listing agents will require this step. Sadly, in most cases, the listing or sellers agent is trying to steer you, the buyer, to a loan officer that will offer some sort of incentive to the listing agent for sending you to them or aka kickback. I have been told myself from several agents if I send them a little something-something then they will send me their buyers. Needless to say I will not work with these agents.
Home builders also get in on this act. They disguise there actions with phrases with “Builders Preferred Lender” and offer buyer incentives for using the Builders Lender. Do not kid yourself as if you are getting an incentive on the purchase then you are not getting a deal on the loan, you do not get something for nothing. Those of you that know me know that I do development financing and can help maximize any builder’s profits. There are many ways a builder can improve their bottom line without jamming any buyer by forcing them to use their “Preferred Lender” as, in most cases, the same sort of something-something is going on.
So what can you do about this? Well simply put you can get a fully underwriting preapproval before you even begin to look at homes. Both listing agents and builders will not mess around with running you, the buyer, through their systems, for lack of a better phrase, if they can smell a payday. A preapproval protects you and shows sellers that you are serious.
When it comes to your preapproval you should not have to pay for anything to obtain a fully underwritten preapproval. Work with reputable Mortgage Lenders and for the most part all companies in the business today will take your best interest. Those that do not are easy to spot as they will ask for upfront fees for rate locks, credit reports, application and so on. They will tell you that this money will be credited to your closing cost and/or appraisal. This is a trick to get you, the borrower, invested into the deal so you are less likely to shop the rate afford. So you are considered to be aka “Off The Street” in terms of how your file is viewed. With that said do you think you will get the best deal available to you?
When mortgage shopping do not let your credit get ran until you have reduced your Mortgage Lenders to three or less, do not pay upfront fees and get your rate lock in writing. You will need to pay for your appraisal but not until after you receive your loan approval as this fee is not refundable. Following these step will point you in the right direction when dealing with the mortgage process.
By now most of us have seen the ads on your favorite web home page, 2% home mortgage rates, when banks compete you win, Historic low rates – Do not miss out and so on. I am in the business and I am so tired of seeing these ads on my home page. Just my opinion is the one with “When Banks Compete You Win” bothers me the most. The reason is when a marketing company runs and ad stating that when banks compete you win the marketing company should not be one of the companies competing. Again just my opinion but this is clearly a conflict of interest.
By now the average borrower clearly understands that the 2% interest rate is clearly a teaser rate. We all know or should know that this rate is nearly unobtainable. For those of you that want to believe let’s break this down. Yes you could get this rate but at what cost? Simply put are you willing to pay 2% of the interest rate up front? This rate can only be obtained with a buy down or aka points.
|2% vs 4% Mortgage Breakdown|
|Rate||2% – Adjustable||4% – Fixed|
|Points||4 Points||No Points|
|Loan Cost For Rate||$8,000||Zero|
|Loan Terms||30 Yr.||30 Yr.|
|Rate Adjustments||Rate adjusts after 3 yrs.||Fixed for life|
|Payment – P & I Only||$739.24||$954.83|
|Buy Down Cost Monthly||$222.22||Zero|
So let me ask you now, is the 2% rate in a borrowers best interest? Yes you can get an incredible low rate but is will actually cost you more than a fixed higher rate loan. The math does not lie.
Again just my opinion, with the above breakdown the only ad that is truly honest with us is the ad that rates are low. This is the ad that we chose to ignore as we see it all the time and have become numb to it. The truth behind this is rates themselves never change; it is the cost for a particular rate that changes. It is just easier for the average person to ask “what is the rate today” as the math behind the cost can be difficult.
As always if you are looking to obtain a new home mortgage for a lower rate, need some additional cash or purchasing a new home get more than one mortgage quote. Two to three will paint you a good picture as to your personal scenario. Your bank and your local broker are a good place to start. Also if either asks you for a penny upfront for anything thank them for their time and move on. Many Lenders both banks and brokers will ask for a deposit in an attempt to lock you in. The industry uses the phrase “take the deal off the street” which is not in a borrowers’ best interest. These deposits are requested for credit reports, rate locks, underwriting, appraisals or whatever other label a mortgage company comes up with. The only fair fee is the appraisal fee but not until after you have received your loan approval. If you have money already paid into a deal you are less likely to look at another mortgage company as you are fearful you will lose the money already paid. You have a go reason to be fearful as you have fallen into a trap.