Quicken Loan’s 1% Down Mortgage Program

It seems just about everyone is lowering mortgage down payment requirements to deal with rising home prices, this despite the near-record low mortgage rates still widely available.

You see, down payment is still the biggest hurdle to homeownership, and I suppose it was during the previous boom as well. That would explain why zero down mortgages were the norm back in 2006.

The major problem then was that you could also state your income, your assets, and not disclose your job, so long as you had a decent credit score. No skin in the game and no disclosure equals no good.

We’ve learned from those mistakes, I hope, and now underwriting is a lot more sound. Still, people want to buy homes, whether they’ve saved up a large down payment or not. And that would explain why Fannie and Freddie began offering 97% LTV mortgages.


Building off those programs are mortgages with grants that still give the homeowner a 3% down payment, but without the borrower actually having to come up with the three percent in funds.

Instead, many lenders are providing a 2% grant to homeowners and asking that they come up with the remaining one percent, which seems pretty fair.

The use of a grant is allowed under both Fannie’s HomeReady program and Freddie’s Home Possible Advantage, and some banks dole outs funds in accordance with the Community Reinvestment Act.


Quicken Loans 1% Down Payment Option

Interestingly, the largest non-bank mortgage lender in the country, Quicken Loans, quietly rolled out their 1% down payment option back in March, but there wasn’t a press release or any fanfare. There certainly wasn’t a Super Bowl commercial.

I don’t know why that is; I’m just here to tell you about the loan program in case you lack a down payment and are interested. If I had to guess, I’d say that it’s limited to certain types of buyers and thus a national rollout or major ad campaign might be misleading and/or a waste of money.

Anyway, let’s talk about Quicken’s 1% down loan program to see if you might qualify based on what I know about it.

First off, this program can only be used for the purchase of a home, no refinances are permitted. Quicken Loans provides a 2% grant and the borrower brings in the remaining 1% to make it a 97% LTV loan.

I’m not sure if the grant has to be paid back if the borrower sells or refis before a certain period of times passes. Inquire with Quicken about that.

Secondly, the property must be a one-unit owner-occupied property, which includes single-family homes and condos (and townhomes), but not co-ops.

When it comes to credit, the minimum FICO score required is 680, which is considered average (or perhaps a bit below average). So it’s pretty flexible in terms of creditworthiness.

Perhaps more importantly, you must make less than or equal to the median income for the county in which you’re purchasing the home. If the income limit is $75,000, you must earn that or less to qualify for the 1% down payment program.

Speaking of income, the maximum DTI ratio is 45%, which is standard.


Quicken’s 1% Down Might Not Require Any Funds from the Borrower

If there aren’t any additional overlays on this program versus the ones offered by Fannie and Freddie, no minimum borrower contribution is required, meaning the down payment funds and any reserves can be gifted.

The Quicken program also comes with a free “introduction to homeownership” course that is required for first-time home buyers, but available to everyone at no cost.

When it comes to loan types, you’re likely going to be limited to fixed products with a 30-year amortization. Put simply, probably the 30-year fixed unless you can afford and desire a 15-year fixed. That wouldn’t really make sense for someone lacking a down payment.

There will be mortgage insurance, seeing that the loan is well north of 80% LTV, but it might be at a reduced rate as it is via the Fannie/Freddie 97 programs.

I have no idea what the mortgage rates are like, but I assume higher than what you see advertised to account for the higher risk of putting just one percent down. But seeing that rates are so low at the moment, they’ll probably still look pretty favorable.

For the record, Quicken is just one of many lenders out there offering grants to home buyers to push the down payment requirement down to just 1%, so you can always shop around to compare different interest rates and program requirements by lender.

Recently, Guaranteed Rate launched a similar program, as did United Wholesale Mortgage (if you’re using a mortgage broker).

Other regional lenders, such as Fifth Third and BancorpSouth, have introduced zero down offerings.

The mortgage market is changing rapidly to account for higher home prices. So take the time to compare all options, including FHA loans, to see what the best fit is for your situation.

source:  thetruthaboutmortgage.com

What is a 5/1 ARM?

If you’re like some people, when you hear the mortgage term 5/1 ARM you might say something like, “Ahhhh! Numbers and an acronym—nooooo!!”

Okay, maybe that’s a bit dramatic, but I think it’s fair to say that a 5/1 ARM doesn’t appear to be the friendliest of terms. And that’s really too bad because he’s actually a nice, straightforward guy.

So what is it?

 

Adjustable-rate mortgages (ARMs) are just that—mortgages with interest rates that adjust depending on market movement. Meaning that if rates go up, your monthly payment will increase, and if they go down, your monthly payment will decrease.

The corresponding numbers tell you how often the rate will change. With a 5/1 ARM, the 5 means that the rate will stay fixed for the first 5 years, and the 1 tells you that it’s subject to change every 1 year after the initial 5.

The good

 

One of the best things about 5/1 ARMs is that they usually have significantly lower interest rates than fixed-rate mortgages. For example, our current rate for a 5/1 ARM is 2.375%, while our 30-year fixed rate is at 3.750%. Not only does the lower rate save you money on your monthly payment, but it also gives you the opportunity to take out a larger loan.

* Rates accurate as of 9/23/15. See below for assumptions.

Of course, they do have the potential to adjust to higher levels, whereas fixed-rates stay at the same level for the life of the loan. However, there are ways to take advantage of the low rate without the risk of a rate hike, such as:

• You plan to move within 5 years, therefore the potential rate increase wouldn’t apply to you
• You think your income will have risen to a level where a rate increase would be insignificant
• You want a lower initial monthly payment than is typically offered by fixed-rate mortgages
• You plan on refinancing out of the ARM before the rate gets adjusted to a higher level (can be a risky option because you can never be certain what rates will be like when you want to refinance)
• You have a crystal ball and it says interest rates will go down in the future

The bad

It’s not always possible to work the system like the above scenarios. And sometimes the rate environment trumps even the cleverest of schemes. So when you’re evaluating your own situation, it’s almost certainly a bad idea to get a 5/1 ARM if:

• Rates are rising
• You do not expect your income to grow substantially

 

What you should find out

• Is there a rate cap?

 Some loans have a rate cap built into them, which puts a limit on how high the lender can adjust the rate to. It’s good to have because nobody wants to see their rate being adjusted upward for eternity. Although it is a possibility that the cap is set at a level that would still be crippling for most borrowers.

• Is the loan assumable?

If you sell your home, can the buyer take over your existing mortgage at the current rate? Depending on what rates are up to, having an assumable loan can be a good selling point to have.

• Is there a prepayment fee?

Sometimes, you want to pay off your loan early. If there is a prepayment fee, you’ll get charged for paying off your loan before the original agreement.

 

Bottom line

You’ve got to look at your situation, and ask yourself where you’ll be in 5 years. If you plan on moving or winning the lottery, a 5/1 ARM could be a good call.

 source: totalmortgage.com

Mortgage Rates on the Rise?

According to data recently released by Zillow, 30 year fixed mortgage rates are currently around 3.73%. After rising to 3.83% over the course of last week, they dropped slightly at the start of this week.

“Rates remained flat for most of last week but jumped sharply after Friday’s exceptionally strong jobs report, before easing back down early this week,” said Erin Lantz, vice president of mortgages at Zillow. “We expect rates to hold steady this week due to little incoming data and the official start of the European Central Bank’s bond purchases.”

Though rates still remain low, many in the industry still expect them to rise later this year, thanks to a slowly improving economy. If you’re considering buying a new home or refinancing, now is the time to do it. To take a look at the rates we can offer, head over to our rates page.

source: totalmortgage.com

Current Mortgage Rates for Wednesday, December 24, 2014

So much for the prediction that mortgage rates wouldn’t change much before the end of the year. Yesterday mortgage bonds took an absolute beating.  Bonds broke through key levels of support, and just sort of went into free-fall in the afternoon.  The sell-off was kicked off by a strong third quarter GDP reading, but I think yesterday was really about an illiquid market and low trading volumes as much as anything.  We’ll see if yesterday’s momentum carries into today or not.  As of now mortgage bonds are in the red once again, and rates are under upward pressure.

Are you looking for a new mortgage?  Every big investment deserves a last look.  Give us a chance to beat another lender’s rate, and we’ll give you $25 just for calling (click here for terms and conditions).  Whether we can beat the rate or not.  Call us today!


Today’s Economic Data:

The only release of import today is the weekly jobless claims report, which came in a little better than expectations.  I seriously doubt anyone really cares too much about this today.  The markets close early today, and most people who aren’t already on vacation (ahem) are thinking about travel and the holidays.

So What Happened Yesterday?:

As I mentioned at the top, yesterday’s GDP report was really strong (showing +5.0% growth in the third quarter), and that kicked off the sell-off.  However, some of the other data that was issued yesterday (Durable Goods Orders, New Home Sales, and Core Personal Consumption Expenditures) came in below expectations.  One would normally expect that would balance out the strong GDP report somewhat, at least enough to stanch the bleeding.

But that’s not what happened yesterday.  I think yesterday’s massacre was a result of an illiquid market (yesterday was one of the lowest volume days of the year, and had about half the volume of the ten-day average).  After bonds broke through key support levels, things just sort of snowballed. We do sometimes see this sort of thing around holidays.  If the sell-off continues after the new year, I think that’ll be something to be concerned about.  Given that the underlying economic conditions are largely the same as they were two days ago (a stronger-than-expected third quarter notwithstanding), I think we’ll recoup at least some of the losses over the coming days.

Have a great holiday, we’ll be back next week.

This Week’s Significant Economic Data:

Monday:

• Existing Home Sales: Expected: 5.20M, actual, 4.93M.

Tuesday:

• Durable Good Orders: Expected: 3.1%, actual: -0.7%.
• GDP: Expected: +4.3%, actual. +5.0%
• Personal Income and Outlays:

Wednesday:

• Weekly Jobless Claims: Expected 290k, actual: 280k.

Thursday:

• Markets Closed for Christmas

Friday:

• No significant data.

source: totalmortgage.com

Current Mortgage Rates for Monday, December 22, 2014

Mortgage backed securities have been quite volatile over the past month, but at the end of the day, there hasn’t been a tremendous net change in mortgage rates since the middle of October.  On the week of October 16th, Freddie Mac’s Primary Mortgage Market Survey showed the average rate on a 30-year fixed-rate mortgage at 3.97%.  Last week it was 3.80% (however, that survey was collected largely prior to Wednesday’s Fed meeting, which caused rates to rise).  On average, rates have plateaued for several weeks now.  With the next two weeks being holiday weeks with lots of people on vacation, I don’t believe we’ll see any great changes in rates between now and the end of the year.  So far this morning, rates are teetering right around unchanged.

Are you looking for a new mortgage?  Every big investment deserves a last look.  Give us a chance to beat another lender’s rate, and we’ll give you $25 just for calling (click here for terms and conditions).  Whether we can beat the rate or not.  Call us today!


Today’s Economic Data:

Not much today.  Some short term Treasury bond auctions, and the Existing Home Sales data for November.  Home sales missed expectations, coming in at a seasonally adjusted annual rate of 4.93M, compared to expectations of 5.20M.  This is a -6.1% month-over-month change from October, but a 2.1% year-over-year increase from November of 2013.  This could help our markets a bit, but again, I think the impact of any report this week is severely dampened by the holiday.

The week ahead:

Not a ton to say here.  There are a couple of significant releases this week, but their impact will most likely be dampened by the Thursday holiday and the sheer number of people that are already on vacation or will be on vacation in the immediate future.  I would caution that low-volume days can cause seemingly out-sized market movements, and that this is something you should be aware of if you are in the process of getting a mortgage but haven’t locked your rate.  Trying to time the market is largely a fool’s errand, and the best policy is probably to go ahead and lock your rate when the number makes sense for you, rather than wait around to see if MBS rally by a few basis points.  It really depends upon how risk averse you are.

This Week’s Significant Economic Data:

Monday:

• Existing Home Sales: Expected: 5.20M, actual, 4.93M.

Tuesday:

• Durable Good Orders
• GDP
• Personal Income and Outlays:

Wednesday:

• Weekly Jobless Claims

Thursday:

• Markets Closed for Christmas

Friday:

• No significant data.

 source: totalmortgage.com