Interest Rates in the 4's?? - Lesson #1

Happy New Year! As we usher in a brand New Year, interest rates have fallen dramatically over the past month and many of you have already refinanced into historically low rates. Over the past month, however, we have learned some valuable lessons we would like to share with you in the “new lending environment”. As you investigate what will arguably be your largest financial decisions in 2009 (possibly refinancing) here are some lessons from the “front lines”. The first is that you shouldn’t believe everything that you read in the media or hear from your friends about interest rates. All I have heard for the past month is that interest rates are in the 4’s. While we have had a few brief periods where rates dropped slightly below 5%, you have to understand that it doesn’t necessarily apply to you. In the new world of mortgage lending, your interest rate is determined by a multitude of factors including credit score, how much equity you have in your home, whether or not you have 2nd mortgage or home equity line, the size of your loan (larger loans command better interest rates) etc…..And then the most important question is whether or not you are paying a loan origination fee or loan discount points. If you are willing to pay “points” either in the form of origination fees or discount points, you will receive a lower rate. But that doesn’t necessarily mean that it makes sense. The more money you spend in closing costs to get that lower rate, the longer the “payback period” (time it takes to recapture those up front costs with the monthly savings you will achieve). Be careful of advertising…they are always quoting ridiculously low rates to get the phone ringing (but you have to pay points to get those rates)….this type advertising drives me crazy!! Most of the time, it will not make sense to spend money on upfront points to get a lower rate. Be sure and educate yourself on the differences!

What's the Deal With.....Loan Modifications

I have had several inquiries from people experiencing financial difficulties who want to know what I know about the loan modifications many lenders are offering. Some lenders are willing to consider modifying mortgages, but the borrower must meet certain criteria. First, you should know that lenders are focusing their efforts in the hardest hit areas first…Florida, California, Arizona, Nevada, Michigan and Ohio. They are aggressively trying to contact borrowers behind on their mortgage to see if they qualify. If not behind on their mortgage, it is not likely at the present time that lenders will be open to a modification.
What does it mean to qualify? The borrower must have a steady income (even if it’s been reduced) and their debt to income ratio cannot exceed 38% with the new modified loan payment. Translated: If you take your gross monthly income and divide it by the total of your new proposed housing payment plus the minimum monthly obligations on all your other credit cards, car loans etc., it should exceed 38%. If you are self employed and typically show the IRS very little income, this will be a large obstacle. If you have lost your job, you are not a candidate. If you are on commission and your income is much less this year, you still may be a good candidate. There are talks of plans that the government has discussed that would make these opportunities more widely available. A lot of scam artists have jumped on this bandwagon, so tread carefully before you sign up for anything. —SDE

The craziness continues….What a year! One for the history books in so many ways. Most of these records are for things we would rather not hear about. But there are two bits of good news as we end the year….gas prices and mortgage rates have plunged. Can you believe the gas situation…I remember in the third week in October wondering if I would ever be able to find gas, more or less purchase it. Back then, it was hovering around $4.50/gal, now we are very close to $1.50. Only 2 months ago, that is unbelievable. The same thing happened with mortgage rates. Up until two days before Thanksgiving, we were hovering around 6% (which wasn’t bad). Then on November 25th the Federal Reserve announced a plan to inject up to $600 billion dollars to purchase Fannie Mae and Freddie Mac mortgage backed securities which almost immediately caused the 30 year rate to plunge a ½%. Since then they have been on a roller coaster, but at one point they fell to the low 5% range. So if you are on an adjustable rate or have a rate above 6%, exploring your options for refinancing is prudent. But there are challenges; 1) appraised values have been an issue since values have dropped in most areas, 2) your credit score has to be excellent to get the best rates and 3) if you have a home equity line of credit, the equity line lender has to agree to subordinate to a new first mortgage (they have to agree to it). Many of them will not do this because they are trying to get these loans off their books. Here at Family Mortgage, we are proactive in all these areas. If there is a concern about the value of your home, I have hired an appraiser to do what they call a “pencil search” on the computer up front. They look up comparable sales in your area and give me a close approximation of what the appraisal will come in at. That way we are not wasting anyone’s time. As for credit scoring, we can often give you a strategy to get your scores on the rebound if you have issues. Sometimes simple steps can make a big difference. And as for the home equity lines, we have a lender that is still aggressively lending, so oftentimes we can just set you up with a new home equity line if your old lender doesn’t cooperate. Recently, I have had a lot of people ask me if you can still get loans. The answer is a resounding yes! Are their challenges? Yes. Can we overcome them? Some yes and some no. But you won’t know until you try. We have historically low interest rates right now, I f you are a candidate, it would be a shame to miss this opportunity. The worst thing that happens is that you find out the current value of your home and/or have a plan to get your credit scores into the excellent range with a plan from Family Mortgage.

Great Opportunities in a Down Market

I am so glad the election is finally over. The media-- relentless in its search for terrible news-- had plenty of topics to pick from leading up to the first Tuesday in November. Now that the dust has settled, I would like to clear up a couple of important points regarding the buying and selling and financing of real estate.
First… Loans for houses are readily available without huge down payments Reading the paper or watching the news over the past few months, you might just think it’s impossible to obtain financing for anything. It has definitely become more difficult to qualify for a mortgage… that’s true; but with some consultation and a well planned strategy, we can help prepare you to qualify in short order.
Secondly... Now is a good time to buy and sell. Obviously, the decreasing values and increasing inventory of homes on the market make this an excellent time to buy; so wouldn’t that mean it’s also the worst time to sell? Maybe not. Last week, I attended the National Association of Realtors Convention to educate myself about the challenges in the current real estate environment. The knowledge I gained in that one weekend now allows me to offer more concrete solutions and advice to both my clients and my Realtor partners. And I also learned some interesting facts. For instance, anyone considering the purchase of a new home potentially has one of three hang-ups— either real or perceived—about buying now:
(1) They believe that home prices might decline further; (2) They have an existing home to sell; or (3) They believe it’s impossible to qualify for a mortgage. While it’s true that prices have dropped considerably in some areas around Metro Atlanta (in high foreclosure areas) others— in great school districts, for example— have held up well, so trying to time the bottom of the real estate market is no different than trying to time the stock market…it’s impossible. Stop trying! If you are a first time homebuyer or someone in transition with nothing to sell, go find a good deal and pat yourself on the back. It’s a great time to buy.
The bonus may be the first time homebuyer tax credit (learn more at www.federalhousingtaxcredit.com). There is a big push right now by various industry trade groups to make this a non–refundable tax credit, which would make purchasing now that much more compelling. If you have a house to sell, there are more considerations. First, let’s look at the reasons where it might make sense to wait before you sell. If your home is located in an area of high foreclosure activity it may be worth waiting if you believe that it is a temporary phenomenon. If you are downsizing, it may make sense to wait as well. The time it makes sense to sell is if you are considering moving up to a larger home. Why? Let’s take a simple example: You are selling a $250,000 home and looking at a home to purchase in the $400,000 price range. Let’s say you
take a 20% discount on the home you are selling, so you sell it for $200,000. But when you buy the $400,000, home you get it 20% under value as well, or $320,000. That would mean you took a $50,000 reduction on your sale but gained $80,000 on the new purchase. The opposite is true when you downsize, which is why it would make more sense to wait until market conditions improve. —-SDE

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