Mortgage Rates on the Rise

Since the housing crash, mortgage rates have been artificially low and were due to regress.  While many mortgage experts predicted that mortgage rates would increase in 2013, the recent rapid increase in mortgage rates has been quite shocking.  In a three-week period in June, rates increased a full percentage from 3.625% to 4.625% on a 30-year mortgage term.  Although rates began to stabilize in July, many homebuyers fear that interest rates may continue to rise.

The recent rate increase has led to a reduction in the number of refinance applications, however it has not impacted purchase applications or new home sales similarly.  Although rates are higher now than they were in early June, rates are still quite low when we consider historic standards.  With the possibility of interest rates continuing to rise, it may be a good time for interested homebuyers to consider purchasing now. 　　

For pre-qualified applicants who are searching for a new home, I suggest that you speak with your Loan Officer to determine whether your approved loan amount has decreased.  You should be aware that if you are looking to purchase a house at the top end of your budget and at your highest approved loan amount, the increase in interest rates will decrease the highest loan amount that you can qualify for.  It will also increase your monthly mortgage payment.  For example, based on a $200,000 loan and a 30 year term, a　one percent interest increase would raise a mortgage payment by $116 per month.  Higher rates may not be ideal, however Ocean Communities Federal Credit Union has programs available that will allow buyers to purchase a home with little or no money down.  Our CU Realty program also offers homebuyers a rebate that can be used to reduce their closing costs.

Refinancing for a Lower Rate: How Much Do I Need to Reduce My Current Rate to Make Refinancing Worthwhile?

There are several good reasons to refinance your mortgage such as consolidating debt, getting cash out, extending your term for a lower monthly payment, but I think the rate/term refinance is my favorite.　 It often puts members in a better financial position both in the short-term and in the long-term.　 But, how low should a mortgage rate be to make refinancing a worthwhile decision?　 I have heard several different theories on what the interest rate savings needs to be for refinancing to be advantageous.　 Some say the magic number is a 0.5% rate reduction.　　 I’ve also heard the rule of thumb is 1% off your current rate.　 However, I’ve even heard it must be at least 2%, as well.

With all these differing views, here are a few factors that I think are important for you to consider:　　

Your current mortgage balance

- The greater your remaining balance, the more you will benefit from refinancing and obtaining a lower mortgage rate.

The cost of refinancing

- Financial institutions often allow you to add in all of your closing costs into your new loan.　 However, closing costs do exist (even when you are only looking to pay off what you owe on your existing mortgage) and can be expensive.　 Closing costs will include a full appraisal, a new title examination, lender’s title insurance, processing fees, underwriting fees, and other necessary miscellaneous fees.　 These fees will increase your loan amount, which decrease your equity.

The remaining term on your loan

- As with the mortgage balance, the　greater the term you have remaining on your loan, the more you will benefit from a lower interest rate.

Whether you have plans to sell your house or pay off the entire loan in the near future

- If the answer to this question is yes, you will need to calculate potential interest savings over the estimated time you plan to keep your loan, rather than the entire loan term.　 The longer you plan to stay in your home without paying off the loan, the more a rate/term refinance will benefit you.

As you can see, I do not believe there is a specific numeric rate reduction needed to refinance.　 Every situation is different.　 As long as you are not extending the term on your loan, the decision is really simple math. 　If you lower your interest rate, you will lower your monthly payment.　 This will create a savings over the course of the remaining loan term.　 With the current record low mortgage rates, your savings can be significant and in many cases, refinancing is a no-brainer.　 You can benefit from these savings in the form of a lower monthly payment or you could chose to keep a similar monthly payment and benefit from the savings in the form of a shorter term.

A great exercise to see what your potential interest savings may be is to research the current mortgage rates and　use　a mortgage calculator online to compare your current mortgage to what your new mortgage would be if you refinanced.　 Below, I’ve included a sample calculation to demonstrate this for you.

　

Example　of Interest Savings Exercise:

　

Current loan balance:　 $150,000

Remaining term:　 180 months (15 years)

Current rate:　 5.375%

Current monthly payment:　 $1216.03

Current total payments amount:　 $218,884.88

　

VS.

　

Proposed loan balance with closing costs:　 $153,000

Proposed term:　 180 months (15 years)

Proposed rate:　 2.875%

Proposed monthly payment:　 $1047.58

Proposed total payment amount:　 $188,563.92

　

Current Total Payment Amount $218,884.88 – Proposed Total Payment Amount $188,563.92 = $30,320.96　Savings

　

In this case, is it worth it to add in the closing costs to your loan and go through the refinance process?　 As you can see, you could potentially save more than $30,000 over the next 15 years by refinancing. In my opinion, the answer to this question is yes.　 Because this exercise is an easy step in helping you consider refinancing, I would suggest taking a few minutes to plug in your numbers and check out your potential savings.

It’s never too early to start preparing for your approval

A common theme I see in denied purchase applications is members not positioning themselves to be approved for their first mortgage loan in advance.  I so often hear statements like "If I had only known about that earlier, I could have taken care of that by now."  But, after they do take care of the item and get their credit file in order, it may be too late to buy that starter home they had their eye on.　

CU Promise loans, VA loans, FHA loans, and Rural Housing loans are all great examples of loan programs designed to get people into homes with little or no money down.　 Each loan program has varying qualifying standards but many look at the same qualifying factors such as credit score, debt to income ratio, loan to value ratio, and cash reserves just to name a few.

　

Here are a few tips that can help you put yourself in position to be approved to buy your own home:

• Make sure you have at least three trade lines reporting on your credit report for at least 12 months – Open a share secured loan or a share secured credit card if you are falling short of the three trade lines needed.
• Get your credit score up to at least 640 – Dispute any incorrect information reporting on your credit report and make sure the dispute has been resolved before starting the application process, pay your monthly bills on time, and clean up those collections.
• Save money – Even if you are approved for 100% financing, you may still need to pay for closing costs or leave yourself with two months worth of cash reserves in the bank.
• Employment stability – If using either self-employment or employment income to qualify for the loan, you will need to show two full years of employment history in the same line of work.
• Get pre-approved for a loan before shopping for your home

It is an ideal time to take advantage of the current buyers’ real estate market while mortgage rates continue to stay low.　 Call 1-800-418-1486 to speak with a Mortgage Loan Officer who will be happy to find the loan program that will best fit your needs.

Home Rebate Program

Ocean Communities FCU is proud to announce that on August 15^th, 2012 we will be rolling out yet another service that has great rewards for our members and non-members who are interested in buying or selling a home.

We will be partnering with CU Realty to bring their services to Maine for the very first time.  The process is easy and FREE!

1.REGISTER:  

Online at: www.oceancommunities.com/

realestateservices or call us toll free

at 1-800-418-1486 and we will register

you.

2. Search: Through the Multiple Listing

Service (MLS) for homes like realtors do.

3. Select an Agent: Select a REALTOR^®

from our pre-approved network of trusted

agents.

4. Close & Save: When you buy or sell

real estate using one of our agents, you

will receive your rebate* at closing.

HERE IS WHAT YOU GET:  By using our services which includes a realtor from our trusted network of realtors, on your closing statement you will earn a rebate of 20% of your realtors commission which is applied towards your closing costs . . . simple . . .  .and it’s FREE!

Home Sale Price	Rebate to Member
$150,000	$900
$200,000	$1,200
$300,000	$1,800
$400,000	$2,400

REBATE DISCLAIMER: Rebate examples shown are based on a 3% commission rate. Since agent commissions vary, your rebate figures may adjust accordingly.

PROGRAM DISCLAIMER: Program rebates are awarded to buyers and sellers who select and use an Agent in the CU Realty Approved network. Members are not eligible for the rebate if they select an agent outside the CU Realty network. Using your Credit Union for a mortgage is not a requirement to earn your rebate although they are often your best choice for mortgage options. Rebates/incentives are available in most states; however, are void where prohibited by law or by the lender.

Today in Lending

Very recently there was yet another change by the Federal Housing Administration (FHA) that you want to know about if you are considering using FHA to buy a home in the future.

FHA, which has been around since 1934 is basically a government (Department of Housing and Urban Development (HUD)) entity which insures lenders money in cases of loss from default. FHA allows for financing of up to 96.5% of the purchase price of a home or appraised value whichever is lower.

On April 9^th the FHA increased its fee structure which gets passed along to the borrowers who use them. FHA charges a one time fee known as Upfront Mortgage Insurance Premium which is increasing from 1% of the loan amount to 1.75%. So for instance on a $100,000 loan request the fee used to be 1% of that $100,000 which translated to a $1000 fee, but now in the same scenario it is 1.75% of the $100,000 loan request translating to a $1,750 fee.

Along with the Upfront Mortgage Insurance Premium, FHA also charges a monthly Mortgage Insurance Premium that is collected with your monthly payment and these premiums too are rising. Premiums on a $100,000 loan request prior to the recent change had an estimated $95.83 monthly mortgage insurance premium, but today that premium would increase to $104.17. Less then a $10 increase for that scenario but the difference becomes more prominent as the loan request increases. Historically, it was just about a year ago (April 4^th, 2011) when FHA last increased their premiums.

FHA still offers a great way to buy a home with little money down, but Ocean Communities FCU has some other great products where costs could be much less for you. I suggest you contact one of our experienced mortgage loan officers and ask about our CU Promise Products which offers more features you will enjoy outside of the costs savings.

New Home Buying Mortgage Program You Should Know About:

Our CU Promise Programs are expanding to now include 100% financing! In the past few years, programs for buying homes have diminished due to changes in regulation along with other risk factors that lenders take into consideration.

There are a lot of homes on the market but just not enough buyers. The economy has hit everyone hard, so the majority of home buyers lack the down payment needed to buy it. Up until now! FHA offers high loan to value financing and requires just a 3.5% down payment plus closing costs, but it comes with fairly high private mortgage insurance* premiums. USDA offers 100% financing for those that qualify but comes with a 2% charge to obtain the 100% financing. VA offers a 100% financing for veterans, but comes with a fee of over 3% of the loan amount.

Ocean Communities FCU is proud to say that we have a new home buying program that offers 100% financing as well. Our CU Promise 100 comes with no add on fees to obtain the 100% financing (of the purchase price) other then the normal private mortgage insurance premiums when financing over 80% of the homes value. Will everyone fit into the program? Well no but it is a great addition to all of the other products available to home buyers that wish to speak with our knowledgeable Mortgage Loan Officers.

If you recall me speaking of CU Promise in the past, our borrowers enjoy this program because the servicing of your mortgage is guaranteed to be serviced in Maine for the life of the loan. A very important feature, especially if you have had a mortgage before, or any type of installment loan or credit card you have tried to call when you had a question that was out of state.

The other CU Promise Programs are made up of: CU Promise 97 which is a 3% down payment program and most importantly our CU Promise 90 which requires 10% down payment of the purchase price but requires no Private Mortgage Insurance coverage. Normally you need to pay 20% down to avoid the need of Private Mortgage Insurance but with CU Promise 90 we just need 10% down.

March is usually the time of year when we start thinking about spring which usually brings out the home shoppers. Please contact one of our Mortgage Loan Officers as soon as possible so we can get you preapproved and ready for when you find the home you want to make that offer on. Call 1-800-418-1486 and allow some time to speak with a Mortgage Loan Officer that will help find the loan program best suited for your needs.

*Private Mortgage Insurance (PMI) – A necessary insurance for mortgages when financing over 80% of the value of a home. It is a 3rd party insurance that will require approval once all loan conditions are in, the appraisal has been complete and the Underwriter has a Title Commitment for the property you choose to buy. PMI will automatically cancel itself after your loan balance reaches 80% of the original value. There may be other ways to cancel out the PMI after a certain amount a years but this ability varies with PMI companies so please ask your Mortgage Loan Officer. As stated earlier our CU Promise 90 loan does not require PMI if 10% is put down.

Why would I choose a shorter term for my mortgage?

There are many different reasons to buy homes, whether you are the first time homebuyer looking for a place of your own, looking to start a family or even looking at the purchase as an investment, they all carry the same loan products and terms but there are differences.

By choosing a shorter term not only does it generally offer a lower rate, but there may be even lower costs as well. For conventional mortgages (the use of Freddie Mac or Fannie Mae directly) these entities charge what is called "loan level pricing adjustments" or "post settlements delivery fees." These fees can impact you in a number of ways. An example would be if you want to finance for 30 years, have a credit score between 720-740 and are putting down 20% for your purchase there is additional fee of .50% points (equates to $500 on a $100,000 loan). For the same scenario but choosing a 15 year term, there is no fee.

Another way to look at it, if you can afford to handle a shorter term, is how much you will repay over the life of the loan. Look at this example:

Scenario 1.  $150,000 loan @ 4% for a 30 year term.

Scenario 2.  $150,000 loan @ 3.25% for a 15 year term.

Scenario 1 offers a monthly principle and interest payment of $716.12 a month. Now if you make your payment on time each month you will pay $257,804 over the life of your loan for your investment.

Scenario 2 offers a monthly principle and interest payment of $1,054 a month. The payment would be higher in this scenario because the term is half as long although not drastically enough to make you not consider it right? Here is where you would save - the repayable amount if you made your monthly payment on time each month is $189,720. This option saves you over $68,000.

Always look at the picture from every angle to find out what is right for you now and in your future because buying a home is truly an investment. One common thought I hear is that "I want the lowest payment". Well, we all do, but my example shows a good reason that it may be better to go a different avenue if your budget allows. Another advantage to look at a shorter term is that if you know the home you are buying will not be your last, the shorter term allows you to pay less interest, therefore paying the principle balance down quicker. If you stay in the home for 5 years and made your loan payments on time, Scenario 1 from above would have your payoff around $132,445 after the five years and Scenario 2 would have the payoff around $98,580. That means that if home values stayed the same since you purchased the home, you would receive more money back from the sale of the home in Scenario 2 to use towards your next home.

Lenders charge different fees

It is important to know the estimated cost of doing business upon completion of your mortgage.  No doubt that borrowing money today is a bit more difficult due to the increased guidelines lenders must adhere to, but when you get approved for a mortgage there is no better time than now to borrow money due to low mortgage rates.

Below are some questions to ask your lender but be prepared with questions of your own.  The right lender to choose will have great programs to offer but most importantly will take the time to listen and address all of your questions.

It is also important to know that different loan programs have different fees as well as the lender you choose.  Here are some good questions to ask when approaching a lender about mortgage programs:

1. Do you charge application fees, and if so, what happens with them?
1. Application fees are gathered mostly because of the increased amount of costs the lender faces to maintain and complete a compliant loan file.  Ocean Communities collects a $375 application fee for Single Family Residences, however this fee is credited towards closing costs as long as your loan closes with us.
2. How do you get compensated to do loans and will it be included in my costs to do business with you?
1. Mostly referring to commissioned based lenders such as Mortgage Brokers, they generally get paid by delivering loans to larger Banks by charging additional fees or receiving compensation directly from the end Bank.  This is also known as Yield Spread Premiums.  Yield Spread Premiums are not part of your loan, nor do borrowers pay this fee, it comes directly from the end Bank.
3. What risks do I face moving forward with my loan?
1. Simply put, issues can and do happen.  If appraisals for properties come in low it could prompt changes to the loan meaning a possible additional down payment, change of loan program, additional fees, etc.  It is important to know the risks you could face.  If you are already preapproved, generally the issues that you run into are with the home you are buying.  Be proactive and get a home inspection done of the property prior to your contractual commitment of a Purchase and Sale Agreement.
4. Do I pay for the fees out my own pocket or can they be included in the loan?
1. When buying a home very seldom do you have the ability to finance the closing costs.  A good negotiating tip would be to request the seller pay for some or even all of the closing costs, but keep in mind if the seller receives multiple offers on their property and you request costs to be paid and someone else doesn’t, well, who would you choose?

I hope you find this information helpful.  Happy Holidays!

Mortgage Loan Advisors...more than just a rate

Why has shopping for home financing become so difficult?

What’s the point of shopping for a great rate if the loan process is so cumbersome that it delays your closing?

Great questions, I am glad you asked!

The most important aspect of buying a new home is finding the right Mortgage Loan Advisor. In the complex, ever-changing mortgage world, it is important to find a Mortgage Loan Advisor that is up to date on lending guidelines and understands the importance of finding the right product for you. 

If so, how do you find the right Mortgage Loan Advisor?

Simply by asking questions… Asking how long someone has been in lending is not even remotely offensive. You want a knowledgeable Mortgage Loan Advisor that has access to the right resources in order to answer your questions in a timely manner. An experienced Mortgage Loan Advisor should clearly lay out the loan process in a detailed manner. You should have a rough idea of the timeframe of when you should be hearing from the Mortgage Loan Advisor. Also, be sure you always have their contact information available in case they fail to respond. I know that not every question can immediately be answered. Personally, when I have a question that my Mortgage Advisor cannot answer, I expect that they will respond in a timely fashion once they consult their resources. From the Mortgage Loan Advisor’s standpoint, there are certain aspects of the loan process that a time frame can only be estimated. However, a qualified Mortgage Loan Advisor should update you as soon as he/she receives any pertinent information.

Keep in mind that Mortgage Loan Advisors are not Underwriters- however, they should be able to identify the majority of risks you may face when applying for a mortgage loan. For instance, many people are confused about what can be used for income. A common mistake regarding income is including overtime income for your mortgage application; overtime income is not considered for your mortgage application unless you have been receiving overtime income for the past 2 years. Again, that is just one an example of the numerous potential risks, so be sure that your Mortgage Loan Advisor carefully reviews all potential risks during the application process.

Ocean Communities FCU takes pride in its knowledgeable staff.  Each Mortgage Loan Advisor has been through extensive training, and is constantly being updated on mortgage trends, and lending guideline changes.  Don’t get me wrong, rates are important too, but without having the right Mortgage Loan Advisor that rate is just a number. 

Foreclosed Home Buying Tips

Just like most things, the foreclosure market has its pros and cons. Therefore, the best way to approach it is to do your homework and research.

The most important step you can take in preparation for buying a foreclosed home is to become pre-approved for a mortgage-thus realizing your purchasing power. Becoming preapproved is a simple step; all you need to do is contact one of Ocean Communities knowledgeable loan officers with the following documents and licenses:

1. Drivers License
2. Most recent paystub(s)
3. Two years of personal tax returns including all w-2’s
4. Two years of business tax returns (if applicable)

Foreclosure sales are a great way for a buyer to get a home at a great price. However, there are some things one should know and look for when considering this option:

1. You should make sure to choose a Realtor that has worked with these types of sales before. An experienced Realtor will know what to look for when trying to negotiate the price of the home, along with setting realistic expectations throughout the process.
2. Foreclosed properties are sold in an “as is” condition. This is extremely important to know because most financing options will not allow you to close on your mortgage to buy the property unless the appraisal report reflects a flawless property. Appraisers have to ensure that everything is in working order and the property is “move in” ready. If the property needs to be worked on (examples: painting, trim, flooring repair, etc), it will need to be done prior to closing. Lets say you accept a contract in an “as is” condition and you need financing to buy the property. If the property ends up needing work, you risk losing your earnest money deposit or you will have to renegotiate with the selling bank to see if repairs can be made (which adds time to the process before you can close). 
3. If possible, find out who the selling institution is.  This is good to know because if a smaller bank is selling the property, less people are generally involved with the decision. Therefore, the response time to your contract negotiation and loan closing is much quicker. If the selling bank is a larger, recognizable bank, you should work with your realtor to understand realistic time frames for responses. This process can take anywhere between weeks and month, so it is recommended you consider smaller banking institutions.
4. Title costs for foreclosed homes can be extremely high. Most foreclosed homes require a Class D Survey that confirms that the property boundaries have not changed from what is listed on the Title. Improper right of ways or encroachments of structures by neighbors could alter these property boundaries. In addition, the Title has a record of all liens from past to present on the property. If the property has been vacant for some time, additional items may need to be cleared up by the Title Attorney.

Mortgage Rates: How low can they go?

It is official: mortgage rates have dropped to their lowest levels since 1951. This makes borrowing money to buy a home the cheapest it has been in the past 60 years. Whether you are buying your first home or upgrading to a home better suited for you, it is definitely the right time to buy.

By briefly looking at recent mortgage rates, potential borrowers can see that these rates really are extremely low. According to www.data360.org, the average 30 year fixed rate in September of 2006, just 5 years ago, was 6.40%. Let’s first look at a scenario using the mortgage rate from 2006:

Loan amount - $150,000

Loan Term – 30 years

Rate – September 2006 6.40%

*Repayable Amount - $337,773

Let’s look at the same scenario with TODAY’s 30 year fixed rate:

Loan amount - $150,000

Loan Term – 30 years

Rate – 4.125%

*Repayable Amount - $261,710

This scenario illustrates that a borrower would SAVE $76,063 when comparing today’s mortgage rate to the mortgage rate in 2006.

These rates will not be around forever, so if saving money is important to you, I suggest you stop by an Ocean Communities Branch near you.

*Repayable Amount – This figure assumes that a borrower will make their monthly payment on its due date each month for the entire loan term.

Low Mortgage Rates: Nothing Lasts Forever….



history of the national average interest rates since 1985



Mortgage rates continue to hover at extremely low levels. For instance, today’s 10 year fixed rate mortgage is 3.25% and today’s 30 year fixed rate mortgage is 4.50%. Borrowing money to refinance or purchase a home has rarely, if ever, been so cheap. HOWEVER . . . . . Don’t wait too long as history always proves, "nothing lasts forever."

On August 9^th, 2011, the FOMC (Federal Open Market Committee – the policy making branch of the Federal Reserve) will meet once again to discuss interest rates. The FOMC uses the Federal Funds Rate* as its primary tool to influence interest rates and manipulate the economy. If the FOMC decides to change this rate, it will most likely increase, meaning money will become increasingly expensive to borrow. Though it is unlikely that the increase in the Federal Funds Rate will be drastic, one can never be sure of anything. This Committee meets roughly every six weeks to discuss interest rates so don’t gamble too much longer!

Let us at Ocean Communities FCU help you see if homeownership is right for you and take advantage of great rates while you still can. If you currently own a home, it is a great time to restructure your balance and pay back less interest- who doesn’t like to save money?

*The Federal Funds Rate is the interest rate in which depository institutions lend balances to other institutions overnight or basically the rate in which depository institutions charge each other for loans.

　

　

What you need to know about rate locks

Generally, two key questions should come to mind when speaking with a Loan Officer about a rate lock:

1. When can I lock my rate?
2. Does it cost money to lock my rate?

Rates are still at historic lows, but have become increasingly volatile with the global market challenges affecting our own stock market. It is important to be comfortable with a payment and to lock in your rate when you are able to. Who wants the unpleasant surprise that rates have increased, leading to an increase in your monthly payments. A rate lock is a commitment between you and the lender that basically puts funds on hold until the loan officer has all the paperwork necessary to close on your loan. A conventional rate lock generally lasts for 45 days. If you are refinancing a current mortgage, access to lock you rate is usually given at the time of the initial application approval. Yet if you are buying a home, this access is not granted until you have fully executed a Purchase and Sale Agreement and have signed your Intent to Proceed Disclosure.

Costs to lock your rate will vary, so a great question to ask upfront is, "How much will it cost to lock my interest rate?". Rate locks do cost money, as this is a reservation of federal funds that guarantees your loan rate. Costs can either be fixed or a percentage of the loan amount. At Ocean Communities FCU, we absorb the cost to lock your rate as long as you close your loan with us. This benefit and savings is truly appreciated by our members. If , however, you lock your rate with Ocean, but then choose to do business with and lock your rate with a new lender, Ocean will pass along the fee that it was charged for reserving the federal funds at the time of the rate lock. This fee can vary, so it is good to ask before you act.

LOAN ALTERNATIVES FOR FHA

The Federal Housing Administration (FHA) has been around since 1934 as part of the National Housing Act, and has provided many people the opportunity to own a home with little down payment.  The minimum down payment required by FHA today is 3.5% of the sale price, a very affordable avenue to any borrower. 

Part of the expenses of receiving a loan from FHA is insurance to cover the loan amount (not homeowners insurance).  FHA insurance payments include two parts: an upfront mortgage insurance premium (UFMIP) or one-time payment and “annual mortgage insurance premium” which you pay every month.

On April 18^th 2011, FHA will be increasing its annual mortgage insurance premiums for new loans submitted on and after that date.  The Up Front Mortgage Insurance Premium (UFMIP) of 1% of the loan amount (collected at loan closing) will still remain unchanged.

Ocean Communities is very proud to be able to offer such a great program that has helped so many over the years, but to assist with the rising cost of funds, PLEASE, make sure you know about our CU Promise 97 Program.

CU Promise 97 has features truly designed to help Ocean Communities FCU borrowers save those hard earned pennies.  With CU Promise 97, we require just 3% down payment, and there is NO Up Front Mortgage Insurance Premium (UFMIP)!  The monthly or annual mortgage insurance premium (which is needed because you are financing over 80% of the value of the home) is stable.

To show you how much the CU Promise Program could save you compared to FHA let’s look at the following scenario:

Purchase Price of a home at $200,000:

FHA – 3.5% down Payment ($7,000) + UFMIP of 1% ($2000) = $9000

CU Promise 97 – 3% Down Payment = $6000

CU Promise 97 would save our borrower $3000.

(Keep in mind there are additional closing costs with both scenarios, however, I did want to compare the area where a lot of the down payment and costs are derived from between the two types of loans.)

How much is too much house?

With the amount of inventory still increasing, there are a lot of homes on the market to choose from.  Buying a home is very exciting, but don’t get caught up in the game of extra amenities that have a higher sale price.

Generally speaking, most home buyers secure a 30-year note when obtaining financing.  You have to agree, 30 years is a long time, so also visualize that there is enough time to add amenities as years go on and not get tied down with a large payment for amenities you “have to have now.”  Be patient.  Talk with one of Ocean Communities staff members to discuss a Savings Plan designed for your future needs.

A tip for your home buying experience would be to review what you feel you can afford.  Because you may be “preapproved” for a certain amount, doesn’t mean that is what is best for you – this is something you will need to decide after you take a close look at your budget.

Lenders will look at your housing ratio as a factor on whether or not a loan amount may or may not be right for you.  Your housing ratio is the ratio between your proposed housing payment (principal, interest, taxes, and insurance) and your gross monthly income.  (Example: $1500 housing payment / $5000 gross income = 30% housing ratio)  Generally this ratio is desired to be around 29%, but can be higher and still get approved.

Keep in mind that you don’t take home gross pay; you take home net pay, which is the pay after taxes are taken out.  So technically, the ratio is higher when you are comparing the actual money you take home each week versus the monthly housing payment that will be yours for the next 30 years.  Homeowners will also face utility bills, home maintenance, etc. to keep up with for the time you own your home.  A lender doesn’t calculate utilities, maintenance, or items like that when approving you for a loan, so it doesn’t hurt to complete your own analysis of what you can afford!

Safer mortgage process with the SAFE Act

Since 2007, mortgage lending has evolved with necessary regulatory changes to protect both consumers and lenders.  There is a new change in place that will require mortgage originators to have more training.  These changes balance the educational requirements for mortgage originators, which ensure the consumer is speaking with someone who understands loan programs, lending guidelines, and so on.

What is a Mortgage Loan Originator?

For the purposes of the SAFE Act (see below), a mortgage loan originator (MLO) is defined as:

An individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain. An individual real estate licensee acting within the meaning of Section 10131 (d) or Section 10131.1(b)(1)(c) of the Business and Professions Code (B&P) is a mortgage loan originator with respect to activities involving residential mortgage loans.

In a layperson’s terms, an MLO is the person or institution you work with to get your mortgage financing, such as a mortgage broker or a mortgage banker.

How is the consumer protected?

Consumer protection is a very important aspect to the mortgage originating process.  Ocean Communities FCU and its MLO provide adequate time to make sure you are educated about the products you might qualify for, and how each of them may impact you in their own way.  Generally speaking, most mortgage notes are for 30 years.  That is a long term commitment, so please take the time and ask questions, shy away from impulse decisions, and really think your options through.  Ocean Communities FCU wants what is right for you and your family.

The National Credit Union Administration (NCUA) regulates Credit Unions, and recently the NCUA has adopted the SAFE Act of 2008, which requires all MLOs to be registered with the National Mortgage Licensing System (NMLS).  This system tracks the performance of all registered MLOs and make sure each complies with the regulations set forth in the SAFE Act.  Every loan application taken by a MLO will have to include the MLO’s unique identification number for NMLS tracking purposes.  All MLOs across the country will need to be registered with the NMLS by July 29, 2011.

If you are shopping for a loan after that date, do not hesitate to ask to see this unique identification number to assure yourself you are talking with someone that has the expertise to answer your mortgage questions.  A common place where the unique identification number will be found is on the MLO’s business card.

What are the actual costs in closing costs?

If you have even started thinking about buying a home, there is a good chance you’ve heard the term “closing costs,” but I know that many people have questions about what they are and how they are calculated.

I talked about closings and closing costs in previous posts, but here I’ll talk about what actually makes up the closing costs.

The “closing” on a house is a meeting between the buyer, seller, and lender when the house and money legally change hands.  At your closing, both the buyer and seller may pay closing costs. The Real Estate Settlement Procedures Act (RESPA) of 2010 changed how closing costs are shown.  Therefore, even if you have bought a house and been through a closing before, it’s probably a little different now.  RESPA was passed so that people buying houses could more easily compare “apples to apples” when it came to mortgage brokers by requiring different language and the same definition of terms. 

Below is an explanation of all of the different types of fees and costs that make up your final closing costs and where that money goes.

·         Loan Origination Charge – In short, this is the money to cover everything that the lender does to make sure you close on time and get your mortgage.  This fee is where most of the RESPA changes were made.  Before RESPA, many items listed in this section were shown separately, but today they are clumped under “loan origination fee.”

• Loan origination fee– The origination fee is sometimes shown as a percent (%) of your loan.  It is a tax-deductible cost.  It is the amount of money that you are paying the lender to do all of the work involved in deciding, making, and then supporting a loan.  
• Application fee – This is a fee that you pay to have the lender consider loaning money to you. 
• Processing fees – The processing fees are charged by the lender as a way to cover some of the costs of the work that goes into making a loan.  Lenders may have to make long-distance phone calls to verify your employment and speak with you, create files using office supplies, and maintain these.
• Underwriting fee – Like insurance, mortgages have underwriters.  This fee covers the costs associated with underwriting the loan.
• Funding fee – Typical on VA loans, the funding fee covers administrative costs similar to the processing fee. 

·       
 Title Services Fee – Like the “Loan Origination Charges”, RESPA affected the way these fees are listed as well.  The Title Services Fee is a new way to bundle the following group of fees:  

•      Document preparation fees– When you close on your house you’ll see that you sign a lot of pages of paper!  Three sets of copies are made of these papers, along with other sheets of office notes that you do not have to sign.  The document processing fees cover the costs associated with copying and mailing all paperwork.
•     Title/Abstract search – The title search helps make sure there are no problems with the title (see my previous blog post about titles.
•     Title examination/Title insurance binder– This is insurance that will protect the lender (and owner, if an owner policy is purchased) if anyone brings a lawsuit against the title on the house. 
•      Settlement fee – This covers the cost of the services by the closing agent for the closing.
•      Lender’s and buyer’s attorney – A lawyer typically works behind the scenes on many house closings and mortgages to make sure that everything is following current real estate law.

·         Survey fee – This money pays for someone to come and make sure the land or property you are buying has not been built on or taken over by the neighbors accidentally or on purpose.  This makes sure you know exactly what is yours and what belongs to your neighbor. 

·         Legal and recording fees or transfer fees – This money is sent to the country clerk and state to change the name of the owner (and person who owes money for the taxes) and record the sale price of the home in the official record. 

·         Property taxes– Property taxes are pre-paid by the seller.  When you buy the house, part of the closing cost is a “tax adjustment”.  This basically means that you are paying the seller back the amount of taxes that he or she has pre-paid.      

·         Per Diem interest – At closing, you will need to pay the interest on your loan from the closing date to the date the first payment is due.

·         Flood certification – Before you buy a home, the lender will make sure the home you are buying is not in a flood zone. The flood certification charges cover the costs to have an expert review where the property is located.

Be prepared for closing - and make sure it is done on time!

Buying a home is one of the biggest purchases of your life.  It is exciting – but can also be stressful.  Mortgage Lending as a whole is one of the most regulated types of lending that one will endure.  Much of the regulation is to help protect you, the borrower.  When you get a loan, you will be asked to verify funds to close, and provide payroll information, etc. 

The process behind the scenes (with the lender) is an ongoing detailed process that is generally not finalized until 24 hours prior to closing.  Many professionals work together to make this happen for you: your Realtor, Loan Officer, Underwriter, Appraiser, Title Attorney, and Closing Agent.  Closing on time is one of the most important features Ocean Communities offers to its borrowers, so we are involved as a lender with all parties to do what it takes to get you into your home when you expect to be.

You can be prepared for what you might face at the end of your loan process if you do the following:

Keep your Good Faith Estimate (GFE) close by.

Your GFE is the summary of your estimated closing costs associated with your Mortgage Loan Application.  A GFE is not required to be presented to a borrower until a Purchase & Sale Agreement has been presented to the Lender.  Anytime your loan request changes (increased loan amount, loan program change, and rate change) a new GFE must be delivered to the borrower.  It is important to keep the GFE handy because the costs on this Estimate have to be within a specific range of the costs on HUD Settlement Statement.  (See below)

 “There are three categories in the Comparison Chart (page 3 of the HUD Settlement Statement) Charges that could not increase at settlement, changes that in total could not increase more than 10% and charges that could change.  Compare the charges listed in the GFE column with the charges in the HUD column.  If the charges that cannot increase have increased or the total of the charges that cannot increase more than 10% have exceeded the 10% increase limit, the lender must reimburse you at settlement or within 30 days after settlement.” - From the HUD Settlement Booklet

Understand your costs due at closing.

A HUD Settlement Statement is generally available to a borrower 24 hours prior to closing, which allows time to collect the certified funds check for the amount that is required at closing.  Because a Title Attorney or Closing Department has to prepare such a statement, it is normal not to have an exact amount due at closing until that time, but your Loan Officer should be able to provide you with a rough estimate.  Because Escrow Accounts are regulated by guidelines as well, this is the biggest reason for the Settlement Statements delay.  The one preparing this closing document has to know a date of closing and have collected tax bill, and homeowner’s insurance binder to ensure the Escrow Account has collected enough funds at closing and with the monthly payment to ensure future tax payments and insurance policy renewals get paid on time.

Work with a lender that has a track record for closing on time.

A delay in closing can mean a great deal of inconvenience and additional stress.  There are several credit unions in Maine, including Ocean Communities FCU, that offer a wonderful program called CU Promise.  CU Promise is backed by 3 guarantees that as a buyer should be looking for:

• Guaranteed Same-Day Decision
• Guaranteed Closing Date
• Guaranteed Local Servicing

All about titles

As a specialist in mortgage lending I often get asked by friends and family, “Do I really need to get a title search?”  While my answer varies based on the type of property being purchased, I’ve found that most people struggle with the legal language surrounding the title search and title insurance process.  I thought I’d try to explain some of these items in layperson terms in my post this week.  


What is a real estate title?

A title is like a deed on a car. The title for your house is simply the document that shows what the property and everything on it are and what you can and can’t do with it.  An important thing to know about titles is that the title holder is often the owner (but not always!).  

What is a title search?
A title search is a process that is performed primarily to determine the answer to three questions:

1.      Does the seller really own the house and is he or she able to sell it legally?

2.      What can the owner or other people (like neighbors) legally do with the land: can they have businesses? Build fences? Walk on it with their dog? Leave a snowmobile in the front yard? 

3.      Is any money owed on the property for past taxes, mortgages, or is the property part of a deal between a previous owner and someone else? 

A title search may uncover a number of possible problems such as:

Real covenants – a legal promise to do or not to do something with the land.  Examples are having a business on it or building a fence, etc. If a covenant is broken then the person who breaks it may owe the person they promised money.

 

Easements – meaning someone other than the owner of a piece of property is allowed to use it. 

Servitudes – this is when there are rules made by a homeowners’ association, subdivision developer, or community about what you can and can’t do with the land.

Liens – the property is acting as protection against someone not paying a loan.

What can I do if I’m nervous about a title?

Purchase title insurance.  Title insurance will protect and pay back the owner if anyone brings a lawsuit against the title on their house (if someone is owed money or use of your property by another owner and it is tied to your land or house). 

Flood insurance

In 1968, Congress created the National Flood Insurance Program (NFIP) in response to increased costs of tax payer funds for flood victims and increasing amount of damage by floods.  An administration under the Federal Emergency Management Agency (FEMA) manages the NFIP.

If you are looking to buy, build, or improve any dwelling / structure that is located in a flood zone (also known as Special Flood Hazard Areas) you will be required to purchase the appropriate flood insurance.

From a lender’s stand point your coverage will have to meet one of the following:

·       Coverage to the  maximum coverage amount ($250,000)

·       Coverage to the loan amount

·       Coverage to the value of the structure in the flood zone

A lender obtains flood certificates for every mortgage request.  The certificate is derived from mapping completed through FEMA of the property in question, and provides the answer of if the property is located in a flood zone or not.