Changes to NC Real Estate Contract – Raleigh NC

May 10, 2011

The new 2011 NC real estate contract requires a completely different approachto the home buying process.  The new contract, currently referred to as the “Offer to Purchase and Contract” presents quite a few major changes; let’s explore what they are and what impact the changes will have on your next home purchase or sale.

The Due Diligence Period:This may be the largest change in North Carolina’s real estate contract.  The due diligence period is a mutually agreed upon time period where the buyer must fully review and investigate the property and decide whether or not to proceed with the purchase.  The length of time allowed and the fee for the period are negotiable and set after both the buyer and seller agree upon the parameters.  After a consensus is reached, the buyer has basically purchased this period of time to contemplate the purchase and investigate the property.  They have the option to terminate the contract for any or no reason at all, completely at their discretion, before the time period has expired.

Due Diligence Fee: The fee is negotiated and agreed upon by both buyer and seller and provides the buyer the right to conduct the due diligence.  The length of time is directly related to the fee amount in that a longer period would result in a higher fee.  Much like the earnest money, the fee becomes the property of the seller and at closing, will be applied as a credit toward the buyer’s costs. Do note, this fee doesn’t replace the earnest money deposit but is a separate item.

Due Diligence Process: There isn’t a set of defined items in the due diligence period but the buyer must complete any of the following items that they feel are important when considering the purchase of the home:

  • have all inspections performed on property
  • have property appraised
  • have a proper survey performed
  • review all relevant property documents
  • secure final approval for any financing
  • investigate insurance availability and affordability
  • investigate zoning, schools, proposed roads, etc
  • investigate potential flood hazards and and flood insurance requirements
  • any other investigation the buyer wishes to perform
The days of the buyer and seller debating what is and isn’t a “necessary repair” are over.  Now, the buyer is free to request that the seller perform any improvements or repairs regardless of whether the item is listed on the previously used “necessary repair list.”  Conversely, the seller is free to refuse these repairs or improvements.  The property can be accepted by the buyer in its “as-is” condition, work with the seller to negotiate a written agreement to outline what will be repaired, or simply terminate the contract prior to the end of the due diligence period.

Note: Appraisal or financing contingencies are no longer permitted as these matters must be resolved prior to the expiration of the due diligence period.

Simplified Dates: The new NC real estate contract contains only 3 dates, a reduction from the previous 8: 1) Effective date 2)  Due diligence date 3)  Settlement date.

Seller Breach Provision: In the event that a seller breaches the contract or fails to comply with their obligations to deliver the property at settlement, both the earnest money deposit and the due diligence fee are to be returned to the buyer.  If any costs were incurred by the buyer during the due diligence period, the seller is now obligated to reimburse the buyer for said costs as long as they’re deemed reasonable.

Other changes were made to the contract but the aforementioned alterations are those most worth mentioning.  It can be argued that these changes give both buyers and sellers more protection from the risk associated with today’s real estate transactions.  The changes force both parties to be more prepared and informed for the transaction ahead.

Derek Shankweiler

Riano Mortgage Team

@ DNJ Mortgage

Raleigh NC 27607



changes to FHA mortgages – raleigh nc

April 13, 2011


Wow the graphic is a bit rough – i was never good at perspectives – sheesh.

Anywho – as FHA continues to try and strengthen their reportedly super low capital reserves and reduce their overall risk in their portfolio holdings, more changes to the program are about to be put into place. IE Monday April 18th.

So what changes?  Let’s dig in shall we.

FHA requires a mortgage insurance premium to be financed into your loan amount and they require a monthly mortgage insurance premium as part of your payment.  The financed portion, which is currently 1% of the loan amount, will not change.  Woopie!?!  The monthly MIP will change though.

Just in case you don’t get the whole upfront MIP – here’s how it breaks down.  You pony up a 3.5% down payment, FHA requires 1% to be financed, you walk away with 2.5% equity.

Now the monthly premium is based on the loan amount.  For the purpose of creating a basic example, let’s just assume we’re purchasing a home and we want to put the minimum 3.5% down.  Currently the MIP is .9% per year *(ie- .9% x loan amount divided by 12months).  After the 18th of April, the % will go up to 1.15%.  Doesnt sound like a big jump but check it out:

FHA is basically upping their revenue by about 22% through this increase in MIP.  So plenty of people agree with the changes, some people are annoyed that this is the third change to the premiums in the last 12 months, and yet others see the shift as something different – possibility.

Currently you can still purchase homes for a minimum amount down AND get private mortgage insurance elsewhere.

I actually just put together a proposal for one of our clients which compared the $ required for a conventional 5% down purchase vs. a 3.5% down FHA purchase for a 281k home.  Check-out how they compare – pretty tough choice to make.  Private insurance companies will surely be lowering their rates as more people will be considering larger down payments.

This assumes $2200 yearly taxes and $522 in homeowner’s insurance.  Also, the last option is known as a PMI Buy-out – where we buy our way out of having to pay mortgage insurance every month.  The one time premium can be paid by you or via a credit applied by your loan officer.  In each of these examples I’m raising the rate just enough to cover all the costs, and in the last example, raising it enough to pay a 6k mortgage insurance premium.

Granted if you really can’t afford to take that much of your savings out for the purchase, the FHA definitely provides a lower down payment option.  But If you look at the over-all picture, you’ve got some good options to measure up FHA to.

To see if what you’re qualified for or to have a professional help you compare and contrast options, give us a call.

Riano Mortgage Team
DNJ Mortgage
1350 Sunday Drive
Raleigh NC 27607



top 5 mortgage refinance misconceptions – dnj mortgage raleigh nc

October 2, 2009

confused2Today we’re going to review 5 of the most common excuses I hear from folks with high rates who are refusing to refinance. Why would I post a seemingly salesy blog like this?  Really it’s out of frustration.  I had a conversation this AM with my uncle and mortgage rates came up – apparently his 30yr fixed has a 7.75% rate  – which he is completely fine with.  During our conversation he provided me all sorts of facts on why it wouldn’t be wise for him to refinance; unfortunately for him, none of his facts were true.  After clearing up all his misconceived notions, I returned to the office and sent him an email with a cost analysis in it – I think now he’s completely changed his tune. I thought to myself  – “I should blog this…” – so I am.  – I know that this is not the easiest topic to wrap your head around, but it’s absolutely necessary to understand the basics so you’re not letting misinformation stop you from making smart financial decisions.

1.  The process takes too much time and is too much of a hassle.
I’m going to break this down into what, in my opinion, a realistic estimate of your time commitment should be.  The upfront document gathering should take 60min (more info in this post).  I would consider myself a semi-organized person, I don’t overdo it, but I would have no problem furnishing the requested items in a very short period, as most people could and do every day.  After you email or mail those items in, you’ll receive a loan application and disclosure package in the mail; signing and returning this package should take no longer than 30min.  After that – the only other time you’ll need to invest into the transaction is at the closing which can take anywhere from 30 to 45 min.  So, on the high side, we’re right at 2.25hrs of time you’re going to need to set aside for the process.  The other time killer to consider is your shopping technique.  The average person will contact 3-4 institutions (a bank, local credit union, and a broker or two) and then make their decision from the quotes provided.  The rates they receive will be pretty similar as will the cost of the transaction.  On the other end of the spectrum, you have the folks who miss out on the low rates because they spend 3-4 weeks comparing dozens of quotes from untold amounts of lenders.  The moral of the story, this can be as fast and easy as you make it – it should realistically consume no more than 5 hrs of your time even though it will take us 30 days to close your loan.

2.  It’s going to hurt my credit if I’m denied.
I’m faced with this comment/question quite a bit throughout the course of the month, the answer is no.  Although you’re supposed to keep your shopping period to 14days or less for multiple lender inquiries not to affect your score, just the act being denied does not affect your score.

3.  I’ll wait until rates are a bit lower.
Check out this graph that follows the 30yr fixed rate average over the last 5 years.  We’re at the orange marker, early January after the market crumbled is in pink.  How will the next few months or years look? We’re not sure but it does appear we’re on our way out of the trough we’re currently in.  30yrfixedpastfiveyears

4.  I don’t want to start my term all over again.
Your term, whether it’s a 30, 15, or 10, is really the maximum amount of time you have to pay back your balance.  With conforming loans, you don’t get penalized if you pay off your loan faster, and you’re really just being given more time to pay off the loan when you refinance for the same term loan.  The easiest way to explain this is to use a sample situation.  Let’s say Bob got a $200k loan at 6.75% when he bought his home 10 years ago.  He’s been paying his regular mortgage payments the entire time and he’s recently heard that rates are quite a bit lower so he’d like to refinance.  Bob’s current balance is right at $167k.  Assuming he’s just going to pay for the refinance out of pocket, his new loan will be for $167k at 5% for 30 years.  He still owes the exact same amount, is paying about $2900 less interest every year, but is under no obligation to keep the loan for the entire 30 years.  There are no pre-payment penalties for conforming loans. I noted in my previous post about paying extra each month – If Bob decides to keep paying his old payment, ie reinvesting his savings, he’ll pay off his loan in 17 years.

5.  It’s not worth it for me to refinance.
This really depends on how long you’re looking to stay in your home.  Moving in 4-5 years, most likely not – staying for awhile – take a closer look because you could be missing out.  Day after day I prove with hard numbers why and how refinancing into a lower rate or a different product can save people money.  The best example I have of this is when I showed my dentist how much he could save.  Mr. P knew that he wasn’t going anywhere in his home, had already remodeled his kitchen and basement, and was quite sure that he wasn’t going to be modifying his mortgage for the rest of his term – but still asked every now and again how rates were.  When they reached 4.75%, I emailed him the following cost/savings analysis.

55to475 By dropping him down .75%, he’s saving $1890 a year, and his savings start catching up to him 25 1/2 months after he shells out that $4k for the closing costs.  That small drop in rate saves him almost $82k worth of interest over the life of the loan.  Think it’s not worth it?  Why not let us prepare a cost/savings analysis before you decide.

DNJ Mortgage
1350 Sunday Dr
Raleigh NC 27604

paying extra saves in the long run – dnj mortgage

September 22, 2009

Today we’ll look at the strategy behind adding a little extra to your mortgage payment each month.  This process basically does two things; it saves you money by knocking your principal down quicker which effectively reduces the amount of interest you have to pay and it reduces your loan’s payoff period.  I think that a good first step in this discussion would be to understand how exactly your monthly mortgage payments are broken down.  To do this, we’ll use an amortization schedule.  This table is simply a loan repayment schedule of sorts; it breaks down each payment so you can see how much of the payment is going toward the principal and how much is interest.  You can also see the effects of extra payments and rate changes on the overall amount of interest you’ll pay over the life of the loan.

For our example, we’re going to use a 30yr fixed rate mortgage at 5.5% and a loan amount of $200k  – you’ll see these figures in the top row highlighted in yellow.  To the right, in the same row, you’ll see the monthly payment for this mortgage in BLUE, this is your minimum required payment. Beside that, in GREEN, is the total amount of money that comes out of your pocket to pay off that $200k mortgage (principal plus total interest paid) over the 30 year period.  And lastly, in ORANGE, you’ll see the total amount of interest you’ll pay over the course of the loan.  If you’re turned around on how exactly interest and payments are calculated, you can visit our mortgage calculators page to get yourself oriented.

If you look at the second line, in PURPLE, you’ll see how the first payment is broken down.  Of the $1135.58 – $218.91 (19%) goes toward your principal, and the rest ($916.67) covers the interest.  Now take a look at the loan balance in line one – that $218.91 barely made a scratch in the principal.    Next, let’s move down to the fourth mortgage payment on line two (4).  The required payment is the same but the principal and interest portions have shifted slightly.  As the months go by, you’ll see that more of your monthly payment is going toward the principal as the overall loan balance decreases.  So that’s the basics of an amortization schedule.  If you want me to email you a blank excel spreadsheet that you can fool around with on your own, just email me.


Now let’s look at how making extra payments will affect these numbers.  Let’s just say, that after running over your monthly budget, things are looking good and you have $200 extra that you’d like to put toward your mortgage every month.  So you make the commitment and start adding that 200 onto your payment.  If you stick with it until the end, below is what your updated amortization table will look like.  Check out the principal column – you’re nearly doubling the contribution with that extra $200 during the months shown.  The percentage of your payment going to the principal goes from 19% to 37%.  MOST importantly, compare the total payments (green) and the total interest paid (orange) – by making these extra payments – you’re skipping out on $97,826 worth of interest – not bad at all.

Lastly, let’s look at the affect of these payments on the payoff period.  Typically the 30 yr fixed rate loan would take 360 payments to pay off – 12 per year for 30 years.  But, because we’ve made our extra payments, we’ve almost cut the loan term in half – from 30 years to 17 years and two months.

amort_table-3 The long and short of it is this: we’ve put quite a bit of money toward the mortgage than we had to, but we saved a ton and shortened the term of the loan.  I really suggest this strategy to those who plan on staying in their home for quite a while and who really want to get this monthly payment off their books.  It’s definitely not for everyone and there are some other (better) ways your money could be working for you, but regardless, lots of folks want to pursue this avenue and I thought I’d give a clear explanation of how what affects it has on your loan.


Questions? Comments? – just shoot me an email at

For More Information Call:
DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607

how a no closting cost loan works – raleigh nc – dnj mortgage

September 15, 2009

sm_$0Today I will provide some background on how exactly no cost loans work.  There are a lot of potential clients of ours that are completely skeptical and are convinced that there’s some sort of sleight of hand involved, but I assure you, it’s a great way to lower your rate with minimal to no out of pocket expenses.  This type of loan scenario was much more popular and possible about a year or two ago; ever since the market slowdown, wholesale pricing has tightened quite a bit and we’re not really able to offer this for too many situations anymore.  With that said, let’s begin.

You’ll most often be offered this closing scenario by brokers and that’s the perspective I’ll be explaining things from.  We start with the wholesale lender; these are large banks like BB&T or Suntrust that not only sell their mortgages in their own branches, but have wholesale divisions that offer products to third-party sales professionals -ie. brokers.  There are also wholesalers like Fidelity and Myers Park who don’t have any focus on retail banking and therefore don’t have any walk-in banking locations.  Wholesalers offer a variety of loan products that brokers can sell; the product eligibility guidelines and requirements may differ for retail sales opposed to wholesale sales (you may have problems qualifying in the bank but not with the broker, and vice versa – weird I know, but often true).

So here’s where the explanation of the no cost loan begins.  A typical loan costs anywhere from $3k to $4k to close, these are the closing costs (origination fees, attorney fees, etc).  The broker in no way is going to walk away from the transaction with $3k, don’t get me wrong.  There’s a processing fee, a title insurance fee, a credit report fee, an appraisal fee, an attorney fee, a recording fee, yada “>yada “>yada “>yada yada yada.  Moving on.  Let’s get another thing straight before we continue – mortgage folks talk about everything in points, or percentage points ||  1 point = 1% ||.  Now let’s create an example so we can walk through the pricing process.  How about an example for a refinance where the loan amount is $250k and it’s going to cost $3k to close.  The $3k translates to 1.4 points or 1.4% of the loan amount, are you with me?  (250,000 x 1.4% = $3500).  So it’s going to take 1.4% of the loan amount to cover the closing costs.

Now, wholesalers offer premiums to their brokers to sell their loans.  (small disclaimer – this is semi-realistic example – I chose these numbers to make our example make sense) In our example, let’s say that the wholesaler is offering a .75% premium (known officially as the Yield Spread Premium) on a 30yr fixed rate loan at a 5% rate.  So any broker that sells this 30yr fixed rate, on top of their other charges, will make .75% of the loan amount.  In our example, .75% of the loan amount is $1875.  If the broker is trying to price out a no-cost loan, they’re going to consider that amount ($1875) and adjust the rate upward until they’ve moved it enough to cover the rest of the $3k they need.  In this case, bringing the rate up .5% will create another $1250 in yield spread premiums.   So with this loan amount, a .5% increase in the rate has covered the costs to close the loan.  The rate increase creates a difference in payments of only $77/month. ($250k @ 5% = $1342/mo   –   $250k @ 5.5% = $1419/mo)

So why does this make sense?
1. Do you know exactly how long you’re going to be in your home? No?  If you decide you want a lower rate and youinterest_rates1 want to either pay for it out-of-pocket or roll those costs back into your loan amount, you’re going to be waiting a little while until you start to realize the savings from the rate drop.  It may be as little as 8 months or as long as five years, either way – you’re waiting for those savings.

2. Do you have the cash on hand? Not everyone has $3k for a non-emergency situation.  The no-cost option provides a great way to lower your monthly payment without having to bring a ton of money to the closing table.  ALSO – another way to handle the closing cost issue would be to roll them back into the loan – a very common practice to curb the overall out-of-pocket cost of a refinance.  Unfortunately, not everyone has enough equity to do that and in these cases, a no-cost option is the way to go.

There will always be those people who say “So there are costs! I knew it; I do have to pay closing costs!  This isn’t no-cost at all!  The costs are just built into the rate – what a scam!” To these people I say the same thing.

“You want to refinance into a lower rate.  This is a service that we provide.  One of your options is to have a lower rate than you have now for $0 and see monthly savings instantly.  This isn’t the lowest rate available, but we’ll provide this service for you for $0.  Now if you could, explain to me what cost is being incurred by you in this situation?”

A tad bit frank?  Yes, but it really makes you think about the transaction with regards to cost and benefit.  Plus people get quite bent out of shape thinking that it’s a scam.  Trust me, our clients are some of the brightest and successful people in the Triangle – some have been with us for over 10 years.  You don’t get this far and acquire the talent that we have by being anything but a customer oriented firm that is serious about quality and top notch service.

For More Information Call:
DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607

VA Loan eligibility and guidelines raleigh nc – dnj mortgage

September 9, 2009

Today we’ll be reviewing the eligibility requirements and guidelines for VA Loans in North Carolina.  We’re going to go through a very brief overview and history then roll into the specifics point by point so if you are eligible, you’ll know your options.

giandbillIn 1944, FDR signed into law the GI Bill, or the Serviceman’s Readjustment Act.  The purpose of the bill was to support soldiers coming back from the Second World War; it provided loans for college, vocational training, business, and home purchases.  The home loan provision was, what some think, the most important aspect of the bill.  It provided no-down payment home loans which quickly let servicemen enjoy the sprawl of the suburbs which were once a luxury reserved for the upper class.  This no-down payment loan has put millions of veterans and their families into homes all around the country.  NC State University has a fairly rich history with regards to the GI Bill, you can read about it here – the NCSU library had a wonderful exhibit a few years back chronicling their influx of GI’s onto campus and how the bill helped build a better NCSU.

The basic eligibility requirements are as follows: The VA deems you an eligible veteran if you’ve: 1. You were on active duty and had a non-dishonorable discharge after a minimum of 90 days of service during wartime – or – 2. Served during peacetime for a minimum of 181 days.   If you joined the service after 9/7/1980, you must have served for a minimum of two years, AND if you were an officer who started after 10/16/1981.  For the National Guard folks, there’s a 6 year requirement with some additional guidelines for surviving spouses.  Just like conventional loans, you must qualify (credit, income, debt ratios, etc).  A larger list of VA eligibility guidelines are on our site at

The VA home loans are made by quite a few lending institutions around the US.  The Veterans Administration role is to guarantee a certain amount of the home loan, generally 25% up to around $105k.  So if for some unforeseen reason the borrower defaults on the loan, the bank is covered by the VA guarantee.  This is fairly similar to the USDA program where the cost of the home and the funding fees can be financed while the lender has some guarantee that they will be protected from default.

The funding fees that I just mentioned were basically put into place to help lessen the tax burden (on non military citizens) with regards to the cost of the transaction.  Fees for those who are obtaining a VA loan for the second time are generally higher because these veterans have already used this benefit and because of the assumption that they’ve had time to save up some money and generate some equity in their previous purchase.  Below you’ll see the funding fee sheet I pulled off the VA home loan website.


Those exempt from this funding fee include:

  1. Those veterans who, because of service related disabilities, are receiving VA compensation.
  2. Veterans who do not receive retirement pay but are eligible to receive compensation for service related disabilities.
  3. Often times surviving spouses of veterans who have died in service or from service related disabilities are exempt, but they must meet certain other VA qualifications.

Debt to income ratio requirements will have some lender guideline overlays, but generally if you’re at around 41%, you’re in good shape.  This is calculated by dividing your total fixed monthly payments for by your total effective monthly income.  [mortgage payment(including principal/interest/escrowed taxes/hazard/hoa dues) + all monthly revolving debt (credit cards, student loans, car loans, etc)] divided by your [gross monthly income (income before taxes are taken)] and you’ll have your debt ratio.

Occupancy Law – VA purchase loans do require the borrower to live in the property within 60 days of closing.

Closing costs are usually at par with other loan programs – but often times are a bit less.  The loan origination fee is typically 1% of the loan amount – the lender may charge the flat 1% or charge for an itemized list of fees, but that list can’t exceed the 1%.  Here’s a quick list of acceptable fees:

image copyright NCSU

image copyright NCSU

  1. Application and Processing Fee
  2. Document Preparation Fee
  3. Loan Closing or Settlement Fee
  4. Notary Fee
  5. Interest Rate Lock Fee
  6. Tax Service Fee
  7. D elivery / Wire Fees
  8. Commitment or Marketing Fee
  9. Trustee’s Fees or Charges

Other allowable fees include:

  1. Loan discount points- up to 2 discount points is considered reasonable – this equals 2% of the loan amount.
  2. Credit report – credit report fees are non-refundable and will usually be required right when you apply.  Fees for this run anywhere from $20 to $65 depending on the lender.
  3. Appraisal fee – depending on your lender, you may have to provide payment for this up front.  This is usually from $425-$475.
  4. Hazard insurance and real estate taxes are collected when you close your loan.  Depending on when you close, you’ll be responsible for x number of months of property taxes and insurance premiums.  Taxes are traditionally accrued in an escrow account so you have sufficient funds to pay your property tax bill and hazard premium at the end of the year.
  5. VA funding fee – see explanation above; this is the only fee that can be added to the loan amount or you can pay it in cash at closing time.
  6. Title insurance – a title company prepares a title search to make sure that there are no existing liens on the home you’re purchasing (if you purchase a home with a lien, said lien is now your problem).  After their title search, they issue a title insurance policy.  Total cost for this whole process is anywhere from $500-$800.
  7. Recording fees are charged to have your deed recorded at the register of deeds in your city/county.  Basic fees range from $25 to $85 depending on the lender.

Bankruptcy and Credit Issues – Generally, your credit history will be reviewed through standard underwriting guidelines.  Your account balances, number of revolving accounts, number of outstanding collections, etc will be considered and weighed against your other qualifying items.  As a general rule, it’s fairly standard that you’ll be required to have a clean 12 month history of on-time payments for your accounts.  Not having a credit history won’t completely undermine your chances of becoming qualified, but other timely payment activities may be considered (power/internet bills).  If you’ve filed a Chapter 7 Bankruptcy, you must let a minimum of 2 years elapse after the discharge date (NOT the filing date).  You’ll need several letters of explanation from certain figures involved in the bankruptcy as well as to have rebuilt your credit to required levels.  For Chapter 13, you’ll need a letter from your court appointed trustee and you’ll need proof that you’ve made 12 months of on-time payments to the court.  You’ll need to have re-built your credit to the required levels, have the required financial levels (debt ratio, etc), and a stable job to qualify.  Foreclosure will prevent you from qualifying, especially if the loan was VA insured.

Certificate of Eligibility and DD214 These are two documents that you’ll need, along with a list of others, before you can start the loan process.  The DD form 214 can be requested a few ways, listed here on the website.  Or you can access the form SF-180 here which is a request form for the dd214 form – you can print this and mail off.  The certificate of eligibility can be found here, its official form name is the VA form 26-1880. We’ll also need to collect that other information that I previously stated which includes but is not limited to:

  1. Income Information – Generally we’ll need your W2’s from the last two years and your last month’s worth of pay stubs, employer information for the last two years, and any other income information.  ((Self employed folks need to provide their last two years worth of tax returns.))
  2. Personal Information – Full names, social security numbers, your place of residence for the last two years, your bank account(s) statements for the last month, and any investment statements for the last month.

vet37-19smLoan Amounts – Most of the counties in North Carolina have the same loan amount limits.  Instead of listing them all, I’m just going to list the odd-men out.  Unless you see your county in the list below, the maximum no money down loan you can get is $417k – anything over that amount will require a VA jumbo loan (call for more details).

camden – 812500
currituck – 498750
dare – 425
hyde – 525
Camden – $812,500
Currituck – $498,750
Dare – $425,000
Hyde – $525,000
Pasquotank – $812,500
Perquimans – $812,500

Refinancing – If you’re currently in a VA loan now and you’re looking to move into a lower rate, the VA provides an IRRL Refi or an Interest Rate Reduction Refinance, most often called a Streamline Refinance.  This program was created so borrowers can move into lower interest rates with the least amount of cost and trouble.  This is like the EZpass lane for loan refinancing.  The following are not required:

  1. Appraisal
  2. Credit Underwriting
  3. Credit Checks
  4. Income Varification
  5. Debt Ratio Consideration

The IRRL Streamline doesn’t allow you to take cash out and the borrower must be up to date on their mortgage with no lates in the past 12 months.  To hedge the overall cost of this transaction, you can roll the costs back into the loan or you can have your lender use their earned yield spread to pay for the transaction.

So how do you get started?

1. First, contact a real estate professional and begin your search.  Find a home that fits your needs and is within your budget.

2. Get your certificate of eligibility taken care of.  You’ll need to refer to the previous section on this page as to how to obtain it and your dd214 form.  Your loan professional won’t need the real deals, just copies.

3. Visit your preferred mortgage lender, whether it be a bank or a broker, or us!  You’ll get sorted with the proper paperwork and get the ball rolling with your appraisal and approval process.

For More Information Call:
DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607

how mortgage backed securities work – dnj mortgage

September 8, 2009

Today I wanted to write up a brief explanation of how mortgage backed securities worked.  I was going to provide a graphical flow map so you could try and make sense out of the secondary market (ie. where your mortgage goes off to live and work after you’ve signed the papers).  But, before I dove into Photoshop for an hour, I took a quick run through what was already available on the net.  I found a great image from a wonderful post by Noah Rosenblatt on  His post provides a more detailed look at the secondary market, so check it out if you want to read more.  So now with a great graphic, let’s get going.

mortgage-backed-securities-cdo-cmo-bondsStep 1-2:  Let’s consider a fake bank for our example, Bank123, and let’s say it has been selling mortgages in the Raleigh area all quarter.  Bank123 has amassed quite a few loans and is ready to package them up for re-sale.  Why would they sell their mortgages?- I don’t get it.  [[ Think about what your mortgage actually is – it’s a promissory note that states that you’ll repay the bank $x over a certain time period at a certain %rate.  If you simply paid your mortgage for 30 years without taking any cash out and without refinancing, you’d be paying almost double what you borrowed.  Here’s a quick example – a 30yr fixed rate mortgage for $200k at 5%.  If you paid it off completely over the course of 30 years, you’d be paying a little over $185,500 in interest – meaning you’re borrowing $200k and paying back about $386.5k. ]] So your mortgage turns out to be quite a valuable long term investment that the bank has created.  But in order for Bank123 to keep providing mortgages, they’ll need some more money to lend.  Look at all those loans they’ve provided this quarter (step1).  If we say, for example, that all those mortgages are $200k loans, then they’ve given out about $3.8million.  So, to get new capital to lend, and to hedge some risk with regards to these loans defaulting, Bank123 needs to pool and sell them.

Step 3-4:  “So who’s going to buy these pools of loans?” – you must be asking by now.  It depends – it could be Fannie Mae or Freddie Mac or it could be a large bank.  The buyer, let’s say Fannie in this example, takes a solid look at the pool and chops it up into different pieces called tranches.  You’ll see in step 3 the different layers from AAA to b/b.  A super simplistic way of looking at this is to consider all the loans in that pool – they’re all different loan types, amounts, and have different risk levels.  Fannie considers what’s what and then sells these tranches as securities – the riskier tranches are expected to have better returns but are a much higher risk, and vice versa for the AAA rated section.  These securities are then bought up by investors and that’s that. Depending on what your investor puts your money into, there’s is a chance, albeit small, that you own part of your mortgage as an investment.

A very simple view of the secondary market and how your mortgage becomes an investment security.  It also provides some insight to how the secondary market affects you.  Let’s say for example that Fannie Mae decides it’s changing its buying guidelines for loans.  To make sure their loans are still marketable, the primary market players (your local banks/brokers/other lenders) adjust their underwriting criteria so their newly originated loans meet Fannie’s new guidelines.  This in turn affects the criteria that you must meet to qualify for a loan.  The old ‘from the top down’ effect.  This is what happened to sub-prime loans – at one point Fannie and Freddie were buying – then when problems started to arise, they ceased buying activities for these types of loans – now they’re pretty much off the market.  I’ll leave things here for now, maybe we’ll look back into the credit crisis and the secondary market at some other time.  Thanks for reading and I hope everyone enjoyed their long holiday weekend.

DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607