Fuel prices skyrocketing out of control. Heaven forbid you own a diesel which is now pushing $5 per gallon. The floods in the Midwest are impacting our food supply which in turn is costing us more money. The salmonella scare of fresh tomatoes in threatening a shortage. And now the mortgage interest rates are on the climb as well, joining the long list of things that are becoming more expensive.

According to Bankrate.com which is a national survey of large lenders, the 30 year fixed rate rose 26 basis points. A basis point is 100th of 1 percentage point. One year ago the mortgage index was 6.84%, 4 weeks ago it was 6.19% and today it is 6.52%. The 15 year fixed jumped a dramatic 28 basis points to 6.12% and the 30 year jumbo rose 13 basis points to 7.6%. Even the adjustable rate mortgages have taken a hit, the 5/1adjustable rate went up 27 basis points to 6.07%. UNBELIEVABLE!!!

This is the biggest increase for the 30 year fixed mortgage rate since Feb 20th when it rose 41 basis points. According to a weekly survey by Bankrate, the 30 year fixes has jumped up more then 25 basis points 7 times in the last 10 years with 3 of those 7 instances being in 2008. Not a good trend for ‘08.

Need some consolation right now? The rates were substantially higher a year ago. However, last years high rates were due to the hot stock market which drew investors away from bonds. This caused the bond yields to rise followed closely by the mortgages rates. This year is a whole different story. The rates are rising in response to inflation fears and concerns about credit quality.

Even though the rates are on the rise and prices are steadily going up on many consumer goods, it looks like some areas in the country have less expensive housing then others. According to the Beige Book home prices are down in New England, Florida and California. The NAR (National Association of Realtors) reported this week that its index of pending home sales were up in April. This signals a possible increase in home sales in the last half of the year. Keep your fingers crossed.

“Sharp price reductions are leading to a quicker discovery of price equilibrium points,” the Realtors’ chief economist, Lawrence Yun, says.

According to some analysts this translates into the foreclosure issue out West cutting into home prices in parts of the country.

Right before the increase in mortgage rates this week, the president of the National Association of Realtors, Richard Gaylord, said: “Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004, but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future.”

The question is “has some of the affordability been lost now that the mortgage rates have climbed a quarter of a percentage point?” I would say yes.

By Shelli Crysler

By Casey Moseman of www.lasvegascustomloans.com

A couple years ago, FHA was the most rarely used program for lenders.  It was the most time consuming and cumbersome program to send your borrower through as compared to the stated or conventional programs being offered to just about any borrower.  Now FHA it is a staple for the typical lender and if you are a lender and don’t know it, you better!!!

FHA began as an initiative to stimulate the lending and mortgage industry after the depression of 1929 and was introduced by president Herbert Hoover.  The most problematic piece of the economy at that time was the housing market.  Construction workers were out of work, homes were deteriorating and foreclosures on mortgages were increasing.    

Since job growth is a major economic factor that stimulates real estate, it’s no wonder that the housing market went downhill during and after the great depression of 1929.  In 1934 FHA was created and by the end of that year the first home in the United States built was done so using FHA insured financing - in New Jersey!!

Most people have heard of FHA financing but few borrowers know the true workings of an FHA insured loan. 

10 Important Facts about FHA

1.  FHA does not lend money to borrowers for homes - FHA insures the mortgage.  A lending institution still funds the loan. 

2.  FHA is not government funded.

3.  FHA is a non-profit organization that stays in business from the mortgage premiums it collects through the mortgage.  Mortgage Premiums are paid to FHA via A.) the upfront mortgage premium which can be added into the loan amount of 1.5% and B.) the monthly premium sent in with your mortgage payment of .5%

4.  FHA insures make sense loans.  It is true that they are not as credit score driven as the conventional loans, however, the content of your credit report is still important and very relevant. 

5.  FHA will insure mortgages to people who have had Bankruptcies, however, they do not like borrowers who have had bad credit after the bankruptcy.  This is very important.  Additionally, there should be a good reason for the bankruptcy and the borrower needs to document the reason for the hardship in writing.  Ask yourself this question, would you lend yourself the money based on your credit history.  Does it make sense to lend the money?  Do you show a likelihood that you will repay the mortgage?  Credit History is important and cannot be treated frivolously.

6.  FHA likes documentation.  You will be required to prove documentation that you earn enough money to pay for all your existing debts plus the mortgage payment and still remain under a conservative debt ratio.  

7.  FHA likes job history.  2 years in the same industry is the minimum.

8.  FHA likes first time home buyers

9.  FHA has loan limits.  You can visit FHA loan limits to see what the restriction is for your county.  The federal government recently increased FHA loan limits so be aware that this is in place until the end of 2008.    

10.  FHA requires that judgements be paid off.  Any delinquent IRS, federal or student loan debt will disqualify the borrower.  Make sure your taxes and student loans are current and paid timely.

One of the most common things said when I am talking to a potential client on the phone is “I don’t want you to run my credit because it will drop my score”. This is one of the most annoying statements made when you are trying to qualify a client for a mortgage. You simply can’t give them proper information without reviewing the credit report. So, I decided since how credit scores are calculated are somewhat of a mystery to everyone that I would do some research on this topic.

Each time a consumer applies for a loan, credit card or auto loan, they are having their credit checked. These credit checks are used by lenders to determine if the consumer is able to obtain financing. Every time a lender checks a consumers credit history, it shows up on the consumers credit bureau (Experian, Trans Union and Equifax) as an inquiry. These inquires can drop the consumers credit scores if too many inquiries are made in a certain period of time.

Many lenders rely on the FICO scores they pull when running a consumers credit history. These scores are tabulated by software from Fair, Isaac and Company, INC along with what information on the consumers history. Due to increasing pressure on Fair, Issac and Company to release how their software works, they have released information on how their scoring model calculates a FICO score for the consumer.

Inquires on a credit report are an indicator of risk. And according to Fair Isaac and Company, the more inquires made means the more likely the consumer will not be able to pay his bills. When consumers want to buy or refinance a home, they usually contact more then one mortgage company for information. In order for the consumer to get accurate information from several mortgages companies, they need to have their credit checked by each mortgage company which in turn leads too many inquiries (especially if using an online site). Since too many inquiries leads to lower scores, eventually the consumer could lose out on decent financing because their scores are too low.

Now for some good news and a way to combat that dreaded statement in the beginning of the article. There is a new policy at Fair Isaac and Company, the software will ignore all auto and mortgage related inquiries that occur in the previous 30 day period from the time the credit is checked by the lender. These inquiries will not be used to tabulate the credit score for the consumer. For each 14 day period prior to the 30 day period, only 1 inquiry will be counted no matter how many inquires where made during a particular 2 week period.

Inquiries on a credit report carry the lowest impact on the scores. Things like high balances in relation to credit limit, recent late payments, judgments, and bankruptcy carry more weight in tabulating a score. This information should be very usual to combat the consumers resistance to pulling credit b/c it will effect their scores. Real-estate agents and mortgage professionals need to remind their clients that it is critical to sit down and review credit in order to provide options on the mortgages that they qualify for. This is the only way to provide the client with accurate information.

According to FBI Special Agent, Scott Hunter Las Vegas is called “mortgage fraud ground zero“!  This problem is becoming so wide spread that special task forces have been created to combat the problem.  Every week you read in the paper or view the news about another real estate industry professional being arrested for some type of real estate or mortgage fraud.  Just this month, Cindy Birkland was arrested for alledged mortgage fraud!  According to the FBI, mortgage fraud is becoming one of the fastest growing white collar crimes in the United States!

Mortgage Fraud is usually committed by several individuals who all have a certain role within the scheme.  Usually a loan officer, borrower, real estate agent and/or an appraiser.  The most common type of mortgage fraud is a “straw buyer”.  This is where the bank lends hundreds of thousands on a home that is way over inflated due to an appraiser setting an unrealistic value.  The group splits the money and never has any intention on making any payments on the home.

More to follow…

The dreaded mortgage application process isn’t so scary if you know what to expect. 

Here is a quick breakdown of a few questions that I address during the initial  phone or office  interview and mortgage application:

1.  Have you spoken with any other loan officers regarding this transaction?

I like to know what a borrower has been going through prior to speaking with me.  If there have been several credit reports pulled by other banks, I don’t want to contribute to possibly lowering their score by pulling another report.  I also ask this question because I want to know why the borrower is talking with other loan officers.  Is it a rate and closing cost thing, or did the previous banks not fulfill a certain need or expectation?  It just makes more sense to find out what people want up front, so that I can focus the rest of my time serving their specific need. 

2.  Will this be a primary residence, second home, or investment property, and how long do you plan on keeping it?

These two questions usually start a conversation about the borrower’s intentions and real estate investment goals.  Buying rates down, ARMs vs. 30 yr. fixed, FHA, conventional, seller paid closing costs…..  There are several mortgage opotions to consider for each individual circumstance.  It is nearly impossible to have a productive discussion about rates, programs, and closing costs until you have clearly articulated your real estate investment goals with your loan officer.  It is absolutely acceptable to ask a loan officer what their rates are, however, be prepared to supply a little more information so that your loan officer can apply the best rate that fits your scenario. 

3.  Total monthly payment and down payment you have budgeted for?

Again, back to the needs and goals of the client.  It is common for a borrower to ask a loan officer what they are approved for.  However, you may be approved for more than you actually want. 

Here are a couple of easy forumulas that you can apply  when calculating a monthly payment, down payment, and total purchase price:

Banks look at a borrower’s Debt to Income ratio (DTI) as a factor for mortgage loan approval.  40% is a safe DTI to pay attention to for figuring out what you might be approved for.  This means that your total monthly minimum payments, including the new mortgage, cannot be above 40% of your total verifiable gross monthly earnings.  Credit score, down payment, and assets are compensating factors that a bank will consider for approval if your DTI is above 40%. 

EX:  Total monthly gross income - $2,000

      %40 DTI = $800 a month in total allowable payments

A good rule of thumb for determining a total mortgage payment is by multiplying $70 for every $10,000 loan amount.  I’ve found that this is a safe calculation which also includes taxes, insurance, and mortgage insurance. 

So, for this scenario, the borrower would be approved for a loan amount of around $114,000.  If this borrower had a $200 a month car payment, then the the loan amount would drop to $85,000. 

$800 a month total @ 40% DTI

- $200 a month car payment, leaving room for a $600 a month mortgage payment. 

$600 divided by 70 = 85

85 x $10,000 = $85,000 total loan amount. 

*Remember, that 40% is just a good starting point.  I’ve had borrowers approved up to a 65% DTI who had great credit, a significant down payment, and plenty of assets in the bank. 

So, why do I ask a client what type of mortgage payment they want?  Simple, if they are approved up to $900,000, but only want a $1500 a month payment with zero down, I’m going to let their agent know to stay around the $200,000 - $230,000 purchase price range. 

4.  Employment, residence history, income, and assets. 

Just remember the number 2.  A bank will need two year’s employment and residence history.  As far as conditions, be prepared to bring provide the most recent two bank statemens, W2s, Tax Returns, and pay stubs. 

If you have all of this stuff prepared ahead of time, the application should be smooth and painless.