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FHA Loan Limits to Drop in 2009

Published
by
Gina Pogol
on November 19, 2008
in Mortgage Refinance
. 0 Comments

If you’re thinking about refinancing from a subprime or ARM to an FHA loan you’d better think fast. FHA loan limits, raised temporarily by the 2008 economic stimulus package, will return to lower amounts in 2009. A HUD letter to lenders explains how the maximum limit of $729,750 in high-cost areas will drop to $625,500. And limits for other locales will drop to 115% of the median sales price but no lower than $271,050. Falling property values have decreased the maximum loan limit in many counties.

HUD has compiled this list of 2009 FHA loan limits but reading it is a challenge. Click to open the file, then use the “find on this page” function (in Internet Explorer) to find your area. The loan limit number starts on the 11th character of the widest column of numbers and codes. For example, Reno Sparks NV will have a loan limit of $325,450 for 2009. In 2008 it was $403,750, a drop of over $75,000!

So if your home is in the spendier part of town or if you live in a high-priced area like San Francisco, consider getting your your refinance done before the end of the year. And keep in mind that FHA will grant you the higher limit only if you lock your mortgage rate by December 10th and close it by year end.

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Loan Officers: Get the Best, Avoid the Rest

Published
by
Gina Pogol
on November 14, 2008
in Mortgage Refinance
. 2 Comments

Your mortgage loan experience depends largely on the competence of your loan officer. A good one can make the process so smooth you hardly know you’re in escrow. A bad one can wreck your marriage, make all of your hair drop out, and have you falling off bar stools in no time. Okay, maybe that’s a slight exaggeration. But a good loan officer can get you a good loan and make sure you aren’t miserable in the process. A good loan officer is someone you trust and someone whose recommendations you have faith in. Here’s how to find one:

GOOD Loan Officers

* Return your calls. Within an hour in most cases.

* Explain themselves. If they recommend a mortgage loan product, they can tell you why it’s the best one for you. And they know mortgages well enough to explain programs and lending terms in plain English.

* Offer choices. In most cases more than one kind of loan will work for you. A good loan professional offers alternatives, gives you the pros and cons, and helps you make the best choice for your situation.

* Ask questions. The right loan depends on many things. How long do you plan to keep the property? Do you expect increases or decreases in income, such as college graduation or retirement? Does your income fluctuate? Are you a risk-taker or do you want to feel safe even if it costs more? If your agent isn’t asking questions, find one who does.

* Consider your comfort. Would you feel better if you could get your loan documents early and review them at your convenience? Would you prefer your loan officer to attend your loan closing? Do you want detailed explanations? Or do you prefer to “cut to the chase” and limit your involvement? Your loan agent’s work style should reflect your preferences, not his or hers.

* Thinks on his or her feet. Your credit report came in with an unexpected booger. Your business income was less than you thought. The property appraisal came in at a lower value. The lender discontinued the program you wanted. An underwriter has a question about your employment. Most loans get at least one monkey wrench thrown into the process at some point. A good loan agent prepares for these possibilities and solves the problems.

So when you are shopping for your home loan, look at more than rates. Check with several lenders, find two or three with good rates, and speak to their loan agents. See who can explain programs and mortgage terms like APR, and tell you how rates are determined. See who asks you questions about your lifestyle and finances. See who returns calls promptly and makes your part as easy as possible. Once you find the agent with skills and integrity you want, start your application. And stay off those bar stools!

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Cash Out Refi with No Equity? Yup

Published
by
Gina Pogol
on October 7, 2008
in Mortgage Refinance
. 8 Comments

The Wall Street Journal recently featured a new mortgage product that allows borrowers to pledge their future equity in exchange for a loan today. It works like this: The finance company advances you money–usually 10 to 15% of the current value of your home, and when you sell it, the investor gets half of the property’s appreciation.

Some require that you pay back the initial advancement while others do not. All investors require that you keep the property maintained and pay your taxes, and you can’t sell it for a minimum number of years (usually 5) without paying a hefty penalty. Additionally, you cannot take on more home equity debt or refinance without approval. The good thing is that if your home doesn’t increase in value you are not penalized and in some cases won’t even have to pay the loan back!

So, if you need money desperately and have no equity, this loan could save your life. Otherwise, it might be a really, really expensive way to borrow. Consider the following “what-if:”

A borrower with a $500,000 home and no equity could borrow $50,000 with this product, called a shared appreciation loan. In ten years, the home could be worth $750,000 (at less than 5% appreciation this is not an unrealistic scenario). Well, the owner sells the home and has to repay the $50,000–and an additional $125,000, for a total of $175,000 to borrow $50,000 for ten years. If one invested that $50,000, it would have to earn a return of nearly 13% to break even! Most would find 13% pretty spendy for a mortgage loan. But it’s still cheaper than most credit card loans, many small business loans, or private student loans.

And it could make home value depreciation almost a good thing….

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Want an FHA Mortgage? Use an FHA Lender

Published
by
Gina Pogol
on August 29, 2008
in Mortgage Refinance
. 2 Comments

FHA mortgages are hot. Everyone wants them. Everyone wants to sell them. Right now FHA is the only home loan that hasn’t significantly tightened up guidelines. On the contrary, HUD has made these loans more accessible than ever as part of a refinance rescue effort designed to stop the foreclosure epidemic. And lenders, hurting for business on all fronts, are eager to join the party.

Not all mortgage lenders are approved to do FHA loans. But a disreputable loan officer (fortunately this isn’t often the case but it does happen) may tell you his / her  company can do an FHA mortgage even if it’s not approved through HUD. He or she may take your application, then try to refer your loan elsewhere (for a fee!) or broker the loan through an approved lender–unbeknownst to you. This practice is icky and maybe illegal, depending on the circumstances. Unsuspecting borrowers have found themselves in nightmare transactions that never get done, either because the lender doesn’t do enough FHA loans to be good at them or because the lender has no control over a brokered or referred application.

Don’t start an FHA loan application  unless you are sure of your lender. Why? Because once you start an FHA loan it’s hard to switch it to another lender. You can’t just shop around once your loan is in process and move your loan to whoever offers the best deal that day. This is because once you apply for an FHA loan, HUD assigns you an FHA case number. You only get one at a time, and if you want to move your loan, your first lender has to “release” the case number. And some of them (again this isn’t common but it does happen) don’t release case numbers easily.

This creates another reason to be sure your lender is really approved to do FHA loans before you apply–you don’t want someone who can’t close your loan to have your case number. While your loan application is being shopped around, rates could be going up, your application could be going completely sideways in the hands of newbies, and your dream home might be falling out of escrow.

So check your lender out upfront to avoid nightmares down the road. First, go to HUD’s web site to verify that your lender has approval to do FHA loans in your state. Just put in the lender’s name and HUD will tell you. Be sure to ask loan officers how long they have been doing FHA loans and how many they have closed–everyone is jumping on the bandwagon now, and you don’t want an FHA virgin handling your loan. FHA mortgages have their own rules and complications; get someone who does these extensively if you want yours to go without a hitch

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Do You Need a Bad Credit or Subprime Mortgage?

Published
by
Gina Pogol
on August 12, 2008
in Mortgage Refinance
. 7 Comments

Some of those studying the mortgage crisis have concluded that unscrupulous lenders often put borrowers with fair or good credit into expensive subprime products, jeopardizing their homes and costing them money. Undoubtedly this happened, but probably not for the reasons that you think.

Consider that a mortgage broker, who has access to many lenders and many programs, has to offer a competitive bid or the borrower will probably go somewhere else. So if you were a broker, you wouldn’t quote 13% at 2 points if you could get a borrower 7% and charge the same price. You would find your borrowers the best-priced programs that they qualified for that you had access to. That’s the key; not every broker or lender has access to every kind of program. For example, many lenders don’t offer FHA loans and won’t be in a position to see if you qualify for one. Ditto Freddie Mac and Fannie Mae. Lenders that tend to specialize in subprime or bad credit mortgages often don’t provide any other kind of financing. Sometimes, borrowers make the mistake of assuming that they need bad credit loans when maybe they don’t. They go directly to subprime lenders when perhaps they could start a little higher up the food chain and get a better loan.

So here, in order of rates / costs, are the types of loans that **may** be available to you, assuming that you are not looking for large (jumbo) or exceptionally large (super-jumbo) loan amounts.

* Fannie Mae or Freddie Mac conventional mortgages. These are almost all underwitten electronically, so you can get a decision very quickly most of the time. It makes sense to see if you can squeak out an approval before trying elsewhere. Pricing depends on your risk factors, including property type, the size of your down payment, and your credit score.

* FHA financing. May be underwritten electronically or by hand. FHA guidelines are less strict than traditional conforming mortgages and feature low down payment requirements.

* Expanded Approval (Fannie Mae) and A- (Freddie Mac). These are loans that “just miss” getting approved with conforming guidelines but can still be underwritten. Extra fees make these loans more expensive than prime grade loans but lower-cost than subprime loans.

* Subprime mortgages. These loans can be graded from B to D, depending on your credit and the lender’s criteria. Credit scores below 600 will probably (but not necessarily) land you in this category. However, just because you are subprime doesn’t mean you can’t comparison shop and make choices.

So before committing to financing, check your options at several levels. And keep in mind that a lender who doesn’t have access to a particular product may not know about it or recommend it, even if it’s a better fit for you. So even if you expect to hear “NO,” suck it up and reach higher anyway. You might be pleasantly surprised.

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Put It In Reverse: Your Mortgage, That Is

Published
by
Gina Pogol
on July 30, 2008
in Mortgage Refinance
. 6 Comments

If you are 62 or over, have a lot of equity in your home, and need money, you are in luck–even if you have bad credit. Reverse mortgages, also called Home Equity Conversion Mortgages (HECMs) are the only mortgages where people with bad credit pay the same rates as prime borrowers. That’s because you don’t pay this loan; it pays you.

Reverse mortgages were designed to help older homeowners stay in their homes even if their income is low. They allow borrowers to cash out their equity without worrying about making payments or selling. When you take out a reverse mortgage, the lender uses a complex formula and calculates how much you can borrow based on your age and the amount of equity in the home. You can take this money as a monthly payment, a lump sum, or a combination of the two. You are responsible for keeping up your home and paying the property taxes and insurance, but there are no mortgage payments–that’s why it doesn’t matter if you have bad credit.

The mortgage doesn’t have to be repaid until you move, sell the home, or die. The loan is repaid and any remaining proceeds from selling the home go to you or your heirs. No matter what the balance of the loan is, you never owe more than the value of the property. HECMs are administered by HUD and have some limitations, primarily the amount that can be borrowed against the property. Other private companies offer reverse mortgages in jumbo amounts and with differing eligibility requirements.

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Bad Credit? Fannie Mae Is Not Handing You the “Keys”

Published
by
Gina Pogol
on July 28, 2008
in Mortgage Refinance
. 4 Comments

At first glance Fannie Mae’s “Keys to Recovery” plan seams too good to be true. It is. One provision touts itself as a rescue effort designed to help borrowers underwater on their mortgages–with loans up to 120% of the current value of the home in fact. But wait, there’s more. The existing loan has to already be a Fannie Mae loan. Well, how many people with prime, conventional financing can do better by refinancing now? Not many. Those who could really improve their positions, meaning people in non-traditional ARMs with negative amortization, for example, or subprime rates, can’t get a Fannie Mae rescue. Because Fannie is a private company, responsible to its shareholders. And it would be irresponsible to refinance loans up to 120% of the value of the home.

So “Keys” amounts to little more than a publicity stunt. Very few will be helped by this effort. Stay tuned.

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Borrower Beware? What NOT to Worry About

Published
by
Gina Pogol
on July 23, 2008
in Mortgage Refinance
. 4 Comments

If you’ve been following the news about mortgage reform, you might have come across the term YSP, or Yield Spread Premium. YSP is simply a rebate paid by a wholesale lender to a mortgage broker for originating a loan. While some (usually well-meaning but ignorant) folks rant about how lenders use the Yield Spread Premium to steal from poor dumb consumers, the truth is that consumers are pretty sharp when it comes to shopping, YSPs save many people money, and most people who get loans from brokers (85% in fact) choose to make use of them.

Here is how YSP works: When a mortgage broker brings in a loan, he or she saves the wholesale lender time and money. The lender doesn’t have to market or advertise, network in the community, maintain a local office, meet with the borrower,  analyze the income, assets, and debts as well as future financial and lifestyle changes, help the borrower choose the best loan, complete the paperwork, and document the financial package. The broker who does all this doesn’t work for free but is not an employee of the lender either. So brokers get paid one of two ways: they either collect fees from the borrower (that’s you and me!), for example origination and application fees, or they get them from the lender in the form of a rebate. Borrowers can choose to pay the fees to the broker out-of-pocket or they can opt for a slightly higher rate and the lender will cover the broker fees for them. And 85% of borrowers opt to have the lender pay the broker fees. It’s their choice.

But this is hard to visualize. So here’s an example:

Bob Borrower wants a $200,000 loan with a 30 year fixed rate. His broker shops around and offers him the chance to get a 5.75% rate while paying 1 point ($2,000) plus about $1700 in other fees. Or, Bob can choose a 6% rate and pay NO fees. Bob finds an online mortgage calculator and puts these figures in. The 5.75% loan carries an APR of 5.92%. The payment is $1,167. The 6% loan, costing $0, has an APR of 6% and a payment of $1,199, a $32 per month difference. So Bob can choose between paying $3700 upfront or paying $32 a month more. While the 5.75% loan has the lower APR, it takes almost ten years before Bob makes up the $3700 by saving $32 a month. So you can see why most people choose the so-called “no-cost” loan.

How can Bob KNOW that he’s not being taken advantage of? Simple, when it’s easy to compare rates and programs online. Bob checks online and finds another lender who wants 6.125% for a no-cost loan — he knows he’s getting a fair deal. It doesn’t matter what the wholesale price is; by comparing offers and taking the best one you get a good deal — no different than shopping for clothes or tires (aka threads and treads).

There are plenty of things to watch for when shopping for a loan — the APR, the fees, terms like prepayment penalties, teaser rates, amortization — but YSP doesn’t mean “You’re Swindling People” and yield spread premium isn’t anything to worry about.

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Stuck with Your House — Part 2

Published
by
Gina Pogol
on July 14, 2008
in Mortgage Refinance
. 5 Comments

Couples who wish to divorce but can’t sell or refinance the family home have a special obstacle to dissolving their relationship. Normally you would just sell the property or the party keeping the home would refinance the mortgage and release their ex from the obligation. But when you owe more than you could sell the home for this becomes impossible.

Some couples agree that one keeps the house and takes over the mortgage, with the stipulation that the occupying spouse refinance or sell within a specific time. In this case, the non-occupying spouse should remain on the home’s title until the refinance or sale is complete. Signing a quit-claim (relinquishing your interest in the property) only means that you no longer have any ownership interest — but you’re still on the hook for the mortgage payments. And keep in mind that any agreement between the two of you–even sanctioned by a judge in divorce proceedings–carries no weight with your lender. And while judge can order your ex to refinance the property, he or she can’t force a bank to lend if it doesn’t want to. What an agreement can do, however, is give you the right to sue your ex in the event that the mortgage payments don’t get made and you have to come up with the money.

Another less-than-perfect option is to rent out the home while continuing to own it together–as business partners, not husband and wife. Consult an attorney about creating a business (for example a corporation or limited liability company), transferring the home into it, and dividing the expenses, income, and tax deductions between you.

If you can afford to do so, refinancing or selling, even if you have to bring cash to the table, is probably be the best option. In fact a judge could conceivably order you to do just that. Talk to a good lender about which programs will allow you to finance the most of your home’s value–you might be surprised at how high the new FHA or Fannie Mae programs will allow you to go.

While “winging it” and hoping your ex makes all the payments as agreed may be the cheapest solution it’s also the riskiest. You have a lot to lose in the event of a foreclosure. The lender may even come after you for the difference between what you owe and what it is able to sell the property for (this is called a deficiency and is legal in 48 states as of this writing). Your credit will be trashed, potentially affecting your ability to get financing, insurance, even jobs.

If you can’t afford to bring in cash, you may be in a position to make a deal with your lender. Replacing the old loan with a new one obligating one party is referred to as novation, but this rarely happens unless the occupying spouse has great credit and plenty of income. There are other allowances a lender can make, and not all lenders require you to be delinquent on your mortgage before approving a loan modification or short sale. Speak with your lender / mortgage servicer about a short sale, and enlist the services of an experienced real estate agent or attorney who specializes in arranging these transactions.

The next post will look at available loan programs most helpful for refinancing underwater mortgages.

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Stuck with Your House and Your Spouse: Divorce and Your Mortgage Part 1

Published
by
Gina Pogol
on July 11, 2008
in Mortgage Refinance
. 5 Comments

Okay, we’ve heard about couples who stayed together “because of the children” for years before finally divorcing. But kids aren’t the problem for many of today’s would-be divorcees. Couples in soft real estate markets can’t separate because of………the house?

That’s right, the house. Normally, divorcing couples sell their home, split the profit from the sale, and go their separate ways, or the partner who keeps the home buys out the other and refinances the home into his or her name. But what happens when the house is worth less than the mortgage balance? It can’t be sold for less than what is owed (called a short sale) if the couple can afford the mortgage and the payments are current. And with zero or negative equity a spouse who wants to keep the home can’t refinance and get the soon-to-be ex off the loan and out of the picture.

Think a judge in divorce court can solve the problem? Probably not, and that’s why attorneys always advise divorcing couples to sever their financial connection completely. Because even if a judge says that your ex gets the house and that you are no longer responsible for paying the mortgage, your lender is unlikely to see it that way. And if your ex stops paying, the lender still has a contract with you–and in most cases the right to come after you for the missed payments.

Then, there is the equity issue. In most cases, the partner keeping the house pays the exiting spouse for his or her share of the equity in the property. When there is negative equity, the spouse leaving owes the one who stays. For example, a house worth $200,000 having a $240,000 mortgage has negative equity of $40,000. The one moving out may owe $20,000 to the spouse who stays.

Those who are destitute have more leverage with their lender–that is, they are in a position to say “restructure the loan or allow a short sale or we’re walking.” Additionally, government rescue programs like FHA are available to help those who could make payments under a restructured plan. The catch is that you aren’t eligible if you aren’t living in the house. So some spouses continue to live together while they work this out, although they might not be on speaking terms.

Next week’s entries will be devoted to exploring this topic and potential solutions. Have a great weekend!

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