As we discussed, many factors determine the interest rate on a particular mortgage. A borrower’s rate will reflect general conditions in the financial markets, the type of mortgage they chose, the lenders assessment of the risk involved in your financial situation and, of course your credit history.
That’s why a quick “rate quote” over the phone or a rate you saw online or pulled from a newspaper advertisement may not reflect the interest rate you will finally be offered once a lender has evaluated your specific circumstances as presented in your mortgage application.
Risk Matters When lending money to finance a home purchase, lenders and their investors seriously consider the risk that these borrowers may not repay the money loaned to them. For example: the larger the down payment, the greater the investment in the property and the lower the perceived risk. Therefore, the lower the mortgage interest rate. Vice versa: The smaller the down payment, the less equity in the home and the greater the risk of default. The higher the risk, the higher the interest rate
When someone calls me inquiring about interest rates, I tell them, “I don’t sell interest rates.” I go on to explain, “There is no “one low mortgage interest rate.” Rates fluctuate daily-even hourly-with movements in the financial markets. A borrower’s final interest rate is determined on the day it is “locked” by an assessment of:
• Mortgage type
• Mortgage term
• Loan amount
• Type of property
• Credit Score
• Debt-to-Income Ratio
• Amount of cash the borrower will contribute to the down payment, closing costs and points.
I might tell them, “Today, at noon on July 2, 2014, it is conceivable for a buyer want to buy a single-family home selling for up to $400,000 with a conventional 30 year fixed rate mortgage has a credit score greater than 740, is able to make a 20% down payment and is willing to pay all closing costs and about 2 points to get a rate in the 4.00% range. If any of these criteria do not fit your situation, then the rate will be higher. How does that sound to you?”
Bottom Line In the final analysis, it is the borrower’s unique personal situation that determines his/her final mortgage interest rate. His financial position will help him decide which mortgage program right for him and what interest rate scenario is right for his family budget, how big a house he can buy and how large a mortgage he can afford to repay. My job was to guide you to that decision.
Do not hesitate to reach out to me with any questions or concerns you may have about how your situation might impact your mortgage interest rate. I’m here to help.
I live in a small CT town with a population of about 23,000 persons. According to CityData.com, we have 8,300 houses in town. According toZillow.com & Realtor.com there are currently about 225 properties for sale in town including SF homes, condos, a few multi-families and some land lots. Every Sunday, the local paper lists recent sales in area towns. For the past 5-6 weeks no sales have been reported for our little town. Last Sunday, the paper reported that 24 properties were sold; 30% of which were sold to the bank for a $1. I did a quick check of neighboring towns with lower populations, similar demographics and higher housing density and their figures seemed to be comparable.
Then I read a blog by CTNewsJunkie that cites a report by the state Labor Department and Economic Development Department that seems to blame the housing market for the pain we suffer. The report contends that “if the slowdown in housing, which began in the summer of 2013, continues, job growth will slow this year and again in 2015. They forecast job growth in CT will “slow to fewer than 20,000 new jobs from YE 2013 to late 2015.” Now that’s new jobs statistics and doesn’t consider a contraction of the total work force due to job losses particularly in the Financial Services and Goods Producing sectors.
It has been my contention for the past few months that the Spring Home Buying Season in CT is a Bust. Homes aren’t selling and Buyers aren’t buying because:
o Mortgage interest rates have risen.
o Investor demand for good deals pushed home prices up
o Home values are optimistic in relationship to inventory and demand
o Job security has turned would be buyers and sellers into “Fence Sitters”
o Job growth in CT has been hampered by a lack of any government initiatives to promote a business climate that would create jobs
Now I’m glad I have an extensive network of referral sources to keep me busy! But I am interested in your take on all this. Are you a First Home Buyer, a Mover Upper, a Down Sizer? Or why are you a Fence Sitter? Is this the banner year you expected? Is it a Buyer’s or a Seller’s market? Is the CT housing market out of the woods yet? I am interested in your feedback and welcome your comments.
I don’t have a lot of savings! My credit scores aren’t great! Can I still get a mortgage? The answer is YES! Let’s talk about your situation.
If you think having financial problems will stop you from buying a home, think again! Believe it or not, it may not be as difficult as one may think to purchase a home with less than perfect credit. Here are some common financial problems – and some smart solutions that may help you purchase your new home this spring!
General Tip – Work With a Professional Mortgage Broker Getting a mortgage is an expensive proposition. – and without guidance from a qualified professional you could pay substantially more than necessary. If you’ve got financial issues, going to a regular bank might not be the right solution for you. You may be a square peg that doesn’t “fit” into their square boxes of credit guidelines. Instead, you should work with a Mortgage Broker who has established direct relationships with numerous lenders who offer a a wide range of mortgage options. Why? Well, if you work with them directly, mortgage brokers might be able to direct you to a lender who will make exceptions to the standard underwriting guidelines. For example, I’m working with lenders who consider a borrower with a DTI higher than 43%; and a lender who will accept applications from borrowers with a 580 credit score.
Problem #1 – High Debt-To-Income Ratio (DTI)
If you’ve looked into getting a mortgage, you may have heard the term “DTI.” Just what is DTI and how does it impact your ability to get a loan?
DTI is your debt-to-income ratio – a percentage calculated by dividing all your current debt payments plus what the new mortgage will cost you every month by your gross monthly income. Thenew “ability to repay” rules mandated by the CFPB in January 2014 limit the borrowers to a maximum 43% DTI. The higher the DTI, the higher the risk of non-payment and the harder it is to qualify for a mortgage. If it exceeds 43%, traditional banks will probably decline the request. Solution: You have to reduce your monthly payments.A good place to start is your car. I’m working with borrowers now who pay $600 per month in car payments. What’s done is done, but instead of financing those fancy new car a few years back, they might have considered buying a good used with substantially lower monthly payments. The cars are in good shape,have low mileage, so I suggested that they apply at their credit union for a loan to refinance their car loans for 24-36 months to lower their payments. I could argue that it’s best financial decision, and of course they could still make the former payments, but their DTI ratio would improve to a point where they could obtain a mortgage.
Problem #2 – Low Credit Score A borrower’s credit score is the single most important snapshot of your credit risk by reporting the payment history on all your credit accounts. Lenders perceive a low credit score as a high credit risk and this could negatively impact your odds of being approved for a loan. And if you still qualify for a loan, a low credit score could still cost you. The lower the credit score, the higher the perceived risk and the higher the interest rate to compensate for that risk. Solution: Get copies of your credit report. Go to www.annualcreditreport.com. theOnly Website Authorized By Law to Provide a Free Annual Credit Report. Then discuss your findings with your mortgage broker ask him which areas need improvement. Work with someone you feel is honest, helpful, and has your best interests in mind. In addition to reviewing your overall credit situation, be sure to continue to make all payments on time; pay your credit card balances below your 50 percent of your approved credit line. These steps alone will help show the credit agencies that you’re a better credit risk and help improve your scores. Caution: Do not clear up active collections against you without discussing the ramifications with your mortgage broker.
Problem #3 – Low Down Payment A major factor deterring home buyers today is saving the cash for the down payment on a home, the closing costs, and still having a few dollars left over in reserves. This is where your mortgage broker and your Realtor, working in tandem, can help. Solution: Depending on your situation, you might be able to find a way to buy a home with a low down payment and still preserve your hard earned savings. There are a number of strategies and loan programs that help you get closer to your home ownership dreams. • Conventional Loan: If you have a fairly good credit score, you might be able to qualify for a mortgage with a down payment as low as 5 percent. The lower the score the minimum down payment may increase to 10%. • FHA Loan: TheFederal Housing Administration (FHA) loan option might be the right choice if you have a low credit score limited cash. With an FHA loan, the minimum down payment is 3.5% even if you credit score is in the 620 range. Some lenders will work with a borrower with credit scores down to 580 with overlays to compensate for the perceived risk of default. It doesn’t hurt to talk to your mortgage broker about both these options. • USDA Loan: In my opinion, the USDA Guaranteed Rural Housing Development Loanprogram is the best deal in town for those with limited savings. It offers 100% financing for eligible properties in USDA approved communities. Closing costs can be rolled into the loan amount when the appraised value exceeds the contract sales price. There is no limit on gift funds or seller concessions
• VA Loan: The Veterans Affairs (VA) loan has similar criteria as the FHA loan. But it’s targeted to serve toward past or present military personnel. Veterans may also be able to purchase a home with no down payment through a VA loan. • Seller Concessions: In certain negotiations, the property owner may be willing to entice eligible buyers to purchase their home by offering to contribute up to 3-6% of the contract price toward the buyers closing costs. It’s important to talk to your mortgage broker and your real estate agent about this option. It’s also important for the buyer to understand that they “can’t have their cake and eat it too.” Buyers can’t expect to offer less than the listing price and still ask for concessions. You may have to pay full price and then hope the seller will take less for the property. • Gift Funds: Funds for the down payment and/or closing costs can be gifted to the borrower from a close family member. It is important to discuss this possibility with your mortgage broker as different loan programs have different limitations on how much the borrower must contribute to the transaction and how much can be gifted. Sourcing the receipt of gift funds, especially wedding gifts, has been a problem for 15 years. DO NOT deposit gift funds into any account without talking to your mortgage broker. • State-Sponsored Down Payment Assistance: Another option for borrowers are down payment assistance programs sponsored by certain states, municipalities, and non-profit organizations. They may be offer to teachers, police and firemen who plan to live in their city and/or earn below a certain income level. These programs may be limited to first-time homebuyers. Check with a broker who specializes in these types of programs.
Summary: Low credit scores and/or lack of funds may be just a bump in the road to owning your own home. Talk to your mortgage broker about what it takes to get Pre-Approved for a Mortgage and how to get over these hurdles.
Still Have Questions or Concerns? Call Meat 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approvalservice. Then you can call your agent to schedule a showing and be ready to make an offer.
With today’s attractive rates, and my direct relationships with trusted lenders who offer a wide range of affordable mortgage programs, you just might be able to move in with a minimal down payment and low closing costs
I’m a Mortgage Broker with a Unique Advantage in the world of Mortgage Finance. The relationships I have formed with trusted lenders over the years means that I can get loans done quicker and closed on time when others may not be able to accomplish anything at all.
The majority of the dozen or so lenders I work with have Account Reps. When these Reps are really good at what they do, and you do a lot of volume with them, they will do everything possible to keep me and my clients happy. The #1 reason … the happier I am with their service, the more loans I will send their way… and the more money they will make!
Every Mortgage Account Rep is always vying for more business. The reason is obvious… they want to make more money. Over time, true relationships are formed. I have done business with many of these reps for years and strong bonds have been formed. I know them professionally and they know how much I love my dog.
I wouldn’t try to count the cups of coffee I’ve shared with these Reps. Their message is always the same …When I have a problem with one of my loans, call them ASAP so they can expedite the problem. They always know…if they fix issues, I can deliver on my promise to my clients and that means more future business they’ve earned and deserve.
What Does This Mean To You? The relationships that I’ve formed over my 40 years of financial service experience means that loans can get done quicker and, when glitches arise, loans can still get closed when the big box banks turn their customers out to the wolves.
Like many other businesses, the mortgage industry faced many challenges in 2013. Already, the rules of the game have changed the playing field for 2014.
But I’m, still in the game! Clients,like you, will need my support more than ever. So I ask … Do you want to join me on the field?
Purchase or Refinance … I’m here to help you make 2014 the Best Year Ever!
FHA says they should have done less business in the past and (to pay for their sins) they should do less business in the future. To help that process along, they drastically increased the Up Front Mortgage Insurance Premium (UFMIP), doubled the cost of the Monthly Insurance Premium (MIP), and will require the MIP to be paid for the life of the loan.
Guess what? Their wish is coming true! The Government Agency created in 1934 to “assist in providing housing opportunities” for American families saw their application volume drop by 50% in June. At a time when mortgage rates were near all time lows, FHA priced them self out of the market. Great help they are!
Many features of a FHA Mortgage make it an attractive mortgage option for First Home Buyers. However, the cost of the mortgage insurance makes the monthly obligation too expensive. I’m working on two transactions now. Each has challenges that could have been addressed with a FHA loan in the past. One will be done as a conventional mortgage with a higher rate but lower MI for a savings of $60/month; the other, luckily, as a USDA Loan with a similar rate and MI that is 1/3 the cost of FHA premiums.
I don’t think I’ll recommend a FHA Insured Mortgage to my clients unless that’s the only way to get them in a new home.
Obtaining mortgages for Investors that own numerous properties has become a challenge. Most of the time it’s their tax returns that present the biggest obstacle. Like all small business persons, Investors take advantage of legitimate tax laws to minimize their tax liability and maximize the return on their investments.
Now I’ve been analyzing tax returns from a lending view point for some 30 years and have a pretty good handle on how this creative tax accounting (and I don’t mean that in a bad way) works. Most tax returns show losses on these investment properties such that bottom line income does not show the income lenders need to qualify them for a mortgage on the next property. It’s a matter of ripping apart the returns and adding certain items back into income, such as depreciation. These depreciation numbers can be some serious dollars. They can take someone from not being able to get a mortgage to someone that qualifies with very little difficulty.
In addition, most lenders have guidelines that prevent them from doing a new mortgage for anyone that owns more than 4 properties. I get referrals from business partners all the time seeking help. They know that I am fortunate to work with a number of lenders that will do mortgages for folks that own 10 properties.
It’s this combination of experience and resources that have helped many investors expand their real estate portfolio.