Down Payments and PMI: Get the Facts

If you're in the market to buy a home, your down payment is likely top of mind. And no doubt you've heard the rule of thumb that you shouldn't buy a home unless you can put 20% down. Before accepting this myth, it's important to do your homework, weigh the pros and cons regarding your down payment options and get the facts, such as:

• A growing number of borrowers are putting down between 5 and 10%.
• Today, you can put down as little as 3% through mortgage options like the Freddie Mac Home Possible AdvantageSM mortgage.

It's a fact that the more you put down, the lower your monthly mortgage payment will be and the less you'll owe the bank. It's also a fact that homebuyers who put at least 20% down don't have to pay Primary Mortgage Insurance (PMI), an added insurance policy that protects the lender if you are unable to pay your mortgage. However, if putting 20% down is not an option or will deplete all of your savings and leave you with no financial cushion, it's probably not in your best interest.

While you'll have to pay PMI for a conventional loan with a down payment of less than 20%, you'll still be able to take advantage of today's low mortgage rates – especially the 30-year fixed rate mortgage that can offer you security and peace of mind throughout the life of your loan.

Plus, once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your monthly payment.

THE MATH: $200,000 HOME – 5% Down vs. 20% Down

	5% DOWN PAYMENT	20% DOWN PAYMENT
Down Payment	$10,000	$40,000
Loan Amount	$190,000	$160,000
Mortgage Type	30-year fixed-rate	30-year fixed-rate
Interest Rate	4.5%	4.5%
Monthly Mortgage Payment (Principal and Interest)	$962.70	$810.70
PMI	$80.75*	$0
	$1,043.45**	$810.70**

*Assuming an insurance rate of 0.51%; this cost can be cancelled from your payment once you reach 20% equity in your home for conventional loans.
**Does not include property tax and homeowners insurance payments

Carefully evaluate your finances to determine how much you can afford and talk with your lender or housing professional about down payment options that make best sense for you.

There are California Programs to Help Buyers Buy

e Down Payment Resource automated down payment assistance program finder does the research for you and quickly matches you with specific homebuyer assistance programs for which you may be eligible.
With Down Payment Resource, you’ll learn:

• The total number of homebuyer programs available to you
• The name of each program
• The amount of down payment assistance available
• How to use this information when shopping for a home
• Your next steps to learn more and apply for the program

- See more at: http://downpaymentresource.com/homebuyers/#sthash.HId2n8o2.dpuf

The Down Payment Resource automated down payment assistance program finder does the research for you and quickly matches you with specific homebuyer assistance programs for which you may be eligible.
With Down Payment Resource, you’ll learn:

• The total number of homebuyer programs available to you
• The name of each program
• The amount of down payment assistance available
• How to use this information when shopping for a home
• Your next steps to learn more and apply for the program

- See more at: http://downpaymentresource.com/homebuyers/#sthash.HId2n8o2.dpuf

e Down Payment Resource automated down payment assistance program finder does the research for you and quickly matches you with specific homebuyer assistance programs for which you may be eligible.
With Down Payment Resource, you’ll learn:

• The total number of homebuyer programs available to you
• The name of each program
• The amount of down payment assistance available
• How to use this information when shopping for a home
• Your next steps to learn more and apply for the program

- See more at: http://downpaymentresource.com/homebuyers/#sthash.HId2n8o2.dpuf

The Down Payment Resource automated down payment assistance program finder does the research for you and quickly matches you with specific homebuyer assistance programs for which you may be eligible.
With Down Payment Resource, you’ll learn:

• The total number of homebuyer programs available to you
• The name of each program
• The amount of down payment assistance available
• How to use this information when shopping for a home
• Your next steps to learn more and apply for the program

Click Here to find out if you are eligible for first time home buyer down payment assistance.
- See more at: http://downpaymentresource.com/homebuyers/#sthash.HId2n8o2.dpuf

Wave of Singles to Make Big Impact on Housing.

Half of all American adults now live in one-person households, a rapidly growing number, according to the Bureau of Labor Statistics. The singles demographic is likely to reshape multifamily communities and single-family home designs going forward, according to Builder Online.

In 1976, only 37 percent of adults were single. As of August 2014, that percentage has bloomed to 50.2 percent, or about 124.6 million singles. It marks the first time that single Americans make up the majority of the adult population since the government began tracking such data.

This growing segment also will impact floor plans, which will go from static to flexible affordability will be a key factor due to the reduced income of a single homeowner compared with that of dual-earner couples.
as living arrangements change more frequently. Analysts also project that this group will job hop more often and bring new types of living arrangements into the housing market – such as friends buying homes together. Additionally,

At the recent California Association of Realtors 2014 Expo and Conference last week, the obstacles for first time buyers--an important force in the real estate market--were characterized as having:         

  Lots of competition for existing housing stock.
• Affordability constraints.
• Lack of a down‐payment.
• Lack of information about the home‐buying
   process.
• Fear of financing: “I can’t qualify”.
• Job prospects/security still dim for many.
• Many who have jobs are under‐employed.

To help all types of buyers with potential programs, there is a resource to help sift through the wide array of programs that could be available in a given area.
 
Down Payment Assistance for Buyers.
Did you know, according to California Association of Realtors' Down Payment Resource™ Homeownership Program Index that there are…
-Over 300 programs in California
-59% provide direct down payment & closing cost assistance
-10% provide mortgage credit up to $2,000 for the life of the loan
-26% are available to repeat buyers.

The Down Payment Resource automated down payment assistance program finder  is a FREE program and does the research for you.  It quickly matches you with specific homebuyer assistance programs for which you may be eligible.  With Down Payment Resource, you’ll learn:

• The total number of homebuyer programs available to you
• The name of each program
• The amount of down payment assistance available
• How to use this information when shopping for a home.

10 Biggest Buyer Mistakes

If thoughts about buying are holding you back, take a look at my presentation by clicking on the title (you can even leave your comments there if you want), then ask yourself what would it take for you to take that step. Would saving money do the trick? Most people are saying, "Yes, but the asking prices are still too high, and I'm waiting for them to come down."

But what if your monthly payment was lower? There is a way to negotiate pre-paid interest up front which can be paid by the buyer or the seller, that "buys down" the buyer's loan rate from the 30-year fixed rate and may save the buyer as much as $250 a month.

Don't wait for prices to come down if you can negotiate the same lower monthly payment now!



Long Beach long beach real estate 'Voice this!

You Can Lose Out by Waiting To Buy

I decided to make my post on another blog a subject for today. A reader comment at another blog prompted me to respond. The reader's reference was to Option ARM's and that they would wait to buy a home instead of getting this type of loan. which received so much bad press recently in the media. These are not the only available loans, although electronic media would have you believe that according to their massive single-topic coverage agenda. Good advice to prospective home buyers is the same now as 10 years ago--educate yourself as to your loan options, that may mean speaking to more than one broker, or asking a broker to draw up 2 or 3 scenarios for you based on different factors, such as interest rate, down payment, 15 or 30 or 40-year loan, interest-only, FHA or conventional, 1st-time homebuyer plans, down-payment assistance plans. If you first speak to your REALTOR, he/she could save you time and energy in your early loan-shopping stages by discussing some basic terms and strategies.

"Have you tried to find a loan that would work for you that’s NOT an option ARM? Option ARM’s by the way are very workable loans for the right buyer, but have you looked into a buydown loan, for instance. They were going back in the 90’s during the recession and have come back again. Essentially, part of your loan interest is pre-paid (a negotiable item with the seller if you ask) and you save money on your initial payments for the first 2-3 years before you come up to the regular 30-year fully indexed rate you agreed upon in your loan. The market is still good on numerous loan options, the key thing is having a good FICO score, but still, FHA loans (if you fit in its loan amount cap) are a good route to go if you have a score as low as 580, just know they look at you and all your risk factors and there are going to be letters of explanation for your situation. FHA loans have PMI, but that PMI is now tax deductible. Then there’s 80/10/10 conventional loans. And last, but not least, seller carrybacks are re-emerging, again a negotiated item but very successful with the right seller. So don’t close the door until you’ve looked into all the corners!"

Long Beach long beach real estate 'Voice this!

How to Read Your Mortgage Documents

This is a great article from YOU Magazine specifically relating to adjustable rate mortgage documents. The links show very explanatory illustrations:

Every day you read another horror story about the subprime collapse. Most of the stories focus on the negative impact Adjustable Rate Mortgages (ARMs) will have on subprime borrowers once their interest rates reset. But what's often unreported in these news pieces is the fact that the risk extends far beyond subprime borrowers. That's right. Anyone with any ARM that is scheduled to reset may be faced with an interest rate increase of up to 2.00%-3.00%, even A-paper borrowers.

This article is not designed to scare you or add to the flood of media hype on this topic. To the contrary, our goal with this interactive article is to empower ARMs consumers with the knowledge they need to avoid becoming one of the millions of borrowers expected to foreclose in the coming years. Continue reading and you will learn how to interpret your mortgage documents, calculate your increased rate, estimate your increased monthly payment, and determine what you may need to do to avoid potential problems. We'll also show you actual loan documents and explain some of the confusing legalese that can easily lull borrowers into a false sense of security. Even better, print out this article and discuss and double-check your calculations with your mortgage professional. This will help to put your mind at ease because you'll know exactly where you stand with your mortgage.

These sample ARM documents may differ from those found in your mortgage, but they contain the basic ingredients discussed in this article and are typical of all ARMs documents, with the exception of Option ARMs (which YOU Magazine will feature in a future article).

Initial interest rates on ARMs are generally locked for a predetermined period that can range anywhere from 12 months to 120 months. When the predetermined fixed-rate period of the ARM expires, the interest rate is then subject to change based on a combination of three factors.

The first factor is the initial interest rate cap that was put in place at the time the loan was originated. This interest rate cap typically ranges between 2 to 5 percentage points, depending on the terms of the note. The higher cap of five points is generally in effect for loans in which the initial fixed-rate period is five, seven, or ten years. This means that if your initial interest rate was 6.00%, the maximum interest rate your loan could adjust to upon the first adjustment would be 8.00% or 11.00%. The initial interest rate cap will be in effect for 6 to 12 months before it is subject to adjust or reset. The cap on all subsequent adjustments to the interest rate should be either 1.00% or 2.00%.

For those borrowers with a subprime loan, the pain of the first adjustment will be followed with a potential increase in rates again within six months of the first adjustment.

In addition to the cap, there are two components that determine the interest rate when the ARM adjusts. The first component is what is known as the interest rate index. The index is the fluctuating component of the new interest rate and is based on, or tied to, any one of several indices tracked by the Wall Street Journal, including, but not limited to: the London Interbank Offer Rate (LIBOR), U.S. Treasuries, as well as the Prime Rate.

The second part of this equation is what is known as the margin. The margin is the fixed number that, when added to the index, determines the interest rate the borrower will be charged upon adjustment.

This means that, if the index tied to the mortgage is the Six Month LIBOR, which, let's say is approximately 5.38%, and the margin for a borrower was listed at 5.00, the newly adjusted interest rate could be 10.38%! If the borrower's original interest rate was 6.50%, and the loan carried a 3.00% initial interest rate cap, this loan would adjust from 6.50% to 9.50% at the first adjustment. If the index remained the same at the time of the next adjustment, the interest rate would adjust to 10.38% when the loan resets.

It's important to understand that, while the interest rate will never be higher than the lifetime interest rate cap, this number itself can be relatively high – the life-cap in our sample ARM is 15.95%. For borrowers who are unable to refinance due to changing circumstances, this means that rates could reach the maximum level the loan allows!

Let's apply this to a sample ARM holder and see the results. For someone with a mortgage in the amount of $300,000, the interest costs alone could increase anywhere from $6,000 to $9,000 a year. This translates into a mortgage payment increase of $500 to $750 a month just in interest. For anyone struggling to keep current on their monthly payments, such an increase could have disastrous results.

You may be wondering why anyone would take on an ARM in the first place. Despite the scenarios we've outlined here, ARMs, as a product, are not evil by design. It's true that ARMs are currently experiencing an increase in interest rates. But in a market with falling interest rates, ARMs placed at that time will experience falling rates as well, without having to refinance. Because of this feature, ARMs hold an important place in mortgage financing. In many instances, borrowers have qualified for a larger home or have been offered a lower payment for a similar amount financed because of the availability of ARMs.

Even though underwriting standards continue to tighten as a result of the subprime fallout, it does not mean that you won't qualify for an A-paper loan. Many people who may have been limited to subprime products in the past are now qualifying for Expanded Approval (EA) loans through Fannie Mae. Borrowers qualifying through EA criteria may also have the ability to qualify for Timely Payment Rewards (TPR), a program that allows for automatically reduced interest rates, without refinancing, on a 30-year fixed rate product, provided the borrower makes payments on time for a period of 24 consecutive months within the first several years of the mortgage. In most cases, borrowers with credit issues benefit more from an EA loan than from adjusting with their subprime ARM or originating a new subprime loan. Talk to your mortgage professional today about these options if you have any questions or just want more information.

Obviously, it is very important to understand the complexities of how any of these financial instruments work, as well as any potential implications the borrower might face throughout the life of the loan. Congress, many state legislatures, and the Federal Reserve are currently reviewing how mortgage companies present ARM disclosures to borrowers at the time of application to ensure borrowers better understand the mortgage process. Until then, it's up to you to protect yourself and your family. Don't get caught off guard. Pull out your ARM loan documents and use the interactive features of this article to estimate the changing cost of your ARM. If you don't like what you see, or you're still having trouble working out the numbers, make an appointment with a mortgage specialist right away.

Article also courtesy of Doug Davis at Clarion Mortgage.
Long Beach

Very Basic Guideline on Choosing a Home Loan

Whenever a shopper is quoted a monthly payment, he must also be shown the highest monthly payment possible on that loan, and the month it would be reached, assuming the borrower always makes the minimum payment allowed.

This is a really good home loan shopping guideline for all homebuyers, especially those who may be quoted a low start rate. There are many required disclosures, including an APR, the annual percentage rate which are your loan fees and costs which are supposed to show the true cost of your loan, but not always so! The APR is a complex calculation which may vary from loan to loan even with the same lender; ask for a good faith estimate which should look like this 2005 sample from the California Department of Real Estate. Buyers, if you're serious about shopping for a new home, you should be serious about taking the time to look into what you need in a loan and a lender!

Long Beach