What Exactly IS a Streamline Refinance

While qualifying for a mortgage refinance is generally a lot harder than it has been in the past, there are some options available. One such option is the Streamline Refinance…

While guidelines and rules vary by lender, here’s a basic list of features:

  • Your current mortgage must be current on all payments
  • You must be receiving a clear benefit from the refinance
  • You may not take cash-out on the loan
  • Often there are minimal credit requirements and less paperwork meaning the process is faster and less expensive

Current mortgage – up to date and current is the number one requirement, meaning this path is not one for anyone who’s behind or in any danger of foreclosure. Clear benefit means your rate has to drop enough to cover all related fees, or convert from an adjustable to a fixed-rate loan.

What type of mortgages can be streamlined?

FHA – makes it easy to refinance your current FHA mortgage in good standing to a lower rate. FHA has permitted streamline refinances on insured mortgages since the early 1980s. What makes this process streamlined? There is no appraisal, so you can be underwater in your home by a little or a lot, and still be able to refinance your home. Keep in mind that you have to be either lowering your monthly payment or converting from an ARM to fixed rate loan, and you cannot take any cash out on the loan when you do an FHA streamline-refinance. Record low mortgage rates make this option very attractive to borrowers.

VA – also has streamline refinance option for current VA borrowers called the Interest Rate Reduction Refinancing Loan or IRRRL. With the VA’s options, as with the FHA loan, you must be paying less each month or going from an adjustable to fixed rate loan, and again, don’t expect cash back. The VA streamline refinance doesn’t require an appraisal or much credit work and with this loan, you can refinance at no cost as the option to roll the costs of the new loan into the new mortgage. Since VA borrowers have already taken care of their Certificate of Eligibility, the process is much easier and faster than an initial VA mortgage loan.

HARP – is a new mortgage program for homeowners who owe more on their home than the home is worth (also known as underwater). HARP (Home Affordable Refinance Program) and HARP 2.0 offer refinance options for Fannie Mae and Freddie Mac loans older than June 1, 2009, with the loan to value ratio of 80% or more. You must be current on payments of your existing loan. This loan carries limited fees and closing costs. It is possible to have a loan servicer (the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan) to be different than the owner of your mortgage.  To see if your loan is owned by Fannie Mae or Freddie Mac, visit their websites – Fannie Mae   Freddie Mac

Easy = Best?

While a streamline refinance may be the easiest option, it may not be the best option for you and you should shop different options other than your current lender or loan type to find the best rate/cost of the loan especially if you’re not underwater, not in a credit situation, and working at the same job for 2 or more years. Savings on a lower rate may offset the additional time and paperwork required for a more conventional approach to refinancing your home. Call The Mortgage Guys to discuss your options for refinancing your Atlanta home!

 


George Beylouny is a licensed loan originator and the Branch Manager for Silverton Mortgage Vinings.  He can be reached at 678-428-6514, George@mgatl.com or  www.mortgageguysatlanta.com

Is NOW a Good Time to Refinance my Home?

When I listen to the radio or turn on the television these days, there are many commercials touting historically low interest rates are and that it is a great time to refinance my mortgage.  Well the truth to the matter is “Rates are great!”   Rates are at historic lows and refinancing today could make a big difference in the amount of interest you will pay over the life of your mortgage.  But the real question should be, is it right for me?  And then the answer is, it all depends.

There are several factors that need to be explored such as the cost, the reduction in interest rate, the reduction in the term of the loan, will the new loan require mortgage insurance and most of all, can I even refinance my home today based on the current market value of my home (appraised value).

There is a formula called the break even analysis where you divide in the closing costs by the amount you will save each month and this will tell you in months the amount of time it will take to recapture your closing costs.  So let’s say the closing costs to refinance your home is $3,200 and you are saving $180 per month.  Your break-even would be approximately $3,200/$180 or 17.78 months.  This will give you an idea if it makes sense to go forward.  The next crucial question is how long do you think you will own the home.  If you think you will own it for at least another 18 months, then it makes senses to look further.

One of the most challenging obstacles to refinancing your home today is the appraisal process.  Unfortunately, the values of homes have dropped considerably in the past 5 years.  According to Trulia, real estate prices covering all properties in the Atlanta area have depreciated 20.1% over the past five years.  Since real estate trends are very localized, some area have been depreciated far more.  In order to refinance you home using standard loan products, you will have to have a minimum of 5% equity in your home.  So if your house appraises for $200,000, the maximum loan you could get would be $190,000. The good news is that there are several programs available for homeowners with little or no equity left in their homes.  So depending on the type of mortgage you currently have, you might be in luck.

If you currently have a FHA or USDA mortgage, there is a streamline refinance that does not require an appraisal which is a great option.  Depending on when you current FHA mortgage was endorsed by FHA can make it a fantastic option or just a pretty good option.   If your loan was purchased by either Fannie Mae or Freddie Mac and you closed on the loan prior to May 31, 2009, you may be eligible for a HARP (Home Affordable Refinance Program) refinance.  The main feature of a HARP refinance is that it allows you to refinance you home even if you are upside down on your mortgage.  To see if your loan was purchased by either, go to http://www.knowyouroptions.com/loanlookup for Fannie Mae properties and https://ww3.freddiemac.com/corporate/ for Freddie Mac properties.  There are many rules governing these programs, so it is best to speak with a mortgage professional regarding your options.

 

George Beylouny is a licensed loan originator and the Branch Manager for Silverton Mortgage Vinings.  He can be reached at 678-428-6514, George@mgatl.com or  www.mortgageguysatlanta.com

Why to Buy… the emotions and economies of renting vs. buying a home

Today’s reduced home prices, low mortgage rates, and solid home inventory have made buying a house attractive, and many Atlantans are asking themselves if it’s the time to give up renting to buy their own home. Making the move from renting to home ownership is an emotional decision, and also very much a financial one.

While setting down roots is often considered a natural step, job responsibilities, family ties, and personal satisfaction can weigh heavy on the decision to give up the flexibility of renting under a 1 year lease, to the 15 or 30 year commitment of a mortgage. Personality and time commitments play a big part in the decision of what type of home to buy as renters are accustom simply making a phone call to fix maintenance problems, and to having all outdoor maintenance, landscaping and yard work done for them. Home ownership comes with a certain degree of upkeep which varies based on whether you buy a condo, townhouse, single family or ranch-style property.

If you’re not a handyman (or handywoman), consider the costs of modernizing and redecorating as you’ll need to hire out, so you may want to just look at move-in ready homes. Consider your out of pocket costs will be to get into the new home (keeping in mind what you’d “love to have”), then talk to the mortgage professionals here about what you can truly afford month to month. You also want to be sure that the home you buy is one you’ll be happy in for years to come. Don’t make the mistake of convincing yourself that home buying a short-term commitment.

Emotions matter…i f you’ve just gone through a big life change such as marriage, a newborn, divorce, job change, or a death in the family, taking on the responsibility of owning a home might not be the best decision today.

When considering a move from a rental unit to a home, you need to find a neighborhood and a house that suits your lifestyle, commute time, and budget. You may want to live in Woodstock, but don’t want to spend the commute time to get to your south Atlanta job because you have young children in daycare. Regardless of where you decide to live, be sure to have your Realtor share the sales price trends of homes in the neighborhoods you’re considering, after all, a home is an investment.

Buying a home is in fact one of the biggest investments you will make – ever.  So…armed with good credit, a stable job, and cash in the bank, making that investment may very well be a wise financial decision.

The Pros

For Renting:

  • Flexibility (relocating is easier)
  • Can invest money elsewhere (stock market)
  • No upkeep fees (drippy faucets, broken appliances, etc.)

For Buying:

  • Tax-breaks (mortgage interest and property tax deductions)
  • Potential for building equity (traditionally 4-5% annually)
  • Emotional satisfaction/pride
  • Security, stability, comfort

 

The Cons

For Renting:

  • No equity
  • Annual rent increases

For Buying:

  • Property taxes
  • Upkeep
  • Mortgage costs
  • Loss of flexibility should you want to move

If you are on the fence about whether to buy or rent, use what’s called the rent ratio, an over-simplified starting point. Take the purchase price of a house and divide it by the yearly cost of renting. The New York Times has a great calculator to help you in your decision making process: http://www.nytimes.com/interactive/business/buy-rent-calculator.html.

You may also want to read our Tips for First Time Home Buyers blog post – http://www.mortgageguysatlanta.com/2012/07/26/tips-for-first-time-home-buyers/

All in all the decision to assume a mortgage and buy a home is a very personal one. But armed with accurate information, it’s a decision you can feel good about. Contact Atlanta’s Mortgage Guys before you tear up that rental agreement, and we’ll help you review your options so you can make the best choice for you.


George Beylouny is a licensed loan originator and the Branch Manager for Silverton Mortgage Vinings.  He can be reached at 678-428-6514, George@mgatl.com or  www.mortgageguysatlanta.com

Ten Credit Do's and Don'ts To Bear In Mind Prior To Getting Your Mortgage Loan

How can a fully approved loan get denied for funding after the borrower has signed loan docs?

Simple, the underwriter pulls an updated credit report to verify that there hasn’t been any new activity since original approval was issued, and the new findings kill the loan.

This generally won’t happen in a 30 day time-frame, but borrowers should anticipate a new credit report being pulled if the time from an original credit report to funding is more than 60 days.

Purchase transactions involving short sales or foreclosures tend to drag on for several months, so this approval / denial scenario is common.

It’s An Ugly Cycle:

  1. First-Time Home Buyer receives an approval
  2. Thinks everything is OK
  3. Makes a credit impacting decision (new car, furniture, run up credit card balance)
  4. Funder pulls new credit report and denies the loan

In the hopes of stemming the senseless slaughter of perfectly acceptable approvals, we’ve developed a “Ten credit do’s and don’ts” list to help ensure a smoother loan process.

These tips don’t encompass everything a borrower can do prior to and after the Pre-Approval process, however they’re a good representation of the things most likely to help and hurt an approval.

Ten Credit Do’s and Don’ts:

DO continue making your mortgage or rent payments

Remember, you’re trying to buy or refinance your home – one of the first things a lender looks for is responsible payment patterns on your current housing situation.

Even if you plan on closing in the middle of the month, or if you’ve already given notice, continue paying that rent until you’ve signed your final loan documents.

It’s always better to be safe than sorry.

DO stay current on all accounts

Much like the first item, the same goes for your other types of accounts (student loans, credit cards, etc).

Nothing can derail a loan approval faster than a late payment coming in the middle of the loan process.

DON’T make a major purchase (car, boat, big-screen TV, etc…)

This one gets borrowers in trouble more than any other item.

A simple tip: wait until the loan is closed before buying that new car, boat, or TV.

DON’T buy any furniture

This is similar to the previous, but deserves it’s own category as it gets many borrowers in trouble (especially First-Time Home Buyers).

Remember, you’ll have plenty of time to decorate your new home (or spend on your line of credit) AFTER the loan closes.

DON’T open a new credit card

Opening a new credit card dings your credit by adding an additional inquiry to your score, and it may change the mix of credit types within your report (i.e. credit cards, student loans, etc).

Both of these can have a negative impact on your score, and could result in a denial if things are already tight.

DON’T close any credit card accounts

The reverse of the previous item is also true. Closing accounts can have a negative impact on your score (for one – it decreases your capacity which accounts for 30% of your score).

DON’T open a new cell phone account

Cell phone companies pull your credit when you open a new account. If you’re on the border credit-wise, that inquiry could drop your score enough to impact your rate or cause a denial.

DON’T consolidate your debt onto 1 or 2 cards

We’ve already established that additional credit inquiries will hurt your score, but consolidating your credit will also diminish your capacity (the amount of credit you have available), resulting in another hit to your credit.

DON’T pay off collections

Sometimes a lender will require you to pay of a collection prior to closing your loan; other times they will not.

The best rule of thumb is to only pay off collections if absolutely necessary to ensure a loan approval. Otherwise, needlessly paying off collections could have a negative impact on your score.

Consult your loan professional prior to paying off any accounts.

DON’T take out a new loan

This goes for car loans, student loans, additional credit cards, lines of credit, and any other type of loan.

Taking out a new loan can have a negative impact on your credit, but also looks bad to underwriters and investors alike.

…..

Follow these Do’s and Don’ts for a smoother mortgage approval and funding process.

Just remember the simple tip: wait until AFTER the loan closes for any major purchases, loans, consolidations, and new accounts.

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How Much Can I Afford?

How much mortgage money can I qualify to borrow?

This is typically the number one question mortgage professionals are asked by new clients.

Of critical importance when considering mortgage financing: There is sometimes a difference between what a client ***can*** borrow and what they ***should*** borrow.

In other words, what makes for a comfortable long-term mortgage payment?

The Quick Answer:

If we’re simply considering the financial math, lenders will calculate your Debt-to-Income Ratio and generally allow for 28-31% of your gross income to be used for the new house payment with up to 43% of your gross income to be used for all consumer related debts combined.

Sample Mortgage Scenario:

Let’s use a gross monthly income of $3000 and a qualifying factor of 30% Debt-to-Income Ratio:

$3000 multiplied by .3 (30%) = $900 max monthly mortgage payment

This means that your mortgage payment (Principal, Interest, Taxes, Hazard Insurance) cannot exceed $900 a month.

“Ballparking” a Qualifying Loan Amount:

Simple step:  We use a safe average of $7 per month in payment for every $1000 in purchase price so…

Step 1)  $900 a month divided by $7 = $128.50

Step 2) $128.50 multiplied by 1000 = $128,500 loan amount.

Remember, these are average ratios and guidelines set by most lenders for common mortgage programs.

Keep in mind, while most consumer debts are listed on a credit report, there are some additional monthly liabilities that may contribute to the overall qualifying percentages as well.

Regardless of how your personal income and credit scenarios factor in, it is important to consider your overall budget when trying to determine how much of a mortgage you should qualify for.

Other items to consider in your monthly budget:

1. Confirm all debts are taken into account
2. Any private notes or family loans
3. Short-term expenses – medical, auto repairs, travel, emergencies
4. Plan on additional expenses for the home such as water, electric, maintenance, etc…
5. Keep a cushion for savings and financial planning

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First-Time Home Buyer Credit Checklist

Getting a new mortgage for a First-Time Home Buyer can be a little overwhelming with all of the important details, guidelines and potential speed bumps.

Since there are so many rules and steps to follow, here is a simple list of Do’s and Don’ts to keep in mind throughout the mortgage approval process:

DO:

  • Continue working at your current job
  • Stay current on all your accounts
  • Keep making your house or rent payments
  • Keep your insurance payments current
  • Continue to maintain your credit as usual
  • Call us if you have any questions

DON’T

  • Make any major purchases (Car, Boat, Jet Ski, Home Theater…)
  • Apply for new credit
  • Open new credit cards
  • Transfer any balances from one credit or bank acct to another
  • Pay off any charge-off accts or collections
  • Take out furniture loans
  • Close any credit cards
  • Max out your credit cards
  • Consolidate credit debt

Basically, while you are in the process of getting a new mortgage, keep your financial status as stable as possible until the loan is funded and recorded.

Any number of minor changes could easily raise a red flag or cause a negative impact on a credit score that may result in a denied loan.

Most importantly, check with your loan officer on even the simplest questions to make sure your loan approval is successful.

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Understanding An Amortization Schedule

By committing to a mortgage loan, the borrower is entering into a financial agreement with a lender to pay back the mortgage money, with interest, over a set period of time.

The borrower’s monthly mortgage payment may change over time depending on the type of loan program, however, we’re going to address the typical 30 year fixed Principal and Interest loan program for the sake of breaking down the individual payment components for this particular article about an amortization schedule.

On each payment that is made, a certain amount of interest is taken out to pay the lender back for the opportunity to borrow the money, and the remaining balance is applied to the principal balance.

It’s common to hear industry professionals and homeowners talk about a mortgage payment being front-loaded with interest, especially if they’re referencing an amortization chart to show the numbers. Since there is more interest being paid at the beginning of a mortgage payment term the amount of money applied to interest decreases over time, while the money applied to the principal increases.

We can better understand mortgage payments by looking at a loan amortization chart, which shows the specific payments associated with a loan.

The details will include the interest and principal component of each periodic payment.

For example, let’s look at a scenario where you borrowed a $100,000 loan at 7.5% interest rate, fixed for 30 year term. To ensure full repayment of principal by the end of the 30 years, your payment would need to be $699.21 per month. In the first month, you owe $100,000, which means the interest would be calculated on the full loan amount. To calculate this, we start with $100,000 and multiply it by 7.5% interest rate. This will give you $7,500 of annual interest. However, we only need a monthly amount. So we divide by 12 months to find that the interest equals $625. Now remember, you are paying $699.21. If you only owe interest of $625, then the remainder of the payment, $74.21, will go towards the principal. Thus, your new outstanding balance is now $99,925.79.

In month #2, you make the same payment of $699.21. However, this time, you now owe $99,925.79. Therefore, you will only pay interest on $99,925.79. When running through the calculator in the same process detailed above, you will find that your interest component is $624.54. (It is decreasing!) The remaining $74.68 will be applied towards principal. (This amount is increasing!)

Each month, the same simple mathematic calculation will be made. Because the payments are remaining the same, each month the interest will continue to be reduced and the remainder going towards principal will continue to increase.

An amortization chart runs chronologically through your series of payments until you get to the final payment. The chart can also be a useful tool to determine interest paid to date, principal paid to date, or remaining principal.

Another frequent use of amortization charts is to determine how extra payments toward principal can affect and accelerate the month of final payment of the loan, as well as reduce your total interest payments.

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How Do I Calculate My Mortgage Payment Without Using A Mortgage Calculator?

Calculating an exact mortgage payment without a calculator on a loan is no small task, but there are some simple rules-of-thumb you can use to get a close estimate.

With the exception of the MIT Blackjack Team, performing this type of complex math in your head often leads to frustrating rants.

When coming up with a rough estimate, it is important to understand the individual components that factor into the overall monthly mortgage payment.

Yes, the thousands of dollars you send to your lender every year may cover more than just the mortgage, but referring to one simple formula will help you gauge what the new payment will be as you’re out looking for new properties that may be in your price range.

What’s In A Mortgage Payment?

A mortgage consists of 4-6 parts:

  • Principal – the balance of the loan
  • Interest – the fee paid to borrow the mortgage money
  • Property Taxes – based on county assessed value and residence type
  • Hazard Insurance – in the case of fire or property damage (may include a separate flood policy)
  • Mortgage Insurance – more than 80% LTV on conventional loans, or with FHA financing

Most lenders use the acronym (PITI), which includes Principal, Interest, Taxes and Insurance.

And in the case where a separate Mortgage Insurance Premium is required, we add another “I” to the end of that creative series of letters.

Another monthly expense that you have to consider is the monthly dues that come with properties that have a homeowner’s association (common in condominiums and other developments). This isn’t a payment made to your lender, but you will have to qualify with that payment and it is also best practice for you to factor that in the monthly cost of your new home.

Confused yet? Don’t worry, this is slightly easier than most state bar exams.

The Mortgage Payment Cheat Sheet:

Ok, you’ve made it this far and haven’t closed your browser, so that is a good thing.

Please keep in mind, this top secret formula will by no means be exact.

Mortgage Payment Formula:

For every $1000 you borrower, your TOTAL monthly mortgage payment will be $8.

So, if you purchase a home for $250,000 with a $50,000 down payment – borrowing a total of $200,000, then a good estimated total monthly PITI payment would be roughly $1600.

But don’t forget to add your homeowners association dues to that monthly payment.

What If I Pay Taxes and Insurance Separately?

Well now we’re at the easy part. If you elect to pay taxes separate from your mortgage, the cheat sheet is reduced from $8 per $1000 down to $6 per $1000.

So there you have it. $8 for every $1000 borrowed.

Again, please keep in mind that this is not going to give you an EXACT payment. You may be purchasing a property with higher real estate taxes or your insurance premiums may be higher than average depending on the state you live in.

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Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

When mortgage lenders go out of business and are essentially taken over by the FDIC, homeowners are left wondering if they still need to make a monthly payment.

Great thought, and a very common question for many borrowers in the 2006-2010 timeframe.

The short answer is YES, you still have to continue making mortgage payments if your current lender files for bankruptcy or disappears over the weekend.

In order to give a more thorough answer to this popular topic, we’ll need to address the relationship between mortgage loans as liens and mortgage servicers who make money by handling payments.

To put this topic in perspective, 381 banks actually filed bankruptcy between 2006 and 2010 forcing them to cease their mortgage lending activities. And a common misconception borrowers have about their mortgage company is that their agreement should become obsolete once the lender files for bankruptcy or goes out of business.

Based on the way mortgage money is made, packaged and sold on the secondary market as a mortgage backed security, the promissory note (agreement) is actually spread between many investors who rely on a servicing company to collect and manage the monthly payments.

A mortgage is considered a secured asset, where the collateral is real estate.  And, the mortgage note has a separate value to investors and servicers based on the interest and servicing fees they have wrapped up in the monthly payments.

This is why many mortgage notes get sold to other servicers who pay for the rights to service your loan. So basically, even if a mortgage company is bankrupt, someone else is willing to take on the job of collecting payments.

Also, by signing a mortgage note, the borrower is committing to continue making the required payments, regardless of what happens to the mortgage company servicing your loan.

Bullets:

  • Your house is an asset
  • The mortgage note has a separate value to investors
  • Regardless what happens to your mortgage company, you need to make your payments

Also, it’s important to continue making your mortgage payments on time, regardless of which servicing company is sending a monthly statement.  Obviously, keep a good paper trail of those mortgage payments in case there is a mix-up between transitions.

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Alternate Sources For Establishing Credit

While the basic Rule-of-Thumb for acceptable credit history is a minimum of four trade lines documented on a credit report, there are alternative methods of building a credit picture that an underwriter can use to make a decision for a loan approval.

For potential home buyers with little or no credit history, keeping records for 12 months of paying bills on time is essential for mortgage loan approval. In fact, loan officers will appreciate receiving proof that you have paid a variety of accounts regularly and on time. Even if you do not have a credit history, or your credit report isn’t as good as it could be, this may enable you to get a mortgage.

The industry term for this is “thin credit.”

Some loan types, namely FHA and USDA, will accept alternative credit sources in order to establish proof of financial responsibility.

Alternative credit is unreported to the bureaus, but will still be verified and can be instrumental in a home loan approval.

Those with thin credit don’t usually have bad credit, but have just not had an opportunity to build enough traditional credit, such as bank/store credit cards, auto loans, etc.

Alternative Sources for Building Credit:

  • Rental History – Canceled checks and letter from property management company
  • Medical Bills – 12 months of statements from medical billing company showing paid as agreed
  • Utilities – power, gas, water, cable, cell phone
  • Auto Insurance
  • Health / Life Insurance – as long as it’s not auto-deducted from pay check

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