All those “record-low” mortgage rates have you watering at the mouth to buy a home or refinance your current one? Mortgage lenders adjust their rates based on perceptions of risk, so unless you can show you’re a low-risk borrower, you are unlikely to qualify for a rate that matches those seen in all the advertisements and headlines.
Consumers who want to try for the lowest rates available need to consider these basic factors:
Credit Score: The ideal borrower has a FICO score of 740 or higher. That puts you in the best place for pricing. According to MyFICO.com, borrowers with scores of 760 to 850 could qualify for an annual percentage rate of approximately 3.95 percent on a $500,000 30-year fixed-rate mortgage, while those with scores of 620 to 639 qualify for 5.53 percent.
Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. You need to buy points in order to get the best rates at many banks. In Freddie Mac’s recent weekly survey on mortgage rates, points have averaged 0.7 percent on loans in the last year. Points might make sense depending on your financial situation and how long you expect to stay in a home. So ask for a zero point quote, too, and compare.
Down Payment: Borrowers who put down at least 25 percent are more likely to obtain “attractive pricing” at most banks. Lenders offer different breaks on rates if equity is higher, so you should ask what is available.
Loan Length: A lot depends on how long you plan to live in a home. If you’re likely to move in a few years, an adjustable-rate loan with a low interest rate fixed for, say, three to five years, and adjusted afterward, might work best. Also, rates on 15-year fixed-rate loans are lower than those on the 30-year — 0.77 percentage points, on average, last year.
Property Type: If you’re buying a duplex or a four-unit building, your rate will almost certainly be higher. Condominiums may also have a rate premium, especially if they are newer or your down payment is below 25 percent. Lenders charge more if you are not planning to live in the home. Commercial properties like apartment buildings have the highest rates, as they are considered riskier.
Borrowers may also be able to reduce their mortgage rate when they enter into a “lock-in” agreement with a lender. Lenders typically offer a lower rate for a shorter lock period.
Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk.
Borrowers must make sure, too, that they consider the entire cost of a home, looking carefully at monthly payment calculations. About a third of homeownership costs are in addition to the mortgage — among them property taxes, insurance, maintenance and repairs.
Mortgage rates below 5-percent have people scrambling to refinance. They have also helped breathe new life into the troubled real estate market.
But a new rule has many people shocked to discover their financing is near collapse just days before closing. That’s what happened to Pam and Ted Ten Eyck of Mansfield. They planned to refinance to a 20-year mortgage to put them in a better financial position down the road.
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Just as we saw over Thanksgiving, mortgage rates have dropped below the historic four point mark again, according to Freddie Mac’s weekly mortgage rate survey which cites the average rate on a 30-year fixed rate mortgage recently at 3.94 percent.
The survey notes that the 15 year fixed rate mortgage rate hit a new record low of 3.21 percent, dropping below the October 6 record set, and that the 5 year adjustable rate mortgage average is 2.86 percent, also dropping to near historic lows.
Freddie Mac’s chief economist, Frank Nothaft believes low interest rate mortgages will be available through at least the middle of 2012 while Trulia’s Chief Economist, Dr. Jed Kolko predicts that rates will increase in 2012 as employment levels improve and defaults decline.
With low rates and low prices in housing, the Realtor moniker of “it’s always a good time to buy” might actually ring true right now for the consumers who can qualify for a loan and afford a down payment.
Most mortgage volume right now is refinance loans, however, which looks to remain the case in 2012. The Mortgage Banker’s Association cites that last week’s mortgage applications consisted of nearly 80 percent refinances, and although application volume rose 4.1 percent last week, the primary interest remains in refinancing as the rates hover around 4 percent.
Since the housing crash, millions of Americans have lost their homes. If you have trouble making your monthly mortgage payment, it is important to learn what you can do if you are facing foreclosure, to either minimize its’ financial impact, or hopefully avoid it altogether.
Walking Away is Not an Option!
People facing insurmountable financial debt are often tempted to throw up their hands and just walk away. What would have seemed unheard of several years ago now is becoming more and more commonplace. This is particularly true if the home is “underwater.” In other words, the amount of the loan is more than the home is currently worth. People in this situation often make the calculated decision to walk away from their home and let the bank foreclose.
This is not a good idea for several reasons. A foreclosure will, of course, severely hurt your credit rating and you will probably be unable to purchase a home for many years to come. Also, your lender will still want their full amount due, and will likely come after you for the balance.
A Loan Modification May be the Answer
Just as soon as you realize you are in trouble, it is important to speak with your lender. Today, lenders have incentives to work with you in negotiating a loan modification. You have to remember that your lender really does not want to foreclose on your home; they would much prefer you stay and make your payments.
If they have to foreclose, they will lose large sums of money, and will have to deal with the property through a foreclosure sale.
Act Now
If you have reached the point where you are missing your monthly payments, you should take immediate steps to explore your options. If you get three months behind on your payments, your lender may not be willing to work with you. Often at this point, lenders forward your file to an outside company to pursue foreclosure, who will not be willing to work with you.
What Can be Done?
There are many viable solutions that can be worked out. Your lender may accept partial payments, late payments, and/or completely modify the terms of your loan. If you are approved for a loan modification, your lender can reduce the interest rate and the term of the loan, which will reduce your monthly payments. They will also, on occasion, agree to a principal reduction of your loan balance.
In addition to a loan modification, other options can be worked out with your lender as well. Forbearance is an option where you are able to skip your payment or make a reduced payment for a specified period of time. The lender will need to see that you will be able to make the payments when they become due in the future. Another option is a loan reinstatement, where you agree to make your missed payments at some time in the future.
Contact an Experienced Loan Modification Specialist for Assistance
While there are options out there to help you, it is difficult to navigate through this problem alone. It takes an experienced loan modification specialist to discuss your options, and help you deal with your lender so you get the results you need.
Another cruel irony of the housing bust? While hundreds of thousands of mortgage borrowers have been able to squat in their homes without making a single mortgage payment in months or even years, many responsible homeowners who have good credit and consistently meet their monthly obligations haven’t been able to refinance in order to avoid losing their homes.
Many of today’s homeowners purchased their homes during a time of easy credit, when mortgage products, like interest-only loans and option adjustable-rate mortgages were issued to the marginally qualified. And many were told that — if they made their payments faithfully — they could easily refinance out of these products into affordable fixed-rate loans once the payments started to balloon.
But that day has never come for some borrowers — no matter how good their payment record or credit score.
Many lenders are refusing to refinance underwater mortgages — loans that are higher than the value of the home — because it would mean big losses for them if the borrower defaults.
According to data submitted to federal regulators and analyzed by the Wall Street Journal, nearly 27% of mortgage applicants were denied mortgages in 2010, up from 23.5% a year earlier.
The cruelest twist? Lenders typically wait until a homeowner is in default before they are willing to modify their mortgage.
For some homeowners, the clock is ticking. In 2011, $1 trillion in adjustable rate mortgages are scheduled to reset. And many are scrambling to refinance their mortgages while rates are still low — to no avail.
Senator Barbara Boxer (D-Calif) has co-sponsored a bill, the “Helping Responsible Homeowners Act,” for borrowers who want to refinance but are in “negative equity,” owing more on their mortgages than their homes are worth.
Boxer’s legislation also requires banks to offer interest rates comparable to what they’re giving to borrowers who are not underwater. And it bans risk-based fees for mortgages issued by Fannie Mae or Freddie Mac that can be as much as 2% of the loan principal.
Now, President Obama is pushing his revised HARP program. The mortgage non-sense just never seems to end. Stay tuned, we’ll keep you updated on these programs.