Interest rates have rallied and improved dramatically on the heels of the recent European debt concerns…and what is most important is that due to the highly unusual set of circumstances that exist in the market, those who are acting quickly are saving.

 In fact, Freddie Mac reported last week that rates have met either all-time lows or 2010 lows. Bottom line, they are “smokin’ hot” right now – but won’t be for long.

Regardless of whether people want to convert their loan to a 15-Year fixed to potentially save over $100,000 in payments over the term…or drop their payment several hundred dollars a month, people are acting now!

However – one thing you have to know…rates are incredibly volatile and are not likely to hold these levels. We might only have a couple of days to lock people in at the best rates they will ever see.

I would love to look into your situation and see just what we can do to put some money back in your pocket. I never thought I would see rates this low across the board – so don’t miss this chance.

Home sales and home prices continue to improve. Monday, the NAR released information that shows strength in housing. If you are in the market to buy a home, act now before monthly payments increase as both prices and rates move higher.

Or, if you are looking to refinance and could not last year because of home values…you just might be able to now. Call me!

Why Payoff Your Mortgage

Fairfax, Virginia: Homeowners have been arguing this point since the invention of mortgages many years ago. Should a homeowner payoff their mortgage faster in order to save interest? Or should the homeowner invest that money into 401-K and other retirement vehicles to accumulate more money for retirement? The true answer lies in what is the right choice for your financial situation. Below I have tried to present both sides of the equation equally. Please let me know what you think. Once you are finished with the article check out some great information on my other site:

Calculators
Borrow Smart Information
Borrow Smart Application

There are several advantages to paying off your mortgage early.

Freedom- Not much more needs to be said about this. The freedom from monthly mortgage payments can be huge both psychologically and emotionally. What would it feel like to not have a mortgage payment each month?  If you paid off the mortgage and eliminated your other consumer debt, you could live debt-free. Well maybe – no mortgage would allow for more consumer spending, which could mean more bad debt. But it could leave additional money for basic necessities such as: food, heat, electric, gas (car and home). Not having a mortgage would certainly cut your monthly expenses.

Safety: Once you’ve paid off your mortgage debt, you own your home. Taxes and insurance must still be maintained even after the mortgage is paid-off. Believe it or not, homeowners actually lose their home for not paying their property taxes on homes owned free and clear of any mortgage. Your home is always a liability as long as it costs you money each month. Never forget that. Here is a nice article from AARP writer Jonathan Pond.

Reduced Stress: No monthly mortgage obligation would certainly be nice! You wouldn’t have to worry as much about losing your job, for instance.

Liquidity: Less spent on paying down the mortgage allows more money for other investments. But no mortgage allows for more money to be allocated for other investments also. But the real question has to do with the opportunity cost of money. Where is the biggest bang or investment opportunity for your money and will it grow faster now or later.  You could invest your monthly payment in a financial product, or build up a large rainy day / emergency fund.  Cash is still king and it is very liquid.

Why Have A Mortgage

Taxes: Interest and taxes are deductible up to your income tax bracket. Not having a mortgage means that you can’t deduct your interest payments off your federal income taxes.  But that alone is not enough of a reason to keep a mortgage. Here is one recent NY Times article on why it might not be a great idea to pay off your mortgage.

Investing: This nice article by Ric Edelman on having a mortgage where he puts forth that it makes better financial sense to pay your mortgage payments regularly, and invest the extra money instead. Theoretically, you make more in the long-term with this method; after all, average returns on stocks over the past 60 years are in the 9-10% range. But the recent fall in the stock market make it hard to stomach investing sometimes.

Liquidity: Yes – this again.  It works both ways. Todd Ballenger at Kendall Todd also says that keeping your money in liquid form (ie: stocks, bonds, etc.) might be a better option until you are ready for retirement.  If you pour all your money into your house, then the question is can you access your money again? If yes, how easy is it to get to? How fast do you need the money? With the drop in home values across the country and in Fairfax, Virginia your equity (money) might not be their or you might not qualify for the mortgage program. Staying liquid means that you can access your money quickly when you need it.

Federal Housing Administration (FHA) has implemented significant changes for streamline refinances . These changes will affect all FHA streamline loans across the country and in the northern Virginia area, Vienna, Virginia, Alexandria, VA, Fairfax and the surrounding cities and county’s. These changes take place on all FHA case numbers ordered on Wednesday, November 18, 2009 or later.

The changes are:

1. New seasoning requirements (length of payment)
2. Payment history standards
3. A net tangible benefit test (The loan has to be good for the borrower, imagine that) 
4. Revised remaining equity (Combined Loan To Value requirements)
5. Elimination of the abbreviated loan application
6. Additional certifications and verifications

1. Changes about length of payment history or what we call loan seasoning:

Seasoning: At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

2. Payment History. At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

Less than a 12 month payment history, the borrower must have made all mortgage payments within the month due. 

For borrowers that have a 12 month payment history or greater two points must be present: 
    Experienced no more than one 30 day late payment in the preceding 12 months
    Made all mortgage payments within the month due for the three months prior to the date of loan application.

3. Net Tangible Benefit: Basically, no more refinancing to just to refinance a client to generate fees. This is a good thing. It must be determined that there is a net tangible benefit (actual savings to the borrower) as a result of the Streamline Refinance transaction. Net tangible benefit is defined as follows:

Refinancing a fixed rate loan to a to fixed rate loan or ARM (adjustable rate mortgage loan) to ARM: A minimum 5% reduction in the total mortgage payment.

A fixed rate loan to an ARM loan: The new ARM rate must be at least 2% less than the current Fixed rate loan

ARM to Fixed: The new Fixed rate may not be more than 2% above the current ARM rate

Streamline refinancing to ARMs will be restricted on investment properties and second homes.

4: Have a second mortgage or Home Equity Line Of Credit?

All loan amounts can only addup to 25% more than the value of the property. 

5: Elimination of the abbreviated loan application. A complete loan appliction must be taken to include residence, income, and work history.

6. Certifications and Verifications: 

Must include a signed and dated cover letter certifying that the borrower is employed and has income at the time of loan application. This will be followed up with a phone call prior to closing to verify you are still employed.

Assets: If assets are needed to close, the funds must be verified and documented correctly

I have clients all over the northern Virginia area. Recently two similar calls from clients that live in Alexandria and Vienna . Both had a question about keeping their current home as a rental when buying  another primary home.  As simple as this question may seem, it is much more complicated when trying to qualify for a mortgage carrying two mortgages. Fannie Mae and Freddie Mac have specific language for how much equity is needed in order to not count a current mortgage payment.

Fortunately both had the required equity in their current homes to avoid having to qualify carrying two mortgages. Other clients I have spoken to were not so lucky. The value of their home dropped to much and they had a big decision, sell or stay. What is the correct answer? Well that answer differs with every client I talk to. Below are the current Fannie Mae guidelines for converting a primary home to an investment home.

Borrowers who currently own their home typically have three options when they decide to purchase a new principal residence. The borrower can:

1. Sell the current residence and pay off the outstanding mortgage,
2. Convert the property to a second home, assuming they can qualify with both the existing and new mortgage payments, or
3. Convert the property to an investment property and provide documentation that they will rent the property and use the income to offset the mortgage payment.

On a primary home conversion to an investment property Fannie Mae will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (equity is determined from an appraisal, Automated Valuation Model, or Broker Price Opinion, then minus current value of the mortgages against the property).

The rental income must be documented with:

1. A copy of the fully executed lease agreement; and
2. The receipt of a security deposit from the tenant and deposit into the borrower’s account.

If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment. 

Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

Six months of Principle, Interest Taxes and Insurance for both properties is required to be in reserves after closing. In today’s real estate market, this is where most borrowers get caught. Being able to save for the down payment, closing costs and have six months mortgage payment for two homes is typically too much for most borrowers to over come.

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With over 1,000 changes to FHA programs since 2000, it is important to work with someone that understands how the “new” FHA loan works.  In the last 5 years there have been significant changes made to FHA guidelines designed to make it much easier to originate these loans. but that has not actually been the case. Some changes make it more costly for the consumer. The Upfront MI charge has changed, the streamline progam has been altered and it could cost the consumer more money to refinance. Please call it you have any questions about FHA, VA or conventional loans.