I want a 4.875% rate!

Question: I'm shopping for the best terms I can get for a new mortgage. How do I get a rate below 5%?

Answer: The internet is loaded with mortgage offers. Make sure to review disclaimers and get key terms in writing prior to making any type of commitment. I always provide a Good Faith Estimate in writing prior to a client applying for a mortgage. In addition, we can provide a loan comparison of competing offers to compare the true benefits of loan options. Watch out for disclaimers like this. Most people do NOT qualify for the low teaser rate.

"Disclosures: Fees & charges apply and may vary by product and State. Subject to underwriting approval. Application required; not all applicants will be approved. Minimum credit score of 731 required to be eligible for advertised rate. Full documentation & property insurance required. Loan secured by a lien against your property. Consolidating or refinancing debts may increase the time and/or the total amount needed to repay your debt. Taxes & insurance extra. Terms, conditions & restrictions apply. For example, as of 02/26/09, a $250,001 loan amount financed at 4.750% (5.000% APR) with a 2.250 point discount and a 20% downpayment, would result in 360 monthly principal and interest payments of $1,304.12. Lock in fee required to secure rate. Recent rate but subject to change without notice. Rate available on loan amounts from $250,001 to (A) $417,000 (contiguous US) and (B) $625,500 (AK and HI) on owner-occupied single-family residential properties. Rates, loan products, & fees subject to change without notice. Your rate and term may vary. "


Question: Is the government going to lower rates?

Answer: The government has been making attempts to lower interest rates. One tool has been to purchase billions of dollars of mortgage back bonds. Unfortunately, rates have not responded as planned. See Blog Archive for 4% mortgage interest rate.

$8,000 Home Buyer: Key Points

1. New buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal. This credit is equivalent to 10 percent of the purchase price of the home--although it's capped at $8,000--and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.

2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.

3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.

4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.

6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)

4.625% Mortgages - Bait and Switch -

I did a survey at four of the "leading" online mortgage sites. The 4.625% rate seems to be popular! I decided to read the fine print they put at the bottom of the page and discovered there is more to the story. In my opinion, 99% of potential clients would not fit the criteria. I will post an actual disclaimer at the end of this post.

Not only does this smell of bait and switch, but the APR (annual percentage rate) is calculated differently at each site. People have been taught that the APR is a simple way to compare competing offers. Unfortunately, calculating an APR is more an art than a science. I have been originating mortgages for eight years and I recently completed the Indiana mandatory 24 hour educational requirements for loan originators. In addition, I passed the Secretary of State's Indiana Primary Manager test. I have not found any source that states which fees lenders must include in the APR. The requirements are general and a matter of interpretation. So how do people make an informed decision?

The first thing an individual can do is work with a company they have worked with in the past. They can also seek referrals from people they trust. In addition, always get key terms in writing. I make it a practice to give clients a written Good Faith Estimate as well as a written loan comparison. Work with companies and people you trust and always get it in writing.

(Here's the disclaimer. It's similar to all the others. Notice they charge 2.64% loan points/lender fees)

* Refinance at 4.625% Fixed. Example assumes a $200,000 loan amount with a fixed interest rate of 4.625% and Annual Percentage Rate (APR) of 4.856%. Terms of the payment are based on a 30 year term fixed rate loan with principal and interest payments of $1,028.28 per month with a 2.64% loan points/lender fees due at closing. The example assumes a credit score of 780 or greater with a loan to value (LTV) of 80% or less on a primary residence. Rate and terms offered may vary depending on your credit history and other qualifications, amount of equity in the property, location, type of property, and other factors. This program is available as of February 11, 2009 from a participating Service Provider.

$15,000 Home Buying Tax Credit Is OUT of the Stimulus Package

I was disappointed to hear that the Senate proposed $15,000 home buyer tax credit has been removed from the Stimulus Package that President Obama will likely sign in a few days.

I worked for Marathon Oil Company for (6) years as a territory manager. My customers regularly asked me if the DTW (dealer tank wagon) which is the price that gas stations paid for gasoline was going up or going down. Even with an insider perspective, I quickly discovered that my recommendations were not much better than the Weather Men's Predictions. I have enjoyed a (10) year career in the mortgage and real estate industry. My clients regularly want to know the direction of mortgage interest rates. I have found the same principle of accuracy as the Weather Men's Prediction with mortgage rate trends as I did with gasoline prices.

I believe the Weather Men's Prediction Principle applies to many things in life including politics. The $15,000 home buyer credit was almost guaranteed to be included as part o the stimulus package as of a couple days ago. It appears President Obama will sign a package that does not include it.

According to The Associated Press Senate Majority leader Harry Reed claims that 95% of American workers will get a tax cut. Senator Joe Lieberman says the bill will be the beginning of the turn around of the American economy. President Obama states "it will save or create more than 3.5 million jobs. I hope these claims do NOT follow the Weather Men's Prediction Principle!

Other provisions include:

1. Expanded unemployment benefits, food stamps and heath care coverage.
   
2. A $250 one-time payment to millions o social security beneficiaries.
   
3. $46 billion in transportation related projects.

Housing Stimulus Update

Congress is actively considering an expanded home buyer tax credit, and the Senate has approved the following improvements:

• The tax credit amount increases to $15,000.
  
• The tax credit is extended to anyone buying a principal residence.
  
• The tax credit will apply to all purchases occurring within a year after the bill is signed into law.
  
• It is a true tax credit; it does not have to be repaid.
  

Please call your Senators and urge support for the expanded home buyer tax credit. To reach your Senators, call 1-866-924-NAHB (6242).

4% Home Mortgage Interest Rate

Question:  Are Home Mortgage Rates Going Down to 4%.

Answer:  The government has been making attempts to lower interest rates.  One tool has been to purchase billions of dollars of mortgage back bonds.  Unfortunately, rates have not responded as planned.

From the Los Angeles Times

Mortgage rates rise despite the Fed's efforts to push them down

Even as the Fed has continued to buy billions of dollars' worth of mortgage-backed bonds each week, home loan rates are at their highest level since mid-December.

By Tom Petruno
February 6, 2009
The Federal Reserve is trying to push mortgage rates down. But the marketplace has other ideas. Home loan rates rose this week to the highest level since mid-December, according to mortgage giant Freddie Mac's latest national lender survey. The average rate on 30-year loans was 5.25%, up from 5.10% last week and the highest since 5.47% the week of Dec. 7. "I don't think this is going as planned," said Tom Atteberry, a money manager at First Pacific Advisors in Los Angeles.
The Fed in early January launched an unprecedented program to buy mortgage-backed bonds for the central bank's own portfolio. The idea: By boosting demand for mortgage securities, the Fed hoped to pull down interest rates on the bonds, which in turn was supposed to lower rates on new home loans used to back such securities.
The plan worked -- for a few weeks. Annualized yields on mortgage bonds issued by Freddie and Fannie Mae slid to well under 4% by mid-January. And the average 30-year home loan rate fell to 4.96% the week of Jan. 11, the lowest since at least 1971. That triggered another rush of loan applications from homeowners seeking to refinance, and in general stoked hopes for the still-struggling housing market. But even as the Fed has continued to buy billions of dollars' worth of mortgage-backed bonds each week, market yields on the securities have rebounded sharply, which has helped to push up home loan rates.
One factor driving mortgage bond yields higher has been a jump in yields on long-term Treasury bonds. Some investors have balked at buying Treasuries because they know Uncle Sam will borrow record sums this year, and figure yields are sure to rise further. Another issue putting upward pressure on mortgage rates: Some lenders have been so swamped with refi applications that they've raised rates to avoid facing a bigger backlog, said Keith Gumbinger, vice president at mortgage research firm HSH Associates in Pompton Plains, N.J. "They're trying to get business to ease off," he said.
But some analysts say the biggest problem the Fed faces in trying to manipulate home loan rates is that private investors want a higher return on mortgage securities than the Fed is willing to accept.
"They're trying to artificially move the rates away from where the market thinks they should be," Atteberry said. A 5% annualized yield on mortgage bonds is about the minimum many investors will accept, he said. The rebound in mortgage rates "is the market starting to exert its discipline," Atteberry said.
It's a reminder to the Fed that although it directly controls short-term interest rates, its power over long-term rates has always been limited, and still is, analysts say.

Sources

LA Times

Reuters

Bloomberg

$7,500 1st Time Home Buyer Credit

Highlight: 

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.

Homebuyers get a bonus in the stimulus bill

First time buyers could receive a $7,500 tax credit if they purchase soon.

By Les Christie, CNNMoney.com staff writer

Last Updated: January 29, 2009: 5:18 PM ET

NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.

Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.

Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.

"Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it's implemented," said Mary Trupo, a spokeswoman for the National Association of Realtors. "It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now."

A 10% increase would yield an extra half million sales this year.

Who qualifies

To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.

Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.

Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.

And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability.So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.

The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.

Buyers beware

But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card.

Williams argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway. (See correction, below).

And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back - the suspicion that prices are going to keep falling.

"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."

The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it's pushing to have the credit last through the end of the year, at least.

"By the time it's implemented," said Trupo, "there could be very few months left to act."

An earlier version of this story incorrectly stated that the tax credit for a home purchased in 2009 could only be taken off of 2009 taxes. However, homebuyers can choose to take the credit for 2008, according to the IRS. Even if they buy a home after they've filed their 2008 taxes, they can file an amended return. 

ZERO Move-In Financing

USDA Rural Development Guaranteed Housing loan program.

Property Eligibility

Income Eligibility

KEY PROGRAM FEATURES of USDA Rural Development Guaranteed Housing Loan Program:

•           No Down Payment Required. 

•           No Minimum Cash Contribution Required from Borrower.

•           No Monthly Mortgage Insurance…just 2% Guarantee Fee for Purchase

•           No Cash Reserve Requirement.

•           No Stated Maximum Loan Amount; maximum loan based on repayment ability.

•           Qualifying ratios of 29%/41%. Ratios may be exceeded to accommodate qualifying borrowers if compensating factors exist.

•           Ratios can be exceeded up to 2% on energy efficient NEW and EXISTING homes meeting requirements of the 2000 International Energy Conservation Code.

•           2/1 Temporary Interest Rate Buydowns Allowed

•           Loan up to 102%* of appraised value allowed…not the lesser of Sale Price or Appraisal. Difference of contract and appraised value can be used to finance closing costs, prepaids and required repairs.  In addition, the guarantee fee paid by borrower can be added above the appraised value.

•           Eligible Repairs/Rehabilitation can added to loan amount and completed after closing with the set-up of a repair escrow account. 

•           No First Time Homebuyer Requirement.

•           New and Existing Singe Family One Unit Homes OK.

•           Liberal Acreage Allowance.

•           Fully Amortized 30-year Fixed Rate Loan.

•           No Prepayment Penalty.

•           No Seller Contribution Limit.**

•           No Limitation on Source of Funds for Closing Costs. No seasoning requirement.

•           100% Gifted Closing Cost or Down Payment/Closing Cost  Assistance is permitted.

•           No limit on CLTV when soft second financing such as SHIPP or HOME is used for closing costs and prepaids.

•           Non-traditional credit may substitute for lack of traditional credit history.

•           Streamline documentation available for applicants with a 620 credit score or higher. Borrowers with a 620 mid-score or higher get an automatic "Credit Waiver" from RD and borrower does not need to explain derogatory credit and no rental verification is required. ***

•           No minimum credit score required however extraordinary compensating factors must be present to warrant loan approval for applicants with FICO scores of 580 and below. 

 *Appraisal may be exceeded by amount of Guarantee Fee paid by the borrower.

 **Some lenders have a 6% seller contribution as an internal policy. RD requires fees charged to borrower to be reasonable and customary. In addition, all fees and charges are and subject to State, Federal and lender requirements.

 *** Exception: Any applicant with delinquent Federal debts, regardless of credit risk score and any applicant with an unsatisfactory payment history on a previous Rural Development loan, regardless of credit risk score. Subject also to lender approval.

 For general information purposes only. Loan approval subject to Lender underwriting guidelines and RD regulations 1980-D and applicable ANs.