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

Talk the Talk – Know the Mortgage Lingo at Closing

What the heck are they talking about?

Many borrowers go through the closing process in a haze, nodding, smiling, and signing through a bunch of noise that sounds like Greek.

Even though you may have put your trust in your real estate and mortgage team, it helps to understand some of the terminology so that you can pay attention to specific details that may impact the decisions you need to make.

Common Closing Terms / Processes:

1. Docs Sent

Buyers sit on pins and needles through the approval process, waiting to find out if they meet the lender’s qualification requirements (which include items such as total expense to income, maximum loan amounts, loan-to-value ratios, credit, etc).

The term “docs sent” generally means you made it!! The lender’s closing department has sent the approved loan paperwork to the closing agent, which is usually an attorney or title company.

Keep in mind that there may be some prior to funding conditions the underwriter will need to verify before the deal can be considered fully approved.

2. Docs Signed –

Just what it implies.  All documentation is signed, including the paperwork between the borrower and the lender which details the terms of the loan, and the contracts between the seller and buyer of the property.

This usually occurs at closing in the presence of the closing agent, bank representative, buyer and seller.

3. Funded –

Show me some money!

The actual funds are transferred from the lender to the closing agent, along with all applicable disclosures.

For a home purchase, if the closing occurs in the morning, the funds are generally sent the same day. If the closing occurs in the afternoon, the funds are usually transferred the next day.

The timing is different for refinancing transactions due to the right of rescission. This is the right (given automatically by law to the borrower) to back out of the transaction within three days of signing the loan documents. As a result, funds are not transferred until after the rescission period in a refinancing transaction, and are generally received on the fourth day after the paperwork is signed.

(Note – Saturdays are counted in the three day period, while Sundays are not). The right of rescission only applies to a property the borrower will live in, not investment properties.

4. Recorded –

Let’s make it official. The recording of the deed transfers title (legal ownership) of the property to the buyer. The title company or the attorney records the transaction in the county register where the property is located, usually immediately after closing.

…..

There you have it – an official translation of closing lingo.

As with any other important financial transaction, there are many steps, some of which are dictated by law, which must be followed.

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Related Articles – Closing Process / Costs

Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction

Short sales, foreclosures and new construction homes all have caveats that need to be considered when pursuing financing.

If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or potentially even a denied loan.

Short Sales & Foreclosures

Short sales and foreclosures are everywhere. They often represent great value when looking to by a new home.

However, they also present a unique set of problems that homebuyers need to be aware of and plan for.

1.) Property Condition

Typically, when homeowners are facing foreclosure or looking to short sell their house, it means they lack the financial means to pay the mortgage or maintain the property.

A property in poor health can cause many financing issues for traditional financing.  FHA loans have specific rules requiring that the property is move-in-ready, unless you’re using a 203(k) Rehab Loan.

2.) Timing Challenges

Short sales typically come with awkward timeframes for purchase contract approval and loan closing.

Each bank is different, but approval can take anywhere between a week to 120 days.  As a general rule, the larger the bank the longer it takes to get short sale approval.

The lack of a set timeframe for short sale approval makes the timing of loan submission, rate locks and closing very challenging. You have your approval conditions cleared to close on time, just to find out that new appraisals, income, employment and asset verifications need to be updated by an underwriter to cover the most recent 30 days. Worst case, purchase contracts and legal documents may have to be re-submitted to a bank for an updated approval.

Either way, be prepared for a lot of redundant paperwork when purchasing a short sale property.

New Construction

Home buyers looking to purchase new construction using FHA financing will have more hoops to jump through than those purchasing through conventional (Fannie Mae / Freddie Mac) financing.

If you want to use FHA financing to purchase new construction then you need to be aware of a number of issues that can trip you up.

First, you MUST have a certificate of occupancy (C.O.) certifying that the property is complete and move-in-ready. If you do not have this then you typically CANNOT go FHA. You’ll need a renovation loan, but a FHA 203K WILL NOT work.

You’ll need to employ the Fannie Mae HomeStyle for a property without a C.O.

In addition to the C.O. you’ll need some combination of the following documents as dictated by your lender and your unique situation:

  • Builder’s Certification
  • One Year Builder Warranty (10 YR Warranty may be required)
  • Termite Inspection (when applicable)
  • Septic Inspection (when applicable)
  • Well Test (when applicable)
  • Construction Permits

There are a number of factors which go into exactly what combination of documentation will be required to satisfy your lender and FHA, so it is best to work with an experienced loan officer when purchasing new construction with FHA financing.

If you plan on using conventional Fannie Mae / Freddie Mac financing you’ll still have hoops to jump through, just not as many as FHA. You’ll also have a higher down payment requirement and the credit qualification guidelines tend to be stricter.

Whether it be FHA financing, conventional financing or renovation financing, it’s important to have a qualified home buying team in place that can lead you through the maze of paperwork and negotiations.

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Related Articles – Home Buying Process:

Top Mortgage Terms To Know

While most mortgage web sites offer a glossary containing hundreds of real estate and lending related terms, we wanted to highlight the top terms that most borrowers will hear several times throughout the approval and home buying process. 

Understanding the “Shop Talk” between the various industry professionals that you’ve assembled on your team will hopefully give you greater confidence when discussing important topics that may impact your transaction. 

Mortgage Related Terms:

Amortization Schedule: 

A schedule of payments showing the amount applied to the principal and interest through the payoff. 

Annual Percentage Rate (APR): 

The effective rate of interest that includes loan related fees.  The APR helps determine the total cost of borrowing a loan and is used to compare loans that are advertised with different note rates. 

Adjustable Rate Mortgage (ARM): 

As opposed to a fixed-rate mortgage where the payment is set for the full term of the loan agreement, an ARM is tied to a specific financial index and may adjust after a set amount of time. 

Buydown: 

Where a borrower pays an up-front fee to lower the mortgage rate and monthly payment.  Rate Buydowns can be used to help a borrower qualify for a loan, or as a means of negotiation where the seller would contribute to a lower rate in order to entice a buyer to purchase their property. 

Combined Loan-to-Value (CLTV): 

The total amount of mortgage obligations on a particular property compared to the fair market value. 

Debt-to-Income Ratio (DTI):  

A borrower’s minimum monthly liability payments divided by their gross monthly income. 

Default: 

Failure to fulfill an obligation to pay a mortgage.

Delinquency: 

Late payments on a monthly liability.  Creditors generally report payments to credit bureaus once the delinquency goes past 30 days. 

Disclosure: 

A big stack of documents that the lender, buyer and sellers sign during a real estate purchase or mortgage transaction.  These disclosures may also notify all parties involved of their rights and obligations. 

Discount Point: 

The amount paid to decrease an interest rate.
 

Fico Score: 

The three credit reporting agencies in the United States, Equifax, Experian, and TransUnion, collect data about consumers used to compile credit reports. The credit agencies use FICO software to generate FICO scores, which are sold to lenders. 

Each individual actually has three credit scores at any given time for any given scoring model because the three credit agencies have their own databases, gather reports from different creditors, and receive information from creditors at different times. 

Fixed Rate Mortgage: 

A mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”.

Good Faith Estimate (GFE): 

A good faith estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with your loan and must be provided within three business days of applying for a loan. 

These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges. 

A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers. 

Gross Income: 

Total taxable income which is generally verified by a lender through tax returns and W2’s. 

Home Equity Line of Credit (HELOC): 

A line of credit secured by real estate. 

HUD-1 Statement: 

A comprehensive and itemized list of closing costs prepared by a closing agent that details all of the financial figures in a mortgage refinance or purchase transaction.

Joint Liability: 

When more than one person applies for and secures a mortgage. 

Jumbo Mortgage: 

A mortgage with a loan amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. 

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages. 

When FNMA and FHLMC limits don’t cover the full loan amount, the loan is referred to as a “jumbo mortgage”. The average interest rates on jumbo mortgages are typically higher than that of conforming mortgages.

Loan-to-Value (LTV): 

The loan-to-value (LTV) ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87% (LTV). 

Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much stricter. Lenders can require borrowers of high LTV loans to buy mortgage insurance to protect the lender from the buyer default, which increases the costs of the mortgage. 

The valuation of a property is typically determined by an appraiser, but there is no greater measure of the actual real value of one property than an arms-length transaction between a willing buyer and a willing seller. Typically, banks will utilize the lesser of the appraised value and purchase price if the purchase is “recent.” What constitutes recent varies by institution but is generally between 1–2 years. 

Loan Rate Lock: 

Where the loan officer locks a specific rate with a lender for a set amount of time. 

Liquid Assets: 

Money in a bank or investment account that can be obtained quickly. 

Loan Origination Fee: 

A fee paid by a borrower to a lender for obtaining a mortgage loan. 

Loan Servicer: 

A mortgage servicer is the company that borrowers pay their mortgage loan payments to. Mortgage servicers either purchase or retain mortgage servicing rights that allow them to collect payments from borrowers in return for a servicing fee. The duty of a mortgage servicer varies, but typically includes the acceptance and recording of mortgage payments; calculating variable interest rates on adjustable rate loans; payment of taxes and insurance from borrower escrow accounts; negotiations of workouts and modifications of mortgage upon default; and conducting or supervising the foreclosure process when necessary. 

Many borrowers confuse mortgage servicers with their lender. A mortgage servicer may be a borrower’s lender, but often the beneficial rights to the payment of principal and interest on mortgages are sold to investors such as Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and private investors in mortgage securitization transactions. 

Mortgage Insurance: 

Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. 

Mortgage Backed Security: 

A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. 

First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages. 

Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools. 

Private Mortgage Insurance (PMI): 

Private mortgage insurance (PMI) is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a borrower is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property.

Real Estate Related Terms

Acceptance: 

Generally used when a seller accepts the terms presented in a purchase contract offer. 

Contingency: 

A “Subject To” provision in a purchase contract or mortgage approval that requires more work or documents to be submitted prior to a final decision to be completed. 

Due-Diligence: 

The period of time described in a purchase contract for the buyer and seller to perform certain duties such as appraisal, loan approval and inspections. 

Deed of Trust: 

In real estate, a trust deed or deed of trust, is a document wherein specific financial interest in the title to real property is transferred to a trustee, which holds it as security for a loan (debt) between two other parties. 

One is referred to as the trustor the other referred to as the beneficiary. In its simplest terms the trustor would be the receiver of money and the beneficiary would be the lender of money. The trust deed document most likely would be recorded (constructive notice) with the County Recorder where the property is located as evidence of and security for the debt. 

When the loan is fully paid, the monetary claim on the title is transferred to the borrower by reconveyance to release the debt obligation. If the borrower defaults on the loan, the trustee has the right to foreclose on and transfer title to the lender or sell the property to pay the lender from the proceeds. 

Earnest Money: 

The deposit money deposited in escrow by a buyer in good faith to secure a purchase transaction. 

Escrow

A third party that holds money or property in trust until a transaction has been complete.  There are several uses for the word “Escrow” in the real estate or mortgage process.  Closing Escrow describes when a purchase transaction is complete.  An Escrow or Impound account involves having your annual property and hazard insurance payments handled by a third party and taken out of monthly installments in a mortgage payment. 

Equity: 

The difference between a loan balance and a property’s fair market value.