Mortgage rates are looking at some new lows for 2010. As of Friday afternoon, you can refinance a conforming loan at 4.75% (par).
If you refinanced at least six months ago, you might want to see if you can do better now. Why six months? Because most lenders want to see at least six months of payments before they will consider underwriting a new loan.
Interest rates are very attractive right now and some people think it is a great time to pull some money out of their house. Here are some things to know if you are considering this.
Terms for cash out refinancing aren’t as good as straight rate and term refinancing. Today, most lenders charge an extra 1% on the interest rate for a cash-out refinancing. Lenders also put restrictions on the amount of money you can pull out. Most lenders want to see the borrowers retain at least 35% to 40% of equity in their house. The best rates are for loans where the LTV is 60% (40% equity).
The amount you will be able to pull out will depend on the appraisal and this process has changed for some lenders in the past year. Many lenders now require that they order the appraisal. As a result, many appraisers today are chosen based on their fees and not their knowledge of the area. So, in general, appraisals today are coming in on the lower side.
It turns out that interest rate loans don't peform as well as other loan products. So, Freddie Mac will stop buying them in the fall.
Last week, Freddie Mac announced that on September 1, 2010, the company will cease purchasing and securitizing interest only mortgages, including Freddie Mac Initial InterestSM fixed-rate and adjustable-rate mortgages. Interest only mortgages, including Freddie Mac Initial Interest mortgages, provide for interest-only payments for a specified period of time beginning with the first monthly payment after the note date, and principal and interest payments on a fully amortizing basis for the remainder of the mortgage term.
Given the continued lackluster performance of the economy, this is no surprise. And in the end, probably better for consumers.
Lately, we've received quite a few phone calls from people interested in taking advantage of the decline in housing prices and investing in real estate. Great idea just go in with your eyes open.
A few words about loans for investment properties:
(1) Generally you are expected to put between 20-30% down. Rates are more favorable if you put at least 25% down.
(2) Interest rates are generally higher for investments than if you were occupying the property.
(3) Sometimes, the lender will require an impound account on investment properties.
(4) Borrower must have and be able to document a minimum of six months of mortgage payments, insurance and taxes for the investment property in reserves plus an additional two months reserves for each additional financed second home and investment property.
(5) If you are thinking of buying a condo for an investment, lenders are very particular about what they are willing to underwrite.
Last week, Congress extended and IMPROVED the homebuyers tax credit. First-time homebuyers – anyone who hasn't owned a home in the past three years – will still get up to $8,000 to apply against their federal tax liability, but buyers who have owned their current homes at least five years will also be eligible for tax credits of up to $6,500. To qualify, buyers must sign a purchase agreement no later than April 30, 2010 and close by June 30.
Just as important, if not more so for homebuyers in California, the extension also raises income ceilings. The new version has the credit phasing out for individuals with incomes above $125,000 and for joint filers with incomes above $225,000. The phase-out increase means the new credit will be applicable to higher-priced homes (though the purchase price can't exceed $800,000); thus, stimulating sales in more expensive categories.
This morning I went to the local realtors meeting. Three lawyers spoke about the changes in laws as a result of the economic downtown and foreclosure crisis. Some tidbits:
First, if you buy a home using the tax credit program, you need to plan on living there for 3 years. You can't live there for a few months and then rent it out.
Second, if you are buying a property as a short-sale, you need to make sure that the trustee (mortgage company) knows that a short sale is going on. Jeff Hare, a real estate attorney from San Jose, told a story of a recent short sale where the selling agent did not know that the trustee was planning on auctioning off the property.
Third, if you plan to buy investment properties that are in foreclosure, there are some new laws protecting tenants. Tenants can no longer be thrown out when a property goes into foreclosure. Many have 90 days to vacate the property. This could be a problem if the investor plans to renovate the property immediately and need to have clear access to it.
Governor Schwarzennegger signed several new laws yesterday to further protect current and future homeowners during these turbulent times.
From the Merced Sun Star -- "The new laws include provisions that will make it illegal for loan modification firms to collect up-front fees; establish standardized licensing requirements for mortgage lenders; enact new consumer protections related to reverse mortgages; make it a felony to commit fraud in connection with a home loan application; require mortgage documents be made available in several languages besides English; and mandate that buyers of foreclosed homes be allowed to choose which title and escrow companies they hire."
It is not too late to refinance....lots of people are taking advantage of 30-year fixed mortgages at 5% or below.
According to Frank Nothaft, Freddie Mac vice president and chief economist, "Mortgage rates rose slightly over the week, but rates on 30-year fixed mortgages remained below 5 percent for the third consecutive week. Homeowners are taking advantage of these low rates to refinance their current balances." Over the past five weeks ending October 9, more than 3 out of 5 mortgage applications were for refinancing, according to the Mortgage Bankers Association.
As the lending industry has come under more scrutiny, new regulations have sprung up. Two areas that have added paperwork are the appraisal and income verification processes. So, don’t be surprised if you need to sign even more forms when financing a real estate purchase or refinancing.
Late 2008, several governing agencies as well as the Attorney General of NY’s office, banded together to create the Home Valuation Code of Conduct (HVCC). These changes went into effect on May 1st and significantly altered the appraisal process. Most lenders require appraisals to verify the value of the property.
Under the old system, mortgage brokers ordered appraisals. Generally, a local appraiser, who knew the subtleties of the area was contracted to do this home valuation. Based on a home inspection and local real estate sales data, the appraiser was able to come up with a value for the property. It was up to the appraiser to chose which “comparables” best fit. However, under the HVCC, lenders are discouraged from using local, independent appraisers. Instead, they have a regulatory incentive to use an Appraisal Management Company. AMC often contract the work out based on price and turn-around time, not necessarily experience and knowledge of the area. Finding comparables has become automated too. Appraisal Management Companies are encouraged to use an Automated Valuation Models. In seconds, AVM’s provide detailed data regarding the subject property including an estimate of value.
What should you as the consumer know about this?
You will need to sign an additional disclosure, the HVCC Disclosure, when receiving the completed appraisal. This disclosure must be signed at least three days before your loan is due to close. Failure to sign this form could delay your closing.
Review your appraisal carefully. These appraisals are often done by someone who is not familiar with the particular nuisances of your neighborhood. If you have any questions or want to dispute part of the appraisal, you need to contact the lender. You cannot contact the appraiser directly. If you do, the appraisal can be considered non-compliant with HVCC and another appraisal will be required.
On September 1st, Fannie Mae tightened the requirements regarding the use of IRS tax transcripts to verify borrower’s income. Fannie Mae now “highly recommends” that 4506-T transcripts be obtained from the IRS for the transaction prior to closing and is used to validate the income documentation provided by the borrower and used in the underwriting process. So, you the borrower will be asked to complete and sign Form 4506-T at both loan application and closing.
If you are refinancing, when the appraiser contacts you to set up an appointment, you should ask: how many appraisals have you done in my area in the last 3-6 months and where are you coming from? If either response is unacceptable have them call you and cancel that appraisal and reorder.