Low Mortgage Rates: 7 Things You Need to Know to Refinance and More

[Mrs. Sharon B. Hodge]

Low Mortgage Rates: 7 Things You Need to Know to Refinance
By Luke Mullins


Mortgage rates have declined sharply in recent months. Here's how to take advantage

With mortgage rates dropping to record lows, it's no surprise that more and more homeowners are looking to refinance. Earlier this month, the Mortgage Bankers Association's refinance index--which tracks application volume--hit its highest level in more than five years. This wave of refinancing applications was sparked by record-low interest rates on 30-year fixed mortgages, which fell to an average of 4.89 percent for the week ending January 9. And although mortgage rates have increased modestly since then--hitting 5.24 percent last week-- interest in refinancing remains elevated. But while some borrowers will be able to turn these compelling rates into real savings, not everyone can get in on the action. To better understand the refinancing process, here are seven things you need to know to refinance in today's market.

1. Percentage point break: Despite the attractive rates, homeowners will have to thoroughly analyze their financial position before determining whether or not now is the time to refinance. A good rule of thumb, however, is if your mortgage rate is a full percentage point or more higher than current rates, you should consider refinancing, says Orawin Velz of the Mortgage Bankers Association. "If your rate is about 6 percent currently, then it is a good time to think about it," Velz says. (Keep in mind that anyone trying to refinance a so-called "jumbo loan"--one that's too large for Fannie Mae and Freddie Mac to purchase--will face sharply higher rates, says Keith Gumbinger of HSH Associates.) The transaction fees lenders charge are another major consideration. Higher fees, of course, eat into the potential savings of a reduced mortgage rate. So the lower the fees, the better. "The fees that you should be paying need to be low enough so that you can recoup your money through the break in the interest rate in a reasonable period of time--usually under four years," Gumbinger says. (More on fees below.)

2. Half rejected: Although more Americans are looking to refinance, a significant chunk of applications won't be approved. In the first half of 2008, roughly 60 percent of refinancing applications were turned into loans, Velz says. "But because of the intensified turmoil in the second half of the year and continued decline in home prices, we believe that the rate has probably declined to [about 50 percent.]" In order to qualify for refinancing, homeowners will need to meet certain specific criteria.

3. FICO 740: While 720 is still considered by some to be a solid FICO score, it's not good enough to obtain the best rates in today's refinancing market, says Chris Freemott, president of All American Mortgage in Naperville, Ill. Instead, borrowers will need a FICO score of at least 740. "FICOs are everything," Freemott says. "[A FICO score of] 740 is the benchmark for the lowest possible rates." Borrowers that don't have this score can still refinance, but they're likely to face higher rates.

4. Equity and documentation: Home equity can be another significant barrier to refinancing today. The real estate crash has sucked a great deal of equity out of homes. Zillow says roughly one in seven American homeowners actually have negative equity—meaning they owe more on their mortgage than their property is worth. In order to qualify for refinancing, homeowners will have to have a minimum of 3 percent equity in their homes, Velz says. In addition to solid credit and home equity, borrowers will also need to be able to document their income in order to qualify for refinancing.

5. Fee paying options: Fees associated with mortgage refinancing vary widely from market to market and borrower to borrower. But on average, a $200,000 refinancing loan may come with up to $6,000 in fees, Gumbinger says. Borrowers have three main options for paying such fees. Those with enough cash may want to just pay the fees up front. Borrowers with less cash on hand may be able to opt for a higher interest rate instead of paying the fees. A third possibility is to have the fees tacked on to the principal of the mortgage, Gumbinger says. The key is to chat with your mortgage lender about structuring the fee payment so that it makes the most economic sense for you. "I've been doing this for 11 years now and… I've never written the same loan twice," Freemott says. "Everyone has a little difference to their situation."

6. Shop around: Given tougher lending standards and falling home prices, homeowners--especially those without perfect credit profiles--may have to get used to hearing the word no. But just because one lender turns you down doesn't mean you can't find another who's willing to refinance your mortgage. "Two or three years ago, lenders were crawling through the doors and windows to serve you," Gumbinger says. "We're 180 degrees out from there right now. You have to go find the lenders." So shop around. Research rates online, call up different lenders, and find out who's willing to offer you the best deal.

7. Be patient: The wave of refinancing applications comes amid a period of significant downsizing in the lending industry. That means there are fewer employees on hand to handle the surge in business. As a result, expect slow service. "The time to even find out whether your loan has been approved or not could run 30 days," says Mark Hanson, a managing director who handles real estate and finance research at the Field Check Group.

MORE....
5 Tips for Buying a Home During a Recession
What you need to know about purchasing real estate in 2009
By Luke Mullins

In the wake of a historic housing bust and a bone-chilling credit squeeze, the American economy is grinding to a halt. The National Bureau of Economic Research reported that the U.S. economy has been mired in a recession since December 2007. And as more bad news—such as mounting job losses—continues to pile up, the chances for a quick turnaround seem increasingly dim." The current downturn is well on its way to becoming the longest in the past six decades," Nariman Behravesh, the chief economist at IHS Global Insight, wrote in a report. But for would-be home buyers, 2009's economic pain could be a great opportunity to get into the market. After all, home prices at the national level have dropped more than 20 percent from their 2006 peaks, while mortgage rates have plummeted. Still, buying real estate during an economic recession presents some serious risks. Here are five things to consider before you purchase a home this year:

1. Make sure your financial house is in order: One of the biggest risks of buying a home during a recession is that you could lose your job after closing the deal. With that in mind, anyone who is considering purchasing a home this year should do so only if they have solid job security. In addition, banks have been raising their lending standards in the face of increased delinquencies. That means in order to get the best mortgage rates, most would-be home buyers will need solid credit, a decent down payment, and documented income verification, says Keith Gumbinger, vice president of HSH Associates. "Mortgage money is available," he says. "In order to have access to the financing, however, you are going to have to align yourself more closely with the new, more prudent lending standards." So, if you're uncertain about your job security, or if you can't meet the credit requirements, you should probably hold off on buying a home until the economic outlook improves.

2. Buy a home, not an investment: A lot of people were hurt in the housing bust because they bought houses as short-term investments. With the market expected to decline further this year, 2009 won't be a good time to get back into real-estate flipping. "Don't buy a house because it's cheap, buy a house because you want to live in it," says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California—Berkeley. Home shoppers should only purchase a home this year if they plan to live in it for at least three to five years, says Mike Larson, a real estate analyst at Weiss Research. "The real risk is that prices continue to deflate, so do you want to get in front of that bus?" Larson says. "[Don't buy a home this year] unless you are planning on staying for the very long term."

3. Be conservative: Given the gloomy economic outlook, 2009 isn't a good year to stretch your finances. If you do decide to buy a home, make sure it's a place you can conservatively afford. Rosen says a buyer's monthly housing payment shouldn't exceed 35 percent of their gross monthly household income. And given how low interest rates are these days, buyers should target a 30-year, fixed-rate mortgage, he says. "Make sure you can make those payments comfortably," Rosen says. "You don't want to have to struggle."

4. Get those concessions: With so many homes on the market, would-be buyers will have a great deal of leverage this year. Don't be shy about using it: low-ball the listing price or ask if the seller will chip in for closing costs. You might even ask about a decorating allowance. "[Sellers are] throwing in lots of extra stuff to put transactions together," says Ron Phipps of Phipps Realty in Warwick, R.I. "The rule of thumb is ask for anything." In a market like this, you might be surprised by what sellers will agree to. Just don't go overboard—angering the seller with overly aggressive demands could end up torpedoing the deal.

5. Check out foreclosures: While the foreclosure epidemic has caused tremendous pain for many Americans, it has created some great deals for would-be buyers. "[It's] a once-in-a-generation opportunity for many people," says Steve Dexter, a foreclosure expert and author of the forthcoming book, Buy and Hold Forever—Building Real Estate Wealth Far Into the 21st Century. Because such properties can often be found at sharp discounts, anyone looking to buy a home this year would be wise to check out the inventory in their market. But foreclosed home buying can present unique challenges—legal and otherwise—that are often best handled by someone with experience. So, unless you are a veteran real-estate investor, you're probably better off having a professional with experience in the foreclosure market assist you.

Second that opinion
Karen you could not have put it any more eloquently. The good realtors focus their efforts to serve their clients at the highest level knowing that the paycheck will take care of itself.

I often turndown buyers, that are not a direct referal from my clients, unless a buyer agreement is signed. Buyers this is the contract that protects you much like the listing agreement protects the seller.

What amazes me is when I meet someone who can curse someone for not using a professional in their chosen profession, but then turn around and think they can navigate the real estate market like a professional. I certainly won't begrudge someone trying to save money, but I will point out mistakes in real estate often are not discovered for a period of time. I spend hours upon hours keeping up to date on the latest information so I can keep my clients informed. Did you know that the highest foreclosure rate is on 3 unit buildings? Most those owners were investors and I imagine more than a few thought they knew what they were doing.

Best advice I can give is simple, professionals get professional results and if your hiring a realtor or any other person when spending the single largest sum of money in your lifetime you might want to interview a few candidates for the position.

Agreed.. buyers..buy!
While I agree it is a great time to buy a home for your family it is also a great time to buy a home for investing purposes. Yes, home prices are lower than we would like but with so many foreclosed on you have to think..where are all these people going to live?? You guessed it.. they will rent. Enter you and your recently bought single family home. Buying to become a landlord is a great option. This is something I will be investing in soon as soon as I find the right property. If you are interested I suggest you read "The Pizza Delivery Millionaire" by Rick Vazquez. It's available on Amazon.com and on his website pizzadeliverymillionaire dot com. I hope his book helps someone as much as it did me.

Successful Buyer Broker's Opinion - Regarding Lowballing
I must say that a statement like, "Don't listen to real estate agents when you are bidding, they are only thinking of their commissions" does nothing but perpetuate an atmosphere of consumer mistrust of this profession. There are many highly trained, highly ethical, and highly successful real estate professionals (like myself) with many happy buyer clients who have purchased homes at prices they were thrilled with along with the professional guidance through all the inspections and gathering of repair estimates from competent professionals (many of these repairs were paid for by the sellers after we respectfully provided the written estimates and a request for assistance - something my buyer clients didn't even know you could do).

I provide factual information to my clients on the home's condition, current data on local, regional, and national real estate markets, economic and lending climate, and then advise them that, "If they are prepared to walk away, they can offer any price that they wish to offer" which many do - even at the risk of being outbid by another buyer - which has happened - even in this market. I give my clients every fact I can give about the property and the market and then respect their ability to come up with an offer that they are comfortable making. I teach both buyers and sellers that "getting offended" has no place in this business. Each party has a right to ask - at any step in the negotiation - and each party has the right and obligation to speak up and decide where the boundary is.

Buyers and Sellers are adults - When Realtors facilitate by providing factual information and a positive climate, the parties can negotiate an agreement that allows the buyer to buy and the seller to sell. A good Realtor provides the framework for this to happen. If the lengthy process ends in a closing (which 99% of mine do), then the only time I think about the commission is when I walk out the door of the closing with a check in hand for a job well done. Prior to that - my interests are my client's interests.

If you want this type of representation - you will need a legal buyer agreement so that you can become a CLIENT. Some states allow a buyer to be a CUSTOMER - and the definition and legal obligations of the Real Estate professional are different.

Contact a Realtor - through your state's assocation of Realtors for the highest of ethical standards, read their materials, and ask a lot of questions.

It's a great time to buy a home!

STILL MORE;
Mortgage Rates Drop Below 5 Percent: 4 Things to Know


With all the doom and gloom in the housing market, you might have missed this nugget of good cheer: 30 year, fixed mortgage rates have fallen below 5 percent—to 4.96 percent—for the first time ever, according to Freddie Mac. Lower rates have already triggered a wave of refinancing applications and could work to spark some much-needed demand in the housing market. Here's five things you need to know about the trend:

1. Uncle Sam is behind the dive: Fixed mortgage rates have been falling in recent months for a number of reasons, such as lower inflation and investors' flight to quality, which has helped drive down yields on 10-year treasuries. (Fixed mortgage rates typically track the yields on 10-year T-bills.) More important, the Fed has recently undertaken an initiative to purchase hundreds of billions of dollars in Fannie Mae and Freddie Mac debt and mortgage-backed securities. The Fed also has suggested that it may begin buying long-term treasuries directly. Both moves have been big factors in the decline.

[Check out Mortgage Rates in 2009: 7 Things You Need to Know.]

2. The long-term outlook remains favorable: Although rates could certainly increase from these record-breaking levels, they should remain attractive for the rest of the year. Thirty-year fixed mortgage rates will "wax and wane" in the 5½-to-6 percent range before closing out the year somewhere between 6 and 6¼ percent, Keith Gumbinger of HSH Associates, told me recently. "That's still very attractive," he said. "There is no reason to think that rates are going to go up so substantially so as to erode the marketplace."

3. There's a muted impact on home buying: Although lower rates will convince some buyers that it's time to get into the market, the overall impact on housing sales will be marginal, says Richard Moody, the chief economist at Mission Residential. "Mortgage rates are low right now, and they are not doing much good in terms of stimulating sales because of the conditions of the labor market and the broader economy," Moody says. Tighter credit and weak consumer confidence also are working to limit demand. "There are just so many negative factors out there in terms of buying a home right now," he says.

4. The Refinancing Wave: But the falling interest rates have already triggered a wave of refinancing applications. The Mortgage Bankers Association reported earlier this week that its refinancing index climbed 26 percent from the previous week to its highest level since 2003. However, many of these applications will be turned down in the face of higher lending standards and falling home prices. "Only about a third of outstanding U.S. mortgage debt is likely to qualify for refinancing," Doug Duncan, chief economist of Fannie Mae, said in the Wall Street Journal. "Nearly 70 percent of borrowers don't make the cut . . . most often because their credit isn't good enough or they don't have sufficient home equity. A significant number of homeowners owe more than the current value of their homes, a situation sometimes known as being 'under water.' "

Downside
It's nice for people to be able to borrow money at 4 1/2 percent. Problem is, no one selling a house with owner financing would want to LOAN money for 30 years at that low rate. IT IS AN UNREALISTIC RATE THAT IS ONLY POSSIBLE BECAUSE YOUR GOVERNMENT IS PRINTING MONEY FROM THIN AIR.

This dilutes your opportunity to invest money at a fixed return appropriate for your long term future.

You are being had if you're headed toward retirement.

AND SOME MORE:

In the face of mounting job losses and higher delinquencies, a "substantial" portion of banks tightened their lending standards for mortgages over the past three months, the Federal Reserve said Monday in its most-recent Senior Loan Officer Opinion Survey.

Residential real estate lending. Smaller, though still substantial, fractions of domestic respondents reported having tightened lending standards on prime and nontraditional residential mortgages in the January survey. About 45 percent of domestic respondents indicated that they had tightened their lending standards on prime mortgages over the past three months, and almost 50 percent of the 25 banks that originated nontraditional residential mortgage loans over the survey period reported having tightened their lending standards on such loans.

About 10 percent of domestic respondents saw weaker demand, on net, for prime residential mortgage loans over the past three months, a significantly lower fraction than the roughly 50 percent that so reported in the October survey. About 65 percent of respondents--a slightly lower percentage than in the October survey--reportedly experienced weaker demand for nontraditional mortgage loans over the same period. Only four banks reported making subprime mortgage loans over the past three months.

On net, about 60 percent of domestic respondents, down from 75 percent in the October survey, noted that they had tightened their lending standards for approving applications for revolving home equity lines of credit (HELOCs) over the past three months. Twenty percent of domestic banks, on net, reported weaker demand for HELOCs over the past three months, slightly less than the percentage that had reported weaker demand in the October survey.

MORE ON CHEEPER INTEREST
Mortgage Rates Dip to Attractive Level

Thirty-year fixed mortgage rates dipped slightly this week to an average of 5.10 percent, Freddie Mac said Thursday. The retreat comes after rates bounced back from a record low weekly average of 4.96 percent, which they hit two weeks ago amid lower inflation and Federal Reserve moves to buy up mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Thirty-year fixed mortgage rates are down sharply from 6.46 percent in late October 2008.

MORE ON FREE FALLING RATES
Mortgage Rates in Free-Fall: 4 Things You Need to Know

Continuing their downward slide, 30-year fixed mortgage rates have hit 4½-year lows, government-controlled mortgage finance giant Freddie Mac said Thursday:

From MarketWatch:

The 30-year fixed-rate average was 5.47% with an average 0.7 point for the week ending Dec. 11, down from 5.53% a week ago. Last year the average was 6.11%.The 30-year average has not been lower since March 25, 2004, when it averaged 5.4%, Freddie Mac said.

Here are four things you should know about this development:

1. What's driving rates lower? A number of factors have combined to push mortgage rates lower. Inflationary pressures have moderated. The jittery stock market and gloomy economic outlook has triggered a flight to quality, which has worked to drive down yields on 10-year treasuries. In addition, the government's recent announcement that it would buy up hundreds of billions of dollars in Fannie and Freddie debt and mortgage-backed securities—and might even start purchasing long-term treasuries directly—has greased the downward slide.

2. Will rates jump back up? Sure, rates may rise from these extremely depressed levels, but they are likely to remain attractive for months, Weiss Research real estate analyst Mike Larson told me recently. "This is a lot less of a situation where you've got a temporary spike lower that if you don't get out the door in 48 hours, these rates are going to be gone," Larson said. "This is more of a longer lasting trend where—sure, you will see some fluctuations—but that the trend in rates is probably lower for a number of months." So if you're looking to buy or refinance, you shouldn't feel like you've got to get your lender on the horn immediately.

3. Where will rates finish the year? Keith Gumbinger of HSH Associates recently told me he expects 30-year fixed mortgage rates to open the New Year at around 5½ percent and drift upwards to end 2009 somewhere between 6 and 6¼ percent. If correct, that means 2009 will be a year of very attractive mortgage rates.

4. Will this be a big boost to the housing market? Not as big as you might think. Lower rates will certainly enable some adjustable-rate borrowers to refinance into more affordable, fixed-rate home loans. But the borrowers who are in the most desperate need of refinancing have negative equity and will therefore be unable to do so. In addition, tighter lending standards will prevent many would-be home purchasers from obtaining the most attractive financing. So while lower rates will indeed help generate housing demand, this development should not be considered a game changer.