The Mortgage Porter

Lease Purchase or Lease Option - Are You Wondering About These?

Recently a Mortgage Porter reader, Lisa, sent a question via my Suggestion Box (located on the right side of this web site):

"Rhonda, Can you address lease options and lease purchases? Have you seen these going on around King County? Thanks!"

Leases are not a part of what I do as a Mortgage Originator...so I enlisted a local real estate professional, Diane Kawell of Windermere West Campus.  The article below is actually reposted (with permission) from her blog, Di Kawell Real Estate Blog.

The easiest way to keep these straight is to remember that a 'lease purchase' is a purchase agreement - remember the word 'purchase.' In this strategy, the buyer agrees to buy and the seller agrees to sell, and the buyer will lease the property from the seller pending closing. There is often a delayed closing, but the buyer is obligated to close the transaction on a specified closing date. There would be a written purchase and sale agreement plus a lease agreement, and default on the lease would be default on the purchase and sale as well.

A 'lease option' is a situation where a tenant is obligated only to lease the property, but also has the right, or option, to purchase the property at a future date. There would be a written lease, as well as a written option agreement that should outline the terms of what the buyer's purchase would include, and a deadline for the buyer to decide to purchase or not. There would also be a negotiated cost between the parties for the option itself, which could be handled in several different ways (part of each rent payment, an upfront lump sum, etc). And the option cost may not be refundable if the tenant chooses not to exercise the option.

Also, there is another strategy which is simply an 'option to buy.' And this option is unrelated to any lease between the parties. Again, there would be a written option agreement outlining all basic details. And most often there would be some sort of cost for the option itself.

***All of this said, none of what I've written above, or will say below, is to be relied upon or construed as legal advice. I am a licensed real estate associate broker, not an attorney. I am licensed to fill in standardized forms, but not to give legal advice.*** Also, at this time in Washington state, there are big legal issues if a property owner is in a distressed situation and a buyer wants to offer to buy and lease back to them with a purchase option - you don't, and I don't, want to go there.

Three issues to consider:

1. In a declining market, a sale price set today, may not be market value by the time a sale would close, and that could mean financing problems due to any required appraisal. 
2. Although a buyer might qualify based on today's rates and programs, they may not qualify when it comes time to close - we know the current volatility in the financial markets! 
3. The parties will have to decide whether or not is acceptable or desireable to keep the property on the market during the pending, lease or option period - there is no law addressing this issue. In my opinion as an agent, successful transactions are always about win-win between the parties, so with the right set of circumstances, using these options might just be the best answer.  Another example: Seller is working out of area for the next couple years, might or might not want to sell, and buyer needs time to get their lives or finances straightened up.

Still Have Questions? Please contact me.

To try to find out if Lease Options or Lease Purchases are becoming more common in King County, I've posted the question at Trulia.  You can check out the answers by clicking here.

Magnificent Larry Cragun

Larry Cragun has announced that this month marks the end of his Magnificent 7 Nominees.  For three years, Larry has read thousands (tens of thousands?) of articles and has hand picked those he felt were most consumer focused each month; spotlighting them on his blog, Real Estate Undressed.  In January of the following year, he posts "the Super bowl" of consumer posts and whittles down his top selections from the top 7 of each month for the Magnificent 7 for that year.  It's quite a task and I thank him for it.  Not only have I been lucky enough to have a few of my articles nominated by Larry, I've been introduced to many other real estate bloggers who care just as much about shedding light to consumers as I do.

The final set of nominees for the Magnificent 7 are:

1. Dan Melson with "Getting Rich Quick in Real Estate"
2. ARDELL with "A buyer's right to do "an additional inspection"
3. Noah Rosenblatt with "Deflation Buyer Strategy: Buy to Renovate"
4. Mark Clawson with "Should I Refinance"
5. James Lapori with "Re-adjusting Priorities: What's a House For"
6. Luke Mullins with "Sheila Bair: We Need Foreclosure Mitigation Now" 
7. Rhonda Porter (my article) with "Can I Buy a $620,000 Home with a 620 Credit Score"

Thanks, Larry--YOU ARE MAGNIFICENT!

Mortgage Rate Update

Conforming fixed rates seem to be hanging close to high 4's-low 5's for borrowers with 720 and higher credit scores priced with 1 point.  What's off the table is mortgages priced at zero points or no-closing cost refinances as lenders are currently not providing competitive rebate pricing.  Why?  We can only speculate that it's to avoid being burned by borrowers refinancing over and over again.  Banks count on retaining the mortgage for a certain period, if a home owner opts for a mortgage priced with zero points or priced with no-closing costs, it's much easier to refinance quicker.  It will be interesting to see how long this tactic remains in play with banks/lenders.

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 30 day lock with no prepayment penalties.  For your personal rate quote with or without points, please contact me.

30 Year Fixed Priced w/1 Pt:  4.875% (APR 5.011%) ~ priced with 0 points: 5.500% (APR 5.552%).

15 Year Fixed Priced w/1 Pt:  4.625% (APR 4.745%).

Conforming Jumbo Rates. Pricing is based on the same criteria above (including zero points) except where the loan amount is $417,001 - $506,000 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $625,000 and a $500,000 loan amount.  

30 Year Fixed @ 1 Pt: 5.250% (APR 5.392%).

JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above, with the exception that the loan amount is $506,001-$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:  7.375% (APR 7.532)

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:  5.375% (APR 6.052%).

FHA-Jumbo. Pricing based on 1 discount/origination point and loan amounts from $362,791 - $506,000 for King, Snohomish and Pierce Counties.  NOTE: 2009 FHA loan limits are posted here for Washington state.   

30 Year Fixed @ 1 Pt: 5.875% (APR 6.553%).

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:  5.375% (APR 5.486%).

Prime Rate(what HELOCs are based on):  3.250%.   

12 Month LIBOR (what a majority of ARMS are based on): 2.09125% as posted in the Wall Street Journal.

Rates are as of Friday, December 26, 2008 at 9:00 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).

Christmas Cheer with Jingle Bell Rock

Jingle Bell Rock as sung by The Talon Group's Choir (aka King County Sales Department).

Merry Christmas and Happy Holidays

From my home to yours, I hope you are surrounded by those you love most during this holiday season.

Mortgage Master will be closing early today at 1:00 p.m. in honor of Christmas and will be reopening for business as usual at 9:00 a.m. Friday, December 26, 2008.

Merry Christmas to you and yours!

Photo: Orson taking a Christmas break.

You Can Have (Almost) Any Mortgage Rate

The question is, how much do you want to pay for it?  I'm getting phone calls and emails from potential clients wanting to refi at the media-hyped 4.5% or even 4.875%.  Last Wednesday, for about 2 hour, rates did actually dip to those levels...did you lock?  Did you even know about it (Special Tip: if you follow my Twitter updates, you were ahead of the game--you can even have my updates set to send you text messages)? 

You can still have the rate of 4.750% for a 30 year fixed but instead of 0 points, it will now cost around 2 points.  On a $400,000 loan amount, thats $8,000 for what would have been zero dollars in origination/discount fees in just less than a week!

This morning's rate for a 30 year fixed based on a credit score of 720-739 for zero points (origination/discount, as reflected on lines 801, 802 or 808 of your Good Faith Estimate and HUD-1 Settlement Statement) for $400,000 loan amount and $500,000 sales price is 5.00% with 1 point (apr 5.238).   This is 0.5% higher to rate than last Wednesday's low point--$120.55 higher in monthly mortgage payment based on a $400,000 loan amount. 

What can you do?  Obviously shopping around or trying to catch the lowest rate can be very costly.  Locking your interest rate is just the first step in the mortgage process.  I've posted tips on what I would do if I were interested in refinancing here.   In addition, I would determine at what point does refinancing make sense based on how long it will take to break even (how long you plan on staying in your home/retaining the mortgage). 

For example, if you have a 30 year fixed rate at 6.5% and a principal and interest payment of $2550, you will break even on your closing costs in about 15 months by refinancing today at 5.00%.  (Based on $2400 closing costs plus 1 point/monthly savings of $403).  If you're planning on possibly moving in a year, then I wouldn't recommend this.  However, if your plans don't including moving--you're throwing money away every month after the 15 month period if you don't "catch" a low rate.

I recommend selecting a respected Mortgage Professional and agree to a "forward lock" where you start the application process and tell your Mortgagage Professional that "if rates get to X% at Y points/closing costs, please lock our rate".  When mortgage interest rates increase by 0.5% to rate in just a few hours, this may be your only way of securing the low rate you're striving for.  With that said, if you currently have a rate where it would make sense to refi at today's rates, I think you should seriously consider doing so--especially if you benefit from a no-cost refinance where you would break even immediately.  Should rates dip to the low media speculated levels, you can always refinance again.

Another hazard on waiting for your rate is contended with appraised values of your home.  The appraisal is based on what 3-4 homes similar to yours located around your neighborhood has recently sold and closed for.  If they sold at a bargain price--guess what, you're home is now going to appriase for about that too.  If you have a oodles of equity (low loan to value) then this may not be a huge issue...however, with refinances, I would say appraisals have been the biggest nail biter. 

If you're a home owner, please do contact your local Mortgage Professional to see if it makes sense to refinance now (I happen to know of an excellent one who can help homeowners with property in Washington State).  If you have a set rate in mind, be sure to let them know what it is.  Work with a Mortgage Professional who has the ability to obtain you a lower rate AFTER you lock should they improve more than 0.125%. 

Last, don't rely on the media to tell you when mortgage rates are low.  The media is always late and with rates changing on average three times a day in our current market, they simply can't keep up (not to mention all the factors that go into pricing a rate). 

Refinance when it makes sense.

Social Media and Seattle's Snowpocalypse

Are you feeling like you've been trapped in snow globe and you can't get out?  Do you have images from The Shining playing in your head?  I'm a Puget Sound native and for life of me, I cannot recall so much prolonged snow!  It's beautiful and I've enjoyed taking pictures (check out my snow album) but I'm ready for some rain!

On a side note, it's been fascinating to see the level of communication that has taken place about our weather via blogs and other forms of social media, like Twitter, from the public to our local government.

I've received emails from the City of Seattle and King County over the past few days with request to post safety tips for my "community" of readers.  They are utilizing bloggers to help spread their message.   In my neighborhood, West Seattle Bloghas done a phenomenal job (as they always do) keeping everyone up to date and sharing stories about our local weather (and more).  I believe it was our big winter storm of 2006 that really catapulted WSB's readership.   If you have an neighborhood blog, this is one reason alone to subscribe.   Just this morning, I became aware of the Seattle Transit Blog.

If you're a long time reader of Mortgage Porter, you may be aware of the interest rate updates I quote.  Twitter allows you to post live updates of whatever you're doing in 140 characters or less.  Just like a blog, you can subscribe (or "follow") what the author has to say.  Local folks I'm following on Twitter who have helped with information on the storm are:

West Seattle Blog (@westseattleblog)

Washington State DOT (@wsdot)

King County News (@kingcountynews)

Seattle Department of Transportation - Snow (@sdotsnow)

Seattle Times @seattletimes 

Seattle PI @seattlepi

and don't forget Mortgage Porter (@mortgageporter)

Last, but not least, you can search terms on Twitter using "Twitter Search".  Twitter-er's will use the # sign to create a short code/phrase that can be used to follow a specific event or thing.  For this storm, the code is "#seatst".  Whenever someone posts a comment (aka tweet) on Twitter about this storm, if they include #seatst.  When you enter #seatst in the search field on the Twitter search page, you'll see a list of what EVERYONE is saying right now about the storm.

Do you have a Twitter profile? 

Tips for being prepared for this weekend's snow storm

I just received this email from King County with a request to post this safety information on my blogs for our local community:

Are you prepared?  Steps to stay safe in this weekend's storm

With high winds forecast for this weekend and possible power outages, it's time to take steps to stay save and avoid carbon monoxide poisoning.

How to avoid carbon monoxide poisoning

Carbon monoxide can kill you or cause serious injury.  Carbon monoxide gas comes from burning fuels such as gasoline, propane, oil, kerosene, natural gas, coal or wood.  Here are some steps to prevent carbon monoxide poisoning.

• Never use a gas or charcoal grill, hibachi, or portable propane heater to cook indoors or heat your home.

• During a power outage or at any other time, do not operate fuel-powered machinery such as a generator indoors, including in the garage.

• Avoid combustion "space heaters" unless there is an exhaust vent.

Carbon monoxide poisoning can strike suddenly and without warning.  In some cases, physical symptoms of carbon monoxide poisoning may include splitting headache, nausea and vomiting, and lethargy and fatigue.  If you believe you could be experiencing carbon monoxide poisoning, get fresh air immediately.  Call for medical help from a neighbors home.  The fire department will tell you when it's safe to reenter the home.

For a full list of carbon monoxide prevention tips and other safety and disaster information in English and other languages, visit www.kingcounty.gov/health/disaster

Other important safety tips

• Make sure you are wearing enough warm clothing before going outdoors.  Wind speed can create dangerously cold conditions even when the temperature is not that low.
• If you think power will be out for several days, check with your city for location of warming shelters.
• Watch for signs of frostbite and hypothermia-slurred speech, confusion, uncontrollable shivering, stumbling, drowsiness and body temperature of 95 degrees Fahrenheit or less.  Get medical help immediately if you think someone has frostbite or hypothermia.
• Check on elderly friends, family, and neighbors to make sure they are safe.
• If power goes out where you live, keep food safe by keeping the doors closed on your refrigerators and freezers as much as possible.  A full freezer can stay at freezing temperatures about two days'' a half-full freezer about 1 day.  Potentially hazardous foods, like meet and fish, should be discarded if thawed and warmer than 41 degrees.

Update: News Release from the City of Seattle

Rates for a Snowy Friday

Mortgage rates continue to be just as volatile as the Seattle weather. Wednesday morning I quoted 30 year fixed in the low-mid 4s which quickly jumped up 1% in fee by 11:30 that day. This morning, we're back to the same rates I published last Friday: 5.000%.  This is a huge swing for a short period of time.  If you're interested in securing a record low mortgage rate, you must be prepared to commit to a lock.

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 30 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 Priced w/1 Pt:  5.000% (APR 5.143%). 

15 Year Fixed Priced w/1 Pt:  4.625% (APR 4.745).

Conforming Jumbo Rates. Pricing is based on the same criteria above (including zero points) except where the loan amount is $417,001 - $506,000 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $625,000 and a $500,000 loan amount.   NOTE: Conforming Jumbo loan limits for 2009 - lenders have all ready implemented the new loan limits.

30 Year Fixed @ 1 Pt: 5.250% (APR 5.392%).

JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above, with the exception that the loan amount is $506,001-$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:  7.375% (APR 7.532)

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:  5.375% (APR 6.052%).

FHA-Jumbo. Pricing based on 1 discount/origination point and loan amounts from $362,791 - $567,500 for King, Snohomish and Pierce Counties.  NOTE: 2009 FHA loan limits are posted here for Washington state.   

30 Year Fixed @ 1 Pt: 5.875% (APR 6.553%).

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:  5.375% (APR 5.486%).

Prime Rate (what HELOCs are based on):  3.250%.   

12 Month LIBOR (what a majority of ARMS are based on): 2.09875% as posted in the Wall Street Journal.

Rates are as of Friday, December 19, 2008 at 9:00 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).

The Snow We've Been Waiting For?

Yesterday morning the local news forecasters had Seattle prepared for a big snow blast that didn't happen.  Schools canceled and we waited and waited for the flakes to fall...and today we were suppose to have around 1-2 inches.  Well I'm bundled up here to tell you that in my warm home in West Seattle, we have about 6-7 inches and it's still snowing!  Luckily I'm armed with my laptop and can work from home while we weather this winter storm.    

Two years ago, almost to the day, we were with out power for 6 days during the Hanukkah Eve Storm.  I guess next on our slate is winds from the north...cross your fingers and hope that we keep our power!