Mortgage Points: Why Pay For Them?

 

If you are in the market for a home or considering refinancing your current mortgage, you probably have heard your mortgage professional talking about points. They may advise you to buy points or they may advise you not to, depending on your situation. The question is, do you really understand points and when it makes sense to buy points?

 

A point is 1% of the loan amount. So, one point on a $100,000 mortgage costs $1,000. Points can be purchased in increments down to an eight of a point. It's not any more complicated than that. When should you buy mortgage points?

 

The pros of doing this are really pretty easy to understand. By pre-paying your interest, you get a lower rate and therefore a lower payment for the life of your loan. The cons of buying points are that you must stay in the home for a certain period before you "break even" on the transaction.

 

For example, if you have a $200,000 mortgage and you buy two points, you will pay $4,000 for those points at closing. If buying the points lowers your payment $250 a month, you'll need to stay in your house at least 16 months to break even (16 × 250 = 4000). In this example, after 16 months you'll start making money. After several years, you'll save a lot of money.

 

One other thing to keep in mind about buying points up front: Points may be tax deductible, so there is an added benefit if you qualify for the tax deduction. Check with your tax advisor before you deduct points on your taxes.

 

If you have any questions or comments about points, just click the comment link below and sound off. We'll get back to you with answers to any questions you might have. We'd love to hear from you.

 

 

 

Tips for Homeowners Nearing Foreclosure

 

Some homeowners who are three months to a year behind on their mortgages have chosen to leave their homes altogether. Anyone can walk away from a house — even a retired baseball great, Jose Canseco, who abandoned his Encino (Calif.) property earlier this year.

 

But attractive as "just walking away" may seem to a homeowner at the end of his or her financial tether, leaving a property to the mortgage-holder or other interested parties carries a serious credit risk and significant legal responsibility.

 

We've touched on this topic several times in the past on this blog, but wanted to hit it again to help some who may be thinking in the wrong direction.

 

It's a good idea to call the person you may least want to talk to: The lender. Cash-strapped homeowners can get forbearance from their lender if they act early. This agreement reduces or suspends the mortgage payment for a limited time, giving homeowners a temporary reprieve.

 

A forbearance is not the same as loan forgiveness. Ultimately the mortgage payments have to be reinstated, and anywhere from three to six months of missed payments have to be accounted for. The very lucky — and reasonably well-off — can pay off the amount accumulated during forbearance in one lump sum. But for those who still find themselves in short-term financial trouble, most lenders offer specialized payment plans in which the borrower agrees to add a portion of the missed payments to the mortgage until the account is current.

 

Speaking directly to a lender seems logical enough. But surprisingly, homeowners who struggle and fail to meet their mortgage payments month after month rarely contact their lenders. And the further they fall behind, the less likely they are to reach out for help.

 

We've said this before, and we say it again now.  Walking away from a mortgage severely damages your credit and is not a good solution. If you're in trouble, TALK TO YOUR LENDER!

 

There are other ways to solve things and prevent ruining your financial future as opposed to walking away from your mortgage. Talk to us. We'll help you in any way we can with ideas and suggestions you can try.

 

 

 

Mortgage Rates Lower on Jumbo Loans

 

Congress has lifted the conforming loan limits in thousands of counties across the country. The government is allowing mortgage giants Fannie Mae and Freddie Mac to buy more — and larger – loans. And the FHA has rolled out its jumbo loan.

 

So what does it all mean for you? Well, if you’re a homeowner, or even thinking about becoming one, you may just find it’s easier to get approved for a loan.

 

Here’s why:

Let’s start with higher conforming loan limits.

 

The conforming loan limit is the maximum amount you can borrow before your mortgage is considered a jumbo loan, and therefore subject to higher interest rates because you’re now considered at a greater risk of defaulting.

 

$417,000 was the conforming loan limit across the country, regardless of where you lived. But, now that credit guidelines are much tighter, people living in areas where the average home value exceeds the $417,000 limit – like California – were having a heck of a time getting loans. And even if they could find one, the interest rate was so high, most folks were priced out of the market.

 

Congress did away with the flat conforming loan limit of $417,000. They replaced it with a new system where the loan limit for each county is based on its average home value.

 

The new limit is either $729,750 or 125% of the average home value – whichever is less for each individual county.

 

You can now get a jumbo loan with a rate that is just an eighth to a quarter-point higher than on a conventional mortgage, as compared to a full percentage point before the change.

 

 

 

Mortgages: Pre-Qualified vs Pre-Approved

 

When you are pre-qualified for a mortgage of some amount, this is simply a quick measure of what you probably can borrow. It is based on a few answers you give to things like how much income you have and the amounts of any debts you have. It does not, however, mean the bank or lender who pre-qualifies you has agreed to lend you anything. Your income still needs to be verified, and your credit report will need to be looked at.

 

Loan pre-approval is different. Once the lender has verified any important facts and seen your credit score, you can be approved for a loan up to a certain amount. You should get a letter showing what they will lend you and at what interest rate.

 

This still does not guarantee you a loan. If interest rates change much prior to you finding a home and making an offer that is accepted, the lender may lower the amount they are willing to lend to you, since the total payment amount is important to whether you can afford the loan or not, and higher interest rates could change this amount. Also, changes in your credit score could affect the final loan commitment. Keep this in mind, and make all offers subject to an actual loan commitment.

 

Make a few copies of your loan pre-approval letter. Presenting it with an offer on a home is a good way to show the seller you are serious and prepared to close. If the seller has ever had an offer fall apart due to a buyer who couldn't get financing, he will be very happy to see your pre-approval letter. If you are looking for more than six months, you may want to get a new pre-approval letter, to show that you are still able to buy at the current interest rates and with your current credit score.

 

If you have any questions about the difference in being pre-qualified vs. being pre-approved, just use the "comment" link below and post your question here. We'll reply with an answer to your question. Remember, your email address will never be published here to protect your privacy.

 

 

 

Jumbo Loans for Larger Home Loans

 

In some real estate markets, a house in the $400,000 range may be considered a starter home. So the million dollar question is, "Why is it that a home loan in the mid $400's is considered a Jumbo Mortgage Loan?"

 

While most of us see the term "jumbo" as relative, Fannie Mae and Freddie Mac, two government sponsored mortgage entities, have their own opinions. Each year, a new "conforming loan limit" is published by these organizations.

 

The conforming loan limit is the maximum loan size eligible for purchase by either Fannie Mae or Freddie Mac, who purchase the underlying securities from mortgage originators. Those funds are then reinvested in new mortgages, and the flow-of-funds cycle continues.

 

The conforming loan limit, or "Jumbo Loan amount" is set every January. The current conforming loan limit is $417,000.

 

When a loan amount is higher than the conforming limit, it becomes a Jumbo Loan, or non-conforming loan, with slightly higher interest rates.

 

Jumbo Loans, compared with historically low mortgage rates, can bring greater flexibility for some home buyers to purchase the house they want and make the payment they want.

 

With interest rates so low, consumer interest in Jumbo Loans is very high. If you are looking at homes that wouild cause you to secure one of these "jumbo loans", talk to a mortgage expert to see if you qualify to get your jumbo loan with a low or no down payment. There are more options out there than most people understand, so it's important to talk with a professional in the industry before you start your home search.

 

If you have questions about jumbo loans, or any area pertaining to home loans, mortgages, or home buying, contact us. If we don't have the answers you're looking for, we'll find them for you, guaranteed. Just use the "comment" link below to send us your questions.