Tag Archives: cost

Low Rates, High Obstacles to Refinancing Mortgage

As interest rates have slid over the past couple of years, Gabriel Bousbib of Englewood, N.J., refinanced his 15-year mortgage not once, but twice-cutting his interest rate in two steps from about 4.6 percent to 3.375 percent.

He’s one of a number of homeowners who refinanced just a year or two ago, but decided it was worth considering again as mortgage rates hit record lows-now averaging around 4 percent for a 30-year loan.

refinancing your home“When you’re quoting rates in the high 3s, people are saying, ‘It’s worth it to me,'” says Steve Hoogerhyde, executive vice president at Clifton Savings Bank.

“My monthly savings are going down a few hundred dollars; it adds up over 15 years,” said Bousbib, a financial services executive. “And if rates keep going down, I would refinance again.”

Refinance applications have more than doubled over the past year, though they’re not as high as in previous refinancing booms because it’s harder to qualify in the current atmosphere of tighter credit standards, according to the Mortgage Bankers Association. With the volume of home purchases still low, refinancing accounts for about 80 percent of recent activity.

Although the old guideline used to be that you should consider refinancing only when rates drop at least 2 percentage points, the new wisdom is that it can be worthwhile even with smaller drops.

“For most people, if you can shave three-quarters of a percentage point off your interest rate, it’s worth looking at,” says Greg McBride, an analyst with Bankrate.com, a personal finance website.

For homeowners who plan to stick with the same loan term and want to lower their monthly payments, the math is straightforward. Find out how much it will cost to refinance, figure out how much you’ll save each month and then how long it will take to break even. If you can save enough to offset the refinancing costs within a year or two-or even longer if you expect to stay in the house for a number of years-it’s worth considering.

Though low-interest rates are eye-poppingly low, the refinancing climate has changed from the easy-money days of five years ago. Generally, to get the best rates, homeowners need a 740 FICO credit score, well above the median score of 711. They also usually need at least 10 to 20 percent equity in the property. A recent expansion in the federal Home Affordable Refinance Program should allow refinancing this year by more so-called underwater borrowers – those who owe more than their homes are worth.

Lenders are also demanding much more documentation – including pay stubs, tax returns and bank statements – than they did five years ago, at the insistence of government regulators as well as Fannie Mae and Freddie Mac, which buy mortgages from lenders.

“You have to have a taste for doing paperwork,” says Keith Gumbinger of HSH Associates, a Pompton Plains, N.J., company that tracks mortgage data. “You’re going to be asked for lots of documents. No one loves the process to begin with, and in today’s environment, it’s even less palatable.”

These stricter requirements are simply a return to the kind of underwriting standards that prevailed before lending standards slackened a few years back, leading to the housing bust and foreclosure crisis, McBride says.

“We’re in this mess because money was too easy to get,” he says.

Refinancing costs roughly $3,000, according to several mortgage companies. That covers costs like an appraisal, title insurance, application fees, attorney’s fees and recording the mortgage. Some lenders also offer low- or no-cost options, which they can do by either adding the closing costs to the mortgage amount or charging a slightly higher interest rate.

Bousbib, for example, took a no-cost refinance with Equity Now, a New York-based lender that also lends in New Jersey. “It didn’t cost me a penny,” he says. Equity Now says it charges a slightly higher interest rate on no-cost loans.

Lowering the monthly payment is not the only reason people are refinancing. Many are shifting from a 30-year loan to shorter terms, said Matthew Gratalo of Real Estate Mortgage Network in River Edge, N.J. He has worked with clients in their 40s who hate the thought of carrying a mortgage into retirement.

“They’re looking ahead and saying, ‘I don’t want to pay a mortgage forever; can I get this done in 15 years? Can I be done with this and have it paid off?’ ” Gratalo says.

“Certainly shortening the term makes a lot of sense because you can cut years of mortgage payments,” says Carl Nielsen of Mortgage Master Inc.’s Wayne office.

Nielsen, for example, recently talked to a customer with a $375,000, 30-year mortgage at 4.5 percent. The customer is considering a 20-year mortgage at 3.75 percent. His monthly payments would go from $1,900 to about $2,223, but by shortening the life of the loan, he’ll save more than $150,000 in interest payments.

“That’s kind of a no-brainer,” says Nielsen.

Sources: Greg McBride, Bankrate.com ©2012 The Record (Hackensack, N.J.), Distributed by RISMedia and MCT Information Services.

How to take advantage of a short sale

If you’re shopping for a home with a bargain-basement price, a short sale could be the answer.

This is where a lender allows borrowers who can’t keep up with the mortgage payments to sell their home for less than they owe on the property. The bank or mortgage company approves what you paid to purchase the home and forgives the remaining debt.

How low can you go and still expect a lender to approve the deal?

Lenders usually will accept offers that net at least 82% (after expenses) of the home’s current fair-market value, regardless of what the borrower owes. When there is a 40-50% reduction in price, this does not matter.

Why would a lender do that?

Because lenders will lose less by allowing a short sale to occur, than by going through a foreclosure on the home.

Taking advantage of a short sale is less risky then buying a foreclosure, because so many repossessed homes need tens of thousands of dollars’ worth of repairs. The worst of the bunch have been deliberately vandalized by angry owners just before they were evicted.

Here are 4 smart moves for buying a short sale property:

Smart move 1. Make sure you’re a good candidate for a short sale.

Short sales are all about presenting the lender with a deal that can’t be refused. Banks and mortgage servicing companies are more likely to approve buyers that:

  • Have a substantial down-payment.
  • Have been preapproved for a mortgage.
  • Place no contingencies on their contract, such as having to sell their current home before proceeding with the purchase.

Smart move 2. Hire a real estate agent who’s experienced in short sales.

You need someone who can steer you away from short sales that aren’t likely to succeed.

I will interview the listing agent to determine whether the seller has done everything that’s needed to win lender approval, in addition to and most importantly, finding out what is necessary to put you, the buyer, in the number one position.

You need to know whether the home has been aggressively marketed — the bank won’t like it if the seller hasn’t made a good-faith effort to get a reasonable bid — and whether the bank has received a broker’s price opinion, which it will use to determine the home’s market value.

Smart move 3. Offer the right price.

Short sales aren’t the time or place to do a lot of dickering.  There is competition for these properties, even more so than bank-owned homes that are in great condition.  The difference between the two types, is that short sales will always end up going for less than a bank-owned property.

Lenders don’t have the time or staff to evaluate an endless bunch of bids, each a little higher than the last. If you deliberately lowball a bank or mortgage company, it will just write you off as a waste of time.

You need to come up with a cheap but reasonable offer that the bank or mortgage company will accept, in one try and in a short sale. The agent representing you should be doing the work to make sure you get the best deal. Most of the time on properties that I sell as a short sale, the price accepted is one of the lower offers.

Start by estimating the fair-market value of the home for yourself, using comps (values of comparable properties that have sold near the home in the past few months), then collaborate with your agent for the highest and best offer to submit.

Take the condition of the home into account and reduce your estimate if the home needs repairs. It’s a buyer’s market, and you don’t have to treat a fixer-upper like it’s in pristine condition.

Calculate 90% of the home’s value, throw in a few thousand dollars to cover the lender’s cost of doing a short sale (ask me, your agent, what that typical is for your area), and you have a good starting point.

Now look at the quality of your comps.

If it’s a straightforward deal, and the home has spent no more than three or four months on the market, then you’re good to go. There are variables that can go with this that I can explain for you when we meet.

But if all of the comps are foreclosures that sold within a few weeks of hitting the market, then those may be damaged homes being dumped at fire sale prices, so further investigation is necessary.

You’ll have to adjust your offer upward, perhaps all the way to the full fair-market value calculated with those comps in most cases, but sometimes there may be a quick steal in sight and I can get it for you.

Check how close your offer is to the asking price on the home. Remember, the sellers won’t get any of the money, so they have no incentive to demand an unreasonable price. But unfortunately, sometimes there are unreasonable sellers and I can help get them to be co-operative, even though I am not representing them, to put the price at what you want to pay which will ultimately help the agent representing the seller get the bank to do the same.

They’re just trying to find a price you’ll pay, and one the bank will accept, to relieve them of their debt, but I have a knack for getting the seller and seller’s agent to realize what is necessary in doing the transaction because I have dealt with countless lenders while knowing their tendencies.

From the your perspective, given your agent’s guidance, you’ve probably come to the same conclusions as the seller and their real estate agent, but unfortunately this is not always the case.  It is not about the seller deciding the price; it is about the lender’s decision, while being guided by the real estate agent.  If the listing agent or their hired negotiator are not experienced in handling the process,  I take care in making sure the seller’s agent understands the approach and if the agent isn’t doing the negotiating, then I will speak with the person the listing agent hired and show them how a short sale can be successful.

Smart move 4. Be patient.

It almost always takes longer to close a short sale than a typical sale of a property, because it takes so long for lenders to review and accept your proposal.

There are deals closing in as little as five weeks when the lender has preapproved the short sale and asking price and you agree to meet that price.

But that rarely happens, however, when you hire an agent like me those results go way up!

More often than not, it takes two to four months to get a “yes” from the bank or mortgage servicing company.

Although lenders say they’re trying to process these requests more quickly, there still is a problem because of the lack of knowledge or contacts by the listing agent within a bank that I can help expedite for you the buyer.

__________

Bottom line, buying or selling a property in today’s market requires a skilled and experienced agent.  There is money to be made by sellers even if you are upside down (banks are offering special incentives or thousands of dollars to sellers that most agents do not know about) and discounts to be gotten by buyers, but only with the “RIGHT AGENT”. Call me TODAY!

I’m available at (619) 890-3648 or via email.