Posts Tagged ‘Mortgage’

HOME BUYERS QUESTIONS

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Absolute_Mortgage

Absolute_Mortgage (Photo credit: kathleenleavitt)

HOME BUYERS QUESTIONS

A recent study by THE INMAN GROUP showed that 90% of 1st Time Buyers felt they were well prepared when they started the home buying process. By the time they finished 56% said they should have known much more about the financial aspects of home buying.

The top problem areas were:

1. The Mortgage Selection options.

2. The Closing Escrow process, especially loan closing.

3. The Offer and negotiation process.

This supports my personal experience and justifies my firm policy of having a typically 2 hour initial meeting with new buyer clients to discuss these and a few similar areas. This allows us to deal with the probability that many hours spent on the Web has given them a toxic mix of good, wrong, ambiguous, and dangerous data, but no framework in which to analyze it.

The biggest single problem in my experience is the idea that house hunting should start with looking at houses.

WRONG

It should start with finding the optimal Mortgage FOR YOU based on your current circumstances and future plans.

When you have determined (accurately) how much you can afford and which type of mortgage is best suited for you, should you be using your valuable time to start viewing only homes which meet your parameters and pockets.

NOTE: It’s worth remembering that the 30 year fixed rate mortgage is seldom the best choice for the majority of buyers. However it is always the most expensive.

 

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ADJUSTABLES ARE BACK (and thats GOOD NEWS for smart buyers)

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(and thats GOOD NEWS for smart buyers)

Absolute_Mortgage

Absolute_Mortgage (Photo credit: kathleenleavitt)

FACT: An adjustable Rate Mortgage, used inteligently, will always cost less over the life of any other type of loan.

Question. So why do all the so called experts advise you to only take a Fixed Rate mortgage?

Answer. Because they are at best ill informed, or at worst simply stupid.

The bias toward fixed rate mortgages is the result of settling for the simple but expensive rather than taking the time to understand  the relatively complex but much cheaper.

I’m constantly amazed by the number of home buyers who will give up their weekends for many months searching for the perfect home, yet take just a couple of hours to decide how to pay for it, and end up never knowing what their options were.

Choosing the wrong mortgage can and will cost many thousands of dollars.

Question. HOW TO DECIDE WHAT’S THE BEST MORTGAGE?

Answer.

That which cost the least amount over the life of the loan based on:

1. YOUR BEST ESTIMATE OF HOW LONG YOU EXPECT TO OWN THE HOUSE.

2. YOUR CURRENT FINANCIAL CIRCUMSTANCES.

3. YOUR ANTICIPATED FUTURE FINANCIAL CIRCUMSTANCES. Long and Short term.

REMEMBER. You are UNIQUE.

Your circumstances are UNIQUE.

Your plans are UNIQUE.

YOUR MORTGAGE SHOULD BE UNIQUELY DESIGNED FOR YOU, NOT FOR SOME MYTHICAL AVERAGE PERSON.

You should always know what options are available to you and how each one would work out over time.

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MORTGAGE FRAUD ALERT

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English: A sign advertising foreclosure rescue...

English: A sign advertising foreclosure rescue, name and number blanked out following discussion. (Photo credit: Wikipedia)

Despite frequent publicity and legal actions the Fraudsters and Scam Artists are still ripping off vulnerable and financially stressed homeowners with promises to fix their problems for a few thousand dollars up front.

They promise to obtain loan modifications, mortgage relief, and foreclosure rescue. Once the cheque is cashed they are no longer to be found.

There are many services available that legally try to help with these kinds of problems; however, they do not require payment up front which is totally illegal.

THE GOLDEN RULE IS THIS:

ANYONE ASKING FOR AN UP FRONT PAYMENT IS A CRIMINAL TRYING TO CHEAT YOU.

 

 

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FIRST TIME BUYER PROGRAMS-Santa Clara & San Mateo Counties.

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It’s easier than ever for 1st time buyersto to get on the home ownership wagon in Santa Clara and San Mateo Counties.

Official seal of County of Santa Clara

Official seal of County of Santa Clara (Photo credit: Wikipedia)

Each  has a dynamite program which greatly reduces the costs of buying when the buyer has only a small Down Payment (3% for Santa Clara-5% for San Mateo).

In both Counties the program works by providing a very low interest rate Second mortgage for either 17% or 15% of the purchase price. This removes the expensive PMI (Private Mortgage Insurance) with  all it’s costs and bureaucracy.

More information can be found at: www.housingtrustscc.org – for the Santa Clara County MAP Program

www.heartofsmc.org – for the San Mateo HEART Program.

Or drop me an e-mail – bmccord@rwnetwork.com

AND THAT’S NOT ALL.

You can then add the best Federal  Program I know of; The MCC (Mortgage Credit Certificate ) program which provides a substantial IRS Credit. As an example of this it would reduce your Federal Tax Bill by about $240/month on a $400,000 mortgage i.e. $2,880/ year.

NOTE: This is in addition to the normal Tax Relief on Mortgage Interest.

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PENDING RATIOS STILL IMPROVING

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The ratio between pending sales and listed properties is the best single indicator of future market direction.
Silicon Valleys Pending Home Sales Index (PHSI) has now improved for 16 months in a row from from February 2011 to May 2012.
A PENDING SALE is defined as a Signed Purchase Contract.
Given the Federal Reserves commitment to keep rates down for at least another year this trend seems sure to continue with a steady increase of home prices.

Mortgage Activity Increasing Rapidly

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A large increase in Mortgage loan applications for Buyers is another strong sign that the market is getting back to normal in many parts of the Country. Overall the number of applications for mid February to mid March was  22% greater then for the same period last year.

When added to the recent large increase in the number of Pending sales contracts this bodes well for a much stronger market overall.

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REFINANCE BLUNDERS

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TURNING 26 YEARS INTO 30 YEARS.

It’s not always a good idea to refinance a mortgage simply to lower the Monthly Payment.

Before you refinance a 30 year mortgage which has 26 years to go, and take a new 30 year loan, you must compare the total amount which will be paid over the life of each loan before deciding whether it makes economic sense.

The smartest way to take advantage of lower interest rates would be to calculate the amount you would have to pay each month in order to have the new loan paid off in 26 years, and then make an extra payment each month to achieve that highly desirable result.

If the new lower payment plus the extra to make it a 26 year loan is less than the amount you are currently paying then go for it. If not then you should reconsider other options before proceeding.

I cannot go into details regarding other options within a simple post such as this, but I can assure you they do exist. However the regular Loan Officer is not going to bring them to your attention. 

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Inside Job. Must see movie. Very Interesting

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If you truly want to understand how our economy got into it’s current mess, who’s responsible, and where they are now this is a must movie.

It does a great job of pulling together the threads and showing the whole cloth.

Higher interest rates likely Soon??

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The Federal Reserve (the Fed) took aggressive steps during 2009 and early 2010 to drive mortgage interest rates down in order to encourage more people to buy homes and revive the real estate industry.

To understand how they did this we need to know what actually controls mortgage interest rates for the home buyer.

 It is the price of Mortgage Backed Bonds (MMB’s)and NOTHING else. The bulk of these are created by Fannie Mae and Freddy Mac who buy your mortgage from the Bank or Mortgage Broker who originally made it. They then package hundreds of mortgages together as a Bond and sell it off to private investors (Pension and Insurance companies are typical buyers). The proceeds from the sale are used to buy new mortgages from the Banks and Brokers. This virtuous circle is the motor that drives the Real Estate market.

The Private Investors stopped buying when they realized that a lot of the individual mortgages inside the Bonds were badly designed (Sub-Prime) and payments from were less reliable than they had been told.

When investors stop buying MMB’s the Mortgage Lenders have no money to lend and the Real Estate Market freezes up.

One solution would have been to increase the interest rate on new mortgages in order to offer a higher rate to the investors to compensate for the higher risk. In normal times this is how the market works. In the current circumstances the Investors were not going to buy at any price.

In early 2009 the Fed came to the rescue to avoid a total shut down of the housing market. They began buying these MMB’s in huge numbers and aaccepted very low interest rates. This restored the supply of money available to make new mortgages at historically low rates, and stabilized the whole residential real estate industry.

These Fed purchases have been completed and the challenge now is to attract Private Investors back as buyers for MBB’s. They are there, but will not accept the low rates that the Fed did. Therefore the interest rates paid to get a mortgage will have to go up.

Potential Buyers need to be getting serious if they want to take advantage of these historically low rates.

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Bank of America Loan Modification

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Here’s one more example of a Bank pretending to do something positive about loans to defaulting Sub-Prime borrowers, while actually increasing their payments.

While 90% of mortgage lenders resist  handing out any type of loan modifications, despite being advised and even pressured by the government to do so, Bank of America claims it is now taking the lead. The initial B of A model seeks to conditionally (read: unlikely) cut up to 30% off the principal of 45,000 home mortgages nationally. Note: This is not the same as a reduced payment.

This program is very limited in breadth and scope. It applies only to those homeowners with negative amortizing ARM’s.  The principal reduction program will not be available to underwater homeowners with fixed rate mortgages or ARMs with amortized payment schedules. B of A claims their goal is to reduce homeowners’ monthly payments to an amount equal to 31% of their household income – the parameter set by the federal government two years ago, in 2008, based on long-standing fundamentals of mortgage lending.

In practise this program will apply only a few of the loans B of A inherited when it took over Countyrywide; specifically (negative amortization loans), where the Borrower is at least 60 days late!!

A more important problem is that the proposed modifications will usually result in a HIGHER MONTHLY PAYMENT for people already unable to make the current minimal payment.

For a delailed analysis of this Public Relations Excercise check http://blog.firsttuesdayjournal.com/2010/04/lenders-attempt-to-lock-homeowners-into-paying-underwater-homes/

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