Brush up on these mortgage basics to help you determine the loan that will best suit your needs.

·         Mortgage terms. Mortgages are generally available at 15-, 20-, or 30-year terms. In general, the longer the term, the lower the monthly payment. However, you pay more interest overall if you borrow for a longer term.

·         Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate as long as you hold the mortgage and, in general, is usually a good choice if interest rates are low. An adjustable-rate mortgage is designed so that your loan’s interest rate will rise as market interest rates increase. ARMs usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. These types of mortgages are a good choice when fixed interest rates are high or when you expect your income to grow significantly in the coming years.

·         Balloon mortgages. These mortgages offer very low interest rates for a short period of time — often three to seven years. Payments usually cover only the interest so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.

·         Government-backed loans. These loans are sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov) and offer special terms, including lower down payments or reduced interest rates to qualified buyers.

Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment. For help in determining how much your monthly payment will be for various loan amounts, use the mortgage calculator located on my website @ www.crystalboldt.com

New SBA Limit Caps ‘Goodwill’ Financing

The Small Business Administration announced that it is tightening its lending limits on the value of a business attributed to “goodwill,” the value not ascribed to bricks and mortar or other physical assets.

Beginning March 1, the SBA limited goodwill financing to 50 percent of the loan amount or a maximum of $250,000. The SBA does not directly lend money but it works with partner banks in offering loan programs.

Paul Merski, senior vice president and chief economist for the Independent Community Bankers of America trade group, calls the cap “arbitrary and random.”

“The last thing we want to do in this economic environment is to put arbitrary caps where you’re hurting the growth of the small business sector,” Merski says. “This is not a provision that is extremely well thought-out in the current environment to have capital flowing and supporting lending to small businesses.”

Other small business brokers and financiers said the change would force sellers of small businesses to finance the deals themselves if buyers couldn’t borrow from friends and family.

Source: The Washington Post (02/26/2009)

via REALTOR® Magazine-Daily News-New SBA Limit Caps ‘Goodwill’ Financing.

Detailed guidance on the federal government’s plan to provide short-term loans to borrowers using the First-Time Homebuyer Tax Credit is expected to be out shortly, but a spokesperson from the U.S. Department of Housing and Urban Development, which is writing the guidance, couldn’t give a firm release date.

HUD policy staff are “still working out the details on it,” HUD spokesperson Lamar Wooley told REALTOR® Magazine today. “So we expect it to be published shortly.”

The short-term loan program, which would effectively monetize the first-time homebuyer tax credit by permitting eligible lenders to make bridge loans collateralized by the borrower’s expected tax credit, was announced by HUD Secretary Shaun Donovan at the Real Estate Summit NAR hosted on the opening day of its 2009 Midyear Legislative Meetings in Washington last week.

The loans would enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash could be used as a downpayment.

“FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to ‘monetize’ the tax credit through short-term bridge loans,” Donovan said. “We think the policy is a real win for everyone, ensuring th

 

The Federal Reserve has so far spent about $250 billion on low-interest mortgages acquired from lenders by Fannie Mae and Freddie Mac.

The purchases, which could eventually top $1 trillion, are one part of the financial buyout many people understand and support. This spending has driven mortgage rates to record lows, encouraged people to buy houses, and helped many people refinance out of lousy mortgages.

It all looks good on paper, but some economists are warning others about some risks. Here are a few of their concerns:

● The Fed is creating new money to pay for this, which will eventually encourage inflation.

● When the Fed stops buying, rates will increase quickly and substantially.

● Not too many investors are interested in the low-yielding mortgages, so it is likely taxpayers will have to foot the bill.

Source: The Wall Street Journal, Peter Eavis (04/02/2009)

via REALTOR® Magazine-Daily News-Lowering Mortgage Rates May Have Risks.

Lenders are cutting credit lines and pushing down credit limits on their best-paying customers, which ultimately can reduce these frugal customers’ abilities to get mortgages.

A new study by Fair Isaac says 11 percent of U.S. consumers had their access to credit trimmed during the six months ending last October, even though they pay their bills on time and have good credit scores. That’s more than double the 5 percent of consumers with poor credit whose access to credit was reduced in the same time frame.

People who pay on time aren’t very profitable for lenders, says John Ulzheimer, president of consumer education for Credit.com, because they don’t carry balances or pay late fees.

The affect of these cutbacks is cumulative, credit experts say. When lenders close accounts or cut limits, it can hurt consumers’ credit scores and make it harder for these good payers to get other loans, including mortgages.

Source: USA Today, Kathy Chu (04/03/2009)

via REALTOR® Magazine-Daily News-Lenders Cut Credit for Reliable Borrowers.

Just one week after 30-year mortgage rates fell to a record low of 4.85 percent, the average dropped even further to 4.78 percent this week, Freddie Mac reported.

Refinancing activity has picked up because of the low rates, and the Mortgage Bankers Association says approximately 80 percent of mortgage applications came from borrowers seeking to refinance.

What’s to become of Fannie Mae and Freddie Mac, which are bleeding red ink as home owner defaults continue to increase?

The rising losses will force the government to decide whether to keep putting money into the firms to keep them operating or divide them into smaller businesses and remove government support.

Daniel Mudd, a former Marine, was Fannie Mae’s CEO before the government fired him and put James Lockhart, director of the Federal Housing Finance Agency, in charge. He likened the situation to the U.S. invasion of Iran. “The troops got to Falluja in a couple of weeks and seized the radio towers, but there was no plan to run the country once the shooting stopped,” he said.

Under the Obama plan, Fannie and Freddie are expected to refinance as many as 5 million underwater mortgages.

Fannie’s government-appointed CEO, Herbert Allison, said: “It’s not about maximizing returns on equity or profits. It’s really about being of use to the country during this very difficult period.”

Source: The Wall Street Journal, James R. Hagerty and Damian Paletta (02/27/2009)

Real Estate Loan Apps Rise as Washington Rates Dip Below 5 Percent

Average mortgage rates dipped below 5 percent last week, driving mortgage application volume up 11.3 percent to 723.4 from 649.7 the previous week on an adjusted basis, according to the Mortgage Bankers Association weekly survey.

On an unadjusted basis, the index increased 11.6 percent compared with the previous week and was up 5.7 percent compared with the same week a year ago.

The increase was reflected in the government purchase index (mostly FHA), which rose 10.4 percent. The overall purchase index was up 7.1 percent. The refinance share increased to 67.9 percent, up slightly from the previous week when it was at 66.9 percent.

Mortgage rates were down to the second-lowest rate in the history of the survey, with the record low being 4.89 percent for the week ending Jan. 9, 2009.

30-year fixed-rate mortgages decreased to 4.96 percent from 5.14 percent;

15-year fixed-rate mortgages decreased to 4.54 percent from 4.73 percent;

1-year ARMs increased to 6.21 percent

Source: Mortgage Bankers Association (03/11/2009)

via REALTOR® Magazine-Daily News-Loan Apps Rise as Rates Dip Below 5 Percent.

The loans require a down payment of only 3.5 percent, while conventional loans require down payments of 10 percent or higher.

However, the products also are drawing some unfavorable comparisons to now-abolished subprime loans.

Finance professionals, however, stress that unlike the infamous subprime mortgages of years past, FHA lenders go out of their way to verify income and ensure that they are not approving “liar loans.”

“The 15-year fixed mortgage this week averaged 4.72 percent with an average 0.7 point, up from last week when it averaged 4.68 percent. A year ago at this time, the 15-year FRM averaged 5.47 percent.”

via REALTOR® Magazine-Daily News-30-Year Rates Inch Up from Last Week.

Rates are Great, yet I think they will continue to go down a bit over the next few months.  Hopefully with the rates decreasing, the tax credits available, and the loan modifications that are starting to take place – we will be able to stop the housing market from falling any lower.