NorCal Partners Real Estate

Rowland Fellows, Broker, CDPE, ePro, GREEN, CA BRE # 01435867

DISPELLING REFINANCING MYTHS

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“Refinancing” is a scary word for many people, but that shouldn’t be the case for you. For many homeowners, refinancing can not only lower your monthly payments and help with your monthly budget, but it can save you thousands of dollars in the long run.

YOU’RE NOT TOO LATE.

For years now, we’ve been hearing that interest rates will be on the rise, and although there have been some small increases, you’re still in a great position to drastically lower your interest rate. The general rule is if your mortgage interest rate is more than one percent above the current market rate, you should consider refinancing.

IT’S NOT TOO TIME CONSUMING.

Don’t brush off refinancing just because it seems like a long and daunting process. An informational call with a lender to see how rates compare will only take a few minutes. There are also some programs for streamlining the application process. And besides, isn’t the amount of money you could save worth the time and effort?

ARMS CAN BE REFINANCED, TOO.

Seeing your Adjustable Rate Mortgage (ARM) increase after the introductory period can be incredibly stressful and place a squeeze on your budget. Many people assume they’re stuck, but ARMs can be refinanced, just like fixed-rate mortgages. You can even switch to a shorter term fixed-rate mortgage, such as 15 or 23 years. The longer you’re planning to stay in the home, the more sense it makes to look into refinancing.

Avoid These Two Big Mortgage Mistakes

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We all know that searching for and viewing potential homes is the fun part of the home-buying process. The not-so-fun part? The mortgage.

But if you don’t pay attention to the details, your mortgage can end up dragging down the enjoyment of your new home and cause some major regrets. Here are a few mistakes to avoid to ensure that you love your mortgage terms as much as your hew home.

Don’t find your home first: Shopping around for the best mortgage rate should be the first step in the home buying process. You may even want to talk to a mortgage broker a full year before you plan to buy. It’ll give you time to get your affairs in order to qualify for the best rate, could save you thousands of dollars in the long run, and you won’t feel rushed to accept an unattractive loan because you’re worried you’ll miss out on your dream home.

Don’t forget your real budget: There’s often a big difference between what a lender says you can afford and what you can actually afford. Your debt-to-income ratio doesn’t include the money you spend on hobbies, or the cost of commuting to work, or maintenance and utility costs. Really sit down and examine your spending before committing to the loan amount the lender is offering. You won’t enjoy your home nearly as much if it’s eating into your favorite hobbies.

Tips for Getting a Mortgage

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Are you considering buying a property as a second home or investment? Perhaps you are looking for a small cottage or apartment where you can escape for vacation, or maybe you want to have another home closer to family. Maybe you want to rent out your second property and make a steady income from your investment. Whatever the reason, a second piece of real estate can be a fantastic investment. However, sometimes getting a mortgage on your second home can be a challenge.

Generally, a mortgage lender will have tougher standards for second home loans than primary home loans. This is because usually when you are buying a second home your finances will be stretched thinner and you will have less money to spare because you are already paying a mortgage on your primary home. This will mean that your second home mortgage can be harder to get and might have a higher interest rate.

Here are some tips to keep in mind that will help you to get the best mortgage on your second property: Build up a decent amount of savings. Your mortgage lender will want to be able to see that you have a large amount of savings so that you will have enough to pay for the mortgage even if you were to lose your job.

Pay off any credit card debt. Many lenders will be hesitant to approve your second home mortgage if they see that you have a lot of debt on your credit card. They will want to see that you have a low debt to income ratio so that you will be able to pay back the loan.

Use the first mortgage as a good reference. If you have always made your payments on time and you are most of the way through paying off your first house, you could ask someone from your current mortgage company to vouch for you. The lender for your second mortgage will be reassured that you are a reliable person to loan money to.

These are just a few tips to keep in mind in order to make getting a mortgage for your second property as easy as possible. To find out more about investing in property, contact me at rfellows@norcalpartners.com or phone me at 916-792-2368.

Have You Seen Your Refi and Mortgage Options Lately?

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Three good reasons to warm up to a refinance this spring.

Low interest rates and new loan programs abound this spring, so if you assumed yourrefinancing and mortgage options were dismal, you’ll be surprised by these three offerings.

1. Refinance with new FHA fees 

In a nutshell: FHA raised insurance premiums for new borrowers, while lowering fees for some existing customers who refinance, making comparison shopping with private mortgage insurance worthwhile. Mortgage insurance covers the lender against losses caused when borrowers stop making payments.

The details: FHA’s new insurance premium rates include a great deal for existing FHA borrowers — you can refinance by paying a miniscule .01% upfront fee and an annual premium of just .55% if you got your original loan on or before May 31, 2009.

The catch: The deal is only for home owners who got their FHA mortgage on or before May 31, 2009.

The latest FHA deal for new FHA customers buying homes isn’t nearly as sweet. You’ll pay a whopping 1.75% upfront fee and an annual premium of 1.35% — more if your loan is more than $625,500. For a $200,000 loan, that’s $3,500 for the upfront premium payment and $2,700 for the annual premium.

If you can meet the tougher underwriting and higher downpayment rules of private mortgage insurance companies, check to see what that would cost for your  specific loan and location using calculators from such sources as MGIC, Radian, or Genworth Financial. Use the calculators to check how your payment would change depending on how much equity you have in your home.

2. Refinance underwater mortgage

In a nutshell: If you owe more than your home is worth, you may finally be able to refinance into a lower rate thanks to the government’s HARP refinancing program.

The details: You can take advantage of historically low interest rates by using the latest version of the Home Affordable Refinance Program, which removed a previous cap on how far below your mortgage your home value can be.

The HARP program even works if you’ve been hit by the economic double-whammy of a falling family income and a falling home price. You qualify for a HARP refinance if:

  • You have income coming in.
  • You’ve made your mortgage payments on time every month for the past six months and have no more than one late payment in the past year.

The catch: Banks can layer their own tougher rules on top of the HARP requirements, and they’re not obligated to let you use the program to refinance your existing loan.

3. Refinance rental properties

In a nutshell: Some real estate investors have new loan options for the first time in years.

The details: In recent years, small landlords like me have had a tough time finding a bank to finance more rental property purchases. Once you had more than four rental property loans, Fannie Mae and Freddie Mac were no longer willing to guarantee your loans, even when your credit scores were top-notch and the property was able to turn a profit from day one of ownership.

Now, some banks participating in the HARP program are taking applications from landlords with multiple properties and lots of mortgages. HSBC recently agreed to look at a mortgage on a property I own in Baltimore. My current interest rate there is over 7% and if I get the HARP refinance it will fall to 4.6%.

It’s too soon to say whether the banks will actually fund me or any other landlord who wants to refinance.

The catches

  • Only Fannie Mae has made this change. (It’ll purchase up to 10 loans from any one investor.) Freddie Mac is still limiting single-family landlords to four loans.
  • Most banks discount your rental income by 25% when making investor loans, which adds up when you have multiple properties.

But, the fact that banks are accepting applications from rental property owners is a sign the credit spigot may be reopening for creditworthy real estate investors.

Are you shopping for a refinance or a mortgage to purchase a home? What’s your experience been like?

By: Dona DeZube

Published: April 8, 2013

FICO reveals behaviors behind sterling credit scores

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Tight mortgage lending standards have dashed the hopes of many would-be home buyers, but the developers of the most-popular credit risk score has revealed some habits and behaviors of “high achievers” with FICO scores above 785.

More than 50 million people — about a quarter of all people with credit scores — are considered high achievers and tend to have “strikingly similar” credit habits regardless of background or life experience, San Jose, Calif.-based Fair Isaac Corp. said.

Some of these habits are fairly predictable: They keep low revolving balances relative to their available credit, don’t max out their credit cards, and consistently make payments on time.

But high achievers are not debt-free. They have an average of seven credit cards, including open and closed accounts, and carry balances on an average of four credit cards or loans. One-third have balances of more $8,500 on nonmortgage accounts.

Nevertheless, almost none — less than 1 percent — have an account past due. The overwhelming majority, 96 percent, have no missed payments on their credit report. Those who do have long since mended their ways — their last missed payment happened an average of four years ago.

The FICO score ranges from 300 to 850, and is used by virtually all lenders to gauge credit risk and the likelihood a borrower will repay a loan. The credit score can affect how much money a lender will offer and at what terms; higher credit scores mean borrowers can potentially save thousands of dollars over the life of a loan, FICO said.

Ellie Mae Inc., which provides mortgage origination software to lenders, reports that the average FICO score for mortgages approved in September was 750, with borrowers making down payments averaging 22 percent, having front-end debt-to-income ratios of 23 percent and back-end DTIs of 34 percent.

Those whose applications were denied had an average FICO score of 704, with borrowers willing to make down payments averaging 12 percent. The average front-end debt-to-income ratio was 27 percent; the average back-end DTI was 44 percent.

The average FICO scores for purchase mortgages eligible for purchase and guaranteed by Fannie Mae and Freddie Mac was 762 (compared with 729 for denied applications), while FICO scores on FHA-backed purchase loans averaged 701 (compared with 665 for denied applications).

Because payment history makes up the biggest chunk of how a person’s FICO score is calculated — 35 percent — managing credit responsibly over time plays a large part towards improving one’s credit score, FICO said. This includes paying at least the minimum amount on all credit cards every month, the company added.

“Missing payments will lower a person’s FICO score, but if that happens, establishing or re-establishing a good track record of making payments on time will generally improve a person’s score,” said Anthony Sprauve, credit score adviser for myFICO, the company’s consumer division, in a statement.

By law, most negative information, including missed payments, is removed from credit reports after seven years. This does not apply to tax liens or Chapter 7 bankruptcy. About 1 in 100 high achievers had a collection on their credit report, and about 1 in 9,000 had a tax lien or bankruptcy.

“While people with a high FICO score are not perfect, their consistently responsible financial behavior usually pays off over time,” Sprauve said. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson from these high achievers is that it’s never too late to rebuild and score high.”

FICO high achievers typically have long, well-established credit histories and rarely open new accounts, FICO said. They opened their oldest credit account 25 years ago, on average, and their most recent credit account more than two years (28 months) ago. In general, their average credit account is 11 years old.

Their balances are often low and they use only an average of 7 percent of their available revolving credit, i.e., $70 on a credit card with a $1,000 maximum.

FICO considers both positive and negative credit report information within five general categories, the company said: payment history, amounts owed, length of credit history, new credit, and types of credit used.

The FICO score does not take into account attributes such as race, gender, age, marital status, salary, employment history or address, the company said. FICO’s consumer website, myFICO.com, offers tips and tools to help people make decisions about their credit.

“Because a high FICO score is typically achieved over time and takes into account dozens of variables, there are no ‘quick fixes’ for rapidly improving scores or repairing bad credit,” Sprauve said.

“Practicing good credit behavior consistently over time and regularly checking your credit report for errors can be instrumental for achieving a high credit score, which can lead to better loan terms and lower interest rates. Achieving good credit health is a long-distance event, not a sprint.”

Using Renovation Financing to Get the Home You Want

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Many of the homes for sale in today’s market we can realistically call “distressed” homes. With all the bank foreclosures and short sales, people are just not taking care of their homes. While prices may be low, most first-time home buyers are stretching to buy a home and there just isn’t enough left over for taking care of deferred maintenance items, making repairs, or updating the home. This is where a little-known loan program, the FHA 203(k) loan program comes in. [Read more…]