Still Renting?

If You Can Afford to Rent…

Then You Can Probably Afford to Own.

The cost of renting in many areas is now greater than the cost to buy. Even with mortgage rates on the rise, it is still more affordable than renting. Some say mortgage loans are impossible to obtain without perfect credit and/or 20% down.

Want the truth? Read on, and we’ll cite the three basic factors for qualifying for a home loan. 

• Income – If you have a job or steady source of income, you’re off to a great start. If you’re already able to pay your rent on time each month, this could actually be easier than you might think. 

• Assets – You rarely need a 20% down payment. In reality, many programs will work with 5%, 3.5% or 3%, and in some cases, even 0% down. As well, closing costs can sometimes be paid by lenders, sellers or come from gifts or grants. So if you think you’re out of luck just because you don’t have tons of cash, no worries. Chances are still good there’s a solution that may work.

• Credit – Your credit is likely in good shape if you pay your bills on time and have avoided major issues like bankruptcy, foreclosure, short sales and judgments. Requirements will always vary, but there can still be reasonably flexible loan options, such as the FHA and Fannie Mae which both allow for low credit scores.

That’s it. These three items are the fundamentals of mortgage lending. Exceptions will exist, but don’t be fooled into thinking the process is impossible. For those who work and pay their bills, there may not be a whole lot standing in the way of homeownership.

 Here is an example of Buying a home vs. Renting based on today’s mortgage rates with the plan of selling your home in 10 years.

Renting versus Owning

I would like the opportunity to consult with you and start you on the path of Homeownership.  Whether it be for Today or planning for Tomorrow!

           Bill Nickerson NMLS #4194  | 978.273.3227  | Email | Website

Worried about Rising Mortgage Rates?

The overall costs of Lending has been on the rise for the last several months. With the latest Inflation Rate of 9.1%, this will cause the Federal Reserve to raise rates again and most likely more aggressively than previous rate hikes.

We have come up with a SPECIAL program to relieve this stress! You can now LOCK in to Today’s Mortgage Rate while you are shopping for a home. This allows you to shop up to 90 Days with the security of knowing you are locked in.

This program is good for Fannie Mae and Freddie Mac loan limits in your area. Here is a link to the Fannie Mae Loan Limits in your Area. Depending upon the County you are in will determine the maximum loan amount for this program.

For more information on this program, feel free to call or email me anytime!

Bill Nickerson | NMLS #4194 | Mortgage Equity Partners | Email | (c) 978-273-3227

How will the higher Mortgage Rates affect your Buying Power?

We have been spoiled with mortgage rates over the last few years  as we saw the the 30 Year Fixed Rate get to the 2.50% range.  As we move forward in 2022, mortgage rates have already started to climb.  Rates are in the 4.00% to 4.25% range and we now have to adjust our purchasing power. Each half of a percent (.50%) in mortgage rate equates to about $25,000 of buying power. Depending upon when you were “Pre-Approved” for a mortgage, the new rates may greatly affect the home you now qualify for.

What should you do? Call your Lender or Bank and have your “Pre-Approval” updated to reflect the current mortgage rate of today.  This will bring your purchase price and loan amount down as these higher rates will increase the overall cost of your mortgage payment.

Why is this happening?  When the Fed raises the federal funds target rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments.

Those who can’t or don’t want to afford the higher payments postpone projects that involve financing. It simultaneously encourages people to save money to earn higher interest payments. This reduces the supply of money in circulation, which tends to lower inflation and moderate economic activity—a.k.a. cool off the economy.

 Click here to learn more about mortgage rates

Economists have been warning us for the last few years, mortgage rates have to go up!  The longer you wait, the more it will cost to buy a home. Or another way to look at this, you buying power could drop by 10% or more for each 1% increase in mortgage rate.  Buy now while the mortgage rates are still low as we may not see these rates again in our lifetime!!

For more information on Mortgage Rates and Programs, feel free to call or email me anytime.

(C) 978-273-3227 or Bill’s Email 

Senior Loan Officer | NMLS #4194 | bill.nickerson@flagstar.com

The 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!

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 financial profile. This can and does happen, 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.  It is also important to limit the amount of times you have your credit pulled, as each occurrence will need to be explained.

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.

3. Don’t Close Credit Card Accounts. If you close a credit card account, it can negatively affect your FICO scores as your credit is based on History.  You may have a card that is never used, but dates back 10 years and your scores do weigh heavily on this. 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, don’t co-sign on another person’s loan. Don’t open up a new checking/savings account, make sure your taxes are filed. The less activity that occurs while your loan is in process; the better it is for you.

5. Don’t Make Large Unexplained Deposits Into Bank Accounts. Any Deposits into your bank accounts that do not match your past income 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. Make sure you write your offer check from the same account you intend on writing your purchase and sales deposit.  All bank accounts must be verified.

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 and even the hours you work.

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.  Keep it Simple!

8. Do not make any Large Purchases:  If you purchase furniture with no payments for a year, banks will debt you for this.  If you buy a small home in cash, banks will debt you for the taxes and insurance.  College Tuition, even if the loans are deferred, banks will add this to your debts.

Bottom Line: Don’t Make Any Adjustments/Transfers in Your Financial Picture. If you even had to question your decision, make sure you talk to your loan officer first. Don’t make any changes in investments, Move your accounts or transfer, close accounts, open new accounts, or substantially alter your asset picture.

Share this with anyone you know who may be purchasing a home.

Remember, if you have a question, please call me anytime!!  It may be the difference in owning your new home or being denied!!

Bill Nickerson | NMLS #4194  | (c) l 978-273-3227 | Email Me.

Bill’s Website

Let’s Talk Credit: Understanding your Credit Score

Did you know?

• FICO is an acronym for Fair Isaac and Company.
• In the 1950’s, Fair Isaac and company created the mathematical calculation that is used to determine your credit score.  It is a tool that was designed to determine one’s credit score and dependability in paying bills.
• The terms credit score and FICO score are used synonymously.

Twenty or so years ago, lenders and banks would obtain the credit scores from the credit report as a reference point.  Loans were based on the overall financial strength of a borrower and their ability to repay a loan.  The Scores were important but they were not weighed nearly as they are today when making a decision.  If scores were on the low side, compensating factors were looked at such as: additional monthly reserves, the amount of credit accounts you carried, the amount of credit accounts that carry balances, do you have a retirement accounts, etc.  Banks in general want to see that you have at least 6 months of reserves in case you should leave your job and have a few months to carry the loan.  In the case where the loan is riskier or may be a low down payment, the lender will want to see more months of reserves, upwards of 12 months.

Your credit history shows the investor your ability to repay and manage debt.  The older the line of credit, the greater the chance of the scores being higher as credit is based on history.

In today’s lending market, your credit decision is first based on the score and can have an effect on your final mortgage rate.  In general, most banks will not lend on loans with scores that are under 640 unless there is an exception or compensating factors, but this is very limited.  Many banks today won’t go below 680 and don’t allow for any compensating factors as they feel these mortgages are far too risky to have on their books.  Based on current mortgage guidelines, if your score is under 740, it will affect the price of your mortgage rate and you are penalized.

When making a credit decision, banks and lenders will pull your credit report that offers three different reporting agencies;  Experian, Trans Union and Equifax.  The middle score of the three credit bureaus is used.  Over time, these scores will be very close to each other.  Consumers who are just starting to build credit may find a discrepancy in these scores as not all creditors are required to report to all three bureaus.

Look at how a Credit Score affects your Mortgage Rate

The higher your FICO scores the less you can expect to pay for your loan. For example, on a $200,000 Loan using a 30 YEAR FIXED RATE MORTGAGE.
Your FICO score is:	Your Interest rate is	And your payment is
740-759	3.875%	$940.47
739-720	3.990%	$953.68
700-719	4.125%	$969.30
680-699	4.250%	$983.88
660-679	4.500%	$1,013.37
640-659	4.625%	$1,028.28
As you can see in this example using a snapshot of the same day’s rate, a person with a FICO score of 760 or better will pay $88 less per month for a $200,000 30-year, fixed-rate mortgage than a person in the lowest score category. Mortgage Rates are only used as an example and do not reflect the interest rate market of today.

Mortgage programs such as FHA allow for low credit scores so that you can get the most competitive rate but this comes with a price.  FHA will charge mortgage insurance, a monthly fee as well as an up-front fee that will be rolled into the loan amount.  After these insurance fees, a mortgage rate of 4.00% will net a rate of 5.40% with the costs of mortgage insurance that is being charged.  A mistake many borrowers make; chasing the lowest interest without truly understanding the real costs of the mortgage.

Written by Bill Nickerson

 

3% Down and No Mortgage Insurance on 2, 3 and 4 Family Homes

With the announcement from Fannie Mae of increased loan limits for 2019. Not only are the Fannie Mae loans benefiting, so are the MassHousing loans!  Did you know that Mass Housing (MHFA) loans are a safe and affordable alternative to FHA Mortgages.  Did you know the Mortgage Insurance for FHA never goes away!  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. MHFA follows Fannie Mae Guidelines, which means the traditional loan limit is $484,1350!

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 home buyers.

The 2019 Fannie Mae Loan Limits

• 1 Family Loan Amount of $484,350
• 2 Family Loan Amount of $620,200
• 3 Family Loan Amount of $749,650
• 4 Family Loan Amount of $931,600

Features of the Mass Housing Loans for 1 to 4 family homes

• As little as 3% down on single-family homes and condos
• As little as 5% down on 2, 3 and 4-family homes
  • 3 and 4 Family require 700 Credit Score
• No mortgage insurance required
• Income limits as high as $123,660 in many cities and towns
• Fannie Mae loan limits apply, borrower up to $484,350
• 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

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. 

Bill Nickerson

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 $3500 plus lenders title insurance and any pre-paid items such as real estate taxes, insurance and interest.

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
• Lenders administrative costs
• Recording fees
• Plot Plan or Survey fee
• Title insurance (yours and your lender’s)
• Loan discount points (click to the left to see if points are worth it)
• 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 

 

 

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).

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.

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.  This rate is tied to the Prime Rate that the Federal Reserve sets and can be adjusted a few times a year.   Even though the rates are still at all-time lows, these lines of credit will go up in the future.  When obtaining a piggy-back mortgage, you  need to have a strong financial plan of how you can either make additional payments to this loan or be in a position to pay it off within several years.

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

 Bill Nickerson 

Adjustable Rates 101

An Adjustable Rate Mortgage provides a specific fixed rate term before becoming an adjustable mortgage.  An example: A 10/1 ARM is fixed for the first 10 years and then becomes a 1 year adjustable rate for the remaining term of the mortgage, thus giving you 10 years  of security at a fixed rate.

Advantages: If you know that you are selling your home in a short period of time, 10-12 years or less, you can get a mortgage rate that is 3/4’s to 1 full percent below the traditional mortgage rates.  Today a 10 year ARM is 3.25% and you can borrower up to 2 Million Dollars.

How do they work?

Adjustable Rate Mortgages (ARM’s) come in many different varieties.  The most common ARM’s are the following:  Three Year, Five Year, Seven Year and a Ten Year.  You will also see them displayed in this format as well:  3/1, 5/1, 7/1 and 10/1.  The first number represents the amount of years the loan will be fixed for and will not change from its original start rate.  The higher the first number or term, the higher the interest rate will be.

The second number represents how often the ARM will adjust after the fixed rate term ends.  Using a 5/1 ARM as the example, when your fixed term is about to expire, the Lender will send you a notice via mail notifying you that your rate is about to adjust and what that adjustment will be.  This will occur 45 days prior to this expiration date, in this case that would be 60 months in to this loan (5 Years). The new rate will be set for one year, or the term that is stated in the second number, 5/1.

The adjustments are based on 2 variables, the index and the margin.  The margin is set on the day you get the mortgage and is usually in the range of 2.25 or 2.75 depending upon the type of ARM you go with.  This will never change and is set for the life of the loan.  We would then add the current Index to this margin and combined that would create your new rate.

The Index can come from many places but is selected when we lock in your loan.  Typically we use the One Year Treasury Bill or the One Year LIBOR.  Both indexes move fairly slowly.  These Indexes are always posted in the Wall Street Journal but is very easy just to Google these terms. This will show you the current rate as well as show the history of these rates. You can also click this site at the US Treasury

Today’s one year treasury is at 1.30, this is the index.  Add this to the margin of 2.50 and your new rate today would be 3.875%. This rate would be rounded up to the next highest 1/8^th and this would give us 3.875% for one year.  Remember, this is what the rate would adjust to after the fixed term has ended.

Caps: Your loan comes with caps of 5/2/5, each number represents how your loan will adjust.  With the first adjustment the loan can adjust 5% up or down from the original start rate. The second number “2” is what it can adjust each time for the remaining years of the loan.  So, the second adjustment and every one after that the rate can move up or down a maximum of 2%.  The last number is the Life Cap.  This rate will never go higher than 5% of the starting rate.  So if you lock in a rate of 3.25% today, your rate would never exceed 8.25%.  To give you an idea, since 1996, this rate has not exceeded 8.25% at its high point. In the last several years, this rate as adjusted downward and as low as 2.00% in many cases.

I hope this is helpful. Always feel free to ask questions about any of this information. Email me at Bill@billnickerson.com or call 978-273-3227.

Thank you very much,

Bill Nickerson NMLS# 4194 | Flagstar Bank| 1500 District Avenue, Burlington MA

Pre-Qualification vs. Pre-Approval

In Today’s Real Estate Market, it is more important than ever to have a Pre-Qualification in hand when shopping for a home that has been prepared by a reputable Lender, Bank or Credit Union.  The terminology has changed from Pre-Approval to Pre-Qualification depending upon the detail of the Approval provided.

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.  Your Credit is reviewed and your loan is submitted through an Automated Underwriting Service (AUS). 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 to give you a range of home prices and in no way is a commitment to lend on a home. The time frame for this is less than 24 hours.

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. The timeframe for a Pre-Approval can take up to 5 Business Days.

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 by verifying credit, income and running your loan through an Automated Underwriting System such as Fannie Mae or FHA as well as others.     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  and  you can always visit my mortgage site at www.billnickerson.com

Bill Nickerson