Reduce the Expense to Refinance

Every single day, homeowners who are excited about lowering their rate have a tendency to ignore the refinancing costs because they’re being rolled back into the new mortgage. If the payment is lower than what they’re currently paying and there’s no money out of pocket, it seems like a good deal.
Refinancing your home because a lower rate is available is one thing but the closing costs associated with that new loan could add several thousand dollars to your mortgage balance. By following some of the suggestions listed below, you may be able to reduce the expense to refinance.

• Tell the lender up-front that you want to have the loan quoted with minimal closing costs.
• Check with your existing lender to see if the rate and closing costs might be cheaper.
• If you’re refinancing a FHA or VA loan, consider the streamline refinance.
• Shop around with other lenders and compare rate and closing costs.
• Credit unions may have lower closing costs because they are generally loaning deposits and their cost of funds is less.
• Reducing the loan-to-value so that mortgage insurance is not required will reduce expenses.
• Ask if the lender can use an AVM, automated valuation model, instead of an appraisal.
• You may not need a new survey if no changes have been made.
• There may be a discount on the mortgagee’s title policy available on a refinance.
• Points on refinancing, unlike purchase, are ratably deductible over the life of the loan.
• Consider a 15 year loan. If you can afford the higher payments, you can expect a lower interest rate than a 30 year loan and obviously, it will build equity faster and pay off in half the time.

A lender must provide you a list of the fees involved with making the loan within 3 days of making a loan application in the form of a Good Faith Estimate. Every dollar counts and they belong to you.

FHA Loans

The 3.5% down payment on FHA loans could be more expensive for buyers than expected. Beginning April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35% which may not even be noticeable to most would-be homeowners.
The staggering increase will occur on 6/3/2013 when FHA's policy on the duration of the required mortgage insurance will be increased for the life of the mortgage. It basically doubles the amount of total MIP if the loan is paid to term.

Example: Purchase Price $175,000 with 3.5% down payment at 4% mortgage rate on 30 year term
	Current	After 6/3/13
MIP duration	78% of original loan	Life of mortgage
Cumulative premium	$20,838.24	$42,447.93

Currently, the MIP is required for approximately 9 years 9 months with normal amortization. The new program would require the MIP for the life of the loan. In this example, the initial monthly MIP is $196.88 which decreases based on amortization.
There are buyers that qualify on income and credit who may not have the necessary additional down payment required for 80% and 90% conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.
For homeowners that expect to stay in their home for ten years or less, the new changes might not have much financial impact. Homeowners who expect to be in their home long term can refinance with a conventional loan without mortgage insurance once the equity has increased due to amortization and appreciation.
For buyers to avoid these increases, they will need to act now to get the FHA commitment issued prior to these change dates.

Be a Better Homeowner

Better Homeowners The 3.5% down payment on FHA loans could be more expensive for buyers than expected. Beginning April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35% which may not even be noticeable to most would-be homeowners. The staggering increase will occur on 6/3/2013 when FHA's policy on the duration of the required mortgage insurance will be increased for the life of the mortgage. It basically doubles the amount of total MIP if the loan is paid to term.  Example: Purchase Price $175,000 with 3.5% down payment at 4% mortgage rate on 30 year term Current After 6/3/13 MIP duration 78% of original loan Life of mortgage Cumulative premium $20,838.24 $42,447.93 Currently, the MIP is required for approximately 9 years 9 months with normal amortization. The new program would require the MIP for the life of the loan. In this example, the initial monthly MIP is $196.88 which decreases based on amortization. There are buyers that qualify on income and credit who may not have the necessary additional down payment required for 80% and 90% conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash. For homeowners that expect to stay in their home for ten years or less, the new changes might not have much financial impact. Homeowners who expect to be in their home long term can refinance with a conventional loan without mortgage insurance once the equity has increased due to amortization and appreciation. For buyers to avoid these increases, they will need to act now to get the FHA commitment issued prior to these change dates.

FHA Loan Changed

FHA has announced a major change to its loan program which allows borrowers to cancel the mortgage insurance premium (MIP) when their unpaid balance reaches 78% of the original purchase price. While no specific date has been set for the change, sometime in 2013, new FHA loans will require the mortgage insurance for the life of the loan.
At existing rates, the monthly MIP on a $168,875 mortgage is $178.99 per month. Under the current rule with normal amortization, the MIP would no longer be required in 9 years and 9 months. However, under the new rule, it would last for the entire 30 year term.
They also announced that the annual MIP will also be increased from 1.25% to 1.35% at some point in the near future. HUD, the parent agency for FHA, is making the changes to restore the capital reserves of the program that are needed to fund failed loans.
People that can close a FHA loan before the change takes place will fall under the old rules for canceling MIP and the lower rates. Since no date was announced, it is not known exactly when the changes will take effect.
While this information will probably not make the evening news, it will have a big impact on borrowers planning to use an FHA loan. Please pass it on to anyone you know who might be considering purchasing or refinancing with a FHA loan.

Mortgage That Best Suites You

The low interest rates secured by borrowers recently on FHA mortgages may become valuable in a different way in the future. FHA and VA mortgage are assumable at the existing interest rates subject to buyer qualification.
Buyers wanting to assume an existing FHA mortgage must be owner-occupants and meet the current FHA guidelines. Applicants should have a minimum 600 credit score, total debt with house payment to be assumed not to exceed 41% of their monthly gross income and meet other standard income, credit and qualifying requirements.
The benefits are not only assuming a lower interest rate resulting in lower payments but the closing costs on an assumption are much less than originating a new loan. The fact that the mortgage is already into an amortization schedule and that lower interest rate loans amortize faster than higher interest rate loans make it build equity faster than a new mortgage.
When interest rates eventually rise, assumptions will provide an opportunity for buyers to lower their cost of housing significantly while improving their wealth positions.

Owning a Home

Most people agree that homeownership rules! When asked, people say they want a home they can call their own, to raise their family, share with their friends and to feel safe and secure. It also accounts for the majority of most people's net worth.
These rules can help protect your investment and make homeownership more enjoyable.

1. Don't overpay for your home
2. Maintain your home's condition
3. Minimize your assessed value to lower property taxes
4. Make extra principal contributions to save interest and build equity
5. Validate the insured value of improvements and contents
6. Stay current on surrounding property values
7. Make mortgage interest payments deductible
8. Invest in capital improvements that increase market value
9. Don't over-improve the neighborhood
10. Keep records of capital improvements and other maintenance

We want to be your personal source of real estate information and we're committed to helping from purchase to sale and all the years in between.

Projections On Your Mortgage

FHA loans require mortgage insurance premium to cover a possible loss to the lender if the property has to be foreclosed and sold. The premium is substantial and eliminating the MIP would reduce the payment considerably.
The MIP must remain in effect for five years but after that, when the balance is 78% of the original purchase price, FHA will release the requirement and your monthly payment will go down. Since amortization is affected by interest rates, the normal time to reach this 78% point could be from 9 to 12 years at today's interest rates.
In the example below, the MIP would be released in 9 years 6 months with normal payments. An extra $100 a month would allow the borrower to reach the release point in 7 years 1 month. To reach the release point in the minimum five years, the borrower would have to make an extra $268.04 per month principal contribution.
Releasing the MIP in this example would save the borrower $177.67 per month. The borrower would also save interest, build equity and shorten the term of their mortgage. Once the MIP is released, the borrower could continue the same payment schedule to further accelerate the debt reduction.
To make some projections on your mortgage, click here.

Waiting Might Cost MORE!

The housing market has been in a downward trend for four years. There is some speculation that inventories will not reduce any time soon which will be necessary for prices to rise. However, there are other factors that can increase the cost of housing, specifically mortgages. FHA accounts for a large percentage of the current housing loans and is expected to be even more prominent when the Qualified Residential Mortgage Guidelines go into effect next year.

1. Rising rates are almost certain, due to looming inflation fueled by higher gas and food prices and the enormous amount of deficit spending
2. FHA loan limits have been reduced – they are lower than conventional limits in most markets and FHA has suggested that they might be reduced further.
3. FHA might increase the down payment to 5% or higher in an effort to have a more secure loan that will have less likelihood of going to foreclosure.
4. FHA might decrease the amount of seller contributions in a similar move to require the buyer to have a larger investment in the home and therefore be a more “qualified” borrower.
5. Congress may decide to increase the up-front MIP to build up the FHA reserves. The annual MIP has been adjusted twice since October 2010 when the Up-Front MIP was actually reduced.
6. Due to tougher conventional requirements, demand for FHA loans could exceed maximum annual insurable limits. If Congress is having a hard time raising the limit on national debt, they might not even consider raising the limits for FHA.

In an effort to solidify the lending industry, qualifying is becoming harder for the buyer and more expensive at the same time. Many of the rules changes could go into effect next year. In addition, market factors could easily play a role in increasing buyer’s costs. Waiting will very probably require a larger up-front investment for buyers in the future.

More To Sell

If you had a 3.5% mortgage on your current home and were buying another home, transferring your low interest rate mortgage would be ideal. Unfortunately, lenders don't allow that.

When buying a home today, it would be smart to think about selling it in the future. To have a good home with unique features makes it marketable. To have attractive financing that could be assumed would add to the salability.

Consider getting a FHA or VA loan to purchase your home. The present advantages are that these loans are priced competitively and a little easier to qualify for than conventional loans. The future advantage is that FHA and VA loans are assumable at the original note rate for qualifying buyers.

There's more to sell than the home itself when you have an assumable loan. The mortgage payment could lower the cost of housing significantly. A buyer may easily be willing to pay more for the home due to the attractive financing, especially if it helps their equity grow faster.

"I Do" Want a Home!

Forget Macy's and Crate & Barrel. Set up your bridal registry at the bank and use the funds for the FHA down payment on a home. This could be perfect for people getting married who already have their household items and really need help getting into a home.

FHA has had this little known program that allows cash gifts since 1996. Sellers, builders, real estate agents or anyone with a financial interest are restricted fom making a gift contribution. It's not difficult to set up and it's available with any FHA lender.

1. Inform your mortgage professional early of your intention to obtain all or part of your down payment from gifts to the FHA homeowner bridal registry.
2. Open a savings account at your bank named "bridal registry account"
3. Friends and family are given account deposit information

Gift registries are commonplace and really benefit both the giver and recipient. Etiquette websites like Emily Post state that alternative registries are acceptable. Couples are now suggesting to friends and family that they want help with their honeymoon, education or furnishing a home.

Interestingly, this program is not limited to people intending to be married. It is available for other situations where gifts are typically received by individuals. Other occasions could include graduation from college or graduate school.