Montana Home Loans

Following up on my earlier post, what other questions should you be asking your prospective loan officer?  Knowing the right questions to ask will ensure that you are working with a professional loan officer. 

Question #2: What is the next economic report or event that can cause a change in interest rates?

Interest rates change daily based on the release of various economic reports, comments from politicians or due to global news.  Your loan officer should have at his fingertips the answer to which reports are coming out next and what things are going on in the world that could affect rates. 

Again, this is important because a loan officer with these tools will be able to successfully advise you as to when you should lock into your rate and when you should not, thus potentially saving you thousands of dollars on your mortgage.

Look for a Certified Mortgage Planning Specialist in your area.  Check out their website first:  www.cmpsinstitute.org.

Stay tuned, as there are more questions for your arsenal to follow!

Options For Those Upside-Down

Fannie Mae and Freddie Mac both offer options to refinance for homeowners that have negative equity in their homes. Often these transactions DO NOT require an appraisal.

The biggest problem I see, is that people shoot themselves in the foot by not inquiring. They assume they don’t qualify for one reason or another.

A good loan officer will navigate the various guidelines so that they do qualify. And he will show them whether the transaction makes financial sense. The first step? Homeowners should inquire, so that they understand what options are available.

If you are considering purchasing a home, whether a first-time homebuyer or seasoned, be sure to work with an experienced, professional mortgage broker.  This will likely be the largest financial transaction of your life.  Thus, it may not payoff to go with the person that appears the “cheapest.”  Remember, you get what you pay for.  That being said, I have a series of posts with four questions you should ask your prospective loan officer.

Question #1:  What are Mortage Interest Rates based on?

Answer:  Mortgage backed securities or mortgage bonds.  NOT the Fed or the 10-year Treasury Note.  Sometimes these financial instruments move in the same direction, but often they do not.  Working with the right loan officer who understands mortgage bonds, will help advise you more accurately about when to lock your rate or when to float.  That way, you get the best rate that is available during your transaction!

There are still many options available for borrower’s with less than 20% down! Many of these programs are considered to be “first-time homebuyer” programs, but are really NOT restricted to first-time homebuyers. These programs do have other restrictions, which I’ve listed below. 

Rural Development (0% Down)— There is no loan limit here, but borrowers are restricted by maximum income limits. There are many individuals and families that qualify for this program. Also, if the borrower has the ability to put 20% down, then they do not qualify—however, retirement assets do not count toward the ability to put 20% down.

FHA/VA (3.5% Down of FHA)—Maximum loan amount for FHA is dictated by county; the limit in the Flathead is $301,300 for a single-family residence.

FHA $100 Down —Same loan limits apply. Subject property must be a HUD foreclosure.

Fannie Mae HomePath (as little as 3% down)—This program is specific to properties that are identified as “Fannie Mae HomePath” properties. There are certain advantages. No appraisal required! No mortgage insurance! 3% down with a credit score of 660 or better!  Eligible for owner-occupied, vacation homes, or rental property, but details will vary.

Other Options—Most conventional options require at least 5% down, and will require mortgage insurance.

***In general, a 640 credit score is required for most of these programs; but some lenders allow scores down to 620.

***Also, there are many considerations when choosing these loan programs.  Working with an experienced loan officer that understands the choices is crucial.

When Is It Required?    Small down payments, less than 20% down, usually mean you will be paying Mortgage Insurance. It is commonly called “MI” in the industry. There are a few lenders out there that DO NOT require it, but their rates tend to be higher.

What Is the Purpose?    Mortgage Insurance insures the LENDER against a portion of their loss, in the case of your default. It does nothing for you, if you can’t make your payments. The benefit to you is that you can get a loan without 20% down.

How Is It Paid?    That depends on the loan program, your down payment, and your credit score. Depending on these factors, it can be paid monthly, paid as a one-time premium, or a combination of the two. With some programs, the up-front premium can be financed on top of the loan, meaning less out-of-pocket expense.

Which Is Best?    Unfortunately, many lenders will not know how to structure the transaction properly to get you approved. If high debt is an issue, then you certainly should not consider the monthly premium. It may be best to negotiate for the seller to pay for the cost of it. Many of these concerns should be addressed by your loan officer. If he understands the MI options, he will help you make the best choice.

Credit Scores Affect Interest Rates

There are a few easy ways to keep you credit scores high, or to improve them in a hurry.  Obviously, paying your bills on time is essential.  Unfortunately, paying your bills on time is not enough.  Here are some tips that can help increase your scores.  I would suggest reviewing these items with an expert before you purchase a home.  Many first time homebuyers and seasoned buyers can save a TON of money (by getting a better interest rate) by having a higher credit score.

First, prior to applying for a home loan, go to www.optoutprescreen.com and “opt-out” of all pre-screen credit card offers.  The biggest benefit?  It will reduce your junkmail! 

Second, keep your credit card balances at about 30% of the limit.  If your balances are over 50% of your limit, it will damage your score from 20-60 points.  Even if you only have one credit card that is maxed-out (and not using the others), your score will be penalized. 

Third, past due and over-limit amounts must be paid.  This seems obvious, but I see it somewhat regularly.  Correcting these items can increase your score by 100 points! 

Again, when buying or refinancing a home, you should consult with an mortgage professional about how to fix these problems.  The lazy mortgage guys will not go the extra mile to help improve your scores.  They may want to close your loan as is.  My suggestion, ask around!

I thought I would try to inspire you to dig deep this week.  There are many people out there bracing for a tough second half of the year.  My advice, don’t react!  Make it happen, by design! 

A friend of mine, Tim Enochs, has a motivational blog, Irrefutable Success.  I thought of some of you after reading “Genie In A Bottle.”  (follow the link).  In a nutshell, he says, instead of waiting to find the magic lamp, one could actually be doing things to realize one’s goals.  That’s why I say, make it happen! 

You all know the outcome of doing nothing.  OK, one very lucky person out there might win the lottery, but we all know your odds of achieving success are much higher, by planning and doing.  It doesn’t take much.  

For those of you trying to purchase a home, opportunities abound!  Don’t slack off because the tax credits have disappeared.  Make sure you are working with a GREAT loan officer and a GREAT real estate agent.  If you are not quite qualified to be purchasing, keep working on it.  Opportunities to find a great price on a home purchase will exist this entire year. 

Sift through some of my previous articles.  In spite of disappearing tax credits and challenging qualification requirements, it still makes every bit of sense to purchase a home.  Home loan rates may NEVER be this low again!  And home values will probably NEVER be this low again.  This could be the BEST financial move of your life!  Wow, I wish I was buying!

Shopping for a Loan Officer?

Shoot, that’s easy.  Aren’t you supposed to go with the guy that has the lowest interest rate?  Well, no.  Frankly, there is a lot that comes, or DOESN’T COME with that “lowest” rate.  Remember, you get what you pay for. 

And, there are some things equally important as interest rates . . . like getting your loan closed on time!  Let me explain . . .

Rates work in tune with closing fees.  A lower rate usually means more in fees; and vice versa.  In many transactions, paying the fees for the lower rate does not make sense.  It may make more sense to take a slightly higher rate for a lot less in fees.  A good loan officer will show you both options.

Most important to understand is that when you decide to work with a lender, what you are really buying is advice.  We all, more or less, have the same loan programs and have the same rates.  Really, what you should be looking for is advice, service, communication and trust.

How do you shop for those things? 

Ask about their background.  Often, loan officers at banks are not trained like a true mortgage broker.  A bank loan officer probably gets paid salary, and gets paid whether or not your loan closes.  Most mortgage brokers only get paid when your loan closes because they work strictly on commission.  So, they will work much harder at providing you with the items mentioned above.

Ask what they consider the problems you might have in getting loan approval.  Ask if a back-up plan is necessary and what options are out there.  Remember, all loan officers are sales people to some extent.  So, you will often get the happy “no problem” answer you want to hear.  However, they should be able to give you a brief outline of where you stand: credit, income, employment history, debt, and the property.

In addition, you should ask them what mortgage rates are based on.  Mortgage rates are NOT changed by the government at will.  They are a result of trading activity for mortgage-backed securities or mortgage bonds.  These financial investments are traded kind of like stocks, and the rates can change daily or sometimes hourly.  If your loan officer doesn’t understand this, find a new loan officer!  A lot of money can be saved or lost, if your loan officer doesn’t understand how or when to advise you to lock/float your interest rate. 

For more ideas with which to shop for a loan officer, please see this article by Sue Woodard.  It’s a great article, with some insightful ideas.

And remember, at the end of the day, if it seems to good to be true, then it probably isn’t.

I hope this helps!

Why Buy A House Now?

Even though the first-time homebuyers tax credits have disappeared, it is still a GREAT time to buy.  You might wonder why.  Well, it is my job to consider the financial side of the transaction.  And that piece makes a lot of sense, even if home values decline slightly.

I compared buying now, at today’s rates, with buying in the future at higher rates.  I’m assuming rates will go up about 1%, which seems to be the rough consensus, looking six months ahead.  In one future scenario, I assume home values decline by 5% from today’s values.  In another future scenario, I assume home values do not decline, but mortgage rates do rise.

So what happens?  Well, when considering the monthly cost of owning the home, buying now, at the lower rates, makes a ton of sense.  The lower rates means you can own the home for a lot less per month.  I’ve included the math here that supports this theory: Buy Now Comparison.

Please contact me to discuss how I can apply this to your purchase scenario.  Also, I can apply it to sellers that are “holding out” for a higher offer–it probably makes sense to sell now, so you can move forward.

Thanks, and keep your head up!

How To Check Your Credit

First of all, there are three companies that create a score for you.  In a nutshell, scores range from 350 to 850.  I’ve never seen an 850, so don’t be disappointed if you don’t have an 850.  The three companies all have different ways of calculating your scores, so they will usually all differ.

By law, you are entitled to receive a free report, each year, from each company.  I suggest you get your free report periodically throughout the year.  Here’s what I mean . . .

In January, pull it from one company, say Equifax.  In May, pull it from another, say Trans Union.  In September, pull it from the last company, Experian.  The advantage of doing it this way, is that you can check regularly for any suspicious activity on your credit report.

You can get a report from each credit bureau on one site.  The ONLY place to get your free reports is:  www.annualcreditreport.com. 

Understand, when you get your report, they will give you your reported credit history, which is free.  If you want your score, you have to pay for it.  Save your money, your “consumer” score is always different than your score for lending or insurance.  They of course like to keep everyone guessing, and use different calculations for your score, depending on the reason for the credit pull.

You want to be checking for accurate/inaccurate information and for unauthorized inquiries.  There is an easy place to dispute information on this site.  Good luck!