Mortgage Insurance Alternatives

I found the following article on the internet and thought that it was one of the most comprehensive articles on mortgage insurance and it's alternatives. I found it on the website MortgagesExplained.net If you are like most home owners you hate the idea of your hard earned money going down the drain with monthly mortgage insurance payments. And with so many homeowners defaulting on their mortgage payments over the last few years (google "housing crisis 2008 to 2011") private mortgage insurance companies, and FHA alike, have raised their premiums for the monthly mortgage insurance payments. As of the date of this blog post, a $200,000 FHA 30 year mortgage has a mortgage insurance payment of $150/month. For this same loan it will go up to $191.67/month after April 18th, 2011. That's the equivalent of the lease payments on a brand new Toyota Camry! Private mortgage insurance on a conventional loan works a little bit different in that it is determined by different characteristics of the loan such as the borrowers credit score andthe loan to value ratio. For a 30 year fixed conventional loan at $200,000, with a borrower credit score of 740 anda down payment of 5%, the MI will be around$160/month. The fact that you could either pay monthly mortgage insurance or lease a brand new car for the same price is reason enough to consider the following options to getting rid of monthly mortgage insurance. Home Loans That Do NOT Require Mortgage Insurance There are a few loan programs that do not require monthly mortgage insurance whether you have a 20% down payment or not. USDA Rural Housing is one of those programs. It offers 100% financing and a 30 year fixed mortgage for eligible home buyers looking to purchase a home that is located in an eligible rural area as defined by USDA. The interest rates should be on par with those of FHA and because it doesn't require monthly mortgage insurance it will have a lower monthly payment than both FHA and Conventional loan programs. What's the downside to the USDA loan? It requires a funding fee of 3.5% (can be financed to bring total financing to 103.5%) which means you start your home ownership experience "upside down" (owing more than your house is worth). If you are going to buy a home as a short term investment, the USDA loan is probably not for you. Also worth mentioning: It has been rumored that the USDA is considering a monthly mortgage insurance requirement and that it could be implemented as soon as late summer. The VA Home Loan is another 100% financing program that doesn't require mortgage insurance and the funding fee is only 2.15% (this can vary depending on the characteristics of the loan and your status with the VA). VA Requirement: If you aren't a veteran or married to one, you aren't going to qualify for this loan program. If you are a veteran you should request your certificate of eligibility before visiting with a loan officer. Portfolio Lenders: A portfolio lender is one that doesn't sell their loans on the secondary market and consequently doesn't have to follow the guidelines of Fannie Mae and Freddie Mac. This also means that they usually won't require mortgage insurance on any of their loan programs. US Bank is one example of a portfolio lender that will allow you to put just 10% down and a home purchase and won't require any mortgage insurance. Always a downside: Because portfolio lenders take a greater risk by not selling their loans off, they usually demand a higher interest rate. More Mortgage Insurance Alternatives! If you are not eligible for a USDA or VA home loan, don't fret because there are still some other options for avoiding monthly mortgage insurance or at least lessening the pain on your wallet, without putting 20% down on a conventional loan. Here are a couple of other options to consider... FHA 15 year loan with 10% down: Besides being a great way to build equity quickly FHA does not require any monthly mortgage insurance on an FHA 15 year mortgage when you put 10% down. On April 18th, 2011 that is going to change, but it's only going to a factor of .25%. On a $200,000 loan that's only $41.67/month, which is significantly less than the 30 year MI. 80/10 Mortgage: It's true that the 80/20 and 80/15 mortgages are virtually non-existent but believe it or not, there are still some lenders that will give qualifying borrowers a 10% second mortgage so that they can have an 80% Conventional loan without mortgage insurance. The second will usually be a higher interest rate but 9 times out of 10 it will result in a lower mortgage payment. Take the savings to pay off the 2nd mortgage in 10 years instead of 30! Lender-Paid Mortgage Insurance: For borrowers that wouldn't be in their homes long enough to get rid of more traditional monthly MI, this can be a very good option. With this option, you can choose to take a higher interest rate and not pay monthly MI. For example, if the current rate on a Conventional 30 year fixed is 5.0%, you could choose the lender-paid mortgage insurance(LPMI for short) and take a 5.5% rate. On a $200,000 loan the higher rate will raise your payments almost $63 but that is much cheaper than the $125 you would pay for monthly MI on a Conventional loan with 10% down. Single Premium Mortgage Insurance: This is one of my favorite options for Conventional loans with less than 20% down . In a nutshell, it allows the borrowers to pay all of the mortgage insurance upfront at a huge discount. For example, on a $200,000 loan with 10% down, you would pay $2,500 at closing for the single premium mortgage insurance. The monthly mortgage insurance would be $103 for that same loan. It only takes 24 months of that $103 to add up to the single premium of $2,500. If you make minimum payments on this loan, it would take 7 years to get to a point where the monthly mortgage insurance premiums would drop off. It's kind of a no-brainer! Even more so if can negotiate that the seller pays it for you! Conclusion The bad news is that mortgage insurance is expensive and it can be a serious hassle to get rid of it once you have it. The good news is that there are a ton of ways to get a mortgage without mortgage insurance and without a huge 20% down payment. If you just do a little bit of homework on it, you could save yourself thousands of dollars in just a few years. Make sure that when you are shopping for a mortgage that you ask your lender about all of the mortgage insurance alternatives mentioned in this article.

Refinance Website

I came across a new website that I thought was worth sharing with the world. It's a website that is all about refinancing mortgage debt. It is called RefinanceMortgageDebt.com. Check it out! You can a learn a lot about refinancing and all of the mortgage programs that are available for your unique situation.

New Blog and Website

So I haven't posted on this blog because well, I have decided to abandon it and/or trade it in for a new blog and website, which is about 10 times cooler. If you come across this blog I hope that you will visit it. It is www.loganutahmortgages.com

Will the ARM make a comeback?

An ARM ,or adjustable rate mortgage, is a mortgage product with an interest rate that is tied to a certain economic index and that is fixed for a certain period of time (e.g. 1,3,5,7, or 10 years). After the fixed period the interest rate will periodically adjust as the economic index changes. In the mortgage industry, "ARM" has almost become a swear word. We can thank the media for this. So many bad things have been associated with an ARM... foreclosures, pre-payment penalties, rising payments, option-ARMS, negative amoritization, etc. The stigma has gotten so bad that I'm afraid that if I mention an ARM to a client that they are going to sprint out the door and never look back. Yet, with some trepidation, I have to say that there are some circumstances in which an ARM makes sense (gasp!). Check it out...Today a 30 year fixed rate is around 4.875%, but a 7 year ARM is at 4% and a 5 year ARM is at 3.875%! For a first time homebuyer that is certain that they will move after 5 years, why wouldn't they consider saving almost a full point of interest over that time. On a 100,000 loan, it's a savings of almost $5,000. Of course nobody can know for certain how long they will stay in a home but for many people I believe it is worth taking that risk. It's also important to know that it's not certain their interest rate will adjust higher after the fixed term. In today's market, many adjustable rate mortages are adjusting lower because the rates of the economic indexes are so low. I think it's time the ARM makes a comeback. I hope I don't go out of business for saying that.

Tax day!

Being self-employed can be a great thing. I set my own hours, I work for myself, and I have the freedom to run my business how I see fit. It also has its negative side though. Taxes for one are twice as complicated, as if they weren't already confusing. Instead of filing a single annual individual return at H&R Block, I now have a professional accountant who helps me file quaterly and annual taxes for my S Corporation.
Being self-employed can also make obtaining a mortgage very challenging. Many self-employed people that come to me make a lot more money than their tax returns actually reflect. This is because they take advantgage of a lot of write-offs. In the past self employed borrowers could just do a "stated-income" loan where the lender didn't verify income with tax returns. Well, we all know what happened with stated-income loans. With those types of loans being a thing of the past, it may behoove self-employed borrowers who are contemplating a refinance or purchase of a home, to reflect a little bit more income than they use to on those tax returns. Because it doesn't look like "stated-income" is coming back anytime soon.

1,599 grants remaining

Besides the $8,000 dollar tax credit for first time homebuyers, there is now a $6,000 grant for anyone that purchases a new-construction home. The guidelines are pretty much the same as the federal tax credit except the home must be new construction and the buyer does not have to be a first time homebuyer. There is some excellent information about it on the utah housing website.

Obama's Tax Credit

A lot of people have asked me about the new first time homebuyer tax credit and how it compares to the old $7,500 tax credit/loan. The two biggest differences that I can see is 1. It is for $8,000 and 2. It is not a loan but a legitimate tax credit that you don't have to pay back!! Sounds pretty sweet to me. One way to think about it is if you buy a home for $100,000, the real price is $92,000. Frankly I wish I were a first time homebuyer so I could take advantage of this incredible opportunity. For more information, I found this article on yahoo.com... First Time Homebuyer Tax Credit

New way to contact me!

So I just found this meebo widget and thought it could be a great way for people to contact me with their mortgage questions. Whether I'm online or not, and whether you are a current client, a potential client, a realtor friend checking on a deal, a friend, or just somebody with a mortgage question, I hope you will feel free to use this new chat platform. Contact me anytime!

Yield Spread Premium

In short, yield spread premium is the rebate that the lender pays to the mortgage broker. The amount of that rebate depends on the interest rate that the borrower agrees to. For example, a loan officer might offer a borrower an interest rate at 6% and the lender (e.g Countrywide) would pay the mortgage broker a 1% ysp (e.g. on a loan amount of $100,000, the ysp would be $1,000) At an interest rate of 5.75% the ysp might only be .5%, or $500 on a 100k loan. In the past it hasn't been required that the loan officer disclose the ysp to the borrower and it was kind of a secret. But that is changing and it is now required that the loan officer disclose the ysp on the good faith estimate (usually around line 814). This is great news for borrowers so that they can see if they are really getting a good deal on the interest rate. Word to the wise...anything above 1% ysp and you could probably find a better deal elsewhere.

Is it time to buy?

Sorry for not posting for a while. I have been pretty swamped with all of the refinances that people are requesting. While I was looking at my list of current clients I realized that 90% of them are clients who are refinancing and only 10% are clients that are purchasing a home. This got me thinking about a couple things. My first thought was that maybe I am the only loan officer in town with this ratio and I need to do a better job marketing to real estate agents (in 2009 I have the goal for 40% of my business to come from real estate agents. Right now it's like 10%) After talking to some of my loan officer colleagues that had similiar situations I thought "why aren't more people buying homes?!" With interest rates as low as they are and the first time homebuyer tax credit of $7,500 Iwould think that everyone would be scrambling to purchase a home. I've come to the conclusion that the media has poisoned everybody with the fear that they are going to lose their job and be foreclosed on their home. So a couple things need to happen...People need to stop listening to the media and Obama needs to push the "recession off" button in that secret room in the White house.

4.25% on 15 year fixed!!

Today an FHA 15 year fixed got as low as 4.25%. That is the lowest that Wasatch Mortgage has ever seen in it's 10 years of existence. The other nice thing about a 15 year fixed FHA loan is that if the borrower has 10% equity they will not pay any monthly mortgage insurance.

Rates!

Have you ever felt like you were running around like a chicken with your head cut off? Well, that's pretty much how I felt Wednesday morning when I arrived at work and saw that interest rates on a conventional 30 year loan were at 4.5%. I mean, what do you do when you know that everyone and their dog needs to know about this information and you know that there isn't enough time to tell all of those people. Well, after I calmed down I was able to lock in a couple of borrowers that had done applications with me and I called everyone I knew. Unfortunately, rates did not stay low for long, and within 2 hours rates had risen back to 5.125%. The moral of the story is...when you are thinking of doing a refinance, get your application submitted as soon as possible so that your loan officer has the opportunity to lock your rate in when rates drop significantly.

Testimonials

"I've recommended my buyers to John Neil and Wasatch Mortgage Solutions regularly. John establishes a good raport with my buyers and offers a competitivc good faith estimate. John answers their questions and processes his loans efficiently and avoids delay. John holds the record for my quickest loan processed from offer to funding in 8 business days while still offering the most favorable terms for my buyer. Both my buyer and I were impressed with John's capabilities and expertise. I'm glad I've used John's services in the past and plan to continue calling on him in the future"
- Patience Fisher, Bonneville Realty

"I refinanced my home about 5 months ago, and Wasatch Mortgage hooked me up with John Neil. What a pleasant surprise. I told him what my needs were and what my situation was at the time, and he immediately went to work for me. He sincerely listened to me. He presented me with three options that I could do, with no pressure. He was very informed in the mortgage industry, and also had a very good association with a title company that I ended up using. He thanked me for having good credit, and he even called me up a couple of months after helping me get the loan to see how I was doing. In talking with him at that time, he went way beyong the call of duty, and hooked me up with an individual that would be willing to list my business that we are trying to sell. I would recommend John Neil to anyone that is trying to get financing on a home. I have gone through this process 4 times now, and my experience with John and Wasatch Mortgage Solutions was my best experience"
- Robert Willmore

"John was at all times prompt, courteous and professional. He explained loan options clearly finding us the lowest rate. I recommend him highly!"
- Marsha Ray

When does it make sense to refinance?

I have heard some people say that you have to improve your interest rate by a full percent to make it worth it. Others say a 1/2 percent is enough to make it worth it. The fact of the matter is that there is more to it than just the percentage that you improve your rate. It's really quite simple actually. You just have to find out 2 things: 1. When is my break even point? (which is calculated by dividing the % cost of the refinance by the % improvement in the rate. For example if the closing costs are equal to 2% and you improve your interest rate by 1% than your break even point is 2 years.) and 2. How long do I plan on staying in the home? If your break even point is 2 years and you plan to stay in the home for at least 3 years than it is to your advantage to refinance. I recently refinanced a client who was planning on selling their home in one year. Because of this, it didn't make any sense to do the refinance if they paid closing costs. We were able to structure their new loan so that they still lowered their interest rate without paying any closing costs. The moral of the story is that everybody's situation is different and a good loan officer should be able to help you understand why it does or does not make sense to refinance.

Morgage Rates Coming Down

It's Tuesday, November 25th and mortgage rates have come down dramatically today. A 30 year fixed is at 5.375% and a 15 year is at 5.25% (The spread between the two is smaller than it has been historically). But this is great news for home buyers and those interested in refinancing! Call me at 435-770-2709 if you would like to see if it makes sense for you to refinance.

Program of the Week: FHA

With the underwriting guidelines getting stricter, FHA is a program that is going to help a lot of borrowers that wouldn't otherwise be able to purchase a home. It is a government sponsored program that has no minimum credit score requirements, a minimum 3% downpayment that can be a gift from a family member, and mortgage insurance that is much cheaper than a conventional loan. As long as there is evidence that the borrower can pay back the loan (i.e. a job that provides sufficient income) and there haven't been any grievous credit sins (i.e. bankruptcies, foreclosures, serious judgements) within the past couple of years, than the borrower should qualify for an FHA loan. Give me a call at 435-770-2709 if you have any questions about this loan or others.

First Time Homebuyers Class

I will be teaching a First Time Homebuyers Class for all interested on November 19th, from 7:00 pm to 8:30 pm at the University Inn, conference room 510. I will be teaming up with Karen Stone, a realtor from ERA realty. Karen specializes in first time homebuyers and I am very excited to be teaching with her. We will be discussing changes in the mortgage industry and how they affect first time buyers, loan qualification guidelines and how to prepare, and red flags to be aware of in the home buying process, among other topics. The class is free and I hope that you'll invite family and friends. Hope to see you there!

Program of the Week: Rural Housing

There is really only one bad thing about the Rural Housing loan and it's that you have to live out in the boonies, meaning outside of Logan. In reality I do not consider Hyde Park, Smithfield, and Nibley as the "boonies" and yet those places would qualify for Rural Housing. This is truly a spectacular loan for a variety of reasons. It is 100% financing, the interest rates are typically lower than conventional home loans, and my favorite part: No mortgage insurance!! Yes...that is correct..No mortgage insurance!! This means that a borrower could purchase a home with no money down and have a monthly payment that is cheaper than what any other loan program can offer. So, if you don't have money for a downpayment and want to live outside of Logan, I highly recommend the Rural Housing Loan.

Same Game, Different Rules

At a recent Aggie basketball game I noticed that the three point line is a little bit farther back from where it used to be. The next day, after doing a little bit of research, I found out that it had in fact been moved back one foot to 20 feet 9 inches. Apparently, the NCAA basketball rules committee made the decision based on the rationale that it would "open up the game", force teams to play more defense away from the basket, and assist in the "problem of rough low-post play". I also imagine it will help college players prepare for the next step to professional basketball overseas or even the NBA, where the 3 point line measures 23 feet 9 inches. Whatever the benefits or consequences might be, one thing that is certain is that coaches will have to adjust their strategies to the new rule. They might have to change the way they play zone defense or make a decision on which players are still allowed to shoot the 3-point shot. The teams that will be most successful are the ones that can use the new rule to their advantage.

Just like college basketball, the mortgage industry has had some rule changes as well. The credit score requirements have been moved up a little bit, The down payment requirements have been moved up a bit, up to 3% minimum(except on Rural Housing, VA, and the Utah Housing loan), and the referees of the mortgage business, or underwriters, have become more vigilant of the overall strength of a loan file. It is still the same game but we just have to adapt our strategies a little bit. One strategy is to take advantage of the numerous government sponsored loans, such as the various FHA loans, the Rural Housing loan, the Utah Housing loan, and the VA loan for veterans. Oftentimes, especially with FHA, these loans can help borrowers with shaky credit still qualify for a home loan with a low interest rate, just as long as there is sufficient evidence for their ability to repay the loan. If a home loan applicant has a 720+ credit score and 10% down, than the conventional loan is still an excellent strategy as well. With these government sponsored loans, most home loan applicants that were able to qualify over a year ago would still be able to qualify today.

In 1987 college basketball introduced the 3-point line for the first time ever. It was a huge change that forced teams to adapt or fail. In that same year, Rick Pitino took an undersized and nonathletic group of players from Providence University to the final four by utilizing the 3 point line to their advantage. They made the most 3-pointers of any team that year at over 8 per game (See The 3 Has Changed Strategy, Player Evolution). In that same year, interest rates on a 30 year mortgage averaged over 10%. Just like in 1987, those that can adapt are those that will experience the most success.

Broker vs. Banker

I've taught about half a dozen "First-Time Homebuyer" classes over the last year and a common question I've been asked is, "Is there a difference between getting a home loan through my bank or through a mortgage broker?" Short answer: "Yes" with a "but". Long answer: "No" with a "maybe". Just kidding. There are a couple fundamental differences between the two.

1. Brokerage: Also known as wholesale lending because they can offer rates below retail prices (and higher than retail prices), the mortgage broker works as an independent contractor for various banks and lenders. Most mortgage brokers will have a greater variety of home loan products to choose from than a bank. A home loan originated by a mortgage broker will always be sold to another lender.
2. Bank: The loan officer that works for a bank will only offer home loan products from that bank. Generally speaking a bank will service the majority of the loans that it originates.

I really don't think that these differences should determine whether someone uses a loan officer or not. It should not matter if they work for a bank or a broker. The fact is that there are good and bad loan officers that work at both banks and brokerages. The trick is finding a good loan officer regardless of where they work. Jack Guttentag, the "Mortgage Professor", describes some characteristics of good mortgage brokers that everyone should look for when shopping for a home loan. See What Makes a Good Mortgage Broker, part 1