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Mortgage Refinance: You Have To Think Long-Term

by Barbara Eisner Bayer

 

When it comes to a mortgage refinance, it’s less about how much you’ll spend and more about how long you’ll stay.

 

Do the math

No. 2 above requires some calculation on your part. To figure it out, you’ll need to know:

  • The closing costs for a new loan. Ask potential lenders—costs usually run 3% to 6% of the loan amount. Lenders may finance these costs (that is, fold them into your loan amount), so you don’t actually have to write a check, but you’re still paying for it.
  • Your current mortgage payment.
  • Your potential new payment. Again, your lender can give you this.
  • The length of time you plan to keep your home.

To simplify these calculations, do a quick search online for various free mortgage refinance calculators, which can be found on many bank sites.

Find your breakeven point

Here’s an example of how a mortgage refinance might play out with a typical 30-year fixed-rate mortgage:

Amount refinanced $200,000
Closing costs for new loan 4%, or $8,000
Current mortgage 6%, or $1,199 per month
New mortgage 5%, or $1,074 per month
Monthly savings $125

But even though you start paying the lower rate right away, you’ve shelled out $8,000 in closing costs, and you aren’t ahead of the game on your mortgage refinance until you’ve paid that off. At $125 in monthly savings you have to stay in your home 64 months—more than five years—to make it worth it ($125 x 64 months = $8,000). Move before then, and you’ve lost on the deal.

However, if you remain for 10 years, for example, you’ll have saved $7,000.

It gets better

Although 1% is the rule-of-thumb minimum for a mortgage refinance, lower rates can make refinancing even more attractive, as the breakeven period becomes shorter. 

Consider the above mortgage refinance scenario if you could shave another half-point:

Amount refinanced $200,000
Closing costs for new loan 4%, or $8,000
Current mortgage 6%, or $1,199 per month
New mortgage 4.5%, or $1,013 per month
Monthly savings $186

You now reach the breakeven point in just over 3.5 years.

Another way to improve your position

Two additional factors can make a mortgage refinance an even better option:

  • Your credit rating has improved since your last mortgage. Go to AnnualCreditReport.comto monitor improvements.
  • You’ve started earning more money.

Both these factors make you a more desirable candidate in lenders eyes’ for a mortgage refinance, possibly allowing you to negotiate lower interest rates or lower closing costs, further shortening your breakeven period.

The bottom line is that you shouldn’t seek out a mortgage refinance just because “everyone is doing it.” It needs to make financial sense for you.

FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can't be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.

There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.

In addition,
some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today.

The first-time homebuyer tax credit was enacted last year and improved upon earlier this year--to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven't owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.

Learn more about the credit, including how to apply for it this year even if you've already filed your taxes.

Source: Robert Freedman, REALTOR® Magazine Online

Freddie Mac - Making Home Affordable Video

by Jorge Gonzalez, ABR, CRS, GRI

Freddie Mac put together a new video on their website to help Virginia Beach area homeowners understand the new “Making Home Affordable” program.  In this video, Ingrid Beckles, Senior Vice President, Freddie Mac, explains how borrowers can determine their eligibility for “Making Home Affordable” and use the plan to refinance their current mortgage, or if they’re already behind on their loan or facing a financial hardship, get a modification that makes their mortgage more affordable.  Click here to access the video.

 

$8,000 First-Time Home Buyer Tax Credit Explained

by Jorge Gonzalez, ABR, CRS, GRI

The $8,000 Tax Credit can be earned by purchasing any home in Virginia Beach and Hampton Roads area, whether it be new construction or any residential home on the market.  If you are intertersted in finding out more about the $8,000 First-Time Home Buyer Tax Credit Program, please let me know.

 


Video Source: NAHB

5 Tips for Homebuyers Seeking a Mortgage

by

Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.

"Borrowers are going to have to prove they are the borrower they say they are," says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.

Gumbinger says homebuyers should consider these things before they apply for a loan.

1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.

2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: "A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”

3. Consider VA and FHA Mortgages. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.

4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.

5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.

 

Source: NAR

$7,500 Home Buyers Tax Credit Explained

by Jorge Gonzalez, ABR, CRS, GRI

A recent NAR survey stated that most Americans are unaware of the $7,500 home buyer tax credit. Some details from the National Association of Home Builders:

§ The tax credit is available for first-time home buyers only. See FAQ link below for the definition of first-time home buyers, as it is not what it seems.

§ The maximum credit amount is $7,500.

§ The credit is available for homes purchased on or after April 9, 2008 and before
July 1, 2009.

§ Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

§ The tax credit works like an interest-free loan and must be repaid over a 15-year period.

The National Association of Home Builders has a great FAQ site here.  This tax credit is available in the Virginia Beach, Chesapeake, and Hampton Roads area.

Stated (No Documention/Proof of Income) Mortgages Ending Soon

by Jorge Gonzalez, ABR, CRS, GRI

For years the best way for a self employed, sales, or even retired people to get get a mortgage was to apply for a stated mortgage.  Basically, these types of loan do not require any proof of income and no supporting documentation.  The basic qualification requirement was very good credit scores (like 680 and above) and a large down payment or significant equity for mortgage refinancing (70%-80% LTV).  Unfortunately, these types of mortgages have fallen victim to the current market environment and will be going the way of the buggy whip. 

It is easy to blame these types of loans for some of the mortgage problems in real estate today, but when they were properly used they are very beneficial to helping people qualify for a mortgage who do not qualify under traditional means.  Anyone who can put down a lot of cash, but maybe they are in sales with unpredictable monthly income would greatly benefit from this type of loan.  With a great credit score and a large down payment or significant equity, it would be highly unlikely that they would foreclose and lose everything.

These loans are very hard to come by these days and I found out that Bank of America Mortgage was ending there stated mortgage program on January 17, 2009 and any applications taken must be fully funded by February 27, 2009. Mortgage rates are very favorable for these types of loans on primary residences, so if you are still interested in getting one of these loans before they disappear, please contact Ken Dolan at Bank Of America Mortgage at 757-376-8491.

Ken has been my primary loan officer for my clients since about 1995. Please let him know I referred you and he will take good care of you.   

Should I Refinance My Home?

by

There are a lot of Hampton Roads homeowners who are considering whether or not they should be refinancing their home.  If you would like a recommendation on who to refinance your mortgage with, please send me an e-mail at Jorge@House4U.com.  If you fall into these categories, you should give it serious consideration.

Anyone with high adjustable-rate loans. Folks in this group should try to get into a low fixed rate if they can. Not only will they lower their payments immediately but it would also eliminate the possibility of future increases.

Those who would lower their rate by a percentage point or more. Borrowers who already have a reasonable fixed rate shouldn't jump into a new loan every time rates inch down, according to Orawin Velz, an economist for the Mortgage Bankers Association.

"You should have at least a percentage point difference before you even think about it," Velz said. "If you have a 6.5% loan right now, it would be a great time to refi."

Waiting for a substantial rate decrease makes sense because getting a new mortgage incurs some expenses. There are the costs of a new appraisal and origination and application fees. Plus, a title search and title insurance are usually required.

All those costs, which can add up to $2,000 or $3,000 or more for a typical $200,000 loan, are often rolled back into the mortgage, increasing the principal upon which the interest rates are applied. If that goes up so much that it offsets the interest rate drop, it doesn't make sense to refi.

Those who are planning to stay in their homes for a while. The increased balances usually take a year or two to be wiped out by lower monthly payments, so anyone planning to sell the home during the next few years probably should not refinance, unless the difference in interest rates is very substantial.

The actual rate borrowers get depends, just as with purchase mortgages, on credit scores, income and assets and the value of the home.

"If you have a high credit score and your equity is good, it's like a vanilla cream puff," said Velz. "You're going to get a great rate."

Borrowers with significant equity in their homes. Many homeowners have had much of their home values erased in the post-bubble bust, eliminating much or all of their home equity - the difference between the value of the home and the amount owed on the mortgage.

If a refi borrower's home equity has fallen below 20% of the total appraised home value, the borrower will likely have to purchase private mortgage insurance. The insurance adds a point or two to the monthly mortgage costs, which turns a 5% loan into a 6% or 7% loan, erasing any advantage of refinancing.

"That's the biggest hurdle for refinancing right now," said Velz.

Borrowers who don't think rates will decline much further. Everyone considering refis has to decide whether to wait for interest rates to go even lower, which the Mortgage Bankers Association has been forecasting.

That's only a prediction, though, not a certainty. Rates could turn higher instead.

Borrowers must weigh the advantages of gambling on rates turning around or locking in savings at the present very low rates.

Source: CNN

Time To Buy A Home Is Now!

by

Interest rates are in the 4.5% - 5% range on fixed rate 15-year and 30-year mortgages. Financing is available with little or no money down. Inventory is high with builders and sellers are willing to negotiate. Is it a good time to buy? I think so!

Worried about appreciation? You should not be as long as you’re looking at your home purchase as a long term investment (not to mention the warm shelter it brings from the elements and tax breaks too). Appreciation in Virginia, Maryland and the District of Columbia has consistently out-gained the national average. Time to get off the fence!

House Price Appreciation by State

Five Year Appreciation
Virginia: 50%
Maryland: 57%
DC: 64%
US: 29%

Since 1980
Virginia: 353%
Maryland: 403%
DC: 522%
US: 269%

Percent Change in House Prices Period Ended September 30, 2008
source: Federal Financing Finance Agency

Virginia Foreclosure Prevention Task Force

by Jorge Gonzalez, ABR, CRS, GRI

The Commonwealth of Virginia has created an informative website to help homeowners who are facing the possibility of foreclosure and to help them be more proactive in preventing foreclosure.   You can find out more about preventing foreclosure at this website:

www.virginiaforeclosureprevention.com

From my own past experience with homeowners in this situation is that they are embarrassed and most wait too long to do anything about it. One resource that should be helpful on this website is the list of major mortgage companies and the proper phone numbers to call for assistance.  In many cases, the problem when an owner calls is they never speak to the correct department. 

If you wish to discuss your options or a possible short sale to prevent a foreclosure, please feel free to contact me by e-mail at Jorge@House4U.com or at 757-287-3400.  Please note their is no reason to be embarrassed about your situation, it is becoming more common than ever before. 

 

Displaying blog entries 1-10 of 13

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Jorge Gonzalez primarily provides Real Estate and Property Management services for rental properties for the following areas of Hampton Roads:

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