The Do’s and Don’ts of Getting a Mortgage

Most borrowers want their mortgage closing to be simple and stress-free. That is why it is important to avoid the behaviors that can have an adverse effect on the mortgage application process, and to do the things that keep your financial picture frozen in a stable position until the loan closes.

Follow the basic steps below and you should have a worry-free experience when going through the mortgage process:

Do: 

• Continue making your mortgage or rent payments: Late payments on existing mortgages, car loans, or student loans are reported to the Credit Reporting Agency (CRA). A thirty day late payment can cost a potential homeowner several points on their credit score.

• Stay current on all your existing accounts: You can still use credit cards during the home buying process, but it is important to keep them in good standing.  Any deviations from normal spending patterns can seem suspicious.

• Keep working at your current employer: It is important to keep your income and employment information consistent during the mortgage application process.

• Keep your same insurance agency: Keeping your insurance agency the same is an essential step to making a smooth mortgage application process.

• Continue living at your current residence: Keep your contact information the same.  Changes in residence can show instability, which can negatively affect the mortgage closing process.

• Call your loan officer if you have any questions: If you have questions during the loan process, feel free to call me directly at 410.491.0200 or email at sepstein@baybankmd.com.

Don’t:

• Quit your job: Don’t make changes with your employment or income.

• Change bank accounts: Don’t make changes to your financial accounts.

• Open a new cell phone account: Don’t make changes to your contact information. Also, some cell phones plans rely on credit scores.

• Make unusually large deposits into your checking or savings accounts: Deposit amounts that are out of the ordinary will raise questions from the underwriter unless the deposit is a documented gift. Similarly, don’t make large transfers from one account to another.

• Make changes to the purchase contract: Don’t make changes to the purchase contract without first consulting your lender.

• Make large purchases (car, jewelry, boat, etc.): This can also include starting large home improvement projects, furniture, joining a fitness club, or financing any elective medical procedures.

• Apply for a new credit of any kind: It is important to not establish any new lines of credit during the loan application process, whether it is a credit card or a new loan.

• Finance furniture purchases: Furnishing a new house can be exciting.  However, some furniture retailers offer credit extensions for purchases. This can also affect your credit score.

• Pay off charge offs or collections without speaking to your mortgage lender: Paying off old collections can cause a drop in credit score.  Your mortgage loan officer will tell you to make a payment if it is necessary to secure the loan.

• Pay off loans or credit cards: Don’t pay off any loans, credit cards, or outstanding debt without first speaking to your mortgage lender.

• Close credit card accounts: Closing any credit card accounts can affect the debt to available credit limit ratio. Wait until after the mortgage has closed to cancel any credit card accounts.

• Max out or over charge credit card accounts: Once potential homeowners are engaged in the mortgage process, it is important to keep credit cards below 30% of the available limit.

• Consolidate debt: Consolidating debt can change the debt-credit ratio to where it becomes over 30% of the available limit.

For more information, please contact Stuart Epstein at 410.491.0200 or email at sepstein@baybankmd.com.

Credit Scores: The Report Card for Grown Ups

Credit reports are a lot like school report cards.  Both measure how well you are performing using various numerical grades, such as a 4.0 or a 750, and both have to be approved by a person in charge, whether it is a parent or a home lender.

If you’re not a straight A student in Credit 101, here are some tips for making the grade during the home buying process.

1. Types of Credit:   The three most important types of credit are mortgages, student loans or other installment loans, and auto loans.  Credit bureaus place the most weight on these three types of loans when determining credit score. As such, late payments on these are the most detrimental to credit scores.
2. Credit Cards:   Credit bureaus want to see credit card usage, just not too much. The balance from revolving debt, such as credit cards, should not exceed 40% of the maximum amount.  For example, if your credit card limit is $1,000, try to keep the balance below $400.  The goal is to keep the debt to available credit limit ratio low, even if that debt is spread across a few credit cards.  It is better to have two credit cards with balances below 40% of the limit, than to have one card that is always maxed out.  In reference to multiple credit cards, the optimal number of credit cards to have is 3 to 4. 
3. Credit Score Criteria:   Lenders use stricter criteria when pulling credit reports for potential home buyers.   As a result, there is often a small difference between the borrower’s individual score and the lender’s score.  For example, a potential home buyer pulls their credit score with Experian and sees that their score is 700.  It is possible that the lender’s credit report for the borrower may show only 680.  The small discrepancy is related to the type of credit inquiry, explained below.
4. Credit Inquiries:   Credit inquiries are another factor that affects credit scores.  Inquires can be from various types of creditors, and are often classified as either “hard inquires” or “soft inquires”.  Soft inquires are those that are not being reviewed by a prospective lender.  These include checking your own credit, or credit checks made by businesses to offer you goods or services. Hard inquires are those that are reviewed by a potential lender for the purpose of extending your credit for a loan.

Having your credit pulled too often, and by too many different types of creditors will lower your scores.  The credit bureaus do not view “applying for everything” as a responsible decision. The only exception is if you are rate shopping.  Credit bureaus understand that while rate shopping you may have your credit report pulled by various lenders in a short amount of time, so they rarely give you a hit on your score.

For more information about your credit “report card” and how it is used during the home buying process, please call Stuart directly at 410.491.0200 or email at septstein@baybankmd.com.

Credit Score Limbo: How Low Can You Go When Buying a Home?

Applying for a home loan with a low credit score can feel like playing a game of limbo.  Having a mortgage application denied can feel like being in limbo. 

Borrowers that do not initially qualify for a mortgage due to their credit score can shorten the time they are in credit-rebuilding-limbo with a few simple steps.  Although, it might be helpful to first understand how credit scores are used when buying a home.

Lenders pull a tri-merge credit report from all three bureaus for each potential borrower.  All lenders use the middle score, which for many lenders needs to be no less than 640 in order to qualify a borrower for a mortgage.  

If the applicant’s score does not meet the cut off, the lender will then try to determine the cause of the low credit score.  Collections and judgments are common causes of low credit scores, and must be paid before the mortgage application can be approved. 

Medical collections are different.  Medical debt that collectively adds up to less than $1,000 does not have to be paid off in order to be approved for a mortgage, so long as that debt does not affect the credit score.  Lenders will vary on this rule.  You should ask your lender about medical collections before you do anything with them.

Some creditors will take longer to update paid debts than they do to turn over the debt to collections in the first place.   In this instance, the lender can use written proof that the debt has been paid.  The document must show all the account information, borrower name, and company letterhead.  For the revolving debt, or credit card accounts, the credit bureaus like to see you utilize your revolving credit, but not too much.  It is suggested that the balance remain under 40% of the credit limit to ensure the outstanding debt can be handled and paid timely.  As always, if you remit more than the minimum payment, it is looked upon in a positive manner to show the bureaus continue credit worthiness.

Completing this step is sometimes all it takes to increase a borrower’s credit score that fell just below the cut off.  If a borrower’s credit score is too far below 640, than they may be in credit-rebuilding-limbo for a while. There are still additional ways to speed up the process.

Potential borrowers can gather up documents that show they have been regularly paying their debts, and overnight them with return receipt requests to each of the credit bureaus.  The credit bureaus will then research and update the borrower’s credit score. This usually occurs within a few months.  

Lastly, borrowers may not have to pay off all of their debt in order to qualify for a mortgage. There is a calculation system, available to some most lenders, which allows them to see how credit scores would be affected if the borrower paid off a percentage or the balance of their debt.  Although it is not a certainty, it typically helps borrowers know where they need to be in order to take out a mortgage. 

As the potential borrower pays off their debt and gathers documentation, it is always good to stay in contact with the mortgage loan officer and/or the person that is assisting you in repairing your credit.

If you have any additional questions about how credit scores affect the home buying process, please call Stuart directly at 410.491.0200 or email at septstein@baybankmd.com.

Understanding the Home Appraisal Process

Both homeowners who are selling their home and potential buyers are often confused by the home appraisal process.  

Sellers often feel that their home is worth a certain amount especially if they upgraded their home, made improvements or added amenities.  On the other side of the process, a potential buyer may have found their dream home for X amount and wonder if the house is really worth that much. 
These questions and concerns are at the heart of home appraisals. 

At its core, an appraisal determines the value of taxable property or property that appreciates; such as fine jewelry, art, businesses and land.  A home appraisal is simply the opinion of a state-licensed third-party professional whose expertise is in determining the value of the land and buildings or structures contained on the property. 

In residential properties, the appraiser will usually compare the sales cost of other properties in the area.   However, the appraiser will also evaluate the lot size, square footage of finished and unfinished spaces, condition of the property and features like a garage or fireplace.

When it comes to home improvements, it is important to remember that there is no set amount associated with upgrades.  The appraised amount of any upgrade could very well be less than the cost the homeowner paid for the upgrade.  Again, appraisers will look to other properties in the neighborhood with similar upgrades to determine the value.

For example, a homeowner may spend $25,000 on a swimming pool but if the local marketplace can only support a $10,000 pool, then that upgrade will be marked on the appraisal as $10,000.  This is the reason why homeowners should choose their upgrades wisely.  

Lenders determine appraisal guidelines in order to force appraisers to attach a fair market value on a home based on comparable sales.  Comparisons are based on the most recent six months of market activity and often examine closed or pending sales of at least three similar properties.   This process prevents appraisers from over-valuing the home in question; a practice that some believe contributed to the 2007 housing bubble.  Recent Federal rules have been instituted to prevent lenders from having influence over the appraiser’s results by requiring non-interested third party services to select and communicate with the appraiser prior to its completion.

Although the home appraisal process protects the lender from unnecessary risk, it also protects the buyer from overpaying on a house. 

If you have any additional questions about the home appraisal process, please call Stuart directly at 410.491.0200 or email at septstein@baybankmd.com.

Lean Green Mortgages

Going green isn’t just a trend anymore; what started as a not-so-cost-effective environmental movement is now proving to have a twofold benefit, both to our wallets and Mother Nature.  

Most people want to save on their electricity bill.  Double-pane windows, low-wattage lights, better insulation, programmable thermostats, and smart appliances all contribute to reducing a home’s carbon footprint. 

But could an energy efficient home lower your mortgage payments?

The Institute for Market Transformation (IMT) partnered with the University of North Carolina in a study released on March 19th 2013.  The study found that Energy Star homeowners are 32 percent less likely to default on their mortgages.

The results of this study may prompt lenders to reduce the monthly mortgage payment when considering how energy efficient a home is. 

Lenders compare monthly expenses to monthly income when assessing lending risks.  For years, lenders assumed that smaller utility bills from energy efficient homes would reduce lending risk, but there was never any hard data to back up the claims.  Lack of study metrics, and small survey pools yielded inconclusive data. 

For the recent study, the IMT researchers looked at a real estate database from CoreLogic in order gather a sufficient sampling.  In an effort to make the study more controlled, researchers factored in metrics such as the borrower’s credit score, the size and age of the home, local unemployment rates, and local climate and energy prices.

The study examined 71,000 single-family, owner-occupied homes across 38 states and D.C. between 2002 and 2012.  Real estate statistics from California was unavailable due to privacy laws and the real estate data from Alaska and Hawaii deviates substantially from the rest of the continental US, so these three states were left out of the sample.    

Approximately 35 percent of the homes sampled were Energy Star-certified. 

The study measured loan default based on the percentage of homeowners who fell behind on their mortgage by 90 days or more.  Foreclosure laws differ from state to state making measuring default based on this indicator relatively tricky. 

The “urban legend” that lenders had assumed to be true, did indeed turn out to be true: homeowners of energy efficient homes were 32 percent less likely to default on their mortgage.   It is likely that having a couple of hundred extra dollars a month in a homeowner's pocket from energy savings could make well-insulated, tightly sealed homes a safer bet for banks.

However, there could be other factors contributing to these results. Since these homes tend to be more expensive, it is possible that a person who pays a premium for an energy efficient home may also be someone who is already more financially stable or astute than a conventional home buyer, even despite the fact that the study factored in a homeowner’s credit score,

Ultimately, this report could benefit homeowners looking to lower their mortgage. Lenders could better assess risks and offer attractive rates to encourage people to buy efficient homes. 

If you have any questions about this topic, don't hesitate to contact us. You can call us at 410.491.0200 or email at septstein@baybankmd.com.

Mortgage Insurance is Once Again Tax Deductible

There’s a saying that Americans love to quote, “The only thing I have to do is die and pay taxes.”

Well, with tax season coming up, it’s time to focus on the more positive part of that short list.

One area that everyone likes to review is the deductibles, and it’s worth knowing as much as you can before you file your income taxes.

If you haven’t heard about the American Taxpayer Relief Act of 2012, you may want to pay attention.

The act declared that borrower-paid premiums on mortgage insurance are tax deductible through the end of 2013.

Like any deductible, there are a variety of facts you should know before claiming this deduction.
The loans that qualify for this deduction are referred to as “acquisition indebtedness.” In layman’s terms that’s money borrowed to buy, build or substantially improve your residence. The same residence must secure the loan.

Purchase loans and refinance loans are included under this heading and can be as high as the original acquisition indebtedness.

This deductible is the same among all loan types and the money used must be for a qualified residence. The IRS code defines residence and it usually includes the primary, and secondary nonrental home.

Finally, in order to qualify for this deduction, households must have an adjusted gross income of $100,000 or less to deduct 100% of their mortgage insurance premiums. For each additional $1,000 of adjusted gross income above $100,000, the deduction decreases by 10%.

In the case of married individuals filing separate returns, each must have adjusted gross incomes of $50,000 or less to deduct 50% off of their separate returns. For each additional $500 of adjusted gross income over $50,000, the deduction decreases by 5%.

Whenever you take a deduction on your personal income tax, it’s wise to be very careful and thoroughly review the guidelines. In the case that you take a deduction by accident, you might be penalized or audited.

Hiring a licensed tax preparer, or consulting with an experienced and knowledgeable tax attorney can help you avoid penalties and audits, and file a tax return that’s correct and processed quickly.

Debt’s Impact On Your Mortgage

When you apply for a mortgage, the lending institution will conduct research on the debt that you currently carry. This could be anything from a loan for a car to how much you owe on your credit cards.

The credit card debt that you carry can have an enormous impact on the amount of interest you’ll pay on your mortgage, and if it’s too high, you may not even be able to qualify for the mortgage.
Credit cards provide people with the chance to purchase products they need, along with products they want. Whatever you purchase should be paid off within an acceptable period of time.

Companies who issue credit cards report your debt and payments to regulated agencies that in turn create your credit rating. Failure to pay off a credit card, missing payments, or having too many cards can negatively impact your credit card score.

When you apply for a loan, the institution runs a credit report and looks at several different parts of the report.

The first is the debt to income ratio, or DTI. This measurement shows how much of your debt you pay each month in comparison to your monthly income.

A low DTI is a positive sign that you are meeting your debt every month, and a high DTI might dissuade a lender from granting you a loan. Remember that lenders like to see a DTI of below 43% typically, so it’s wise to pay down your debt if it’s currently high.

A second area of the credit score is debt utilization, which measures the ratio of your credit card balance to the card’s actual spending limit. Cards that are maxed out, or near their limit, drag down your credit score.

Obviously, a bad credit rating isn’t what you want. If you’re faced with this dilemma, meet with a financial advisor or planner and to determine the best route to take. You may need to consolidate debt, or halt spending until you can successfully pay off the bulk of your credit card debt.

Remember that you don’t want to get rid of all your credit cards! Banks and lending institutions need to see some record of experience managing debt. Once you’ve cleaned up your credit rating, use the card each month but be sure and pay off most of the debt.

Using credit cards to obtain certain products and services is a way of life, and they provide a resource that should be used wisely. If you think your credit rating could impact your opportunity to get a mortgage, consider finding a reliable financial advisor.

Many times, this advisor works with you to consolidate the debt, while still keeping one or two credit cards open and active. The secret is maintaining the right type of balance that shows lenders you can safely borrow money, and still pay it back on a regular basis.

A Mortgage Primer

Purchasing a house or a piece of property is one of the biggest investments you can make in your lifetime. Your home is the place where you feel safe, and where memories are created.

For many homeowners, a mortgage is an expense that ranks at the top of monthly financial duties. In many cases it might represent the biggest bill you have to pay on a regular basis.

But what exactly is a mortgage?

And how does it work?

It’s not uncommon in today’s world for homeowners to have a vague understanding of their own mortgage and its many components.

Starting from the beginning, a mortgage is a loan made by a bank or lending institution. The principal is the actual amount of money that you borrow from the bank. The interest is the fee you pay to the lending institution or bank for borrowing their money.

Generally there are two types of mortgages – one is a fixed rate and the other is an adjustable rate mortgage (ARM). The fixed rate mortgage has an interest rate that will never change for the life of the mortgage.

Conversely, the ARM has an interest rate that varies over time, and it can fluctuate depending upon several other factors, including the economy, the state of the housing market, and the stock market. ARMs can be tricky to understand, and aren’t typically recommended for first-time buyers.

At the beginning of a mortgage term, which can range from 10 years to 30 in most cases, you’ll be making payments every month. The majority of each payment will go towards the interest, and a smaller part will pay the principal.

Over the time of the loan, the formula changes and more of your monthly payment will go towards the principal versus the interest.

Another component to the mortgage payment is property tax. This tax is calculated by the government every year and varies depending upon where your home is located. Taxes are used to fund everything from police departments to maintenance on bridges and roadways.

Part of the money you pay every month is collected by the lender and placed into what’s known as escrow. This money is then paid out at the end of the year to take care of the taxes.

Insurance represents another piece of the mortgage payment and is collected every month and also placed in escrow. There are two types of insurance, one is for property and protects your home against threats like fire and flood.

The second type of insurance is Private Mortgage Insurance and must be paid by borrowers who put down less than 20% of the actual price of the home or property. Known as PMI, this insurance allows the lender to sell the mortgage to other borrowing institution, who purchase them with the assurance that the debt will be paid.

Mortgages are key for anyone who wants to own a home. Knowing how they work, and what to budget for them each month is financially responsible and key to making sure your home or property is secure.

Contact my office for more information by either email or phone, 410.491.0200.

The CityLIFT Program Explained

Many people would rather own a home than rent one.  The choice is easy; you are investing your hard earned money into home equity rather than a putting it into a landlord’s pocket.  But the truth of the matter is that many people have been impacted by our economy’s financial crisis and no longer have sufficient savings for a down payment on a home.  For this reason, Neighborhood Housing Services of Baltimore has implemented CityLIFT. 

The CityLIFT program provides up to $15,000 in down payment assistance or closing cost funds to eligible homebuyers who are purchasing a home within Baltimore’s city limits.  

Although Wells Fargo partnered with NeighborWorks America to provide the funding for this grant, eligible homebuyers do not have to go through Wells Fargo to issue the loan.  In fact Carrollton Bank is now an approved CityLIFT lender.

CityLIFT assistance requires obtaining a first mortgage.  A first mortgage is just a different type of mortgage that has priority over all the other claims of the property.  It does not mean that you have to be a first time homebuyer. If you currently own a home, you must sell it before closing on your new home with CityLIFT assistance.  Your current home cannot be rented or leased. 
 
Eligible CityLIFT homebuyers must be at or below 120% of the Area Median Income for Baltimore City.   There are different income limits depending on the size of your household.  In addition, any borrower on the mortgage must also be an occupant of the house.   

CityLIFT funds are structured as a “soft second” mortgage.  It is a 0% interest loan which is forgiven 20% each year for 5 years.  This is why part of the program requirements are that homebuyers must agree to maintain the home as their primary residence for at least 5 years.

In order to close on the house, potential CityLIFT participants must complete homebuyer education through a third party counseling agency that has been approved by the Department of Housing and Urban Development (HUD).  Some of the topics that are covered in the CityLIFT counseling session are budgeting and credit, financing a home, shopping for a home, and maintaining a home.

If you believe that you qualify or are interested in learning more about CityLIFT assistance please contact our team and we are happy to assist you. You can contact us by phone, 410.491.0200, or email, sepstein@carrolltonbank.com.

You can find a packet that explains the program here.

The Return of the Housing Market – This Time It’s for Real!

In the past five years the state of our nation’s economy has been tumultuous, to say the least. Everyone – from politicians to financial experts – has their own views on which economic indicators are the most accurate for determining true growth.

Of course the housing market is one of the top indicators mentioned, along with the bubble that burst several years ago, and almost doomed the nation to another depression.

But lately, this market is showing real signs of growth – not the kind of rapid expansion that leads to bubbles, but dependable, measurable progress that benefits the economy, and more importantly, people looking to purchase homes.

The Commerce Department recently released numbers in October that indicate builders broke ground on homes at a rate of 894,000. That’s a 3.6% increase from September!

While it’s definitely a great start, delving deeper into another indicator brings even more good news. That indicator is the cost to rent a house and the cost to purchase one.

The price to rent a house and buy one should rise at the same rate over an extended period of time, but when rents rise faster than home prices, it’s a strong sign that the housing market is picking up steam.

Rising rents shows that people realize that the money they’re paying for rent could be used to pay a mortgage. Owning a property is always a smart investment, and because it’s a long-term commitment buyers usually feel secure in the stability of their job and the national economy.

Housing markets across the country are already showing an improved comeback, and unlike other events in the past, it’s a steady growth. This is much better than a bubble because bubbles – as we all know – burst.

Taking a look closer to home shows that the same phenomena in nationwide markets are also true in our area. The growth has been stable, and as new homes are built and purchased, the positive ripple is felt throughout the economy.

Now that we’ve established the housing market is beginning to show signs of growth, it’s worth looking at what purchasing a new house can bring to a person’s overall financial situation.

Of course, purchasing a house is an investment, but remember it’s an investment that will increase in value over the years. Even better, it’s an asset that pays immediate dividends in terms of a place to live and raise a family.

Local homebuilders are already breaking ground on new homes, and that means the inventory is expanding. This provides potential buyers with many opportunities, including the option of having a home designed and built specifically for you.

Whether you’re purchasing an existing home, or looking at new developments, you need a lender that provides excellent financial packages with competitive rates and dependable, accurate insight into the housing market.

Spring Housing Market Update for Baltimore Metropolitan Area

Written by Stuart Epstein

It’s hard to believe that we are into May already!  I will say that I am happy to report that the first four months of 2012 have been one of the busiest that we have seen in a long time in the Baltimore area home buying market.  We are up by 9% over 2011 for purchase mortgages, and an average purchase price of $200,000, compared to $187,000 for the same period last year.  Many people are starting to realize that home prices may have hit their low point and interest rates could not be more attractive than right now.  For example, the average rate on an FHA 30-year fixed rate loan right now is 3.5% and a Conventional 30-year fixed at 3.875%.  Our refinances have more than doubled for the first four months of 2012 over 2011!  This is mainly due to rates being at an all time low.  Many are reducing the term from 30 years down to 15.

The majority of the new applications are 1st time homebuyers, who happen to be in the best position right now, given they have no house to sell as a contingency for buying.  They also have the benefit of receiving 1st time homebuyer grants and incentives, such as the CDA loan with DSELP (Maryland Mortgage Program) and the FHLB grant. 

We are also seeing more “step-up” buyers, those who are selling their current home and upgrading to a larger or superior home.  Since inventories of sought after homes on the market seem to be shrinking, some sellers are finding it easier to get contracts on their houses in a couple months.   Some areas are actually experiencing bidding wars again.

The mortgage qualifying and documentation standards have continued to get more and more restrictive, which can make for a stressful process when applying and taking out a loan these days. The good news is that qualified borrowers can still get a loan, and at historically low rates.  It just may be a bit more painful getting to settlement. 

I may sound like a broken record, but the key is having a good, reputable, local lender working for you to make the transaction as smooth as possible. 

If you own a home and have not refinanced in the last year, make sure you check with your lender to see if it makes sense for you to refinance.  There are several programs available to help: the FHA Streamline Refinance, the VA IRRRL Refinance and the Fannie Mae DU Refi Plus programs all have flexible guidelines to help those who may not have the equity normally required to get a lower rate.  If you are not sure if it makes sense for you to refinance, or if you are not sure if you can, don’t hesitate to call (410.491.0200) or email us to do a free analysis.

Enjoy the beautiful spring weather!

New FHA Changes Effective April 9th, 2012 – Is it a Game Changer?

Have you heard that there are changes coming on FHA mortgages, but unsure how they will affect you or your clients?  Here is a simple breakdown of the changes:

Up-front Premium – 30 year mortgage

• Existing Up-Front MI premium (financed into the loan)  - 1% of loan amount
• New Up-Front MI Premium effective April 9th  - 1.75% of loan amount

Monthly MI – 30 year mortgage

• Existing Monthly MI rate      - 1.15% assessed annually
• New Monthly MI rate effective April 9th    - 1.25% assessed annually

What does this mean?  Let’s use an example to demonstrate the new FHA change:
On a $200,000 home purchase, under the existing structure, the payment (excluding property tax and insurance) on a 30 year fixed rate loan with an interest rate of 3.75% would be $1088/month.  Under the new plan effective April 9th, the payment will go to $1110/month. 
So on a $200,000 purchase; it will cost you $22 more a month for an FHA mortgage AFTER April 9th. 
The good news is the required down payment will still be the same.  In this example, that would be $7000 required down.  Don’t forget that if you are a 1st time homebuyer, you may qualify for help with down payment, like the FHLB or the Maryland Mortgage Program, just to name a couple.
There are different FHA mortgage insurance rates when the down payment is greater than 5%, and also for 15 year mortgages.  If you would like a breakdown of these rates and how they may affect financing, don’t hesitate to ask the Stuart Epstein team to provide you with the numbers.
Also, if you have 5% to put down, you may want to ask us to help you compare the costs and benefits of Conventional financing as an alternative to FHA.  Depending on credit and other factors, you may save a ton on money by knowing ALL of your options!
Lastly, stay tuned for exciting refinancing benefits coming in June for those with existing FHA mortgages…
Happy House Hunting!

Please contact the Stuart Epstein team if you have any questions! Call us 410.491.0200 or email me directly at sepstein@carrolltonbank.com.

Shopping for a Mortgage in Maryland? Get A Good Faith Estimate - And More Importantly, Understand What It Means!

I hope you find this post to be a helpful tool that can save you thousands of dollars in up-front fees and interest over the life of your loan by making you an expert at mortgage shopping.

The federal government has taken positive steps over the last few years to regulate the disclosure requirements for mortgages from lender to consumer.  One of these is the implementation of the Good Faith Estimate (GFE), which is mandated for lenders to provide you once you have made a formal application.  The down side is that this 3-page standardized form can actually make the numbers more confusing (in my humble opinion).  Because lenders know this, most will give you some type of Fees Worksheet in addition to the GFE so you can see the entire transaction in a more basic format.

The GFE (or Fees Worksheet) provides you with a comprehensive picture of the entire transaction (if done properly by your lender).  On the typical Fees Worksheet, you will see everything from the purchase price to the interest rate, all the closing costs, down payment, the mortgage payment, and the cash needed for closing. 

The worksheet is usually broken down into these sections:

1.       The lender section – this includes the fees that the lender charges to originate your loan.  These typically include application fees, processing, underwriting, wire fees, origination fees and points.  Ask your lender to show you which fees on the estimate are “their fees” so you can compare with other lenders.

2.       The third party fees directly related to the financing - these will include the appraisal, credit report, flood certification, and any mortgage insurance premium applicable to your loan.  These should be easy to compare.  The lender does not mark up these fees; they are what we call “pass-through” expenses, but they can be different between lenders, depending on who they use.

3.       Title Company’s fees - these will include the attorney fee, abstract, lenders and owner’s title insurance, and other fees that the title company incurs to process the transaction.  You get to pick your title company for settlement, so you have control over these fees, but a good lender will use conservative estimates in this section to make sure you are seeing realistic numbers.

4.       Miscellaneous costs that you will likely incur, but are up to you to decide who you will use, and how much you will pay.  These items include things like the home inspection, termite report, and realtor admin fee.  Again, a good lender will show these items on the estimate so you can see everything you will incur, even though they may not be required.

5.       Lastly, ‘prepaids’ and reserves - these are the property taxes, homeowner’s insurance and prorated interest.  Because taxes and insurance are paid in advance, there is a certain amount that has to be collected at settlement to reimburse the seller for taxes prepaid, as well as a cushion in your escrow account to pay the next bill when it comes due.  Make sure your lender goes over this section in detail with you so you understand how this works.  This is probably one of the most confusing components of the estimate.  If your lender is good, they will explain it in a way that makes complete sense.

The end result of understanding your estimate is that you will know exactly what to expect from a ‘cash out-of- pocket’ standpoint as well as what your mortgage payment will be.  It will also give you the tools you need to compare lenders and see what you are really paying.  You will find that there is much more to it that just simply an interest rate.

Fortunately, the Stuart Epstein team knows how important it is to educate our customers and we take time to go over the estimate and make sure you are well informed and comfortable with all the numbers.  Our job is to take away stress from the process, rather than add to it. 

We have mortgage solutions for everyone, from 1^st time homebuyers to seasoned investors.  We lend in Maryland, Virginia, West Virginia, Pennsylvania, and Delaware.

Let us become your mortgage consultants for life!

FHA 203(k) LOANS – BUY AND RENOVATE YOUR HOME ALL IN ONE EASY LOAN – WITH A GREAT RATE!

Suppose you find a house you absolutely love, but it needs an updated kitchen or bathroom, or just simply needs new carpet and paint…well no worries!

The 203(k) loan allows you to acquire the “fixer-upper” and make it your own.  The 203(k) program is perfect for buying dated properties, foreclosures, or short sales that have been neglected or need some TLC.

There are two types of 203(k) loans – the regular 203(k) and the Streamline 203(k).  The main difference between the two is dependent on the scope of the repairs/renovations and consultant requirements.  If your scope of work exceeds $35,000 or includes items like mold remediation or major structural changes to the property, it requires a full 203(k).  You will have licensed 203(k) consultant help you by providing a feasibility study, assist you in developing  your scope of work for the property, and they will provide you with a budget and bid package so you can select a contractor and know what to expect from a cost standpoint.  This is especially helpful for those who are not as experienced in doing home renovation projects.  If your list of repairs/renovations is less than $35,000 and does not require a consultant, then the Streamline 203(k) simply requires you obtain estimates from licensed contractors and you are on your way!

If you have any questions about this wonderful program, please let me know.  I have been processing 203(k) loans since 2003 and would love nothing more than to share my knowledge and experience with you, walk you through each step of the process and help you achieve your goal of buying and renovating a home to make it into the home of your dreams!

Don’t forget, we lend in Maryland, Pennsylvania, Virginia, West Virginia, and Delaware.  All in-house local processing, underwriting, closing and funding.  Your loan stays in our office from start to finish.  Compare our rates with anyone out and see how competitive we are.  Happy house hunting!

Why Should I Refinance from a 30-yr Fixed to a 15-yr Fixed Rate Loan?

Mortgage Rates in Maryland - Why should you Refinance from a 30-year fixed to a 15 year fixed rate loan now?  

I will tell you why.  Suppose you took out a $250,000 mortgage on your home two years ago.  You have made your payments on time (like a good boy or girl) and after two long years, guess what your principal balance is…….$243,000 – ouch!  You have barely made a dent.

Now suppose you could get in your time machine, go back 2 years and do a 15-year mortgage instead.  After two years your balance on the mortgage would be $224,000.  That’s a difference of almost $20,000!!
 
Even you do not have a time machine…well… sorry... there is still hope.  What about refinancing that evil 30 year mortgage now while the rates are great and get into a 15 year mortgage…and watch your debt melt away!!

Here is the math:  Using the scenario above, if you are two years into your 30 year loan at a rate of 5.5%, and you refinance your loan into a 15 year mortgage at 3.75%, you will save over a hundred grand.  Would you like to save a hundred grand?  I think so!

If you keep the existing 30 year loan, after 15 years of regular payments, you will be left with a balance of $177,000 you still owe.  If you refinance to a 15 year loan, you will be left with a balance of $0 after 15 years (obviously).  The difference in the payment for the 15 year mortgage is about $400/month (times 180 payments = $72,000).  $177,000 minus $72,000 equals $105,000 in your pocket!!

My suggestion – bite the bullet if you can and consider refinancing to a 15 year loan while rates are at historic lows….but only if you are interested in savings lots of money!

Feel free to contact us at any time if you are interested in refinancing your loan. You can also visit my website for more information at www.stuartepstein.com/.

How do I shop for a mortgage?

How do I shop for a mortgage?          

Are you wondering why you see such a wide range of rates being advertised on the internet and newspaper when you are shopping for a mortgage?  Well, the answer is simple - mortgage companies want to generate “leads”.  Once they have you on the phone, they have accomplished half of the goal.  It is easy for a lender to explain away the “teaser” rate that you saw advertised by simply telling you “Well, that was last week’s rate”, or “That rate you saw is for an adjustable mortgage and only for 25% or more down, let me go over with you what you’re rate is….”.  You see, lenders want to generate phone calls.  If you are getting rates quoted to you from one lender that are a lot lower than everyone else – it is probably too good to be true.  Remember, all lenders are working from the same bond market.

                Here are some simple tips that can help you when you are shopping for a mortgage:

1.       First of all, ask your Realtor who they recommend.  Even if you don’t use the lender your real estate agent recommends, you can be assured that they are going to at least give you an honest assessment.  After all, they don’t want to upset the person who referred you to them and make them look bad J

2.       Find a local direct lender or bank who knows the local market, and ask them for a written estimate.  Have them review the estimate in detail with you so you understand the components and closing costs, specifically which of the costs are related to the lender, and which are third parties that you have control over.

3.       Compare fees between lenders before you are under contract on a house, but compare interest rates only after you are under contract.  Until you have a ratified contract on a house, it doesn’t matter what a lender tells you their current rate is – because you can’t lock in until you have a house to lock in with.  Some lenders will give out “teaser” rates that are not realistic, knowing they do not have to commit to it if you do not have a house under contract yet.  When you are ready to lock in – that’s when you can legitimately compare Lender A, B, and C.

4.       You can get general information on the mortgage market by visiting bankrate.com and other trustworthy websites, but keep in mind that there are many factors that determine rates.  For example, if you are doing an FHA loan, the rate will typically be lower than if you are doing a Conventional loan.  Also, if you have an 800 credit score, your rate may be slightly better than if you have a 710 credit rating.  The amount of money you are putting down can also impact the rate.  Have your lender explain what drives the rate they are giving you so you understand the “Why” of it.

5.       Lastly – trust your instinct.  I can’t tell you how many times I have had clients tell me “I just didn’t feel good about that other person I was working with” before they came to me.  If you don’t feel confident in the person you are dealing with – MOVE ON!  There are plenty of honest and competent mortgage professionals that want your business.

Of course you can contact the Stuart Epstein team anytime and we can give you all the guidance you need.  Feel free to visit my website:  www.mdtoplender.com.  We have lots of resources to educate you on the process of buying or refinancing a home in Maryland!