How to Shop for a Mortgage

After hitting record lows of 3.250% last year, mortgage rates have inched up a little and in the grand scheme of things…it is only a little!  The trend of course is upwards and like the stock market, it is not a straight line up, we have good days and bad days in the markets and Mortgage Rates can sometimes and do change a few times inside a trading day. These rate changes are influenced by the global economy and while rates are still extremely low, refinancers and homebuyers are always looking for the lowest. Rates trade in real-time and react to each little development. But these lows come and go in minutes during specific trading intervals each trading day. And this kind of volatility drastically changes the way consumers should shop for a mortgage.  Because markets move up and down so fast right now, the rates you see in mainstream media* headlines are long gone by the time you can do anything about it.

SO HERE’S HOW TO SHOP FOR A MORTGAGE IN THIS NEW WORLD.

Shop For Loan Agents, Not Rates

Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate.

Here’s what happens when shoppers focused only on rate get quoted by a good loan agent: Loan agent quotes a rate only after they’ve analyzed the client’s entire financial profile and analyzed their home’s value and condition—also known as pre-approving them. The client will either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else. Then 80% of those cases come back to that loan agent because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.

Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms.  What’s not the same lender to lender is the loan agent’s ability to: (1) advise properly, (2) analyze borrower and property profiles, and (3) close with no surprises. So shop to find the lender and loan agent you feel most confident can perform on these three things. Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it.

These guidelines are for refinancers. For homebuyers, you can’t lock a rate until you’re in contract to buy a home, but once you’re in contract, the same approach applies.

Rate Targeting

Their are two reasons for the pre-approval and rate targeting tactics discussed above:

(1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on.

(2) Rate lows are here and gone in minutes each trading day as mortgage bonds rise and fall on economic and technical trading signals. So if you don’t first get pre-approved then set a rate target with a standing lock order, it’s nearly impossible to hit the lows AND close with no surprises.  Your loan agent also must be able to brief you daily or weekly on the market outlook, so if you’re not sensing market competence from your agent, then keep shopping. A loan agent must have a strong read on what’s impacting the rate market ups and downs to deliver you the best terms.

*Mainstream media is almost always off the mark on rate data and commentary. Conversely, Mortgage News Daily strives to provide accurate and realistic rate data and commentary daily. Still, the premise of this piece is to explain what a mortgage consumer must do to manage extreme rate volatility.

Do you have any questions?  Feel free to call or email anytime!!

Bill Nickerson can be reached at 978-273-3227 and email at bill@billnickerson.com

 

FHA to increase fees…Again!!

FHA is once again increasing mortgage insurance premiums (MIP) on all new purchase and refinance transactions. Effective for FHA loans that have been assigned on or after June 3, 2013 and in addition to this increase, the Annual Mortgage Insurance Premium will remain for the life of the loan. Meaning, you can only remove the mortgage insurance by refinancing out of the mortgage or selling the home.

FHA had just increased all its rates just over a year ago to 120 basis points (1.2% of the loan amount) of the loan amount and now it will be as high as 155 basis points. On a $100,000 loan amount, the old mortgage insurance payment would have been $100 per month; the new Mortgage Insurance payment will be $129.17. Considering just 2 years ago, the mortgage insurance premium on all FHA loans was 55 basis points (just over a half percent) and that payment on $100,000 would come to $45.83.

So even though mortgage rates have come down over the last 2 years, this increase in Mortgage Insurance has caused the cost of this loan to increase dramatically. Also with this additional cost, you can no longer have the mortgage insurance just drop off once you gain 20% of equity in the home.

Now, these may not seem like big increases to you, but for someone borrowing $400,000; this would have the Mortgage Insurance going from $183.33 to $516.67. Imagine…paying $516.67 for mortgage insurance!!

Now is the best time to get pre-approved by a qualified Loan Officer to give you several choices of mortgage programs. It is not always wise to chase to the lowest rate available without truly understanding the overall mortgage program.

Call me to find out about low down payment loans, as low as 3% with-out any mortgage insurance at all.

I can be reached at 978-273-3227 or feel free to email me at bill@billnickerson.com

What is a Business Cycle?

The “Books” say an average business cycle is 44.4 months and we have lived through many of them. Some longer than that and some as short as a season in New England.  A business cycle is like the exhibit from our youth…“What makes an ocean wave, wave” at the New England Aquarium.  In the exhibit, you get to move the wave with a lever and if you move the lever too much you have to pull it back as the wave comes crashing down…and again, you go too far the other way and the wave crashes in the other direction.  It’s impossible to control an ocean wave.  So here we are now in the middle of a business cycle “The Ocean Wave”. 

As Americans we do the same thing.  When we feel confident and wealthy, we tend to spend a little too much; perhaps buy a car that has all the bells and whistles or buy the  house we all dreamed of or even dined at the newest expensive restaurant we’ve never been to… building up that ocean wave.  We did this as a nation and created a very large wave.  We are in the “Trough” of the business cycle which is like a dead calm in the sea.  Nothing moves.  We are paralyzed by our own actions and cannot find a direction to get back…there is just no wind for our sails.  As individuals, we are going through our own personal process of what will get us back on track.  In some cases, we cancel our vacations, limit the activities our children participate in at school or even bring lunch every day.  By drastically cutting our spending, we have moved the “wave” too far in the other direction thus hurting the economy even further.  Not only have we given up those fancy dinners…we are not even going to the local diner for the blue plate special.

Consumer confidence is measured at an all-time low today and we are letting our emotions and fear govern our decisions and actions.  The News Media has the ability to heighten this fear by focusing on the negative and over emphasizing the issues at hand.   As FDR said, “The only thing we have to fear is Fear itself”.  This speech was given in 1933 in the middle of one of the biggest bank panics of the century which followed the Stock Market Crash of 1929.  There was a “RUN” on the banks where consumers wanted to withdraw all of the cash they had in the banks for fear it would be gone.  The banks had lent this money out for loans, mortgages etc. and the banks quickly ran out of cash.  FDR implemented the Federal Deposit Insurance Corporation “FDIC” that to this day insures our deposits up to $250,000.  This speech did spark a generation as well as the economy, and it was backed by a plan of how to get us moving as a country.  Today, we do not look up to our leaders.   And as of this moment, we do not have a plan of how to get out of the economic turmoil we are in.  So as a strong country, we must take matters in our own hands and move ahead…full steam ahead.

We are in a very unique situation in the economy: Mortgage rates are creating new historical lows every day, house prices are nearing levels of value we have not seen since 2004.  As we always do, we will look back on this day and say, “I wish I had bought that home, or vacation house or even that investment property”.  Trust me; it happens every time we go through these business cycles.  As I mentioned earlier, we are letting our emotions govern our business decisions.  That is not allowed in business.  It’s business and there is no crying in business!!  Remember the saying “Buy Low and Sell High”.  This is not just some catch phrase.  It is a sound business decision that should be followed regardless of your emotional ties. 

So what do we do now? 

·         Keep spending but in a healthy way.  Make sound buying decisions based on needs versus wants.  By putting some money back into the economy, we will slowly recover.

·         Look to your advisers!!  Not your friends or family, but your financial advisers.  This would be the person that handles your investments, your banking, and your estate.  These are professionals that do this time and time again all day every day. 

·         Be patient.  Throughout history we have experienced turbulent times in the business cycle.  And we have pulled out of it.  In the words of Warren Buffett, “Americans are in a cycle of fear which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We’ll break out of it. It takes time.”

For information regarding home financing or the economy, please contact me at     Bill@billnickerson.com   or    978-273-3227

FHA to Increase Fees Once Again…

Effective April 1^st…funny April Fool’s joke….NOT!  FHA announced this past Monday that the cost of government-insured mortgages will increase slightly for some new homebuyers.  The rise in up-front fees on mortgages was deemed necessary to build up dwindling capital.

FHA is increasing what is known as the Upfront Mortgage Insurance Premium “Upfront MIP” from 1.00% of the loan amount to 1.75% of the loan amount.  This fee is added directly to the total loan along with the monthly mortgage insurance premium.

So, on a $200,000 loan amount, based on today’s rate of 1.00%, you would pay $2,000 in MIP; with the new increase of 1.75% you would be paying $3,500 to the loan amount; an increase of $1500.  Then you add in a monthly mortgage insurance premium of 1.1% per thousand which costs $183 per month.

Although the FHA’s acting commissioner, Carole Galante, states this will raise the average homeowners payment by only $5 per month, FHA consumers are already paying about $183 more a month than those consumers that don’t pay any mortgage insurance.  Such programs as the Masshousing Loan that allows a 3% down payment with no mortgage insurance can save homeowners thousands of dollars over the course of the term of the mortgage.

The FHA fees which were just raised in the last year affected current FHA holders by preventing them from refinancing to lower rates.  The increased fees have become so high; it did not make sense for many homeowners to drop their rate a full percent.  This latest move will result in much higher costs to buyers.  A mortgage rate of 4.00% will be a net rate of 5.400% when you factor in the mortgage insurance. This is a difference in $170 per month higher payment for FHA clients compared to those who may obtain the Masshousing Loan with No Mortgage Insurance

Several economists when interviewed in regards to this latest increase agreed this would have a negative impact on the already struggling housing market.  First time home buyers represent a large percentage of the market and with these additional costs it will discourage many new buyers from entering the housing market in areas that need it most.

The FHA program was designed to be a very affordable alternative for those with a low down payment and credit that was considered less than perfect.  The FHA mortgage is still a very good option for those with credit scores under 680, but new alternatives are becoming available every day and consumers should look at all their options.

When shopping for a mortgage, make sure your lender offers Masshousing, FHA, USDA, Fannie Mae and Freddie Mac, this will allow to compare all the programs available to ensure you are getting the best possible option and the most cost effective mortgage.

Please contact me with any questions you may have regarding this article:  bill@billnickerson.com

Homebuyer Turnoffs: 6 Mistakes Sellers Must Avoid

Now more than ever with so many homes on the market for sale, the seller must take action to ensure their house stands out from all the rest.  Avoid these six mistakes that are potential turn-offs for buyers which could lead to losing a sale.     

 

Mistake #1 – No listing photos

Many buyers browse listings online before deciding to view a home in person.  Great photos showing your home will draw more showings to your home.  Hire a professional photographer if possible. 

Mistake #2 – Unrealistic Pricing

It’s very tempting to list your property at the highest price possible with the intention of lowering it if there’s no buyer interest in the home.  By pricing your home competitively from the start, you will get the most traffic and the quick sale close to your asking price.

Mistake #3 – Misleading Listing Info

Describing your home accurately allows the right type buyer to look at your home.  Say it’s a ready to move in home when in reality it’s a fixer up sends the message to home buyer that you aren’t trustworthy leading to loss of sale.

Mistake #4 – Botched Home Improvements

Think a fresh coat of paint will be great to sell your home? Before investing in pre-sale remodeling or painting, find out from your Realtor what type improvements/colors will give you a better chance at a sale.  The wrong choices could be a disaster to your hopes for a quick sale.

Mistake #5 – Cluttered & Dirty Interiors

Removing clutter and keeping the house clean sends the buyer a strong message; this home has regular necessary maintenance done to it. It also makes the home look more spacious, giving the buyer the chance to visualize the home with their own furnishings.

Mistake #6 – Hovering Homeowners

A fast way to send buyers running is for the homeowner to be present during a showing.  Buyers want to be left alone to view your home.  And the longer a buyer stays, the better chance of a sale.

Bill Nickerson

Vice President Mortgage Network

179 Great Road Suite 214, Acton MA 01720

978-399-1313

Bill’s Blog

Providing Mortgages Since 1991

NMLS # 4194

Commercial   Residential     Reverse FHA/VA