THE DON’TS: Home Buying Deal Killers

Buying a home is very exciting. However, nothing can be a bigger disappointment than finding out that your loan is denied before you are about to close your transaction!

Bill Nickerson

You’re a week away from having the keys to your new home and your loan officer calls to let you know that your loan was denied due to a change in your profile. This can and does happen often. But there are a few things that you can do to make sure that this won’t happen to you.

Keep the following points in mind while you are in the process of buying your home:

  1. Don’t Apply for New Credit of Any Kind.  Don’t respond to any invitations to apply for new lines of credit and don’t establish new lines of credits for furniture, appliances, computers, department stores etc.  Even if there are no payments for 12 months, we will need to count this debt against you.  This will also have an adverse effect on your credit score.  Wait until your loan closes to purchase items for yourself and new home.

2.  Don’t Max Out or Over Charge on Existing Credit Cards. Running up your credit cards is the fastest way to bring your score down.  Once you have engaged in the loan process, try to keep your credit card balances to below 30% of the available limit.shopping cart

3. Don’t Close Credit Card Accounts. If you close a credit card account, it can negatively affect your ratio of debt to available credit.  If you really want to close an account, wait until after you close the loan.

4. Don’t Raise Red Flags to the Underwriter. Don’t change your name and address and don’t co-sign on another person’s loan. The less activity that occurs while your loan is in process; the better it is for you.

5. Don’t Make Large Unexplainable Deposits Into Bank Accounts. Deposit amounts into your bank accounts that do not match your past history will be questioned by an underwriter unless the deposit is documented as a gift or can be explained.  This includes cash deposits and moving funds from one account to another.

6. Don’t Make Changes to Your Employment/Income. Employment stability is a huge factor in the underwriting loan process.  Quitting or changing jobs or even moving positions within the same company can greatly endanger your loan approval.  Inform your loan officer immediately of any changes to your job, position or income.

7. Your Down Payment:  Do you have your down payment all set? Is it in one account?  Have this prepared before you purchase your home.  Whether it is gift funds, liquidation of your retirement or moving funds from one account to another.  By having these funds all in one account, it will simplify the process.  If you receive a Gift, let’s say for $1,000 from family, Don’t deposit $900 or $1100, as this will be hard to explain why the amount is different from the Gift amount.

Bottom Line: Don’t Make Any Adjustments/Transfers in Your Asset Picture. Talk to your Loan Officer first.  Don’t make any changes in investments, move positions, close accounts, open new accounts, or substantially alter your asset picture.

Send me an email or call with any questions you may you have.  Cell phone is 978-273-3227 or click here to Email Me.

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Mortgage Pre-Qualification vs. Pre-Approval

In Today’s Mortgage World, it is more important than ever to have an actual Approval in hand when shopping for a home.  An actual approval may take a few days, even a week, but I assure you, your Realtor with thank you and the process will  be much smoother.

Pre-Qualification

A mortgage loan pre-qualification is an estimate of how much house you can afford and how much money a lender would be willing to loan you.  The best time to get pre-qualified is right before you start looking at homes.  This way you can focus on looking at houses that are within your price range.  By providing a loan officer with your income, assets, debts, and a potential down payment amount, he would then be able to give you a ballpark figure of how much he thinks you could afford to pay for a monthly mortgage.  There is no cost to this service and no commitment is required.  This estimate is a helpful tool to you in figuring out if buying a home is a viable option, and if so, what your price range would probably be. A pre-qualification is only an estimate to give you a range of home prices and in no way is a commitment to lend on a home.

Pre-Approval

Getting pre-approved means that you have a tentative written commitment from a lender for mortgage funding.  In the pre-approval process, you provide a loan officer with actual documentation of your income, assets, and debts.   The Loan Officer is submitting this as if it is an actual loan and a property has been identified.  This will be reviewed by the lenders underwriting team.  The lender will run a credit check and verify all your employment and financial information. Once the final approval comes in, the lender will give you a letter of commitment stating how much money the bank is willing to loan you for a home purchase. Having a certified pre-approval in hand when you start house hunting lets real estate agents and sellers know you are serious about buying when they see you have your mortgage funding in place.  By having your funding in place, it becomes an extreme advantage over other buyers when it comes to negotiating your home purchase as your offer will stand above the rest and you will be able to close in a much shorter time period.closing-costs guy

It is important to note that a pre-approval and a pre-commitment is still subject to further review as any loan is.  As variables change in lending or in the borrowers financial picture, additional items may be required. In addition to the financial commitment, the lender will also need to verify the property appraisal and title search.

Bottom Line:     

Pre-Qualification is an estimate of a price range of what you can afford.     Pre-Approval is a verified commitment from the bank stating how much money it will loan you. Make sure your Pre-Approval is an actual commitment from the bank as opposed to a Loan Officer just doing a quick credit check.

For More Information about Loan Approvals, Loan Programs and mortgages that are best suited to your financial needs, contact me anytime at 978-273-3227 or email me at wnickerson@primlending.com and you can always visit my mortgage site at www.billnickerson.com

Bill Nickerson

Bill Nickerson  NMLS# 4194

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Is Your Glass Half Full or Half Empty?

A psychologist walked around a room while teaching stress management to an audience. Half FullAs she raised a glass of water, everyone expected they’d be asked the “half empty or half full” question. Instead, with a smile on her face, she inquired: “How heavy is this glass of water?”

Answers called out ranged from 8 oz. to 20 oz.

She replied, “The absolute weight doesn’t matter. It depends on how long I hold it. If I hold it for a minute, it’s not a problem. If I hold it for an hour, I’ll have an ache in my arm. If I hold it for a day, my arm will feel numb and paralyzed. In each case, the weight of the glass doesn’t change, but the longer I hold it, the heavier it becomes.”

She continued, “The stresses and worries in life are like that glass of water. Think about them for a while and nothing happens. Think about them a bit longer and they begin to hurt. And if you think about them all day long, you will feel paralyzed – incapable of doing anything.”

Remember to put the glass down…

I found this on the internet of course, and could not find a source to give credit.  It was a very clear message and wanted to share it.  Enjoy!  ~Bill

 

Bill Nickerson has been in the Mortgage Industry since 1991.  Feel free to contact him at 978-273-3227 or email at bill@billnickerson.com

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Before Putting Your Home on the Market

Before putting your home on the market:  Mortgage Questions

  • Documents you will need
    • Deed
    • If you have right of ways, deed restrictions or easements get the documentation that clearly spells out the restrictions of the property.
    • Know if you are in a flood plain – FEMA’s website can be helpful.
    • Go to the Town Hall:
      • Field card at the assessor’s office
      • Get your most recent  paid tax bill
      • A plot plan
      • Title V report if it has been complete and the pumping schedule
      • Talk to the engineering department get a sense of any upcoming projects that may be done around the home.
      • Building department will have a list of all permits pulled and renovations done to the home including electrical, plumbing and addition upgrades
    • If you are in a condo
      • Condo financials to include the budget,  the last three months condo association meeting minutes and if they have it a list of current and future project that are going to be done to the properties
      • Condo Rules and Regulations
      • Master Deed and Master Insurance.
      • Verify there are no pending lawsuits with association
      • Know the owner occupancy rate of your complex
    • Home List
      • Create a list of renovations and updates that have been done to the property
      • Get utility bills for the last 12 months: Electric, oil, gas, propane, plowing, landscaping…
      • Write a letter to potential buyers of what you love about your home, neighborhood and town.

shopping for a house

For more information about selling your home, feel free to contact me anytime.  I can be reached at 978-273-3227 or email be here: Bill’s Email

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3% Down and No Mortgage Insurance

With all the news about small down payments disappearing with Government regulations, Mass Housing still offers its mortgage program that features Low Down Payments, as little as 3% down with No Mortgage Insurance!  This product provides financing (purchase or refinance) up to 97% of the appraised value of the home without the hefty mortgage insurance payments that are typically associated with low down payment programs.Percent Down

This special program is available for owner occupied; one to four family properties including condominiums on both purchase and refinance transactions. With a low fixed rate, the down payment can be a gift on single family homes.  The MassHousing Mortgage with No Mortgage Insurance is a great choice for low and moderate income homebuyers.

Features:

  • As little as 3% down on single-family homes and condos
  • As little as 5% down on 2, 3 and 4-family homes
  • No mortgage insurance required
  • Income limits as high as $123,660 in many cities and towns
  • Fannie Mae loan limits apply, borrower up to $417,000
  • Approved community second mortgages allowed
  • Credit scores as low as 660 (additional conditions may apply)

Advantages:

  • Gift funds can be the source of the down payment on single family homes
  • The interest rate will never increase
  • Competitive fixed rates
  • Safe, fixed-rate limited cash-out refinance option

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Call me to learn why this innovative program is an attractive alternative to an FHA mortgage!  Remember, this program allows for the same low down payment options as FHA with no mortgage insurance and in-house condo approvals!!

If you have any questions about this program, income limits or other low down payment programs, call or email me anytime!  I offer appointments for your clients 7 days a week as well as evenings.  Loan consultations and applications can be done in person, on the phone and even online.

Contact me at 978-273-3227 or Bill’s Email and you can even apply online at www.billnickerson.com

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What’s the Point?

Unless you have bought a home, you probably haven’t heard the term point or mortgage point.  Or maybe you have heard the term but don’t quite know what it means.  Having a general knowledge of what a point is and how it works can help you to make important financial decisions when buying a home.

The cost of purchasing a point is equal to one percent of the total loan amount which is used to buy down the interest rate when buying a home.  For example, if the lender offers an interest rate of 4% on a $250,000 loan, and you decide that the payments are too high, you can offer to pay a point (1% of the loan amount) and this would reduce the mortgage rate.  The cost of a point in this example would be $2500.  So, is it worth the investment of the $2500 to save a little money off your monthly mortgage payment?

A point will traditionally buy down the interest rate by one Quarter of a percent (.25%).  It is important to understand the cost of the point, the amount of savings on your monthly mortgage payment and see how long it will take you to break even on the costs.

Here is some simple math:

Take the cost of the point (1% of your loan amount) and divide it by the monthly savings of the rate you have just bought down with points.  The answer:  60 months plus or minus a few months to recoup this cost on average.  If you know you will be in the house for 5 years or greater, or will not touch the mortgage (refinance), then this is worth it to you.  Another example would be if the sellers would be offering to buy points to make the home sale more attractive.

On a $250,000 loan, a 30 year fixed payment at 4.00% interest rate will cost you $1193 per month.  If you purchase one point (1% of the loan amount = $2500), your new interest rate would be 3.75%. Your new monthly payment would come to $1157, a savings of $36 per month. I divide the cost of the point, $2500, by $36 (my monthly savings).  This will give me the number of months it will take to recoup the cost of my investment.  In this case it will take 69.44 months or 5.78 years before you really begin saving.

In My Opinion:

In the case of buying points, it is not a wise investment because of the time it takes to recoup the costs.   These potential funds to purchase points can be earning far more in other investments.  So, unless the seller is buying down the points for you…don’t bother!

For more information about this article, please contact me at   Bill@billnickerson.com

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Can I give you a Piggy Back?

Whether you call them Piggy Back Loans, Blended Mortgages, A first and second, 80-10-10, these loans are extremely helpful in avoiding Private Mortgage Insurance (PMI).

Piggy Back

The Piggy Back

When you have less than 20% to put down on a home, you are charged Private Mortgage Insurance, this added cost is based on the actual down payment as well as your credit score and in some cases can be in the hundreds of dollars per month.   Several years ago, many banks, lenders and mortgage companies created a program that would allow having a first and second mortgage to avoid the high cost of mortgage insurance.  At the end of the Housing Bubble, many banks, lenders and mortgage companies went out of business, these second mortgage and lines of credit nearly disappeared.  They were still available, they were just really hard to find.

Based on your purchase price, you would take out a first mortgage in the amount of 80% of the price and a second loan in the amount of 10%.  You would still be borrowing 90% of the purchase price (10% down payment).  In doing so, you have lowered the loan-to-value ratio (LTV) of a first position mortgage to under 80%, thereby eliminating the need for private mortgage insurance (PMI).

Example: Here is a comparison of using the Piggy Back Mortgage versus a mortgage with PMI.  This is based on a purchase price of $400,000 with 10% down on a single family home and assuming a credit score of 740 or greater.

Without the Piggy-Back:  You would have a first mortgage of $360,000, using a mortgage rate of 4.5% on a 30 year fixed.  This would give you a mortgage payment with PMI in the amount of $1,980.07.  $156 of this payment would be PMI.  PMI payments do vary based on the actual down payment as well as the credit score of the borrower, but this will give you a good idea of what the payment would be.

With a Piggy-Back loan using the same purchase price.  In this example you would have a first mortgage in the amount of 80% of the purchase price, $320,000 and a second mortgage in the amount of $40,000.  The second mortgage can also be a line of credit and in both cases the second mortgage rates is typically higher.  Using a rate of 6.00% for the second, this gives you a total mortgage payment of $1,861.21.  This is a total savings of $118.86 per month.  This is a conservative estimate.

Word of caution, the savings can be in the hundreds, most of these piggy-backs are in the form of a Line of Credit (home equity line of credit) and are adjustable rate products.  Even though the rates are still at all-time lows, these lines of credit will only go up in rate in the future and could become more costly than the having the mortgage insurance.  When obtaining a piggy-back mortgage, you really need to have a strong financial plan of how you can pay off the second loan sooner rather than later in order to take full advantage of the savings.

For more information in regards to Piggy Back mortgages and other programs that eliminate mortgage insurance, feel free to call or email me anytime.

Bill Nickerson -NMLS #4194  978-273-3227 cell

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Understanding how your Credit Works

credit scoreCredit scores were developed by Fair Isaac and company (FICO). The models created using FICO take all the detailed information about your credit report and produce your credit score using different weights and factors contained in the FICO scoring models.

The purpose of a FICO score is to show how likely you are to become at least 90 days late in making payments in the next 24 months based on patterns in your credit history, compared with patterns of millions of past customers.

Fair Isaac divides the scoring range into five risk categories.

  • 780-850 Low Risk
  • 740-780 Medium, Low Risk
  • 690-740 Medium Risk
  • 620-690 Medium High Risk
  • 620 and Below High Risk or “Non Prime”

Each of the three major credit bureaus uses their own version of the FICO scoring model. Factors influencing your credit score are:

  • Current or late payments
  • How late the payments are
  • Number of open accounts you have
  • How much credit you are using in relation to how much credit you have available
  • If there are serious delinquencies on your file like bankruptcy, liens and charge off accounts

Your credit score is a snapshot, in that it is developed at the time of inquiry by a credit grantor pulling your credit file. Your credit score can change with the passage of time as well as with the addition of new information to your credit file. As delinquency information in your file ages, it’s negative affect on your credit score lessens.

Credit Scoring uses the following five areas of information to calculate the score:

  • Payment history 35%
  • Amounts owed 30%
  • Length of credit history 15%
  • New credit inquiries 10%
  • Type of credit used 10%

It is best to keep balances low on credit cards and other revolving accounts – maintain balances below 50 of the available credit limit. 24 is optimal. The best way to improve your score is to pay down revolving debt.

An inquiry is defined as a request by a lender for a copy of an applicant’s credit report. Inquiries remain on a credit report for two years, but credit scores only look at inquiries in the last 12 months. Your own request for a credit report to review for accuracy is not considered in your credit score.

Apply for new credit accounts only when you need them. Remember that closing accounts does not make them go away. A closed account with a poor payment history may become a more recent account because the date of activity will change. An open account with a low or zero balance is better than a closed account.

HELPFUL WEBSITES FOR YOUR REFERENCE: You can obtain your free annual credit report, without a FICO score, at www.annualcreditreport.com

To contact the credit bureaus:

Experian  1-888-397-3742   www.experian.com

Equifax  1-800-846-5279 www.equifax.com

Transunion  1-800-916-8800  www.transunion.com

DID YOU KNOW??
  1. FICO scores are used not only for a mortgage and credit cards, but for auto loans, insurance and utilities.
  2. Credit reports reflect charge offs or collection accounts for up to 7 years, and bankruptcies for up to 10 years.
  3. You can order a free credit report annually, at no charge, without impacting your credit score.
  4. Having a minor balance without missing a payment is better than closing an account.
  5. Paying off an old collection may result in a drop in your credit score.
  6. Consolidating credit cards increases your ratio of debt to available credit and lowers your score.
  7. Using the maximum amount on a credit line can drop your score by 100 points.

question manFor more information regarding financing or the economy, please call or email me at any time.  I can be reached via email at Bill’s Email or call me at 978-273-3227.

A Cold Ride

Bill Nickerson Training for the Pan Mass Challenge

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What are Closing Costs?

Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers in Massachusetts, closing costs will come to about $2600 plus lenders title insurance and any pre-paid items such as real estate taxes, insurance and interest. Empty Piggy Bank

There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:

Third Party Fees (The Hard Costs)

  • Attorney’s fees (yours and your lender’s if applicable)
  • Appraisal
  • Credit Report Fee
  • Loan origination fee (covers lender’s administrative costs)
  • Recording fees
  • Plot Plan or Survey fee
  • Title insurance (yours and your lender’s)
  • Loan discount points
  • Any documentation preparation fees

Pre-Paid Items:

  • Property taxes (to cover tax period to date)
  • Interest (paid from date of closing to the following first of the month)
  • First payment to escrow account for future real estate taxes and insurance
    • 3 to 4 months of real estate taxes to be held in escrow
    • 2 months of homeowners insurance to be held in escrow
  • Paid receipt for homeowner’s insurance policy (including fire and flood insurance if applicable)
  • First premium of mortgage insurance (if applicable)

Additional Items that No One Tells You About:

  • Purchase and Sales Review
  • Recorded Homestead Act
  • Representation from a real estate attorney other than what the bank provides
  • Home Inspection
  • One Year of Homeowners Insurance up front
  • Owners Title Insurance
  • Buying the Oil in the Oil Tank of your new home

For more details regarding these items, please see my blog post: Home Buying Closing Costs: What to Expect

Or for more clarification on closing costs and how you can save your buyers money, feel free to contact me anytime at bill@billnickerson.com

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So Why Do Mortgage Rates Change So Much?

Have you ever called a mortgage company and received a quote and then called back the next day and the same rate was no longer available??

Mortgage companies, Banks and Credit Unions are subject to potential daily and even hourly shifts in the market. Interest rates fluctuate on the simple principal of supply and demand.   Global 1

Mortgage rates trade based on Mortgage Back Securities and The Bond Markets as well as the overall economy.  The vehicles that mortgage rates are based on are considered very conservative, stable and tend not to have the wild swings that one would find in the Stock Market.  If the Stock market begins to see large increases or decreases, Investors will shift Billions of dollars in and out of the Stock Market and move them in to the Mortgage Markets.  This will cause mortgage rates to either rise or fall.  Stock Market tanks, good news for Mortgage Rates, Stock Market rallies and rates suffer.   Investors and Traders will constantly shift funds out of the riskier stocks into the safe haven of the mortgage markets.  These shifts can occur as little as once a day or in some cases can happen multiple times during a trading day. Thus causing mortgage rates to possibly change multiple times in a day.

These markets are affected globally as well; so even after the markets are closed in US, whatever is happening in Europe, Asia and around the world will cause our markets to move one way or the other.

Here are some of the variables that are being watched in today’s market:

  • Middle East
  • China’s Economy
  • The US Housing Market
  • Unemployment in our Country
  • The Price of Oil and Gas
  • The “Feds” decision to move short term interest rates
  • The overall health of the US EconomyPercent Down

Any of these items can trigger a rally one way or another.  Even a simple comment at a breakfast meeting by the President, the Fed Chairman or someone in power is enough to influence the markets.

Additional Mortgage Rate and Index Information:

To help us understand why mortgage rates change, it is important to realize that there is not one interest rate, but multiple ones. Below are some of the most prevalent interest rates and indexes that also have an impact on mortgage rates:

Prime rate – This rate is often offered to a bank’s best customers. If you are shopping for a home equity line of credit, then it is important to familiarize yourself with the prime rate. HELOCs are typically based upon the prime rate -plus or minus a certain percentage.

LIBOR – Stands for London Inter-bank Offered Rates. Libor rates are based upon the rates that a select group of London Banks offer each other for inter-bank deposits. Many adjustable rate mortgage programs use the Libor index.

Treasury bill rates ”T-bills” and Treasury Notes – These are short-term and intermediate debt instruments used by our Government to finance their debt. The treasury index is based upon the auctions of U.S. Treasury bills or on the Treasury’s yield curve. Like the LIBOR index, the U.S. Treasury index is a popular index for adjustable rate mortgage products. Also, the Twelve Month Treasury Average (12 Month MTA) is a popular index which is based upon the twelve month average of the monthly yields of U.S. Treasury securities (maturing in one year). The MTA is a popular choice for option arm mortgage programs.

Treasury Bonds – Unlike T-bills and Treasury Notes, treasury bonds are long-debt instruments. These bonds are used by the U.S. Government to finance its debt.

Cost of Savings Index – often referred to as the COSI index. This index is based upon the annual average of interest rates on World Savings deposit accounts. The average is pulled on the last day of each month.

11th District Cost of Funds – Often referred to as the COFI index – The COFI index is based upon the average of the borrowing cost to member banks of the Home Loan Bank of San Francisco of the 11th District. Unless you are shopping for an option arm mortgage, it is unlikely that your loan will be affected by this rate.

Certificates of Deposit Index – Often referred to as the CODI index – this index is arrived at by calculating the average of the past twelve months rates of 3 month CD rates.

Federal Funds Rate – The fed funds target rate is the rate which federally chartered banking institutions lend balances to other depository banks overnight.

This is a lot of information to weigh each day when calculating mortgage rates.  In general, most Banks, Investors, Lenders etc. will set rates around 10:30am once most of the morning economic reports have been released and the markets have had time to react to the information.  In a calm trading day on Wall Street, these rates would be good for that imagesCA6UKL3Jday.  In a day where lots of Economic reports and World events are occurring, these rates can be reset a few times.  It is important to call your lender or bank often to check on these rates as they can and will change.  It also important not to follow online rate sites that may be posting Average Rates as this information can be old.  The Freddie Mac rates are based on closed loans from last week and an average of .7 Points of fees in the rate. This may give you a range, but not accurate enough to base your mortgage payment on or what is happening today in the markets.

Bill Nickerson has been in the Mortgage industry since 1991. Please leave a comment, email or call me anytime with questions you may have about mortgage programs, rates and to get approved for a mortgage.

   NMLS# 4194  www.billnickerson.com  978-273-3227

Bill Nickerson

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