Actually, both claims are correct but the bigger issue is whether refinancing is actually worthwhile.

According to the letter my mortgage rate would drop from 4.63 percent to 4.46 percent if I refinance. That’s right, based on the APR or annual percentage rate, my rate would fall .17 percent. Not a partial .17 percent, not a fraction of .17 percent, but a full .17 percent. That’s about 1/6th of 1 percent.

But wait, there’s more.

And, yes, monthly costs would fall. For instance with a fixed-rate, 30-year $200,000 mortgage the monthly expense for principal and interest would go from $1,028.88 to $1,008.62. That’s a savings right there of $20.26 per month or $243.12 annually.

So the lender’s letter is literally true: I would have a lower interest rate and save almost $250 a year in this example.

Mortgage Rates

Despite the accuracy of the lender’s claims — which are subject to change along with the interest rate according to the letter — the offer is unacceptable to me. Here’s why.

How much would I have to spend at closing to save $250 a year? If closing costs $3,000 for transfer taxes, legal fees, title insurance and other expenses than it would take 12 years of mortgage “savings” to get back my money.

And why are mortgage rates at anywhere near 4.46 percent attractive in today’s world? The latest figures from Freddie Mac show that a typical 30-year mortgage is priced at 3.98 percent — that’s almost a half point lower than the offered rate.

Nope, I won’t be taking the lender’s offer.

But here’s the question: Why didn’t the lender simply repeat it’s last refinancing offer — an offer I took. In that case the rate went down almost a point, I saved about $200 a month and the lender paid all closing costs except prepaid taxes and insurance.

The lender and I both benefited. I got the lower monthly payment and the lender got a crisp, new loan to re-sell at a profit in the secondary market.

In other words, everybody won.

Mortgage Prepayments

The new refi offer doesn’t work because it’s one-sided — assuming the lender actually provides the terms mentioned in the letter (remember, they’re subject to change).

If I’m going to spend more money on a loan, I certainly would not pay $3,000 in closing costs to save $250 a year. Instead, I might simply increase the monthly payment by $25. While a $200,000 loan at 4.63 percent costs $1,028.88 per month, I might instead pay $1,053.88.

That would reduce the total interest bill over the loan term by nearly $10,000 — from $170,396.80 to $160,502.20 – and shorten the mortgage term by 18 months. This approach works regardless of whether the loan is an FHA, VA, or conventional fixed-rate loan. The concept also works for fixed-rate jumbo mortgages as well.

As to the lender — hey, write me again. Let’s redo the last deal at today’s rates. You know where I live.

Caution: Refinancing with Low Mortgage Rates May Not Work is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: annual percentage rate, APR, conventional, FHA, fixed rate, interest, jumbo, loan, low, mortgage, mortgage rates, prepay, prepayments, rate, refi, refinancing, savings, VA

Does this change make a lot of sense? No. Is this change the law of the land? Yes.

Let’s see what happened.

Mortgage loan limits were raised substantially in 2008. It was thought that higher limits will would help revive high-cost real estate markets in big cities and along the cost. After three years it became obvious that higher loan limits helped few but created additional risk for lenders and mortgage insurance programs, such as the FHA.

To solve the risk problem, Congress agreed to lower mortgage loan rates as of October 1, 2011. The rates were lowered and the world did not collapse. Indeed, the National Association of Realtors reported that in October existing home sales ROSE despite the lower loan limits.

With everything working well Congress naturally decided to raise FHA and conventional loan limits back to the pre-October 2011 levels. The new legislation passed with huge majorities in the Senate (60-39) and the House (298-121).

However, when the legislation got into a conference committee — representatives from both houses who are supposed to work out any conflicts in the two pieces of legislation — a strange thing happened: FHA conforming loan limits went up for two years and conventional loan limits remained stuck.

Always Smaller

It used to be FHA loans were always smaller than conventional loans for a very simple reason: FHA loans could be no larger than 87 percent of the conventional loan limit. So, if the conventional loan limit was $300,000 the largest FHA mortgage could only be $261,000 in the lower 48 states.

Now we have a situation where FHA mortgages can be bigger in high-cost areas than conventional loans. This is remarkable given how some lenders have worried that the FHA program will be over-utilized or that it allegedly will need billions of dollars in taxpayer bailout money. (See: Will The FHA Go Bankrupt?)

Also, some conservatives object to the FHA because it sells mortgage insurance, something the private sector also sells.

So, where do we stand with loan limits as of November 19, 2011? Here we go:

How Mortgage Limits Vary

There are several types of mortgage loan limits. Generally, most borrowers need to look at the limits for conventional, FHA and VA loans to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.

Conventional Loans

As of October 1, 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, loan limits depend on; one, whether the property is in a general or high cost area; two, whether the property is within the lower 48 states; and, three, whether the property located in Alaska, Hawaii, Guam and the U.S Virgin Islands.

In general terms, the October 2011 loan limits for a single-family home range from $417,000 to $625,500 in the 48 continental states. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

VA Loans

After October 1, 2011 the Department of Veterans Affairs (VA) will use the same loan limits as before. There are no changes. As the VA explains:

“The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.”

Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2011 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets, active-duty personnel, and members of the National Guard and Reserve:

• Qualified individuals can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.
• Individuals on active duty have strong protections preventing foreclosure under the Servicemembers Civil Relief Act (SCRA).

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or you reside in Alaska, Guam, Hawaii, and the Virgin Islands.

As of November 18, 2011 and through 2013 the FHA 203(b) loan limits look like this:

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the FHA Loan Limits Page

Also, HUD has a list of Areas at Ceilings and Above and Areas Between Floor and Ceiling.

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) will remain at $625,500. HUD, in 2010, introduced the HECM Saver program as an alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.

A Brief History

Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.

The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.

Until September 30, 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extended the maximum loan limits first established in 2008.

On November 18, 2011 the President signed H.R. 2112: The Consolidated and Further Continuing Appropriations Act, 2012. This legislation increased the FHA loan limit.

A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.

Copyright 2011 OurBroker.com. All Rights Reserved

————————————————————————————————————–

FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 2008, 2009, 2010, 2011, 2012, conference committee, Congress, conventional, Economic Recovery Act of 2008, Economic Stimulus Act of 2008, ESA, Fannie Mae, FHA, Freddie Mac, HECM, HERA, high cost, HUD, jumbo, limit, loan, new, saver, VA

The answer may be surprising.

In general terms there has been considerable support for lower FHA loan limits for several reasons.

First, lower FHA limits mean more opportunities to sell private-sector loans.

Second, the FHA has long been considered a program for entry-level and middle-income borrowers. Huge mortgage amounts suggest that the program has evolved into a financing vehicle for the upper class, something which doesn’t quite pass the sniff test for a program that evolved from the Great Depression.

Third, it’s thought that the FHA should not be making big loans because such financing is inherently more risky than smaller loans.

The first two items are matters of opinion and preference, but what about the third? Are big loans really so risky?

We asked HUD to provide the latest delinquency and foreclosure figures by loan amount. As of mid-September 2011 the results were probably not what most people expect.

Risk

If we’re going to discuss “risk” we must ask how the term should be defined. The best approach is to look at different stakeholders.

Borrowers: Bigger loans for borrowers are only “more” risky than smaller mortgages if financial qualifications are missing. If Smith can comfortably afford a bigger loan there’s no problem. If Jones has a small loan but can’t pay, then that’s a concern.

Lenders: Lenders love the FHA program for a very simple reason: The loans are 100% guaranteed by the FHA. If a loan goes bad the lender knows it will get back its principal as well as other costs. Thus, on the matter of risk, you would have to say lenders have little to none.

The FHA: For the FHA loan size is not really an issue as long as the borrower is properly qualified. It’s true that a $600,000 FHA mortgage is a bigger loan than a $100,000 mortgage, but it is also true that the FHA will collect a bigger up-front mortgage insurance premium and a larger amount in terms of the annual mortgage insurance premium (MIP). In effect, there’s a balance between size and insurance premiums.

Where matters get dicey is when things go wrong. You can objectively lose a lot more dollars with a big loan. The catch is that the threat of loss does not exist in a vacuum, you also have to also look at marketplace results.

In other words, what’s the failure rate for FHA loans by mortgage size and what percentage of the FHA loan portfolio is represented by loans of a given size?

Real Numbers

A look at the chart shows that big loans are not a big deal in terms of FHA risk for two reasons:

First, big loans are a tiny percent of the overall FHA portfolio. Loans for $500,000 or more are just .75 percent of all FHA mortgages outstanding.

Second, few big loans fail. Only 1.32 percent of all loans above $500,000 have been foreclosed, compared with an overall average of 2.47 percent.

You see the same thing with bankruptcies: The percent of FHA borrowers in bankruptcy is 1.22 percent. The percent of big borrowers in bankruptcy is just .27 percent, about one-fourth the rate of other borrowers.

Why are there relatively so few foreclosed borrowers with big FHA loans? Most probably the answer is that borrowers with big loans have big incomes and presumably better savings and more assets than entry-level borrowers.

One question raised by the FHA figures is this: If big loans represent relatively little risk then why do lenders charge higher mortgage rates for “jumbo” mortgage products? Combine big loans with above-market rates and below-market risk and lenders have a sweet deal.

Are Big FHA Mortgages Really Risky? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: bankruptcy, depression, entry-level, FHA, foreclose, foreclosure, HUD, jumbo, loan, loan limit, middle-income, mortgage, premium, rich, Rick, risky

Note: This material is now out of date. Please go to: FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick.

Before looking at the numbers let’s make three quick points:

First, the October 1st loan limits will continue only until December 31, 2011. As of January 1, 2012 it’s possible that we could have new loan limits or they might stay the same. At this moment there’s a political fight in Washington brewing over the issue.

Second, most borrowers need far less than the mortgage loan limits for FHA, VA and conventional mortgages. For instance, in a low cost area the maximum conventional loan amount will be $417,000. According to the National Association of Realtors the typical home sold for just $174,000 in July 2011.

Third, the new is the same as the old. The limits which started October 1, 2011 are the same limits we had in place before July 1, 2007.

How Mortgage Limits Vary

There are several types of mortgage loan limits. Generally, most borrowers need to look at the limits for conventional, FHA and VA loans to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.

Conventional Loans

As of October 1, 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, loan limits depend on; one, whether the property is in a general or high cost area; two, whether the property is within the lower 48 states; and, three, whether the property located in Alaska, Hawaii, Guam and the U.S Virgin Islands.

In general terms, the October 2011 loan limits for a single-family home range from $417,000 to $625,500 in the 48 continental states. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

VA Loans

After October 1, 2011 the Department of Veterans Affairs (VA) will use the same loan limits as before. There are no changes. As the VA explains:

“The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.

Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2011 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets, active-duty personnel, and members of the National Guard and Reserve:

• Qualified individuals can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.
• Individuals on active duty have strong protections preventing foreclosure under the Servicemembers Civil Relief Act (SCRA).

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or in Alaska, Guam, Hawaii, and the Virgin Islands.

As of October 1, 2011 the FHA 203(b) loan limits look like this:

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the FHA Loan Limits Page

Also, HUD has a list of Areas at Ceilings and Above and Areas Between Floor and Ceiling.

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) will remain at $625,500. HUD, in 2010, introduced the HECM Saver program as an alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.

A Brief History

Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.

The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.

Until September 30, 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extended the maximum loan limits first established in 2008.

A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.

Copyright 2012 OurBroker.com. All Rights Reserved

————————————————————————————————————–

New FHA, VA and Conventional Mortgage Loan Limits is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 2008, 2009, 2010, 2011, 2012, conventional, Economic Recovery Act of 2008, Economic Stimulus Act of 2008, ESA, Fannie Mae, FHA, Freddie Mac, HECM, HERA, high cost, HUD, jumbo, limit, loan, new, saver, VA

Note: This material is now out of date. Please go to: FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick.

There are several types of mortgage loan limits. Generally, most borrowers need to look at conventional, FHA and VA loan limits to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.

Conventional Loans

For 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, we now have one for each county — and there are more than 3200 counties.

In general terms, 2011 loan limits for a single-family home range from $417,000 to $729,750. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

Example #1 — Basic Loan limit

One Unit — $417,000

Two Unit — $533,850

Three Unit — $645,300

Four Unit — $801,950

Example #2 — Loan Limit for Certain High-Cost Areas

One-Unit –$729,750

Two Unit — $934,200

Three Unit — $1,129,250

Four Unit — $1,403,400

Also, in 2011 there are loan limits for so-called “higher cost” areas. In other words, instead of looking at “counties” you can also look at “areas.” These selected areas are located in Arizona, California, Colorado, Connecticut, The District of Columbia, Delaware, Florida, Georgia, Hawaii, Idaho, Massachusetts, Maryland, North Carolina, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Virginia and West Virginia.

The chart for specific high-cost areas and loan limits can be found at:

Loan Limits for 2009 Mortgage Originations — High-Cost Areas (Remember, the limits for 2011 are the same as 2009)

VA Loans

For 2011 the Department of Veterans Affairs (VA) will use a locality-based approach to establish VA loan limits. Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2009 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets made by the VA:

• Vets can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or in Alaska, Guam, Hawaii, and the Virgin Islands.

For 2011 the FHA loan floor for owner-occupied properties look like this:

One-Unit — $271,050

Two-Unit — $347,000

Three-Unit — $419,400

Four-Unit — $521,250

For 2011 FHA loan limits in higher-cost areas are as follows:

One-Unit — $729,750

Two-Unit — $934,200

Three-Unit — $1,129,250

Four-Unit — $1,403,400

The FHA has special, higher potential loan limits outside the continental U.S. for Alaska, Hawaii, Guam and the Virgin Islands.

One-Unit — $1,094,625

Two-Unit — $1,401,300

Three Unit — $1,693,875

Four-Unit — $2,105,100

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the

FHA Loan Limits Page

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) has been set at $625,500. HUD, in 2010, introduced the HECM Saver program as alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.

A Brief History

Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.

The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.

For 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extends the maximum loan limits first established in 2008.

A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.

Mortgage Loan Limits — Conventional, FHA, VA is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 2008, 2009, 2010, 2011, conventional, Economic Recovery Act of 2008, Economic Stimulus Act of 2008, ESA, Fannie Mae, FHA, Freddie Mac, HECM, HERA, HUD, jumbo, limit, loan, new, saver, VA

Conventional Mortgages

FHA Mortgages

Jumbo Mortgages

VA Mortgages

Go to any of these links and you’ll see that Google generates a search for the type of mortgage you want and that at the top of the page is a yellowish area with a compare rates button. Press the magic button and you get a list of mortgage offers which can be localized for your community.

You can arrange the ads by monthly payment, APR, interest rates, lender fees and lender names. The best strategy is to set the “points” option on the right to zero so see you can see par pricing, the real interest rate without points. This makes comparing loans easy.

Once you have your table set up look for the lowest rate AND the lowest fee level. For instance, with conventional financing I see at this writing that one lender is offering financing at 5.353 percent and $6,140 in fees. Another offers the same loan for 5.297 percent plus fees worth $4,952. While the APRs and lender costs differ, the nominal interest rate for both loans is 4.875 percent and the monthly payments are identical.

Picking A Lender

I very much like the idea of visible, uniform mortgage comparisons. That said, there are concerns with the Google system.

First, the Google system is only open to advertisers and there’s no stone tablet which says advertising lenders always have better rates than lenders who do not advertise.

Second, I do not see lenders at this writing who I think of as being local. I do see at least one lender who by name must be 1,000 miles from my location.

Third, advertised mortgage rates whether online or in a newspaper are, well, the best advertised rates at one point in time. Alas, rates are constantly in flux, the best rates certainly won’t be available for borrowers with weak credit and advertised rates are always subject to a number of caveats such as a check of credit and income, the value of the property, credit scores, etc. In other words, great rates and low costs may not be available to everyone — including you.

Fourth, if everyone is charging 5 percent and $2,000 in fees and someone else is offering 4.5 percent and no fees you need to wonder how that’s possible. Money is money, and while some variance of rates and fees makes sense, caution should be in order when someone has terms which are too good to be believed.

Fifth, borrowers need more information about a given loan program than just rates and costs. For instance, there’s a reason FHA mortgages are often a better deal than other loans (can we spell T-O-X-I-C financing) even if the rate is sometimes higher.

The Real Value Of The Google System

The attraction of the Google system comes in the form of consumer education and intelligence. Borrowers rely on lenders for information, program options and rates — but under federal rules lenders have no obligation to get the best rates and terms for borrowers.

In this system the lender has every advantage — but at least the Google ads provide some sense of the rates and costs available from various lenders. Armed with this information, borrowers can then check with such sources as community banks and local credit unions to see how their offers stack up.

Lastly, the Google comparison system is important if only because Google itself is so huge, so significant and so transformational. It’s an addition to the mix of options available to mortgage borrowers which should be welcomed — as should anything which makes the lending process more competitive, more open and more transparent.

Google Mortgage Ads — Do They Reduce Borrower Costs? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: advertising, APR, comparison, conventional, FHA, Google, interest, jumbo, loan, mortgage, par, points, tool, VA

A conventional loan is traditionally defined as a fixed-rate mortgage with equal monthly payments, a 15-year or 30-year term, and a fixed interest rate established when the mortgage is created.

A conventional mortgage can also be defined in terms of its loan to value ratio or LTV. An 80 percent LTV is the standard for conventional loans, a percentage which means that if a house costs $300,000, the lender will provide financing worth $240,000 (80 percent of the purchase price) and the borrower will put up $60,000 (20 percent). Closing costs are EXTRA AND ADDITIONAL above the $60,000.

Private Mortgage Insurance

Since most people do not have 20 percent down to buy a home it follows that there has to be a way to get a conventional loan without the need to pay so much cash up front. There is. Buyers can finance with a conventional loan plus private mortgage insurance (or “MI”). By using MI borrowers can often buy with as little as 5 percent down plus closing costs.

Loan Limits

It used to be that there was one set of loan limits which applied nationwide in the continental US and higher limits in Alaska, Hawaii, Guam and the Virgin Islands. Those days are gone. Today we have a complex conventional loan limit system which depends in large measure on the county where you live. To see the maximum conventional loan amount for your community go to the all-in-one loan limits page.

Jumbo Loans

So-called “jumbo” mortgages are simply loans where the amount financed is greater than the conventional loan limit for a given area. Borrowers typically pay a somewhat higher rate for jumbo financing, so it’s good to stay within the conventional loan limit when possible.

How Much Can You Borrow?

Lenders qualify borrowers in part on the basis of their income. In general terms, with fixed-rate conventional mortgages no more than 28 percent of your gross (pre-tax) monthly income can be used for housing costs such as mortgage principal, mortgage interest, property taxes and property insurance (PITI). As much as 36 percent of your income can be used for PITI plus recurring bills such as credit card payments, auto loans, etc. These numbers are sometimes expressed as 28/36.

Let’s imagine that you have two household members with a combined income of $90,000 annually or $7,500 per month before taxes. Under general conventional qualification standards, the buyers would be allowed to spend as much as $2,100 on housing costs (PITI) and as much as $2,700 for all regular monthly debt.

The front and back ratios for fixed-rate conventional mortgages are more conservative than the ratios used for other loans. Given the same income you can borrow more with an adjustable-rate mortgage or with loans insured by the FHA or VA. Of course, you can REALLY borrow more if you get a toxic loan but that’s not a good idea.

Shop Around

A plain vanilla, fixed-rate conventional loan is the same as every other plain vanilla, fixed-rate conventional loan. What may not be the same is the cost: Different lenders can and will change different combinations of interest and points so it pays to shop around and compare rates. One of the best ways to compare loan offers is to ask lenders to provide a quote with “par” interest — the rate with zero points.

How To Apply

In recent years the loan application process has been greatly simplified, however proper information from borrowers is still required. Most lenders today are looking for fully-documented loan applications. This may sound intimidating, however it’s not a big deal. Just take these steps:

• At least three months BEFORE you finance or refinance real estate get a copy of your credit report. The reason to do this is to check and see if there’s any information on your credit report which is factually incorrect or out-of-date (most negative items can stay on a credit report for seven years, 10 years for a bankruptcy). If you start looking at your credit report three months ahead you should have some time to correct errors. You can get a free credit report with no strings attached by going to AnnualCreditReport.com.
• Get your paperwork in order. Have in hand your last three pay stubs, your last three tax returns, and statements for all savings and checking account, mutual funds, retirement accounts, credit cards, student loans, car loans, etc. Make a file and stick the paperwork in it. You want to show ALL income and you must show ALL debts. When in doubt add it to the file.

• Ask some questions: Do you expect to receive “bonus” income now or in the future? Do you expect to receive “overtime” income now or in the future Will “other” income in addition to your salary continue at current levels? If you own your home and use it as a prime residence, what’s the estimated fair market value? What’s the value of all financing now secured by your current home if you’re refinancing?

Seller Contributions

Because it’s tough to sell home these days in many markets, some owners are willing to pay some or even all buyer closing costs. Lender rules generally allow so-called “seller contributions” of as much as 3 percent to 6 percent of the purchase price to help offset closing costs, depending on the amount you put down. A seller contribution may be used to offset various closing costs however you must always provide your downpayment in cash. Speak with your real estate broker and lender for specifics.

Gifts

Gifts are allowed under the most conventional loan programs and gifts may be used to cover some or all of the downpayment. A “gift letter” from the donor will be required. This is a letter which says the money given is really a gift and that no repayment or interest will be sought. Speak with lenders for specifics.

Important Points

___ You do NOT need a co-borrower to apply for a mortgage. However, the additional income represented by a co-borrower may allow you to obtain a bigger mortgage.

___ If you own rental property, lenders will generally add back the depreciation deducted each year on “improvements” such as a house, but not stoves, clothes washers, etc.

___ You are NOT required to disclose the receipt of alimony, child support payments or separate maintenance to a lender. However, disclosure of the additional income represented by such payments may allow you to borrow a larger amount.

___ In addition to the minimum down payment, you may and are likely to have other closing costs as well. Such additional costs can include prepaid expenses, points, mortgage insurance premiums paid in cash, non-realty expenses, taxes, title insurance, transfer fees, settlement charges and miscellaneous costs. Always obtain a Good Faith Estimate from any lender who offers you financing. This government-mandated form outlines the loan-related costs you will be required to pay at closing.

Conventional Mortgage Basics is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: add back, adjustable, alimony, application, child support, conventional, documentation, fixed rate, jumbo, limit, loan, mortgage, private mortgage insurance, qualifications, separate maintenance

The VA mortgage program is the single best form of real estate financing available because qualified individuals can purchase with nothing down and there’s no annual mortgage insurance premium.

Qualifying

To get a VA loan you must be able to demonstrate qualifying federal service. Since 1990, according to the Veteran’s Administration, you must have:

• Completed 24 months of continuous active duty or the full period (at least 90 days) for which you were called or ordered to active duty, and been discharged under conditions other than dishonorable, or
• Completed at least 90 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1173 (Early Out), or have been determined to have a compensable service-connected disability, or
• Been discharged with less than 90 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances, for the convenience of the Government.

Active Duty Service Personnel

If you are now on regular duty (not active duty for training), you are eligible after having served 181 days (90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active duty service.

Selected Reserves or National Guard

If you are not otherwise eligible and you have completed a total of 6 years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and 2-week active duty for training) and

• Were discharged with an honorable discharge, or
• Were placed on the retired list, or
• Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable service, or
• Continue to serve in the Selected Reserves

Individuals who completed less than 6 years may be eligible if discharged for a service-connected disability.

You may also be determined eligible if you:

• Are an unremarried spouse of a veteran who died while in service or from a service connected disability, or
• Are a spouse of a serviceperson missing in action or a prisoner of war

Note: Also, a surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must apply no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 6, 2003 that are received after December 15, 2004.

Eligibility may also be established for:

• Certain United States citizens who served in the armed forces of a government allied with the United States in WW II.
• Individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with WW II service, and others.

Loan Limit

The VA Loan limit is generally set at $417,000. However, the amount available to qualifying military personnel may be higher in selected “high cost” counties and in Alaska, Hawaii, Guam and the Virgin Islands. (In some areas loans for as much as $1,094,625 are available.) Check the loan limits page for the latest information.

The VA Funding Fee

The government guarantees the loan’s repayment to a lender, an incentive that greatly benefits borrowers because lenders will finance a home with little down if a borrower is backed by VA insurance.

To obtain a VA-insured loan it follows that one must pay a premium called a funding fee equal to 2.15 percent of the loan amount for regular military personnel. There’s no annual insurance premium with the VA loan program, just the one-time charge upfront.

If you borrow $150,000 and pay an upfront funding fee of 2.15 percent the cost will be $3,225. This fee can be financed with the mortgage, meaning you do not have to pay it in cash at closing. Instead, the upfront funding fee is added to the loan amount.

Be aware that there may be different funding fees for National Guard and Reserve personnel and that the funding increases if the VA loan program is re-used. For specifics, speak with a VA counselor or with a lender.

How To Get Started

The first step is to complete VA Form 26-1880. This is a Request for a Certificate of Eligibility. Once completed, says the VA, “send this form to the Winston-Salem Eligibility Center, along with proof of military service. In some cases it may be possible for VA to establish eligibility without your proof of service. However, to avoid any possible delays, it’s best to provide such evidence.”

Lenders can also help you establish eligibility through what is known as the WEB LGY online system. This system is quicker then using the VA form.

How Much Can You Borrow?

Lenders qualify borrowers in part on the basis of their income. In general terms, under the VA program no more than 41 percent of your gross (pre-tax) monthly income can be used for housing costs such as mortgage principal, mortgage interest, property taxes and property insurance (PITI). As much as 41 percent of your income can be used for PITI plus recurring bills such as credit card payments, auto loans, etc. These numbers are sometimes expressed as 41/41.

Let’s imagine that you have two household members with a combined income of $90,000 annually or $7,500 per month before taxes. Under general VA rules, the buyers would be allowed to spend as much as $3,075 on housing costs (PITI) and as much as $3,075 for all regular monthly debt.

Notice that the debt-to-income ratios for the VA program are the same for both PITI and PITI plus other debts. In other words, if you keep down your spending for cars loans, credit cards, etc., then you can qualify for a bigger mortgage.

Shop Around

Every VA loan has the same terms (length, no prepayment penalty, etc.) as every other VA loan. What may not be the same is the cost: Different lenders can and will change different combinations of interest and points so it pays to shop around and compare rates. One of the best ways to compare loan offers is to ask lenders to provide a quote with “par” interest — the rate with zero points.

How To Apply

In recent years the loan application process has been greatly simplified, however proper information from borrowers is still required. Just take these steps:

• At least three months BEFORE you finance or refinance real estate get a copy of your credit report. The reason to do this is to check and see if there’s any information on your credit report which is factually incorrect or out-of-date (most negative items can stay on a credit report for seven years, 10 years for a bankruptcy). You can get a free credit report with no strings attached by going to AnnualCreditReport.com.
• Get your paperwork in order. Have in hand your last three pay stubs, your last three tax returns, and statements for all savings and checking account, mutual funds, retirement accounts, credit cards, student loans, car loans, etc. Make a file and stick the paperwork in it. You want to show ALL income and you must show ALL debts. When in doubt add it to the file.

• Ask some questions: Do you expect to receive “bonus” income now or in the future? Do you expect to receive “overtime” income now or in the future Will “other” income in addition to your salary continue at current levels? If you own your home and use it as a prime residence, what’s the estimated fair market value? What’s the value of all financing now secured by your current home if you’re refinancing?

Seller Contributions

Because it’s tough to sell home these days in many markets, some owners are willing to pay some or even all buyer closing costs. VA rules allow so-called “seller contributions” of as much as 3 percent to 6 percent of the purchase price to help offset closing costs, depending on the amount you put down. A seller contribution may be used to offset various closing costs AND the downpayment under the VA program. Speak with your real estate broker and VA lender for specifics.

Gifts

Gifts are allowed under the VA program and gifts may be used to cover some or all of the downpayment. A “gift letter” from the donor will be required. This is a letter which says the money given is really a gift and that no repayment or interest will be sought. Speak with lenders for specifics.

Important Points

___ You do NOT need a co-borrower to apply for a mortgage. However, the additional income represented by a co-borrower may allow you to obtain a bigger mortgage.

___ If you own rental property, lenders will generally add back the depreciation deducted each year on “improvements” such as a house, but not stoves, clothes washers, etc.

___ You are NOT required to disclose the receipt of alimony, child support payments or separate maintenance to a lender. However, disclosure of the additional income represented by such payments may allow you to borrow a larger amount.

___ In addition to the minimum down payment, you may and are likely to have other closing costs as well. Such additional costs can include prepaid expenses, points, mortgage insurance premiums paid in cash, non-realty expenses, taxes, title insurance, transfer fees, settlement charges and miscellaneous costs. Always obtain a Good Faith Estimate from any lender who offers you financing. This government-mandated form outlines the loan-related costs you will be required to pay at closing.

VA Mortgage Basics is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: adjustable, alimony, application, child support, conventional, county, documentation, fixed rate, Form 26-1880, jumbo, limit, loan, mortgage, private mortgage insurance, qualification, qualifications, separate maintenance, VA

Until this point HUD has generally allowed lenders to offer their own Good Faith Estimate of Closing Costs, however the new standard form for all lenders — a form that took 14 years to develop — will finally assure that borrowers actually understand what’s being charged for their loans, why and by whom.

“The mortgage crisis,” says former HUD Secretary Steve Preston, the last HUD secretary appointed by President Bush, “was fueled in part by people agreeing to mortgages that they ultimately could not afford. In some cases, people didn’t understand or know that their mortgages could result in large payment increases after just two or three years. Others did not recognize the total costs that come with homeownership. And others paid higher loan origination and closing costs simply because they did not know about other affordable options.”

So what makes this form better?

First, it’s a three-page document that every lender will have to use — meaning that offers from lenders will be the same and can readily be compared.

Second, the document is not just a list of fees and charges, it also explains in basic terms the purpose of each expense.

Third, mortgage brokers will have to show their yield-spread premiums (YSPs), costs which Preston says were “rarely understood by, or fully disclosed to, borrowers. These premiums are directly tied to the higher interest rates that borrowers pay. Consumers deserve to understand this and they need to get credit for essentially paying these premiums.”

Page One

The first page is actually a summary of loan costs — the specifics are found on page two.

Item 1 tells you how long the quoted rate and terms last. Items 3 and 4 concern loan lock-ins — how long the rates and terms will last if you lock them in at the time the GFE is issued.

The loan summary tells you the amount of the loan, the initial loan rate and monthly payment. IMPORTANT: If you have an ARM the next few items will tell you:

• How high the interest rate can go.
• When the interest rate can first rise.
• The maximum monthly payment you can expect.
• If a prepayment penalty is allowed and, if yes, how much it will cost.
• Whether there is a balloon payment at the end of the loan terms.

Next the form will tell you whether the lender will create an escrow or “trust” account to collect money each month for property taxes and insurance. Generally, if you buy with less than 20 percent down an escrow account is required by the lender.

Finally, the form adds your origination charges (the “A” items on page two) with other settlement costs (the “B” items on page two). Be aware that you can have additional costs at closing, depending on how the sale agreement is written.

Page Two

The second page is divided into two parts, A and B. Part A looks at “origination” fees, the cost to buy your mortgage.

First, the form shows your origination fee in a dollar amount, including any yield spread premium (YSP). Under the old rules, the yield spread premium could be shown as either a dollar amount or as a percentage of the loan. Now, the entire cost of the loan, including any YSP, is shown as a single dollar amount.

Next, the form shows if your interest rate is being impacted by the origination fee. In other words, let’s say you can borrow $100,000 at 6 percent interest over 30 years with no points. This is called the par pricing for this loan. But, let’s say that you could also borrow $100,000 at 5.75 percent — if you were willing to pay 1 point at closing. A point is equal to 1 percent of the loan amount or $1,000 in this case. The form shows if you are paying for any reduction of the interest rate OR any increase in the rate by paying a smaller origination fee.

Next we go to part B. This part of the form shows the cash costs you can expect to pay at settlement (or escrow) when the loan closes. As the bottom of part B is a total which shows “Your Charges for All Other Settlement Services.”

The totals for parts A and B are then shown at the bottom of the page and on the bottom of page one as well.

HUD encountered considerable opposition from the lending industry, especially with regard to the question of how yield spread premiums should be disclosed. In an important decision which reviewed 14 years of effort to update the good faith form, a court found in 2009 that HUD had acted fairly and in the public interest with the form it produced.

Page Three

The last page should really be the first page because it contains instructions for understanding the form.

The first section lists charges that the lender cannot increase, charges that can rise by as much as 10 percent, and charges that change prior to settlement. This is important information, it means that you should check the numbers on your good faith estimate with the final figures presented to you at closing.

Next, HUD gets into the issue of higher or lower settlement fees. In the same way that mortgage loans have par pricing, so does the settlement process. In other words, if you are willing to pay a somewhat higher interest rate you may be able to lower your cash costs at closing. Indeed, you may not have to bring any cash to closing.

In the third section HUD offers borrowers the opportunity to compare loan offers from different lenders. This is important because borrowers should look at different loan offers to find the rates and terms which best meet your needs.

Lastly, HUD notes that your loan may be sold in the future. If so, after settlement “any fees lenders receive in the future cannot change the loan you receive or the charges you paid at settlement.” Translation: A contract is a contract.

HUD estimates that the new form will save typical borrowers $700 each time they finance or refinance a home. That’s a lot of money, but more could be done to cut borrower costs — and it shouldn’t take 14 years to make additional changes.

——————————

Copyright 2009 Peter G. Miller. All Rights Reserved. Use of this material without permission is illegal, however direct links to this page are welcome.

How To Read The New Good Faith Estimate Forms is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 2010, conventional, escrow, FHA, GFE, good faith estimate, HUD-1, HUD1, interest, jumbo, lenders, loan, model, mortgage, par pricing, PDF, penalty, point, prepayment, rate, sample, VA, yield spread premiums, YSP

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

Note: This material is now out of date. Please go to: FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick.

In last half of 2008 the government substantially increased mortgage loan limits on a “temporary” basis. This means that when 2009 began the country was supposed to return to the lower loan limits that were in effect at the start of 2008. That’s largely what happened for the months of January and February. However, under HR1: The American Recovery and Reinvestment Act of 2009 we largely went back to the higher limits used at the end of 2008.

Below is a list of the loan limits for 2009. For specifics, please check with local lenders before entering the marketplace to finance or refinance real estate.

Conventional Loans

For 2009 the conventional loan limits depend on the county where you are located. Instead of one national mortgage limit, we now have one for each county — and there are more than 3200 counties.

So, to know your mortgage loan limit you have to look at the government chart which lists the limit for all areas. The chart can be found at:

Loan Limits for 2009 Mortgage Originations — All Counties

In general terms, 2009 loan limits for a single-family home range from $417,000 to $729,750. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

Example #1 — Basic Loan limit

One Unit — $417,000
Two Unit — $533,850
Three Unit — $645,300
Four Unit — $801,950

Example #2 — Loan Limit for Certain High-Cost Areas

One-Unit –$729,750
Two Unit — $934,200
Three Unit — $1,129,250
Four Unit — $1,403,400

Also, in 2009 there are loan limits for so-called “higher cost” areas. In other words, instead of looking at “counties” you can also look at “areas.” These selected areas are located in Arizona, California, Colorado, Connecticut, The District of Columbia, Delaware, Florida, Georgia, Hawaii, Idaho, Massachusetts, Maryland, North Carolina, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Virginia and West Virginia.

The chart for specific high-cost areas and loan limits can be found at:

Loan Limits for 2009 Mortgage Originations — High-Cost Areas

VA Loans

For 2009 the Department of Veterans Affairs (VA) will use a locality-based approach to establish VA loan limits. Loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2009 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets made by the VA:

• Vets can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or in Alaska, Guam, Hawaii, and the Virgin Islands.

For 2009 the FHA loan floor for owner-occupied properties look like this:

One-Unit — $271,050
Two-Unit — $347,000
Three-Unit — $419,400
Four-Unit — $521,250

For 2009, FHA loan limits in higher-cost areas are as follows:

One-Unit — $729,750
Two-Unit — $934,200
Three-Unit — $1,129,250
Four-Unit — $1,403,400

The FHA has special, higher potential loan limits outside the continental U.S. for Alaska, Hawaii, Guam and the Virgin Islands.

One-Unit — $1,094,625
Two-Unit — $1,401,300
Three Unit — $1,693,875
Four-Unit — $2,105,100

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the

FHA Loan Limits Page

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) has been set at $625,500.

———————————-

Copyright 2009 Peter G. Miller. All Rights Reserved. Use of this material without permission is illegal, however up to 300 words of this material may by reproduced online PROVIDED credit is given to the author AND a plainly-visible link is provided to my home page, OurBroker.com.

2009 Mortgage Loan Limits (Updated) is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: conventional, Fannie Mae, FHA, Freddie Mac, HUD, jumbo, limit, loan, VA