Mortgage Finance Blog

Article first published as, Making Room for Mom & Dad, on Technorati

Over the last few months, I have run into several clients in the Northeastern US who have discovered a need to manage the aging and changing mobility of their parents. This is not a coincidence anymore, but a real, actual need that many people are experiencing. It has become incredibly important to manage our immediate family and finances together, while ensuring the safety of our parents. It makes it especially difficult since the markets have plummeted and our collective portfolios are worth half of what they used to be.

What advantages can be sought by this event, and how many arrows can one carry in his/her quiver to ensure that the options are the best for everyone involved? Let's take aim at being able to spend less, keep family close, and improve your overall position when it comes to your investments.

The in-law suite or "casita," as they call it in the Southwestern US, has become a popular request on home searches. Being able to finance a detached structure in a new home purchase can be a challenge depending on its maintenance level, but typically it is easily included in a mortgage without any additional costs or rate increases.

Are you interested in moving to accommodate everyone? Call your trusted Realtor and put together a search for a home with an in-law suite. Be prepared to look at a lot of different options and consider things like stairs, and private kitchens & baths. There is something to be said for making a fresh start so if a move is something your family could use, go for it!

But, what if you are perfectly happy with your current location? Additionally, how do you position your parents in your home that may not have the required additional features? The cash required to build an addition or a detached structure could break the bank if you get carried away with upgrades and amenities. Some additional challenges include ease of access to plumbing and electricity lines,town/city permitting, easements and set backs which all come into play when planning the addition. It would be best to speak to a general contractor before venturing into it on your own. More importantly, where is the money going to come from? Here are a few choices.

With rates being so inexpensive, you could refinance your own home and cash-out for "home improvements,” to include remodeling and adding the in-law suite. Putting the money back into your home is not a bad idea in this market. You may see a great return as demand for homes with this in-law feature continues to rise. If you are a naysayer and believe the market could tumble another 15-20%, then this may not be for you. At this point, however, prices are back to fair and this is the market correction that has made Real Estate, “real” again.

Perhaps you have fifty to seventy-five thousand dollars in available equity to be able to make these kinds of improvements and affordability will not be an issue. This is great conversation for you and your trusted mortgage broker. Ask the questions and get the answers you need to make the best decision for your loved ones. 

All along consider how can you afford to build an addition to your home that enables your parents mobility, some freedom, and at the same time offering you peace of mind and...a little privacy!

So, what if moving is not an option and you don't have available equity in your home...and to further your detrimental position, affordability is not in-line with getting a new mortgage? Then, consider what can be done with your parents home. They will most likely have it paid off, we hope! So there should be a viable option.

A refinance using their equity, their income & their credit may help you stay on target. The cash from the equity in their home can help to make the plan come together. There are plenty of loan programs to accommodate the family on the short or long-term.

Please don't misunderstand this option, if your parents are on the line for the loan, it is their responsibility to pay and keep up with the payments. But if it takes you six to eight months to complete an ideal addition to your home, you can sell your parents’ home when it’s complete. This will exonerate them from the debt, altogether, while keeping family close and safe.

Ask yourself if you have hit the target on all of your options. Have you been able to afford the addition? Does it increase the value of your investment? Are your parents safe and well-taken care-of? Do you still have the privacy in your own home that you have worked so hard to get?

If you are taking care of your parents, you deserve to have the ability to use their savings to accommodate them, as the major costs of assisted living options would essentially be avoided. If you have the ability to execute the plan while keeping your expenses to a minimum, you have been able to hit the bulls-eye and you still have lots of arrows in your quiver for future investment growth and your child’s education too!

Your Trusted Mortgage Broker,

Diego L Quintero

Article first published as, PMI, Avoiding Delays in Underwriting, on Technorati

From 2005 until about 2008, the mortgage industry was becoming a place where creativity was taking precedence over ethics. Large banks expected the large and mid-sized broker to maintain quotas for lending. The volume of funded loans became more of a focus than the quality of loans issued. In the "Report to Congress on the Root Causes of the Foreclosure Crisis," published by HUD’s Office of Policy Department and Research in January 2010, studies were cited to provide information to Congress concerning lowered underwriting standards.

The topic has been discussed a million times over. However, as opposed to assigning blame, lately the conversation is more about the changes taking place. Our politicians on the hill, Barney Frank and Chris Dodd have written the self entitled, Dodd-Frank Act to help consumers feel more confident in experiencing the American dream. There are lots of highlights that consumers can appreciate, of course, this is nothing different from what well-trained loan officers should have done all along, but now these are enforced.

Take the time to collect your information, and expect to be questioned about the minor changes in your accounts, time on the job, income, it is all meant to protect you and ensure that your loan is well matched to your needs. Get educated about the process, call your trusted mortgage broker to learn more.

Your trusted mortgage professional,

Diego L. Quintero

Article first published as, "To Pay or Not to Pay" on Technorati -

Ever wonder how a bank or broker can offer no closing costs? It's not rocket science, and don’t be mistaken, it's not done out of the kindness of their hearts. Its all a matter of playing with the numbers. Each rate comes with a price; the lower the rate, the higher the price. If the consumer is not rate sensitive, then it is easy to offer the no-cost rate. The rate will be substantially higher but, its cost-free.

Here is an example:

A rate of 5% may be offered at a discount of 1%. While the rate at 6% is paying a rebate of 2%. “Discount” in the mortgage industry means that you will pay for the rate. In this example, the consumer will pay one point for the rate. If the consumer chose 6%, then the bank would cover up to 2% of the closing costs. (These are not today’s rates and are used as merely an example of the “spread” between rates and costs.) The two percent may be enough to cover all of the costs or a large amount of them, depending on the loan amount. When paying points or getting a rebate, keep in mind that points are the same as a percentage (i.e. one point of $100,000= $1,000  - or -  1% of $100,000).

Why do the loans exist? If a consumer is refinancing then the rule of thumb is to calculate the time that it would take to recoup those costs in monthly savings. In a new purchase situation, perhaps a loan was written to take into account that the seller is contributing toward closing costs. If things change in renegotiations (perhaps a low appraisal value) the seller may not be able to pay those costs. It may be an opportunity to take on a higher rate so that the buyer will not have to come-in with more cash than the required down payment.

When considering the difference between paying the costs and getting a lower rate, do the math. How long would it take to recoup costs? Experienced mortgage consultants should be able to find the ‘happy medium’ so that both, the monthly payment and the closing costs are affordable. Call your licensed loan originator to determine which plan is best for you.

_{Article first published as, "Fannie Mae, Negotiating the GREAT deal" on Technorati}

How many agents and buyers have found that when offering on a Fannie Mae owned property, the listing agents issue a multiple offer disclosure? Buyers are hoping to gobble up a deal somewhere, and then end up having to offer above list price, even as the agents who list these properties are advertising that the seller (Fannie Mae) will pay up to 3.5% of the purchase price in closing costs. It’s probably a little tough to share the fact that buyers cannot simply steal a property from the wounded Fannie Mae company. However, what ends up happening is that multiple offers are made, and the buyers become aware that they must offer at least what the home is listed for, if they truly want to own it!

Buyers who read this, I realize that you want a screaming deal. The reality is that Fannie Mae acquires the property via foreclosure. They typically make renovations and professionally appraise the properties to become familiar with the value of their asset. It appears that they just keep getting bailed out over and over again, so they are holding firm to their prices. Plus, they are meticulous when it comes time to selling their assets. They have a very well honed process to letting them go.

Trust your agents. They are experiencing the multiple offer disclosure on every property and are working to get you that great deal. After all, the prices at which these homes are selling are actually less than what it would take to build it from scratch. How do you know? Appraisal values are determined utilizing two methods, the "sales approach" or the "cost approach".

When you are looking at your appraisal you may notice that the cost approach is greater, or is not even listed (it may not even be of importance to the lender since it is drastically higher). The sales approach is the lesser of the two values, and due to market conditions will be more widely used if you need a loan for the home that you are purchasing.

If it makes you wonder, how could they sell a home at less than the cost it would take to rebuild? Then ask yourself...isn’t that a deal? In that case, take it!

-Article first published as, Political Effects on Interest Rates on Technorati -

It was a great day in American history to hear about the successful campaign on the hunt for the world's most notorious terrorist. I have a tremendous amount of gratitude for our brave men and women of the armed forces. As a country we celebrate the success but remain vigilant to the aftermath of such an event. As for mortgages, what effects does it have on the markets? Really, none.

We must not assume that this is an indication for banks to loosen guidelines and open up homeownership to anyone with a heartbeat, (i.e. 2002-2006). Perhaps the psyche of our collective financial minds will enable the markets to loosen up a bit. But quite frankly, the DOW, NASDAQ, and S&P have all performed quite well in the past nine years after the most historic terrorist attack on our soil. I do not anticipate any change in the markets due to the great news, but if it does, let's hope that America can find a way to save a few billion dollars since our deficit has reached epic proportions.

In the mortgage and real estate industries,we are fixed on the ten-year bond. It indicates the short-term future of 30-year interest rates for mortgages. There are other market indicators that are used, but primarily the ten year bond is the key indicator. So, if you are mortgage shopping or interested in buying into the market place, use the market indicators to steer you into the right direction instead of the latest political successes.

Jeff Macke says it best, “this is about patriotism; markets are about pragmatism.” He continues, “this is an edgeless trade.” After our toast in celebration of our success as a country, let's refocus on the important matters. Get back on the job and work diligently to achieve success. After all, isn't that the American way?

Article first published as FHA or Homepath, Choosing Wisely on Technorati.

The enticing HomePath loan program is unique and easy to structure. If you are buying a foreclosure that Fannie Mae owns then this loan program is most likely offered. It is easier to arrange since appraisals are not required and mortgage insurance is omitted from the monthly payment.

If you are buying in a condo complex, you may want to do the research to ensure that the condo is approved by FHA. It’s good to have an alternative plan if something goes awry using HomePath or any other program for that matter.

When utilizing the FHA, expect lower rates than what is offered on HomePath loans. Since the mortgage insurance is not assessed, buyers are paying about a full point higher in their interest rates, using HomePath. Trying to figure out a break-even as to whether you should accept a higher rate in lieu of paying mortgage insurance? It will depend on how much time you plan to live in the home, loan amount, etc. For the sake of your do-it-at-home calculations, FHA’s mortgage insurance can be canceled when the loan amount reaches 78% of the home’s value and the borrower has paid the premium for at least five years.

Article first published as Mortgage Insurance, Programs Loosen-up on Technorati.

Mortgage loan applications may be on the rise once again. This is due to the recent changes in underwriting guidelines in both, mortgage insurance and mortgage lending. The beginning of the new year has now pitted FHA and Conventional lending where an applicant can decide to forgo a funding fee and deposit slightly less of a down payment to close with conventional financing.

Prior to the recent changes, mortgage insurance was covering those whose FICO scores were at least 720 on loans that were at 80% or more of the value of the home. Now, mortgage insurance is covering those scoring as low as 680 for the same loan to value ratios. A 40-point swing is rather generous and shows that there is substantial confidence in the marketplace. This bodes well for the real estate market as interest rates are beginning to rise and proves to be a great way to keep potential buyers interested.

In order of highest risk loans due to loan-to-value we have:

• USDA, 100% financing
• Conventional, 97% financing
• FHA, 96.5% financing
• Conventional, 95% financing

You may want to check with your trusted mortgage professional about individual pricing on the new 97% financing program, as well as individual loan program details. Although the buyer will be saving money on the upfront mortgage insurance premium, there may be a break-even scenario based on the price adjustments of the interest rate available. In other words, due to the risk of the loan product, the bank will charge more for a lower rate so it will be important to weigh the cost of the mortgage insurance versus the cost of the loan.

Overall, it is a good sign that banks and insurance firms are feeling comfortable to open home ownership to more individuals by increasing their risk tolerances. Demand for home ownership must follow suit to prevent further declines in real estate values and mitigate foreclosure activity.