Each week Freddie Mac—one of the giant Government Sponsored Mortgage Enterprises—releases their “Primary Mortgage Market Survey” or “PMMS”.  For the week ending November 10, 2011 the average 30-year fixed rate conventional mortgage was reported at 3.990%.

Almost invariably the mainstream media will spin this report as “Mortgage Rates Hit All-Time Lows” or “30-Year Mortgage Rates Drop Below 4%!”

You may be surprised to hear that this sort of media coverage causes our phones to ring off the hook.  A typical conversation starts like this:

“I just heard that mortgage rates dropped below 4%.  Why can’t you get me a lower rate?”

This is a very fair question.  Not surprisingly the media neglects to share much of the information that is available on Freddie Mac’s very own website[i].  The reality is that only a small percentage of borrowers are eligible for the rate that is disclosed in Freddie Mac’s PMMS survey.

First off the survey only solicits information from lenders on a very specific loan profile, as follows:

·         A first mortgage “conventional” (lowest available rate) loan

·         On a primary residence

·         With 20% equity (80% “loan-to-value”) in the subject property

·         With an average amount of “points” (one point = a fee of 1% of the loan amount) paid

In addition there are countless other factors that will affect the interest rate that is available to a consumer such as:

·         Their credit score.  At that same 80% loan-to-value a borrower with a 660 credit score would pay 2.5% more in points than a borrower with a 740 score.  That equates to an additional $7,500 in fees on a $300,000 loan.

·         The presence of a second mortgage.  Depending on the amount of the loan the cost here could range from nothing to as much as 1.5% in points just because you have a home equity loan or line of credit on your home.

·         Whether you are just refinancing an existing loan or pulling cash out for any other purpose.  Here again a “cash out” refinance can add nothing, or as much as three additional points, to your loan cost.

·         The property type.  Do you own a condo?  If so it will cost you 0.75% in points more to refinance at 80% loan-to-value than a borrower with a single family detached dwelling.

And the list goes on.  Generally lenders build a good portion of these additional points into the rate that they quote a consumer (because it rarely makes sense for the consumer to have closing costs ramp up into the tens of thousands of dollars).  So let’s use the above and do a hypothetical example:

Bob Homeowner hears the news about the Freddie Mac average mortgage rate dropping below 4% and is excited to refinance his $300,000 mortgage.  Bob figures he owes about 80% of the value of his condo.  He has a second mortgage that puts the total debt on the property to 97% or so.  While he has paid every single mortgage payment on time the tough economy has caused him to miss a few credit card payments here and there so his credit score is sitting around 670.

Bob contacts his existing lender to get his refinance started.  He is shocked to hear that, instead of 3.99% with 0.70% in points—$2,100 in loan fees plus closing costs (the average in the 11/10/11 Freddie Mac PMMS)—he is offered:

·         3.990% with 5.45% in points ($16,350 in loan fees plus closing costs), or he can build some of those costs into his rate and get,

·         5.250% with 1.25% in points ($3,750 in loan fees plus closing costs)

The moral of the story—as is so often true with the media—is don’t take what you hear at face value.  Their agenda is getting ratings not conveying accurate information about your home loan.

The Freddie Mac PMMS is a very useful tool to follow trends in the mortgage market.  If the average rate is down from last week it is almost certain that the available rate for your personal refinance is also down.  But don’t assume that means you are necessarily eligible for the interest rate quoted in the survey.  Contact a trusted local mortgage advisor who can educate and inform you about your personal circumstances and whether or not it makes sense for you to refinance at today’s historically low interest rates.

In a surprising announcement, the USDA Guaranteed Rural Development Home Loan Program announced starting October 1st, 2011, they will begin collecting (charging) monthly mortgage insurance of .3%, but their up front mortgage insurance will be reduced from 3.5% to 2%.

If you are unfamiliar with the no down payment 100% financing USDA Guaranteed home Loan, please give me a call. 

Why is the USDA now charging monthly mortgage insurance? Due to some upcoming nationwide changes to make mortgage lenders more accountable to the loans they approve, USDA implemented this in order to prevent the American tax payer from subsidizing the last true 100% financing no down payment home mortgage program.  It’s very rare for a government agency to not look to the tax payer to fund their program……hats off to the USDA for not wanting to suck the life blood out of the American tax payer.

How will this change reduce your buying power? On a $200,000 purchase using the USDA loan @ 5%, your current mortgage payment will increase $34/month ($1,145 payment) under this new split premium mortgage insurance structure.  Make sure your Lender updates your pre-approval to be sure you still qualify if purchasing later in the year.

Is FHA now a better loan option? Nope.  An FHA loan with a purchase of $200,000 requires a 3.5% down payment….that’s an extra $7,000 you would need to scratch up……unless we can get you approved for one of our FHA down payment assistance programs.  Even with the 3.5% down payment, the monthly payment using an FHA loan would still be $86 more per month than using the USDA loan!

$86 over 30 years means an FHA loan would cost you $30,960 more to purchase your home!  Do you want to pay more for your home?

USDA Loans Will Have Monthly Mortgage Insurance as of October 1, 2011
What Does This Mean To You?

USDA Rural Development and its loan program were designed to help improve the economy and quality of life throughout rural America. The program continues to remain a wonderful option for qualifying homebuyers, with zero down payment required.

But a change is coming!

Beginning October 1, for the first time in the history of USDA, the Single Housing Guaranteed Loan Program will have an annual fee. This fee will be calculated based on the guaranteed loan amount and based on the average annual scheduled unpaid principal balance for the life of the loan.

If you're thinking of purchasing a home and you're wondering if you may qualify for a USDA loan, give me a call right away. Home loan rates are still very attractive. Let's see if this program is right for you...before the October 1 fee begins.

Sincerely,

Jerry Wright
Mortgage Advisory Group

jwright@magloans.net

Over the last few years, the government has funded mortgages as large as $729,750 in high-cost areas throughout the country. Those loan limits were temporarily increased because the economy was struggling and many lenders would have refused to make those loans without the government covering the risk of default.

But now those loan limits are due to expire in just a few short months, on September 30, 2011.

So, why is this a big deal?

Mortgage rates are typically much lower when they are supplied through Fannie Mae and Freddie Mac. When these loans are no longer allowed under Fannie Mae and Freddie Mac, the loans will be considered non conforming (Jumbo) loans, and these usually have a much higher rate because they will be backed by private investors and not Fannie Mae or Freddie Mac.

The bottom line is this: If you are looking to finance a large loan through the government, you need to act quickly before those loan limits are reduced. Get in now or you could be paying higher rates.

Give me a call if you would like more information. I'm happy to answer any questions you have and do what I can to help you secure the home of your dreams.

Jerry Wright MLO 181458

425-238-2095

Can you believe it?  HUD announced today that starting April 18th the mortgage insurance on FHA loans will go from .9 to 1.15% for it's monthly mortgage insurance.  They recently bumped it up from .55 to .9 monthly and now they are raising it again.  This will make the monthly payments for this great first time homebuyer program go up and less will quallify.  This makes no sense at all!

If they want to do something that actually helps the market why not have a program that allows people who make their payments on time and have income to support those payment, to refinance even though they owe more than their houses are worth? 

Superstar REALTOR Terry Moerler has clients fill out a concierge form at home, prior to meeting with them. This helps her better understand those prospects and target their hot buttons. It affords her an opportunity to probe their minds, know their likes and dislikes, and then meet their needs with efficiency.

The more you know about your clients' needs, the better you can adapt your presentation to exceed their expectations. But you must implement a system for gathering this information up front. After the initial information is obtained, you and your team members must collaborate in an effort to collect additional facts. This fact-finding mission forms the foundation for database marketing.

Never presume to know your clients' definition of great customer service. It is more useful to ask what they are looking for and then try to meet those demands. Below are some questions to ask your clients up front:

• Is your existing financial philosophy conservative, moderate or aggressive?
• How many children do you have, and what are their ages?
• When is your birthday, and when is your spouse's birthday?
• What is your favorite type of wine? (Red or white, sweet or dry, American or imported?)
• What is your favorite cuisine?
• What are your hobbies?
• Rate on a scale of 1 to 10 (10 being best) your existing CPA relationship.
• Rate on a scale of 1 to 10 (10 being best) your existing financial planning relationship.
• Rate on a scale of 1 to 10 (10 being best) your existing relationship with your mortgage lender.
• Rate on a scale of 1 to 10 (10 being best) your existing insurance situation.
• Do you currently have a Will or Living Trust?
• Do you currently have a college education fund established for your children that allows you to grow your money tax free?

Imagine the tremendous marketing value of knowing intimate details of your clients' needs and circumstances!

Many Real Estate professionals feel that open houses are too time-consuming. Frankly, they are time-consuming. But I can provide assistance as a mortgage professional on hand to field many questions for you regarding financing options.

Even in a booming market, homes don't sell themselves. I would like to be an ally for you and assist you at your open house events by providing answers to questions about financing on location. I am prepared to help you roll out the red carpet for your upcoming open houses with the following info-marketing materials:

• Pre-qualification on the spot
• Sample financing options for the property
• Current "Hot List" of loan programs
• Information about the credit scoring process
• Tips for credit cleanup
• First Time Home Buyer's Guide*

As a follow-up, I can also provide pre-approval for prospects so they may shop as a cash buyer. Your seller will receive legitimate offers through this process, and I will be able to weed out any unqualified prospects. I have a sophisticated database management system for follow up, and I ask many questions about each prospect's long-term goals. This enables me to get a clear picture of what type of financing is best for them, and work with them as an advisor rather than someone who simply quotes rates and provides the debt.

It is important for you to know that my policy is as follows: My job just begins when the client's loan closes with me. I continue to monitor rates for the borrower and stay focused on helping them manage this debt. In addition, I send out a friendly quarterly newsletter, a financial newsletter, and follow up with an Annual Mortgage Planning Review. At any time throughout the life of their loan, my clients are advised to inform me of any changes which might affect their financial situation, at which point I provide them with spreadsheets to help them see what their options are.

Let me know when you would like me to work an open house with you, and provide me with the property information so I may prepare relevant materials to outline financing options for the home.

Studies indicate that over 80% of today's home buyers visit the Internet long before seeking the professional assistance of a REALTOR®. This means that, thanks to popular realty-themed websites that compete for your business, your clients are already armed with more information than ever before.

That's why today's savviest real estate agents must change their perspective and fight back. And the best way to do this is to visit and become familiar with these kinds of sites and the features they offer. This data will not only prepare you to answer any questions your clients might have, it will allow you to provide a more complete service that your clients will want to recommend to all of their friends and family members.

Property Listings & More

1) Redfin.com: In addition to listings, this site offers information such as how long a home has been for sale, its last sales price, and its current value. It also provides virtual tours to listed homes.
2) Trulia.com: Like Zillow.com, which offers satellite views and the estimated values of each home, Trulia's "heat maps" show how hot or cold an area is based on prices, sales, and popularity among its users. Trulia.com also has free tools real estate agents can easily add to their own websites to increase functionality and traffic.
3) Maps.Google.com and Bing.com/maps: For a bird's-eye view, even 360 degrees in some cases, these amazing map sites offer a virtual perspective of available homes that's truly hard to beat.
4) Walkscore.com: Is an interesting site that rates any address based on the walking distance of its nearby stores, restaurants, schools, parks, coffee shops etc.
5) SchoolMatters.com: A Standard & Poor's company, this site offers parents (and potential home buyers) an objective rating of public schools and public school districts by region, including test scores and demographics. GreatSchools.net offers similar info and ratings on private schools based on region.

Government Websites: Government loan programs offer great opportunities for many consumers in many regions across the country, especially first-time buyers and veterans. The following websites are likely one of the first of many sites potential home buyers visit during this process:

1) HUD.Gov is the official website for the U.S. Department of Housing and Urban Development (H.U.D.) This site lists HUD homes and provides information for home buyers, including financing options and home buying programs available through the Federal Housing Administration (FHA).
2) Homeloans.va.gov: This site houses information about government home loan programs specifically for veterans.

Give me a call if you think of any more sites I should add to my list. I look forward to developing ways that we can grow our business together.

Most of us are sales people when you get right down to it. Our job is to sell our services - and ourselves - as we strive to add more clients to our existing book of business. The unfortunate fact is that most of us are in such a hurry to sell our services that, in the process, we forget to do the most important thing relative to sales.

Remember the quote from Bill Gates? The most important thing we can do is gather as much information as possible and understand what our customers need. From there, we can construct a presentation that has a high probability of giving them exactly what they want and hitting the bull's eye.

We've all heard of The Golden Rule, "Do unto others as you would have them do unto you."

I prefer to consider The Platinum Rule which states, "Do unto others the way they would want you to do unto them."

The only way to accomplish this is by asking intelligent questions up front when speaking to clients and making a better effort to understand them. Here are some examples of questions you should be asking clients at your first meeting:

1. What are your hobbies?
2. Do you have a clearly defined investment strategy?
3. Would you consider your investment strategy to be conservative, moderate, or aggressive?
4. How old do you want to be when you are financially independent and completely debt free?
5. Do you currently have a college fund set up for your children?
6. What is most important to you about the relationship you are seeking with someone in my profession?
7. What is your preferred form of communication during this process?

If you had honest answers to all of the questions listed above, on every one of your clients, wouldn't you stand a better chance of being able to provide them with what they need, thereby ensuring they will be clients for life? Wouldn't they also refer more of their family, friends, and co-workers to you?

It's staggering when you think about the cost of living, especially if you're a renter and not a home owner. If you are currently paying $1,000 a month for rented housing, then over the next three years, your property management company will effectively have reaped $36,000 of your hard earned cash! You're paying their mortgage when you could be building equity in your own property.

What if I don't have the money to buy a home right now?

There are many loan programs available that offer low and no down payment options. Some programs permit gift money as a down payment, and often sellers are willing to make a contribution to your purchase if they want to sell the home quickly.

There are many benefits of home ownership to consider, most of all, tax deductions. Let's take a look at how advantageous this can be as a homeowner:

How much is tax deductible?

Tax deductions vary, but the IRS has laid out solid rules. They also have several tax publications full of helpful information worth taking the time to read. Publication 530, Tax Information for First-Time Homeowners, is very thorough, as is Publication 936, Home Mortgage Interest Deduction. For quick reference, you can refer to Tax Topics 505, Interest Expense, and 504, Home Mortgage Points.

These publications often refer to local and state guidelines, so you may want to consult a CPA to answer all the questions that arise from reading these materials. Here are a few tips you should know up front:

Real Estate taxes are deductible on a primary residence. Real Estate taxes are paid at settlement or closing, or through an escrow account.

Mortgage interest is deductible on a loan to purchase, build or improve your home. Your lender will provide you with a Mortgage Interest Statement (Form 1098) to list the total interest paid during the year. This should include any deductible points paid for that year.

Pre-paid interest is deductible in the year it is paid. At the close of a real estate transaction, borrowers usually pay for the interest on their loan that falls between the closing period and the first of the next month. Mortgage payments are made "in arrears" so when a loan is closed mid-month, there is interest due to the new lender which must be paid in advance.

If you are building a home, the interest on the construction loan is deductible. The construction period cannot exceed 24 months prior to the date that you move in if you claim this as your primary residence.

Call me to discuss your specific needs and we'll find the program that's right for you.