I just did a college road trip with my oldest son through New England. We explored about a dozen schools, covered much ground and bonded over the course of five days. We toured schools, ate good food and really enjoyed some quality father/son one-on-one time. It was a special trip; one that I know I won't forget and one that I hope he looks back on fondly one day. We sat in the car and covered hundreds of miles. And while the radio played and we … Read More

via Dad In Real Life

This seemingly minor detail will have a major affect on your interest rate and/or eligibility of your loan. Chapter 10 of my book discusses why people that have the same type of mortgage (i.e. a 30-Year Fixed) may have different interest rates. I go on to detail that it might be due to credit scores, loan-to-value, documentation type, conforming verses Jumbo and/or primary verses investment property etceteras. While all those do in fact affect the rate another factor that many people are running into today is whether it is a Rate and Term Refinance or Cash-Out Refinance?

A Rate and Term Refinance (R&T) is one where the borrower wants to either lower their interest rate and payment or change the term of their mortgage. Namely go from an ARM to a Fixed, Fixed to an ARM, Interest Only to Amortized, 30-Year to 15-Year or a combination. These types of refinances account for the majority of the loans we see today. Typically R&T refinances involve only one mortgage that gets paid off at the closing. While you are not permitted to consolidate other debts into this loan you are permitted to include the closing costs so you do not have to bring any money to the closing.

A Cash-Out Refinance (CO) does not always mean getting cash to use however you like. The most common CO refinances combine two or more loans into one new mortgage, consolidate credit cards or other debts and/or pull equity out of the property. In essence, if your new mortgage is more than the current balance of your existing mortgage, with some exceptions, it will be considered CO. If this is the type of refinance you are considering you should expect to pay at least one quarter percentage point higher up to a couple of points higher depending upon your credit score, amount of cash out and the overall loan to value. In addition, some lenders limit how much cash out you are getting.

One exception to the preceding point is that if you have two mortgages on your property that were obtained “as part of the purchase transition”. Although you have two mortgages the industry treats them as one since you obtained them to purchase your property. Under this scenario this will be classified as a Rate and Term Refinance.

If you have any questions feel free to drop me an Email and I will be happy to see if I can help. About the Author: Dave Muti, JD, RMA is the author of “Mortgages: What You Need to Know” Pocket Guide Press 2008 and a Senior Mortgage Planner located in Parsippany, New Jersey.

For additional mortgage advice and answers to many mortgage questions please visit my site: www.mortgageswhatyouneedtoknow.com

The short answer NO! The legislature passed a bill last year (effective May 1, 2009) that will requires all loans to be purchased by Fannie Mae and Freddie Mac must go through these newly established (still in process) appraisal clearing houses. These Appraisal Management Service Companies (AMSC) that the legislature has required will benefit the banks and hurt the consumers. The bill is supposed to ensure quality control (accuracy of appraisals) so we don’t get inflated values that contributed to the bubble. Unfortunately, the “we” is the government and the banks as they are the only ones getting protection. This new process will add a week to ten days to the mortgage process and cost the consumer more for the appraisal.

When a new application is taken the person originating the loan has to order the appraisal through one of these newly established AMSC’s. The appraisers being used generally are not as qualified since they will only be getting about $150/appraisal. The small appraisal companies around the country with a half a dozen or so employees will lose out because they are accustomed to getting roughly $300 for a standard appraisal. The consumer will be paying upwards of $400 for these new appraisals because the bureaucracy of the clearing house needs to have money to manage the process and of course make a profit. Furthermore, this will push housing prices lower because the appraiser will not have any contact with the loan originator and will not know the specifics of the deal. Say a $300,000 value is needed for the LTV to work for the purchase or refinance. The appraiser is supposed to come back with the “real value” (this has always been a subjective opinion based on standards of the industry) of the home and it might now come in at $294,000. Now that does not seem like a big deal but this will cause purchase transactions to fall apart and refinance transactions not to happen. Had the appraiser known the value needed they may have been able to write the appraisal for the value to get the deal done. Now some may be thinking that this is steering but as indicated above, the valuation arrived at always has some wiggle room because of the subjective nature and the art of appraising when you do not have DEAD ON comps to work from. So adding a few thousand will not pump up prices but rather help to form a floor. This new process will in turn cause more sales to fall through which will apply further downward pressure on prices. In addition, the homeowner that needed to refinance to consolidate debt to get their head above water will not be able to and they may become a default/foreclosure statistic

Hopefully this post will clear up the miss-information that mortgages are only available for those with credit scores above 740 and at least 20% for a down payment or as equity in your current home. This is simply not true. While this is what you should strive to achieve there are still many options for those that do not fit this mold.

Depending on how far off you are from the standard, the ultimate rate for your circumstances will increase anywhere from one quarter to two percentage points. The headlines and media coverage of interest rates at 5% (plus or minus as rates are constantly moving) for a 30-year fixed are reserved for primary residences with a loan that is no more than 75% of the value of the home and the borrowers credit score is 740 or better. Also, be advised that these all time low rates you see the media mention usually have one point associated with them but that is often not mentioned. That being said, we still have many programs today for refinance transactions as well as purchases up to 96.5% with credit scores as low as 600 and sometimes much lower. Believe it or not we can still offer 100% financing in some locations but that is for another post. The 3 important things for you to know as you proceed are:

1. Who you are dealing with
2. What type of transaction you are considering
3. What is the current value of your home

First, if dealing with a mortgage broker (rather than a local bank) they will be able to price traditional programs through national banks, local banks and wholesale lenders that do not offer mortgages directly to the consumer. While many local banks have rates that “can’t be beat” for the standard loan they may not have a program that suits your needs so you may have to start all over again? In addition, mortgage brokers will have FHA programs that do not consider your credit score and can often provide mortgages when traditional banks cannot. The key is to completely explain ALL of your circumstances to the person you are dealing with and don’t pressure them for “the best rate” as they have to research your situation. Also, you will be required to provide fully documented evidence that supports the income you make. Although there are still some programs available for self employed and stated income loans they are not as common and they are at a much reduced loan-to-value. If you are not completely forthcoming with accurate information, you will be in for a bumpy ride as the terms of what you are initially quoted may not hold up if the documents tell a different story.

Second, if it is a refinance you have to know the difference between a “rate and term” or a “cash out” refinance? If you are including anything other than the original mortgage(s) from when you purchased (and a little extra to cover closing costs) for your new loan amount, it will be considered a “cash out” refinance and your rate may be a quarter of a point higher than if it was not. This includes combining a first and second mortgage (unless both originated as part of your purchase financing), debt consolidation and/or if you are taking equity out of your house. Purchase transactions do not have to worry about this.

The last and what has become the most crucial aspect of any refinance today is what is the current value of the property in question. Unfortunately, no matter where you live today the value of your property is not what it once was. Some areas are only down 5% or so and others as much as 45%. This decline in value is wreaking havoc on many would-be refinance candidates as the amount of their mortgage is now near or exceeds the value of the property. Some mortgages that were once at 75% of the properties value are now at 85% or higher. Everyone thinks that their house is nicer than the others or that their market is not down that much. While that is nice to hope for the sad state of affairs is that it is not. For every client we are able to help refinance we turn seven away due to low property values relative to their current mortgage balance.

The current market value of any given property is determined by comparable sales in your neighborhood that have closed in the last 30 to 60 days. If no sales are available the appraiser will go out longer and/or broaden the search to find sales in other neighborhoods and/or similar properties. Of course it is more complicated than this but this is basically how it works.

Hopefully this has shed a little light on what is a confusing topic in today’s refinance frenzy. The moral of the post, unless your mortgage is more than the current value of your property a solution to refinance awaits. Call your mortgage planner and spend the necessary time fully disclose the information needed and find out if you too can capitalize on these historic low rates.

The above focuses on primary residences only. If you have a second home or investment property you will still have some options but the guidelines are stricter. Most glaring are much lower loan-to-value ratios. Call your mortgage planner today to see what is available for you.

About the Author: Dave Muti, JD, RMA is the author of “Pocket Guide Press 2008″ and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey.  

For additional mortgage advice and answers to many mortgage questions please visit my site:  www.mortgageswhatyouneedtoknow.com

A.  Today most borrowers need to obtain a loan under the full documentation program.  Most lenders have reverted back to the way things used to be done.  In essence, you must be able to prove and document your income.  First and foremost you need to be gainfully employed with a two year history.  Regarding documentation, if refinancing you will need to submit to the lender the past years of your W-2 statements; the past 30-days worth of pay stubs; the most recent two months of all bank accounts, retirement plans and other significant holdings; copy of drivers license and S.S. Card.  If a purchase then of course the lender will need a fully executed copy of the contract in addition to the items above.  If coming off of a rental then 12 months of cancelled rent checks to prove you pay on time.  If not available then the lender will seek a letter from the landlord stating that you were never late.

Some regional savings and loans still have stated income programs where you can simply “state” your income but you do not have to document it.  You must be gainfully employed and you will still have to prove all of your assets so those statements mentioned above will be required.  However, under this type of program the lenders will not loan more than 75% of the home’s value.  Some of these lenders also still offer a no ratio program where you do not have to state your income at all.  These are limited to 60% or less of the home’s value.  Most mortgage brokers will know which lenders still offer these types of programs.  Of course if you have any questions feel free to drop me an Email.

About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey.

Q.  I just closed on my loan in September and with rates getting lower should I refinance my mortgage? -Nancy

A.  Nancy, this is a great question and I am glad to see that you are monitoring your finances so diligently.  The answer is maybe!  The reason that I cannot answer definitively is that I do not have enough information.    

Basically you need to do a savings analysis between your current mortgage payment and what a proposed new mortgage payment would be.  Then you need to divide this proposed savings into the cost of a refinance transaction to see if it makes sense.  Depending upon the size of your loan, sometimes you can recoup the cost of the new loan in a year or so and other times it will take three years.  Here are two examples.  One client we refinanced their $630,000 5/1 ARM from 6.25% into a new one at 5.375% and saved them $525/month.  It will take them just over a year to recover the cost of the refinance (which by the way we built into their new loan so no out of pocket expenses for the closing) so it made sense for them.  Another other client we proposed to save them $440/month but he indicated he was going to move in two years so it did not make much sense.  Lastly, another client would go from a 6.625% rate to a 5.75% rate.  Sounds good right?  But after we figured they would need to have mortgage insurance on the loan due to the increased loan-to-value (the property value had declined) they would only save a net of $30/month so it did not make sense.  Lastly, another client was going from a 6% mortgage to a 5.5% mortgage saving just $250/month.  We decided that it would take them roughly 2 years to recover the costs and they were not planning on moving for seven to ten years so it made sense and we proceeded.

Not sure what to do, use this mortgage check-up form to see how you can improve on your mortgage.  Email me today to get started with your free analysis.

About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey.

This is a comment that I heard a half a dozen or so times last week from clients prompting me to write this blog.  Of course no one can call the bottom until months later and if you do get lucky enough to time it, then congratulations.

If you are thinking of refinancing to capitalize on these historic low rates, my recommendation is to begin the application process now and choose to “float” your rate.  What I mean is, gather all of your documents and apply for that new mortgage.  This way your lender can conduct the appraisal and underwrite your loan.  Then if and when rates do get lower you can “lock” in that low rate and close in a matter of days.  By proceeding this way you may even get another 1/8^th off of your rate as many lenders only post 30-day rate locks and if you ask for a 15-day rate lock it may be lower.  The 15-day rate is normally not quoted because we cannot take a new application and close a loan within this time frame.  Especially with the underwriters working overtime now to handle the large number of refinance transactions.

Another advantage to doing it this way is that if it looks like rates are going to move higher you already have your approval subject to locking in your rate.  Therefore you will not miss the low rates if in fact we are at the bottom?  Not sure what to do, use this mortgage check-up form to see how you can improve on your mortgage.  Email me today to get started.

About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey.

Q.  I heard that despite the low interest rates lenders are not lending money and if they are you need to have a credit score north of 750, is this true? -Steve

A.  I know that our politicians and media love to say this but it is simply not true.  The folks who have no direct experience (they are analysts or executives in ivory towers) are the ones often quoted.  In order to get the right information to take control of your finances look for advice coming from those of us that are in the trenches.

On any given day I am working with consumers and the underwriters making the decisions and our experience is much different than what is reported.  We represent several national wholesale lenders as well as local and regional savings and loans and they are lending like there is no tomorrow for both refinance and purchase transactions.  The real issue is not tight access to money but rather decreasing property values.  

Many would be borrowers are either upside down on their homes (they owe more than the house is worth) or their current mortgage is somewhere between 80 and 100% of the home’s current value.  Therefore, they are not able to access the best programs that are reserved for those with loans of 80% or less of the home’s value.  However, if you find yourself in this latter category the FHA programs may be right for you?  Today FHA is lending to conforming borrowers up to 97% on 30-year fixed rate money in the high 5’s and low 6’s.  That is cheap money. 

The problem is that the people who want access these higher loan-to-value programs are coming off of interest only mortgages and/or “stated income” or “no doc” programs.  Now they are required to provide full documentation which of course they cannot.  Just today alone, I was able to provide a 90LTV refinance FHA loan at 5.75% saving a client a couple of hundred a month and another 60LTV Jumbo 5/1ARM refinance at 5.375% saving four hundred dollars a month. However, on the flip side I had to turn away 3 borrowers.  One because of lack of income and the other two because their home’s values have significantly dropped so one is now upside down and the other is at a 95LTV and it does not make sense to refinance due to the cost of mortgage insurance being added to the monthly payment.

The moral of today’s post; don’t always listen to what you hear or read.  Use this mortgage check-up form to see how you can improve on your mortgage.  Email me today to see if we can help you or one of your clients?

About the Author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a Senior Mortgage Planner with Millenium Home Mortgage, LLC located in Parsippany, New Jersey

On July 30, 2008 President Bush signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008.  Part of this law includes a Tax Credit up to $7,500 for “first-time” home buyers.  One of the many misunderstood benefits of this program is that a “first-time” home buyer is defined as one who has never owned a principal residence or one that has not owned a principal residence within the last three years of the purchase date.   This second part of the definition is not widely known and if you or one of your clients has not owned a home for the past 3 years or longer they too may be eligible for this Tax Credit. 
 
Of course there are certain limitations and I have highlighted just a few of them here:

• The closing must occur between April 9, 2008 and July 1, 2009
• The credit is equal to 10% of the purchase price up to a maximum of $7,500
• This is a credit that must be paid back over a 15 year period beginning after the second year of the deduction is claimed ($500/year or 6.5% of the credit)
  Income phase out limitations of $75,000/individual and $150,000/couple
• Even if you purchase the house in 2009 you may be able to claim the credit on your 2008 return
• If you sell the house at a loss you will owe nothing

To read a well drafted overview of the bill, please click on this link or this link for a break down of some income examples.

October is always a scary month because of Halloween but this year has brought about an entire new meaning to scary.  Today’s blog is long and it is a reprint of my October 14^th Take Control^SM newsletter.  It is direct and to the point of my thoughts on the markets and what you can do to take control of your financial future.
 
Please remember that I am neither an economist nor an analyst.  I draw my opinions from working with and speaking to my clients, colleagues and other professionals that are on the front lines every day.  As you can guess my outlook is not good.  If you go back a year or so and review my newsletters, you will see that I have been warning about the recession we are in and steps to take to try and position yourself to weather the storm.  Below I outline the downside as well as what to do to stay afloat.
 
Summer brought us the “eye” of the storm as I have been saying but September brought with it the second half of the storm and I see it persisting through much of 2009 before things start to steady.  Often the second half of any storm is more destructive than the first half as the first half weakens structures and the second half blows them over.  Hopefully I am dead wrong but it is better to prepare for the worst than hope and pray for the best. 
 
As I see it, things that will contribute to harm the markets are:

• Unemployment will continue to rise.
• Retail sales this holiday season will not be good causing more bad news for corporate earnings and job security.
• Those in finance and real estate can expect another tough year draining what savings are left.
• Foreclosures will continue to increase which of course place downward pressure on the value of neighboring homes.
• Personal credit card debt continues to increase
• Many are finding that their credit card limits have been reduced and capped which in turn shuts off the last avenue for cash to pay bills.
• Many small businesses are finding that their credit limits (both bank lines of credits and credit cards) have been reduced and capped at a level that prohibits many owners from being able to order inventory which stymies growth.  Some are even finding it difficult to make payroll.
• Bankruptcies are on the rise.
• Retirement accounts are decreasing.  
• Tax revenues will be down due to the above which will increase deficits and possibly taxes.

All of these factors create a self feeding cycle for the perfect storm as each has a correlated affect on the other contributing to downward pressure of home sales and further evaporation of home equity.  These factors are also why many would be buyers are sitting on the sidelines causing a greater supply than demand.
 
While the government bailout package (still being defined) should help the economy it will take several months or longer to work its way through the system.  Furthermore, during this time I believe that several more large firms will fail requiring a bailout, file for bankruptcy or be acquired by a stronger suitor.  One of the overlooked factors that will increase the severity of the storm is the defaults that are starting to occur on unsecured credit card debt.  There are dozens of banks that have billions in exposure which will increase the downward pressure of their stock and of course further depress the markets.  So what does all this mean to you?  Keep reading for my 5 step plan to help you navigate the storm.
 
First, you should know that despite what you read and hear in the media there is still plenty of mortgage money to lend to homeowners.  It is just a bit tougher to get and you need to know where to look.  This is why it is imperative that you work with a local mortgage planner to guide you through the maze of regulatory changes and guidelines to get you the money you need.  Conduct an annual mortgage and credit review today to see if you can improve your cash flow by consolidating debt and/or get a better mortgage program?
 
Second, don’t panic but don’t ignore the situation either.  Sit with your financial advisor to review your goals, where you are, and develop a plan how to navigate out of this mess to preserve your assets and ensure you will still achieve your long term goals.  Third, control your spending.  During the boom years we all seemed to forget something called a budget.  Now that money is tight across all economic levels people are again beginning to curb their expenses.  Start with the simple things such as making your own morning coffee, bringing lunch to work, set the thermostat lower in the winter, review your cell phone plan and rent a movie rather than going to the theater.  We just scratched the surface but by Implementing these simple steps you can save you hundreds of dollars each month if you stay focused.  One simple step to help you really gain control of your spending is to convert to cash and stop using your credit cards.  This move alone will help you realize just how much you are spending and it will also stop the increase to your credit card balances. 
 
Once you have begun to control your spending, the next step involves building up your cash reserves.  In my book I detail that you should strive to have a minimum of 3 months of all your monthly expenses in a liquid account to draw from if emergencies pop up.  But in tough economic times it is more important than ever to build this account to six or even twelve months of reserves just in case. 
 
The fifth step is to get a second job or see if you can work overtime?  We are all working harder than ever but if you can fit a part time job into your life (or a stay at home spouse gets a part time job) and then you place these earnings in your reserve account, you will start to see progress.  If a traditional part time job is not something you can do, then consider implementing what I call Plan B.  Start a home based business so you can work during the evenings while the kids are sleeping.  This can provide the extra income you need and if the unforeseen happens and you find yourself out of a job you will have something to fall back on?  There are countless things you can do and if you are not sure where to look just ask your friends or drop me an email for some ideas.  You may be surprised to learn just how many are actually doing this to create an extra couple of hundred and even thousands of dollars a month. 
 
I know that it sounds like I am painting a dismal picture but better safe than sorry.  By taking the necessary steps to cut your expenses and shore up your savings you will get back on the path to a more prosperous future.  Be proactive and Make Life Happen, you’ll be happy you did.