As we embark into another year, Most of us are always wondering about which mortgage options are available and what kind of rates and fees are tied to those specific products.  So let me share what I think will be the best mortgage options for 2012.

Best Refinance Mortgage Options:

Rate/Term Refinance:

This year refinances will be driven by rates.  Right now we have historical low rates.  We are now seeing some equity in properties.  With equity the banks are approving these rate/term refinances.  Also, if you are in a property that still has quite a bit of negative equity, we have a new program coming out in March 2012, that will allow us to refinance quite a few more clients with high negative equity.  This program was first shared with the public in an announcement made by President Obama under the “HARP” program (Home Affordable Refinance Program).  At the time he announced the program, the market was not ready to implement it to the public.   This will be rolled out March 2012.

Cash-Out Refinance:

Yes for you lucky ones that have equity in your home, this option will be available.  With interest rates staying low, this is not a bad option by any standards.

Adjustable Rate Mortgage (ARM) conversion:

Some of you will be having your adjustable rate mortgages reset this year.  The rate could go up or down but knowing your best option of either staying the course with will be important to know.  I can always do a mortgage review and help you determine if a refinance option into a fixed option makes sense for you.

Term Limit Mortgage Conversion:
30 to 15 year conversion:  This is a great option to get that mortgage paid down with the historic low interest rates.
15 to 30 year conversion:  This can be a great option to help with having more cash back in your pocket.

Best Purchase Options:

Right now home prices in Arizona are at record all time lows and so are interest rates, so the timing could not be any better to buy some property.  Here will be the hottest options for 2012.

Primary Home Mortgage Option:

If you are a first time home buyer or want to convert your current home into a rental and buy a bigger home now is the time.  Rates are now at historic lows.

2nd Home Mortgage Option:

Arizona is a great place to own a 2nd home, we have excellent retirement communities for 2nd homes and great vacation homes in the mountains.  Rates are excellent and so are prices.

Investment Home Mortgage Option:

This one is got to be one of the best for investors.  Not only is our inventory of rental units affordable but our 2010 census report showed a huge growth in population statistics in the last 10 years.  Sharpen those pencils and lets make the math work out.

As your 2012 year comes together, as always, I hope you think of me for your next mortgage, where I stand behind my advice, products and services.

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”, Chinese proverb

In the last 60 days I’ve had 2 clients call me about looking into a reverse mortgage. I am not sure if I even shared with most that I actually DO offer this product and service.

First of all the Reverse Mortgage is NOT your traditional type of mortgage product. It does not follow the basic guidelines of lending, so most lenders do not offer it.  Secondly, it does require that the loan originator has taken some additional courses and classes and stays up to date on the rules and regulations that go along with this product.  I decided early last year, to get educated on this product because it started coming up in a lot more loan product discussions.  The reverse mortgage product basically allows you to take a portion of your equity in your home and help free up cash or income during your retirement years.  It’s a non-recourse loan, so if qualified, payments are also not required.  The title stays in the borrower/borrowers name.  The loan has certain triggers that do require the loan to be paid back.

The basic qualifications are:

• age of the borrower (must be 62 years or older)

• equity in the property vs. value of the property

• Property must be owner occupied (no 2nd homes or investments)

Let me give you an example of a qualified person.

Let’s say you are 65 years of age and just retired.  Your home is worth $300,000.00 and you owe only $40,000.00 on the home.  You plan on living in your home but want your mortgage to go away and have that extra cash for retirement to travel.  You should qualify.

The basic reasons to get a reverse mortgage:

• No repayment of the loan as long as your occupy your home
• Frees up your equity trapped in your home for your benefit
• Social Security and Medicare benefits are not affected by reverse mortgages
• You retain the title to the deed of your home and you may sell later if need be.

Using the example from above,

the homeowner could free up quite of bit of their equity to eliminate the mortgage payment, have free income to travel and put some extra money away for a rainy day.  It helps give comfort during those retirement years.

Now again, I will be the first to say that this product is NOT right for everyone, but for others with certain situations, this product can be a great option.

I am not the first to report this good news, but felt it was worth sharing.  The Obama Administration announced on October 24, 2011 details of expanding a government sponsored refinance program to help more underwater homeowners refinance to reduce their payments.

Many clients of mine wanted to refinance in the past, but due to the lending guidelines only clients that could prove certain equity in their property were eligible.  Under this new rule, the caps for negative equity will be lifted and the pricing add-ons will be going away.

Stay tuned, because the lending guidelines have NOT rolled out yet, but are supposed to be available by November 16, 2011. Borrowers can start applying by December 2011.

So if your house had more than a 25% negative equity loss, you could be eligible under these new changes.

Once this happens, I will again share all the new details.

Did you know that conventional loans are now offering very favorable terms to buy property with only a 5% down payment. Conventional loans still require higher credit scores to qualify, but if you have the excellent credit and are buying a home the Conventional option might pencil out better than the FHA option.

Let me try and share some loan option comparisons.

Conventional Loans:

Minimum Down Payment:  5%
Credit Score:  660 or higher
Mortgage Insurance Premium:  Vary
Competitive Rates

FHA Loans:

Minimum Down Payment:  3.5%
Credit Score:  600 or higher
Mortgage Insurance Premium:  Upfront 1% of loan amount financed, monthly, 1.15% factor
Competitive Rates

VA Loans:

Minimum Down Payment:  0%
Credit Score:  600 or higher
No MI, but a VA funding fee of 2.15% or 3.30% financed into the loan
Competitive Rates

I think the Conventional loans outshine the Government loans when you have excellent credit. Let me show you the math between a 740 credit score client going Conventional financing vs. an FHA 740 credit score client.

Mr. buyer is buying a home for $150,000.00, with a 755 credit score,

Here is how the scenario will pencil out for FHA:  $150,000.00 purchase price, 3.5% down payment:  $5,250.00, 1.00% upfront mortgage insurance financed into the loan gives you a final loan amount of $146.197.50 rounded to $146,198.00.  Lets say the rate is .125% better than Conventional rates.  The interest rate is 4.375%

FHA P&I:  $729.95, and the monthly FHA insurance is a factor of 1.15% of the loan amount:  or $140.11 per month for FHA insurance.

Total P&I payment with FHA insurance per month is $870.06

Here is how the scenario will pencil out for Conventional:  $150,000.00 purchase price, 5% down payment:  $7,500.00, no upfront mortgage insurance financed into the loan give you a final loan amount of $142,500.00.  The interest rate is 4.5%

Conventional P&I:  $722.03, and the monthly Conventional insurance is a factor of .64% of the loan amount with a credit score above 740:
or $76.00 per month for Private Mortgage insurance.

Total P&I payment with Private Mortgage insurance per month is $798.03.

Bottom line is that the Conventional option gives you a payment of $72.03 a month less.  What was the cost to you?  Good Credit and 1.5% more down payment.

Again there are other factors to consider when financing, but working with a lender who truly understand the mechanics of your best mortgage options is the most
important thing.

Can I buy another home if my house is underwater?

Did you know that about 50% of all homeowners in Arizona owe more on their current home than what the home is valued at. This is a shocking statistic, but this information becomes very important once a decision is made that you need to move.  Every week I get calls from clients wanting to know if they can get approved to buy another home and rent out their current home.  The answer is Yes, but with many lender guidelines.  Since most homeowners are  underwater, the banks are being very careful on these guidelines.  If you fit the guidelines correctly, then buying a new primary home and renting your existing home is going to be acceptable, but if those guidelines are not being met, then the loan will be declined.

First of all the property being purchased must meet Occupancy Guidelines.

Occupancy Guidelines:  A primary residence is the residential property physically occupied by an owner as the principal home domicile.  Among the criteria
one should consider in evaluating whether a property is a principal home are the following:

• It is occupied by the owner for the major portion of the year
• It is in a location relatively convenient to the owner’s principal place of employment
• It is the address of record for such activities as federal income tax reporting, voter registration, occupational licensing, and similar functions
• It possesses the physical characteristics to accommodate the owner’s immediate dependent family.
• The borrower states an intention of occupy the property as a primary residence.

If these guidelines cannot be met on the new home purchase, then the loan cannot be approved for a primary residence use.  The loan approval for home financing would need to be classified as either a 2nd home or investment property.

Once occupancy is established to be legitimate, then the guidelines will fall either under FHA or Conventional Guidelines:

FHA Guidelines:  Converting Existing Homes to Rentals

Rental income from the borrower’s current primary residence is permitted, provided at least one of the following FHA requirements is met:

• The borrower obtains new employment or a job transfer that is not within a reasonable commuting distance of the current primary residence or
• The borrower has a 25% equity position in the current primary residence as evidenced by an appraisal or sales price with the most recent six months
• If one of both of the requirements above are met, all of the following documentation is required:
• Fully executed lease agreement (a 25% vacancy factor will be applied to the monthly rent stated on the lease agreement) and
• Evidence of the borrower’s receipt of the security deposit and
• Evidence of the borrwer’s deposit of the security deposit to his or her bank account

Basically if there is 25% equity in your current home, we can use rental income to offset the debt.  Otherwise both debts would have to be counted against the borrower.

Conventional Guidelines:  When converting a primary residence to an investment property

The underwriting guidelines will use 75% of gross rental income as stated on the lease as evidence of rental income or to offset the payment if the
following conditions are met:

• There must be documented equity of at least 30% in the existing property derived from at least a 2055 exterior-only inspection (drive-by appraisal), dated no more that 60 days from the Note Date.
• The rental income must be documented with a copy of a fully executed lease agreement and
• The receipt of a security deposit from the tenant and deposit into the borrower’s account.

Basically if there is 30% equity in your current home, we can use rental income to offset the debt.  Otherwise both debts would have to be counted against the borrower.

Last, the underwriter will require a letter of intent for moving and the reasons have to meet a common sense approach of why someone would be moving such as upsizing, downsizing, moving closer to work, etc.   If the intent is not clear or does not makes sense, the underwriter could decline the loan.

If you are thinking of buying again and want to convert that current home into a rental and have questions if you can qualify, please do not hesitate to give me a call.

This will be the fourth loan in the last 12 months that I approved using some sort of down payment assistance.  Even though seller assisted down payment went away using programs such as Ameridream and Nehemiah, HUD has been allowing buyers to use FHA financing with down payment assistance from a 501(c)(3) nonprofit corporation.  Two companies that come to mind that I have worked with now has been Newtown Community Development Corporation Community Land Trust and Desert Mission Neighborhood Renewal.  Both nonprofits have certain guidelines that have to be met and will require home-buyer education.

Free Money!!

So far my favorite program from the nonprofits is the Individual Development Account (IDA).  This program will match buyer saved dollars of up to 3 times what they saved up. The
cap is $15,000.00.  For instance if your client saves up $2,000.00 for down payment, they can get matched up to $6,000.00 from this (IDA).  Also, FHA loans will allow the buyer to use the funds for both down payment and closing costs.

This is just one of  the many programs that are still available out there for home buyer assistance.   For more information about this mortgage program or many others, please feel free to contact me.

It was about three and half years ago when the mortgage industry started to scale back on riskier products. Some loan products were put into hibernation until a time when they could bloom again.  Fast forward to the present and  now certain mortgage products are making a  come back.

My most recent experience to this is  that we can now offer clients condominium financing terms with only 5% down. Now understand you must qualify and there are a lot of conditions that must be met.  However, just 1 year ago, we had no Mortgage Insurance companies taking risk on condominiums unless you put 20% down (Arizona Market).

If you need help when it comes to a mortgage loan or questions on current mortgage products that could benefit you, feel free to call or shoot me an email.

As we embark into another year, Most of us are always wondering about which mortgage options are available and what kind of rates and fees are tied to those specific products.  So let me share what I think will be the best mortgage options for 2011.

Best Refinance Mortgage Options:

This year refinances will NOT be driven by rates.  Here are some of the options that will come up this year.

Cash-Out Refinance:

Yes for you lucky ones that have equity in your home, this option will be available, understand the rates are a little higher than 2010, but not bad by any standards.

Adjustable Rate Mortgage (ARM) conversion:

Some of you will be having your adjustable rate mortgages reset this year.  The rate could go up or down but knowing your best option of either staying the course with will be important to know.  I can always do a mortgage review and help you determine if a refinance option into a fixed option makes sense for you.

Term Limit Mortgage Conversion:
30 to 15 year conversion:  This is a great option to get that mortgage paid down.
15 to 30 year conversion:  This can be a great option to help with having more cash back in your pocket.

Best Purchase Options:

Right now home prices in Arizona are at record all time lows, so the timing could not be any better to buy some property.  Here will be the hottest options for 2011.

Primary Home Mortgage Option:

If you are a first time home buyer or want to convert your current home into a rental and buy a bigger home now is the time.  Rates are still very attractive.

2nd Home Mortgage Option:

Arizona is a great place to own a 2nd home, we have excellent retirement communities for 2nd homes and great vacation homes in the mountains.  Rates are excellent and so are prices.

Investment Home Mortgage Option:

This one is got to be one of the best for investors.  Not only is our inventory of rental units affordable but our 2010 census report showed a huge growth in population statistics in the last 10 years.  Sharpen those pencils and lets make the math work out.

The Mortgage Option of the Future:

Green Home Mortgage Option:

Did you know that the Federal Housing Administration has a special program for buying green homes or converting a current home into a green home.  We have an Energy Efficient Mortgage.  Not only will it save you lots of money on long term utility costs but will be great for our carbon footprint.

As your 2011 year comes together, as always, I hope you think of me for your next mortgage, where I stand behind my advice, products and services.

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”, Chinese proverb

Back on August 12, 2009 I wrote a great post that got many comments and attention called Battle of the Home Mortgage Products:  FHA vs. Fannie Mae Home Path.

Today I am revisiting the topic and making all parties aware of some changes by FHA which take place on October 4, 2010.  FHA has raised their monthly mortgage insurance costsand it has everyone in the industry wondering if FHA is a better option than in the past.  A colleague of mine Jeff Belonger wrote a great post about this called:  FHA home loans with 5% down after major FHA change are still cheaper than conventional loan many times and hands down when comparing a regular FHA mortgage to a traditional Conventional loan, the FHA option is still the best.  Now I am revisiting the question of  which option is truly the best FHA or Fannie Mae HomePath and here is what I found out.   The Clear Winner is Still: FHA!

FHA:

Lower upfront MI premium 1% of loan amount
at 95.1% or higher monthly mi factor of 90bps
at 95.00 or lower monthly mi factor of 85bps.
Rates are much lower than Fannie Mae Home Path.
Closing Costs are much lower.

Fannie Home Path:

Still No Mortgage Insurance
Much Higher Interest Rates
Much Higher Closing Costs

Bottom line, this equates out to lower payment options and less closing costs using the FHA factor.  Again on the surface the Fannie Mae HomePath looked like the clear winner, but once you peel the layers of the onion back, the clear winner is FHA.

The Arizona Housing Financing Authority is back at it again implementing new first-time home buyer programs to assist
with the finance arm of a first home purchase.

Based on the right situation, the Arizona Mortgage Revenue Bond, can be a great niche product to help with that certain
homeowners who is needing some financial help with purchasing a home.  Even though their bond rate (4.99%) is not as
competitive as market rate, some of the benefits do outweigh the drawbacks.  Here are some of the criteria.

AZ Mortgage Revenue Bond Highlights
Down Payment assistance available up to 5% of the purchase price.  This can be used for down payment, and or closing costs
or a combination of both.

This is probably the biggest advantage to this program.  A secondary advantage is if you buy a home in a specific target area
the income is less restrictive.

Here are some of the drawbacks.  This program cannot be used in Pima or Maricopa County.  So it is primarily a great tool
to lend in rural housing communities.  The down payment assistance is not completely forgiven in the first 5 years.  It
drops 20% each year.  Rate is not as attractive.

Here are the basic requirements:  Product is used in conjunction with an FHA, VA and RD insured 30 year fixed rate products.

*Must be a first time homebuyer, plan to occupy as primary residence and not had prior ownership in the last three years
(certain census tracts located in various counties do not require applicants to be first time homebuyers while offering
higher income and sale price limits.)
* Borrower must contribute a minimum of $1,000.00 of personal funds
* Borrower cannot get any cash back or debt consolidation paid
* Borrower required to complete a home buyer education class
* Must meet program’s purchase price and income limits
* House payment/total payment to income ratios cannot exceed 31/43%
* Credit score for all borrowers must be at a 620 or above
* Independent professional inspection to be done on the property and obtain a home warranty
*Again this product will be a niche for that certain client.  Also understand that only 22 lenders in the entire state of
Arizona is set up to offer this product.  I like to share this because so many think there are not options anymore.  I
say find a mortgage lender who understands real options and will work with them.