Home Buyers Benefit From 40 Year Low in Mortgage Rates
For those who can qualify, it’s one of the best times to get a mortgage.
Last week, rates for 30-year fixed-rate loans dropped to 4.57 percent, the lowest level on records dating back to 1971, Freddie Mac said.
And for some who missed out on the government’s home buying tax credit, the rates may more than make up for that lost $8,000.
“A tax credit is immediate gratification,” said Leonard Baron, a professor of finance at San Diego State University, “but long-term, with rates this low, you can get much more value.”
But which loan is right for you? The mortgage game has changed since the housing bust and more rules have been and are being added. One factor is for sure now: Your credit score should be at least 620 or you’ll have a hard time finding a loan. What varies is how much you have for a down payment.
Buyer No. 1: You have a 20-percent down payment and expect to retire in the house.
— Take out a 30-year fixed-rate loan, the most popular type of mortgage. The interest rate stays the same over the life of the loan and right now, that rate is at historical lows. “This loan is for someone interested in stability and security,” said John Stearns, mortgage banker at American Fidelity Mortgage Services Inc. in Mequon, WC.
Buyer No. 2: You have a 20-percent down payment, but plan to move into another home down the road.
— Consider a five-, seven- or 10-year adjustable-rate loan, which has a fixed rate for a set period and then adjusts higher after that time. These loans carry a lower initial interest rate than the 30-year fixed-rate, so you save money over the fixed-rate period. After the fixed-rate period ends, borrowers typically refinance into another loan to avoid the adjustable rate.
Rates on five-year adjustable-rate mortgages averaged 3.75 percent this week. That was the lowest on Freddie Mac’s records, which date back to January 2005.
ARMs got a bad rap during the housing bust because most people who took out two- or three-year ARMs got caught with an unaffordable payment when their rates reset. They couldn’t refinance into a fixed-rate loan because home prices had tanked and credit tightened up.
That risk still exists, but starting in September, lenders will have to evaluate whether borrowers can make payments after the rate reset on adjustable-rate loans backed by Fannie Mae.
Buyer No. 3: You have at least a 20-percent down payment for a house worth more than $729,500.
— You need a so-called jumbo loan which is not backed by Fannie Mae and Freddie Mac. That means any lender who makes a mortgage above that amount will have to keep the loan on its books.
To compensate for that risk, lenders charge higher interest rates than a conventional mortgage. The average rate for a 30-year fixed-rate jumbo loan fell to 5.48 percent this week, the lowest level ever in Bankrate.com’s survey.
Buyer No. 4: You have more than a 20-percent down payment.
— Depending on how much you’re putting down, you might consider a 20-year fixed-rate mortgage. Rates are sometimes, but not always, lower than a 30-year fixed-rate by about a quarter-point. However, because the loan term is shorter on the 20-year loan, the monthly payment will be higher than a 30-year mortgage.
For example, the monthly payment for a 20-year fixed-rate loan for $300,000 is $1,898. It’s only $1,565 a month if the loan is 30 years. But over the life of the loan, you’ll save about $108,000 in interest.
“Most people are interested in a lower monthly payment,” Stearns said.
Buyer No. 5: You have less than a 20-percent down payment.
— Consider a mortgage insured by the Federal Housing Administration, or FHA. A borrower needs to put down only 3.5 percent of the purchase price.
After the housing market slumped, the FHA became the major source of funding for first-time homebuyers. It insured about 24 percent of new loans in the first quarter, according to Inside Mortgage Finance, a trade publication.
Or, consider a mortgage loan that isn’t backed by the FHA, which only requires 5 percent down. However, you will pay mortgage insurance each month, which can add an extra $25 to $50 to your monthly payment depending on your credit score. Private mortgage insurance protects a lender against losses when a borrower defaults. If you have very good credit, this option may be cheaper.
Buyer No. 6: You have a gift down payment.
— While one in five first-time homebuyers used a gift from a relative or friend for a down payment last year, there are some rules to navigate.
Gift money can be used for a down payment on a conventional loan only after the borrowers use their own money to make the 5-percent minimum. Gift money can pay for closing costs or prepaid expenses like property taxes and insurance that are put into an escrow account. Banks typically check two months’ worth of bank statements for unusually odd deposits that could be considered gifts. However, if the gift was deposited six months before, a bank might not notice.
However, FHA mortgages allow borrowers to use a gift to make the 3.5-percent minimum down payment. The gift must be documented in writing and the lender may ask for proof of deposit.
Buyer No. 7: You don’t have a down payment.
— Your options are limited.
If you are a veteran or the surviving spouse of one, consider a mortgage backed by the Department of Veteran Affairs. These loans offer 100 percent financing without private mortgage insurance at competitive mortgage rates.
If the home you’re buying is in a rural area as defined by the U.S. Department of Agriculture, you may qualify for a USDA home loan, which offers 100 percent financing without adding on private mortgage insurance. The USDA aims to help lower-income households get home loans at reasonable rates.
Homebuyer credit extension heads to Obama
First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate late Wednesday.
President Obama is expected to sign the bill, which was overwhelmingly approved by the House on Tuesday. The deadline had been June 30.
Click to read full article. Homebuyer credit extension heads to Obama.
California To Offer Program To Trim Underwater Mortgages
by Jim Wasserman – Sacramento Bee, 6/28/2010 (Legal)
Lots of people will want to get in on this one: California is going to use federal money to pay down the mortgages of struggling homeowners.
The California Housing Finance Agency announced that it will spend $420 million to trim individual mortgages by up to $50,000. Lenders will be asked to match the amount, a deal that could make thousands of mortgages newly affordable across the Sacramento area.
The program, launching Nov. 1, will be run on a first-come, first-served basis, said Evan Gerberding, marketing manager for the CalHFA’s “Keep Your Home” initiative. “Unfortunately, there will likely be more demand than funding,” she said.
Specifics on the selection process are still in the works. But CalHFA will exclusively fund applicants from low to moderate-income households.
In Sacramento, that’s expected to mean people earning less than $68,000 a year. Borrowers will have to be delinquent or in imminent danger of defaulting, but have adequate income to continue paying after getting the help. Gerberding advised people to keep checking the Keep Your Home website for applicant criteria to be posted later. She said people struggling to make payments shouldn’t wait for the program to start, but should contact lenders and loan counselors now.
Thousands of Californians who meet the income guidelines will want in, but one fact will block many. “This is to help people with purchase loans,” Gerberding said Wednesday. That rules out borrowers whose troubles began with cash-out refinances when their homes were worth more than now. Gerberding said exceptions may be made for people who refinanced to get lower interest rates. The program also requires that homeowners live in the house they mortgaged.
For years, federal and state governments have rolled out programs to stimulate loan modifications, and most have proved disappointing. California’s new program is one of the first large-scale attempts at wholesale “principal writedowns,” where loans are shrunk to more closely match today’s home values. “We think it’s encouraging that they took on principal reduction in the way that they did, devoting most of the resources to it,” said Kevin Stein, associate director of the California Reinvestment Coalition.
The low-income advocacy group has campaigned for principal reductions since 2007. “That’s the real need in California, to address the negative equity of borrowers being underwater,” Stein said. CalHFA, the state’s affordable housing bank, estimates it will help 40,000 or more households avoid foreclosure with principal writedowns and other plans unveiled Wednesday. In all, the agency received $700 million for the relief programs, part of a $1.5 billion federal initiative to curb foreclosures in the hardest-hit housing crash states. “We anticipate offering this over the next three years,” Gerberding said.
The agency will also spend $129 million providing up to $15,000 to help people catch up with late payments. An additional $64 million will provide the unemployed up to $1,500 a month to pay the mortgage for six months. Finally, homeowners will receive up to $5,000 to move when they cannot afford the mortgage under any circumstances. In all, the program will steer a maximum of $50,000 to qualifying households to avert foreclosures.
The CalHFA manager said there is no geographical quota. But help will roll first to hardest-hit counties, including much of the Central Valley. In Sacramento, Placer, Yolo and El Dorado counties, 12 percent of mortgages are seriously delinquent or in the foreclosure process. And nearly half the region’s mortgaged households owe more than the house is worth, according to housing industry tracker CoreLogic. “There are thousands who could benefit,” said Pam Canada, executive director of Sacramento nonprofit loan counselor NeighborWorks Homeownership Center. Gov. Arnold Schwarzenegger pledged Wednesday to work with CalHFA “to ensure that these programs are implemented in a way that assists the greatest number of Californians.”
CalHFA hopes banks will match the $700 million. “We’re asking lenders to come to the table with us on this,” Gerberding said. “We can’t force them to do that. But many of them have indicated they are happy to do that,” she said. Gerberding said CalHFA will add fewer than 10 new staff members to run the program. Administrative costs are estimated at about $52 million – 7.5 percent of the funding. — Call The Sacramento Bee’s Jim Wasserman, (916) 321-1102 or email him at jwasserman@sacbee.com. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.
HOMEBUYER TAX CREDIT CLOSING DEADLINE EXTENDED
Coldwell Banker Heritage House
Extending the deadline for closing from June 30 to Sept. 30 would allow lenders more time to clear a backlog of 180,000 homebuyers nationwide.
The Senate has not yet voted on the amended bill itself. The House and Senate must resolve differences between versions of the bill before it becomes law.
The National Association of Realtors supports the amendment, saying Realtors have reported that as many as one-third of qualified applicants have been told by lenders that their loans will not close before June 30 because of the sheer volume of loan applications in the pipeline.
The amendment does not extend the deadline for homebuyers to qualify for the tax credit, NAR said in urging lawmakers to approve it, but simply extends the deadline for closing transactions already in contract.
“Since these applications were already in the pipeline and figured into the program’s cost, the extension of the closing deadline should not incur any further government costs,” NAR President Vicki Cox Golder said in a statement.
Why Sutter County Residents should vote “YES” on Proposed Flood Assessment
By now Sutter and Butte Counties property owners should have received a ballot for a proposed assessment for critical levee repairs. If approved, the assessment will help to pay for 44 miles of levee repairs along the west bank of the Feather River. The State is expected to pay 71% of all construction costs with bond funds dedicated to levee improvements. An annual assessment on properties will help pay the required local cost share.
The Sutter Butte Flood Control Agency (SBFCA) wants to fix levees by 2015 and reduce flood risk. The project will save property owners tens of millions each year in mandatory flood insurance costs, maintain the rights of homeowners to improve property without costly restrictions, and sustain the local economy.
Get the FACTS Before You Get Your Ballot!
FACT: Levees do not meet federal standards for 100-year flood protection.
FACT: Most of Sutter County and large portions of Butte County – are scheduled to be “remapped” by the Federal Emergency Management Agency (FEMA) as Special Flood Hazard Areas.
FACT: Until levees are repaired, property owners with mortgages will be required to purchase higher-cost flood insurance.
FACT: Property owners who want to sell their homes will be required to notify buyers of the requirement to purchase flood insurance.
FACT: Until levees are repaired, strict building codes will be in place, making it more costly for property owners to improve or replace structures.
FACT: Property owners do not get to vote on mandatory flood insurance.
Click to Look Up Your Proposed Assessment
Learn More!
Visit www.sutterbutteflood.org to look up your proposed assessment and get the latest information, news and meeting dates. Questions? Call SBFCA’s hotline at 530-870-4425.
