100% Financing is Back!

Although the 100% financing/Zero down payment mortgage has gone the way of the dinosaur, this valuable mortgage program is now available once again for designated areas of Arizona.

What kind of loan do you get? How about a 30 year fixed rate where you need not worry about the rate going up during the life of the loan. There are no mortgage insurance and no minimum credit score requirements either. Other benefits include the substitution of "non-traditional" credit when traditional credit is not available. What that basically means if you have no or little credit history, you may be able to submit "alternative" sources of your repayment history such as 12 months of your utility bills payments and rental payments.

And by the way, this program is not limited to first time home buyers, so anyone can apply!

Declining Markets

As a first time home buyer, you may not yet be familiar with the latest mortgage buzz word “declining markets”.

So you may be asking then, what does it mean?

Simply, Fannie Mae (FNMA - Federal National Mortgage Association) and Freddie Mac (FHLMC - Federal Home Loan Mortgage Corporation), have introduced new rules affecting "loan-to-values" (amount financed as a percentage of home value) for home mortgages originated in designated geographic markets.

Fannie Mae and Freddie Mac are US government sponsored public corporations that buy and pool qualified mortgage loans from their originating financial institutions. They then issue securities backed by their guarantee (and not that of the US government) against the mortgage pool for sale in the open market to provide fresh funding for home mortgages. Fannie Mae, as it is popularly called, is the largest US player in the secondary mortgage market, while Freddie Mac is the second largest US player in the secondary mortgage market.

As stated by Fannie Mae:

“Current home price trends indicate that home values continue to decline in many markets across the country. As a result, and based on our continued monitoring of loan performance, Fannie Mae is reinstating a policy to restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum permitted for the selected mortgage product.

The reinstatement of the maximum financing policy and the other changes outlined in this Announcement are necessary in light of current market conditions. These policies are effective for all loans delivered with application dates on or after January 15, 2008.”

How does this affect home buyers in Pinal County?

Let's say that you have applied for a mortgage based on a purchase price of $200,000, with a 5% down payment. Without "declining market", you could borrow $190,000 or 95% (95% Loan-to-Value) of the purchase price.

However, if the home you are buying is deemed to be in a "declining market" by Fannie Mae or if the lender's real estate appraiser determines that it is located in a "declining market", you can now only borrow 90% (instead of the 95% you originally requested), thus requiring that you put an additional "5%" down. In this scenario, you would now be putting a total down payment of 10% (or $20,000) and borrowing $180,00.

This does not necessarily mean that you won't be able to get 100% financing/zero down mortgages anymore. But, it sure is a great incentive for Pinal County first time home buyers to look into Pinal County Down Payment Assistance, as the amount of assistance to eligible home buyers could be up to $20,000!

Interest Rate Trends

Mortgage Rates Rise as Federal Reserve Cuts Short-Term Rates

The average 30 year fixed rate mortgage rose to 6.21% this past week, as the Federal Reserve reduced short-term interest rates for the second time in an eight day period. Nonetheless, mortgage rates are still near a historical low, which may have contributed to a relatively strong refinance market, according to the Mortgage Bankers Association.

In Pinal County, AZ, fourth quarter 2007 home resales (sales of existing homes) picked up which may be attributable in part, to attractive mortgage rates and lower home prices.

As short-term interest rates trend downward, borrowers facing rate adjustments on their ARMS may be getting some relief. Moreover, some homeowners with the now infamous subprime loans may be getting a reprieve via rate freezes and loan modifications as an economic stimulus package is being hammered out.

Pinal County Housing Market

If you are sitting on the fence waiting for the right time to buy your first home in Pinal County, Arizona, here is some food for thought.

The Pinal County housing market for resales from 2006 to 2007 showed a decline of nearly 7.3%, while its median home price as of the fourth quarter 2007 was just $174,000 (compared to $238,500 in that of neighboring Maricopa County) keeping Pinal County an afforable place to live.

Wondering how large a home you get for that median price? The median square footage of a resale home in Pinal County as of the last quarter of 2007 was 1,735. Combine that with interest rates still hovering near historical lows, down payment assistance/interest rate reduction programs, and home buying still looks very attractive.

By using a mortgage calculator, like the one on this blog, you might discover that the monthly mortgage payment from buying a home in Pinal County would not be much more (if at all) than the cost of renting a home of similar size and age, especially when you consider the potential tax benefits of homeownership (you would want to consult your tax advisor about this).

Obviously, only you can decide whether it is the right time to buy a home for you and your family, taking into consideration other factors as well.

Pinal County Down Payment Assistance, Bond Program

Did you know that if you are a first-time home buyer in Pinal County, Arizona, you may be able to obtain down payment assistance for as much as $20,000?

Sounds too good to be true? Well, it is indeed very true. However, not every Pinal County home buyer is eligible. And you need to understand the true definition of "first-time home buyer" as it applies to this program.

Firstly, first-time home buyer as it pertains to this DPA (down payment assistance) program means that you must not have owned a home within the past 3 years. How the heck would anyone be able to confirm that? Simple. The lender will require that you provide your last 3 years of federal income tax returns.

You must also satisfy additional eligibility requirements including falling within specified family household income limits, as well as not exceeding specified purchase price limits.

And did you also know that an interest rate reduction bond program is available to Pinal County, first-time home buyers? The eligibility requirements for this program are the same as for the down payment assistance program.

There are also a few other resources out there including Pinal County Down Payment Assistance and Pinal Bond Program.

What is PMI (Private Mortgage Insurance)?

PMI (or Private Mortgage Insurance)

is usually required when you purchase a home with less than a 20% down payment. Designed to protect lenders against the costs of foreclosure, PMI is most often provided by private mortgage insurance companies, such as MGIC (Mortgage Guaranty Insurance Corporation), GE Mortgage Insurance, et al.

PMI is an additional expense typically collected with your monthly your mortgage payment. The cost (monthly premium) of PMI varies depending upon the size of the down payment or, from the lenders perspective, by the Loan-to-Value (LTV). The cost of this monthly premium is higher for lower down payments.

Can PMI ever be cancelled? Yes, here are a few common ways:

Once you feel that the mortgage balance as a percentage of your current home value is at least 80% (Loan-to-Value or LTV), you may contact your lender or mortgage servicer. In most cases, an appraisal will be required to determine the value of your property, the cost of which you can expect to pay. Although there is no law requiring lenders to remove PMI even if an appraisal supports a value of your home sufficient to bring the LTV down to 80% or less, many lenders may do so, after taking additional information into consideration, such as your mortgage repayment history. If you've been late on your mortgage, that may have a serious impact on the decision to remove PMI.

Another thing you may do is try to refinance into a new loan without PMI as long as the appraised value on the new loan supports at least an 80% Loan-to-Value.

Is PMI tax deductible? As of January 1, 2007, Congress passed a bill making Private Mortgage Insurance a tax deductible item for new borrowers whose adjusted gross annual income (personal) is at or below $100,000. The benefit for millions of new homeowners is a potential savings of hundreds of dollars in reduced tax liability (thereby reducing the cost of financing) or an opportunity to afford a slightly more expensive home. Consumers can now breathe a little easier in their dislike of this much maligned mortgage related expense.

Five Components of Credit Scoring

In order of importance:

Payment History. Perhaps the most important factor. Repayment of debts on time and in full is a big plus. Late payments, judgements, charge-offs, etc. as you can imagine can significantly reduce one's score. Delinquencies within the most recent 2 year period affect score more than those that are much older.

Outstanding Credit Balances. Almost as important as payment history. The higher the balance as a percentage of the available limit, the lower the score. Better to keep outstanding credit (particularly revolving debt, such as credit cards) balances below 30% of available.

Length of Credit History. As it pertains to when credit for a particular debt was established. Generally, the older the debt (i.e. a car loan, mortgage, etc.), the better. Thus, a borrower who has a lengthy history of satisfactory debt repayment, is a lower risk and therefore have a higher score than one who recently opens credit accounts for the first time.

Type of Credit Used. A variety of different types of debt (installment and revolving - mortgage, car loan and credit cards) is better than a concentration of a particular type of debt obligation (revolving only - credit cards).

Credit Inquiries. The number of times a credit report is "pulled" for a consumer within the preceding 6 month period can reduce the credit score. More than 10 inquires in a 6 month period should have no further impact on a borrower's credit score. Each inquiry, can reduce a consumer's credit score anywhere from 2 to 50 points.

When it comes time to buying a home, mortgage applicants would be well advised not to go out on a shopping spree for furniture or any other big ticket items. Borrowers should always exercise extreme caution in continuing to manage their credit practices throughout the loan process.

How Does Credit Affect My Mortgage Rate?

Good Credit Equals Lower Mortgage Loan Rates.

Over the years, I am often asked whether or not credit impacts the interest rate one can obtain from a mortgage lender. I always give a resounding yes. In fact, good credit not only means that you "should" get lower rates on most types (mortgage, car, personal) of loans, but it also opens the barn doors to all types of credit possibilities.

Why exactly is this the case? Back in the day (we're talking the 1960s) the Fair Isaac Corporation developed a scoring system which lenders could rely upon to determine the probability of timely repayment of loans. Before this, lenders had not much more than a man's (or woman's) word, upon which to rely.

A few decades later, how things have changed. Credit scoring is a lender's first line of defense. Although loan decisions are not made soley on a consumer's credit score (in theory), it can definitely put a damper on a consumer's ability to borrow money, as well as the cost of borrowing money. FICO scores can range from 350 to 850, the higher the score, the better.
I have recent studies indicating that only 1 out of 1300 people in the U.S. have a credit score above 800, whereas 1 out of 8 prospective home buyers have a credit score between 500 to 600.

Take a look at the chart below which illustrates how credit score can affect the interest rate.

For more information, contact a qualified lender.

Annual Percentage Rate (APR): What does it mean?

Calculated by using a standard formula, the APR shows

the cost of a loan expressed as a yearly interest rate and includes the interest, points, mortgage insurance, and other fees associated with the loan. Because the APR takes into consideration all of these costs spread over the term of the mortgage, it is supposed to reflect for the consumer, the "true" cost of borrowing money. It also prevents lenders from hiding fees and any upfront costs from consumers.

All mortgage lenders and brokers are required by federal law to disclose the APR to consumers who apply for a mortgage in a diclosure called the Federal Truth-in-Lending. The APR was conceived as a way for consumers to compare the cost of borrowing among different lenders. However, the way in which the APR is calculated is not neccessarily the same from lender to lender, making this a less-than-perfect method of cost comparison shopping. Additionally, the APR does not take into account loan pre-payments, including early pay-offs.

APRs for Adjustable Rate Mortgages (ARMs) or for Balloon mortgages are less credible as there is no way to know exactly what the interest rate will be during the term of the loan. Thus, certain assumptions about the rate changes are made for the purpose of calculating APRs on ARMs and Balloons.

Therefore, consumers should consider other factors when deciding with which lender they should apply. Those may include the integrity and knowledgeability of the loan officer representing the lender or how long they plan on holding the loan.