No Mortgage Payments Up to 6 Months?

Lately, there has been a lot of press about mortgage programs that offer no payments for up to 6 months. What are they?

With these mortgage programs, you can purchase a new home (1-unit primary residence) and have the builder/seller agree to pay up to 100% of the principal and interest portion of your monthly mortgage payment for up to the first six months of the loan term.

Eligible loan products include both fixed and adjustable-rate loans, extended repayment terms (ex. 40-year loans) and affordable lending options for first-time home buyers. Currently, most programs will allow for 3% of your purchase price to be used for your mortgage payments when you finance over 90% of the purchase price. In other words, if you purchase a $200,000 and take out a 95% loan ($190,000), the builder/seller can contribute up to $6,000 for your mortgage payments. Also, if you finance less than 90%, it is possible to receive up to a 6% contribution. The main thing to keep in mind is that principal and interest are included. Taxes, hazard insurance, and mortgage insurance (if applicable) are not included.

Given the current lending environment, mortgage programs are subject to change almost daily. If you are considering a strategy such as the one above, please visit www.noblelenders.com for product updates or call 636.594.5536 for a FREE consultation.

Interest-Only Mortgages Aren't Always A Bad Thing!

Interest-only mortgages are utilized by many homeowners and real estate investors as a means to safely increase their wealth. There is a time and place for everything and interest-only mortgages are no exception.

What are interest-only mortgages?

In a mortgage, when principal payment is not required for a certain period of time, it is classified as interest-only. The only payment that is due every month is the interest that has accrued on the mortgage balance. The interest-only period varies but a popular one seems to be 10 years. In the case of a 30 year fixed rate mortgage with a 10 year interest-only period, you will pay interest for the first 10 years of the loan. For the remaining 20 years you will pay principal and interest.

Is it for me?

For a homeowner that is considering an interest-only mortgage I think there are a few questions that need to be addressed. Why are you choosing interest-only as opposed to a fully amortizing mortgage? If your answer is that you can't afford the fully amortizing payment, I think you are making a mistake. If your answer is that you want to invest your savings in a safe investment account, then let's talk.

My approach has always been to educate rather than sell. I want to know that a borrower is using the savings of an interest-only mortgage to improve their financial picture and not to live beyond their means. A popular strategy is to apply the savings of an interest-only loan to some sort of safe investment account. I am not a financial planner, but I would not recommend investing this money in the stock market or other risky investments. True, many investors have performed extremely well in the stock market, but I do not advise that the typical homeowner place their home equity in potentially risky investment vehicles. There are many advantages to this approach including greater liquidity and rate of return. There can also be disadvantages. Interest-only mortgages are not for everyone. Education is the homeowner's most powerful tool in choosing a mortgage strategy. To keep this posting relatively concise, I won't get into great detail on the advantages and disadvantages. To request your FREE detailed report on interest-only mortgages vs conventional 30 year mortgages, visit www.noblelenders.com, and click on the NOBLE TOOLS tab then DOCUMENTS. Select the report titled "Interest Only Mortgage vs Conventional 30 year."

What Are Seller Contributions?

For some time now, homebuyers have been using the power of seller paid contributions to structure a transaction to best fit their needs. There are many uses for seller paid contributions and each mortgage program has specific guidelines relating to the use of them.

What are they?

A seller contribution is when the seller contributes a portion of the sales price of a home to the buyer during a real estate transaction. The most popular use of seller contributions is to assist the buyer with paying closing costs. So why would any seller ever want to do this? There are a number of reasons why a seller would do this, but in general it is a way for a property seller to increase the pool of potential buyers of their property. Let's look at a particular example: Jim Seller is selling his house to Tom Purchaser. Tom Purchaser just recently graduated college and is short of funds right now. His closing costs for this purchase are $3,000. Jim Seller has determined that he wants to walk away from the sale of his home with $97,000 in his pocket. So, here is what you would do to accomplish seller paid closing costs: Jim and Tom would agree on a sales price of $100,000. Within the purchase agreement, Jim and Tom agree that Jim will contribute $3,000 to Tom's closing costs. So, we have a win-win situation. Jim will walk away with $97,000 ($100,000 sales price - $3,000 seller contribution = $97,000). Tom will purchase the home and won't have to come to the closing table with his $3,000 closing costs because Jim paid them for him.

What are the restrictions on mortgage products and the amount of contribution that is permitted?

Please keep in mind that mortgage programs change frequently and the following guidelines are subject to change at anytime. Please visit http://www.noblelenders.com/ often for program updates. As of today 3/18/08, you are able to receive a contribution of 3% on Fannie Mae and Freddie Mac (agency) products above 90% LTV (loan-to-value ratio). If your LTV is 90% or below (you are making at least a 10% down payment), you are eligible to receive up to 6% seller contributions. For FHA loans, 6% seller contributions are permitted. In most cases, the seller contributions can be applied toward non-recurring closing costs (appraisal fee, escrow fee, etc.), and pre-paid items (hazard insurance, taxes). Seller contributions MAY NOT be applied toward the actual down payment. All percentages are calculated based on the sales price of the property ($100,000 sales price * 6% = $6,000 seller contribution).

Seller contributions continue to gain in popularity as a means to structure a transaction to best fit one's needs. Check for future postings that discuss other popular ways to use seller contributions.

What is a No Cost Refinance?

As consumers, we are bombarded with advertisements about no closing cost refinances. We hear about them on the radio, see commercials for them on TV, maybe even receive mail about them. So what are they? How are these institutions able to offer them and still earn a living? The remainder of this post will dive into the ins and outs of a no cost refinance.

So what is a No Closing Cost Refinance?

Mortgage lenders and mortgage brokers are able to offer interest rates to consumers that are slightly higher than the cost of those funds to them (read par or market rate). In turn, they are able to use the difference (premium) that they receive to pay for closing costs and their own compensation. You see, no matter what lender or mortgage company you choose to work with, their are costs associated with closing a loan. A majority of these costs are paid to a third party such as an appraiser, title company, or surveyor.

When does it make sense to pursue a No Closing Cost Refi?

During markets like what we are seeing right now with interest rates at relatively low levels, no closing cost refis become extremely attractive as a means for homeowners to lower their interest rate and monthly mortgage payment. If a homeowner is able to lower their interest rate 2% and save $300/month on their mortgage payment AND pay no closing costs to acheive this, oftentimes it makes good financial sense.

Now, as long as we are talking about no closing costs, it is worthwhile to explain exactly what this means. When you close a loan, you have closing costs and prepaid items. Closing costs are fees that are paid to the parties involved in arranging your transaction. Closing costs are not required to be paid in a no closing cost refinance. Prepaid items are things such as prepaid interest (interest on the new loan because mortgage payments are made in arrears), hazard insurance (if you are within 3 months of renewal or if you choose an escrow account), or property taxes (if you close at the very end of the year and taxes are due or if you choose an escrow account). In a No Closing Cost Refinance, borrowers will be required to pay for pre-paid items as they will need to be paid whether the homeowner refinances or not. These items are typically included in the new loan amount.

To find out if you are a good candidate for a No Closing Cost Refinance visit http://www.noblelenders.com/ and click on the No Closing Cost Refinance section at the bottom of the home page. Also take a look at the mortgage calculators that are available under the Noble Tools drop down menu.

Alert: FHA Raises Loan Limits

3/6/08



Effective immediately, the United States Department of Housing and Urban Development will temporarily raise FHA loan limits to range from $271,050 to $729,750. It is expected that as many as 240,000 homeowners and homebuyers nationwide will benefit from this change. The change is temporary and is set to expire 12/31/08 unless the U.S. Congress approves bipartisan legislation to permanently increase the loan limits. For the complete press release click here http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_scheme=portal




Who is FHA?

FHA is the Federal Housing Administration and is a part of the United States Department of Housing and Urban Development. FHA insures mortgages issued by FHA-approved lenders, thereby protecting the lenders against losses associated with borrower default. FHA provides incentive for lenders to make loans that might otherwise be deemed too risky.



What does this mean to the St. Louis, MO homeowner?

This will benefit a number of homeowners throughout the St. Louis area as well as the entire State of Missouri. St. Louis city and county along with most surrounding counties (St. Charles, Jefferson, Warren, Lincoln) will benefit from loan limits increased to $281,250 from $200,000. A majority of the other counties in Missouri will benefit from an increase to $271,050 from $200,000. So what does all this mean? This will open up the pool of homeowners that are able to qualify for FHA insured financing. With the fallout of subprime, many homeowners have been left with mortgages that they are unable to refinance because they don't currently qualify for the stricter guidelines associated with conventional financing. Many of these homeowners are in Adjustable Rate Mortgages (ARMs) and have already seen their payments increase significantly. This will also increase the number of people able to purchase homes in Missouri.


For a list of FHA loan limits for every county in the United States, click here https://entp.hud.gov/idapp/html/hicostlook.cfm. To filter your search results, go to the Limit Type drop down box and select FHA Forward.


For other helpful homebuying resources visit http://www.noblelenders.com/

Changes to Conforming Loan Limits

3/6/08

Fannie Mae and Freddie Mac have announced their latest effort to bring relief to American homeowners. As part of the Economic Stimulus Act of 2008 Fannie and Freddie will immediatley begin purchasing loans on the secondary market with a maximum principal obligation of 125% of the area's median home price. The maximum loan amount will increase from $417,000 to $729,500 in some areas. At this time, the change is only temporary and is set to expire 12/31/08. For a copy of the entire press release, please click here https://www.efanniemae.com/sf/mortgageproducts/index.jsp.

Who are Fannie Mae & Freddie Mac?

Fannie Mae and Freddie Mac are the largest purchasers of home mortgages in the secondary mortgage market. Their purpose is to assist mortgage bankers and other lenders by ensuring that they have enough funds to lend to home buyers at reasonable rates. During times of restricted liquidity such as what we have right now, Fannie and Freddie play a major role in keeping the dream of American homeownership possible.

What does this mean to the St. Louis, MO homeowner?

Well, nothing right now. Actually, the entire State of Missouri is deemed to be in an area that is not considered high-cost by the United States Department of Housing and Urban Development. Check back periodically as we will post any changes relevant to Missouri and the St. Louis area. For properties in other states that may be affected, click on the following link https://entp.hud.gov/idapp/html/hicostlook.cfm. To filter your search results, go to the Limit Type drop down box and select Fannie/Freddie.

Check back in a few days as we will be posting changes to the FHA Loan Limits that WILL affect those in St. Louis and other Missouri counties.

For other useful articles and reports, please visit http://www.noblelenders.com/

The Power of Pre-Approval

People ask me all the time: I'm in a lease for another 3 months, don't you think it is too early to apply for pre-approval? My answer is always the same: NO! I have many reasons for saying this. For the sake of time & simplicity, I will explain the three most important here.

The primary reason is that you need to find out if you qualify to purchase a home now. If not, you will have several months to work on what is needed to qualify. Reasons that you may not qualify right now could include: Lack of down payment, lack of job history, low credit scores, etc. Wouldn't you like to know if you need to do some work to qualify before you go out looking for homes? Or much worse, before you find the dream home? You'll save yourself and your Realtor quite a bit of time by applying for financing first!

Okay, so you've made up your mind. You're ready to pursue the American dream of homeownership and you've brought me to my second reason to apply for pre-approval prior to home shopping. Wouldn't you like to know exactly how much you can afford? Would you like to find out all of the expenses that are associated with owning a home? A good loan officer will provide you with this information at the time of pre-approval. This person will ensure that you are shopping in the price range that you are financially comfortable with. Remember, you'll want to put furniture in this home too! Nobody wants to feel "stretched" to make their mortgage payment every month. A thorough loan officer will explain the 5 components of a monthly house payment with you.

The five components of a house payment
1. Principal & Interest
2. Property Taxes
3. Hazard Insurance (theft, fire, etc.)
4. Private Mortgage Insurance (if you finance over 80% of the sales price of a home)
5. Condominium Maintenance Fees (if applicable)

When you add these five components together, you come up with your total monthly house payment. Now, wouldn't you like to know all of this before you find that dream home? I know I would. If more loan officers had explained this in years past, maybe we wouldn't have this current foreclosure crisis on our hands.

Okay, so let's briefly explain each component of the total monthly mortgage payment.

1. Principal & Interest is what you pay directly to your lender each month. The principal portion goes to reduce the balance on the loan, thereby creating "equity" in your property. The interest portion goes to your lender to compensate them for making the loan to you.

2. Property Taxes (aka Real Estate Taxes) are paid to your state and local governments and schools to fund worthwhile projects.

3. Hazard Insurance will be required by your lender and will protect you from fire, theft, etc. Most lenders will allow you to choose your own insurance agent for coverage.

4. Private Mortgage Insurance (aka PMI, MI) is only applicable when you finance over 80% of the sales price of a home. This is a fee that you pay to your lender so that they can obtain an insurance policy protecting them against loan default.

5. Condominium Maintenance Fees (aka HOA Fees, Homeowner's Association Fees) are only applicable if you purchase a condiminium or certain townhouses and co-ops. This is a fee that you pay each month to the association that manages your property. This will pay for things such as lawncare, security, and pool maintenance.

Last but not least, my third reason for obtaining pre-approval before you begin shopping for a home. Now, here's something your Realtor will thank you for. You've found the perfect home and your ready to make an offer. How do you structure that offer? Let's suppose you've met with your loan officer and he/she has determined that it will be best for you to request that the seller pay a portion of your closing costs. Maybe you have recently graduated college and you haven't been on your job long enough to have saved for closing costs. Well, here's the good part. It is possible to ask the seller to pay up to 6% of the sales price toward your closing costs. Let's say the dream home will cost you $150,000 and your closing costs will be $4,500. In this situation, the seller will be able to contribute enough to cover your closing costs ($4,500 / $150,000 = 3%, which is less than the maximum of 6%). You will only be required to come up with $500 to purchase this home. Here's how: You request 100% financing from your loan officer. When preparing your contract, your Realtor negotiates for the seller to pay $4,500 for closing costs. You put up a $500 deposit for earnest money and you have your dream home.

As I have outlined above, it is important to visit with your loan officer to discuss your home financing before beginning your home search. Summer in St. Louis is right around the corner!


For more information and to obtain other FREE reports and articles, visit http://www.noblelenders.com/.