All you wanted to know about mortgages and then some
The Fed’s Mortgage Backed Security (MBS) purchase program ends on March 31, 2010. This purchase program is what has kept mortgage rates so low for the better part of 2009 and once the Fed stops purchasing MBSs the demand will drop. Since the supply of MBSs is still high, this will have a downward affect on bond prices which, in turn, will make home mortgage rates rise.
This will affect the purchasing power of home buyers.
I just came from a closing that almost didn’t happen because of the strict lending requirements lenders have. Mind you, the Buyer has been under contract on a regular sale for over a month and was putting 40% down. Last night the bank decided it needed more information on the source of his original $5,000 deposit, given back in early October. When he provided his bank statement showing the $5,000, the latest bank statement also showed a significant deposit, a gift from his sister to help with the down payment. This initiated a request from the lender for a letter from the sister saying it was a gift. He got the letter, but this morning they wanted a copy of the sister’s account where the money came from. She forwarded the statement showing the debit being made to her account. Unfortunately for all parties involved, the sister is married and doesn’t share her husband’s last name, which lead to another request for information. We finally closed a little before 9:00 p.m.
I have no problem with lenders tightening up their lending requirements and wanting to track the money. I do have an issue with them doing so the day before the closing, jeopardizing the transaction, and stressing out all parties, who are usually stressed out enough on the day of a closing.
Moral of the story?
Home loan rates increased by .125% last week, in reaction to good economic news. As interest rates increase your purchasing power decreases, so why wait for interest rates to go up further? They are still at historically low rates.
You would think I ‘d know better. I am in real estate after all. But I got too caught up in the mortgage/real estate/job market/Wall Street mess, and the whirlwind of media negativity, to see that mortgage rates had dropped SOOOOO LOW that I could have saved a lot of money EACH month, if I had refinanced. Luckily I wasn’t too late to miss the boat in its entirety. I had grown complacent with my 5.75% interest rate since I had refinanced it several years ago when rates were at “historic lows”. I saved on my monthly mortgage from when I originally purchased my home, so thought I was okay. I did the calculations last week and, based on a rate of 4.625% for a 15 year loan, realized I would save $544.77 each month and that in less than a year that savings would pay for the closing costs associated with refinancing.
If I were to take a portion of my monthly savings and use it to pay down the principal balance on my loan and another portion to invest in my retirement fund, I would still have a little extra spending money! Needless to say, I filled out the paperwork today. What are you waiting for?
On January 1, 2010, new rules adopted by the Department of Housing and Urban Development go into effect. These rules
are going to give borrowers a much more realistic estimate of what their closing costs are going to be so there are fewer surprises at the closing table.
Although the new rules do not guarantee a borrower’s actual closing costs will be exactly what the good-faith estimate states, it will be a lot better and closer to reality than many of these estimates currently are. The fact that these new uniform good-faith estimates are also going to be included in a new HUD-1 will allow borrowers to compare what they were told with the actual charges. The new HUD-1 will also break out the title insurance premiums so that the borrower can see what percentage is going to the insurance and what portion is a fee to the title agent.
What should you do if you are shopping for a mortgage now and plan on purchasing a home before the new rules come out? Use HUD’s shopping for a mortgage brochure to get you started.
The first and most important step in buying a home is to get pre-approved by a lender for a mortgage. This can be directly from a bank or credit union you do business with or through a mortgage broker. Getting pre-approved will let you know how much house you can afford or, better yet, how much of a house you feel comfortable with. The lender or mortgage broker will give you an idea of what your monthly costs will be and will give you a TRID form, which gives you an idea of closing costs to let you know how much money you will need to bring to the closing table to finalize your purchase.
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So, you have decided to get off the fence, take advantage of the steep price decreases and finally buy your dream home. You have surfed the Internet, looked at pictures, maybe even settled on a neighborhood. STOP! Before you go any further you need to talk to a mortgage broker and find out if you could get a mortgage. As you have read in the papers, the banks are not handing out money very easily.
Jumbo Loan
Stay tuned for information on other types of mortgages.