The mortgage lending guidelines will tighten once again on December 12, 2009 making it more difficult for some borrowers to obtain a purchase loan or refinance their existing mortgage.
Fannie Mae announced it will limit the maximum debt-to-income ratio to 45% of a borrower's gross income. Previously, a borrower could qualify up to 50-55% debt ratios. Fannie Mae did mention that they will consider debt-ratios up to 50% assuming the borrower can provide "strong compensating factors". This would include high credit scores, low loan-to-values (LTV's) and/or significant cash reserves.
In addition to debt ratios, Fannie Mae will also require a minimum credit score of 620, previously the minimum was 580. Fannie Mae believes raising the minimum credit scores and tightening the debt ratios will support prudent risk management and better ensure sustainable homeownership. One can argue that this is an effort to crackdown on the loose lending standards that led to the mortgage crisis that started in 2008. Industry professionals are concerned the new requirements may offset the initiatives introduced by the government to provide more liquidity in the secondary lending market.
Current mortgage rates are at an all-time low right now, so act now and avoid these stringent guidelines. Please call a HomeQuest Mortgage representative for more details at 866-839-1117.
The Obama Administration unveiled the final details of its "Making Home Affordable Program," which is designed to help up to 9 million American families refinance or modify their loans to a payment that is affordable now and into the future. One of the initiatives in this program is aimed at helping responsible homeowners "refinance" their loans to take advantage of historically low interest rates. Here are some common Questions and Answers about the Refinancing Initiative in the program.
Am I required to pay PMI if I have less than 20% equity in my home? If your original loan had 20% equity and/or you do not currently pay PMI, then you are not required to obtain PMI under the new refinance initiative. In other words, you are eligible to refinance up to 105% of the value of your home and not be required to pay monthly PMI payments. If your current mortgage has PMI or was at 80% or greater than the value of the home, then you will still be required to pay PMI. This initiative provides a solution for borrowers with LTV's above 80% who currently may not be able to refinance because of mortgage insurance (PMI) requirements.
REFINANCING INITIATIVE Who is eligible? You may be eligible if: You own and currently occupy a one- to four-unit home. Your mortgage is owned or controlled by Fannie Mae or Freddie Mac. You are current on your mortgage payments. The amount you owe on your first mortgage is about the same or slightly less than the current value of your house. And, you have a stable income sufficient to support the new mortgage payments.
How do I know if my loan is owned or controlled by Fannie Mae or Freddie Mac? Simply call or email us. We'll help you determine if your mortgage is backed by Fannie Mae or Freddie Mac.
I owe more than my property is worth. Do I still qualify to refinance under the Making Home Affordable Program? Eligible loans will include those where the first mortgage will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less, you may qualify. The current value of your property will be determined after you apply to refinance.
If I am delinquent on my mortgage, do I still qualify for the Refinance Initiative? No. But the good news is, you may qualify for the Modification Initiative. Contact us to discuss your situation and review your options.
I have both a first and a second mortgage. Do I still qualify to refinance under Making Home Affordable? As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible for the Refinance Initiative.
Will refinancing lower my payments? That depends. If your interest rate is much higher than the current market rate, you would likely see an immediate reduction in your payment amount. However, if you are paying interest only on your mortgage, you may not see your payment go down. BUT... you will be able to avoid future mortgage payment increases and may save a great deal over the life of the loan.
Will refinancing reduce the amount that I owe on my loan? No. Refinancing will not reduce the principal amount you owe. However, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
Can I get cash out to pay other debts? No. Only transaction costs, such as the cost of an appraisal or title report may be included in the refinanced amount.
How do I apply for the Refinance Initiative? Call or email us today to discuss your specific situation and to examine your options. If this plan is right for you, we can begin working on your refinance immediately. As part of the discussion, we may need to look at the following information: Recent pay stubs to help determine your gross (before tax) household income. Your most recent income tax return. Information about any second mortgage on your house. Account balances and minimum monthly payments due on all of your credit cards. Account balances and monthly payments on all other debts, such as student loans and car loans.
As always, if you have any questions or would like to discuss how this may specifically impact you, we'd be happy to sit down with you. Just call or email us to set up an appointment.
As more and more borrowers realize that mortgage rates in Massachusetts and all of New England are at historic lows, they are inquiring about the possibility of refinancing into a lower interest rate. Once they find out they have the credit scores and income to qualify the next obstacle is home values. To get the lowest interest rate and avoid paying Private Mortgage Insurance (PMI) you need the loan amount to be 80% of the home appraised value. Given the current state of the housing market, many borrowers are discovering that they no longer have the required 20% equity, even if they did just a few months ago.
This is when PMI comes into play. A lot of people immediately think of PMI as a bad thing. It adds to the monthly mortgage payment without helping to pay down the balance of the mortgage. A lot of people don't realize that going from a loan with no PMI to a loan with PMI might still be a good move.
One reason having PMI on your new loan could be a good option is that in some cases it may be used as a tax deduction. You will have to consult a tax advisor to see if this deduction can be applied to your taxes. If it can, it will help reduce the actual cost of the PMI.
Another reason PMI is not as bad as it may initially seem is because it is not a permanent expense. On conforming loans the PMI may be eliminated once you have 20% equity in the home. Once it is removed you will be left with the original interest rate and no PMI payment.
Interest rates are at historic lows right now making it possible for many people to reduce their current mortgage payment, even if their new loan has PMI. For example, say you bought a home 3 years ago for $400,000 with a 20% down payment. You took out a loan for $320,000 and got a fixed at 6.375% with monthly principal and interest payments of $1,996.38. Now that rates have come down, you have the option to refinance into a 30 year fixed loan amount of $315,000 at 5.00% with monthly principal and interest of $1,690.99 per month. The only problem is that your home now appraises for $360,000 due to the weak housing market, leaving you with a little more than 10% equity in the home. PMI is now required on the loan in order to get the lowest rates. In this scenario you could expect to have to pay a PMI payment of about $130 per month.
Even with the new PMI on the loan, your total payment would still be $175.39 less than you were currently paying. And once you have 20% equity in the home again, the PMI would fall off and you would then be saving $305 per month compared to the loan you had with an interest rate of 6.375%. Once you factor in potential tax savings from the PMI it becomes clear that it is worth it to refinance even if you no longer have the 20% equity in your home.
To see if it makes sense for you to refinance given the historically low 30 year fixed rates that are currently available, give us a call at 508-839-1117 to talk with one of our loan officers.
Current mortgage rates will be low again this week as the rally in mortgage rates that started on November 26th looks to be sticking around longer than some previous rallies this year. This is good news for borrowers that are looking to refinance a current mortgage or purchase a home. One of the main goals the Treasury has is to try and stimulate the housing market and bring some potential buyers off the sidelines with the lower mortgage rates.
One news item coming out this week that could impact mortgage rates is the Retail Sales report which will be released on Friday. This report is expected to show that retail sales were lower by 1.4% in November. A worse than expected reading would be bad news for the economy and could support lower mortgage rates. A better than expected reading would be a positive sign for the economy and most likely lead to higher mortgage rates.
Other than the Retail Sales report, any new announcements from the Federal Reserve or the Treasury about Mortgage Backed Securities (MBS) could swing rates one way or the other. For the most up to date information on mortgage rates in Massachusetts along with the other states in New England that HomeQuest is licensed in, call 508-839-1117 and ask to speak with one of our loan officers.