The Mortgage Porter

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Spooky Mortgage Interest Rates

Update 12:30:  After noon rates posted over at Rain City Guide.  Rates continute to trend up.

Mortgage interest rates seem to be more tricky these days than offering treats by trending upwards.  Rates are currently at least 0.25% higher in rate or 1% higher in fee than what I posted last week.  Historically, rates are low however, if you currently are preapproved and are shopping for a home, you should check with your Mortgage Professional to find out what your maximum approved interest rate is.  You may not be qualified for the same loan amount/sales price with how much rates have changed. 

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.  Rates are priced based on a low-mid credit score from 720-739. This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 45 day lock with no origination or discount points (for your personal rate quote with or without points, please contact me) and there are no prepayment penalties on any of the rates quoted below. 

30 Year Fixed @ 0 Pts: 6.500% (APR 6.564%) ~ Priced w/1 Pt:  6.250% (APR 6.409%). 

30 Year Fixed with 10 Year Interest Only @ 1 Pt:  7.125% (APR 7.282%).

15 Year Fixed @ 0 Pts: 6.375% (APR 6.480%) ~ Priced @ 1 Pt: 5.875% (APR 6.133%).

5/1 ARM @ 1 Pt: 5.750% (APR 7.099%)

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 @ 0 Pt:  7.000% (APR 7.059%) ~ Priced @ 1 Pt: 6.500% (APR 6.653%).

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 @ 1 Pt:  8.000% (APR 8.168%)

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

30 Year Fixed @ 1 Pt:  6.625% (APR 7.318%).

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.   After December 31, 2008, loan limits for FHA Jumbo loans will be reduced to $522,100. 

30 Year Fixed @ 1 Pt: 7.125% (APR 7.818%).

VA. Pricing based on credit scores of 620 or better based on loan amount of $417,000.   For VA loan amounts over $417,000, please contact me.

30 Year Fixed @ 1 Pt:  6.625% (APR 6.750%).

Non-owner Occupied/Investment Property.  Pricing based on 25% down payment with $400,000 sales price with low-mid credit scores of 720-739.

30 Year Fixed @ 1 Pt:  7.25% (APR 7.434%)

Prime Rate (what HELOCs are based on):  4.000%.    

12 Month LIBOR (what a majority of ARMS are based on): 3.282%

Rates are as of Friday, October 31, 2008 at 8:30 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. 

Stay tuned with what's going on in the market by subscribing to Mortgage Porter (upper left corner) and Mortgage Porter Twitter for live rate updates (click Follow).

Happy Halloween! 

Is My Preapproval Still Valid with all the Rate Changes?

My clients and readers ask such great questions...I just received this one from one of my clients that I've been working with since June of this year:

"...with all the rate changes how is our pre-approval looking? It the original amount still applicable?"

This couple are still in the process of finding their next home to purchase.  They were very savvy meeting with me early in the process so we could work on one of spouse's credit scores.  While spending a few months to improve the credit scenario has paid off, rates have recently gone up.  In fact, as of right now rates are 0.625% higher than what I quoted them exactly one week ago.

When you are preapproved for a mortgage, it really has little to do with the sales price or loan amount.  It's all about the payment and debt to income ratios.  There's actually a limit to rate/payment that you're qualified for.  This couple's interest rate limit is 6.625% with a maximum qualifying total debt to income ratio (per the automated underwriting system) of 46.21%.

This means that if once they find their home, if rates are near 6.625% for their program, that property taxes or their home owners insurance could bump them beyond the allowed debt ratio figure.  Preapprovals are generally based on estimated taxes and insurance.

Before you make an offer on a home, I strongly encourage you to provide your Mortgage Professional with the property address and/or the annual tax information so they can re-evaluate your debt to income ratios.

Here are some options when the interest rate or payment exceeds your preapproval:

• Negotiate the seller paying points to buy down the rate back to the lower approved amount (this is why you need to contact your Mortgage Professional BEFORE you make an offer).
• Put more money down on the home to lower the loan amount/payment.
• Buy less home.
• Pay off a debt to lower your debt to income ratio.
• Re-run your scenario at the higher rate with actual taxes and insurance to see if you're still approved.

Of course, if someone adds new debt or if the information has changed (maybe their down payment that was in the stock market and took a huge hit); the preapproval may no longer be valid either.

If you're currently preapproved to buy a home, I suggest you contact your Mortgage Professional to find out what your current "maximum rate/payment".  We've had constant program changes and you may want to verify your scenario has not been impacted.

Related post: How long is a preapproval letter good for?

Game plan for preparing to buy a home when you're credit score is low

I don't blame anyone for wanting to own a home.  Sometimes when I meet with clients and review their current scenario, a game plan needs to be created so they can work on getting themselves into a better position to buy a home.  The last thing anyone wants is to cram themselves into a mortgage they cannot afford or to commit to a long term payment when they don't have a great track record of making payments on time. Some times a plan may take 6 months or a year or longer before someone is ready to buy a home.

I have someone with low credit scores who wants to buy a home.   She knows she will probably be a candidate for FHA financing because she has little down payment and her credit.  Although FHA is not as persnickety about credits scores as conventional financing, they scrutinize credit history: especially the last 12 months.

This person has a few late payments this year, the last one being as recent as August.  FHA financing is most likely out of the question for her until August next year assuming she does not make any other late payments between now and then. She can work on her credit for the next 10-12 months (until she has 12 months since her last late payment).   She doesn't have any collections but she does have a few small accounts that are "maxed out". 

• Credit card "A" with a balance of $477 and a limit of $500.
• Credit card "B" with a balance of $323 and a limit of $300.
• Credit card "C" with a balance of $215 and a limit of $300.

1. The first thing she should do is focus on getting card "B" under the limit of $300.  She's getting whammo'd with her credit scores for being extended beyond what her credit limit is with this account (in addition to being maxed out).   She should at least pay it down enough to make sure that her interest fees won't keep popping her over her limit.
2. Next she should select one of her two smallest cards to pay down to at least just below 50% of her card limit.   Card "C" would only take about $65 to bring her debt down to 50% of the line limit (300 x 50% = $150).
3. Then pay down the next card to at least 50% of the limit.  "Card B" will take $150 (assuming she's paid the extra $23 that has pushed her over the limit) to be at 50% of the credit line limit.
4. Credit card "A" will take a little extra cash at $227. (500 limit x 50% = $250.  477 - 250 = 227).

She needs to keep her credit below 50% of the credit line at the very minimum.  I know I said FHA is not as picky as conventional.  However, you do want your credit scores above 600 in order to receive better pricing (620 and higher is even better).

Not only will this help her with qualifying for FHA financing, she's probably also paying higher insurance rates due to her current credit scores. 

She has a decent income and no savings.   She needs to use this time of working on her credit to also build up her reserves.  Not only for what the lender will require (3.5% minimum down payment for FHA as of January 1, 2009); but for her sake should her income change or issues arise, she should have a minimum of 6 months worth of living expenses saved (FHA does not require this, I'm suggesting it).

She has been considering homes priced around $275,000.  FHA's minimum required investment for this home next year will be $9,625.  The seller can pay the remaining closing costs and prepaids as long as she has met the above requirement (which can be a gift or loan from family members)--this would need to be negotiated in the purchase and sale agreement. 

The proposed mortgage payment would be around $2,000 (including taxes, home owners insurance and mortgage insurance).  This is $700 more per month than what she is currently paying for rent.  Once she has corrected her credit, she should practice making a $2000 mortgage payment by paying the difference ($700) into a savings account that she leaves untouched for her down payment and to hopefully create a savings cushion.  $12,000 in savings would be ideal (6 months of mortgage payment) but not required.   If she has no savings, it will take her just over a year to pay $700 per month to come up with the down payment (9625 divided by 700 = 13.75).  Another 17 months to have a savings cushion of $12,000. 

I know this isn't instant gratification.  It is developing responsible financial habits.  There are expenses to owning a home beyond renting.  One of my last homes required a new roof just months after moving in to the tune of $15,000.  Savings has always been important and it's even more true in our current economy.

She's all ready moving in the right direction by contacting a Mortgage Professional who is interested in her long term financial well-being and is willing to help her create a game plan.

Check out my related article:  Getting on Track to Buy Your First Home. 

Can I buy a $620,000 home with a low credit score?

This morning I received this email:

My wife and I found a house we are in love with. I wanted to write and tell you our situation, maybe you can tell us if we are even in the "ballpark".    The house we like is 620,000. We have 20% to put down. We have very little debt and well documented income. I have a low credit score, 660 or lower. Is this worth pursuing or is the credit score too low?

Based on current guidelines/pricing, you really need to have your credit scores above 660 if you're considering loan amounts above "true conforming" (presently $417,000). It's very possible that this couple can buy a home utilizing an FHA jumbo mortgage which leans more towards credit history rather than credit score.  Here are some factors that would indicate whether or not this is a possibility for this couple:

• Credit history.
• Loan limits.

Unfortunately the loan limits where this couple are considering to purchase are much lower than what we have in the King County area.  They're wanting to buy in Clark County which currently has a temporary jumbo limit of $418,750.   They would need about $200,000 for their down payment with the seller paying closing costs and prepaids (est. at $12,000).   Or they could opt for conforming financing with a loan amount of $417,000 and try to get a conventional approval (with a larger down payment, it's possible).

If they were buying in King, Pierce or  Snohomish County, the loan limit is currently $567,500 and would have the option of putting less than 20% down (as low as 3.5%), should they wish assuming they qualify for the payment.

Regardless of where the property is located, the last 12 months of credit history is more critical than credit score (as long as the credit scores are 600 or higher) for a purchase using an FHA insured loan.

FHA loans are full doc and will need to be sourced and seasoned.  Buyers should be prepared to provide their last 2 years of W2s (and possibly tax returns) as well as at least 30 days of income on their paystubs.

Remember, we should be learning in early November what the new jumbo loan limits will be.  I'll keep you posted!

Morning Mortgage Rates for October 24, 2008

Update 1:45 pm: I've posted afternoon rates at Rain City Guide.

New to Friday Rates: I've added the current rate for the 12 month LIBOR and a rate quote for non-owner occupied property.  During this week, I've quoted or locked rates for conforming 30 year fixed priced with 1 point anywhere from 5.625% (apr 5.818) to today's rate of 6.00% (apr 6.458%).  You can keep closer tabs on what rates are doing by following what I'm quoting live--just click here.

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.  Rates are priced based on a low-mid credit score from 720-739. This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 45 day lock with no origination or discount points (for your personal rate quote with or without points, please contact me) and there are no prepayment penalties on any of the rates quoted below. 

30 Year Fixed @ 0 Pts: 6.375% (APR 6.438%) ~ Priced w/1 Pt:  6.000% (APR 6.155%). 

30 Year Fixed with 10 Year Interest Only @ 1 Pt:  7.000% (APR 7.155%).

15 Year Fixed @ 0 Pts: 6.125% (APR 6.%) ~ Priced @ 1 Pt: 5.625% (APR 6.%).

5/1 ARM @ 1 Pt:  6.125% (APR 7.236%)

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 @ 0 Pt:  6.375% (APR 6.434%) ~ Priced @ 1 Pt: 6.000% (APR 6.151%).

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 @ 1 Pt:  8.000% (APR 8.168%)

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

30 Year Fixed @ 1 Pt:  6.500% (APR 7.191%).

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.   After December 31, 2008, loan limits for FHA Jumbo loans will be reduced to $522,100. 

30 Year Fixed @ 1 Pt: 6.750% (APR 7.438%).

VA. Pricing based on credit scores of 620 or better based on loan amount of $417,000.   For VA loan amounts over $417,000, please contact me.

30 Year Fixed @ 1 Pt:  6.625% (APR 6.750%).

Non-owner Occupied/Investment Property.  Pricing based on 25% down payment with $400,000 sales price with low-mid credit scores of 720-739.

30 Year Fixed @ 1 Pt:  7.25% (APR 7.434%)

Prime Rate (what HELOCs are based on):  4.500%.    Note: The FOMC is scheduled to meet on October 28-29, 2008.

12 Month LIBOR (what a majority of ARMS are based on): 3.509% 

Rates are as of Friday, October 24, 2008 at 8:00 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. 

Stay tuned with what's going on in the market by subscribing to Mortgage Porter (upper left corner) and Mortgage Porter Twitter for live rate updates (click Follow). 

Financing Investment Properties

Many folks are taking advantage of this market by purchasing investment properties.  Before you do, I strongly recommend getting preapproved with a Mortgage Professional and reviewing your options.  There have been serveral changes to guidelines.

Effective October 10, 2008, private mortgage insurance companies pulled out of insuring investment properties.  This means if you're planning on using conventional financing, the loan to value is limited to 80%. 

Both conventional and FHA financing have newer guidelines if you're planning on converting your existing home to an investment property.  You'll need significant equity in your existing residence or 6 months PITI of both properties for reserves in order to factor credit for rent with prequalifying for your mortgage.  Leases must be supported with proof of a security deposit.  FHA may make exceptions to this rule if the home buyer is renting out their existing home due to relocating.

Conventional financing will not lend on more than four properties that are currently financed.  So if you have a mortgage on your primary residence, you can only finance 3 investment properties.  Do you have a mortgaged vacation home in addition to the one on your residence, then your limit for financed investment properties is reduced to 2 homes.

In mid-December, investment properties will become more expensive with the following adds to fee (credit scores will have additional adds to fee):

Loan to value 75% or less: 1.75% add to fee (minimum 620 credit score)

Loan to value 75.01 - 80%: 3.00% add to fee (minimum 680 credit score)

Note: lenders are actually all ready factoring these adds to investment properties.  As we approach Decemeber, more will follow in order to be able to provide Fannie properly priced mortgages by the deadline.

Obviously you're going to want to cough up that extra 5% to have 25% down and a better rate.  Here's an example of rates I quoted today for an investment property priced at $275,000 for clients with credit scores above 740 for a 30 year fixed:

20% down (LTV 75.01 - 80%) at 7.375% at 1.25 points (apr 7.605)

25% or more down (LTV 75% or less) at 7.000% at 1 point (apr 7.202)

Just for comparison, an owner occupied property with the same criteria would have a rate of 5.875% priced with 1 point (apr 6.052) based on this afternoon's rates.

It's unfortunate that guidelines and pricing for investment properties is being hit hard. During these times, investors buying bank owned properties or short sales would stimulate the markets and alleviate the property from the banks.  Lenders are hesitant to taking on any type of mortgage that has additional risk during this climate. 

Related article I've written:

More Fannie Changes for Investment Properties and Second Homes

Financing an Investment Property

Rates on Bank Websites

I received this email from a client yesterday.  Since it's a common question, I thought I'd share it with you:

"I just noticed on the [big bank's] website that the conforming mortgage rate with 1 point is now 5.75.   

Do you know what type of rate it would be for conforming jumbo without paying a point?

How much do you anticipate my closing costs will be if I decide to refinance?   I know [big bank] has a new program now where they pay for all closing costs besides interim interest and taxes when you refinance.   Do you know if any other banks offer the same program?"

I checked big bank's website and confirmed the rate they are offering 5.75% with 1 point.   Guess what, under the terms they've offered, I could too.

Here's the fine print from their website:

"All rates are based on the purchase of a 30-year term, owner-occupied single family residence in this state, conforming loan amount ($417,000 or less), with 20% down, a 30-day lock period and 0 (zero) discount points in most cases. All rates shown include a one point (1%) origination fee, which will be assessed at closing."

Major pricing factors impact the rate for my client.  To begin with, she has a "conforming jumbo" loan amount which has (in addition to a different base rate than the conforming rate) the following price adjustments over the conforming purchase rate mentioned above:

• Rate term refinance for conforming-jumbo:  0.5% to fee
• Credit scores 700-719: 0.5% to fee

A 1% add to fee generally equals a 0.25% increase to interest rate.  A static web page isn't going to spell this out for you. 

Accurately quoting rates requires knowing the credit scores of all borrowers, loan amount, loan to value/equity...just for starters.  Even when I post rates here at Mortgage Porter and live quotes on Twitter, I'm careful to provide as much detail as possible so consumers can tell if they're close to that pricing criteria.

Nothing replaces a live Mortgage Professional (assuming they're provided all the necesesary criteria) for an accurate rate quote.

Regarding closing costs for a refinance, they're pretty close to what you pay for a mortgage when you purchase your home.  You can have the mortgage priced with or without points and all you can opt for "no closing costs".  Just know that if you're doing a "no closing cost" refi, it's priced in the rate.

How to Read a Title Report

My title and escrow partners at The Talon Group are at it once again.  This time, they've produced an entertaining video on how to read your title commitment.  Whenever you buy, sell or mortgage your home, odds are you receive a title commitment (aka title report).  It's important to take a few moments to review what's showing against your property.

Do You Pay Property Taxes On Your Own?

If you have elected to not have your property taxes included in your monthly mortgage payment (no reserve account), second half taxes are due for King County by October 31, 2008.   For more information, or to pay on line, click here.

If you have property taxes included in your mortgage payment, you shouldn't need to do anything at all.  Just sit back and take it easy.