Thursday, September 13, 2007

Manhattan Beach-Beach Cities: Loans & Interest Rates...Can You Qualify?

There has been a lot of turmoil in the housing market as buyers and sellers try to sort out what's really happening in the mortgage market. There was a two week period when it seemed as if no one would ever be able to qualify for a loan again. Predictions that buyers couldn't qualify for a home in the Beach Cities were widespread. Sales are slow but ongoing and if rates drop a bit the market may turn from panic mode to normal mode. There will be short sales and foreclosures but we should fare better then many other markets.

Finance.. like love and romance... can be frustrating but it is part of our lives. Four weeks ago higher interest rates and changes in underwriting were headline news. However the fact that rates have dropped seems to be a fact that the media has kept on the QT so to speak. As for qualifying for a new loan.. having a down payment may be viewed as a hardship by many but there are a lot of people who do have 10%-20% available for a down payment and make enough to qualify for either a fixed or an adjustable rate jumbo loan without a problem. The fact is qualifying ratios are not as stringent as they were 10 years ago. For most loans front end ratios are 40%-45% and back end are 50%-55% depending on your FICO score, assets and down payment. You can still do an 80/10/10 loan and there are stated income loans available but you do have to verify your assets.

What's the trick to getting a loan and successfully closing escrow... getting your affairs in order early. First you must use a reputable lender.. either a direct lender who will in-house loans if needed or a broker who is also a direct lender. Your brother-in-law may no longer be a wise choice. Do not even think about Countrywide .. as they will probably be gone very soon. Other lenders with big subprime problems are WAMU and Wells Fargo. Here's a hint... try your credit union.. most credit unions have lots of money and are very stable. Get started on the paperwork immediately.. before you find the home you can't live should be pre-approved. That means everything has been verified... credit, assets, job etc.. with the next step being an appraisal and then funding. If there are any glitches in your credit you want to solve problems early in the process not late.

Most lenders, in anticipation of the FED lowering the funds rate, are already dropping interest rates. The rates below are current and have one point... rates can vary by 1/4 point depending on the lender and points paid...

Conforming: ( $417,000 or less)

30 yr fixed: 6%

15 yr fixed: 5.75%

5/1 arm: 5.75%

Jumbo:($417,000 or more)

30 yr fixed: 6.75%

7/1 arm 6.3%

5/1 arm 6%

These rates have one point... if you plan to be in your home for over 3 years I would seriously consider paying a point upfront. When money was so cheap paying a point seemed silly so points on a loan didn't make a lot of sense. However paying a point upfront in today's market may be a good choice if you plan on being in the home longer then 3 years. You can write off the full amount in the first year as interest which is not a bad thing and it keeps the rate lower for the life of the loan which is a good thing. If you are refinancing then paying points may not make as much sense as you have to write the points off over the amortized period of the note. Talk to your CPA to see which choice is best for you.


JR said...

Good advice, Kate, on paying the point up front.

Kaye Thomas said...

JR- Glad you agree.. Paying points to lower the overall rate stopped when rates got so low.. however I think it is a strategy that buyers may want to consider once again..

Pat said...

So, what are rates like now?

Kaye Thomas said...

Pat- They have gone up in the last two days about a 1/4 point. Rates are tied to the bond market if bonds move upward loan rates will go down. However you may not see much movement in Jumbo loans until the credit market feels more secure.

Ricardo Bueno said...

In the pursuit of proper planning the best anyone can do for themselves is organize their paperwork. A task a simple as this can make the world of difference in spread from one interest rate quote to another.

You might apply for a Stated Loan (yes some do still exist) only to find out that you could have gone Full Doc as your tax returns substantiate enough income.

The next excellent point is the fact that you can pay upfront points to buy the rate down. I'm definitely in agreement with you here as you can save some money over the long-term.

If it (1) one point costs you $4,000. Simply calculate the difference in payment from the new lower rate and the initial rate and consider this your savings. Then divide $4,000 by your savings and you'll get the number of months it will take for you to break even on your investment.

Kaye Thomas said...

Thank you for stopping by and sharing information..