Getting a Mortgage in 2016? Here’s What You Need to Know

As recently as two years ago, only 17 percent of all applications for a mortgage to buy a home were approved.[1]  Approval rates have improved greatly since then for two reasons.

First, borrowers are doing a much better job of getting their credit, debt, and documentation in order before they apply.  Second, lenders have slowly relaxed some of the standards they use to approve applications.

As you gear up to buy a house in 2016, here are a few things you should know about the mortgage industry.



More Easing of Credit Standards

Mortgage lenders expect to continue easing their standards in 2016, according to a fourth quarter survey of major lenders by Fannie Mae.[2]  The findings show that during the first quarter of the year, 16% of lenders expect to ease credit requirements for loans that conform to Fannie Mae’s and Freddie Mac’s underwriting standards and for government-backed loans like FHA and VA.

Meanwhile, the percentage expecting to tighten standards dropped to 2%.  However, for other loan types, such as conventional loans, fewer lenders said they would ease loans over the first quarter.

FHA and VA loans are already significantly easier to qualify for than conventional loans.  For example, the median FICO scores for purchase loans approved in December were 688 for FHA, 706 for VA and 754 for conventional—a huge difference.[3]  Based on the Fannie Mae survey, look for that difference to increase in the months ahead.

Rising interest rates

While standards slowly improve, interest rates are expected to slowly worsen for home buyers.  Most forecasts have rates ending the year between 4 and 5 percent on a 30-year fixed rate mortgage.

Ironically rates have actually fallen when most experts expected them to rise in the wake of the Federal Reserve’s decision in December to rates for the first time in nine years.  Though they will probably be higher a year from now than they are today, they will still be very low compared to historic rates.

Down Payments 

While easier lending standards and slowly rising rates don’t greatly increase the cost of buying a home, down payment requirements aren’t going to change much either.

The average down payment in the first quarter of last year was 14.8 percent of the purchase price, down from 15.5 percent a year ago to the lowest level since Q1 2012. However, the average down payment in dollars for 3.5 percent FHA purchase loans originated in the first quarter last year was $7,609 while the average down payment for conventional loans backed by Fannie Mae and Freddie Mac was $72,590.[4]

One of the reasons the average down payment declined last year was the popularity of low down payment loans.  Loans with 3 percent or lower down payments accounted for 27 percent of all purchase loans in the first quarter last year, up from 26 percent in the fourth quarter and also 26 percent a year ago to the highest share since Q2 2013. Low down payment loans accounted for 83 percent of FHA purchase loans originated in the first quarter, while 11 percent of conventional loans were low down payment loans.[5]

First-time buyers should check out the thousands of low or no down payment programs sponsored by state and local housing authorities.  Check out Down Payment Resource for more information.

Mortgage insurance in 2016

Fannie Mae and Freddie Mac both launched 3 percent down payment programs a year ago and these have been extended through 2016.  However, like FHA, they both require mortgage insurance, which adds to the monthly cost of homeownership.

To encourage first-time buyers, last year FHA announced a 50 percent reduction in the monthly mortgage insurance premium.  All three of these initiatives are being continued this year.  More good news: in the waning hours of 2015 Congress extended the deductibility of mortgage insurance payments; at least for 2016, you will be able to deduct your mortgage insurance premiums from your federal taxes, just like you mortgage interest.

This tax provision only has a one-year lifespan, but Congress has extended it for the past few years though there no guarantee it will continue in the future.


[1] Ellie Mae Origination Insights Report, January 2014

[2] http://fanniemae.com/portal/research-and-analysis/mortgage-lender-survey.html

[3] Ellie Mae Origination Insights Report, December 2015

[4] http://www.realtytrac.com/news/home-prices-and-sales/q1-2015-u-s-home-purchase-down-payment-report/

[5] Ibid

source: totalmortgage.com

Buying Your First Home in 2016? Start Now.

There are some very good reasons to buy a home in 2016. Mortgage interest rates are on the rise and leading economists predict that the longer you wait, the higher they will go, toping 4 percent by the fourth quarter. Home prices are also expected to continue their upward climb in the year to come, but at a slower pace than in 2015.

The State of the Real Estate Market

First-time homebuyers found the pickings to be slim for affordable starter homes in 2015, especially in hotter markers like Denver, Portland, Dallas, Seattle and much of California. Slim pickings in their price range kept thousands of potential buyers in rentals for another year. Will 2016 be any different?

New home construction is expected to improve considerably over last year as builders respond to rising prices. The will put the new-home market on track to reach 91 percent of its average norm by 2017, according to the National Association of Home Builders.[1] News homes are generally priced higher than first-timers can afford, but the new construction will still make a positive contribution to the inventory shortage.

More import is the outlook for existing homes. Supply of entry-level homes has been constricted by the unwillingness of current owners to sell and move up the housing ladder to a more expensive home, but that may change in 2016.

“Sales activity in 2016 will once again be primarily driven by the ongoing release of more pent-up sellers finally realizing their equity gains and using it towards the down payment on their next home,” says Lawrence Yun, chief economist for the National Association of Realtors. Yun predicts home sales will finish 2015 at a pace of 5.30 million and grow three percent next year to around 5.45 million.[2]

However, 2015 is ending with a question mark about the inventory outlook. Both NAR and Redfin reported that in October total homes for sale were down 4.5 percent from 2014[3] and NAR reported the inventor of unsold homes in October stood at a 4.8-month supply, below six months considered normal.[4]

When the spring season opens, one thing is certain. Inventories will be much larger than in the late fall, with fresh, new listings for sale. Again, the early birds will get the worms.

 How to Get Started

If you’re serious about becoming a homeowner in 2016, you need to be getting ready now. Here’s a checklist to get you started.

Get your credit in order. If you haven’t been managing your credit before, it’s too late to do much about big problems like bankruptcies or tax liens.  You should , however, still order reports from three top credit reporting agencies (Experian, Transunion and Equifax) to look for any errors or questionable calls that you might challenge. Here’s a list of credit do’s and don’ts:

Do:

    Pay all your bills on time
    Pay down as much debt as you can, especially smaller amounts on high interest cards. That will reduce your minimum monthly payments.
    Consolidate high interest credit card debt with a lower interest card or personal loan. Again, you will reduce your minimum payments, which lenders total to determine your debt-to-income ratio.

Don’t:

    Make any large purchases on credit.
    Open any new credit card or store credit accounts. Too much credit can be a negative and every time you apply for new credit, your rating takes a small hit.
    Cancel your oldest credit card. Lenders like to see a long history of good credit.

Get a down payment strategy. To buy a home, you will need cash for a down payment and closing costs, which roughly will come to about 3.5 percent of the total cost of your home. Of course, there are options to consider.

You don’t need 20 percent down for many mortgage options; the average down payment in 2014 was only 10 percent and among first-time buyers, only 6 percent.[5] That’s because most first-time buyers are using FHA financing these days to take advantage of its 3.5 percent down payment requirement. Look into your down payment options, including:


Down payment assistance with a low or no-down payment loan from a state or local housing authority. Feel free to contact us for information if you’re looking to buy a home in Connecticut—we’re kind of experts.

You can’t take out a loan for your down payment, but you can receive assistance from parents or relatives.

Both Fannie Mae and Freddie Mae initiated new loan down payment programs early in 2015. Fannie’s program is limited to qualified first-time buyers and requires a down payment as low as three percent and requires private mortgage insurance or other risk sharing.[6] Freddie Mac’s program also requires only 3 percent down but first-time buyers must complete a home education course, like Freddie Mac’s online CreditSmart course. Minimum credit scores for either program is 620.

You can qualify for a VA loan, which has no down payment requirement if you have 90 consecutive days of active duty service during war time, 181 consecutive days of service during peacetime, or 6 years of service in the Reserves or National Guard. You can also qualify if you are the spouse of a veteran who died in the line of duty, the spouse of a service member who is a prisoner of war or missing in action, or the surviving spouse of a disabled veteran whose disability may or may not have been the cause of death.
Get your documentation in order. Having your paperwork in order when you apply for a loan speeds the approval process along.

If you are emplolyed full-time, let your human resources office know that you plan to apply for a mortgage so that they will be ready to get you the right paperwork.

If you are self-employed, part-tine or seasonally employed or rely on income aside from full-time employment such as alimony, child support, royalties, sales commissions, dividends, etc. you will need documentation and at least three years of tax returns.

source: totalmortgage.com

6 Ways to Fight Rising Interest Rates

Mortgage interest rates have been hovering between 3.5 and 4 percent for the past 18 months, refusing to rise as quickly as many forecasters had predicted. That means many have been able to lock down favorable rates without the threat of a drastic increase hanging over their heads.

However, later this year, the Federal Reserve is expected to raise its benchmark rate, which has held near zero since December 2008. This can happen as soon as its next policy meeting in mid-September or, more likely, in December.

The long awaited increase is a good sign for the economy as a whole; it’s continuing to expand at a moderate pace, driving solid job gains and declining unemployment. For real estate markets, though, the news isn’t so great.


Likely, the rate hike will be enough to drive rates on 30-year fixed mortgages to well over 4 percent and perhaps closer to 5. With this hike looming, now is a good time for buyers and refinancers to consider their options. These include:

1. Adjustable Rate Mortgages (ARMs). ARMs are a great way to keep rising rates from busting your budget, at least for the first five years of the loan, when you pay little or no interest. When it resets, you can take sell or take your chances on a refi if you have enough equity. ARMs are a good idea if you don’t plan to own the house a long time.

2. Fix up Your FICO. When they get loan terms from their lender, many buyers wonder what happed to the super low teaser rates their lender promised in its advertisements. Those “bait” rates are real, but they’re just not available to everyone—just those with fantastic FICOs and moderate-sized loans.

Lower FICO scores translate into higher risk for lenders and their investors, so they raise rates to compensate for the risk. By working hard to improve your credit score—reviewing your history, paying bills on time, avoiding taking too much credit, keeping credit card balances down—you can raise your FICO and lower the interest rate on your mortgage.

3. Increase Your Down Payment. By increasing your down payment, you fight rising rates two ways. First, you reduce the amount you will have to borrow and, in turn, the amount of interest you will have to pay. With a smaller loan you may also get a lower interest rate; smaller loans reduce lenders’ risk and a lower rate can result.

4. Lock Your Best Rate. Rates change every day and they vary slightly by location. You can improve your chances of getting the best possible rate during the time that passes between your loan approval and closing by asking your lender for the right lock your rate, usually within a 30 day period. Follow mortgage rates as closely as you can and time your lock to coincide with a low point.

5. Buy a Cheaper House. If the house costs less, your loan is going to be smaller. With a less expensive house, you may also be able to put more down, reducing your principal even more. With a smaller loan, you should also realize a lower rate.

6. Shop for Rates. Lenders compete aggressively by the rates they offer. Like any business, some will offer more favorable rates than others to bring in more business. Also, lenders with access to capital at lower cost can afford to charge lower rates. Shop around for the best rates by sharing your FICO score with the lender so that they don’t quote you a “bait” rate you will never see.

source: totalmortgage.com

Rising Mortgage Rates: Three Things To Keep an Eye On

Thanks to historically low mortgage interest rates, many have been able to live the American dream and purchase a home. Mid-September figures for the 30-year fix-rate mortgage had a national average of 4.28 percent but we all know good things come to an end.

Just as 2015 comes around the corner, many real estate professionals and economists believe this will also bring rising mortgage rates.

According to Stan Humphries, the chief economist for Zillow, the 30-year rate could reach the five percent mark by the middle of next year as the Federal Reserve discontinues their mortgage-backed security purchases.

Should rates go north, prospective homeowners may see their home-buying opportunities change. But it doesn’t have to be all doom and gloom. Here are three things for consumers to keep their eyes on should mortgage rates rise.

A cut in buying power

For most of this year, rates have sat between four to five percent, but are poised to rise around .75 percent in 2015. Borrowers will see this cut into their buying power—perhaps more than they realize.

This increase could produce higher monthly mortgage payments next year by $700-plus in the more expensive U.S. places.

In a comparison by Zillow that reviewed 35 metropolitan areas for a one percent increase in 30-year mortgages (from 4.1 percent to 5.1 percent), with rising increases for home values during the next year, monthly payments could increase for the St. Louis area to $65 per month and $200 per month for the New York metropolitan area. Over in Silicon Valley/San Jose area, there’s a possible $710 jump.

Decreased inventory

Along with spending more per month, consumers will have fewer homes to choose from when they’re ready to buy—especially hard hit will be those first-time homeowners seeking either mid- or lower-priced dwellings.

Real estate broker Redfin has July data supporting this with July property figures. They saw homes under the $375,000 range hard hit from 2011 figures as there were 28 percent less of homes in this price range and for a sticker price $130,000 or less, 50 percent fewer.

But for those seeking homes greater than a $375,000, this inventory rose 16 percent as compared to 2011.

However, when reviewing August numbers, the down trend continued. “Affordable inventory” fell by 9 percent as compared to July’s numbers.

Less competition

Sure, the two aforementioned points are concerning, but here’s one silver lining for consumers: a less competitive housing market. The National Association of Realtors recently reported in August, investors and all-cash purchase dramatically fell.

For prospective homeowners, this is a good thing according to Nela Richardson, Redfin’s chief economist. She said, “Many markets are not going to see the same multiple-bid environment that we saw even earlier this year. It will be easier to win the home of your dreams than it was a few months ago.”

Furthermore, for those first-time buyers, she believes they can take a deep breath as over the next few months as rates will remain low and they can take their time looking around.

While mortgage rates will likely change in the next year, prospective homeowners still have time to take advantage of these historic lows now. But similar to any major investment, it will be important to look at the current market, comparison shop and make an informed decision.

source: totalmortgage.com

Planning for Retirement? Consider Pre-paying Your Mortgage

As you look ahead to retirement, you face a number of decisions for your changing financial future. This includes deciding whether to move to a new city for your retirement years, changing your lifestyle to live on your retirement income and potentially pre-paying your mortgage.

Some retirees may have already paid off their mortgage years ago, but others have continued with this monthly expense. There are benefits to pre-paying mortgages and here are a few reasons why this is worth exploring.

An individual decision

First, the decision to pre-pay your mortgage is an individual decision with numerous factors affecting this.

Jeff Warnkin, a financial adviser at, JL Smith Group in Avon, Ohio, says even though there’s no right answer for a retiree, he prefers his clients to pay off their mortgage.

Why? He said, “I’m in favor of paying off the mortgage, as long as it doesn’t come at the expense of funding your 401(k), Roth IRA and things of that nature.”

Still, he added, it’s not only an individual decision but also one that should be from a bigger plan. Warnkin said, “Ideally, I’d like to see the last payment coincide with the date you retire. A fair number, 50 percent of our retirees, achieve that. But, as life unfolds, sometimes people have to take a home equity line, or help a child with a down payment on a house, medical issues, and sometimes they arrive at or near retirement with a mortgage.”

For some retirees, paying off their mortgage just prior to entering retirement may be the best option for them.

Emily Sanders, managing director at United Capital in Atlanta, said, “In general, if client has the liquidity to pay off the mortgage – a lump sum from their job, retirement funds that are available but not heavily taxed – we would encourage them that to pay off a mortgage to enter retirement as close to debt free as possible.”

Realize a good return

Similar to paying off any debt, by cutting down your mortgage payment, you’ll receive a guaranteed return. On the high end, the return will be your mortgage’s rate (if you don’t itemize your mortgage and don’t deduct mortgage interest on your tax return), such as 5 percent to 7 percent.

On the other hand, if you deduct mortgage interest, then the rate of return will vary from the itemized deductions exceeding the standard deduction. The amount of interest you pay will decline every year because the principal portion of mortgage payments increases each year.

Enjoy tax savings

Along with receiving a return, you’ll also undergo fewer expenses in retirement. This means less income will be needed. And this will also bring fewer taxes thanks to U.S. taxation system as well as fewer taxes on your Social Security benefits.

In essence, you’re cutting your retirement expenses in many different ways.

Review opportunity costs

While the aforementioned reasons all sound promising as you consider whether to pre pay your mortgage, one cost you can’t ignore is opportunity costs.

How will this affect your savings?

Let’s say that instead of paying off your mortgage, you made an investment that would return more than your mortgage rate. As for your retirement account, by adding to it, it offers tax advantages that would go away if that money went to your mortgage.

Regardless, the end goal for most retirees is live financially independent. And when you’re paying off debt, this ideal doesn’t happen. In fact, according to Securian Financial Group, just 29 percent of retirees are debt-free.

With a mortgage, the lower the interest rate, the easier it is to manage debt. And because many mortgage rates are low, you make take your time paying it off; however, if you’d like to enjoy your retirement years, after you’ve spent some money from your retirement accounts, then paying off the mortgage could be a good strategy.

This could also cause you to review this decision not only as a financial one but an emotion one.

John Gajkowski, co-founder of Money Managers Financial Group in Chicago, said when he discusses paying off the mortgage with clients, he addresses this combined decision. He said of his clients, “Some people, even though they can afford to pay a mortgage, emotionally they want to get out from underneath it. They want to be free and clear. We have to figure out what is more important, emotional or financial.”

Pre-paying your mortgage is an important decision and a personal one. Ask yourself some of the aforementioned questions. If you still have financial concerns, meet with a financial professional who can help answer your questions and move you toward a retirement that doesn’t include paying a mortgage.

source: totalmortgage.com

Why Close a Mortgage Before the End of the Year?

With End-Of-Yearthe holidays inching closer and the New Year not far behind, you may be thinking it’s too late to close on a new loan by January 1st—or that it’s not worth the hassle during an already hectic time of the year.




There’s still time. Get pre-approved by the end of November, and we’ll close your loan before January 1^st with as little stress as possible, thanks to our 30 Day Purchase Guarantee.* Plus, there are some upsides to getting your loan closed and your new home bought before the year ends:



Tax benefits. This is the big one, the reason most will advise you to close quickly, if you can. Buying a new home entitles you to tax deductions that can save you tons. Here’s a quick rundown: 

• Closing cost deductions let you claim the points or origination fees on your new loan, but it only applies for the year you closed the loan. Close now, or wait a whole year.
• Mortgage deductions allow you to deduct your mortgage interest. This works out well for newer home owners, since early mortgage payments tend to be mostly interest anyway.
• Property taxes are deductible, too. That means that from this point forward, you will be able to claim property taxes on your income tax.

Don’t forget the non-financial positives to closing soon:

Get into your home before the holidays. Okay, so depending on the timing, “getting in” may not be quite the same as being completely unpacked and settled in, but once the keys are in your hand and the boxes have been delivered, the pressure’s officially off. Unpack at your own pace and enjoy the holidays.

It’s only going to get colder. Winter doesn’t officially start until December 21^st, so if you live in a chillier part of the country, you may still have some time to get into your new house before the worst of winter hits and moving turns miserable.

A fresh start in a new home for the New Year. Sure, you could have your fresh start on January 17^th, or 28^th, or even in February, but it’s just not the same as waking up on January 1^st in a new home.

If you’re thinking about taking us up on our offer, take a look at our rates and consider giving us a call or filling out an online form. We’d love to hear from you.

*Terms and conditions apply.

source: totalmortgage.com

Three Unique Ways to Pay Your Mortgage

If you’re a homeowner, you know the importance of making regular monthly payments. This protects your credit score, and helps maintain a good relationship with your mortgage lender. However, if you start to experience payment problems, or if you want to pay off your mortgage sooner, options are available to you. The truth is, there are many creative, unique ways to pay your mortgage — and most ways are financially beneficial. 

1. Rent a room in your home as office space
Maybe you’re not comfortable with the idea of getting a roommate. However, if you have free space or an empty room on the property, consider renting this space as office space.

Some home-based business owners seek a separate office space for work, especially if they have young children at home and find that it’s too difficult to concentrate. They might not be able to afford space in an office building, but they may have resources to rent space in a converted garage, a finished basement or a detached room on your property that’s suitable for an office.

You can rent your extra space on a monthly basis, and then use funds to help cover your mortgage payment if you’re having difficulties. Since this money counts as rental income, set aside about 20 percent to 25 percent for income taxes.
 
2. Use a credit card to pay your mortgage

The idea of using a credit card to pay your mortgage may sound scary, but this method has its benefits. It’s an opportunity to accumulate credit card reward points faster.

If you have a credit card with a rewards program, then you probably know that you can earn miles or points for every dollar you spend. Once you’ve earned enough points, you can redeem these for flights, hotels, gift cards, merchandise, cash or statement credit. However, to benefit the most from a rewards program, you have to use your card often.

Some banks do not accept credit card payments, such as Bank of America. So, speak with your mortgage lender to see if this is an option. If you use a credit card to pay your mortgage, make sure you immediately pay off this charge. Don’t charge your mortgage and then carry the balance from month-to-month.

3. Pay half your mortgage every two weeks

You might be unable to afford a 15-year or a 20-year mortgage. Even so, if you’re adamant about paying off your home sooner, consider a bi-weekly payment schedule.

Speak with your lender to see if they’ll accept bi-weekly payments. If so, you’ll pay one half of your mortgage payment every two weeks. This is the equivalent of one extra mortgage payment a year — which may not appear to make a difference. However, one extra mortgage payment a year reduces your total interest charges and reduces your mortgage term by seven or eight years.

Bottom Line:
Getting creative with your mortgage is one of the fastest ways to eliminate the debt sooner. And if you’re having payment problems, creativity can help you drum up cash and keep your mortgage loan in good standing.

source: totalmortgage.com

3 Refinance Options You Should Always Avoid

Mortgage refinancing can be the logical choice for many homeowners. Whether it’s to reduce the interest rate, lower monthly payments or for any other reason, it can be a smart move. However, it’s important to be aware of some common refinancing schemes that can get you into trouble. They are almost always bad deals and should be avoided.

1) Refinance for Free
When refinancing, you will typically end up paying between 2 to 3 percent of the value of your home in fees. These covers things like the application fee, appraisal, title search and legal fees. This is the norm, so being offered a deal to refinance for free should be a red flag that something isn’t right. One trick that lenders will pull is offering “no cost” refinancing where the costs are transferred into something else like a higher interest rate.

Technically speaking, this would be no cost refinancing. But in reality, you end up getting hit with additional expenses later on. The bottom line is that refinancing comes with inherent costs. There’s really no way around it, so it’s best to stay away from lenders with unrealistic promises.

 2) No Closing Costs
The thought of not having to pay anything to close a deal can seem enticing, and unfortunately, many homeowners fall into this trap. With this tactic, lenders often lure unsuspecting homeowners into a bogus deal because they don’t understand the long-term implications. Like refinancing for free, the closing costs usually get converted into a higher interest rate. Although you pay less upfront, your monthly payments will be higher, and you inevitably end up paying significantly more over time.

According to RefiAdvisor, “the only time these loans are a good deal is if the interest rate increase is very slight, say .125 percent. However, there are not very many lenders willing to offer no closing costs loans at this interest rate. In almost every case you are better off paying the closing costs yourself in exchange for a better interest rate.”

3) Lower Interest Rate Promises

While you obviously want to find a low interest rate when refinancing, you should be wary of deals that look to good to be true. One trick that’s used by con artists is offering “special programs” or leaseback schemes with below average interest rates. Because there are government programs that help needy homeowners refinance for affordable rates, some scammers will pose as representatives of one of those programs and take advantage of people.

With leaseback schemes, a scammer may pretend to be a real estate investor who wants you to sign over the title of your home so a borrower with better credit can get a new loan at a reduced rate and then sell your home back to you. However, it’s unlikely that you’ll get your home back, and it can cause a host of problems. That’s why you always should be cautious when promised a ridiculously low interest rate.

To ensure the best deal, you should look around, compare your options and negotiate. It’s also wise to stick with a national lender or national bank to reduce your odds of getting scammed. If you have any questions or concerns about a lender, you should perform some research, read comments and see if they have accreditation with the Better Business Bureau.

source: totalmortgage.com

California's housing market finishes 2012 on a high note

California’s median home price struck a four-year high for a December, indicating housing will probably continue to mend in the new year.

The statewide median popped 21.5% from December 2011 to hit $299,000, real estate research firm DataQuick reported Wednesday. Last month’s gain adds to a housing recovery that began in earnest last year after foreclosures declined, housing inventory plummeted, mortgage interest rates hit record lows and demand from investors surged last year.




“Prices are in the midst of bouncing off bottom right now, and nobody really knows what the trajectory of this bounce will be beyond this point,” DataQuick president John Walsh said in a news release announcing Bay Area housing trends. “So far, supply has been a bottleneck, but as prices go up, more homes will be put up for sale.”

It was the highest level of the state’s median home price since August 2008. The median is the point at which half the homes in the state sold for more and half for less.

Home sales rose 6.1% from the prior month and were up 5.4% from December 2011 to total 39,760 newly built and previously owned houses and condominiums sold.

Helping prices along was a decline in the percentage of foreclosed homes sold. Out of all previously owned homes sold last month, only 15.5% were foreclosures, compared to 16.9% in November and 33.9% in December 2011.

Short sales, where a bank allows a homeowner to sell their home for less than the property is worth, made up an estimated 25.3% of existing homes sold last month. That was a drop from 26.1% the month prior and 25.5% in December 2011.

source: latimes.com

Refinancing the Mortgage With HARP

A few years back we refinanced our mortgage to get a lower interest rate.  At the time, we were absolutely thrilled to get a 4.875% mortgage.  I never thought I’d see rates that low.  The only drawback was that we’d stretch the loan back out to another 30 year term.  We decided to mitigate that by paying extra all year long.  We did that by signing up for the free biweekly payment program at our credit union and also added another $300 a month on top of that.  That got us back on track to pay our mortgage off much sooner than the 30 year term.

I recently started receiving offers in the mail to refinance our house because our mortgage was backed by Fannie Mae and was eligible to participate in the HARP program (if needed).  As soon as I opened each letter, I put it right in to the shredder though because I don’t trust mailings like that.  It wasn’t until I got a letter from my credit union saying that my loan was backed by Fannie Mae and I might be eligible for a lower interest rate that I really started thinking about it.  When I looked in to the current rates at my credit union, I was disappointed to see that they were significantly higher than other rates I’d seen.  Instead of going through the credit union, I remembered that I’d read about Costco aggressively offering mortgage services through a select group of banks and institutions so I gave them a try.  It turns out that Costco has, once again, squeezed many of the fees out of the process.  In order to work with Costco, banks had to agree to a $600 cap on loan costs for executive members and a $750 cap for regular members.  Normally most banks would charge a 1% loan origination fee so this saved us a nice chunk of money.  Because HARP is involved, I was also happy to hear that I didn’t have to pay for an appraisal.  This saved us another $400.  All in all, it was very cheap to go through the process.  It was also very painless.  All the interaction happened through email and they are going to come to my house to handle the signing of the documents.  The best part about all of this is that we got a 3.625% interest rate on the new mortgage.

While I’ve been really pleased with the whole process, I was kind of shocked at the amount of detail they wanted us to provide.  We both have credit scores over 800, flawless credit, no debt other than the mortgage, and have really good salaries.  Based on the amount of information we had to provide, you’d never believe we were a good credit risk.

In order to process the loan, here’s what we had to provide:

• 3 pay stubs for each of us
• 2010 tax return
• 2011 tax return
• Proof of insurance on primary home
• Proof of insurance on vacation home
• Latest bank statement
• Proof that home equity loan has a zero balance
• Homeowners Association Bill
• W2 for 2010 for each of us
• W2 for 2011 for each of us
• Settlement statement from last refinance a few years ago

Like I said, you’d think we had bad credit or something.  Things have definitely changed since the high flying days of 2008.  If they are doing this much due diligence with us, I’m sure there are a LOT of people that are out of luck when it comes to getting a mortgage.

Anyway, we are glad we’re doing it.  The 3.625% rate is unbelievable.  Between the rate and putting an extra $20,000 in cash to pay down the balance even further, we’re going to see our payment drop by $400 a month.  We’ll actually be paying more than that because we want to pay the house off much earlier than 30 years but it’s nice to know that if we ever lost our jobs or fell on hard times, we’d have a much lower mortgage payment to deal with.

source: everybodylovesyourmoney.com