How to finance and refinance Everett real estate.

 Everett real estate, FHA Mortgage  2 Responses »
Feb 192010
 

Why Yield Spread Premiums can be a good thing for the consumer

YSP (yield spread premium) or also called rebate is very useful tool in financing or refinancing Everett real estate. For example I just did a refinance using an FHA mortgage. I used the YSP to pay for my clients closing costs. I saved him a ton of money, and didn’t take a bunch of his equity to make the loan.

I used the YSP to save my client money, lower his payment and save his equity. Some politicians want to eliminate the YSP because they don’t understand its uses. I am writing this blog to try and explain how this is extremely useful to the consumer. When you limit the consumer’s choices you always increase his costs.

I will try to keep the technical stuff and the numbers down but in a discussion like this it is hard to do. But here is how an FHA mortgage with a rebate can be used to refinance Everett real estate.

My client has a $425,000 payoff. His current payment is $3331.00 and that is principle, interest, taxes and insurance. He has an adjustable loan and his payments are going up. So he asked me to see if I could come up with a way to lower his payments and keep the cost down.

An FHA mortgage is the only one he qualifies for because of current market conditions. You see just like everyone else he has lost equity in his home due to market conditions. FHA mortgages allow a refinancing of your Everett real estate up to 96.5% of it’s current value.

We came to the conclusion that the value of his property is around $440,000.  At that value if I am using an FHA mortgage we are limited to a maximum of $430,100 as a new loan amount. If I could not use a YSP to pay for the loan costs I could only do an FHA mortgage if we could get an appraisal for $445,525. We might get that value and then again we might not.

I was able to get him a new loan for $422,000 by using the rebate (the YSP) and paying my clients closing costs with it. His new payment is $3017.95 and saves him $313.05 per month. With all fees he has a payback of 14 months. His loan is a fixed 30 year FHA mortgage at 5.375%.

If we had to get his loan without any rebate (YSP) his new interest rate would be lower at 4.875%. And his new loan would have had a monthly payment of $2964.63 per month but with a monster catch. You see his new loan amount would have been $435,500 and the payback period would have been over 49 months.

So you see here with the YSP we have a new loan at a lower loan amount and a slightly higher interest rate. But we didn’t take anywhere near as much of his equity to pay for the loan costs.

We saved him $13,500 in equity by using the rebate or YSP to pay for the loan costs.

YSP or rebate is a great tool for refinancing Everett real estate and in combination with a FHA mortgage can save you lots equity.

Jim Johnson and comments are always welcome.

Everett Mortgage on Line

Twitt
 Posted by JAJohnson at 11:36 pm

FHA Mortgage rates to Rise

 FHA Mortgage, Homes for Sale Everett, VA mortgages  11 Responses »
Feb 082010
 

Everett Mortgage Expect higher Interest Rates Soon

As of March 1st expect FHA mortgage rates, VA mortgage rates, and all other long term interest rates to rise. Expect prices for homes for sale in Everett to fall. I am not Chicken Little and saying the sky is falling but there is going to be some very dark clouds coming soon. Here is why. The Federal Reserve Bank (the Fed) will no longer be buying Mortgage Backed Securities (MBS) on the open market. I know you are saying how is that going to effect FHA mortgage rates?

Well a lender makes a 100 or a 1000 home loans and then packages them into a MBS. They sell that MBS on the open market. The price the open market is willing to pay is what determines what interest rate will be charged on the mortgage. If the interest rate on a particular VA mortgage or an FHA mortgage isn’t high enough the MBS will not get sold and that’s not good. Banks only make their outrageous profits if they churn your money several times. Remember that the deposits they use to make an FHA mortgage or a VA mortgage is your money. Simply lending it out once isn’t enough they have to lender it out several times over but that’s another story.

The Fed has been buying MBS with below market interest rates and in doing so they have kept the interest rate below market. You the taxpayer have been subsiding the mortgage market. I’ll bet you didn’t know that did you?  When the Fed stops buying the open market must buy the MBS or the entire housing industry will come to a screeching halt. To sell the MBS banks will inevitably have to charge more interest.

Now why will prices fall on homes for sale in Everett? The price a home can sell for has a great deal to do with mortgage money liquidity. If interest rates are up that means a buyer with a limited budget can not buy as much home as before. If I have a $1000 a month maximum payment I can buy more home at 5% than I can at 6.5%.

So when the fed stops buying MBS on March 1, 2010 expect prices to fall on homes for sale in Everett. Expect interest rates to increase on all FHA mortgages, VA mortgages and all long term projects.

Jim Johnson and comments are always welcome.

Everett Mortgage on Line.

Twitt
 Posted by JAJohnson at 12:39 pm

Everett mortgage-Obama Tax Credit just hot air

 Everett real estate, FHA Mortgage, Homes for Sale Everett  7 Responses »
Feb 072010
 

Another Useless Idea

Will the new jobs tax credit affect Everett real estate? Will it help with homes for sale in Everett?  Will it change an FHA mortgage rate?

I am sorry Mr. President but the new credit will not help. I think this is nothing more than a publicity stunt. Unless this is truly the hand of someone so ignorant of how jobs are created that Mr. Obama doesn’t realize this will not make a single new hire happen.

Unfortunately here is what will happen. If you are in business a tax credit of $5000 plays no part in the decision you make on whether you hire or not. You have to have the business sales to justify the cost of the hire. If I have the sales then I will hire if I don’t $5000 will not make me hire. All the other terms and strictures are nonsense.

Let’s review the “benefits” of the credit and see if it will affect Everett real estate. Let’s see if FHA mortgage rates will go down. Let’s see if this will produce jobs and help homes for sale in Everett. The 2 main ideas are as follows:

1)      Businesses will receive a $5,000 tax credit for every net new employee that they employ in 2010. The total amount of credit will be capped at $500,000 per firm, to ensure that the majority of the benefit goes to small businesses.

2)      Small businesses will be reimbursed for the Social Security payroll taxes they pay on real increases in their payrolls. Specifically, firms that increase wages, expand hours or hire new workers would get a credit against the added payroll taxes that result. This bonus would be based on Social Security payrolls, so it would not apply to wage increases above the current taxable maximum of $106,800.

Look carefully at item number 1. As I stated above there is no reason or justification to hire unless the sales are already there. So any hire will have happened regardless of any credit. This is another drain on tax receipts with no benefit to the taxpayer.

Item number 2 is just another federal giveaway that doesn’t improve or enhance hiring. Again this is another drain on tax receipts with no benefit to the taxpayer.

This tax credit is just another useless giveaway that accomplishes nothing. It will not help improve the market for homes for sale in Everett. It will not improve FHA mortgage rates and it will not help Everett real estate.

Jim Johnson and comments are always welcome

Everett Mortgage on Line.

Twitt
 Posted by JAJohnson at 10:43 am

New FHA Mortgage Rules

 FHA Mortgage  6 Responses »
Jan 302010
 

FHA Mortgages now allow flipping

The FHA mortgage has now become much more useful because they will allow a new mortgage on a rehabilitated home. The term is called flipping. Buying a home and then flipping it before 90 days have elapsed. Prior to this ruling a buyer had to hold a property at least 90 days before an FHA mortgage could be obtained for a new buyer. FHA has signed a waiver that takes effect on February 1, 2010 and is limited to sales meeting the following conditions:

1)     Of course all transactions must be arms length for all parties. This will be determined using some of the following practices. The seller should hold title, the seller / property should not show a pattern multiple transfers within the last 12 months and the property was marketed openly.

2)     In situations where the properties sale price is equal to or greater then 20% above the acquisition cost the waiver and a new FHA mortgage could be issued only if the lender justifies the increase in value with a second appraisal and documents the costs (labor and materials) incurred to improve the property and the appraiser includes the documentation with the appraisal. The lender must also provide an inspection report to the purchaser but it doesn’t necessarily need to be a 203(k) consultant doing the inspection.  The inspector must also be an arms length participant in the transaction. The inspection must be a full top to bottom structural inspection. The inspection must include at a minimum the foundation, floors, ceilings, walls, roofs, all exteriors, appurtenant structures such a decks, balconies, walks and driveways and include the  insulation and ventilating systems.

3)     The waiver is for forward mortgages and doesn’t apply to reverse mortgages or an HECM (Home Equity Conversion Mortgage) used for a purchase.

FHA / HUD has found that many buyers of REO and foreclosed properties have the means to buy repair and resell quickly. Because of the dramatic increase in foreclosures the 90 days rule was inhibiting the sale of some of these homes. By allowing new FHA mortgages on these homes FHA hopes to help improve the resale market.

Jim Johnson and comments are always welcome.

Everett Mortgage on Line

Twitt
 Posted by JAJohnson at 6:19 am

FHA Mortgages to Cost More

 Everett real estate, FHA Mortgage  8 Responses »
Jan 092010
 

Lets strangle the real estate market some more.

The FHA mortgage is the only game in town. FHA is considering ways to reduce its foreclosure rate. But FHA walks a fine line here. That’s because the main reason we even have the FHA mortgage is to encourage low income home ownership.

While an FHA mortgage is designed for low income and / or first time buyers it has become a major player in the home loan business. Just a few years ago, in 2006 to be exact, the FHA mortgage amounted to only 3% of the total mortgage loans made. Now they are 30% of the Everett real estate market and growing. If it were not for FHA mortgage financing there would be no real estate market as there would be no liquidity to finance a sale. The Obama administration has no stomach for increasing the down payment requirements for FHA mortgages and with good reason. The recovering real estate market could take another stumble and bring the entire economy down again if this isn’t handled exactly right.

There have already been major changes in how the FHA mortgage is underwritten.

Early last year the supposed “FHA Down Payment Assistance Plans” were eliminated. These plans were a sleazily way to get around the 3% down payment.  It has been proven that unless a home buyer has “skin” in the game they are much more likely to default than someone who put their own money into the purchase. It used to be that the majority of FHA foreclosures were traceable back to these Zero Down Plans. Currently there are two major reasons for defaults. They are job loss and upside down property values.

I think that increasing the minimums for FHA financing is not the right thing to do. If you look at the loans currently being underwritten there are few defaults. It is the older loans underwritten under the old rules that are causing the problems. The FHA mortgages that are defaulting are not the recent ones they are the ones written between 2005 and 2008 during the height of the market boom. Some recent home loans may be in trouble if the home value has fallen or the buyer has lost their job. But those types of defaults, those losses, are what FHA mortgages were designed to accept.

Last spring FHA increased its minimum down payment from 3% to 3.5%. It also increased its Up Front Mortgage Insurance (UFMIP) from 1.5% of the loan amount to 1.75% of the loan amount. They also increased their monthly mortgage insurance premium. They also raised the minimum credit score from 560 to 640. All this was done during the worst downturn since the early 1970’s. Many industry experts think this made the recession deeper than it had to be.

I think the way to approach this is to modify how the 3.5% down payment is allocated. I think the 1.75% UFMIP should be paid out of the down payment. That way the insurance fund is fully financed. It would matter little in the overall transaction if the down payment is 1.75% as opposed to 3.5%. You can also increase the monthly mortgage insurance without greatly hurting the buyers purchasing power.

Any way you handle it the FHA mortgage must remain stable or we risk another serious downturn in the whole economy.

Twitt
 Posted by JAJohnson at 8:48 am
 Older Entries
© 2012 Everett Mortgage On Line Suffusion theme by Sayontan Sinha