The Mortgage Porter

Cheap Gas and The Mortgage Porter Quarterly

Hat tip to Larry for sharing this link with me on where to find the cheapest gas by zip code.   I've published more tips on how to ease the pain at the gas pump in my latest issue of The Mortgage Porter Quarterly, 2nd Issue 2008 which should be arriving in mail boxes soon. 

This issue features:

• FHA is Back and Better than Ever
• Tips for Beating High Gas Prices
• What's New with Rhonda (me)
• Credit Card Crackdown Making Headlines
• A recipe for Thai Lettuce Wraps
• Coupon towards Closing Costs

With every issue of The Mortgage Porter, I recommend that readers check their credit utilizing one of the three bureaus via www.annualcreditreport.com.   Since The Mortgage Porter is currently published 3x per year, I rotate the bureau and in this issue, I suggest you check your credit utilizing your annual free Equifax report.

If you're a Washington State homeowner (present or future) who would like to be added to my mailing list, please contact me with your name and full address.

Mortgage Interest Rates up 0.25% in One Week

As I mentioned earlier this week, I am now quoting conventional rates without any points (discount or origination) on the rates I'm posting at Mortgage Porter.  How you have your mortgage priced is up to you (points or no points).  Typically one point (one percent of the loan amount) equals 0.25% to interest rate.   

For example, a 30 year fixed rate based on the criteria below:

• 0 discount/origination points = 6.250% (APR 6.314%).
• 1% discount/origination fee = 6.000% (APR 6.157%).  Based on quoting a $400,000 mortgage, this rate cost $4,000 more than the 0 point rate above.

Sometimes paying a point will buy you more than a 0.25% improvement to rate (I've provided examples where this applies).

For a custom rate quote (priced however you want) for your residential property located in Washington State, please contact me.

Although rates are still historically low, due to fear of inflation, rates have increased by approximately 0.25% across the board since last weeks rates.  If you compare this post to last Friday's post, rates appear 0.50% higher since I'm pricing rates at zero points (0.25% higher for zero points and 0.25% higher for inflation).  If I the rates I'm quoting were priced with a point, they would appear 0.25% higher.  Bad timing on my part to switch to zero point pricing!

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  The conforming rate quote below is based on owner occupied, "full doc" purchase with a sales price of $500,000 and a loan amount of $400,000.  This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 30 day lock with no origination or discount points and there are no prepayment penalties on any of the rates quoted below. 

30 Year Fixed:  6.250% (APR 6.314%).  

30 Year Fixed with 10 Year Interest Only:  6.500%  (APR 6.559%)

15 Year Fixed: 5.875% (APR 5.949%)

5/1 ARM - LIBOR @ 0 Points: 5.75% (APR 7.005%).  Priced @ 1 Point: 5.250% (APR 6.903%)

5/1 ARM Interest Only @ 0 Points:  5.875% (APR 7.093%).  Priced @ 1 Point: 5.375% (APR 6.996%)

Conforming-Jumbo Rates.   Pricing is based on the same criteria above (including zero points) except where the loan amount is $417,001 - $567,500 for properties in King, Snohomish or Pierce Counties.  (For other conforming-jumbo loan limits in Washington state, click here); specifically priced for a sales price of $650,000 and a $520,000 loan amount.

30 Year Fixed:  6.375% (APR 6.468%) 

30 Year Fixed with 10 Year Interest Only:  6.875% (APR 6.947%)

5/1 ARM - LIBOR: 5.750% (APR 6.996%)

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above (zero points), with the exception that the loan amount is $417,001-$650,000 (20% down).   The specific scenario used to price the rates below is a sales price of $850,000 with a loan amount of $680,000.

30 Year Fixed:  7.500% (APR 7.593%)

FHA.  Pricing based on credit score of 620 or better and loan amounts up to $362,790 for FHA in King, Snohomish and Pierce Counties with 1 discount/origination point.

30 Year Fixed:  6.250% (APR 7.032%). 

FHA-Jumbo. Pricing based on 1 discount/origination point and loan amounts from $362,791 - $567,500 for King, Snohomish and Pierce Counties.  For other loan limits in Washington State, click here. 

30 Year Fixed: 6.375% (APR 7.160%)

VA.  Pricing based on credit scores of 620 or better based on loan amounts up to $417,000 with 1% discount origination fee.   For VA loan amounts over $417,000, please contact me.

30 Year Fixed:  6.375% (APR 6.700%)

Prime Rate (what HELOCs are based on):  5.000%

Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR.  These programs all have the same closing costs so you can see APR is not a valuable tool.   

This is just a small sample available of rates and products.  Rates are as of Friday, May 30, 2008 at 8:15 a.m. and may change at any time.  Available programs may change at anytime as well.   This is not a guarantee nor is it a commitment of interest rate. 

Mortgage rates continue to be very volatile.  Major lenders are averaging 2 rate changes per day.  Stay tuned with what's going on in the market by subscribing to Mortgage Porter (upper left corner) and Mortgage Porter Twitter for daily updates (click Follow).   

Lending Integrity Seal of Approval

I recently received permission from NAMB to post the Lending Integrity Seal of Approval which you may have noticed on the left side of my blog.   This logo isn't something that just anyone can post or promote, it must be approved by the National Association of Mortgage Brokers.

In order to display the Lending Integrity Seal of Approval, a broker or loan originator must:

• Pass a national criminal background check.
• Possess a state license or registration.
• Attend professional education, including ethics training.
• Live up to NAMB's Code of Ethics and Professional Standards of Best Lending Practices.
• Pledge to abide by NAMB's formal ethics grievance review process.

George Hanzimanolis, President of NAMB feels this seal will "soon become to the mortgage industry what the Good Housekeeping Seal of Approval is to the makers of consumer products."   George, by the way, is a heck of nice guy.  My husband and I had the opportunity to meet and have have dinner with him last week when he was in town with my brother-in-law, John Porter.

For more information, click here.

Do you need great credit and a big down payment to buy a home?

Cindy, one of my clients that I helped finance their first home, emailed me this question:

"I know home loans have changed a lot but is it true that you can't get a home loan with a credit score under 700 and 20% down?"

Not true.  Although I'm sure it feels that way and I've even heard some in the media make similar wrong statements...it's no wonder you would have this question.

Having a high credit score and significant down payment certainly doesn't hurt a home buyer.  It is true that many of the mortgages of recent years are no longer available.  And actually a 700 credit score pays more for their interest rate than someone with a 720 credit score now.   Conventional underwriting guidelines continue to tighten during these historic times.

FHA continues to be a very strong option for home buyers and home owners needing to refinance.   Even when FHA begins to implement risk based pricing for mortgage insurance, as reported by Kenneth R. Harney, borrowers can still have 3% down and lower credit scores:

"On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums -- 1.25% of the loan amount upfront and annual renewal premium payments of 0.5. Borrowers with down payments of less than 5% and poor credit scores -- FICOs ranging from 500 to 559 -- will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually."

One thing to keep in mind is that borrowers do need to have clean credit (no lates) for the past 12 months.  And even if FHA allows a 500 credit score, many lenders have their own underwriting guidelines that may not allow it and they have higher rates for lower credit scores.

To learn more about FHA, please check out my FHA Resource Center or contact me.   Mortgage Master is proud to have our Full Eagle.  We are a direct endorsed HUD lender...what does this mean to you?   We have an FHA underwriter on site at our King County office...we've been providing FHA insured mortgages to Pacific Northwest families for over 30 years.   

It's nice to be appreciated and to be Queen!

Bobbi and Michael are long time clients of mine.  I've helped them and their family members with refinance and purchase transactions over the years.  A couple months ago they wanted to buy a new home contingent and they were not able to sell at this time...they may try again later.   I was pleasantly surprised that they sent me a customized (yep, they designed the gift card to look like me!) Starbucks gift card.   Their handwritten note reads:

Rhonda -

Just wanted to say thank you for all the gfe's [good faith estimates] and emails as we tried to sell our house!  I wanted you to know that we appreciate all the time and what you do for us!

Mike and Bobbi

Inside the customized card:

Thank you for all your help - you go above and beyond - climbing any mountain necessary!  You are truly the Queen of the Mortgage Industry!

Pretty sweet, huh!   I am really fortunate to work with such nice people who value my efforts and advice.   Mortgage Professionals are not always paid for the hours they've put into a transaction and that's part of the territory.   Recent legislation passed by the State of Washington will allow Loan Originators to charge a consulting fee.   I always appreciate kind thoughts and words from clients...you can't put a dollar value on that.

It's Pointless

I've decided that on the rates I post, I'm going to start doing so without any discount  or origination points.   It seems to be the "norm" to have mortgages priced with a point and it's your choice on whether or not you have your mortgage priced with or without a point.

A point is simply prepaid interest.  Points are shown on the Good Faith Estimate on either lines 801, 802 or 808. One point equals one percent of the percent of the loan amount and typically impacts the rate by 0.25%.   Often times, consumers are tempted to pay points because the rate looks more attractive at 0.25% lower.

Here's an example based on a $400,000 loan amount.

One point = $4,000 providing a rate at 5.75% and a principal and interest payment of $2,334.29.

Zero points provides a rate of 6.00% with no additional cost (points) and a principal and interest payment of $2,398.20.

Which rate would you select?   Many are tempted by the lower rate which will save them (based on this scenario) $63.91 per month in mortgage payment.   Dividing the monthly savings into the additional cost (the point) of $4,000 appears as though you'll be breaking even in 62 months.   You're planning on staying in your home for over five years so why not pay the point, right? 

What if instead of paying a point, you apply the money you would have used to pay the point to reduce your loan balance:

$400,000 less the $4000 point = $396,000 at 6.00% = $2,374.22 for principal and interest. 

The savings between this scenario and paying a point (above) is now reduced to $39.93 per month.   Now the "break even" period is 100 months or 8.35 years (4000 divided by 39.93).   

My point is there may be better ways to use your money than paying points.  What if instead of paying a point, or paying down your loan amount, you use the "point money" to pay off a debt?   It's great when the Seller is offering to pay points or closing costs...and if you really want that lower rate, then pay the point.   How your mortgage is priced is up to you.  It makes no difference with how a mortgage originator is compensated.

So back to the rates I publish on various blogs.  My rates may seem to be about 0.25% higher than before since I will now be pricing rates without any points...just keep in mind that's because they're pointless.

Update:  There may be some time to pay points...such as the borrower really needs the lower rate to qualify or the pricing is better than the typical 1% of the loan amount to 0.25% rate. 

 

Memorial Day

Mortgage Master Service Corporation is closed today in honor of Memorial Day.  We will return to business as usual Tuesday, May 27, 2008. 

Photos from my son during our trip back to DC back in Spring 2002.

This monument is in the Hollywood Cemetery, Richmond, Virginia.

This monument was created by the efforts of the women of the Hollywood Memorial Association. Not content merely to tend the graves of the Confederate dead, the women decided to raise money to erect a monument. A successful two-week bazaar raised over $18,000 in 1867. Charles Dimmock’s design is a dry stone pyramid made of James River granite. It took nearly a year to build and is ninety feet tall. 18,000 Confederate dead are buried around its base.

This photo is from Arlington National Cemetry.

Gimme Five! Comparing Today's 5 Year ARM to a 30 Year Fixed

There is currently about a 0.75% difference in rate between the conforming 30 year fixed and 5/1 ARM and 0.625% in rate with conforming-jumbo loans.  Is that enough for you to opt for an adjustable rate mortgage?

Beyond the obvious question: "how long do you plan on retaining the mortgage or staying in your home?"   Here are some other stats to consider based on rates I quoted Friday morning using a purchase of $500,000 with a loan amount of $400,000.   The closing costs on both loans are identical.

30 year fixed at 5.75% (APR 5.902%) has a principal and interest payment of $2,334.

5/1 ARM at 5.000% (APR 6.759%) has a principal and interest payment of $2,147.  This is a monthly savings of $187.

The 5/1 ARM is fixed for 60 months and will then the rate is re-calculated.   The 5/1 used in this scenario is a 5/1 LIBOR with a margin of 2.25% and caps of 5/2/5.   For now, lets review your savings over the 60 month period.

The 5/1 ARM will save $11,220 over the 30 year in five years in payment alone. 

30 year fixed at 5 years has paid $28,951 towards principal and has an estimated balance of $371,049.   $111,106 has been paid towards interest (no benefit towards your prinicpal, however it may be a tax benefit).

5/1 ARM at 60 months has paid $32,663 towards principal and has an estimated remaining balance of $367,337.   $96,228 has been paid towards interest.

Over a five year period, the net (interest) savings of the 5/1 ARM over the 30 year fixed assuming you do not make any additional payments towards principal is $14,878.

So what happens if someone decides to select a 5/1 ARM and 60 months later, they're keeping the home?  They can refinance or not based on what the current market and what their finacial plans are.  The monthly savings over 60 months is plenty to cover the typical cost of a refinance ($2000-$2500) assuming rates are not favorable enough to opt for a "no cost refi".

If you decide to retain the mortgage, you will add the margin of 2.25% to the current 1 Year LIBOR rate when your mortgage is adusting.  (As of today, the 1 Year LIBOR is around 3.067%).   Your mortgage is reamortized based on the remaining term (25 years at the first adjustment).   The caps with this particular ARM are 5/2/5 meaning that the highest your rate can adjust is to a steep 10% and the lowest your rate will be at the first adjustment is 2.25%.   That's a huge range and whatever your rate will be depends entirely on LIBOR.   Some 5 year ARMS offer caps of 2/2/6 which would limit the first adjustment to 2%--the initial rate is typically slightly higher.   Do learn exactly what your cap, margin and index are before you accept any adjustable rate mortgage.

I suggest considering the following:

What is your risk tolerance?  Will having a mortgage with the potential to adjust in 5 years give you a rash or cause you to lose sleep at night? 

How long do you plan on staying in the home or retaining the mortgage?  If you have a tendancy to refinance when rates improve or if this is a home (such as a starter home) where you may not keep it for 5 years, you may want to consider the ARM. 

Picture your life and where you and your family may be five years from now.   Is your income stable or growing?  Do you have retirement in your sights?

How disiplined are you?  $187 per month could make an impact on paying off non-tax preferred debt, paying down principal or building your savings.  Pay yourself the $187 per month in an interest bearing account at 3% and you'll have $12,000 more in 60 months in addition to the other savings.

Regardless of what program you select for your mortgage...the choice is yours and it is your responsibility to learn as much as you can about the program--ask questions! 

Do you have an existing mortgage you're unsure of?  Has your loan originator left the mortgage industry?  I'm happy to help Washington State home owners with their mortgage needs--including reviewing your existing financing, such as ARMS.  My mortgage adoption program does not require any refinancing or new mortgage.

Mortgage Interest Rates - Conforming Jumbo under 6!

Mortgage rates are still very attractive however with all the inflationary data, I don't anticipate these rates to stick around.  Inflation has a very negative impact to bonds (such as mortgage backed securities).  Rates remain very volatile and I encourage all of my clients to lock at application.   

Mortgage Master will be closed in honor of Memorial Day on Monday, May 26, 2008 and will reopen for business as usual on Tuesday, May 27, 2008.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  The conforming rate quote below is based on owner occupied, "full doc" purchase with a sales price of $500,000 and a loan amount of $400,000.  This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below. 

30 Year Fixed:  5.750% (APR 5.902%)

30 Year Fixed with 10 Year Interest Only:  6.125%  (APR 6.267%)

15 Year Fixed: 5.375% (APR 5.627%)

5/1 ARM - LIBOR:  5.000% (APR 6.759%)

Conforming-Jumbo Rates.   Pricing is based on the same criteria above except where the loan amount is $417,001 - $567,500 for properties in King, Snohomish or Pierce Counties.  (For other conforming-jumbo loan limits in Washington state, click here); specifically priced for a sales price of $650,000 and a $520,000 loan amount.

30 Year Fixed:  5.875% (APR 6.021%) 

30 Year Fixed with 10 Year Interest Only:  6.375% (APR 6.573%)

5/1 ARM - LIBOR: 5.250% (APR 6.894%)

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).   The specific scenario used to price the rates below is a sales price of $850,000 with a loan amount of $680,000.

30 Year Fixed:  7.625% (APR 7.691%)

FHA.  Pricing based on credit score of 620 or better and loan amounts up to $362,790 for FHA in King, Snohomish and Pierce Counties.

30 Year Fixed:  6.000% (APR 6.777%). 

FHA-Jumbo. Pricing based on loan amounts from $362,791 - $567,500 for King, Snohomish and Pierce Counties.  For other loan limits in Washington State, click here.

30 Year Fixed: 6.125% (APR 6.905%)

VA.  Pricing based on credit scores of 620 or better based on loan amounts up to $417,000.

30 Year Fixed:  6.125% (APR 6.444%)

Prime Rate (what HELOCs are based on):  5.000%

Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR.  These programs all have the same closing costs so you can see APR is not a valuable tool.   

This is just a small sample available of rates and products.  Rates are as of Friday, May 23, 2008 at 8:15 a.m. and may change at any time.  Available programs may change at anytime as well.   This is not a guarantee nor is it a commitment of interest rate. 

Mortgage rates continue to be very volatile.  Major lenders are averaging 2 rate changes per day.  Stay tuned with what's going on in the market by subscribing to Mortgage Porter (upper left corner) and Mortgage Porter Twitter for daily updates (click Follow).  For your personal rate quote for your Washington State property, please contact me.

Changes to Conforming Underwriting Guidelines and Why You Should Consider FHA

A big thanks to Anne for asking me this question:

"I just looked at your blog and didn’t see any mention of upcoming guideline changes.  Any idea what’s on the chopping block this weekend at Fannie and Freddie?"

You see, I've written about the changes that are happening with the release of Fannie Mae's new underwriting guidelines that will take place over Memorial Day weekend...but I did so earlier this week over at Rain City Guide and not at Mortgage Porter.   Please do check out Get Approved before Memorial Day Weekend:  More Changes with Fannie Mae.

In a nutshell, Fannie Mae is anticipating more Expanded Approvals due to tighter underwriting guidelines and fewer approvals.   An Expanded Approval comes with various levels and means that a borrower is receiving an "a-minus" or lower loan approval and a higher interest rate.

This segues into another post I wrote at RCG this week:  Sellers and Agents:  Don't Rule Out FHA Buyers.   With the new conventional guidelines, I'm anticipating that we are going to have even more FHA buyers.   Just because a borrower is using an FHA mortgage to purchase a home, doesn't mean that they are subprime or less desirable than buyer using conventional financing.   Remember, the FHA loan limit for a single family dwelling in King, Pierce and Snohomish Counties is $567,500--same as the conforming loan limit. 

A buyer may select FHA over conventional because

• Their credit score is 719 or lower. 
• They are putting less than 20% down.
• Reduced monthly mortgage insurance.
• They received an Expanded Approval for a conventional loan and would rather have the lower rate offered by FHA over the higher EA rat

Thanks for your question, Anne!  If you have an idea that you would like me to address at Mortgage Porter, drop me a line.