Loan Yes Yes's!

Checklist for a Positive Home Loan Experience:

1. Work with a trusted advisor! Applying for a loan is a pretty personal thing. It really helps if you have someone on your side who expresses interest in you, rather than just trying to fit you in their ‘box’. If you are also buying a home, seek out a Realtor and Broker who work together for maximum effect on your behalf.

2. Borrow within your means! It is REALLY imporant to find out what you can afford before you go shopping for a home. Work with your mortgage planner to establish what you feel comfortable with in terms of a mortgage payment in context with your home ownership goals. Otherwise, you may be encouraged you to buy at the top of your borrowing power. (It's a fact that your realtor and lender make more commission the higher your purchase amount). Establish a monthly budget taking into account your personal needs, taxes, insurance and ongoing upkeep.

3. Understand your commitment! Many very sophisticated people go weak at the knees when they see financial documents. A good lender will take the time to explain the details of your mortgage with you well before you get to closing! Ask LOTS of questions.

4. Look beyond interest rates! With all the hundreds of loan choices available to you, a lender will recommend solutions to meet your specific needs. Listen and compare the effect of different products presented. Most people are actually far more motivated by a payment amount than interest rate. In some cases, lower rates = higher caps and you could be stuck in a few years if rates suddenly leap. Today's fixed rates are the lowest in 45 years but there are many ways to maximize your investment, including split or biweekly schedules to save a bundle on interest over the life of your loan (these are not things a bank likes to admit).

5. Consider your financing options! With so many new loans on offer it’s easy to accept a traditional loan option. Even adjustable loans work very well for short term investments or irregular cash flow. Carefully weigh up the benefits of financing your home to reduce other debt and lower outgoing expenses. In general, interest on a mortgage is tax deductible so refinancing to pay down consumer debt makes a lot of sense. Equity products are a great way to helping you fund urgent and unforeseen needs--use these products to your advantage!

Wishing you every loan sanity! Loannetter

© 2009 susan templeton loannetter

How Risk Affects Mortgage Interest Rates

Credit Scores and Certain Propertery Issues = Risk Categories to Investors.

If you apply for a home loan with a FICO credit score of 720 or over, you will most often be approved for the current lowest interest rate if you are submitting full documentation (proof of employment, assets, etc.) and the property values well. An applicant with a mid FICO score of 680 or better, depending on the specific lender's guidelines must have pretty solid income verification and be a wage earner. The litmus test for self employed persons for best terms is currently 740+ FICO and very solid tax returns and quarterly reports.

For example, let's say you can get 6% as an average 30 year fixed rate for a person with 720+ middle FICO Score. If your score is 680-719, you may be offered an interest rate of 7%. If your score is below 680 expect 'hits' to your price and possibly 8% or higher for the rate. Below 600 and you will be charged even higher rates and may only qualify for much higher rates or be limited to programs. Most of our FHA lenders want 620 or higher these days.

There are 'No FICO Score' programs but that is for people who have insufficient credit history to have a rating. Very few lenders offer the No Fico programs (we know of a few) and even fewer accept Alternative Credit Reports due to the lack of verificaiton involved. These days everything--but everything is about verification.

Too bad it’s not that simple! In addition, there are higher loan costs in points and fees for having negative credit issues

What constitutes 'credit issues'? 1. If you have a history of late payments with creditors within the last twelve months. 2. If you have fewer than three active lines of credit. 3. If you have filed bankruptcy within the last seven years. 4. If you have suffered an foreclosure in the last 10 years. 5. If you have unpaid collections or charge-offs within the last 2-4 years (depending on the lender). 6. If you have liens or judgements against your title.

Title issues: Liens against a title must be paid off before or at closing to provide a 'clear title' for a lender. In the case of paying off an existing mortgage company, this is straightforward process handled by our esrow agent. In the case of unpaid collections expect additional interest fees or to pay them at closing. Also, if someone else is listed on your title (often in the case of divorce) you must secure a quit claim deed from the other party and submit your divorce or settlement papers.

Beware of putting your children on title. If they are over 18 they can cause serious credit liens without your knowledge by credit card abuse or other bad behavior. According to some states, children under 18 cannot be legally responsible to hold title to mortgages unless their net worth exceeds 2 millon dollars.

Property issues which may cause a lender to deny your application: 1. If your property is zoned rural or agricultural or is over ten acres. 2. If your property is in a flood zone or hazardous area. 3. If your property appraiser cannnot provide three comparable property sales within 2 miles and six months. 4. If the appraiser's report reprots siginificant damange or safety issues. 5. If a manufactured home has been moved or had additions made to it... it is literally unfundable.

Note: there are many other issues which individual lenders use to establish the rate they offer a borrower, based on their own portfolio of property and risk ratios. In fact, some lenders specialize in higher risk portfolios because they can charge more for the money.

Suffice it to say that the more negative issues you have on your Credit Report, the greater risk you are considered by a lender, and this is reflected in your score (read more about Credit Scores below this blog) As a result, up go the lender's requests for documents (conditions) and potential fees for underwriting and appraisal reviews. Not to mention your bank or broker will charge more for their time. If the property is also slightly left of center, your application may be denied due to the combined factors considered 'risky'.

Now don't let all this talk about rates get you down. It's really not the most important aspect of a mortgage. Two main factors affect your acceptance for a specific loan amoun: 1. The LTV or Loan to Value, which means how much you are borrowing against a property's worth. If the LTV% is under 65% the rate offered may improve. 2. Your Monthly Payment or Debt to Income (DTI) is usually the kicker...i.e., how much can you afford to pay toward your housing cost every month. Most lenders still offer short term ARM products to help you achieve home ownership or refinance for a year or three. These loans will help you improve your FICO score and you won't miss out on that wonderful new home at today's low prices!

For more detail information about credit, visit NetCredit

Wishing you every credit sanity! Loannetter
©2009 susan templeton

Take me back, COUNTRY HOME!

Many portfolio lenders offer niche products in a market where a perceived need is not being met. The Country Home Market is HOT:

RURAL FOCUS: New Country Home Loans allows mixed business and residential use of hobby farms on small to large acreage tracts! To date, the upside down value of land to homes in our area (due to high land values) have made funding a small hobby farm or home on acreage prohibitive. The rural, laid back beauty of our region has drawn many folks here for their 'patch of green' to grow a few apples or lavenders or just elbow room and a few horses. We've been hard pressed to find lenders for properties over 5 acres. At last we have some new options for home owners who intend to use their land for appropriate uses in rural zoned areas. The lenders we are dealing with are offering make sense underwriting. Naturally full doc and solid credit. This is very exciting news!

Country Home Loan program highlights:

• Owner occupied homes, mixed use and bare land for rural homeowners
• Maximum Mortgage $ 5,000,000
• 85 % Loan Terms + 15% down with NO Mortgage Insurance required
• Full documentation of income and assets.
• Existing & future home sites, manufactured homes
• Includes farming, equine properties, hobby farms, business uses of zoning allowed
• Rural properties with potential to fund 'unique' architecture or projects.
• Home may be worth 30% of total property value and mixed uses.
• Debt to Income ratio is 47.5% ---higher than government programs

Portfolio product -- i.e., they are assessed by a real live human being, full documentation of assets and income required. Terms and rates vary by credit risk, eligibility, location, and property type/use. Very competitive with residential rates.

The minimum 15% down is great considering NO Mortgage Insurance is required. Unlike USDA loans--also popular in our area--there is no ceiling on income or limits to business use as long as it's a legal zoned use for the land. It's very much a case by case decision by the investors.

Pass it on!

Which Rate Are Rates Headed in 2009?

Just how does Wall Street action affect US home mortgage rates?

The general freakout of recent months has been over the questionable value of our US Dollar, the race to Gold and the lack of confidence of the biggest consumers on earth: us! China, our biggest trading partner, is peeved and suggesting what the world needs now is an International Monetary Currency, i.e., not ours. Other countries equally concerned about trade balance have suggested moving to the Euro as the international standard, but it's just too new and unproven. To date, the US Treasury's response to tightening of credit has been to just 'print more'. Not surprisingly, this practice of value dilution has come under some scrutiny, prompting this joint Federal Reserve and US Treasury release on their commitment to Financial and Currency Stability (March 23rd, 2009). Their release backs up a commitment to protecting the availability of financial instruments (including mortgages) and access to them. So far so good.

Recent releases point out that January 09 remains the worst month for new-home sales since the government started tracking the statistic in 1963.

Meanwhile, Home Loan Interest Rates, at an all time low during the last several weeks are steadily going back up from .125-.25% across the board. Prior to the recent Wall Street rallies, we were locking best credit 80% Loan to Value transactions under 5%, and we are now closer to 5.25-5.5%. But wait! Now that the Fed Funds Rate is on the floor and Prime Rate is just 3%, just how low can banks go on interest rates and still make money? Will 3% ever come to pass? Unlikely. You see, the banks who were lending (and counting on) returns of 6-7% last year have projected their income accordingly. So when those loans pay off and refinance to a lower rate the banks holding those notes have to adjust their earnings downward. Bigtime. They have to explain to their investors why their money on deposit or invested in their mortgages is not making a bigger return in a riskier market. Investors are not that happy to have their money only returning 5% much less 3%! This creates a rush of investors and their back to the stock market which in turn makes mortgage rates go...UP! It's like a see-saw. Market up, bonds down, mortgage rates back UP. Against the backdrop of huge uncertainty these changes are swift and unpredictable.

One might ask how the global picture affects our domestic US banks rates. Consider this: most of the US mortgage lenders, banks and mortgage insurers have already sold the future of their mortgage loans to overseas investors, institutional and hedge funds managers who are banking on long term returns. So they, the banks, have to deliver the goods! They simply cannot afford to mark down mortgage rates much more or their heads will roll. Even the availability of zero % interest from the Fed's windows is not all that hot when your bank is underwater from losses in other arenas. Even the best, most conservative banks got caught holding builder/development loans that went under.

Given there are a certain number of loans that have or are failing and you see why banks have to raise the odds of at least some of their loans being profitable. And while the figures on just how many so called 'toxic assets' are hidden in the Mortgage Backed Securities is yet to be known the folks who created these gems are not even sure what unwinding them will reveal. (Seems odd to have the folks who created these devilish financial vehicles (credit derivative swaps, etc) unwinding their own handiwork but who else knows where the bad apples are hidden? )

Currently, in our deflationary market, a pervasive uncertainty means nobody is buying much and business closures are only making things worse. How do we stop this merry-go-down? For starters, the Fed, the Treasury, the Securities and Exchange Commission and all the Kings Horses being trotted out to bolster confidence and not a moment too soon! But the jury is out on how long it will take to come up with a viable, actionable recovery plan and how long that plan will take to start working. Meanwhile, help for overextended borrowers who have Fannie Mae and Freddie Mac loans is a good start. Not perfect but a start. Naturally, those banks will benefit first. Fine. Somebody needs to get a leg up and over that horse and get it going. Ideally the fittest of our institutions will recover and live to lend responsibly again. Many of our banks never stopped lending. They are just taking a much closer look at every borrower and property these days.

Check out this MSNBC video about the Mortgage Backed Securities and related Bonds, representing the so called risky loans. The interesting part is how the ratings companies who rated these bonds 'assumed' all was well.

SO---now we have Fannie Mae/Freddie Mac/AIG and the Banking Industry as a whole are taking their lashings behind the woodshed, their public faces belie the real injury to their pride. Like good corporate soldiers they are still lending money, albeit under MUCH tighter guidelines and MUCH more thorough oversight; tight lipped but getting on with it. No wonder our ability to borrow money at favorable rates is, well...something of a privilege these days! So if you are in a position to buy, borrow, refinance or invest...consider yourself very fortunate and do your own due diligence. From where we stand, it's a pretty great time to be investing in real estate.

OH, and what about that 'Rate Forecast"?-- get 'em while they're HOT! (and they are).

Happy Spring! Loannetter

NON Toxic Assets

NEWSFLASH: Not ALL Mortgage Backed Securites Are Bad!

National Public Radio Podcast from the Planet Money Team 03/20/09: http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=false&id=102154567&m=102154705

The anaylsis is laid out on the actual payback of Mortgage Backed Securities over time vs. the value today (i.e., if you sold your holdings). If you sold them today, sure you'd get back 50 cents on the dollar of your investment. You see, the world has gotten the view lately that risk is bad. Lots of folks are buying these things and would continue to buy them today. According to Planet Money: because they are handled by the big money managers who consider them worth every dime of their original investment -- they are not selling them! Sure, the banks that have the ones that are not perfoming seem to be taking their losses and the rest of their businesses are doing well. Holding on and working with your exposure and supporting the areas ofyour business producing a return seems to be the advice of the day. LOTS of opinions on that depending you your own attraction or aversion toward risk.

This newscast points out that not everyone is suffering and many banks and investors continue to make money in this market. Good News!

© copyright 2009 susan templeton loannetter

Housing Rescue Plan Lifts Some Boats!

WHICH BOATS WILL LIFT? Contrary to some opinions, the real need for homeowner assistance boils down to helping folks who may have lost their jobs, experienced a business closure, had a spouse die, divorced, experienced serious medical issues, suffered a bankruptcy (most often due to business or personal trauma), have seen their home values tank and cannot sell their homes (without a huge loss) or have otherwise become unable to help themselves climb out of their particular pit since they originally took out their mortgage.

Many, many of these good people have perfect credit history and have never missed a payment in their lives. They have scrimped and saved and made their payments by depleting their other assets. They are not, NOT I can tell you looking for a free ride. Life has tossed them the proverbial curve ball.

Banks themselves don't have clear-cut rules (yet) on who even qualifies for help. The negotiation process is frustrating and time consuming for homeowners who are attempting to seek remediation with their lenders themselves. Unfortunately, there are plenty of sharks in the Loan Modification waters if late night TV and the increase in my SPAM level is any indication.

Fortunately, our State Attorney General has been hard at work on guidelines and budget tools to assess homeowners in trouble. The SAG is proactively participating in loan modifications due, in part, to their own outrage and successful lawsuit against banks including Countrywide and Washington Mutual for their rampant misuse of the lending laws to help more people find their way into homes they patently could not afford.

THREE GOALS Unveiled for $75 Billion Housing Rescue:

1. Simple Refinancing of Distressed Homeowners--Due to declines in values you may be 'upside down' if your loan is higher than your home value which means you cannot refinance traditionally. This part of the Stimulus Act aims to lower the foreclosure rate and save 4-5 million homeowners by lowering their payments to what they can actually afford. Income and debt will be strictly analyzed to meet traditional banking guidelines based on actual income and actual indebtedness.

This does not mean that people who got into debt irresponsibly will be saved from their bad habits. Each case will be reviewed on it's own merits by the lender that holds the mortgage.
This also does not mean that folks who can afford to refinance will get a dime. Hopefully we will all see that 'helping the least of us' succeed will help our communities to thrive and recover more quickly.

2. Helping Homeowners Renegotiate Exotic Mortgages: While many folks with Sub Prime mortgages have already refinanced or sadly, gone under, this part of the plan will fund a modification program (yet to be detailed) to help Lenders and home-buyers agree to find a new payment somewhere in the middle of what their rate adjustment would be and what the buyer is paying prior to said rate adjustment. Exotic Mortgage may be defined as a Pay Option or Option ARM, a hybrid rate buy-down that balloons into the stratosphere or a combination of these. The idea of principal reduction is being bandied about here--but payment lowering is the goal here. Expect 40 and 50+ year terms to lower your payment.

WHOA! Do you realize that the longer you pay a mortgage the more you pay in interest over that longer time frame? Do you think for one moment the banks who are getting all this funding to hire more people to negotiate new terms with borrowers are going to GIVE money away? Not a chance. Banks are in business to make money and as Warren Buffet advises "you make money by not losing money". Not losing is what this is all about. It's a loss mediation exercise. Give a little to get a lot.

3. Passage of New Bankruptcy Legislation. This part of the plan (yet to be detailed in full) would allow Federal Bankruptcy judges to write down the value of the mortgage principal (during a bankruptcy proceeding) to the actual value of the home (again those who have lost value in states like California, Florida and Arizona) so the homeowner does not also suffer Foreclosure. This particular part of the plan will be strenuously opposed by the huge banking lobby. Watch carefully on when and if this part materializes, folks.

I predict new twists of this snake. I would love to think our government is able to sufficiently motivate the private banks to make this work for citizens. I have heard from credit counseling agencies that 'some banks' may negotiate a lower principal or rate in order to get a larger stake of your home equity. Oh, and some of the people these banks are hiring as negotiators are paid on comission...which suggests they will have an incentive to help themselves by keeping your loan rate higher.

By the way, Fannie Mae, Freddie Mac and any other lender can choose to modify or refinance borrowers any time they like. HIGHLY unlikely they will call you and offer to lower your payment or interest rate!? Considering many folks have 6.5% loans or higher, today's 5%-5.25% range is quite an improvement toward lowering payments. If you recall, Fannie and Freddie are getting approxmiately $200 Billion to backstop their losses. Let's not lose too much sleep over their level of pain here.

DON'T MISS THE TIDE: Pending the dust settling your local mortgage planner has the best access to best terms now. Tighter guidelines have been announced for March 09, so don't wait for those new rules to land. Fannie, Freddie, VA, FHA and USRDA are all raising their credit score requirements and lowering loan limits yet again. Just who will qualify for a mortgage in March remains to be seen.

HAVE YOU GOTTEN THE WAKE-UP CALL? Creditors have calling all their cardholders to inform them that their credit cards are being closed or limits are being lowered. This has broad reaching implications on your 'available credit' and thus your FICO score. I am hopeful that as part of the Housing Rescue, the powers will wake up revist the arcane and increasingly irrelevant FICO Scoring system to help get more folks into home-ownership. Yes we can!

Happy Recovery! Loannetter

Click this credit link to order your lender report on our secure site

© copyright 2009 susan templeton loannetter

Mortgages Are Still Kicking!

Don't listen to what passes for news these days:
Our 70+ Banks ARE STILL LENDING!

Who will qualify for a mortgage these days?

• People who have a demonstrated history of living responsibly


• People who can document their income and assets


• People who are borrowing within their means


• People with sufficient assets to close (5% down plus costs still works)

That's a pretty short list and most people if they are serious about a mortgage would agree these are very basic requirements. The credit requirements are a little stiffer these days as banks pullback from over lax credit standards. If you can say yes to the list above, you will most likely be paying your bills on time and have strong credit score. If you have any questions on that point, then speak with your banker or broker at least 3 months before you intend to start a loan application just in case you have something to address. Bear in mind that the high incidence of credit fraud and identity theft means over 70% of credit reports have errors or inaccurate information and unfortunately that takes time to correct.

What kind of Mortgage Can you Get?
Purchases and refinances are available in various terms for Fixed, ARM, Balloons, you name it.

• 3.5% down payment for a FHA purchase


• No down payment is required for VA purchase


• USRDA Loans will fund 102% of the appraised value purchase (income/location limits apply)


• Freddie and Fannie are still funding 95% purchases


• 95% Jumbos (over $417,000) purchases


• Light or No Documentation Loans are offered for very high credit borrowers


• Reverse Mortgages for age 62 and older-no income required


• Custom Construction Loans with strong credit and assets


• Equity Lines for 1st and 2nd positions


• Small Commercial Mortgages and Lines for Business owners and investors

What's NOT Available?
About the only loans we can't really fund are the famous Pay Option Adjustable Rate Mortgages. Washington Mutual Bank and a few other large banks like Wachovia pioneered these loans which featured a negative amortization factor. Unfortunately when property values failed to keep up that's when those loans stated being called in due to property values falling below mortgage balances.

Many people still have their Pay Option ARM's and are very happy with the ability to pick a minimum or interest only balance and keep their cash liquid. They made sense for folks who appreciated the flexibility as long as they keep an eye on their equity. Equity Loans and Lines are pretty scarce for the same reason: banks are and concerned about property values continuing to drop in certain high risk areas where employment may be under pressure.

Are Banks Stalling or Holding Back?
Not at all!! Solid borrowers are purchasing and refinancing under normal turnaround times. In fact if anything the process has gotten easier and smoother. Of course, a good broker knows where to go for the right loan, and who the more helpful underwriters are!

Are Investors Finding Funds?
YES. Lower values mean a great buy to those who have been patient and are ready to move. Banks recognize a good value as well--so if you are buying a property to hold (flipping is old hat) you may have to act quickly to secure the sale. For best terms plan on 25-30% down and your loan will sail right thorough. We can buy down a prepayment penalty for about .5% if you really want to buy and sell or refinance. Cash out refinancing is a little harder so do your due diligence on the numbers and you'll be fine!

Happy Halloween! Loannetter

Click this credit link to order your
lender report on our secure site

© copyright 2008 susan templeton loannetter

Staying Alive--and SANE!

I fondly recall the image of John Travolta combing his hair while walking down the street to the Bee Gees 'Staying Alive' in Saturday Night Fever. That movie was really about a street smart guy using everything at his disposal including very fancy footwork to win against the odds. To identify with such a caricature is what it feels like to be a mortgage broker today. We are the creative, the resourceful, the get it done folks you know will find a way if anybody can.

However you may be affected by the horrible news going down in the financial world--I would like to stand in support of some very committed mortgage professionals I call my colleagues. While it is sad for us to watch our lenders (some very decent folks) one by one close their collective doors...it is obvious from where we sit that the biggest of our esteemed banks have been doing (to quote today's newscaster) "really stupid things!"

It is very hard to imagine what was going through the minds of certain Bank CEO's and their cronies at the top to allow such devaluation of their own financial systems. Was it a heady combination of greed, ego, denial and arrogance that they would not be caught? How many millions does a CEO need to be happy as they waltz out the door with their golden parachute? Whatever our regulators were doing to allow this to happen we will never know. It is apparent that the main elements of our delicate financial 'mobile' (to simplify: bonds, stocks, and mortgages) are wildly swaying against a backdrop of paranoia and fear (inflation). Today's 4% inflation rate is double the standard comfort level of the Fed so something's gotta give and soon. The volatility and unpredictably of the market seems to have thrust everyone into over-correct mode...like closing the barn doors after the horses are gone.

Mortgage brokers welcome better professional standards. Unfortunately, the congressional effort to date has been aimed at mortgage brokers not all loan officers. An era of deregulation which began in 2000 allowed lenders to package and resell paper and resell paper until the ink began to fall off, literaly! The sad truth is that investors got roped into mortgage backed securities that were anything but secure.

In case you wondered what all the new laws guidelines accomplish-- our lives and the extent to which we must verify every detail of your loan application has become much more complex. Expect to be bombarded with paper! I understand in any crisis there is often a corrective swing of the pendulum in reaction against the previous situation. The pendulum will return, sanity will prevail, and perhaps we can save a few trees on your next application. Right now, we are all getting better biceps just lifting your file out of the cabinet.

The purveyors of all this paperwork: Fannie Mae and Freddie Mac, now in conservatorship, were the purchaser of the lion's share of mortgages. They dictated how loans were underwritten and then sold. Their own barn doors are gaping as they race to tighten their own guidelines. Banks also protect their risk by requiring Mortgage Insurance. AIG, one of the insurance firms that made quite a killing in this previously low risk area, is now being tossed $85 million by the Federal Reserve Bank to the prevent "disorderly failure". The question we must ask is just who failed whom?

Fannie/Freddie and the new Housing Bill have created a raft of guidelines to protect consumers. Beware the First Time Homebuyer tax deduction: you have to pay it back over 15 years! Just why raising the FHA down payment minimum from 3% to 3.5% is an advantage is a mystery to me. Oh and FHA, Fannie and Freddie is also introducing new risk based pricing (translated, higher rates) that will benefit the banks, not consumers.

The trend of in recent years has been an uptick toward non bank mortgages. Brokers, at last count, close 60% of the mortgages in the United States. Naturally, banks have a lot more lobbying power than brokers. Come January '09, your bank will control the appraisal process to determine what your home is worth. Previously it was our role in assessing your borrowing capacity, to provide an impartial third party report from a licensed local appraiser who knows the area and its market conditions. It is my humble opinion that your home will be deemed to be worth whatever your bank is willing to loan you. It is likely that the person appraising your home may be sitting at a computer screen on the other side of the country!

Some prominent leaders (including ex-Fed Chairman, Greenspan) feel that Fannie Mae and Freddie Mac have become so large and corrupt they should be dismantled. New management are charged with a clean sweep. And who will be paying for the broom? Tax payers will fund these changes with higher taxes, fees and interest rates on everything from our mortgages to our credit cards to our insurance fees deductibles. It is unknown how or how long it will take 'us' to rebuild our national coffers -- now in multi trillion dollar debt. By all accounts our total federal debt is also grossly underestimated due to the subterfuge on Wall Street.

While many local brokers have exited during these turbulent times, please look kindly on those of us working hard to earn your trust and close your loan on time! Hopefully, our local economies will recover stronger than before and learn something from this. Please support your local mortgage professional who, like you, contributes to the well-being of your community.

It's my job and my privilege to provide sane financing. And that I can do!

Thanks for listening. Loannetter

2008 Mortgage Trends

Bye Bye 2007!
It was the year that was in the real estate and financial markets, thanks to the highly-publicized subprime collapse and resulting scramble to lay blame. In Washington state, our real property values are still performing very well against the national average. According to the OFHEO Washington state property values gained 7% in 2007. Wenatchee leads the nation at 15.7% increase with baby boomers retiring who seem to be gobbling up everything in sight. Local values inWhatcom are reported to be 5-7% and steady. We are NOT seeing hme prices drop...what we are seeing is more realistic pricing.

Post Thanksgiving low interest rates created quite a scramble...and yes, we can still break 6% on a Conventional fixed rate loan if you are quick AND you can qualify for the higher Fannie Mae/Freddie Mac guidelines: Translated: Better Credit, Better Documentation, Lower Loan to Values. Our Jumbo Loans (over $417,000) are under 6.5% at this writing!

As 2008 landed we are seeing continued volatility --not all downward direction.

Mortgage Forgiveness Act Signed into Law
On December 22, 1007, President Bush signed H.R. 3648, the Mortgage Forgiveness Act of 2007 into law, sparing homeowners the tax burden associated with canceled mortgage debt.

In other words, if you experienced a foreclosure, short sale or other forgiven mortgage debt--prior to this Act being signed---it was considered (incredibly) taxable income. The new bill temporarily waves these taxes for debts forgiven from the beginning of 2007 until the end of 2009. This bill also extends the Tax Deduction for Mortgage Insurance Premiums until 2014 (previously allowed until 2010). Speak with your accountant about your specific situation.

This creates a three-year window for homeowners to refinance their mortgage and pay no taxes on debt forgiveness. This piece of legislation will increase the incentive for borrowers and lenders to work together to refinance loans and hopefully spur action toward FHA Loan modernization. This is also setting precedent to allow the government to issue tax-exempt bonds for refinancing existing home loans.

Trends and Bends
Freddie Mac and Fannie Mae (quasi government agencies who buy the lion's share of mortgages) are in protection mode pending these laws taking effect. The tighter lending guidelines we were handed on December 27 indicate most borrowers will be affected by loan limits and higher credit requirements. However, for those responsible borrowers with excellent credit, the world's your oyster with today's low rates!

Want my opinion (?). I see unfolding here what my friends in England are telling me. Mortgage fees have gone up about ten (yes 10) times in Europe this year due to the tighter monetary policy in a volatile market. When money is tight, Banks get to make the rules: so, interest rates go up to cover the cost of "no fee loans" (which sound great) and everyone is happy --- except the consumer doesn't quite understand why they have less money at the end of each month. Consumer enthusiasm wanes when they catch on...so banks then lower their interest rates and UP go the fees again. It's dizzying!

You see, paying higher interest rates in exchange for a "no fee loan" erodes your power to save rather quickly. Your funds you bring to the table for a down payment, on the other hand, don't grow. They are growing for the bank now--out of your control. It is your property equity that grows over time...regardless of how much you originally paid into the transaction. I would be happy to show you a simple chart that illustrates you are better off paying your closing costs up front and keeping your funds in your own hands...to invest and grow for your own benefit....not your bank's!

Meanwhile: Practice Credit Wellness!
Even if with 'good credit' a 640 FICO score just doesn't cut it anymore.

1. Order your FREE Credit Report: www.annualcreditreport.com (Order one Bureau first --Equifax is often the lowest score, then wait 30 days and order TransUnion, then Experian the last month.) Note on your credit report which creditors are reporting to which bureaus. Instructions are included on your report.

2. Report Errors to Creditors: Over a 3 month period, if anything is still listing incorrectly, you can file a consumer dispute...which is best for you to do yourself for maximum effect. File disputes well ahead of your purchase or refinance!

3. Follow Up Disputes: Each agency will report back their progress if your dispute holds water. Legally, they must give the creditor 30 days to respond. If they don't--the item is removed.

Work on your credit wellness at least 60-90 days before you plan to buy or refinance. For more info: www.netcredit.blogspot.com

Click OPT OUT TODAY!
In case you hadn't heard...the BEST way to protect your credit takes 30 seconds: Opt Out of all those pre-approved credit card offers while saving trees, your shredder, your voicemail and email inbox!

A heartfelt Thank You to all my friends, colleagues and supporters. I deeply appreciate your support and encouragement this year.

A happy and prosperous 2008 to everyone!! Loannetter

© copyright 2008 susan templeton loannetter

Are Interest Rates Going Down?

A Perspecitve on Interest Rate Trends Since the Fed Funds Rate Cut

Many consumers were holding their collective breaths hoping for an interest rate cut this week. In fact, Home Loan Interest Rates went up .125% last week with the corresponding weakness of Bonds as our market volatility ride continues. What many people don't fully appreciate is that a cut to the Fed Funds Rate first impacts the Prime Rate, which affects Home Equity Lines of credit and consumer credit cards, business loans, car loans etc. The Fed Funds Rate does not have a direct correlation to home loan rates (unfortunately).

Since the Fed cut the Fed Funds Rate by .5% today so you will likely see a change to your (adjustable) Home Equity Line of Credit by .5%, if it is tied to the Prime Rate as most lines are. Do NOT expect regular home mortgage rates to drop correspondingly, as the Fed's take on inflation has a bigger role to play here. Short term consumer loans could go down...but don't hold your breath for lower rates just yet...things are on the move and the US dollar value is a big concern. Unfortunately, in our inflationary market, a dollar devaluation will affect importers who will have to pay more for goods coming into the country...so the cost of I-pods could go up! E-gads!!

The Fed Funds Rate assists the larger banking institutions but this does not have much of a trickle down effect to consumers. Today's Rate drop indicates that some lenders are gaining a competitive edge from their positions, which may or may not last. We saw some lenders drop their rates by .25% --a cause for celebration--but not an unusual daily move. In fact from lender to lender this is not an unsual price differential on a given day.

Longer term, the only past indicator of any real use right now is that we have an election year looming. If the party in power wishes to keep consumer's happy they won't let consumer or home loan rate leaps hurt their chances of re-election. Granted, all the king's horses may not be able to forestall a reality check.

September 20 Update: Today, news of our dollar diving has driven some lender's rates back up negating recent gains. Now more than ever you should be working with a trusted professional who will get you ready and pounce on a good rate and product to meet your needs!

Oh for a crystal ball! (You can quote me on that!) Loannetter

Opportunities for Wise Investors:

Winds of Change Bring Fresh Air!

Old ideas are our biggest liability!
The 40-year record low interest rate was fun while it lasted. Let's celebrate the fact of healthy growth in our region with property values holding ...and seize the moment!

New ideas are our biggest asset!
It's time to stop being reactive and get creative. People will continue to move, refinance and need sane financing. It really pays to keep up on all the lending changes coming thick and fast now. For example, some lenders accept 1099 income verification for self employed borrowers...you have to know which lenders will honor this form of documentation (and I do!)

Credit appetite cycles:
Our economy is experiencing a cyclic shift. Considering the subprime market is less than 17% of the entire mortgage industry and those at risk are a fraction of that fraction, one might say what passes for news is overblown.

Bear in mind: the main reason a homeowner might default on their home loan is still unexpected loss of income or personal crisis, or a combination of the two -not their loan adjusting.

Consumer trends:
Yes, we've conditioned consumers to think they can get into a home for nothing down regardless of credit. We've made if far too easy to hock equity. Lending guidelines are in a conservative swing to protect the investors AND the homeowner. Who wants to set up a homeowner for the trauma of foreclosure?

We can transcend the confusion by responding to what homeowners need to succeed. Some borrowers may need credit repair for their long term well-being. Your Mortgage Planner can help you get in better shape to to refinance or purchase withing 6 months to a year depending on the work needed. Hint: start early!

lnvestor opportunity:
Given the reported 101% increase of foreclosures in Whatcom County, I suspect that many are cast-offs of "nothing down/get rich quick" schemers who thought picking up a few properties would be a fun and profitable exercise. Investment is a job, not a hobby. The current market means no more 'harvesting your equity' but running a very tight ship and keeping your properties performing.

Good news in Pacific NW: Given the reported downturns elsewhere, Washington State is tied with Montana for the 3rd highest property value rise at 9.1% increase in 2006-7.

These combined market forces present an opportunity for serious investors in residential or commercial real estate. Your Mortgage Planner is here to help you succeed. Let's put our heads together for your long term plan soon!

Happy investing! Loannetter

Loan Lowdown: 2007

NEWS FLASH: August 2007
While many loan products now have 'tighter guidelines'= higher credit scores and require fuller documentation to qualify, we have many banks still funding 100% mortgages and other hybrid loans. Consult your mortgage professional.

In any market, the kinds of mortgage products currently on offer to residential consumers may change. While there are literally hundreds of lenders with any number of variations on these themes, these descriptions are a general guide.
Most homeowners refinance (or move) every 5-7 years these days. Ask yourself: "What is more important to you, your interest rate or monthly payment?" If you intend to keep your home over 10 years, you will still find that cyclical interest rate changes may make refinancing very attractive. Of course, with our currently low rates, you might want to consider locking a long term loan before rates start their spring dance upward!

30 Year Fixed (conventional)
Conventional loans are the loan of choice in a changeing market with today's low rates. They are ideal if you plan to stay in your property for 10 years or more. Interest Rate and Payment do not change for the entire term of 30 years. It self-amortizes to a zero balance in 30 years. (Some feature a short term Interest-Only option that allows you to re-amortize the principle after the initial period, based on any principle or lump sum payments.)

15 Year or 20 Year Fixed (conventional)
Similar to a 30 year Fixed, only the payment amortization period is 15-20 or 25 years. Monthly payments will be higher than a 30 year loan due to the shorter amortization period. These loans are popular for refinancing if you have a low current mortgage and an increase in monthly payment is not a problem. Rates are generally 3/8 - 5/8 percent lower than 30 year loan due to the shorter guarantee period

40 Year or 50 Year Fixed --all the rage! As a way to reduce monthly payments, some savvy Non Prime lenders came up with these longer term fixed products and now many lenders offer them. A closer look shows the price you pay for this priviledge so be sure to compare before you leap for longer terms.

Adjustable "Step" Loans:
7/23 Two step (also 5/25 and 3/27 and 2/28) These are 30 year loans with an initial interest rate and payment that is fixed for the first 2-7 years. These may be good choices if you know that you need this mortgage for only 4-7 years. At the end of the fixed term you have 3 options: 1.To reset the interest rate and payment for the remaining 23 years. The interest rate will be calculated using a formula that for a new rate approximately 3/8 - 3/4 percent higher than current conventional rates. They will be fixed for the remaining 23-28 years of the loan. 2. To refinance the loan to another program. 3. To pay the loan off in full or refinance with another lender.

1 year ARM
This the most popular Adjustable-Rate-Mortgage (ARM). Interest rate and payment is fixed for the first 12 months. They change once every 12 months during the entire term of the loan (usually 20 year amortization terms). There are limiting "Caps" to how high the rate can go that prevent catastrophic rate changes. These "Caps" are approximately 1-2% every year and 5-6% over the initial rate for the life of the loan. Initial rates are approximately 1.5-3% lower than 30 year fixed rates. These loans are popular with people that need funds to ‘get in the door’ quickly. Naturally you will want to verify there is no prepayment penalty to hinder a quick exit!

3/1 ARM (also 1/1, 5/1, 7/1 and 10/1)
These Adjustable Rate Mortgages are 30 year loans with interest rate and payment fixed for initial period of 3 years. At this time, the interest rate and payment changes once every 12 months for the remainder of the loan. These generally offer rates approximately 3/8% - 5/8% lower than 30 year fixed loans. They are popular with people that will keep their loan shorter terms

For a loan of $210,000 or under, the interest rate on a 10/1 ARM for example could be higher than the 30 year fixed loan (at today's low rates) so be sure to ask your mortgage lender to provide a comparative quote. If you are financing over $210,000, and keeping the property for less than 10 years, then an ARM may be ideal for your needs.

If you take out a 1/1 LIBOR ARM for example the rate will be very competitive initially...but the LIBOR index is highly volatile so don't count on keeping it very long. So check the index!

Pay Option or Cash-Flow ARM
This mortgage is based a Rate plus Index, determined by the MTA, LIBOR, COFI (or other) Index. The entry rates are quite low (1.25%) during the first year, plus a chosen index, and follow the chosen Index every month. Qualifying APR is usually lower than a conventional loan.

Each month you have the OPTION of several payments to manage your cash flow every month. Usually you have a fixed Minimum payment (which rises once a year), an Interest Only payment and 2 fully amortized payments based on 30 year and 15 year terms. They are ‘re-cast’ every five to ten years based on the remaining principle. The principle remaining depends on which option you pay.

Option ARMS are often the mortgage of choice for Investors and Self Employed Entrepreneurs who prefer to use their money on investments or maintaining liquidity. OPTION loans have been removed from some lender offerings in August 2007. Check with your mortgage professional.

LOW DOWN Loans
These amazing new products allow closing costs to be included in the mortgage for up to 103% Loan to Value. Specific banks vary on their offerings, so speak to your broker. Mortgage Insurance is often required. They are similar to FHA and Access loans with less paperwork. See our separate blog on LOW Down Loans

FHA Loans
FHA loans are guaranteed by the Federal Home Administration through a nominated lender. The maximum loan amounts are determined by the lowest average house price in your area. Generally, the program availability is limited to 30 and 15 year fixed rates and limited ARM products. “Gift funds’ are allowed as down payments and they allow sellers to contribute up to 6% toward buyer's costs.

These loans are ideal for clients who have not owned a home within the last two years. FHA also has more flexible guidelines regarding credit history and types of properties including newer Manufactured Homes. Just be prepared for the extra paperwork!

VA Loans
These loans are guaranteed by the Veteran's Administration--and are only available to qualified US Veterans. The program is limited to 30 and 15 year fixed & ARM products. The advantage of VA over FHA is that their limits on loan amount are higher--related directly to the borrower’s debt ratio and creditworthiness and remaining VA entitlement. These products are not always very competitively priced, but may suit a borrower with property or credit issues.

ALT-A Loans and B/C Loans (or Non Prime)
ALT-A Loans that are offered to qualified applicants that may have impaired credit or short term employment issues. The terms allow higher Debt to Income Ratios up to 55%. B/C Loans are offered to qualified applicants that may have recently filed for Bankruptcy, or have derogatory issues on their credit. Their sole purpose is to offer financing to these applicants until they can qualify for Conventional "A" financing. The interest rates and programs vary, based upon many factors of the borrowers financial situation and credit history.

August 2007: many banks are now limiting 90-95% financing for Non Prime Loans.

Home Equity Loans
These loans are 10, 15 or 20 year fixed or ARM Mortgages. You can use these as second mortgage/down payment on a purchase, or take cash out of your property based on the total equity of your home. They are often used to consolidate debt or make home improvements.

Home Equity Lines
Often referred to as a HELOC or Home Equity Line of Credit, these loans are 10, 15 or 20 year ARM Mortgages. You can use a HELOC as a second mortgage, to take cash out of your property or as a down payment on a purchase. The terms allow the interest only payments during the loan term, and may be based on a longer 20 or 30 year amortization period. Many banks issue a check book or card on these accounts. Principle amounts due at the end of the term (if you only paid interest) are either paid off or refinanced at the end of the term. HE Lines are usually based on Prime Rate (currently 8.25%) plus a margin based on credit history and loan size. They are an excellent source of $20,000 or more (up to 90% LTV combined in your 1st mortgage plus the HE Line). They can be used for personal purposes, including debt consolidation, education, etc.

Custom Construction Loans
These loans are designed to allow a home owner to custom build their own home, and may cover the cost of acquisition of land as well as pay the builders and associated contracting and design fees necessary to complete the home. Visit BuildNet for more specific information about how construction loans work. After the term of construction (from 2 months to maximum of 2 years) the loan is converted into a Permanent Mortgage. Rates are higher during the building period due to increased risk. Builder, Borrower and Project are approved separately. We recommend you work with a seasoned construction lender. Be prepared to build your business case!

1. Custom Perm Loans
Custom Perm or One-Step Construction loans are designed to allow a home owner to acquire land, custom build their own home, hire an architect and or contractor or builder to manage the project, and automatically or ‘roll over’ the balance after construction is complete into a Permanent loan with only one closing and the associated costs. Custom Perm loans ofer the option of having your interest payments factored into the loan (so you don't make payments during the construction term) with a guaranteed rate at roll over. The advantage to builders over Spec building is that the homeowner carries the financial risk and the builder is paid by the bank every month (after an inspection). The advantage to the homeowner is a sense of ownership of the project and saving additional closing costs.

2. Renovation Loans These loans are designed to allow a prospective Home Owner or Investor to acquire a home in need of repair with extra funds for the purpose of upgrading the home. An appraisal determines the 'as is' and 'projected' value of the home, based on your renovation plans. The lender holds the funds necessary for the renovation for up to 6 months during which time payments are made as repairs are completed and approved by the appraiser.

3. Land and Lot Loans
Lot loans are designed to allow a prospective home owner to acquire land for the purpose of building a home. The terms are usually for 1 to 5 years (or longer), after which time the loan is wrapped into a Construction Loan or paid off. Lenders generally require 25-30% down payment due to the higher risk of an unimproved property. Fewer lenders offer lot loans so interest rates are often higher. Once you've owned your lot for a year, the appraised value can be used to value your contribution to your construction project.

4. Bridge Loans
Many lenders offer excellent short term loans for homeowners as a draw against their current home equity while building or relocating, within the same state or lender region. This avoids needing to make a second mortgage payment while you are in transition, but naturally the new loan would be higher than your current mortgage.

Wishing you every mortgage sanity! Loannetter

For credit management pointers visit NetCredit
©2007 susan templeton

2007 Spring Mortgage Trends

Mixed Signals: Tightened Mortgage Guidelines
Due to the significant losses you are reading about among national lenders, investors in the secondary market have ceased purchasing 100% loan to value loans from non-prime lenders. As a result of tightening Fannie Mae and Freddie Mac guidelines, many banks have pulled out of 100% financing and 80/20% combinations during recent weeks. This is causing something of a panic among both conventional and non conventional borrowers. ‘Tighter guidelines’ translated = higher FICO score and other limits being set to discourage overborrowing. Additionally, over $1 Trillion in Adjustable Rate Mortgages are set to adjust (upward) in 2007 -- you get the picture.

Fortunately, unlike most of the national markets from whence this news comes (the Northeast, Florida and California), we in the Pacific Northwest are not experiencing devaluations of real estate properties. In fact, our advisors are predicting steady, modest growth in valuations, despite a higher supply of homes. While bank underwriters are taking a closer look at valuations across the board, they appreciate our region is still a very strong market.

Wholesale brokers like ourselves at www.loannetter.com have a number of lenders still offering up to 100% 1st Mortgages to assist qualified homeowners. Working with our Equity Lenders, we can simultaneously fund 2 loans for a combined loan to value of 100% using two sources. As of December 20, 2006, Mortgage Insurance is now tax deductible making the the 100% 1st mortgage a very good option while keeping the banks happy. The good news is that interest rates are actually down right now so it’s a great time to be investing.

Under such circumstances, perhaps you appreciate that it’s more important than ever to have a personal consultant working for you. I hope you will continue to invest in the area and refer me to your friends and family for my trademark service.

As a financial advisor recently reminded me, many of us have just begun our long financial journey, and to hit a snowstorm in Stephens Pass is both predictable and navigable

Happy investing! Loannetter

Mortgage Best Practices

Every Spring the rates and property values do a little dance to get us to notice! The cool headed investor or buyer keeps the hype in perspective.

Get a second opinion! If somebody tells you rates are rising to get you to sign on the dotted line--chances are they are pressurng you to seal the deal. Rates have consistently risen and fallen (as they do) from 1/8th to half a percentage point during all the 'talk' of rises. Funny how they don't report drops! You can still get decent Fixed Rates that beat the Adjustibles and Adjustibles that may better suit your needs.

Avoid predatory lending practices by investing time to find out if the loan you are applying for is the loan you get! For more on that subject visit the Washington State Department of Finance and Industry site: http://dfi.wa.gov/consumers/predlendwp.htm

Check out your Lender: Even banks hire newbies and give them Vice President Titles--so ask a few leading questions and note how that person responds to your needs. If they are selling rates before they hear about you and your goals....exit stage left! You need to feel the person working with you has more than one answer and isn't tying to fit you in their 'box'. A typical bank has one rate sheet with products for which you may qualify. A mortgage broker will have numberous banks to choose from and they ALL have their good and bad points so matching you and your needs is a delicate juggling act. Be prepared to work harder if you have any credit issues or you property is a little borderline on type or value for the area.

Qualifying--vs. what you can actually afford: Standard lender ratios don't always relate to individuals. Work with your accountant or good old Home Budget sheet and calculator to draft a home and expenses budget before you decide what kind of commitment you can afford. If your banker tells you that you will 'qualify' for a certain size loan that means that your DTI (debt to income ratio) is under 40-45%. Even FHA is allowing 43% now. Non prime loans allow up to 55% DTI. The actual livabilty of this number depends entirely on you, your family, your stage of life and how you handle debt. Not everyone feels OK about 45% of their income going out the door every month while some high earners may be just fine with spending more of their income for a home. Take an active role in determining your commitment before making an offer to buy or refinance.

Consider your long term goals when buying property: These days even the government guaranteed programs are offering some pretty whiz-bang options that help you get into a home or ease the burden of increasing property values. In many cases a few years of 'interest only' while not paying down your pinciple can buy you TIME. In the few years you are holding the loan balance at the original sale price--your property is often increasing in value much more quickly. If you waited to buy or refinance in 2 or 3 years the rates could easily exceed what you can afford.

Be very upfront about your situation: While the whole process of borrowing money can be a uncomfortable, it's very important you let your lender know what is really going on so they can take everything into account and save time and heartaches. If you wait to tell them you are leaving your job to start your own company--even if you have income to cover the shift to self employment--you could be very disappointed when the underwriter calls to verify your employment and your loan is turned down the day after you sign. Loans for stated income or 'no ratios' may cost a little more but do the job without the disappointment.

Be a good borrower! Get your documents in as requested and be in communication with your realtor or seller to keep things moving. A dead loan is the one waiting for information that keeps finding it's way to the bottom of the pile. Time is money in this business.

Fish or cut bait! If you like to shop around with lenders and fiddle with online offers your credit score will take a beating. Limit your loan shopping to a 2 week 'de-duping period' and don't make it harder for your lender to offer you the product you truly deserve! If you picked a professional to work with you then you should feel comfortable to let them do their job. If your mortgage lender or banker doesn't get back to you quickly with good ideas you can terminate your agreement (so they don't keep loan shopping on your behalf) and ask around for someone who will help you achieve your personal vision. It's really not a good idea to have more than one lender workng for you because that causes multiple inquiries on your credit at the time you need your score the highest.

Wishing you every loan sanity! Loannetter

(c) Susan Templeton 2006

Tax Advantages of Your Mortgage

Save Money with Your Home Mortgage
For most people, deducting your home mortgage interest payments from your taxable income is your first reward of home ownership! Of course this depends entirely on your income and other financial issues, so before you leap into any financial program, speak to your personal accountant.

There are several ways to save money with your mortgage:

EASY Tax Savings:
Pay AHEAD on your mortgage at year’s end by one payment (or more). Most mortgages allow you to pay an additional 20% each year without penalty. By making an extra payment this year, you may be able to deduct the interest from your tax bill. Your accountant can advise if you will qualify for this additional deduction. Your bank must receive your payment by December 31 of the year you are making the extra payment.

Your bank will provide your Federal Form 1098 before January 31 of the year you are filing your taxes (for the previous year). And all of the interest you paid in the previous year will be reported to the Internal Revenue Service.

Refinancing Your Cards We have become somewhat blase about refinancing our mortgages. This practice is not only useful for achieving cash out but by rolling your credit card debts into your mortgage--you now have the benefit of being able to deduct what you would have paid in credit card interest. Credit card interest rates are generally higher than mortgage rates...so you save on both counts!

ELIMINATE Mortgage Insurance!
If you have a loan amount over 80% Loan to Value, You may notice that annoying Mortgage Insurance fee on your monthly statement. Consider if one of these options applies to you:

If you finance your home with little or no down payment (many first time homeowners do) then your 1st mortgage amout will be above 80% Loan to Value (LTV). Conventional loans require Mortgage Insurance to protect the lender from risk of default. To make this go away you must have a solid record of payment with no ‘lates’ for two years and good credit maintained. If during that time, your home has increased in value, you can ask your bank or lender to release you from the Mortgage Insurance requirement. This is accomplished with a review and will focus on the valuation of your home, effectively recognizing your good behavior and your current LTV under 80%.

If, on the other hand, you need to refinance or purchase a home requiring more than 80% financing, ask your lender if they can offer an 80/20 or Combination or Combo Loan. This means your first mortgage is amount is 80% or less, with a 2nd mortgage at 20%. This means you will pay slightly higher for the 2nd mortgage, but it eliminates the need for MI or Mortgage Insurance. A higher interest rate second mortgage is still often a better product than a credit card and the interest is generally tax deductible.

Next, if you prefer to finance over 80% in one loan, you may qualify for a Tax Advantage Mortgage Insurance Loan or TAMI. This kind of loan has a slightly higher interest rate to cover the lender’s risk. Since you are not billed Mortgage Insurance separately (be sure to check the terms before closing) you can usually deduct the full interest. The higher interest rate is designed to more than compensate for your tax deduction. Our comments are offered as general terms so be sure to consult with your tax accountant on what best suits your situation.

UPDATE on MI: December 2006: Our Congress has just voted into tax code the ability for homeowners to deduct your Mortgage Insurance from your taxes. Even more reason to consider going with MI rather than a higher loan amount to cover "lender paid MI". The reason? Mortgage Insurance can be reviewed and eliminated with your lender's cooperation usually within 2-5 years depending on how long it takes for your equity position to reach at least 20%. If you had negotiated a higher interest rate for the lender paid version, you are stuck with it! Of course there is no guarantee this will continue indefinately since tax laws change with the winds. Naturally, you must have a stellar record of paying your mortgage on time to negotiate dropping MI with your lender.

Happy savings! Loannetter

Copyright 2006 Susan Templeton

Prevent Your FICO From Becoming a Fido!

Online Mortgage Shopping Impacts FICO Scores
If you've considered checking out an online mortgage site: think again. What they don't tell you is that their network may comprise multiple agents. Each may pull your credit report (separately) over a course of hours or days while they review your loan options. While all this is going on, your FICO score is taking a nosedive. Each mortgage inquiry can negatively impact your score 3 points. Each time. So if 10 brokers pull your credit in one 90 day period you could be 30 points worse off. And here's the scary part: each of those 10 brokers could actually submit your application to another 10 banks who also check your credit and that little exercise just cost you 30 points per broker...so the potential for damage is exponential. Because banks and lenders have strict FICO score requirements, a lower FICO Score can affect your qualifying for the loan you want. So much for convenience...

What is a FICO Score?
Invited by the Fair Isaac Company, FICO scores are based on a scale of 300-850, there are three FICO scores issued to you--one from each of our three National Credit Bureaus: Experian, Transunion and Equifax. These are our government respositories of information collected from creditors across the country. Not all creditors report to all three bureaus, so your score numbers will vary somewhat. They also collect information reported by collection agencies, government sources and other brokers who submit information about you to verify your identity when you apply for a mortgage. FICO scores are one measure that lenders use to evaluate you, by placing you in risk brackets. These brackets (a range of score numbers) supposedly determine your likelihood of defaulting on loans. Every time you apply for credit, be it a cell phone account or credit card, you can bet your credit is being pulled.

Your Credit Report is not the same thing as your FICO Score. The report is prepared by a Credit Reporting Agency that 'pulls' the information on file from the three National Credit Bureaus. Different lenders may prefer the score from a particular bureau, but most use the 'middle score' of the three scores. FICO scores are based on complicated logarithms which indicate how well you manage your debt. What's a 'Good Score"? The difference depends upon the lender and their own guidelines, but basically 620-720 is a workable range.

The difference in a 620 and a 640 score (the higher the better) could make quite a difference in the final analysis. Your score also determines whether you qualify for a 'no doc', 'stated', or 'full doc' loan. The higher your score, the greater the trust lenders have in the information you provide. The lower your score, the more verification (paperwork) lenders require. Anything over 720 is gold standard. Lenders have restrictions on funding mortgages below certain scores but some capitalize on this niche by charging higher rates.

A FIDO Story
A client of mine requested a 'free' online Credit Report she saw advertised on an internet ad. She clicked on the site, and answered a few very personal questions including giving out her Social Security Number, email address, etc. and was asked for a credit card number to 'verify' her identity. Moments later, her screen flashed blank and she could not retrieve the report. Annoyed, she cancelled the transaction, without receiving a report. She checked her emails: no report. A few weeks later, she noticed a charge on her account for a yearly service fee which she did not recognize. Unfortunately she had used a Debit card so her bank would not refund the payment because she had 'authorized' it by giving them her card number. While many of these so called credit firms are being investigated now, it's best to avoid the heartache.

Unfortunately, this same client had submitted an online mortgage application to a firm promising three competitive bank quotes. Her FICO score fell about 60 points in one month. In her case, the original broker she contacted did not mention they used several agents and after a few weeks, they simply turned her down after wrecking her score. I was sickened when I saw her report afterward. Her list of lender inquiries was as long as your arm. Unfortunately, contesting an inquiry on your credit is not really possible...you can bark all you like!

Regular Check Ups
By now you've probably been drilled about checking your credit yearly and fortunately everyone can get free reports once a year anywhere in the USA. It's wise to sit down and look it over carefully to verify that no unauthorized credit cards or collections have been lodged against you. If you happen to have a common name, it is easy for mistakes to occur. I knew a man who had the same name as an uncle who lived rather irresponsibly. He was actually advised after repeated efforts clearing inaccurate reports against him to change his name! Not all credit reports show your FICO score, so you can order those online from the Fair Isaac consumer site www.myfico.com. It costs about $49 for a Tri-Merge (all 3 scores) or less for a single bureau report. It does not impact your score when you check it yourself. When you apply for a mortgage, your bank or broker will pull a professional Tri Merge Report. You must sign an Authorization form (and a stack of legalese) giving them the right to collect this information and informing you of your rights. Legally, they are required to give you a copy of the report and a form listing any derogatory information used if they turn your application down. A mortgage lender should be able to explain your report and take the time to go over it with you. Your Credit Report is your first step to getting the desired result: the loan you deserve!

Wishing you every credit sanity! Loannetter
2005 susantempleton

Get Mortgage Ready!

First Time Homebuyers may qualify for Government Subsidized Mortgages through FHA (Federal Housing Authority), VA (Veterans Administration), Freddie Mac and Fannie Mae. And that's not all!

Criteria
If you are like most people considering buying your first home, you may have been renting or living at school or with relatives so prooving your 'mortgage readiness' is your first step. And if you haven't owned a home in 5 years, you could still qualify for a FTHB loan because these organizations are mandated to increase personal home ownership.

Free First Time Homebuyer Classes
You may see newspaper notices about these classes, often held at public libraries or the office of a large mortgage lender. They are free and usually take a day or 2 evenings to complete. Keep the certificate you receive as proof because some lenders may give you a discount on your interest rate. The information is very helpful...so do take the course to help prepare yourself for the homebuying experience. Even if you have previously owned a home, things have changed a lot in recent years.

You can also take the course online in a matter of hours! http://www.FreddieMac.com/hrc
Take it in your own time and print out the certificate at the end.

Creditworthiness
You need to be up on credit etiquite about maintaining a good credit rating. To check your own credit withtout causing a 'hit' to your score, visit http://www.myfico.com/. Naturally, a lender will have concerns and charge higher rates if you have 'no credit' or a negative history. It's much easier to keep your credit score healthy that try to fix it after a fall. Remember: credit scores go down quickly and recover slowly. The higher your score, the better terms you will be offered. Even a few points could mean literally thousands of extra interest paid over the life of your loan.

Qualifying Income
Your income is key to being a first time home buyer. Two years continuous employment history is standard requirement. You can have several jobs as long as you show a related history. Proving income means keeping your pay stubs, W-2's and Tax Returns . If you are self employed you might want to consider incorporating your business and paying yourself a salary. Talk to a good accountant about these issues.

Ongoing Debt
Credit cards, mortgages, auto payments, student loans, and other outstanding debt payments are all factored into your application as monthly expenses because they are ongoing responsibilities. If your credit card balances are high, those balances will lower the amount you can expect to borrow.

Add your monthly rent plus all your monthly credit card bills (student loans, auto payments, etc) to arrive at your current Debt to Income Ratio. Next, substitute your proposed monthly mortgage payment including property taxes and insurance for comparison. Your Debt to Income ratio will be what the bank will use to 'qualify you'. Conventional loans generally allow a DTI of 33% and some lenders allow up to 49% if you have fanastic credit. Above that (up to 55% DTI) you will qualify in the 'non prime' lending category with higher interest rates.

Borrower and Co-Borrower Qualifying
If you intend to purchase a home with a partner, spouse or parent, all parties must qualify on the loan in terms of credit and ability to pay the mortgage. Some lenders may forgive a lack of credit or lower score for a spouse or partner. Your mortgage lender or bank will advise. In some cases, you can qualify with the rental contribution of a room mate (as income) if a person who has been paying you rent in your shared apartment prior to your purchase and that person is moving to a new home with you. So keep records, copies of checks and banks statements to prove rent was being paid to you, not an outside agent.

Pre-Qualifying
It's a good idea to be prequalified by a bank or broker prior to looking at homes. There are quite a range of Home Access, Home Possible, and Community Loans that cater to the needs of First Time Homebuyers. Some programs offer special exceptions for school staff, healthcare workers and public law enforcement, including firefighters. Even part time teachers qualify so if one party teaches, then you should ask about the possible advantages.

Get prequalfiied early if you intend to apply for any government program because you can expect some red tape and paperwork. For example, the VA will assign their own appraiser so that can take a little longer to schedule. These facts can be annoying to sellers, but with a little forethought and planning most sellers will work with you.

Once you've got a little information under your belt and you are preapproved for the amount you will qualify fo, you're ready to start shopping!

Other Options
If you don't qualify for a Government Loan based on these rather tight criteria, there are hundreds of other options for you with other lenders. Many Zero Down products (blog below) compete favorably with Government Loans with half the paperwork. As a first time buyer your best allies are a smart realtor, a willing seller and a very committed mortgage lender. Whatever you do, work with professionals and appreciate that these people are all working to keep you safe!

Wishing you every credit sanity! Loannetter

©2006 susan templeton

First Time Homebuyers

Lenders first want to know your creditworthiness. To prepare yourself, it's a good idea to check your credit report to find out where you stand--at least a few months before you intend to buy your first home.

Credit History
Your credit history is held by the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Your record comprises a list of all your relationships with lending institutions and credit card companies as well as tax and court records. Any outstanding fines or late payments will be noted in detail with the most recent issues carrying the most weight in terms of your 'score'. For more detailed information, read Credit Reports Defined on this blogspot

Free Credit Reports
By law every U.S. citizen can now receive a Free Annual Credit Report. This report is designed for consumers, and gives you the same information your lender sees in an easily readable format: http://www.annualcreditreport.com

If you find anything on your report that you don't believe is accurate, you are advised to contact the specific creditor (contact details are listed on the last page of the report usually). Check out our article titled Report Fraud and Credit Disputes on this blogspot. You don't need to sign up for monthly credit reporting (for a fee) unless you have some recent concerns about fraud or are currently monitoring your accounts. For ongoing reports visit http://www.myfico.com/

Alternate Credit Naturally, a lender will have concerns if you have ' no credit' i.e., no record of traditional 'trade lines' in the form of credit cards or loans. Alternate credit sources like phone bills and receipts can be used to build a credit picture.

Qualifying Factors
Your income is key to being a first time home buyer. Two years continuous employment history is standard requirement for most mortgages. Your lender will want copies of your most recent three months pay stubs and two years W-2's. Self employed borrowers will be asked to submit two tax returns. Other sources must be documented. These help to establish your correct ratios for what you intend to purchase.

Debt to Income Ratios
Debt to Income or DTI literally means how much money you have going out every month for fixed expenses in direct ratio to your income. This helps establish how much money you can afford to borrow. Credit cards, mortgages, auto payments, student loans, and other outstanding debt payments are all part of the picture. If your credit card balances are high, then you can expect to be qualified for a lower mortgage amount than if you had no outstanding debt. Add your monthly rent plus all your monthly credit card bills (student loans, auto payments, etc) to arrive at your current Debt to Income Ratio. Next, substitute your proposed monthly mortgage payment including property taxes and insurance for comparison. The new Debt to Income ratio will be what the bank will use to 'qualify you'. DTI for conventional loans is usually under 40% but non prime lenders may allow up to 55%!

Borrower and Co-Borrower Qualifying
If you intend to purchase a home with a partner or spouse, that person will also need to qualify. Some lenders may forgive a lack of credit or lower score for a spouse or partner. Your mortgage lender or bank will advise.

Pre-Qualifying
It's a good idea to be prequalified by a bank or broker prior to looking at homes. Your lender will provide a copy of your credit report and take your application in order to get the ball rolling. This process helps you establish your lending budget. This also you in a better position to negotiate with a seller if they know you are pre-approved. Your lender will provide a letter to your realtor (usually with your offer to purchase) to help prove you are serious.

Once you've conquered these topics, you're ready to start looking at homes. Happy shopping!

Wishing you every credit sanity! Loannetter
©2005 susan templeton

The Race to LOW DOWN Loans

LOW DOWN MORTGAGES are the newest rage for first time home buyers and purchases. In fact, FHA, our Federal Housing Authority, has been essentially doing this for years. The FHA version requires that both you and your broker be willing to negotiate a mountain of paperwork and extra forms and some pretty fancy footwork. Not all banks and brokers are licensed to handle FHA loans. Since most brokers are inherently lazy, they prefer conventional 100% loans. It depends entirely on your circumstances which product works for you, not your broker!!

LOW DOWN loans come in several flavors: 1. 100% LTV Mortgage allows you to purchase a home by paying only the closing costs, around 4% for an average new home purchase. 2. 104% LTV Mortgage is truly incredible. In this scenario, you take out a 97% 1st Mortgage and the lender 'piggybacks' a 3-6% 2nd mortgage plus the closing costs of both mortgages. My Community, and Home Possible Loans offer very similar options appropriate to specific borrower types. 3. 125% LTV Mortgages are an amazing option. The rates are high due to anticipated negative loan to value. Only a few lenders offer them.

Of course, like any good thing there is always a catch. 100% loans have higher interest rates and may require Mortgage Insurance or MI, as does the FHA version. Contrary to popular opinion, MI is not a terrible thing. It is essentially an insurance policy that protects the lender in case you default....so that makes them willing to take on an unknown risk of a borrower with no money to invest. MI requires an upfront contribution and monthly premium payment. However, MI is not a lifetime commitment! Within 2 years, you can request that your bank review your equity position and in many cases (i.e., your home's value has improved) they will allow you to drop it. It goes without saying that you should have maintained a consistently faithful payment history! MI UPDATE 12/06: Fortunately, MI is now tax deductible as of December 2006.

The FHA or Home Possible version are probably still the best option for first time homebuyers with credit or work history challenges. These are full documentation loans. Not all brokers or banks are FHA qualified, trained and patient enough to handle government loans so be sure to shop around for a source that routinely handles and is licensed. Another hitch is the FHA's lending limits for your region are geared toward the median and below price range. In Whatcom County, WA the loan limit is currently $285,000 for an FHA loan, (July 07) although the sale price could be higher if you are bringing money into the transaction.

NO CASH for a deposit? There's more than one way to skin a cat! Many lenders allow borrowers to use down payment assistance or 'Gift Funds' from their list of approved non profit gift fund companies. It sounds rather draconian, but you pay a $300 fee for the 'use' of their funds prior to closing and the lender pays back the gift fund after the loan has funded. If putting absolutely nothing down sounds scary to you, then your broker should be willing to help you negotiate some 'seller contributions' in the form of down payment assistance or by agreeing to pay your closing costs on a conventional mortgage. Lenders usually allow sellers to contribute up to 6% of the purchase price.

My motto here is: "If you don't ask, you don't get!" Here's your realtor's chance to earn their keep and work with your broker or bank to structure a Purchase & Sale agreement that accomplishes your purchase with the least possible down payment. Since everybody gets paid at closing everybody wins! In many cases, if you are buying a home that needs a little work, seller credits are perfectly acceptable and normal practice. All it takes is a willing seller and cooperative broker/realtor team.

The biggest advantage of 100% financing is helping you get into a home while interest rates are low at today's home prices. In a seller's market (competition can be fierce) not all sellers need to bother with seller contributions because they may have several people bidding up the price! As the rates go up and sales cool a little you are urged to consider buying before the rates outstrip your earning potential or Debt to Income rations. Taking a leap of faith now may put you in much better stead in the near future. In a couple of years, you can negotiate out of Mortgage Insurance or consider refinancing into a better fixed rate with your improved equity position and credit rating from your successful mortgage history.

Wishing you every mortgage sanity! Loannetter
©2005 susan templeton

MANY Things Affect Interest Rates!

Credit Scores and Negative Propertery Issues Indicate Risk Categories to Investors.

If you apply for a home loan with a FICO credit score of 720 or over, you will most often be approved for the current lowest interest rate if you are submitting full documentation (proof of employment, assets, etc.). An applicant with 680 or better, depending on the specific lender's guidelines must have pretty solid income verification and be a wage earner, not a self employed person. The litmus test for self employed persons for best terms is currently 740+ FICO.

For example, let's say you can get 6% as an average 30 year fixed rate for a person with 720+ middle FICO Score. If your score is 680-719, you may be offered an interest rate of 7%. If your score is below 680 expect 'hits' to your price and possibly 8% or higher for the rate. Below 600 and you will be charged even higher rates and may only qualify for much higher rates or be limited to programs. Most of our FHA lenders want 620 or higher these days.

There are 'No FICO Score' programs but that is for people who have insufficient credit history to have a rating. Very few lenders offer the No Fico programs (we know of a few) and even fewer accept Alternative Credit Reports due to the lack of verificaiton involved. These days everything--but everything is about verification.

Too bad it’s not that simple! In addition, there are higher loan costs in points and fees for having negative credit issues

What constitutes 'credit issues'? 1. If you have a history of late payments with creditors within the last twelve months. 2. If you have fewer than three active lines of credit. 3. If you have filed bankruptcy within the last seven years. 4. If you have suffered an foreclosure in the last 10 years. 5. If you have unpaid collections or charge-offs within the last 2-4 years (depending on the lender). 6. If you have liens or judgements against your title.

Title issues: Liens against a title must be paid off before or at closing to provide a 'clear title' for a lender. In the case of paying off an existing mortgage company, this is straightforward process handled by our esrow agent. In the case of unpaid collections expect additional interest fees or to pay them at closing. Also, if someone else is listed on your title (often in the case of divorce) you must secure a quit claim deed from the other party and submit your divorce or settlement papers.

Beware of having your children on title. If they are over 18 they can cause serious credit liens without your knowledge by credit card abuse or other bad behavior. According to some states, children under 18 cannot be legally responsible to hold title to mortgages unless their net worth exceeds 2 millon dollars.

Property issues which may cause a lender to deny your application: 1. If your property is zoned rural or agricultural or is over ten acres. 2. If your property is in a flood zone or hazardous area. 3. If your property appraiser cannnot provide three comparable property sales within 2 miles and six months. 4. If the appraiser's report reprots siginificant damange or safety issues. 5. If a manufactured home has been moved or had additions made to it... it is literally unfundable.

Note: there are many other issues which individual lenders use to establish the rate they offer a borrower, based on their own portfolio of property and risk ratios. In fact, some lenders specialize in higher risk portfolios because they can charge more for the money.

The more negative issues you have on your Credit Report, the greater risk you are considered by a lender, and this is reflected in your score (read more about Credit Scores below this blog) As a result, up go the lender's requests for documents (conditions) and potential fees for underwriting and appraisal reviews. Not to mention your bank or broker will charge more for their time.

Now don't let all this talk about rates get you down. It's really not the most important aspect of a mortgage. Two main factors affect your acceptance for a specific loan amoun: 1. The LTV or Loan to Value, which means how much you are borrowing against a property's worth. If the LTV% is under 65% the rate offered may improve. 2. Your Monthly Payment or Debt to Income (DTI) is usually the kicker...i.e., how much can you afford to pay toward your housing cost every month. Most lenders still offer short term ARM products to help you achieve home ownership or refinance for a year or three. These loans will help you improve your FICO score and you won't miss out on that wonderful new home at today's low prices!

For more indepth information on Credit issues, visit NetCredit

Wishing you every credit sanity! Loannetter
©2009 susan templeton

Are You A Credit Fiasco Waiting to Happen?

How TRUSTING Are You? How well do you know the people who might have temporary access to your filing cabinet, check book or wallet? Now think: there's the guy who installed new cable outlets...your cleaning lady... the neighbor who feeds your cat when your away. Like most of us, you are probably pretty trusting until the precise moment you are either robbed or betrayed. Believe me, I've been there. Once the damage is done it is very costly and time consuming to have it undone.

The only way to protect yourself from identity theft is to keep your personal details behind a solid unrelenting wall of common sense. Don't carry your social security card in your wallet and DO have a locked filing cabinet or home safe where you store your check books, passport, un-used credit cards, bank statements, W-2's, pay stubs and anything with your social security number or account numbers that could be used to impersonate you. Sad but true--a very high percentage of people who use your good name are known personal or business acquaintances who had just enough information to forge a credit card or bank application behind your back. Once these folk are using your name you have two ways of finding out: 1. Checking your credit report or 2. The collector's dogs chase you down. By then things will look bad. Real bad.

And another thing: all those credit card companies who keep sending you 'pre-approved' credit applications are on fishing expeditions. They have retrieved your name and address from Public Tax Records and other databases. Shred any applications you receive from such sources.

If you are shopping for a mortgage, do so with trusted banks or personal brokers and confine your 'shopping' or application process to a 2 week period to limit the 'hits' on your credit score.

The NEVER Rules:
NEVER loan a credit card to a friend.
NEVER leave your wallet in your office when you go to a meeting.
NEVER shop on an unsecured online site.
NEVER let your passwords be known to anyone for anything.
NEVER email your passwords or account numbers (faxes are safe).
NEVER respond to a bank online request for your passwords or identity information.
NEVER co-sign a note with anyone for anything.
NEVER open a joint bank account with a friend or loved one.
NEVER give out your Social Security Number to a lender who doesn't ask you to sign a Certification and Authorization form (informing you of your rights).
NEVER shop online for a mortgage if you value your credit score (online lender 'hits' will lower your score because they farm out your application to multiple lenders). If you do, limit your online and direct loan shopping to two weeks.
NEVER be late on your mortgage payment (banks will work with prior notice, not excuses).
NEVER be late on your credit card payments.
NEVER rack up your credit card balances (over 40% balance) before you apply for a mortgage.
NEVER apply for any new credit cards 90 days before you apply for a mortgage.
NEVER close credit card accounts even if you aren't using them (just lock them up).
NEVER EVER buy a car or major applicance while waiting for your mortgage to close!
NEVER open new credit cards while waiting for your mortgage to close!

ALWAYS:
ALWAYS read the Nevers above before you apply for a mortgage or sizeable loan. I will add to the Never list as they arise. Every day someone presents a situation inspiring another NEVER rule.

For more indepth information on these issues, visit NetCredit, our credit help blog written by yours truly!

Wishing you every credit sanity! Loannetter
©2005 susan templeton