When refinancing, it is easy to focus on the interest rate and monthly savings, completely forgetting that your loan term (years) will make an even bigger difference in the total amount you will pay for your house.
Key Principle: When paying a mortgage, your #1 enemy is not the interest rate. It is time.
Why is Time an Important Factor in a Mortgage Loan?
Spreading out your payments over 30 years is what causes you to pay 2.5 to 3 times more for your house than the purchase price. If you shorten that time to 20 years or to 15 years, you will save tens of thousands of dollars on the typical loan.
How This Principle Applies to Refinancing
If you’ve been paying on your mortgage for close to ten years and refinance into a 30-year loan, you go backwards by ten years and cost yourself a lot of cash, even if you lower your interest rate. Therefore, you must lower your rate by a very significant amount in order to come out ahead, because ten years’ interest gets you far into the amortization schedule.
If you’re ten years into your loan and you want to refinance into a lower rate, then look at taking a 20-year loan. That way, you get the lower rate without going backwards.
Even better, also look at the 15-year loan. The 15-year loan gives you an even lower interest rate and cuts even more years off your loan. You come out ahead in every way! The only caveat is that you must be able to afford the payment.
Be careful not to take a payment you cannot afford, because you don’t want to set yourself up to default on your loan.
The bottom line is that you must consider your loan term — the number of years you’ve already paid into the mortgage and the number of years for your new loan — in order to make the best financial decision.
Good news for home buyers using the FHA loan program! The annual mortgage insurance premium (MIP) required on this loan is being cut by half a percent for all new loans starting January 26. The expectation is that this will save the average home buyer $900 per year by reducing their monthly payments.
The MIP is the fee charged to the borrower to compensate for the low down payment. FHA requires only 3.5% down. Because there is little equity in the property, insurance is required to protect the lender in case of default.
This new fee decrease affects the 30-year fixed rate loan (as well as the 25-year and 20-year term). The 15-year loan, which has a lower premium already, remains unchanged.
FHA 30-year Fixed Rate MIP Reduction
Loans less than $625,000, 3.5% down: MIP reduced from 1.35% to 0.80%.
Loans less than $625,000, 5% down: MIP reduced from 1.30% to 0.85%.
Loans at or above $625,000, 3.5% down: MIP reduced from 1.5% to 1.0%.
Loans at or above $625,000, 5% down: MIP reduced from 1.55% to 1.05%.
By boosting your credit score to top tier, you will qualify for more money at the lowest possible rate and with the best terms.
Take control of your own credit rating. Don’t believe the old line, you just have to wait for time to pass, because that is not true. Others have taken control of their credit and raised their scores–and if they can do it, so can you.
You Have Two Choices
To restore your credit and good name, you have two choices. You can hire a professional service, or you can do it yourself.
If you choose to hire a professional service, you want only the best. Personally, I would avoid those law firms that specialize in credit, because the truth is that they set you up with data entry clerks that do nothing special, certainly nothing you couldn’t do yourself for a fraction of the cost. The law firm is merely the image for marketing purposes. In reality, you get better service and better results going with a certified credit specialist.
In addition, I would avoid services that set you up on a monthly fee, because it is to their advantage to work slowly, drawing out the process over as many months as they can in order to collect more monthly fees. If you would like my professional recommendation for two top credit repair services, shoot me an email here.
If you don’t mind taking the time to do your own credit restoration work, you can save yourself the cost. But in order to avoid spinning your wheels sending out letters that will get rejected, you need to follow the same steps that the top certified credit specialists use.
In addition, take care to read the directions first, so that you avoid making mistakes that cannot be undone. For example, none of the effective credit repair specialists order their clients’ credit reports online, and neither should you, because doing so will shoot yourself in the foot–meaning cripple your ability to get derogatory items deleted before seven long years.
When people claim that derogatory credit cannot be deleted and that credit repair doesn’t work, it is because they are going about it the WRONG WAY!
All of the information you need to repair your credit is in my brand new, updated book, now available on Amazon at a low introductory price. Please see here for details, and please pass on this information to other good folks who want to improve their credit in 2015, so that they can make their financing dreams come true.
Last year, 717,000 people purchased vacation homes, according to an estimate by The National Association of Realtors.
Sound interesting? Here are some quick facts about getting a mortgage for a vacation home:
* Down payment required is at least 10% of the purchase price.
* Your debt-to-income ratio will include your current mortgage, installment loan and credit card obligations, and the new proposed payment for the second home loan, including property taxes and insurance.
* It needs to be a true vacation home and not a rental property disguised as a vacation home.
A vacation home might make sense if:
* Your primary residence is paid off or your income can easily handle a second mortgage.
* You are nearing retirement age and want to secure your retirement home now while interest rates are so low.
You should not buy a vacation home if:
* Your current income is tight.
* You have insufficient liquid funds for emergencies.
* You would get bored of going to the same place on vacation time and again.
Never buy a vacation home (or any home, for that matter) on impulse. Take your time to select the right location. Make sure you scout out the local area. And visit the property in person before making a final decision.
If you’d like to explore further, talk to your mortgage loan officer about a pre-qualification, then contact your Realtor for available homes.
Thank you, U.S. Veterans, for serving our great country, the United States of America. To those who are still overseas, we pray for your safety. To those who are back home, welcome. To all, we express our respect, appreciation, and gratitude.
VA Loans Are Gaining Popularity
The VA home loan program for is flying at record levels. New VA loans for Veteran home buyers has more than doubled since 2007.
In 2011, VA loans were about 3% of the purchase market. Today, they are approximately 7%.
For new construction, VA loans make up about 14.5%.
An estimated 22 million U.S. veterans may be eligible for VA loan benefits now.
Advantages of VA Home Loans
* VA loans require zero down payment.
* VA interest rates are competitive with prime conventional loans.
* VA underwriting offers more generous requirements for credit and debt ratio (depending on the individual lender).
U.S. Veterans: A Heads-Up!
Not all VA loans are priced the same, so Veterans still need to do their due diligence and shop for the best deal. For example, recently I saw a $2,000+ fee difference between two lenders with the same interest rate for the same borrower.
The best way to shop for a mortgage is to contact one bank, one mortgage broker, and a third lender of your choice. Ask for a Cost Estimate Worksheet, and then describe your scenario. For example, you might say, “I am looking for a VA loan, 30-year fixed rate, $350,000 purchase price. My credit score is 685.”
If you have any concerns about getting the best loan, please feel free to take advantage of my personal coaching service.
God bless you, U.S. Veterans, and God bless America!
Charles Head and his brother Jeremy Michael Head have been sentenced to prison for a fraud scheme that cheated homeowners in California, the Northwest and East Coast out of their homes and damaged their credit.
According to the FBI website, the Head boys and their team of 16 cohorts preyed upon home owners who were seeking help with their mortgages.
These liars secretly added individuals who were friends and family members to the home owners’ real estate titles. Once that was accomplished, they proceeded to do maximum cash-out refinances. Altogether, they stole $15 million for themselves, which they shared with their team.
U.S. Attorney Wagner said: “This defendant purposely targeted the financially vulnerable during their time of greatest distress with promises of help. Then he tricked them into handing over their most valuable asset, their home. When victims in one scheme grew scarce, he opened up a new scheme drawing in victims from across the country. Few economic crimes are more reprehensible. No sentence will undo the damage wrought by Charles Head and his fellow scammers, but today’s sentence brings a measure of justice for their victims.” Source
Charles Head was sentenced to 35 years in prison, Jeremy Michael to 10 years. The 16 other convicted fraudsters are awaiting sentencing.
For a purchase loan, closing costs may not be rolled into a loan. Most home owners refinancing do roll in closing costs; but then again, most do not consider doing it any other way. Let’s look at the pros and cons for your options.
Advantages of Rolling Closing Costs into Your Refinance
1) There is no money out-of-pocket except for the appraisal. (A minority of lenders also require the credit report be paid out-of-pocket. Still fewer want a non-refundable application fee, and I do not recommend working with those lenders.)
2) It requires one less step, because you don’t need to get a cashier’s check.
Disadvantages of Rolling Closing Costs into Your Refinance
1) You take out a larger loan, because your closing costs are added. (In a 30-year term loan, it does not make much difference in your monthly payment. Depending on loan size and the lender’s costs, it could be as little as $10 to $30/month.)
2) You pay interest on the closing costs, because they are now part of the loan.
3) It may be easier for the lender to overcharge you, because borrowers who are bringing in no money out of pocket do not pay as much attention to points, high fees, and junk fees. It all seems so “painless” with the costs all rolled in.
I have seen people sign shockingly expensive loans with a big smile on their faces all because the loan officer told them, “Don’t worry about it; it’s all rolled into the loan.”
Which option is best depends on your personal cash flow situation. If you can easily pay for your closing costs, then why not take the smaller loan with the smaller payment?
On the other hand, if paying for the closing costs would present a financial hardship, then by all means, go ahead and roll them into the loan.
Before you proceed, make sure your refinance is a good one. Pick up a copy of the best-selling book that exposes all the dirty secrets that make consumers pay too much. It’s a quick, easy read and you can skip around to the chapters that interest you most.
Mortgage Rip-Offs and Money Savers
I recommend the paperback copy, because the Good Faith Estimates from real banks and brokers that expose the junk fees, etc. come out too small to read on the Kindle.
A Missouri couple thought they were having their $680,000 dream home built in the perfect location. They purchased a lot in the gated community of Ocean Hammock, an exclusive community that is accessible by beach or air.
As you can see from the photo, it’s a three-story home with balconies from which to enjoy the impressive view. What a vision! The only problem is that Keystone Builders constructed it on the wrong lot, not the land Mr. and Mrs. Voss bought.
How could this happen? East Coast Land Surveying incorrectly marked off the stakes for the home — and didn’t catch their error during any of the three surveys they conducted during the construction process.
The mistake was finally caught by a different surveyor working in the area, but only after the home had been rented out several times.
“We are in total disbelief,” the Vosses told local media.
Both the Flagler County Home Builders Association and the Flagler County appraiser said that houses built on the wrong property “happen more often than people think.”
Perhaps a trip down to the construction site early in the process is a prudent step for home owners to take. In the case of the Vosses, it will be interesting to find out what happens next.
Source: Housing Wire
This is a good question and one that home buyers ask me. Here are two reasons why you might see a different origination fee on your official 3-page Good Faith Estimate.
Two Reasons Why Your GFE Might Be Different Than Your Fees Worksheet
1) Look to see if the loan officer split up the origination fee on several different lines in the upfront estimate. This often happens when the origination fee is high and not competitive with a fair market fee. I saw this again earlier this week when a home buyer used my consultation service.
On the upfront worksheet, there were four fees:
an origination fee,
an additional underwriting fee,
an additional processing fee,
and an IRS tax transcript fee.
These four fees were added together on the official GFE, because this form does not allow the loan officer to split up lender fees on different lines.
In this particular situation, the lender was charging $2,412 more than the national average origination fee, so I told the home buyer what steps to take.
2) If there is a legitimate “change in circumstances” (as the law says), then the lender has the right to increase their origination fee. A legal change in circumstances would be something like you told the loan officer you had excellent credit, but then when they pulled your credit report, they discovered that your credit was sub-par. Another legitimate change would be a change in loan programs, such as the need to switch from a conventional loan to a FHA loan.
A “change in circumstances” is not when the purchase price changed due to negotiations, but the loan-to-value ratio and loan program remain unchanged. If the price is higher or lower, but you are still putting 20% down, that does not constitute an excuse to raise the lender fees.
The new lending laws have not put all loan sharks or liars out of business. There are wolves in sheep’s clothing in every type of institution, including credit unions. Some home buyers think that if they go to their local credit union, they automatically get a good deal, but that is not true. I have posted in the past about credit unions pulling a bait-and-switch or overcharging.
Before you sign the loan disclosures, make sure you understand all the charges for your loan and agree to them. Once you sign, the lender is not going to negotiate, because your signature certifies your acceptance. However, your signature does not obligate you to the loan. That is important to know, because if you discover you are being over-charged, you are free to cancel and go elsewhere, if a satisfactory conclusion cannot be reached. (Always speak to your loan officer and try to work out a fair fee schedule before canceling. Respect your loan officer’s time and effort, but also respect yourself.)
I am available to review your cost estimate, initial fees worksheet, and/or Good Faith Estimate. Please see my Personal Coaching page for details, including the fee schedule.
Be smart, be informed, and then be confident with the terms of your loan.
Should the credit scoring system be revamped? In a controversial move, Rep. Maxine Waters (D-Calif.) proposed a federal amendment that would require the national credit bureaus to delete negative information such as late payments on credit cards and mortgages, foreclosures, and short sales after only four years. Currently, those negative marks remain for seven years.
If this passes, the “sins” that occurred during the housing bust years would be washed away now, enabling more Americans to start fresh sooner.
In Sweden, negative credit marks are deleted after only three years. In Germany, after four.
Arguing against a more lenient credit system is Stuart Pratt, president and CEO of the Consumer Data Industry Association. He said “82 percent of credit systems” worldwide require negative data to remain on record for four to 10 years.
On the side of leniency is the real estate and mortgage industry. They believe that four years is long enough to be “punished” for financial hardship, and that a revamped credit system would provide a much-needed boost to the housing and the U.S. economy.
Pratt told Kenneth Harney, syndicated columnist for “Nation’s Housing” that “it doesn’t seem right to us coming out of the Great Recession that we would erase predictive data.”
What do you think? Should late payments, foreclosures, and short sales be deleted from credit files after four years? Or remain as is for seven?