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We Shop Mortgages - by Ron Pfeiffer

No Down Payment Home Loans

January 25th 2007 22:15

Historically only Active Duty or Veterans of the Military had the opportunity to borrow 100 percent of the purchase price of their home. The VA isn't the only game in town anymore.

Seems everyone I meet who doesn't own a home has had two basic obstacles.

The first is lack of the abililty to save a substantial down payment and the second are credit issues. Both can be over come in todays market.

No Down Payment loans have been promoted as a niche product to the lenders whom offer them. These headlines grab attention via aggressive ad campaigns. You ask how can this be ? Remember the old saying if it sounds to good to be true it probably is..Or how about pay now or pay later either way you pay. I have had people tell me they didn't even inquiry due to these old sayings.

There are still closing cost which will need to be financed via a higher rate or a higher sales price. There is still in most cases Mortgage Insurance as a part of the monthly payment. Yet the lenders are taking risk and putting people in houses with very little investment.

I say go for it...The chances are that if you buy a modestly priced single family residence in a good location the value isn't going to decrease and the risk of oweing more than it's worth is low. There is a shortage of affordable housing so if you find one that fits your needs the chances are the value will increase simply due to demand for starter homes. Even if you are paying slightly more than what rent would be you will see some tax savings next time you file your tax returns.

I have financed 100 percent of the of the sales price for individuals with credit scores as low as 580. Yes they paid more in the form of a higher rate. But, it was still lower than 9.95 percent I paid when I bought my first home in 1989. If you have good credit scores lets say 680 or above you could get a 5.875 fixed rate today with no down payment.

Now is as good of a time to buy a home as there has been in history. Inventories are up and rates are low. Lender volume is down putting pressure on keeping rates low.

No Down Payment Loans...I say go for it. There is no better feeling than owning your own home.

Post or email me your comments or suggestions.

ron@weshopmortgage.com

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Are Adjustable Rate Mortgages gone ?

January 23rd 2007 20:34

Adjustable rate mortgages (ARMs) have been out of favor since the Federal Reserve Bank(FED)raised the Federal Funds rate to 5.35 percent.

To learn more I need to explain how the FED affects ARMs.

The FED under Chairman Paul Volker decided after the high inflation days of the 70's that monetary policy should be focused on keeping inflation at a level between 2-3 percent annually by keeping the with the amount of cash that is in the system consistent. The FED has three tools in uses to adjust the amount of cash that is in the system. First is the FED Funds rate you here talked about in the news all the time. The FED funds rate is the interest rate the FED charges to member banks for overnight lending. The higher the rate the less likely the banks are to borrower from the FED and the less loaning the bank does to commercial entities. If the rate is high then companies refrain from borrowing for its expansions and the less captial equipment it buys. Thus reducing the flow of money. Although the FED doesn't set what the rates are on mortgages and creditlines it does have have an impact on lenders cost of capital.

Second tool, the FED uses to impact the amount of money in the system is the Federal Reserve Open Market Committee (FOMC). The FOMC either is a seller or a buyer of the governments debt. i.e U.S. Treasury Notes and Bonds. If the desire is to inject cash into the system they buy Treasuries. If they wish to restrict the amount of money they sell Treasuries. The activity of the FOMC isn't on the news everyday, yet is public information.

The third tool the FED uses is the capital reserve requirement for it's member banks. I quess everbody understands that your bank only has 6-10 percent of your money in the form of cash. The remainder of your money is loaned to consumers or to the Federal Government in return for interest. The FED doesn't screw around with this tool very much to promote stability in the banking industry.

The FED funds rate and the FOMC have impact on what the 1 year U.S. Treasury( 1ys T- Bill )sells for. The government prints these promissory notes with a given rate of return and they are traded at a discount or a premium depending on market conditions. So what does all this have to do with ARM's. Most ARMs use the 1 yr T-Bill as it's index for adjustment
Today the T-Bill is trading for 5.030 percent. The typical margin for an ARM mortgage is 2.5 percent above the T-Bill making the fully indexed rate 7.53 percent. subject to adjustment on the anniversery of the loan. A 30 year fixed rate mortgage loan today is around 5.875 percent.

Until the T-Bill drops to 3.75 percent ARMs are not favorable. The T-Bill won't decrease until the FED lowers the FED Funds rate. Normally they only decrease in .25 percent increments making the 3.75 percent T-Bill not even on the horizon given a FED Funds rate of 5.25 percent today.

Thus people aren't even asking about ARMs unless they don't qualify for a fixed rate loan due to poor credit history. I will blog on Credit Challenged Individual choices tommorow. Tune in same place same time and learn about the mortgage options poor credit borrowers have.

ron pfeiffer

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How to Shop For a Mortgage

January 19th 2007 20:02

Shopping for a Mortgage Loan is easier than ever. Computer automation and the internet have put market information at our finger tips. The following are common mistakes I see borrowers make when shopping for a loan;

My favorite mistake is going to Lending Tree, eLoan and other internet lending models, whoops they are not lender models they are marketing models. Meaning that these entities use their advertising to generate leads. Then they call Mortgage Brokers like me and try to sell me your name. I guess people have come to think that it is cheaper to use the internet to shop direct and cut the broker out. Yet, the opposite is true. If you have read my blog before you already know that Mortgage Brokers originate more than 60 percent of all mortgage loans. Why you ask ? Because the consumer finds the provider of least expense. I remember when I worked for Barnett Bank we trained on selling around the interest rate. We were taught to talk about the value of having Big Green do your loan. Guess what there is only one think that matters and that is the interest rate. My brother in law once told me he would deal with the SOB around the corner for a .25 percent better rate, after all he woud only deal with him for 30 days or so when he had to live with the loan for 30 years or so.
Don't get sucked into a advertising that does not put you directly in touch with a professional.
Ask a friend, look in the yellow pages and choose a Mortgage Broker who has been in business ten years or more.

Once you have found a reliable Mortgage Broker ask for a written good faith estimate. Considering this is probably one of the largest transactions of your life you need to be careful. A good faith estimate basically is the dollar amount of applicable closing cost and the providers interest rate quote. As a professional I will give you my best quote and put it in writting. Consider this process like a sealed bid. Don't tell the next broker you talk to what the last one bid or you won't get their best price. They will try to undercut just enough to get you in the door. You need to know your credit score when shopping for a loan. If you read yesterday's blog I talked about how the credit score has a lot to do with the interest rate quote. If you don't know your score have the first broker you choose pull the report and tell you the score. Any score above 680 should render the best rate.

Mistake number three is not being truthful in the information given. In the mortgage business there's a saying " Buyers are Liars" . Don't forget that lenders verify everthing you tell us. We ask for Payslips, Tax Returns, Bank Statements and even Divorce papers. If your information given can't be verfied then the Good Faith Estimate is worthless. Your mortgage broker should be your trusted mortgage adviser. If you don't feel you can trust him or her go somewhere else. Often Brokers are owners of the the company and build their businesses from referrals from other customers. If you aren't truthful I may quote a mortgage program I can't qualify you for, and thus your quote or bid is no good.

My favorite mistake is when the bank tells the self employed customer that they must have two years tax returns verifing income. Yes, it is true that lenders use tax returns to average income of self-employed borrowers, but most bankers don't offer an alternative to tax returns. Brokers have stated income loans, we have alternative income documentation loans and even have stated income and asset loan programs. Granted they may be a little higher than conventional loans, but .375 higher rate is better than being turned down. Thus the mistake is not trying a Mortgage Broker when a bank turns you down. Even if you have had to file bankruptcy. " You don't know if you don't go".

I guess you can tell I am bias towards Mortgage Brokers. Most are ex bankers like myself who own their own business and contract with many lenders. Just like any profession not all are trustworthy but if you follow the tips above you can make an educated decision.

rp

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Credit Score Tips

January 18th 2007 20:56

Credit Scores are the basis for interest rates.

Yesterday I explained a little about the history of credit scores and today I am going to give you some tips on improving your credit scores

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Who set my interest rate ?

January 17th 2007 21:02

About ten years ago lenders starting looking for ways to determine the value of a mortgage portfolio. A mortgage portfolio is a lot of mortgage loans all grouped together and sold off as a package. The problem was that when these portfolios where traded the discount or the premium that would be negotiated was a cumbersome process. The buyer of the loans would randomly audit a small percentage of the files and use this sampling to make statistical decisions. This envoled a car load of bank auditor types and lots of calulator tape.

As bankers we started developing decision models that could be computerized and applied to all loan request. We looked at the length of time on your job, the amount of money you had in the bank, your repayment history and the amount of credit you had available to you. Then we assigned a score to each of these parameters and weighted each in the form of a percentage. This gave loan officers an approval process that was the same for each loan request. These scores where assigned to borrower and gave bankers a way to score their entire portfolios. The result was the birth of the credit score

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Private Mortgage Insurance

January 13th 2007 02:43

Yesterday I blogged about Private Mortgage Insurance and gave a little history lesson. Today is more about when to pay PMI and when to finance it....

Pay the Private Mortgage Insurance when you are buying a home you plan on owning more than five years. Paying the Private Mortgage Insurance will give you the opportunity to get the lowest rate possible. When the appreciated value exceeds the loan balance by 25 percent you can petition to have the Private Mortgage Insurance dropped. Several years back a class action law suites resulted in making petitioning easier. Be prepared to prove the value of your home by paying for an appraisal. Yet, don't order the appraisal until the mortgage payment servicing company tells you to . They may have a list of approved appraisers. Hate to see you order two appraisals

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Where Mortgage Insurance was Born

January 11th 2007 16:20

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Negative Amortization

January 9th 2007 20:42

I thought it would be tough to think of something to blog about everyday. But before i made it to the coffee pot this morning I had something to write about. MORE DECEPTIVE MORTGAGE ADVERTISING...How or why Intuit Corp the makers of Quicken Software got into the mortgage business is beyond me but they are...The commercial they had running at 6:00 am this morning was promoting a mortgage product that results in a negative amortization.

You have seen the ad.."A mortgage of $150,000 @ 7.0 has a payment of $1000..with a Secure Advantage Loan with Quiken you can choose to pay only $400 a month

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Mortgage Broker Closing Cost

January 8th 2007 19:35

Did you know that Mortgage Brokers originate more than 60 percent of all mortgage loans...

There is a reason for that. Free markets find the provider of least expense. Most Mortgage Brokerage Businesses are entreprenuers with banking or mortgage banking experience like me. I was a banker in the early 80's with limited mortgage products for my customers whom wanted to buy beach condos in the Pensacola area. As I referred this business to a local mortgage broker I leaned there was a wholesale side of the lending business. Large commercial banks, life insurance companies and large mortgage banking companies contract with mortgage brokers to sell their products. These sources act as a conduit to Wall Street , the Federal National Mortgage Association(Fannie Mae) and the Federal Home Loan Corporation (Freddie Mac) and other large buyers of loan portfolios. I will write further on the history of these secondary markets tommorow. I know you're asking what all this has to do with closing cost. The fact is Mortgage Brokers are the provider of mortgages at the least expense. We keep our over head low and are always looking for the best terms and conditions for our customers...We Shop Mortgages

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Flat Fee Mortgages

January 5th 2007 22:19

I was upset by Ditech ads yesterday as you probably figured out. Yes they are a competitor and yes their ads paint the entire industry with a brush of bait and switch ads. But instead of being negative I elect to take the high road and educate any readers on the morgage industry .

Yesterday i mentioned that the flat fee mortgage ads are a deceptive way of up selling interest rates. Today I surveyed several different lenders in order to give the reader some real examples of how much higher a flat fee mortgage interest rate is versus a pay me now mortgage. Today a 30 year fixed rate mortgage was about 6.0 A flat fee mortgage would have been about 7.5

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January 2007

11 Posts

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11 Posts dating from January 2007

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