Friday, February 29, 2008

How to Sit Pretty in a Real Estate Buyer’s Market


Thinking of buying a home because opportunities abound and rates are low? Here are a few tips to get you what you want…….

It’s a buyer’s market right now. Rates are low, houses are available. There will always be people buying and selling homes. Opportunities abound from which to benefit. But, how do you make sure you’re sitting in the catbird seat when the right opportunity is available to you?

Get your ducks in a row. First things first, review your credit. Now. Word on the street is 79% of all credit reports have errors. Some may be significant enough to prevent you from qualifying for a mortgage. You can pull a free report from each of the three bureaus every twelve months by visiting annualcreditreport.com. If you do see something that looks out of whack, address it immediately. Take your credit report seriously. Treat it with respect because your credit score and history are the most important indicators to be considered when applying for a mortgage.

Start saving money for a down payment. Sure, there are 100% loans still available, especially for the first time homebuyer. However, you are going to save money in the long run if you have a little something to put down. Mortgage insurance, required on loans with less than 20% down, is tiered. You will not pay the same monthly mortgage insurance for a loan with 5% down that you would if you put 10% down. And don’t forget, you still may have to foot prepaid items like taxes, insurance, interest, etc. or a portion of the closing costs.

Make sure you really know what you make and are able to verify it. Also, know your true bank and asset balances. The days of stated income responses from underwriting engines are few and far between. There are exceptions, but who knows if you are one of them at this point? Better safe than sorry.

And here is a great bit of info to keep your credit score high. Try to keep your credit cards to under 25% of the available balance. Not always easy to do. I completely understand. However, if you are unable to pay it down, you may want to see if the creditor will raise your credit limit to tweak your ratios.

Ok, so here is the no brainer tip. Pay your bills on time. Always avoid paying over 30 days late. Always pay your mortgage first, then sweat the other bills. That one ding on a mortgage payment can completely knock you out of the lending arena.

After addressing the above, consult a good mortgage lender and see where you stand. It’s important to be pre-qualified for a loan before you find a house. It really strengthens your offer when the seller knows you are a serious contender who can obtain financing. You negotiate from a position of strength.

Don’t forget to ask around or use a realtor you know and trust. Just like a lender, the more experienced - the better. Work only with people with whom you “click” that listen to you and work hard for you.

It’s a great time to buy. If you’re so inclined, use these tips and be prepared to take advantage of the current housing climate!

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Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.

Wednesday, February 27, 2008

LOCKING IN YOUR INTEREST RATE AND OTHER TALES OF LAS VEGAS


“Should I lock my loan? Are the rates going up? Are the rates going down? What’s the market supposed to do in the next week?” These are questions that every experienced loan officer has been asked by his or her customers on various occasions. I’ll tell you one thing, if I had a hard and fast answer to any of these questions, I would be reading a book on my own private yacht in the Mediterranean Sea. And my butler would be asking me what I wanted for lunch.

Here’s the deal on locking in your loan. Typically a standard lock is for 30 days. This time frame gives all parties involved in the transaction adequate time to complete their responsibility in the loan process. If you are closing within 30 days, you should probably go ahead and lock your rate, provided you are comfortable with the terms quoted to you. What if the rate goes down .125%? I counter and ask what if the rate goes up .125%? Are you willing to risk it?

If you are happy with your payment, then I advise you to lock in the rate. Your mortgage lender will give you a picture of the general trend of interest rates, or you can research it for yourself. Find the loan payment amount you are aiming for and focus on this issue to lock your loan. I’ve seen it happen plenty of times: everyone speculates the rates are going down, but the next day you see a .25% increase. Of course the converse does happen at times, but I haven’t seen it happen as much!

I’ve had customers who have checked with me every day to see where the rates are and I’ve never seen this vigilance result in a significant rate improvement. Not to say it can’t happen, I’m just relaying the odds from personal experience that it won’t. But, if this course is what my customer is most happy taking, I’m just as happy to update them daily till they feel comfortable locking. But keep in mind it’s a gamble. If it was easy, there would be a lot of folks on the beach with their butlers. It is very difficult to predict short term movements in the market. Try it for a few days just for fun, and you’ll see what I mean.

When a loan is locked, your mortgage company has made a commitment to provide a product at that note rate to its secondary market source. If the rates go down, you still are expected to close at your locked rate. If the rates go up, you still expect to close at your locked rate. A lock represents a commitment from the customer and the lender. So, find your comfort zone and lock your rate. Spend your time worrying about what you’re going to do with all the money you saved on your refinance or how you are possibly going to get boxes packed in time to move in two weeks!

Tuesday, February 26, 2008

Mortgage Loan Approval Sometimes Need A Human Touch

The mortgage industry can usually tell you in a matter of minutes if you are approved for a loan by inputting your information into an automatic underwriting system. But what if your credit profile doesn’t fit inside the standard guidelines? You may be eligible for a manual underwrite, where a real person eyeballs your credit file…….

In the mid 1990’s, the mortgage industry saw the credit score and its predictive power to assess a borrower’s ability to repay a mortgage step into the limelight as one of the most indicative factors for loan approval. After conducting statistical test after statistical test, Fannie, Freddie and Ginnie, the 3 big lending institutions, mandated that the credit score should be used in conjunction with manual underwriting to assess loan approval. Not too long after, automated underwriting systems (AUS) were developed that expedited and streamlined the underwriting process even further for lenders. A loan officer today simply inputs a borrower’s key information into the preferred underwriting automatic engine, such as his/her credit score, income, amount being borrowed, cash reserves, employment and housing history, and the value of the property. A response is returned by the underwriting engine recommending approval or denial for the loan.

If your loan receives a denial from an AUS, the buck doesn’t necessarily stop there. Life happens to people, and oftentimes it’s going to take a real live person understanding the nuances of a file to make an underwriting decision. That’s when your lender may suggest submitting your file to underwriting for a manual review. After all, not everything in life can be automatic, right?

A perfect scenario for a manually underwritten file would be someone who has no credit scores. No credit scores? Yes, it is possible. I’ve had customers who, being old school and always having paid for everything in cash, had never established traditional credit lines that reported to credit reporting bureaus. In a case such as this one, I had to submit non-traditional lines of credit to underwriting, something a machine can’t assess. This means I had my customer bring in bills he had paid on time for the past year to create a credit history. Typical ones used are car insurance, utility bills, cell phone bills and cable bills. You can expect to have to provide 3-4 different trade lines if you haven’t established a traditional credit history and score.

“The most typical reason we see a file submitted to us for manual underwriting is for either no credit score or an error reported on a credit report,” reflects Patricia Haynes, onsite Government Underwriter at Mortgage Investors Group. “For instance a judgement that doesn’t really belong to the borrower. Maybe it’s really Dad’s judgement reflected on the son’s report because Junior and Dad have the same name. That’s when I can overwrite an AUS decision because I have the documentation to support my decision to do so in front of me.”

Another very common reason to submit a loan for a manual underwrite is when your customer’s credit score is below 620 and gets an AUS denial. If this is the case with your loan, be prepared to provide more than average documentation about your credit history, as well as written explanations as to why your credit score has suffered recently. Maybe two years ago you had a financial meltdown due to a medical illness, but in the last twelve months, you can prove you are back on your game and have been repaying debt. However, your credit scores haven’t exactly caught up with your actions. An underwriter is going to piece together the different aspects of your file and see if it makes sense. Your home lender should be able to review your file and guide you as to what documentation an underwriter will want from you to grant you loan approval.

Naturally, if your credit score is really low and you have very little explanation for your state of credit affairs other than you failed to pay your bills on time, don’t hold your breath for loan approval. An underwriter can see through smoke and mirrors. After looking at files as long as they have, they can basically sniff out a loan that has merit from the ones that are too risky.

So, even as our world gets more and more automated every day, it’s nice to know that you can’t replace genuine common sense, even in the mortgage industry. And it’s nice to know that you can plead your case for credit worthiness to a real live human being.


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Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.

Wednesday, February 20, 2008

Tuesday, February 19, 2008

Do you have a question on home financing?


Do you have a question on home financing?

I have been writing an article each week on home financing for various publications, and I am looking for topics that interest you. If you have a question, please post a comment. I am hoping to generate timely subjects for my weekly articles. And if you don’t find your reply in an article, I will get you an answer.

Thanks!

Kristin Abouelata / Home Loan Specialist

Monday, February 18, 2008

Your Home Appraisal –What’s the Big Deal?

The vast majority of home mortgage transactions will require your lender to obtain an appraisal. A healthy appraisal is a key factor in the mortgage lending process and can kill a transaction as fast as a 300 credit score.

Think about why this is true. A good appraisal is the best reassurance that the lender won’t lose its pants on the transaction. If the borrower defaults, the lender still has a marketable property that can be sold to recoup its losses. All of which makes it understandable why lenders are so picky about appraisals. And with recent changes in the industry, the focus by lenders to obtain good appraisals is at the forefront.

Appraisals typically cost anywhere from $350 to $400. However, if the house is gigantic, multi-unit or in the boondocks, it could run more. The cost varies on property type, location and square footage.

The most common type of appraisal is the Uniform Residential Appraisal Report (URAR). It consists of interior and exterior photos and sometimes (depending on the age of the home), a complete cost breakdown of the property and comps (comparison sales of homes nearby that meet the proper criteria). These comps help determine the “market” approach. Each comp sale is adjusted in value when stacked against the home being evaluated (the one you’re buying or refinancing). Usually you will see a comp below the value of your home, in line with the value of your home, and a third above the value of your home. Kind of like the three bears. But if the valuation gets tricky, you can see fourth, fifth and sixth comps. The net value of the comps is estimated based upon the approaches used to come up with the appraised value of your property (meaning the appraiser performs some type of calculation that’s kind of like an average, but not necessarily a true average. Confused yet?)


URARs also, typically but not always, reflect a cost approach, which determines what the value would be based upon what is estimated it would cost to rebuild the home, less depreciation. The final estimated value of the home is then determined by using a melding of the market approach described above and cost approach (if applicable).

Lori Babb, Staff Appraiser for Mortgage Investors Group of Knoxville, TN, further explains comparables. “The best comparables are those similar in size, style (ranch, basement rancher, 2 story, etc.), age, and are close in proximity to the dwelling being appraised,” she explains. “Unique properties will typically require more adjustments than the average properties.”

So, say you’re Bill Gates and want to secure a mortgage on a $200,000 home (I know, it’s ridiculous, but I’m trying to make a point). He’s got the best credit profile a lender could imagine, yet the house appraises for $175,000. Deal or no deal? You better believe it’s no deal. The sales price will have to be lowered, or Mr. Gates will just have to pay cash for his new home (you think he can afford it?). The point is, your average Joe won’t go ahead with the deal without a price adjustment, and he will be obligated to pay for the appraisal regardless of the outcome of value.

Dan Tyrell, principal of Knoxville area’s Tyrell Appraisal Service, Inc., has this comment about value, “When determining value of a single family house, beauty is more than ‘skin deep’. Fresh paint, new carpet, new appliances, and nice landscaping all enhance the marketability of a house. Not so obvious items also impact the appraised value of a house. For instance older houses that have replaced plumbing/electrical systems, updated HVAC systems, newer roofs, replacement windows, etc. lower the effective age of the property which in turn increases the appraised value.”

There are other types of appraisals that are not as common, like an Automated Valuation Model (or AVM). In this case, different factors combine to ensure the value of the home (it’s worth $200K, but your loan amount is only $100K) and your unbelievable credit worthiness (800 credit score!), allowing you to skip purchasing a typical appraisal. You may also only be required to get a “drive by” appraisal, where the appraiser just inspects the exterior of the subject for size, looks at the lot and makes you wonder who that person standing by your mailbox is.

Most lenders control what appraiser is used to determine the value of your home. After all, it’s their money on the line. The appraisal is such an important factor to the mortgage transaction – make sure you’re satisfied with the results. Your lender will make sure it is satisfied!


Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.

Friday, February 15, 2008

Do you have a question on home financing?

Do you have a question on home financing?

I have been writing an article each week on home financing for various publications, and I am looking for topics that interest you. If you have a question, please post a comment. I am hoping to generate timely subjects for my weekly articles. And if you don’t find your reply in an article, I will get you an answer.

Thanks!

Kristin Abouelata / Home Loan Specialist

Thursday, February 14, 2008

Telling the Truth about Mortgage Lending

How can you really figure out what exactly your paying in finance charges if you keep that mortgage for 30 years? What's another tool to use in comparing mortgages? Check out your Truth in Lending document.......

There’s a bunch of important points to review when considering a mortgage. And a ton of paperwork to look over. So much so at times it can be quite overwhelming. A Good Faith Estimate is one document to consider, and many people focus solely on it. But, in 1968, our lawmakers wanted to make sure lenders made it clear to the consumers just exactly what they were paying and that this information was consistently disclosed lender by lender. And for that, we have the Truth in Lending document, created by the Truth In Lending Act and outlined by Regulation Z.
The Truth in Lending document, or TIL as it’s affectionately known in the Biz, tells the consumer a lot about what he/she is getting into. It tells so much so that it can confuse a person, too. Thus, it is important to know and understand what it tells you. It allows one to make an informed decision. A TIL should be part of the beginning of the loan process and the end. When it’s all said and done, a mortgage customer should have reviewed an estimated TIL before closing, and then have also signed his/her final TIL at loan closing. The information found on the estimated TIL shouldn’t be too far off from the final TIL. If it is and you don’t understand the explanation for it, it’s time to put on the brakes.
A TIL will reflect your loan amount, interest rate and the amortization of your loan. A TIL comes in a standard layout, and most TILs will look the same from a distance, though there may be a few variations, like a payment reflection, lender’s logo, etc. But the nuts and the bolts should be identical in format.
The main thing you notice about TILs is they all have four boxes containing numbers stretched across their horizon. These boxes don’t mean much to you until they’re explained. But these are important numbers, which is why they are so blatantly highlighted in these little boxes. They shouldn’t be brushed off. If the TIL is an estimated or intial TIL, you’ll see a little “e” by the numbers in the boxes. Pretty straight forward - “e” means estimate. The final TIL you sign at closing should reflect all the numbers on your HUD-1 settlement papers and the “e” should be gone. That means you’re signing the final, real McCoy that is calculated by your final numbers.
The first box on the TIL reflects the Annual Percentage Rate (APR) or cost of your credit expressed as a yearly rate. Don’t panic, this rate is not your interest rate. It is the rate that the closing costs are actually costing you annualized over a year, and generally it is higher than your interest rate. However, if your mortgage is locked at a 5% interest rate, but your APR rate is 10%, you should reconsider the deal or get a second opinion. You’re paying too much.
The second box is the Finance Charge or the dollar amount the credit will cost you. It is the total amount of interest calculated at the interest rate over the life of the loan, plus Prepaid Finance Charges and the total amount of any required mortgage insurance charged over the life of the loan. The third box reflects the Amount Financed or the total amount credited to you on your behalf, minus Prepaid Finance Charges.
The fourth box is the one that gets most people’s attention - the Total of Payments. It’s the amount that a customer will actually pay back in principal, interest (and mortgage insurance, if applicable) if they keep the loan for the full term and stick to the outlined amortization schedule. Ouch. People find this number a little incredulous. I guess it really sends it home that mortgage lending is a business, and some company is going to make some money from it.
There are three other things on a TIL I like to point out to a customer. One is the late payment penalty. People need to know what it will cost them if their check gets to the Servicer late. It’s usually 4% or 5% of the monthly principal and interest payment, depending on the loan type. Another VERY important feature a lender should point out to a customer is if there is a PRE-PAYMENT penalty on the loan. A pre-payment penalty means that if you pay the loan off before a pre-determined time, you pay for the luxury of doing so. Make sure you know the terms of the pre-payment penalty if you should have one, and that you are certain you can live with it. They can be quite costly. Finally, the TIL tells you that should you pay off your loan early, you won’t be entitled to any of your closing costs or interest being refunded. In other words, don’t expect to get any of the money you have already paid back.
Simple enough, right? To tell you the truth, it is confusing, even for a mortgage lender. Take time to understand this document and ask all the questions you have regarding it. Don’t be shy.

Wednesday, February 13, 2008

Is Your Arm Adjusting and Your Mortgage Going Through the Roof? – FHA to the Rescue!


ARM Loans and foreclosures seem to be the news of the day. This is a very real problem and thankfully the FHA has come up with a temporary program known as “The FHA Secure Initiative,” that may give some relief.

A gentleman called me the other day about what he could do about his adjustable rate mortgage (ARM) that would soon be adjusting or in plain talk, reflecting a significant payment increase. Like so many homeowners, he did not anticipate the tightening of underwriting requirements and being stuck with his dramatic mortgage payment reset he couldn’t possibly afford.(go to the articles section of www.kristinmortgage.com for more information on ARM loans). Most of us sweat when we go to the grocery store and find out we spent $250.00 on groceries instead of our budgeted $150.00. Facing a huge jump in our mortgage payment would give a large majority of us heart palpitations! This situation is difficult for those with ARM loans about to reset. To make matters worse, many of these homeowners are boxed out of conventional financing because of recent, more stringent underwriting guidelines imposed.

What can be done?

The Federal Housing Administration (FHA) has released a new initiative which enables homeowners to refinance their mortgage when faced with adjusting mortgages that they can no longer afford. The program, known as “The FHASecure Initiative,” is a temporary program, and applications must be signed no later than December 31, 2008. I am going to repeat this point because it is important. An application must be signed no later than December 31, 2008. If you even think this program is something you should consider, do your homework now. Get a mortgage specialist to help you through the details of where you are today, what could happen tomorrow and what you can expect from this FHASecure Initiative program. If you do not have a mortgage specialist go to your bank, ask a friend or realtor for a name of a mortgage specialist, or call me.

The FHASecure Initiative allows lenders and homeowners to refinance mortgages which may result in delinquency once the loan is reset, or in some special circumstances, even if the loan has already become delinquent.

The mortgages in question must involve non-FHA adjustable rate mortgages where the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of late payments. If there is sufficient equity in the home, with some further strings attached, you may be able to refinance even if you’re currently behind in payments. The lender must prove that with an FHA refinance, the borrower has enough income and reserves to make payments under FHA’s guidelines. Still confused? Contact a mortgage specialist to help you sort through these guidelines as they apply to your situation. Remember, asking the questions is simply educating yourself and will not obligate you in anyway. It’s about protecting your hard earned investment and safeguarding your credit history.

In the East Tennessee market, FHA will loan money based upon 98.75% of the appraiser’s estimate of value. As well, the maximum mortgage amount allowed for a single family home in our market is $200,160 (higher for multi-family dwellings up to four units). There is no income limit for this product, and individuals with credit scores below 620 may qualify for financing. FHA will allow you to roll the first lien, and second mortgage used to purchase the home originally, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. In a nutshell, it is a fairly flexible product that might be just what the doctor ordered for some of us.

In summary, this product is an excellent solution for many of those subprime mortgages or ARM products we’ve heard so much about on the news. Hopefully, if you are one of those borrowers, this article can open a door for you were afraid was about to slam shut! Oh, and by the way, did I mention that the FHA Secure Initiative is a temporary program, and applications must be signed no later than December 31, 2008?

Please email your home loan financing questions to Kristin Abouelata, Mortgage Specialist, at question@kristinmortgage.com. Kristin will try to answer all questions on her website www.kristinmortgage.com. Some questions and answers may be published with future articles.

Monday, February 11, 2008

100% Home Loan Financing - Flex Your Muscle

Did you think 100% financing was only available to first time homebuyers? Did you think it only applied to purchases? Well, think again…..!

With the current “mortgage meltdown” we hear so much about these days, your average consumer thinks that the days of 100% financing have gone by the wayside. True, you are hard pressed these days to find a bank or lender that will want to carry a second mortgage that combined with a first mortgage adds up to 100% financing. That’s because if there is a default, sitting in second lien position is particularly dicey. Too much risk is involved. And since, in recent history, that scenario of the 80/20 combo was the most common 100% financing vehicle available to a certain group of consumers (non first time homebuyers), there’s a misconception out there that 100% options are all but dried up.

But, a-ha! There is hope for someone who has great credit but prefers to invest his/her assets elsewhere when rates are so low. It’s called the Flex 100. And it can apply to purchases and refinance transactions.

I heard an analyst mention on television the other day that mortgage money is so cheap right now it’s like a sale at Macy’s. That made me chuckle, but it’s true. In which case, why not invest your money elsewhere if you qualify for 100% financing. After all, the homes are still appreciating in most areas, but not at the stellar rate we saw in the past.

The Flex 100 requires you to invest $500 of your own cash towards the transaction, so I guess it’s technically not 100% financing, but it’s pretty darn close. And no, you don’t have to be buying your first home to get this deal. You can actually have owned a home in the past three years! However, it does apply to financing your primary residence only. You can’t get this deal for that nice cabin in Gatlinburg you want to use on the weekends or for that great rental down the street you think you can get a good deal on. You’ve got to live in the house to qualify for this financing.

But you can do a refinance, as long as it’s not a “cash-out,” meaning you’re not paying off debt or taking equity out of the property. It must be a rate term refinance only. However, you can pay off that second mortgage or home equity line of credit you hate, IF you obtained that 2nd lien mortgage when you got your first mortgage (a piggy back closing, we call it). Or to make it clearer, you originally had that 80/20 combo mentioned earlier. If you got that home equity mortgage a month or two after your initial closing to build a deck or payoff a credit card, than it that won’t work for a Flex 100 refinance.

What about your credit score? Well, it will affect the price you get, but there is no “minimum” credit score required for this program. You just have to get an approval through the automated underwriting system required. But be realistic – if you’ve got “iffy” credit, you probably won’t get an approval. A borrower with a credit score below a 620 would probably have to have a low loan to value or debt to income ratio for a chance of an approval.

A Flex 100 may or may not make sense for you. But hey, at least you know it’s an option. Your lender should be able to help you determine if this opportunity to flex your mortgage muscle makes sense for you.

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com

call direct: (865) 567-0113
Toll Free: 1-800-489-8910.

For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.

Friday, February 8, 2008

Todays Million dollar question, "Should I refinance now?"


over the last four weeks... I cannot tell you how many times I have been asked, "Is now the time to refinance?" For that here is my advice:


LOCKING IN YOUR INTEREST RATE AND OTHER TALES OF LAS VEGAS

“Should I lock my loan? Are the rates going up? Are the rates going down? What’s the market supposed to do in the next week?” These are questions that every experienced loan officer has been asked by his or her customers on various occasions. I’ll tell you one thing, if I had a hard and fast answer to any of these questions, I would be reading a book on my own private yacht in the Mediterranean Sea. And my butler would be asking me what I wanted for lunch.

Here’s the deal on locking in your loan. Typically a standard lock is for 30 days. This time frame gives all parties involved in the transaction adequate time to complete their responsibility in the loan process. If you are closing within 30 days, you should probably go ahead and lock your rate, provided you are comfortable with the terms quoted to you. What if the rate goes down .125%? I counter and ask what if the rate goes up .125%? Are you willing to risk it?

If you are happy with your payment, then I advise you to lock in the rate. Your mortgage lender will give you a picture of the general trend of interest rates, or you can research it for yourself. Find the loan payment amount you are aiming for and focus on this issue to lock your loan. I’ve seen it happen plenty of times: everyone speculates the rates are going down, but the next day you see a .25% increase. Of course the converse does happen at times, but I haven’t seen it happen as much!

I’ve had customers who have checked with me every day to see where the rates are and I’ve never seen this vigilance result in a significant rate improvement. Not to say it can’t happen, I’m just relaying the odds from personal experience that it won’t. But, if this course is what my customer is most happy taking, I’m just as happy to update them daily till they feel comfortable locking. But keep in mind it’s a gamble. If it was easy, there would be a lot of folks on the beach with their butlers. It is very difficult to predict short term movements in the market. Try it for a few days just for fun, and you’ll see what I mean.

When a loan is locked, your mortgage company has made a commitment to provide a product at that note rate to its secondary market source. If the rates go down, you still are expected to close at your locked rate. If the rates go up, you still expect to close at your locked rate. A lock represents a commitment from the customer and the lender. So, find your comfort zone and lock your rate. Spend your time worrying about what you’re going to do with all the money you saved on your refinance or how you are possibly going to get boxes packed in time to move in two weeks!

Friday, February 1, 2008

How Does a Fed Cut Affect Home Mortgage Rates?

You hear about “Fed Rate Cuts” all the time. How does it really affect your mortgage rate, or does it?

You hear quite a bit lately that “the Fed is cutting the interest rate.” Maybe you’ve been considering a refinance, and you’re waiting to move forward till the Fed takes action again. But be smart about waiting and watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.

Who is the Fed? Well, it’s really the Federal Reserve. And when the Fed cuts rates, it usually cuts the Fed Funds Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed Funds Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that really mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest and your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all good.

Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates and are influenced by buyers and sellers in the bond market. Daily movements in the bond market cause mortgage rates to change. That’s why you might get a quote from a loan officer on Tuesday, and on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is good for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, “…a liquid real estate market is beneficial for the mortgage market and that keeps rates competitive.” So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.

Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That’s because the mortgage market anticipates what the Fed is going to do.

A good loan officer should have their finger on the pulse of the market, but again it’s a gamble. Remember to have a target interest rate in mind if you want to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it’s not a realistic goal. It just means you were lucky. Just stick to your home financing goals and consider the big picture, and you’ll be fine.

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.