The mortgage market Since the downturn happened the bank of England base rate has continued to be low with it presently being 0.5%. Since Jul 2007 when the bank of England base rate was 5.75% the rate has reduced to 3% Nov 2008 to 0.5% since March 2009. When interest rates first started to drop the public expected to see mortgage rates reduce along with them. However this did happen straight away but lately we have seen some good value rates coming on to the market. Some people have competitive standard variable rates and base rate trackers and are staying on those rates. The question is when will rates start to rise and will it be worth fixing in when we first see them start to rise. A sudden large rise in interest rates will stretch many households who are not able to remortgage so it isn’t likely that rates will rise too fast over the next year. When rates do start to rise then it will be worth getting advice to see what rates are available. Over the first few months of 2010 we have seen a reduction in fixed rates.
The Buy to Let market has rates that are competitive however arrangement fees are still relatively high with a few lenders lowering them occasionally and then having to higher them because of too much demand. It is worth contacting an advisor if you have a buy to let mortgage or are thinking of doing a buy to let so that they can make you aware of any deals that come on to the market with competitive arrangement fees.
With both mortgage and buy to let mortgages you will get a better rate if you have a larger deposit. A 25% deposit will get you a competitive rate. Mortgage lenders criteria are becoming more confident with some lenders still offering x 5 income however you will also have to pass there affordability calculation and your credit score. There has been a reduction in rates for higher LTV mortgages. Some lenders are offering first time buyer mortgages with a 10 % deposit so there are really some positive movements in the mortgage market.
Self certification has been made extinct however lenders seem to be becoming more encouraging for self employed with them being able to take 1 -2 years accounts in to account as opposed to the 3 years that the lender traditionally required.
HOW TO BUY A HOME IN TODAY'S COMPETITIVE REAL ESTATE ENVIRONMENT STEP 1. Build Your Team
You don't have to go it alone. Build a team of proven Real Estate professionals
to help you along the way. Your team should start with a professional Realtor,
a Real Estate Attorney, and a mortgage lender. Along the way you'll add
a Home Inspector, Pest Inspector, Title Company, Surveyor, and Homeowner's
Insurance Agent. All of the professionals have a single goal, which is protecting
your interests in what is probably the largest purchase/investment you will
ever make.
Realtor. A professional Realtor will get to know
you and your home buying goals. In today's competitive environment, your
Realtor is your best bet for finding the home of your dreams, before someone
else snaps it up. If you limit your home search to open houses and "for
sale" signs on lawns, you'll probably be too late. Your Realtor has access
to the multiple listing services and will call you as soon as a home that
meets your criteria hits the market.
Attorney. Your Attorney
will assist you in the Contract negotiations and the Inspection negotiations,
will review your title searches and survey, and will conduct the closing.
Your Attorney will be available to answer your questions and give advice
every step of the way.
Mortgage Lender. When you choose
a lender, you are choosing an individual, not a company. Make sure that
your mortgage representative is available to answer your questions during
the process. Find out if the representative will be involved during the
entire process or if he/she simply turns your file over to a processor.
The professionals above can help you to assemble the rest of your team.
STEP 2. Arrange Financing
Forget "pre-approvals" and "pre-qualification" letters. Anyone can obtain
a "pre-approval" over the Internet and these are virtually meaningless today.
Choose a lender that will be willing to put your file through underwriting
before you choose a home. You will then have a full mortgage commitment
subject only to an appraisal of the property (once chosen).
When you have financing arranged in advance, you are a virtual cash buyer.
This gives you a strong advantage over your competition (other buyers).
STEP 3. Choose A Home
Your Realtor will help you to find the right home and will assist you in
determining a fair offer for the home you choose. Your Realtor will provide
a form contract to be completed with your initial offer and will present
your offer to the Seller. The Realtor will guide you through the initial
negotiations and, once the Seller signs, you have a Contract (subject to
Attorney Review).
Watch out for "For Sale By Owner" (FSBO) homes.
If a Realtor was not involved in the transaction, you don't know if the
Seller's asking price is realistic and you don't know how much to offer.
In addition, the Seller has certain obligations during the sale process,
such as arranging for Smoke Detector Certifications and municipal Certificates
of Occupancy and giving access to the home to the buyer's inspectors. Usually
the Realtor will arrange these for the Seller. Ina FSBO situation, some
of these things may not get done, simply because the Seller doesn't know
they have to be done. Finally, while all Realtor contracts contain an "Attorney
Review" clause, the FSBO contract probably will not. Be sure to contact
your Attorney before signing a FSBO contract.
STEP 4. Attorney
Review
Once the Buyers and Sellers sign the contract the Attorney Review period
begins. There are three business days for you to review the contract with
your Attorney, to decide if changes are advisable, and for your Attorney
to send a "review letter" to the Seller's Attorney. The contract will remain
in "Attorney Review" until all parties have agreed upon the final terms.
Once out of Attorney Review, the contract is binding.
It is best to contact your Attorney prior to signing a Contract. While all
Realtor contracts will contain the required Attorney Review provisions,
some new construction and FSBO contracts will not. Also, you'll want your
Attorney to know the Contract is coming so that he or she will be able to
handle the Contract as soon as it is signed. Note: the Sellers may entertain
other offers on the property while your contract is in Attorney Review.
Make sure your Attorney will be working to complete Attorney Review as quickly
as possible.
STEP 5. Home Inspections
You'll want t have the home inspected by a professional (look for ASHI certified)
home inspector and a pest infestation inspector. Plan to attend the inspections
yourself; you'll learn a lot from talking with the inspector. Your Realtor
will attend the inspection as well. The inspection reports should be forwarded
immediately to your Attorney and you can discuss the report with your Attorney
to determine if any issues should be raised with the Sellers. Your Attorney
will handle these negotiations on your behalf.
Keep in mind that the Contract will give you a limited amount of time to
have the inspections performed and for your Attorney to present your repair
requests. Have the inspections scheduled as soon as Attorney Review is complete
and be sure your Attorney will be available to work with you upon receipt
of the reports.
STEP 6. Survey and Title Search
Your Attorney will order a property survey on your new home as well as a
title search and title insurance. The Attorney will review these items to
make rue that you are buying the home free of all liens and interests of
others. If any title problems exist, your Attorney will work to clear the
problems prior to closing.
STEP 7. Mortgage Review and Follow-Up
Stay in touch with your mortgage professional. Make sure the appraisal has
been performed, and confirm the tentative closing date. Provide all requested
documentation as quickly as possible. Discuss when to "lock" your interest
rates. If you wish, you may review the mortgage commitment with your Attorney.
STEP 8. Pre-Closing Activities
Once your mortgage commitment is in hand, and your Attorney has confirmed
the tentative closing date, there are a few items for you to arrange. Homeowner's
insurance should be arranged and the first year premium paid in advance
of closing. Your mortgage lender will ask to see the policy before setting
the closing date. You'll need to arrange for movers and you should contact
the utility companies to arrange service in your name.
STEP
9. Confirm Your Closing Funds Closing
Fees
The money required at closing will include any additional down payment to
be made as well as all closing costs. While the exact amount needed for
closing will not be known until the day prior to the closing date, you can
ask your Attorney for an estimate. The funds will have to be in the form
of a certified check, bank check, or wire transfer. Make sure that you have
enough money available, and that the funds are located in a bank that will
be able to provide you with certified funds on the day of closing. Ask your
Attorney for further details.
STEP 10. The Closing
Plan on a pre-closing walkthrough on the day of closing. Your Realtor will
arrange this for you. Leave time available to obtain the certified check
for the funds due at closing. Your Attorney will give you the exact amount
required, usually the day prior to closing.
If you are buying jointly, you must both attend the closing. Bring the certified
check, your homeowner's insurance binder and identification. Your Attorney
will let you know if you need to bring anything else.
At the closing you will receive the keys to your new home. Your Attorney
will file the Deed to your home with the County Clerk and will return the
filed Deed to you.
After the closing, it's all yours. You can, finally, move in. Congratulations!
BORROWER BEWARE: A GUIDE HOW TO PROTECT YOURSELF WHEN CHOOSING A It is understandable that when shopping for any goods or services, you want
to receive the lowest price possible. Shopping for a lender for your new
home purchase is no exception. But be cautious; by having unreasonable expectations
you may make it easy for an unscrupulous sales person to mislead you or
even take advantage of you. Your best defense is to take proper measures
to protect yourself.
Knowing the right questions to ask and getting things in writing before
submitting an application are your responsibilities and your best defense
against deceptive practices, misleading information, and misunderstandings.
Do not hesitate to consult your attorney after you have done your homework
and are ready to make a decision. If you are not getting firm answers to
your questions, are put under pressure to make a decision or an appointment,
or cannot get rates, fees, and terms in writing, then you should find another
lender.
Below are a few items to be aware of:
"Low Balling"
The practice of quoting a rate that may be 1/4% lower than the actual rate
the lender currently has available, to induce a customer to set up an appointment,
is referred to as "Low Balling". When you actually meet with the loan representative,
they may tell you that rates have gone up, or suggest you let the rate "float."
When the rate floats it is not locked and could be higher or lower at closing
than at the time of application. If a rate is not locked the lender has
no obligation to close at the rate being quoted. If you insist on locking
a "low balled rate" you will be told that you must pay points, an origination
fee, or a lock-in fee that is non-refundable.
"No Cost" Loans
There are no free lunches or "no cost" mortgages. The costs are reflected
in a higher interest rate than the lender's regular rate, usually 1/4 to
3/8% higher. In addition, there are some fees that the lender will require
you to pay. Paying a higher rate in lieu of paying fees and closing costs
may make sense when you would not be able to recoup your expenses within
a few years at the lower rate. This is likely to be the case for loans under
$100,000.
Some states, such as California, do not permit the use of phrases like "No
Cost" in connection with mortgage advertising.
When you are seriously considering a specific loan request that the rate,
terms, rate lock and all lender related fees be put in writing. This will
reduce the possibility that a salesperson is failing to fully disclose information.
Compare the written quote to what was explained verbally and make sure it
includes all relevant information.
Origination Fees
Many lenders charge origination fees equal to 1/2% to 1% or more of the
loan amount. Some will quote a "0" point loan but fail to mention origination
fees.
Rate and Points
Many advertised or quoted rates often require the payment of several discount
points that are not mentioned in the ad.
Rate Locks
Most lenders will "lock" your rate for 60 days from the date of application.
In most cases this allows you a sufficient period of time to close and be
assured that your loan will be at the rate you applied for.
Some ads and quotes may only be good for 15 or 30 days or may not be locked
until a written approval is issued. Even for refinances you should insist
on quotes that can be locked for at least 45 days. While it is possible
to close in less than 45 days, don't count on it. Ask for a written rate
lock agreement.
If your closing is more than 60 to 75 days away, don't initially disclose
that information. When the sales person knows your closing date exceeds
the period that a rate can be locked, they can quote an unusually low rate
(see "Low Balling") in order to get you to submit an application. The sales
person knows they will not be obligated to deliver on their quote thereby
creating an "opportunity" to mislead.
Rate Lock or Commitment
Fees
It is not unusual for lenders to charge a rate lock or commitment fee. When
charged it is normally equal to ˝% of your loan amount and is refunded at
closing. If you withdraw your application to switch to another lender you
risk losing this fee.
COMMONLY USED MORTGAGE TERMS Below is a list of 15 of the most commonly used terms to describe mortgages.
If you come across other terms you are not familiar with that are not on
our list, ask your mortgage lender for assistance.
Adjustable
Rate Mortgage (ARM, also called Variable Rate Mortgage)
A mortgage with an interest rate that is adjusted periodically to reflect
changes in market conditions. Your mortgage payments are adjusted up or
down as the interest rate changes.
Annual Percentage Rate (APR)
An interest rate that reflects the actual cost of a mortgage as a yearly
rate. Because APR includes points and other costs, it's usually higher than
the advertised rate. The APR allows you to compare different mortgages based
on actual annual costs.
Appraisal
An estimate of the value of a home, made by a professional appraiser. The
maximum amount of the mortgage is usually based on the appraisal.
Closing Costs (Settlement Costs)
All the charges associated with getting your mortgage, including the origination
fee, discount points, appraisal fee, title search and insurance, survey,
taxes, deed recording fee, charges for credit reports and other costs. Costs
of closing usually add up to 3 to 6 percent of the mortgage amount.
Equity
The value of your home after the outstanding balance of any loans are subtracted.
Escrow
A special third-party account set up by the lender in which your funds are
held to pay for taxes and insurance. "Escrow" can also refer to a third
party who carries out the instructions of both the buyer and seller to handle
the paperwork at the settlement.
Fixed Rate mortgage
A mortgage with an interest rate that stays the same (fixed) for the life
of the mortgage. Monthly payments for a fixed rate mortgage are very stable.
(See the Low-down on Loans on page 12 for more information.)
Interest
The sum paid for borrowing money, which pays the lender's costs of doing
business.
Origination Fee
The fee charged by a lender to prepare all the documents associated with
your mortgage.
PITI (Principal-Interest-Taxes-Insurance)
Abbreviation for the separate parts of a typical monthly mortgage payment.
Points (Loan Discount Points)
Points are prepaid interest on your mortgage, charged by the lender at the
time of the closing. Each point is one percent of the loan amount - that
is, 2 points on a $100,000 mortgage would be $2,000.
Prepaids
The expenses that are put into escrow at closing, usually including real
estate taxes, insurance, and interest.
Principal
The amount of debt, not including interest, left on a loan; also 77 the
face amount of the mortgage.
Private Mortgage Insurance (PMI)
An insurance policy the borrower buys to protect the lender from non-payment
of the loan. PMI policies are usually required if you make a down payment
that is below 20% of the appraised value of the home.
Title
Insurance
An insurance policy that insures you against errors in the title search,
essentially guaranteeing your and your lender's financial interest in the
property.
If you are new to the world of home loans, the number of options at your disposal is enough to make your head spin. You know all about the basic "new purchase" mortgage and what it entails, but have never given much thought to the others: refinance, home equity, home improvement, debt consolidation and loan modification.
What are these other types of home loans, and which one is right for your particular situation? Here we take a closer look at these loans so that you may decide which is best suited for your needs.
New Purchase Mortgage
The most common type of home loan is the new purchase mortgage, which is granted to home buyers so that they can finance the purchase of a new or existing home. When you begin your home buying quest it is important to familiarize yourself with the types of loans available and the terms that go along with them. The biggest difference in mortgage loans is the fixed-rate mortgage and the adjustable-rate mortgage.
A fixed-rate mortgage keeps the same annual percentage rate (APR) through the life of the loan. The interest rate will never change and the homeowners can rest assured that their payments will remain the same until the end of the loan. An adjustable-rate mortgage, on the other hand, has an interest rate that will adjust periodically in the life of the loan. However, these loans typically have lower payments and come with the option to convert or refinance to a fixed rate at a later time. This type of mortgage is good for homebuyers that plan to live in their homes for only a few years.
Refinance
Refinance loans are for current homeowners who seek to change the terms of their existing loan or use their home's equity for other purposes. There are several reasons you may want to refinance your home loan:
• You have an adjustable-rate mortgage and you'd like the security of a fixed rate
• You'd like to lower your monthly payment
• You want to get equity out of your home in the form of cash
When you refinance your loan you are essentially restructuring your debt with new debt. The new loan pays off the old loan, and you begin to make payments on the newer loan.
Home Equity
Home equity is the difference between the home’s fair market value and the outstanding balance of the loans on the property. When a mortgage has been paid in full the property belongs to the mortgager, but in the meantime the mortgager has the option to borrow against the equity in the home.
There are two types of home equity loans. The first is known as a second mortgage. This type of loan lends a lump sum of money to the mortgager and must be paid over a fixed period of time.
The other type of home equity loan is a home equity line of credit, or HELOC. This gives the mortgager a line of credit similar to a credit card but in this case the funds are drawn against The equity in the home.
Home Improvement
This loan works like a home equity loan with an advance of funds to the property owner, but the money must be used for improvements such as maintenance and repair. A home improvement loan is usually short-term, and its resulting repairs and improvements may increase the value of the home.
Debt Consolidation
Debt consolidation is basically taking out one loan to pay off many others. A borrower may use their property as collateral in order to decrease the amount of interest they are paying on other debts, such as credit cards. The loan is used to pay off high interest debts by getting a lower interest rate and by making one payment a month versus many payments.
Loan Modification
Loan modification takes place when a borrower facing financial difficulty and having trouble making their mortgage payments works with their lender to change the terms of the mortgage. This usually involves a reduction of the interest rate on the loan or an extension of the length of the loan terms. A lender is willing to change the terms as such because they otherwise stand to lose more if the home should go into foreclosure.
The Obama administration may propose that any federal backing of mortgages be paid for through fees on the lending industry, according to people familiar with the internal discussions.
While the administration hasn't settled on a plan to revamp failed mortgage giants Fannie Mae and Freddie Mac, which are now under federal supervision, a consensus appears to be emerging that some type of government guarantee will be needed to keep the ailing mortgage market functioning.
Some conservatives don't believe the government should offer any type of guarantee, while others advocate limited, but explicit, backing. About nine in 10 new loans are currently backed by Fannie, Freddie or government agencies.
Policy makers face challenges determining what types of loans or mortgage-backed securities should be guaranteed and how the industry should be charged for government backing. Government officials want the cost of any explicit guarantee fully offset by the mortgage industry to avoid adding to the federal budget deficit.
But Washington must walk a fine line between pricing a guarantee high enough so it accurately reflects risk, while not charging so much that borrowing costs soar.
At a housing-finance conference last week, Treasury Secretary Timothy Geithner cited a "strong case" for a continued federal guarantee but said "the challenge is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure."
Officials want to avoid a repeat of what happened to Fannie and Freddie, which had to be bailed out and taken over by the government in 2008 after losses destabilized the firms. Mr. Geithner and others have said the firms wrongly guaranteed increasingly risky mortgages without charging enough to cover the risk.
Others warn the government has a poor track record when deciding how to price guarantees. While guarantees provided by the Federal Housing Administration, which insures mortgages, have traditionally turned a profit for the U.S., in recent months that agency has depleted its reserves and risks running out of money.
"It's very hard to know what the right fee is," said Alex Pollock, resident fellow at the conservative American Enterprise Institute think-tank, who supports moving to a fully private mortgage market. "The argument will always be from homebuilders, realtors, affordable housing groups, consumer groups and members of Congress that you're charging too much and making it too expensive for borrowers."
The National Association of Realtors, for example, is asking the Treasury to reduce interest payments Fannie and Freddie must currently make to the government, arguing that easing the firms' expenses could produce more flexible lending standards. In a letter to Mr. Geithner this month, the organization said the Treasury should retroactively lower the 10% dividend the firms must pay on the $148 billion in taxpayer aid they have used.
The industry appears prepared to pay some type of premium to get the government's backing. Under proposals floated by two trade groups, the Financial Services Roundtable and the Mortgage Bankers Association, new private-sector entities created to securitize and insure mortgages would pay a fee into a government-insurance fund.
Researchers at the New York Federal Reserve Bank, writing on their own behalf, have proposed creating lender-owned cooperatives that would replace Fannie and Freddie. Private lenders would pay into a "mutualized loss pool" to provide guarantees for mortgage-backed securities, and members would also pay a reinsurance fee to the government for a separate fund to backstop additional losses.
Some investors and academics say a government backstop is needed if the U.S. wants to facilitate securitization markets, where investors buy bonds backed by pools of mortgages. While mortgages were once funded primarily through the banking system, securitization fueled the growth of the nation's $10 trillion mortgage market over the past 30 years, dwarfing the capacity of the nation's banking system to fund loans.
"To suggest the private market can come back in and take the place [of the government] is simply impractical. It won't work," said Pacific Investment Management's Bill Gross at last week's summit.
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