Why am I not getting the advertised interest rates?

First, remember that mortgage rates are moving constantly, and rate surveys are capturing rates from past points in time. For example, Freddie Mac’s weekly survey collects rate data over the course of a week. Bankrate.com’s survey collects rate data every Wednesday.

By the time results are released, they’re already outdated.

There are other reasons your rate might be higher. Below are five of them.

1. You’re not paying points

Average rates in Freddie Mac’s survey include average discount points paid for the mortgage. But not everyone is willing to pay points.

For the week ending Oct. 27, rates on the 30-year fixed-rate mortgage averaged 4.1%, but that rate required an average 0.8 point to get it. A point is 1% of the mortgage amount, charged as prepaid interest. Read more: Rates on 30-year mortgage slide to 4.1%.

Unless you’re going to live in your home for a very long time, paying points often doesn’t make sense, said Greg McBride, senior financial analyst for Bankrate.com.

“Where the investment pays off is if this is a loan you’re going to have for a long period of time. You’re making an investment of money now to pay the points to get the benefit of a lower monthly payment for years to come,” he said. “The more years you have of that lower monthly payment, the greater return on that initial investment of points.”

Bankrate’s weekly survey includes as many zero-point loans as possible, McBride said. That’s another reason that rates in Bankrate’s survey are different than those in Freddie Mac’s, he said. The 30-year fixed-rate mortgage averaged 4.33%, but points required to get that mortgage averaged 0.42, according to the Bankrate survey released Oct. 27.

2. Your borrower characteristics mean price adjustments

A credit score on the low side will prevent you from getting the lowest rates. Low levels of home equity will also mean a pricier mortgage rate.

That’s thanks to loan level price adjustments from Fannie Mae and Freddie Mac that have been making it tougher for borrowers to get the best rates for the past few years.

“The further down the FICO realm you go, and the higher the loan-to-value ratio, the more cost for the consumer,” said Cameron Findlay, chief economist for LendingTree.com, an online network of lenders.

Those with credit scores below 700 will have a tough time getting the rates in the low 4% range that everyone has been talking about, McBride said.

Meanwhile, a 20% equity cushion in your home for a refinance, or down payment for a purchase, is what’s needed to get the best rates these days. And if you have a jumbo mortgage, lenders usually want 25% or 30% down for the best rates, McBride said.

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However, borrowers who qualify for the newly revamped Home Affordable Refinance Program will be able to snag low rates, even if their equity has taken a severe hit. Read more: Mortgage refi plan targets hard-hit borrowers.

3. Your property type means higher rates

For condo-unit mortgages, you need a 75% loan-to-value ratio, or a 25% equity position, to get the best rates, said Christopher Randall, vice president, secondary marketing, at the Real Estate Mortgage Network, a mortgage lender.

And if your mortgage is for a vacation home or investment property, you can also expect to pay a higher rate, McBride said.

4. You don’t have recent proof of income

For the self-employed — who don’t have pay stubs as proof of recent income — the most recent tax returns are what a lender will look at before giving you a mortgage. If business has improved after your past tax return, that’s not going to be of any help as you try and get a mortgage today.

“Business could be off the charts now, but if the tax returns tell a different story, then getting approved or getting the best rates becomes a problem,” McBride said.

5. Your lender isn’t hurting for business

There can be a big disparity in what rates are offered from lender to lender, Findlay said. And it may have to do with how many mortgages they’ve been originating lately.

“Some that are lacking volume will tend to be more competitive,” he said. “Those that have enough volume may say we’re going to keep rates high.”

But the rate isn’t everything, Randall said. When shopping for mortgages, borrowers need to focus on comparing their monthly payments. “People are drawn to the interest rate… but you have to look deeper. Review the documentation,” Randall said.

For instance, it’s possible for someone to get an offer of a very low rate on a mortgage backed by the Federal Housing Administration — that loan also may come with a higher insurance premium, Randall said. That person may be better off taking a conventional mortgage with lower priced private mortgage insurance, even if their interest rate is a little higher, he said.

Fannie Mae DU Refi Plus

The new Fannie Mae DU Refi Plus program began last week and we are still trying to work out some of the bugs. The program, which is supossed to help overleveraged homeowners, is still calling for appraisals on many deals. Part of the program is the benefit of being able to get an appraisal waiver so you can refinance to take advantage of today's historically low rates. While you still can take advantge of the low rates, odds are you will still need to get an appraisal. The nice part of the program is that if you did put money down on your current mortgage you still may be able to take advantage. For example, if you bought your home in 2005 for $300k and it is now appraising for a number around $250k, and you put 20% down, so your loan amount is $240k minus any principal you may have paid down in the last 4 years. You can still refinance and take advantage of rates that start in the 4's on a 30 year fixed, even though you have lost almost all of your equity you still will not have to pay mortgage insurance on the new loan. You will be able to payoff your current loan, and add in any closing costs to make up the new loan with the new rate. There are many more details to this program, but it can help many people. Feel free to contact me with any questions and we can see if now is the time for you to take advantage of your very own stimulus plan.

It May Be Time to Refinance!!

In the next couple of weeks you will have a fantastic opportunity to refinance and take advantage of these historically low rates if you have not been able to do so because of lack of equity in your home. Under a new Obama plan if you have a mortgage that is backed by Fannie Mae or Freddie Mac you will be able to refinance your mortgage even if your loan-to-value ratio is as high as 105%. If you currently have mortgage insurance, you will continue under the current terms. If you don't have mortgage insurance, but you now have less than 20% equity, you will still be able to refinance and you will not have to add mortgage insurance. You will not be able to take any "cash-out" with this new refinancing plan. Your new loan balance can only be the principal balance of your previous loan plus anyclosing costs and prepaid items (taxes and homeowner's insurance) that you incur with your new loan. If you have any questions regarding this new program or would like to see if refinancing is the right option for you, feel free to e-mail me at jim@jimsteelrealestate.com or call 763-416-9388.

Stimulus Bill

Well Barrack Obama has signed the Stimulus Bill and he stated that this is the beginning of the end of the economic meltdown we are in. Unfortunatley for the housing industry there is not much to it. A few items that did come out of it for housing were.

1. The first-time home buyer tax credit was raised to $8000 if you purchase a home in 2009 and this $8000 does not need to be re-paid.

2. The government will be trying to help homeowners prevent foreclosure by giving bonuses to the lenders for modifying home loans, so homeowners can remain in their house.

3. If you owe more than your house is worth, you will soon have a couple of options.
a. You can try and negotiate with your lender to get them to lower your principal balance and interest rate to a level that is within certain debt-to-income ratios. The lender will be re-imbursed by the gov't for any principal reductions the give. They will also be entitled to 50% of any equity you earn from that day forward.
b. Starting in April, you can refinance you may be able to refinance your loan without an appraisal. So if you would ike to take advantage of today's historical low rates, but do not have the equity to do so, you will be able to starting in April. You can only do a rate-term refinance, you can't take any cash-out.

4. The conforming loan limit in the metro area remains unchanged at $417,000 but the FHA loan limit was raised back up to its temporary 2008 level of $365,000.

These are small stepping stones to a big problem. If you want a good explanation of how we got into this mess in the first place, look for a CNBC Special Report, "House of Cards" It is a 2 hour special on how the mortgage world collapsed. VERY WORTHWHILE!!!

Monday, October 27, 2008

Reports came out today and new-home sales have fell to a 17 year low in the Midwest. Builders are trying to unload the inventory they have and new construction has slowed dramatically. It is becoming more and more difficult for builders to compete with all of the bank-owned properties that continue to come on to the market and discounted prices. Many of these homes were built just a few years ago and were part of what is now known as a "builder buyout." Builders were able to sell current inventory to investors who would make an arrangement with the builder to reap some of the profits of the sale. Then these homes were marketed to renters and eventually payments were not made and now many of these are back on the market at discounted prices as banks try and unload their inventory. Some large developments have gone completely under either through a fraud scheme like the Parish Construction scheme in New Prague or had too big of intentions like high-end developments in the Otsego or Hugo area. It still could be a year or more until we are able to get control of the number of bank owned homes on the market and see some sort of balance come back to our market.

Real Estate Market Update

Numbers came out yesterday from MAAR and pending sales continue to increase from last year. The number of homes on the market also continues to decline as the number of new listings last month was lower than a year before. With that said, it still remains a buyer's market. Rates continue to be favorable and money is still available for many types of buyers. Contrary to media reports there still are plenty of loan programs out there to help you buy a home. There are also down payment assistance programs available for many buyers who are looking to buy their first home. There are many fantastic deals out there and buyers are finding them, now is as good a time as ever to get into the Real Estate market. Finding a home and calling it your own is the biggest investment you will ever make. Feel free to contact me and we can discuss what options work best for you.

August 5th, 2008 Housing Stimulus Bill Summary

Well George Bush signed the "Housing and Economic Recovery Act of 2008" on July 30th, so what does this mean for you?

1.If you are in MN the new conforming loan limit of $625,500 does not apply. We are still capped at $417,000 if you want conforming loan rates that will be backed by Fannie Mae and Freddie Mac.
2. In the metro area the FHA loan limit for 1-unit residences will be $335,800. The limit is $271,050 throughout the rest of MN.
3. If you are a new home buyer: You can qualify for a tax-credit up to $7500 if you purchase(d) a home between April 9,2008 and June 30, 2009. The credit is repayable over 15 years (basically making it an interest free loan)
4. FHA Foreclosure Rescue: If you have a problematic subprime loan and your lender agrees, you could qualify to have your loan balance reduced to 90% of your current appraised value. You would then have a new 30 year fixed FHA loan. Any equity built after this modification would be split 50/50 with the lender.
5. Seller-funded downpayment assistance programs: (ex. Nehemiah) Are prohibited starting October 1st, 2008. You still can get downpayment assistance from nonprofits or other sources such as churches, employers, or family members
6. Minimum FHA down payment: Will be increased from 3% to 3.5% of the purchase price starting January 1, 2009

These are the main items that may have a direct effect on your next home purchase. If you have any questions or would like additional information feel free to contact me.