Mortgage and Real Estate Tips For The Week 2/04/08
February 4th, 2008 Categories: Mortgage News, Real Estate News, Real Estate and Mortgage Advice
Mortgage and Real Estate tips for the week 2/4/08.
-If you need to, obtain new (re)financing soon. Rates (more specifically, the indices ‘mortgage rates’ are a part of) are akin to a flock of lead balloons, look for them to bottom out over the next 30-45 days then move sideways for awhile. They have already plunged to 2005 (and prior ‘meltdown’) levels. The 6 Month LIBOR dropped 1.5% in the past month alone! Check out the Money Cafe to reference many of the popular mortgage indices in easy to read chart like fashion.
It bears stating that if your interest rate is about to adjust, take (or have an honest mortgage professional- lol…sorry) a look at what the rate will adjust to. People forget that ARM’s can adjust up and down. So, without executing a costly refinance into a new amortized loan, your rate may actually adjust down if the index attached to your mortgage is lower (or very close to the same) today than it was when you originally acquired the loan.
-Avoid refinancing into an amortized loan, unless you have no will power and cannot pay more than the interest only payment. If you don’t, just admit it, and pay the tax till death. Interest Only loans have taken quite a beating over the past 18 month, but if used correctly, they are a far less risky and costly
-Choose a mortgage professional that understands finance and (ideally) Wall Street.
As the infrastructure of this industry quickly matures from the days of Sales Dogging and Boiler Room wannabe’s to Regulated Professionals, it will be the ‘Mortgage Planner’, short for: Mortgage Pro who understands finance and Wall St, that flesh out at the top of the food chain.
Instead of a diatribe on what to look for in a practicing mortgage professional, a true Mortgage Planner, read Dan Green, Brian Brady and Robert Ashby..they are the litmus test for what a mortgage pro should offer you in the way of advice.
Current Mortgage Professionals: The act of acquiring a mortgage will become sooo transaction automated, if you’re not up to date in fields of study relative to your job, you have diminishing value.
-If you’re in the market to buy real estate, it is a great time to purchase…with rates falling and property owners begging away their no longer affordable housing, great deals are to be had for the bears in this market. Prepare to put at least 5% down on an owner occupied home, more if the property will be used as a 2nd Home or an investment property.
-Many people ask WTF is the credit crunch? Apart from the ‘duh’ answer that credit isn’t extended as freely as it has been, below are a few general real world casualties of The Crunch:
100% Financing. You best have a few dollars to put down (see also, No Money in the Bank) or solid equity in the property. 95% is the new 100% on primary residences, and 80% is the new 90% on 2nd homes/investment properties
Cash-Out above 90% of the Loan to Value of the property. If the property isn’t your primary residence, chop that down to <80%.
N.I.N.J.A. (No Income, No Job or Asset loans…tip of the hat to Galen Ward for the cool acronym).
Stated Income loans, unless you have solid documentation to prove self-employment…i.e. real, filed tax returns (in some states, Stated Income loans will be ‘going away’ permanently). For the stated programs still standing, the income that is stated had better be damn rational compared to the industry you’re in. Also, gone are the days where a note on ‘letterhead from a CPA’ stating that you are self-employed would stand as proof of self-employment. It’s amazing how many CPA’s worked inside of mortgage brokerages and mass generated such letters in the past ;-0.
Stated ‘Wage Earner’ loans. WTF is a ’stated wage earner?’ In theory it was a loan for someone who had a part-time W-2 job and a part time job as a contractor of some sort, who ‘wrote off’ more expenses than they received in income. Actually, this latter aspect is the basis for Stated Income loans period. In reality it was a way for lenders to extend financing to borrowers who had a job, didn’t make enough income to qualify, but had a high enough credit score to ‘mitigate’ that risk. Needless to say, this type of loan is now defunct.
No Money in the Bank loans. You will need real money in a checking, savings, 401(k), IRA, stock/equity account. Real estate ‘Phantequity’ doesn’t count, sorry. Proving that you have enough liquid assets (cash-money) to make the loan payment for at least 2 mos on a primary residence, closer to 6-10 mos worth for a 2nd home and/or an investment property, will be/is mandatory in todays marketplace. In addition, any down payment you plan to use must come from one of these accounts and have been ‘in there’ for at least 60 days (this is called seasoning…as in the money has been marinating in the account for 2 months). Why seasoning? So you don’t borrow the required funds from grandma for a week, just to qualify, then pay grandma back after the lender verifies funds. The act of borrowing money and representing it as an ‘asset’ is mortgage fraud. In any case, lenders will request a 60 day average account balance from the repository, so don’t try and fake it.
Credit score <640 loans. They exist, but the rates are very cost prohibitive and the documentation of income and assets had best be letter T Perfecto.
More tips next week…X-Out.
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