Why can’t we close our mortgage in 30 days?!!

With rates under 4% for quite some time now, the amount of activity in the mortgage world has been vigorous, to say the least.  Home prices coupled with these rates have dramatically increased the number of purchase mortgage applications.  Add in the economic programs of HARP 2.0 and FHA Streamline Refinances and the number elevates to tremendous numbers.

This influx of activity not only has lenders at capacity, but title companies, appraisers and closing attorneys as well.  Closing a mortgage in 30 days isn’t impossible, but it’s rare.  You almost need a “perfect storm.”  You need to be, what I like to call, a “submission friendly” borrower.  The amount of documentation needed to get a mortgage processed is cumbersome, to say the least, both on the part of the borrower AND the lender.  In recent years, the amount of disclosures required for a mortgage application has practically doubled.

A couple of the new disclosures create delays in the process due to their time sensitivity.  A lender is not allowed to order an appraisal until the borrower has provided an intent to move forward with the loan.  This is a disclosure within the application package.  Once this item is signed, then and only then, can the lender order the appraisal though an appraisal management company.   The processing of the payment for this appraisal cannot take place for three days after the intent is signed and the appraiser isn’t going to perform the appraisal until he or she knows they’re getting paid.  Once the appraisal is done, if there are no issues, you’re looking at a 7-10 day window to get the report.  So we’re already into the process by about two weeks.

The “submission friendly” borrower will provide all of the items asked for, such as W-2’s, pay stubs, bank statements, etc.  Anything missing will delay the file from even being looked at by an underwriter.  If there are complete files in line for the underwriter, those will be looked at first.  With the current influx of files coming in, an incomplete file will never be “next.”

Once the file does reach the status of “Clear to Close”, about 15 to 20 days later, the closing department still needs to do their checks and balances.  They need to verify that the APR from the initial application has not changed and that the loan complies with all federal laws to protect the borrower as well as the company.  If any changes are necessary, the file needs to be redisclosed and there is a mandatory three day waiting period.  Preparing the loan for closing generally takes 48 hours.

While it is still possible to close a loan in 30 days, it’s better not to get your hopes up and consider the fact that 30-45 days is the expectation.  It’s a small price to pay for a smoother transaction to secure something that will last 30 years.

You’re pre-approved! Now, go buy a house, but don’t do it alone!

You’ve sought the knowledge and professionalism of a mortgage originator to get pre-approved for a mortgage.  You now know what the current rate is, you know how much you need for a down payment and closing costs, and you’ve got a letter in your hand that says you can buy a house for $XXX,XXX.  Now you’re ready to go “house shopping.”  But you’re not working with a realtor.  WHY NOT?!!

Many home buyers, especially first time buyers, don’t realize that the seller of a home pays the realtor’s commission.  That means that if realtor Joe Smith has a house listed with a 6% sales commission, he is willing to split that commission with any realtor that brings a buyer to the home.  So if you’re working with realtor Mary Jones, she brings you to Joe’s listing and you buy it, Joe splits the commission with Mary.  Mary will assist you with negotiating the price, filling out the proper forms, recommending an inspector, and most importantly, Mary knows the laws necessary to make sure you are legally protected as a home buyer.  Joe does know them as well, but Joe’s responsibility and first obligation is to his seller, so while you may think it’s ok to just call the agent whose name is on the sign in front of a house, you still want someone working on your behalf and yours alone.

If it turns out you don’t like the house that Joe has listed, you can have Mary do a search on the MLS for the specifics of a house you have in mind and in your price range.  If you want three bedrooms, two bathrooms, fireplace, swimming pool, finished basement, etc., Mary can look that up in the MLS and get you a list of houses that meet your wants and needs.  You may think that you can do that yourself with the internet, but if a house goes on the market today, it may not hit the internet for a day or two.  In the meantime, another buyer who is working with a realtor will get to see it before you and might beat you out on the home of your dreams.

Summing up, you wouldn’t try to get your mortgage without seeking the help of a qualified professional, don’t do it when you’re ready to buy your home.  The service is literally free and priceless!

Are today's guidelines tighter?

There are some who would argue that today's mortgage guidelines are too tight to allow the average person to buy a home.  Are they?  When compared to the guidelines of 2006, one could argue that to be the case, while others would use the rebuttal that the guidelines of 2006 were too loose.  Either way, there’s no denying that houses are selling.  From time to time, I like to pass on this statistic and the slide below shows that, in fact, homes are selling and at an average of 12,466 per day across the country, according to the National Association of Realtors (NAR).  And of those, just under 9000 were buyers who obtained a mortgage.  That’s and average of  nearly 9000 people getting a mortgage every day in this country.

Yes, it is not as easy as it once was to purchase a home, but there should be some level of work involved in accomplishing the American Dream.  Having good credit vs. marginal credit, having a down payment vs. no money down, proving you have a job vs. fogging a mirror, etc.  This is the old “skin in the game” theory.

The real estate market is such that the environment is creating an opportunity for first time home buyers to realize home ownership at a lesser monthly payment than renting.  With today’s prices and interest rates, the monthly payment on a mortgage can be less expensive than a rental.  Take into account the tax write off and you’ve got an even better scenario.  Surveys being done by experts are proving that the opportunity is now.

In any event, if you're considering a purchase in the near future and haven't spoken with a mortgage expert, it's never too early to do that.  It's also a great way to test them.  If you let them know you are looking to buy somewhere down the road and they don't give you the time of day because you're not buying now, that's a good indication of the service you'd get down the road.  I hear that all the time.  "You're the first person who would talk to us about this."  You also want accurate information about the process.  I can't tell you how many times I've heard someone say "My uncle told me I should do this" or "My cousin told me it was supposed to be this way."  Mortgage guidelines have changed a lot over the last couple of years and probably since your uncle or cousin went through the process.  Get the facts now and maybe even see what your credit report looks like.  You may need to "tidy up" in that department before being able to buy.  An educated consumer is the best defense against those "tighter guidelines."

Trying to catch the market at the bottom can get you bitten in the same place

Often, I hear potential home buyers commenting on how they’re waiting for the market to bottom out before buying a home.  But what is the indicator that the market has bottomed out?  Truth be told, you don’t know until it’s already happened.  So do you roll the dice and hope you catch it at the very bottom, or do you find something you like, get a comfortable price, payment, and interest rate now and not sweat the fact that if you had waited, you could have save $12 a month on your payment?

The fact of the matter is, no one knows when the market will, has, or did bottom out.  We know that prices are at record lows, as is mortgage rates.   Waiting for the market to “bottom out” has been a process that has bitten more people in their bottom than afforded them the opportunity to get a better deal.  So many things can happen in that time that you’re waiting.  Rates could go up.  The market could turn around.  The house you had your eye on could get scooped up by another buyer.  And the list goes on and on.

The phrase “There’s never been a better time to purchase a home” has been used over and over for the past year or more.  There’s a reason for that.  Rates are very low and have remained steady for at least a year.  Prices are stable and actually already negotiable, so why wait for that?  Even if you were to luck out and get a slightly better deal on rate or price, is it really worth the risk of losing out on your dream home?  I’ve seen the fail too many times.  So if you’re in the market to purchase a home, whether it be your first home, a move up home, or you’re downsizing, get off the fence and pull the trigger.  In the long run, you will be glad you did.

Success with HARP

I have a friend who likes to use the line “No one’s perfect, not even a perfect fool.”  Well, for those who think the government can never do anything right, here’s an example of them getting something done well.

The Home Affordable Refinance Program (HARP) was designed to help homeowners with a Fannie Mae or Freddie Mac based loan refinance into a lower mortgage rate and payment, regardless of their current equity position.  After the recent real estate meltdown, many homeowners were left with less and in some cases no equity in their home, even though they may have put down 20% when they bought their home.  When you don’t have 20% equity, mortgage companies require Private Mortgage Insurance (PMI).  Well, if you put down 20% and the value of your home went down, traditional financing would require you to incur PMI on any new mortgage you obtained.  That meant that if you were trying to refinance to a lower rate, but didn’t have 20% equity anymore, your savings was negated by the need for PMI.

HARP was designed to take that obstacle out of the way and it’s working.  Recently, I uploaded a borrower’s application to refinance where they were “underwater” (Wall Street’s term for owing more than your home’s current value).  When I loaded in an estimated value of $300,000, the program told me that Fannie Mae’s data felt that the home value was more in line with a value of $256,000, but they were going to use my figure and the borrower could waive the appraisal.  These borrowers are going to not only save $330 a month, they are going to save $450 on an appraisal fee.  The system works!

How can you tell if your mortgage is backed by Fannie Mae or Freddie Mac?  Here are a couple of sites where you can check.

                www.fanniemae.com/loanlookup   (or call 1-800-7FANNIE, 8am to 8pm EST)

                www.freddiemac.com/mymortgage  (or call 1-800-FREDDIE, 8am to 8pm EST)

You can get all the info on qualifications and guidelines at the Making Home Affordable website program page, contact your current mortgage provider, or me.

Rent vs. Buy - Start Packing!

There are studies being done right now that are telling us taht people who are on the verge of buying a home need a little extra explanation as to why right now is the right, if not best, time to buy a home.  It is cheaper, now, to buy a home that it is to rent a home.  The chart below illustrates the flow of mortgage payments as compared to market rents since 1988.  For the first time in that time period, the payment on a mortgage for a median purchase price is actually less than it is to rent.  And let's not forget to consider the tax write off you get as a homeowner paying mortgage interest and property taxes.

As you can see, when the market hit it's height in price and interest rate, it made more sense, from a budget stand point, to be renting.  But now that the home prices and interest rates are at their current levels, the opportunity to own a home has never been better or more affordable.

A recent report done by TD Bank shows that the aspirations of young people to own their own home are still very much alive.  A majority of renters between the ages of 18 and 34 WANT or intend to buy a home. 

They're just afraid.  Of what?  Let's face it, the media doesn't sell advertising if they report sunshine, lollipops and rainbows.  Fear sells and one of the number one categories of reporting in today's news and media outlets is the "housing crisis."  Does it still exist?  Depends on who you ask.  For the purpose of this post, let's focus on the young, soon to be First Time HomeBuyer.  You have some money saved up (FHA requires a down payment of 3.5% of the purchase price and for those who qualify and wish to purchase in a rural area, the USDA still has a No Money Down program), home values are incredibly low, interest rates are at an all time low, and rents just keep going up.  You have a small family started, you need more room, and the landlord is telling you that you can't paint your daughter's room pink or you can't put that little swing set up in the yard.  Meanwhile, there are homes that you can afford, at interest rates that will allow you to pay less than your current rent.  It's time to start packing.  The quality of real estate and mortgage professionals has increased over the last several years due to attrition, licensing requirements, and plain old fashioned hard work and professionalism.  They're out there waiting to serve you and put you into a home you can afford.  Now is the time!  Don't be afraid!

FHA’s version of HARP

Many qualified borrowers who have a mortgage owned/serviced by Fannie Mae or Freddie Mac are taking advantage of the new revisions to the Home Affordable Refinance Program (HARP).  Those qualified borrowers are able to refinance to today’s lower interest rates without having to get an appraisal done.  What this means is that those home owners can refinance to a lower rate, regardless of their equity position, so if they are “Under Water” (Wall Street’s term for owing more than what your home is worth), you can not only refinance to a lower rate, you’re not required to have mortgage insurance (PMI) if you don’t have it now.

Home owners with an FHA mortgage have always been able to obtain a refinance without an appraisal as part of the Streamline Refinance process, but HUD has recently come out with a new guideline that, in a way, ties in with HARP, at least as far as the required date that you closed your current mortgage.

Provided your current FHA mortgage received it’s FHA insurance endorsement (usually within a couple of weeks after closing) prior to June 1, 2009, you are not only eligible to obtain today’s low fixed rates, you are also eligible for reduce mortgage insurance.

FHA mortgages always require mortgage insurance, regardless of the down payment.  In April of this year, FHA increased the cost of that insurance.  The Up Front Mortgage Insurance (typically rolled into the loan) increased from 1.00% to 1.75% of the loan amount.  The monthly mortgage insurance (the MI portion of your monthly payment) went from .55% to either 1.20% or 1.25% depending on your down payment.  The new guideline for borrowers with endorsements prior to June 1, 2009 is that the monthly mortgage insurance remains at .55%, but the Up Front is a mere .10%.  Compared to someone purchasing with a new FHA mortgage, that’s a substantial difference.

With FHA rates ranging from 3.50 – 4.00% given the day and market conditions, refinancing with a streamline refi can save hundreds of dollars.  And since FHA streamline mortgages don’t require an appraisal, you’ll save time as well as money.  Not sure when your loan received it’s FHA insurance endorsement?  Your current lender or the company you’re applying with can get it for you.  Refinance today, reduce your monthly mortgage payment and then take the savings out into the world to stimulate our economy!