With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities. 

The downside of today’s unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business. 

As a result, the process of underwriting and approving new mortgage applications is taking some conforming lenders as long as 2 months to complete. 

This is double the time needed as recently as six months ago.

Because there may be 60 days between the application date and the closing date, it’s important for applicants to remember that mortgage approvals can be revoked at any time prior to funding. 

As mortgage applicants, there are many events that are out of our control — job security and health matters, for example.  But there are also events that are within our control. 

Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process.  It may be the difference between being approved by the bank, and being turned down.

1. Don’t buy a new car or trade-up to a bigger lease.
2. Don’t quit your job to change industries
3. Don’t switch from a salaried job to a heavily-commissioned job
4. Don’t transfer large sums of money between bank accounts
5. Don’t forget to pay your bills — even the ones in dispute
6. Don’t open new credit cards — even if you’re getting 20% off
7. Don’t accept a cash gift without filing the proper “gift” paperwork
8. Don’t make random, undocumented deposits into your bank account

Now, avoiding these items may not be practical for everyone.  For example, if your car lease is expiring and you need a larger vehicle, it doesn’t mean you can’t buy the car — just check with your loan officer first to be sure the new payments won’t “break” your approval. 

The same goes for accepting cash gifts from parents.  There’s a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.

Mortgage lending is full of “gotchas” and with underwriting times stretching to 60 days, it’s a lot more likely that a mortgage applicant will trip into one.  Following these 8 rules, though, is a good start.

To Search Active Real Estate Listings in Your Area, Visit www.webdigs.com

A mortgage is a contract between a lender and borrower, defining the terms by which a home loan must be repaid. 

The paperwork, signed by both parties, includes provisions for things like:

1. The interest rate
2. The length of the loan
3. The amount of money to be borrowed

But, like all loans, a mortgage loan can be paid off at any time.  So, when market interest rates fall, homeowners will often exercise their right to an “early payoff” by securing a new loan that pays off the old one.

This process is most commonly known as a refinance.

A refinance is the changing of the loan terms against a property, often for a better interest rate or a lower monthly payment.  When the refinance process is complete, the original lender’s loan is paid in full using the money from the new lender’s loan and the former’s relationship is officially terminated.

There’s no rule against how many times a person can refinance, nor is there an easy way to determine whether or not a refinance makes sense.  In general, if you can reduce your monthly payment while limiting your closing costs, to refinance is a smart decision. 

However, there are other reasons to refinance, too, including:

1. To convert from an ARM into a fixed rate mortgage (or vice versa)
2. To extract equity for paying off third-party debts or for cash
3. To extend a loan from 15 years to 30 year for payment relief

Because there are fewer third-parties involved with a refinance, it’s often simpler and less expensive than a comparable purchase transaction.  The paperwork stack is often smaller, too.

To Search Active

In March 2008, HUD temporarily raised FHA loan limits around the country.  Effective January 1, 2009, FHA loan limits revert.

FHA home loans are mortgages made by private lenders and insured by the federal government. 

Historically, FHA home loans have been “easier” for which to qualify than their conforming mortgage counterparts and, therefore, tend to be associated with borrowers of tarnished credit quality.

Today, that’s the not the case. 

The FHA home loan underwriting process can be as tough — or tougher — than a conforming mortgage underwrite.  There is extra documentation required and the home appraisal process is often more thorough. 

Where FHA home loans shine is in their limited downpayment requirements.

To purchase a home with a FHA-insured mortgage requires a 3 percent downpayment as of today; in January, it moves to 3.5 percent.  Versus the typical conforming mortgage requirement of 5 percent or more, FHA serves as somewhat of a home affordability product for Americans.  In addition, FHA allows larger “cash out” refinances than Fannie Mae or Freddie Mac.

The 2009 FHA loan limits (in most areas of the country) are:

• 1-unit : $271,050
• 2-unit : $347,000
• 3-unit : $419,400
• 4-unit : $521,250

Note that the loan limits don’t apply to all areas of the country equally.  Higher-cost regions feature higher loan limits, based on typical home values. Homes in Los Angeles County, for example, can be FHA-insured up to $625,500 in 2009, and there are exceptions made for Alaska and Hawaii.

The official FHA announcement published all of the counties with access to higher loan limits, spread across two spreadsheets.  The first spreadsheet lists each county at the $625,500 maximum; the second list is everyone else.

If your home county is on neither list, use the “base” numbers above.

To help demystify the mortgage process, the federal government is giving the much-maligned Good Faith Estimate document a makeover.  Effective January 1, 2010, the current, 2-page form will be replaced by a new, easier-to-understand version, spanning 3 pages.

The biggest strength of the new Good Faith Estimate is that it uses everyday English to explain how the mortgage works.  For example, in one section titled “Loan Summary”, the Good Faith Estimate specifically answers:

1. What is your interest rate?
2. Can your interest rate rise?
3. Does your loan have a prepayment penalty?

Using today’s disclosures, the answers are spread across 3 separate forms.

In addition, the new-look Good Faith Estimate identifies what charges are legally allowed change at the time of settlement, and how a mortgage applicant can opt for higher fees in exchange for a lower mortgage rate, and vice versa.

These educational elements are lacking from the current model.

But for all of its clarity, the Good Faith Estimate doesn’t address the issue of suitability.  As in, is this the right loan for the right borrower?  The new Good Faith Estimate won’t prevent homeowners from choosing “bad loans” — it will only educate them about the loan’s facts.

For suitable advice — as always — talk with a trusted mortgage professional who will both listen to your needs and help you make plans for them.  Getting the “best terms” on an unsuitable loan can be far worse that getting great terms on a loan that fits.

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called “jumbo”, or “super jumbo” home loans, depending on their size. 

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are. 

There are exceptions to the loan limits, however.

Left over from the Economic Stimulus Act of 2008, specific, “high-cost” areas around the country have their own conforming loan limits, not to exceed $625,500.  There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on “typical” housing costs around the country.  Since 1980, as home prices have increased, so have conforming loan limits.  As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

More than a handful would-be home buyers stayed on the sidelines this year, waiting for Election Day to pass. 

The prevailing thought was that once the new President-Elect was identified, credit markets will systemically unfreeze and housing markets will return to normal.

If history is a guide, this is an unlikely scenario.

Election Day doesn’t figure to alter markets any more in 2008 than it did after the four previous presidential elections. 

If anything, post-Election Day market reaction has been muted:

• 1992 : Dow closes down 0.9 percent the day after Election Day
• 1996 : Dow closes up 1.6 percent the day after Election Day
• 2000 : Dow closes down 0.4 percent the day after Election Day
• 2004 : Dow closes up 1.0 percent the day after Election Day

But just because the stock market has a history of idling on the day after the election doesn’t mean that mortgage rates will rest easy this week.  The likely outcome is the opposite, actually. 

If investors believe the President-elect will successfully stimulate the economy, stock markets would likely rally, causing mortgage bonds to sell off and mortgage rates to rise. 

Higher mortgage rates means higher monthly payments on a home.

Or, if investors think the winning candidate will fail to revive the economy, money would flock to government bonds as a place of safety.  This dollar flow would occur at the expense of the mortgage market, causing rates to rise in this scenario, too.  Again, higher home payments.

Of course, it’s as difficult to predict post-Election market conditions as it is to predict the election itself but one thing is for certain — rates may rise and fall before the week is out, but credit guidelines will remain extra-tight.  Getting approved for a mortgage won’t be any easier — no matter which party wins the Presidential Election.

Source
Will the election drive the Dow?
Eamon Javers
Politico
http://news.yahoo.com/s/politico/20081022/pl_politico/14826

Ominous Clouds on the horizon? Or a break in the forecast? It’s hard for this homebuyer to tell. 

Alright, I promised to write about our home shopping travails. I should tell you that the brass tacks of buying a house makes my stomach churn and even though I feel like I’m surrounded by Webdig’s people who know what they’re doing & have our best interest at heart, it’s still a scary deal.

I’m not a professional home buyer; I’m a professional worrier.

Here are the facts: we have a lot of money tied up in our unsold, but thankfully rented, home. For reasons kinda vague to me, we have excellent credit. Mine is 806 - why? Not sure, other than I just pay for things. At any rate, I’ll run with it.

Down payment: Not much in hand. As I said, just about everything is tied up in the house we own. It’s like a giant piggy bank I can’t get at- and if that sounds frustrating, you’re right. We worked really hard to pay down an aggressive 15-year mortgage and came out on the wrong end.

More honestly - my little writing business isn’t what is was a couple of years ago. Today I find myself writing lots of  articles for far less money (that’s why I haven’t been around as much) and I have several clients on extended dance version payment plans to settle up.

I have recently expanded my work to public radio. I’ll be doing a piece on the election on MPR’s All Things Considered with Tom Crann on Tuesday afternoon and on December 1st I’ll have a feature on the national show Marketplace Money with Tess Viglen. Sound impressive? Well, with these gigs I’ve managed to pay for my used recording equipment.

There’s a place to sell one’s plasma that I drive by everyday. I have found myself wondering if they’d let me have my laptop while donating and if it is possible to write anything coherent while getting the platelets sucked out of ya. I even (gulp) applied for a regular job this week.

The good news is my husband’s work feels secure. Though it’s still hard to sign on the dotted line and be responsible for another home payment.

The Potential House: We’ve been window shopping this property. It’s really nice, but not perfect. Lots of closets, many new windows, fiber cement board siding, smart location with potential to climb in value- but no dining room, no dishwasher (ugh), no washer or dryer and lots of surfaces that simply aren’t our tastes.

Example: The dark green granite Formica counter top in the kitchen isn’t fooling anyone. And it’s another home where the owner attended the Community Ed Sponge Painting class with mixed results.

Also the home has a lot behind it and we need to go to the Record’s Office and pull the plat and check out the likelihood of backyard neighbors just feet away.

The Plan: We’ve applied for a home equity line of credit on our home, which involved no fees on our end. If we get it, we can put down the 20% needed to avoid paying the insurance product, PMI. However, let’s face it. It’s a nice way of saying “second mortgage.” So in fact, we’d have THREE mortgages going on.  I feel it in my chest whenever we talk about it.

And whenever you buy a house, there’s the money hemorrhage. You walk into Home Depot and everyone knows your name. “Hey Lucie! Here to drop another $300 on miscellaneous piddly items?” Appliances, paint, painting supplies - not to mention furniture - you’ll remember we gave away a lot of stuff .Though this is where getting half of the commission back in the form of a Webdig’s rebate would help lots.

We just moved this summer and the thought of packing it all up again gives me pause. Why would we want to move out of our great situation at the rectory? It’s a lovely spot, but it is on the smallish side, especially as winter clothing is starting to be used. I’m dealing with it, but another factor is our year lease is really only a gentleman’s agreement. Not that I feel there’s a fire under us to find a place, but I’d hate to have to do it in 30 days.

And THIS is a buyers a market - and maybe I should just face my fears and jump. But instead of thinking about it last night, I put on my headphones and treated myself to my first bit of entertainment for the week: Sex & the City, the movie.

Netflix kindly dropped it by and as during other times of real estate stress, a little mindless escape can do a worried head good.

The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent today.  The benchmark rate now stands at 1.000 percent.

In its press release, the Fed wasted no time addressing the key issue at-hand, stating that economic activity has “slowed markedly”, pointing to three main causes:

1. Consumer spending is falling
2. Business equipment spending is falling
3. Slowing foreign economies are hurting U.S. businesses

Furthermore, the voting FOMC members are wary of an “intensification” of the current financial market turmoil.

The announcement’s 4th paragraph is noteworthy, too.  It lists the plethora of growth-stimulating steps that the Fed has taken so far this year and concludes that credit conditions should improve in time.  It does notes, however, that if markets don’t improve in good time, the committee will “act as needed”.

In the wake of the announcement, stock markets rallied.  Investors liked what the Fed had to say and it drew funds into the stock market from all corners of Wall Street.  Unfortunately for mortgage rate shoppers, one of those corners happened to be the mortgage bond market.

The exodus from bonds caused mortgage rates to rise.

It’s a common misconception that the Federal Reserve controls mortgage rates and today’s market action should help dispel that myth.  As the Fed Funds Rate falls back near its 50-year low, mortgage rates are bumping up against a 3-year high.

Source
Parsing the Fed Statement
The Wall Street Journal Online
October 29, 2008
http://online.wsj.com/internal/mdc/info-fedparse0810.html

Private Mortgage Insurance (PMI) is a mortgage lender’s insurance policy against highly-leveraged homeowners.  It’s typically required when homeowner equity is less than 20 percent at the time of closing.

With PMI defaults up 40 percent over last year, though, private mortgage insurers are taking big losses.

They’re also taking outsized steps to prevent additional claims going forward and that is bad news for low-equity homeowners and home buyers.

The first PMI change new, higher insurance rates.

Like home insurers that adjust premiums after a worse-than-expected storm season, PMI insurers are raising mortgage insurance rates for all homeowners, regardless of credit history.  The higher premiums are meant to offset the higher losses.

And, the second change is that some PMI firms are discontinuing coverage for “high-risk” transaction types.  This includes purchases of non-owner occupied properties, and cash out refinances above 85 percent loan-to-value.

Both changes, however, point to similar conclusion about home loans: Home equity is increasingly important for today’s homeowner. 

PMI rates are higher than they were six months ago and the rising default rates makes it likely that rates will rise again soon.  As PMI rates increase, so does the cost of homeownership for people whose lenders require it.