Sacramento Mortgage Update

Here's another mortgage update by Huck Ferrill, our guest mortgage broker.

Much has been happening lately on the residential real estate front, some well publicized, like the huge number of foreclosures, and some not so well publicized. In the last several months for example, I’ve been prequalifying up to a half dozen prospective buyers per day! Entry level houses ($100,000-350,000 in Sacramento area) seem to be enjoying the greatest interest by both first time homebuyers and investors looking for more rental property. One of my clients, a well recognized listing agent of bank repo property, reports that the nicer homes are seeing multiple offers not long after they’re listed. So far, prices haven’t risen but, inventory of for sale property is dropping, and prices will start to rise at some point. This is probably a great time to be buying if you or someone you know is looking for an investment or their first home.

Mortgage news-various adjustable loans made over the past few years, are resetting to higher adjustable rates, typically in the 7-8% range. Neg am ARMs also remain at relatively high rates. If you or someone you know has one of these products and are not sure what to do next, call me direct (916) 788-9802 or fax me the note from your old closing papers. We will be happy to analyze the note’s terms and make recommendations. My direct fax is (866) 529-5052.

30 year fixed loans are enjoying pretty good rates, around 6.25-6.5% depending on whether or not points are paid, and as long as the loan amount is under $417,000. 3 year and 5 year hybrids can be had in the mid-high 5% range. Also, Congress has authorized a temporary increase to that loan limit, which offer similar rates to a max of $580,000 (Sac area) and $729,750 in the major metro areas of California.

More mortgage news-FHA loans are back in a huge way! For years, FHA loans comprised about 65% of all financing in the Central Valley, but they went by the wayside with all the “subprime” lending (now gone) that became popular. The beauty of these loans is they are fixed, very attractive rates, they are tolerant of some past credit problems and only require a 3% down payment. In fact, it’s possible to finance all down payment and closing costs so that little or no upfront money is required to buy a home! In fact, we processed one of these for a single first time buyer. Price was $127,400 for a nice little North Highlands house, total payment is $944.00 including all property taxes and insurance. That’s actually better than the rent she had been paying, and her only initial investment in the purchase was about $200.00 toward the cost of the appraisal!

More news later as various lending reform packages move through Congress and the Administration, but one thing is sure-the chance to buy bargain homes comes every 10 years or so, and we’re there!

Fannie Mae, Freddie Mac Revise Policies

This just in from Darin Marquardt of Chase Home Loans:

Fannie Mae and Freddie Mac have recently announced that they are eliminating their declining market policies beginning June 1st. Additional details will be provided when they are received from the Agencies. It is important to note that the mortgage insurance companies still continue to underwrite loans to their declining market polices, so MI restrictions will still apply for now. In light of the Agency announcement, Chase plans to eliminate the Agency declining market policy in an upcoming release. Until further notice, loans should continue to be decisioned per posted policies and product guides.

To get prequalified, click here.

If you're Watching Mortgage Rates...

... this post over at the Mortgage Reports Blog might interest you.

Dan Green writes often about mortgage rates and his posts are almost always educational. Not a bad blog to add to your subscriptions!

Federal Reserve cuts Interest Rate by 0.75%

Another rate cut came in today. The Fed cut interest rates by .75% down to 2.25% now.

If you are a home buyer wondering if this will affect mortgage rates, the answer is probably yes. But maybe not in the direction you are hoping.

Head on over to Dan Green's Mortgage Reports to get an idea of why.

HUD introduces changes to RESPA

HUD recently released some changes to the Good Faith Estimate to help real estate buyers better understand the loan they are getting. Read the details here. While these measures help, I believe there is no substitute for an honest mortgage person who makes sense of the numbers for you.

Mortgage Rate Trends

Another dose from Sacramento Real Estate Gal's mortgage expert Huck Ferrill:

One would think from the news, that mortgage rates are falling like crazy. Not true!

While the Fed Funds rate has dropped rather precipitously, my clients have been surprised to hear that some mortgage rates have actually risen. For example, the range for a 30 year fixed rate loan is actually about 50 basis points higher now, than two weeks ago, ranging from about 6-6.25% depending on whether one pays points or not. The reason is mortgages are longer term instruments whose rates move roughly with US Treasury notes and bonds, as opposed to a short term rate like Fed Funds. A ten year Treasury is currently yielding about 3.8% currently, up from a recent low of 3.4% in late January.

These are still good rates, however.

My point is that it's a bad policy to delay purchasing or refinancing in hopes rates will drop. One might wait a long time. So essentially, if rates and the resulting payment look good now, go for it. Don't be greedy.

So far, only 15, 20,and 30 year fixed rates have gone up. Happily, hybrids that are fixed 3, 5, 7 and 10 years have held pretty steady. I just checked one of our investors to find they are buying 5 year fixed product at under 5% for one point. Similar 7 year product ihttp://www.blogger.com/img/gl.link.gifs out there at about 5.5. These hybrid products can be really attractive when the yield curve is steeping, as it is now.

Also read: My personal mortgage train miss; February Mortgage Update; market predictions for 2008.

How I may have Missed the Mortgage Train...

Here's a riddle for you: What does the Sacramento Real Estate Gal have in common with those home buyer fence sitters out there?

Answer: I may have just missed an opportunity to save some money on my rentals (well, at least one of them) and have them cash flow. I was one of those people that got every excited when I saw mortgage rates drop. "How far down will they go?" was the question.

Sound familiar?

Unfortunately, this is what has happened. And I am still paying about $75 - $100 more on a rental than I would have been had I jumped up and called my mortgage lender.

And I may have missed the refinance train. For now.

Sacramento Mortgage Update

Sacramento Real Estate Gal's mortgage expert Huck Ferrill has the following mortgage updates for you today:

Much has been happening lately on the residential real estate front, some well publicized, like the huge number of foreclosures, and some not so well publicized. In the last month for example, I’ve been prequalifying about a half dozen prospective buyers per day!

Entry level houses ($100,000 - $300,000 in Sacramento area) seem to be enjoying the greatest interest by both first time homebuyers and investors looking for more rental property. One of my clients, a well recognized listing agent of bank repo property, reports that the nicer homes are seeing multiple offers not long after they’re listed. So far, prices haven’t risen but, I suspect that if that trend continues, for sale inventory will drop, and prices will start to rise. This is probably a great time to be buying if you or someone you know is looking for an investment or their first home.

Mortgage news - 2008 is the year that all the low rate 3 year and 5 year fixed loans made in 2003 and 2005 will reset to higher adjustable rates, typically in the 6-7% range. Pay option ARMs also remain at relatively high rates.

The great news is that 30 year fixed loans are enjoying pretty good rates, around 5.5-5.75% depending on whether or not points are paid, and as long as the loan amount is under $417,000. Stay tuned, though-Congress may authorize an increase in that loan limit, to as high as $730,000.

More mortgage news - FHA loans are coming back big! For years, FHA loans comprised about 65% of all financing in the Central Valley, but they went by the wayside with all the “subprime” lending (now gone) that became popular. The beauty of these loans is they are fixed, very attractive rates, they are tolerant of some past credit problems and only require a 3% down payment. In fact, it’s possible to finance all down payment and closing costs so that little or no upfront money is required to buy a home! I’m processing one of these right now for a single first time buyer. Price is $127,400 for a nice little North Highlands house, total payment will be $944.00 including all property taxes and insurance. Her only initial investment in the purchase is about $200.00 toward the cost of the appraisal!

More news later as various lending reform packages move through Congress and the Administration, but one thing is sure - the chance to buy bargain homes comes every 10 years or so, and we’re there!

Also read 2008 Sacramento real estate and mortgage Predictions and feel free to give Huck Ferrill a call at 916-788-9802.

To search for properties, just click the links to the right!

Market Predictions for 2008 - a Mortgage Perspective

The mortgage expert on Sacramento Real Estate Gal, Huck Ferrill, has the following to say regarding home prices in 2008. This is an extract from a larger newsletter, but worth reading. For the most part, I agree with him.

Read on:

I think 2008 will be a mixed market for the first half (including some more foreclosures), beginning price recovery in the second half. Here’s why:

Prices have already shown some stabilization, albeit at lower levels. The last half dozen appraisals I’ve seen were 5-7% HIGHER than their selling prices. One property selling in Roseville for $225,500, appraised for $275,000 last week, for example. Higher end prices, greater than $750,000, while having showed some softness, have held up pretty well, primarily because there isn’t the plethora of bank owned properties at those levels.

Credit for financing purchases and refinances has been available all along, albeit from fewer lenders, and it has been relatively inexpensive (6-7% range). Stated income loans are available to those with good credit. 100% financing to $417,000 is available to those with good credit, documentable income, but no money. Financing to $5,000,000 is available (both stated and documented income) to those with good credit and either equity or cash for a down payment. Investor financing is available to 90% (75% stated income with good credit).

FHA reform now moving through Congress will provide financing to at least $417,000 for those with less than excellent credit (or no credit in some cases) to finance the purchase of a home, with as little as 1.5% down payment.
VA financing remains available to 100% at excellent rates.

Many of the major lenders have agreed with the President to freeze rate resets for 5 years, on many of the outstanding loans, that would have caused more foreclosures. This act alone may slow the rate of foreclosure, so that bank owned inventory begins to drop.

So, in sum, the opportunity and the means to capitalize on it are in place. I suggest that if you’ve ever wanted to own rental property, buy more of it, invest in another residence, or if you know anyone wanting to buy their first home or rental property, now is a great time to start looking because these opportunities come and go, often rather suddenly and sooner than we like.

First-time Homebuyers Might Have a Harder Time Now...

Traditionally, first-time homebuyers have bought homes with little or no money down. A recent email I received from Huck Ferrill, the mortgage expert of this blog, seems to suggest that these loans might be drying up for these first-timers as of the middle of next month.

100% loans on houses are backed by mortgage insurance, which insure the lender in case the borrower defaults on the mortgage. But now, at least two mortgage insurance companies have decided not to insure 100% loans on houses in California to limit their exposure.

This can have a major impact on those buyers who have less than 5% down on a home. With lending changing everyday, especially in this market, it is important to get pre-approved (not just pre-qualified) with a mortgage broker before going shopping for a home. It is also a good idea to make sure that the pre-approval is still valid when you do find the home you've been looking for.

I'm a First Time Homebuyer. What Loans are Available to Me?

The obvious answer is any loan that's available to any buyer, but since the most frequent challenge that we see with first time homebuyers, is that they have little or no money for a down payment. So for purposes of this article we're going to focus on programs that allow for 100% financing of the purchase price.

CONVENTIONAL PROGRAMS

In general, these programs are limited to properties selling for $417,000 or less, and there are are number of them with names like "My Community, Flex 100, Home Possible" or any number of proprietary names that various lenders might attach to them. All of them will finance 100% of the home's purchase price with a single loan, and all have very similar requirements-a minimum FICO score of 620, ability to document one's employment and income history for at least two years, minimum (sometimes no) reserve requirements, etc. They also will allow the home to be purchased "as is" in most cases, as long as the home is in reasonably good condition as determined by the appraisal. This is extremely beneficial if one is trying to buy one of the plethora of bank owned properties currently on the market. By the way, there are some real bargains out there now-the last six first time homebuyer transactions I've worked on, appraised for 5-7% MORE than they are being purchased for! Also, in most cases, the seller is allowed (and usually is willing) to pay up to 3% in buyer's closing costs.
An example of a typical payment for a $200,000 home looks like this:

$200,000 loan @ 6.5%, 30 year fixed $1264.14 principal and interest monthly
mortgage insurance @.59% 98.33
property taxes 208.33
homeowners insurance 58.33
TOTAL $1629.13

FHA LOANS

The typical FHA loan requires a 3% down payment and the maximum loan is about $264,000 in the Sacramento area, but the down payment can be a gift from a relative or, more importantly, can come from an additional ACCESS loan for 7% of the purchase price. That's enough to pay the required FHA down payment and all buyer's closing costs! Another advantage to FHA is that they have no minimum FICO score requirement. In fact, it's possible to obtain a loan even if there are NO accounts on the buyer's credit report. In those cases we will obtain rent ratings, ratings for utility or telephone accounts, car insurance payments or anything else the buyer has been paying regular monthly payments on. We've even used memberships in gyms for ratings!
Here's how an FHA ACCESS payment would look on the same $200,000 first time home:

$203,000 loan @ 6.5% 30 year fixed $1246.53
FHA mortgae insurance @ .5% 80.96
property taxes 208.33
homeowners insurance 61.61
$14,000 ACCESS loan @8.5% 20 year fixed 121.50
TOTAL $1718.93

That's a little higher payment than the conventional one above, primarily because the down payment and closing costs have been financed in this example. Great loan for those with FICO scores less than 620 however!

VA LOANS

Originally developed for veterans returning from WWII, this program administered by the U. S. Department of Veterans Affairs, is THE program for the qualified military veteran or in some cases, the widow of a military veteran! It provides a federal guarantee for a loan to finance 100% of the purchase price of a home up to about a $260,000 maximum and is generally available to active or discharged veterans with more than six months active service. If discharged the discharge can be any discharge that is "other than dishonorable." The benefit runs for the life of the veteran and can be reused multiple times over a lifetime. It has put literally millions of first time homebuyers into their first home! One of the other beauties of this program is that while it has a "VA Funding Fee" built into the loan, it requires NO mortgage insurance.
So check out the VA payment on our $200,000 home:

$204,300 loan @ 6.5% 30 year fixed $1291.32
property taxes 208.33
homeowners insurance 59.59
TOTAL $1559.24

I'll bet it would cost about that much to rent some of the $200,000 homes I've seen lately and one would have to put up first, last and security deposit, etc. Better to get the seller to pay closing costs, not have to go in with any money, and own the home!

There are other ways to finance all of a home purchase, CalHFA, CalVet, CalPERS, etc. all with their benefits and drawbacks, but the three above are the basics. Better for the reader's eyes (and my typing fingers) if we end here for the moment....

New Blogger Here

Hi,
I'm Huck Ferrill. I've been a mortgage professional for about 31 years. Purva asked me to post occasionally. What would everyone like to read about relative to my field?
As everyone has probably read, we're going through somewhat of a credit crunch and too many homes on the market (many bank owned) at the same time. It's happened before.

To those who would like to own their own home someday, now is not a bad time to be looking-all the homes on the market have caused prices to drop. That phenomenon won't go on forever.

Also, despite the news to the contrary, there is excellent financing to be had, particularly if the loan involved is less than $417,000. For those with decent credit and steady income, it may be possible to buy with no down payment necessary and closing costs paid by the seller.

To those who prefer to rent, I can only say that homeownership is not for everyone. Many simply don't want to deal with the responsibility for maintenance, for example, or the fact that homeownership is a relatively long term committment. Others may be subject to frequent transfer, or whatever. If so, renting is probably a good thing, but a renter always loses the opportunity to build equity in that which one rents.