TRENDS IN THE MORTGAGE MARKET:
- Both the 15-(5.42%) and 30-(5.88%)-year fixed rates have gone down by about ½% point in 1 year.
- The mortgage crisis began in 2007, as people failed to pay their loans. This quarter, alone, 900,000 homes are going through the foreclosure process, and home values are the lowest they have been since 2001.
- Loss of jobs—in March, alone, the economy lost 80,000 jobs.
- If you had an ARM (Adjustable Rate Mortgage), you paid a low introductory rate, but rates have soared after 2-3 years, making it harder to pay your mortgage. EX: If you have a $200,000 mortgage and your introductory ARM was at 4% at closing, it might be 7.5% now, after the adjustment period. This costs you almost $400 more per month.
IF YOU APPLY FOR A MORTGAGE NOW:
- Banks will charge higher fees, even if rates are lower than they used to be, to cover their possible losses, making it more expensive for you to qualify for a mortgage and afford the loan.
- 2nd Home market is even worse than the first home market. Particularly in places like Florida and California, home values have gone down by 25%.
- Refinancing: Difficult to do because refinancing fees have gone up–closing costs are higher, and prepayment penalties are higher, costing between 1-3% of loan’s value.
ADVICE IF YOU WANT A MORTGAGE:
- Appraisals coming in at lower values—you need to find an appraiser who can really show the value of all the gems in your house.
- Shop for your mortgage within a 30-day period. Otherwise, your credit rating might drop…too much activity shopping for a mortgage in more than a 30-day period can actually hurt your credit score (a great credit score is over 700).
- If you can swing putting more money down, you save in 2 ways:
- get a lower interest rate, and
- avoid having to buy Private Mortgage Insurance (PMI).
- Avoid buying houses in neighborhoods that have taken an extraordinarily long time to sell houses, especially if you think you may move within a few years.
- In this market, try to close when it is most convenient to you, not the seller, especially if you need to first close on the sale of your own house.
- Consider using a home equity line for your first home mortgage to help pay for your 2nd mortgage if it is hard to get a good deal on a second mortgage.
- Do some comparison shopping online before shopping through a broker/lender. Pricing can be more competitive online. Pricing less up-to-the-minute if not from the internet. Internet pricing is more black and white. People with weaker credit scores have a harder time getting a mortgage online. (Eloan and Amerisave are two reputable sites). Know what features you want before shopping online.
- Mortgage brokers charge fees (either fully disclosed or not) that lenders don’t charge. Buyers pay these fees.
- If you shop different lenders on different days, you will get different prices.
- Give the lender as little information as possible about the home you are buying when price shopping—anything you say may hurt your price.
- Get a written confirmation of a price “lock.”