Author Archives: joeglez

Banks Resume Tightening Mortgage Guidelines

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Mortgage guidelines get tougher

As part of its quarterly survey to member banks nationwide, the Federal Reserve asked senior loan officers whether last quarter’s “prime” residential mortgage guidelines have tightened, loosened, or remained as-is.

A “prime” borrower is defined as one with a well-documented, high-performance credit history; with low debt-to-income ratios; and who chooses to finance a home via a traditional fixed-rate or adjustable-rate mortgage product.

After a 2-year easing cycle, the nation’s biggest banks report that they’ve reversed course, and are raising the bar on mortgage approvals.

For the period July-September 2010, 88% of responding loan officers admitted to tightening their prime guidelines, or leaving them “basically unchanged”.

If you’ve applied for a home loan of late, you’ve experienced this first-hand.

High delinquency rates and defaults since 2007 have caused the banks to rethink what they will lend, and to whom. As a result, today’s mortgage lenders scrutinize assets, incomes, and credit scores to make sure that nothing “slips by”.

For today’s home buyers and would-be refinancers, the mortgage approval process can be challenging as compared to how it looked just 18 months ago.

  • Minimum credit scores requirements are higher today
  • Downpayment/equity requirements are larger today
  • Debt-to-Income ratio requirements are more strict today

In other words, although mortgage rates are the lowest that they’ve been in history, fewer applicants can qualify. And, with more the housing market still in recovery, it’s likely that guidelines will tighten again in 2012.

Therefore, if you’re among the many people in King of Prussia wondering if it’s the right time to buy a home or refinance, consider that, although mortgage rates may fall, approval standards may not.

The best rate in the world won’t matter if you’re not eligible to lock it.

This Holiday Season, Think Twice Before Saving 15 Percent At The Register

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FICO recipeWith Halloween behind us, retailers are in the Holiday Spirit. Businesses know that consumers spent a median $556 on holiday gifts last year and they want this year to be just as strong.

That’s why it’s barely November and, already, Black Friday ads clog our mailboxes and the airwaves. Retailers want our dollars and they’re offering great deals to early shoppers.

There’s one discount a smart shopper should think twice, however — the ever-present “Open A Charge Card Today And Save 15%” promotion. In the short-term, deals like this will save money. 

Over the long-term, however, opening a charge card could cost you much, much more — especially if you plan to refinance your home or buy a new one.

Applying for a charge card can lower your credit score up to 85 points.  

According to the myFICO.com website, as a category, “New Credit” accounts for 10% of your 850 possible credit points, comprising the following credit traits :

  • Your number of recently opened accounts
  • Your number of recent credit inquiries
  • Time elapsed since your recent credit inquiries
  • Your proportion of new accounts to all accounts

Each trait is a negative in the FICO-scoring credit algorithm which means that, with each in-store charge card application, your credit score is likely to fall. How far your score will fall depends on the rest of your credit profile.

Meanwhile, low FICO scores correlate to higher loan fees.

Using a real-life example, assuming 20% equity in a home, for either purchase or refinance, look how loan fees for a $200,000 conforming mortgage change by FICO score :

  • 740 FICO : There will be no added loan costs
  • 720 FICO : You’ll have a 0.250% increase in loan costs, or $500
  • 700 FICO : You’ll have a 0.750% increase in loan costs, or $1,500
  • 680 FICO : You’ll have a 1.500% increase in loan costs, or $3,000
  • 660 FICO : You’ll have a 2.500% increase in loan costs, or $5,000

You can see first-hand how expensive low credit score can be — much more costly than the 15% saved at the mall. That’s why people planning to refinance to today’s low rates and soon-to-be Phoenixville homeowners, shouldn’t rush to save 15% at the register. 

For people in want of a mortgage, high FICO scores are worth protecting.

Tips For Maximizing Your Home’s Appraised Value

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Maximizing your home appraisalA home appraisal is an independent opinion of your home’s value, performed by a licensed home appraiser. Appraisals are part of the traditional home purchase process, and lenders require them for most refinances, too.

Appraisers are trained professionals. First, they derive a base for your home’s value based on the recent sales prices of homes that are comparable to yours in terms of bedrooms, bathrooms, style, and square footage.

Then, accounting for features and amenities that make your home different, the appraiser applies “adjustments” to that base value.

This methodology is called the “Sales Comparison” approach and the result is your home’s appraised value.

It’s the most common appraisal method used by lenders.

As a homeowner in Collegeville , you can’t affect the sales prices of your home’s comparable properties, but you can help your appraiser understand how your home stands apart from these homes. This, in turn, can affect your home’s adjustments, resulting in a higher appraised value.

With home appraisals, every valuation dollar can matter. With that in mind, here are a few tips for maximizing your home’s appraised value :

  1. Be home for your appraisal so you can answer the appraiser’s question, if there are any.
  2. Mention any new roofing, flooring, HVAC, plumbing, or windows you’ve installed since purchase.
  3. Don’t mention projects or repairs you’re “about to undertake”. Appraisers don’t credit for unfinished projects.
  4. Make minor household fixes prior to the appraisal (e.g.; leaky sink, running toilet, peeling paint). 
  5. Present a tidy home. This can contribute to a higher “overall condition” adjustment.

Lastly, schedule the appraisal for a time that is convenient for your entire household. An appraiser needs to see, measure, and take photos of every room in your home. If a room’s door is closed because of a resting child, for example, the appraiser may need to schedule a second appointment to complete the appraisal, and that can raise your appraisal costs.

What’s Ahead For Mortgage Rates This Week : November 7, 2011

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Fed Funds Rate 2008-2011Mortgage markets improved last week as optimism for a Greek Bailout program faded, triggering a global flight-to-quality assets. Fear of a Eurozone rift outweighed positive economic remarks from the Federal Open Market Committee and an in-line U.S. jobs report.

Although the Federal Reserve said the economy had “strengthened somewhat“, a statement backed up by Friday’s Non-Farm Payrolls data which — with revisions — met analyst expectations, concern that Greece may not receive its aid caused mortgage to fall.

Conforming mortgage rates dropped throughout Pennsylvania Monday and Tuesday, pushing rates to near their lowest levels of the year. Rates remained low through Friday.

According to Freddie Mac’s weekly mortgage market survey, the average 30-year fixed rate mortgage is 4.00% nationwide, plus closing costs and an accompanying 0.7 discount points.

A “discount point” is a one-time loan fee paid at closing, where 1 discount point is equal to 1 percent of your loan size.

As an example, 1 discount point on a $300,000 home loan costs $3,000.

This week, with no new economic due for release, the fate of mortgage rates in King of Prussia again depends on what develops in Europe. If Greece cannot reach accord within its own parliament, and cannot enact the austerity measures as dictated by its aid package, mortgage rates should fall this week, too.

However, if Greece can reach agreement and move forward, it will appease investors worldwide and U.S. mortgage rates should resume rising. Likely by a lot.

Remember : The U.S. economy has shown slow, steady improvement of late and, normally, this would result in higher mortgage rates for consumers. That’s not what we’ve experienced, however. Instead, fears of a Greek debt default have dominated headlines.

As soon as markets are certain that Greece has a way forward, attention will return to the U.S. economy, and mortgage rates are expected to rise.

Therefore, float your mortgage rate with caution this week. Depending on global events, mortgage rates may rise or fall. Eliminate your interest rate risk. Lock your rate today.

The Most Expensive ZIP Codes In The Country (2011 Edition)

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Most Expensive ZIP CodesIn the housing market, amenities and location have as much to do with a home’s value as the everyday forces of supply-and-demand. Whereas the latter causes home values to rise and fall over time, the former creates a starting point for said values. 

Where you live — and the features of your home — determine your home’s price range. Naturally, homes in some areas are consistently higher-valued than homes in others.

Using data compiled by real estate market data firm Altos Research, Forbes Magazine presents America’s 10 most expensive ZIP codes. California and the New York Metro area dominate the list.

  1. Alpine, NJ (07620) : $4,550,000
  2. Atherton, CA (94027) : $4,295,000
  3. Sagaponack, NY (11962) : $3.595,000
  4. Hillsborough, CA (94010) : $3,499,000
  5. Beverly Hills, CA (90210) : $3,469,891
  6. New York, NY (10012) : $3,392,574
  7. New York, NY (10013) : $3,317,962
  8. Water Mill, NY (11976) : $3,300,000
  9. Montecito, CA (93108) : $3,099,348
  10. Old Westbury, NY (11568) : $3,095,000

In fact, of the top 50 most expensive ZIP codes, only 6 are located outside of California and New York regions. 3 are Colorado resort towns — Snowmass (81654), Aspen (81611) and Telluride (81435) — one is in Maryland, one is in Florida, and the last is in Washington State.

Chicago-suburb Kenilworth (60043) is the top-ranked Midwest ZIP code. It placed 86th overall.

The Forbes list may be interesting but, to home buyers or sellers in Collegeville , it should not be the final word in home values. Real estate is a local market which means that — even within a given ZIP code — prices can vary based on street and neighborhood.

Look past general data and get specific. Talk to your real estate agent for local market pricing.

4 Reasons NOT to Refinance

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Mortgage rates are at historic lows & the refi calls continue to come in. However I find myself recommending to not refinance to many clients. Huh?! Yes you heard right! The loan officer (me), who earns a living ONLY when you refinance (commission paid sales person) is telling clients to not pay me! The what-choo-talkin’-bout-Willis look is currently on your face. Allow me to explain.

Ask yourself the following questions:

  • How long do you plan on living in the home for?
    If you plan on selling the home in the near future & you can’t recuperate the closing costs in sufficient time to actually save money, don’t do it. The plan must make sense!
  • Do you have equity in your home?
    Refinancing might not make sense or even be possible if there’s insufficient equity.
  • How long have you paid on your current mortgage?

    If you paid 10 years into a 30 year mortgage, refinancing to a 30 year mortgage will only increase your costs. There are unique circumstances where you are forced to refinance due to financial crisis, lose of spouse’s income, divorce etc. These are the exceptions.
  • Do you have a spending problem? Refinancing to pay off credit cards/short term debt may be huge mistake. Stop & think first. Can you pay off your credit card/short term debt with the next year or so by budgeting? Do you find yourself consolidating credit cards only to open up new ones to charge up again?

 

When does refinancing make sense?

  • Will you save money on a monthly basis? No brainer unless you are increasing the amount of time you must pay. You could be making it more expensive in the long run. Keep in mind you MUST recuperate your closing costs in a reasonable amount of time. I like to see costs recuperated in 12 to 18 months max! Even better is getting a no closing cost refinance. Savings are immediate!
  • Can you decrease your term hence paying less in interest? If you have a 30 year mortgage you’ve paid 10 years on but can get a 15 year at the same or slightly higher payment, well that makes sense!
  • Are you getting a divorce & want to keep the home? For the other spouse to no longer be responsible on the mortgage, REGARDLESS of what your settlement agreement says, you need to refinance. Remember that a mortgage is a legal contract between the mortgagor (individual(s) who borrowed money) & mortgagee (the bank). That contract can’t be changed without the bank’s permission. So you know how your ex-spouse decided to keep the home & now pays the mortgage late or doesn’t pay at all? Well guess whose credit’s suffering? I’ll give you a hint: look in the mirror!
  • Do you have equity, need more space & love where you live? If you love where you live, the kids must stay at the school they’re in & you have equity then you can decide to build an addition or upgrade your home so you have the necessary space/features to live comfortably.
  • Do you plan on selling within 5 years & have a 30 year fixed? A 5/1 adjustable rate mortgage is a great option. Remember that the goal is to pay the least amount possible for the money you borrow for the time you have it. Why get a permanent solution (30 year fixed) if you have a temporary problem (selling in 3 years)? With a no closing cost refinance, your savings can be immediate!

 

Each and every client is unique. Together we must look at your goals & figure out if we can put a plan together that makes sense. For most people, your home is the largest investment you’ll ever make. Choose who you take advice from wisely.

 

One facet that I find to be one of the most, if not the most important is how long it takes you to recuperate your closing costs. Look out for this article in the near future!

 


A Simple Explanation Of The Federal Reserve Statement (November 2, 2011 Edition)

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Putting the FOMC statement in plain EnglishWednesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was nearly unanimous, with just one dissenting voter. There were 3 dissenters at each of the FOMC’s last two meetings.

In its press release, the Federal Reserve presented an improved outlook for the U.S. economy, noting that since its last meeting in September, there’s new evidence that the economy “strengthened somewhat” in the third quarter.

One example cited is that consumer and business spending continues to rise while inflationary pressures on the economy remain modest. This indicates controlled growth — a plus in a recovering economy.   

The economy remains slowed by a number of factors, though, as noted by the Fed :

  1. “Continuing weakness” in the labor market
  2. Softness in commercial real estate
  3. A “depressed” housing market

In response to mixed economic conditions, the FOMC opted to “do nothing” today; it introduced no new monetary policy, and revised none of its existing market stimulus. The Fed re-iterated its plan to leave the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″ and affirmed “Operation Twist” — the program in which the Fed sells Treasury securities with a maturity of 3 years or less, and uses the proceeds to buy mortgage bonds with maturity between 6 and 30 years.

Mortgage market reaction to the FOMC statement has been negative this afternoon. Mortgage rates throughout Pennsylvania are rising because analysts expected the Fed to launch new, bigger stimulus plans. It didn’t. Rates may drift higher for the new few days, too.

Therefore, it today’s mortgage rates fit your household budget, consider locking in a mortgage rate. Mortgage rates are very low right now, relative to history. It may not last.

The FOMC’s next meeting — its last scheduled meeting of the year — is December 13, 2011.

More Risk To Home Affordability : Friday’s Jobs Report

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Job growth since 2000

Within the next 48 hours, mortgage rates may get bouncy. The Federal Open Market Committee will adjourn from a 2-day meeting and October’s Non-Farm Payrolls report is due for release.

Of the two market movers, it’s the Non-Farm Payrolls report that may cause the most damage. Rate shoppers across Pennsylvania would do well to pay attention.

Published monthly, the “jobs report” provides sector-by-sector employment data from the month prior. It’s a product of the Bureau of Labor Statistics and includes the national Unemployment Rate.

In September, the economy added 103,000 jobs, and job creation from the two months prior was shown to be higher by 99,000 jobs higher than originally reported. This was a huge improvement over the initial August release which showed zero new jobs created.

When September’s jobs report was released, mortgage rates spiked. This is because of the correlation between jobs and the U.S. economy. There are a lot of economic “positives” when the U.S. workforce is growing.

  1. Consumer spending increases
  2. Governments start more projects
  3. Businesses make more investment

Each of these items leads to additional hiring, and the cycle continues.

Wall Street expects that 90,000 jobs were created in October 2011. If the actual number of jobs created exceeds this estimate, it will be considered a positive for the economy, and mortgage rates should climb as Wall Street dumps mortgage-backed bonds in favor of equities.

Conversely, if the number of new jobs falls short of 90,000, it will be considered a disappointment, and mortgage rates should rise.

There is a lot of risk in floating a mortgage rate today. The Federal Reserve could make a statement that drives rates higher, and Friday’s job report could do the same. If you’re under contract for a home or planning to refinance, eliminate your interest rate risk.

Lock your mortgage rate today.

Make Your Mortgage Rate Strategy : The Federal Reserve Starts A 2-Day Meeting

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Comparing the Fed Funds Rate to Mortgage RatesThe Federal Open Market Committee begins a scheduled, 2-day meeting today, the seventh of its 8 scheduled meetings this year, and the eighth Fed meeting overall.

The FOMC is a 12-person sub-committee within the Federal Reserve. It’s the group responsible for setting the nation’s monetary policy and is led by Federal Reserve Chairman Ben Bernanke.

The FOMC’s most well-known role is as the steward of the Fed Funds Rate. This is the overnight rate at which U.S. banks borrow money from each other. The Fed Funds Rate is a unique, “banking” interest rate, and should not be confused with consumer interest rates, a category which includes “mortgage rates”.

Mortgage rates are not set by the Federal Reserve. 

Rather, mortgage rates are based on the price of mortgage-backed bonds. If mortgage rates correlated to the FOMC’s Fed Funds Rate, the chart at right would be linear.

That said, the FOMC does exert influence on mortgage markets.

After its FOMC meetings, the Federal Reserve issues a press release to the public. In it, the central banker summarizes economic conditions nationwide, highlighting threats to the economy and areas of strength.

When the Federal Reserve’s statement is generally “positive”, mortgage rates tend to rise. This is because a strengthening economy invites investors to assume more risk, spurring equity markets at the expense of all bonds types, including the mortgage-backed kind.

When bond markets lose, mortgage rates rise.

Conversely, when the Fed is generally negative, bond markets gain, pushing mortgage rates lower throughout Pennsylvania.

The Fed can also influence mortgage rates via new policy.

At its last meeting, the FOMC launched a new, $400-billion round of mortgage-market stimulus known as Operation Twist. The added mortgage-bond support led mortgage rates lower post-FOMC meeting. 

The Fed may expand Operation Twist as soon as Wednesday afternoon. It may also take no such steps at all. Unfortunately, there are few clues about what the Federal Reserve may do next, if anything at all. As a result, mortgage rates will be a moving target for the next 36 hours. First, they’ll be volatile before of the Fed’s statement. Then, they’ll be volatile after the Fed’s statement.

Even if the Fed does nothing, mortgage rates will change so your safest play is to lock a mortgage rate ahead of Wednesday’s 2:15 PM ET adjournment.

There too much risk in floating.

Why Rent? Fixed FHA Mortgages at only 3.75% (5.092 APR)! King of Prussia, Plymouth Meeting, Phoenixville

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Why Rent? Fixed FHA Mortgages at only 3.75% (5.092 APR)! King of Prussia, Plymouth Meeting, Phoenixville

 

Why haven’t you bought a home yet? Is a 20% down payment keeping you from buying a home? Have you rented for a long time & just aren’t sure? Are you a long time renter in the market to buy? Living in the King of Prussia, Plymouth Meeting, Phoenixville or the surrounding areas? Well stop renting already! FHA could be the answer you’re looking for.

Okay let’s use some real world #’s to help you appreciate what FHA can do for you.

How much are you borrowing

In this example the client (you) are buying a home using FHA (Line A). Current rates are around 3.75%/5.092% APR (B) for a 30 year fixed (C). The purchase price is $200,000 (D) & you will put down FHA’s minimum down of 3.5%. Your base mortgage will be for $193,000 (E) & your total mortgage $194,930 (F) due to the Upfront Mortgage Insurance required by FHA (email if you want more info on mortgage insurance).

Your monthly payments

Your principal & interest payment will be $902.75 (G), property taxes guestimate $250 (H), monthly mortgage insurance $184.96 (I), homeowner’s insurance guestimate $50 per month (J) for a grand total of $1,387.71 total monthly payment (K).

Total cash needed at closing

Your down payment is 3.5% (L) of $200,000 (D) which is $7,000. The closing costs are $5046.25 (M), the escrows/prepaids $4,000.41 (N) & Upfront Mortgage Insurance $1,930.00 (O). Your total costs are $9046.25 for closings costs (M) & escrows/prepaids (N). The seller* can pay for the closing costs which is $9,000 (P). Remember that in line F we are lending you the money for the upfront mortgage insurance (O).

Bottom line out of pocket = $7,046.66

Now I’m sure I lost a few of you somewhere in the translation so click below for a video explanation. If you have any other questions give me a call or send me an email!

Client: Insert Your Name Here!
A Mortgage Type

FHA
B Interest Rate

3.750%
C Term

30
D Purchase Price

$200,000.00
E Mortgage w/o MIP

$193,000.00
F Total Mortgage w/MIP

$194,930.00
G Proposed Payment

$902.75
H Taxes

$250.00
I Mortgage Insurance Premium

$184.96
J Homeowner’s insurance

$50.00
K Total

$1,387.71
L Required Down payment

3.5%
M Closing Costs

$5,046.25
N Escrows/prepaids

$4,000.41
O Upfront Mortgage Insurance

$1,930.00
P CC paid by seller

$9,000.00
Q Total Due at closing

$7,046.66
  **Please note that all numbers are estimates  
  **Rates are not guaranteed, please ask me about your rate lock options!  

 

*You can negotiate at the time of your offer for the seller to pay for your closing costs. Please consult me PRIOR to signing a contract!!

Why Rent? Fixed FHA Mortgages at only 3.75% (5.092 APR)! King of Prussia, Plymouth Meeting, Phoenixville