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.

amort_table-1

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.

amort_table-2
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 derek@dnjmortgage.com

For More Information Call:
DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607
919.459.6560


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
919.459.6560


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 www.integritylender.com/va_eligibility_guidelines.

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.

fundingfee_va

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 archives.gov 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
PASQUOTANK – 812500
PERQUIMANS – 812500
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
919.459.6560


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 urbandigs.com.  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
919.459.6560


FHA mortgage basics – raleigh nc

September 2, 2009

FHAToday I will provide you with a fun FHA fact filled post.  I can’t cover everything in one post but I’ll get to the most important items.  You can obtain an FHA loan for a single family residence up to a four-plex (where four families would be able to live) but to simplify things, we’ll stick with the single family unit guidelines for they’re the most common.

Ready to explore a FHA purchase? Let’s go.

1. Required Down payment- The minimum down payment for FHA loans is 3.5% of the purchase price.  This isn’t too bad considering that most conventional loans require anywhere from 10-20% down.

2. Loan Limits- Like I just stated, FHA loans are available for 1-4 unit homes/buildings.  Loan limits are determined on a county by county basis – you can find your specific county here.  In Wake County, you’re looking at a $295k limit which is fairly high; this basically means that if you want to get an FHA loan, the amount must be under $295k.  Most buyers looking to take advantage of an FHA loan are shopping in the $200s.

3. MI or Mortgage Insurance – A quick note on MI – this is the insurance that the lender pays to protect themselves against your loan defaulting.  Most conventional loans require you to pay mortgage insurance until you reach the 78% LTV point which they then deem you to be less of a risk and are satisfied with the amount of equity in the home and the MI requirement is dropped.  For FHA loans, the same basic situation exists – you’re required to pay MI unless you’re putting down 20% or more.  There are two items you need to consider about FHA MI – you’re charged a 1.75% upfront fee (which is rolled into the loan amount) and a .55% fee per year for the total loan amount.  That second part is what determines the amount that you’ll be paying every month.  A quick example would be if you had a $200k loan, your MI fee would be (200k x .0055)/12months= $91.67/month.  Get it? Good, we’re moving on.

4. Closing Costs – For an FHA purchase you can expect to see the following costs: Origination Fee, Attorney’s Fees, Appraisal Fee, Title fees, Credit Report, and a Home Inspection Fee.

5. Credit Requirements – The credit requirement for FHA loans is usually 620 but each lender will have their own requirement overlays.  You must have at least two lines of credit, 2 revolving accounts, to be eligible for an FHA loan.  These accounts must have a pretty good history of on-time payments – your FHA loan will be inspected closely by underwriters and any questionable bill pay habits will be viewed quite negatively.  You can still obtain a FHA loan if you’ve gone through a chapter 7 bankruptcy in the past; you just have to wait a minimum of two years after the discharge date (not the filing date).  You do not have to wait, however, to apply if you’re currently paying off a chapter 13, as long as you’ve made on-time payments for the past year.  You will need a written letter of explanation and a letter from your appointed court trustee.  You’ll also have had to have rebuilt your credit to the required levels.

6.  Debt to Income Ratios – Every time you apply for a loan, there are debt ratio requirements.  For FHA, they’re a bit stricter; they want to make sure you’re getting yourself into a situation that you can afford.  Also, with regards to ratios, all lenders have their own requirement overlays that will affect these numbers.  You have two ratios that lenders are interested in:

1. your Mortgage Payment Ratio This is your monthly mortgage proposed payment over your overall monthly income.  So if your proposed mortgage payment is $700 and your overall gross income for the month is $2500 – you’re at $700/$2500=32%.   FHA requires a maximum ratio of 29% to qualify.

2. your Total Expenses Ratio This ratio is calculated by adding your monthly proposed mortgage payment to any monthly revolving debt (credit cards bills, car loan, etc) and dividing that by your total gross monthly income.  FHA requires a maximum ratio of 41% to qualify.

So that was a brief rundown on what to expect as far as requirements go – things change quite often so if you find conflicting information or you’re confused about a certain item, just give me a call.

DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607
919.459.6560


what affects my available interest rate?

September 1, 2009

interest rate diceOften when I provide clients with rate quotes for refinances, they are astonished that my rates are completely different from what they see on the internet (lendingtree for example).  So I just want to take a few minutes/words to explain all the elements that affect the rate that you’re eligible for.  The one thing I want to clear up before I begin is that I work for a broker and my particular company has access to 20+ wholesale lenders (large moneylines).  Each lender has their own rules and guidelines and will require different scores, ratios, etc for different tiers of borrowers.  If you’re refinancing through a bank, it’s their money and they measure risk and determine loan variables differently.  So, with that said, let’s go through the pricing adjustors  for a regular 30yr fixed conventional loan (we’ll do an FHA/USDA some other day).  Lets start out with a 5% rate and adjust as we go for a $200k loan on a home valued at $300k.

1. Loan Amount – The bad news, the size of the loan you have or that you’re looking to get, will affect your rate.  The good news, you really only get hit for loans under $90k.  “Good you say?” Well yeah, even some of the lower priced townhomes in the greater Raleigh area are right at $99k.  A lender may have a negative pricing adjustment of .25 or .5 for loans less than $90k, but since our example for a $200k loan, we’re out of harm’s way – our rate is still at 5%. If we were under $90k, we’d be at 5.5% now.

2. FICO & LTV – Next, a duo of price adjustors working together to hedge risk for the lender.  Lenders adjust on a sliding scale, more adjustments for higher LTV and lower FICO, and vice-versa.  The LTV is simply your loan to value or your loan/value – which in our case is 200/300 or 66.7%.  Nowadays, any score under 720 gets a pricing hit – which stinks I know but banks are stricter these days.   LTV hits vary between lenders but you can expect to take a pricing adjustment if you’re at or over 69%.  Let’s say we only have a 700 FICO and with our LTV at 66.7%.  Considering the two previous statements, we’d most likely be looking at a .5% hit – moving our rate up to 5.5%.

3. Property Type – There are pricing adjustments for different property types, mainly condos and 2+ unit buildings.  These hits range from .5% to a whole 1%.  Since we’re refinancing a single family home, there wont likely be an adjustor (they’re the most common dwellings) so we’re still at 5.5%.104861

4. Cash-Out – Looking to take out a few thousand in cash at closing?  This will definitely affect your rate.  The cash-out pricing adjustments are also based on the LTV and FICO scores.  If you’re over 60% LTV with anything less than a 700 FICO, you can expect a .5 or greater hit for taking cash out.  In our example, we’re not looking to take any cash out and thus our rate remains the same.

5. Second Mortgages – If you’ve got a second mortgage that you want to leave be either because of the rate or just as a preference, there will be an adjustment on pricing (usually .25-.75%).  This is super dependent on the lender and it’s hard to make any general statements about this adjuster.  If we had a second, we may be looking at a 6% or 6.25% rate.  Banks do this because of 1. risk and 2. they want you to consolidate notes so they can have a bigger chunk of your debt – the more money you owe them, the more interest they earn. (overly simplified reasoning I realize but true nontheless).

These are the basic price adjustors that you’ll most likely run into; there are separate and additional rules for FHA and USDA loans as well as adjustable rate products.  So jeeze you say, that darn FICO score hurt my rate a .5% – I wish there was something I could do to get that 5% rate.  Well there most definitely is – have you ever heard of buying down a rate?  That’s exactly what you can do.  If you’ve got the extra cash and are looking to stay in your home for a long period of time, you can put some extra money into the transaction and your mortgage professional can move you into a lower rate.  I’ll post later on this week about buy-downs (or have I already posted about that?) – but considering a $200k loan at 5.5%- if you buy the rate down .5%, you’ll be saving close to $21k in interest over the life of the loan.  Feel that that’s worth the approx $1k that it would cost? – A lot of people would agree.

All these examples were general estimates that assume many elements of the transaction – like I said at the beginning of the post, every lender and bank have completely different rules and adjusters, all % examples were just basic guestimates to give you a general idea of how your specific rate estimate was calculated.

Want your own rate quote?  Just visit our website – no obligation or cost.  http://www.integritylender.com/raterequest

As with any of my blog posts, if you’ve got questions, I can help. (919)459.6533

DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607
919.459.6560