ChrisCrocker

Private Mortgage Insurance is Tax Deductible in 2007

I've been watching the information regarding Private Mortgage Insurance (PMI) and the new bill passed to allow for PMI to be tax deductible.  And I have found some interesting limitations to the program.  In the past, the way around PMI was through PiggyBack or Combo Loans.  Breaking the total loan amount into to portions of 80% and 20%, in affect the lender would be loaning you the down payment.  There were also lenders that used what is called "lender paid PMI", where the lender would pay the insurance for you, and then recoup that expense in the form of a higher interest rate.  And the benefit to these programs was that all of the interest associated with these programs could be used as a tax deduction.

Well now, the government is saying that since PMI behaves in a similar manner as interest rates, why not let the borrowers receive the same tax benefits.  BUT, there are significant limits on who and how a homeowner can use this deduction.

• First, you can only use the deduction for mortgages closed in 2007. If you began a mortgage in 2006, you won't be able to take the deduction in the 2007 tax year unless you refinance.
• Two, you only get the full deduction if your adjusted gross income (AGI) is less than $100,000. The amount you can deduct decreases by 10% for every $1,000.00 over %100,000.00 per year.  Meaning, if you make $110,000.00 per year, you cannot receive any deduction.
• Third,  this is only good for 2007.  In order to use this deduction in the future, Congress will have to vote to renew for upcoming years.
• Lastly, in order to receive this deduction, you have to itemize your schedule of deductions on your taxes.  If you take the standard deduction, this has no benefit for you.  And in all practicality, you need to owe $130,000.00 or more for it to be worth your while.

So, you can see that it is a very slim window of home buyers that can benefit from this bill.  This was the intent of its creators.  They were trying to show the most benefit to those who need it most, lower income borrowers with mortgages under $100,000.00

Real Estate Partners Through Blogging

In any sales-based industry, we continue to see more and more embracing the technology of the weblogs to expand their business and educate their clients.  The real estate and mortgage lending industries are no exception.  I've read trade magazines like Mortgage Originator that have showcased how this tool can build partnerships and networking communities.  I've also seen professional coaches such as Bliss Sawyer, not only practice her own suggestions, but demonstrate the features and benefits of the weblog tool.  From a customer's perspective, its a great way to get information from all different directions.  No longer are readers forced to process content from a news source, information is coming straight from the tap.  Think of blogs as an informal discussion.  What do you want to talk about?

Always looking forward to your comments

Your Columbia, MO Mortgage Broker

Mortgage Trends and Predictions. Will Phil See His Shadow?

Will Phil see his shadow? Will there be 6 more weeks of Winter for the real estate market?  As we look ahead to another year in the real estate industry, I thought it would be a good time to list some of the trends that make this industry so exciting but volatile.  These thoughts come as a result of an article by Mortgage News Daily.

1)  The first trend is the increase in refinance activity.  With the decrease in interest rates a few years ago and the fact that they have remained low for the past couple of years, it has made mortgage pros out of many.  More and more homeowners are educating themselves about features and benefits of refinancing options.  Resulting in more and more refinances.  So much so that refinances continue to account for more and more of financing activity.  Even with the dramatic highs and lows, refinance activity continues to increase year after year.

2)  Another trend. . . financing options.  Naturally as activity, or demand for financing, increases, the market answers with a large variety of options to reach all homeowners.  The days of having 20% down or maintaining 20% equity in your home are nearly over.  Even people with challenged credit and bankruptcies can gain approval for a mortgage.  More financing options have made it possible for people to afford more expensive homes, or second homes.  There are literally thousands of loan scenarios and a loan program to fit most of those needs.

3) And lastly, affordability of homes is very low.  The increase in home values has priced many buyers out of homeownership.  In the 80's it was the interest rates that kept people saving.  Now its the value of the home.  Builders keep building, but experts say it is very unlikely that flooding the market with new homes will deflate the housing bubble.

Here are some predictions from Punxsutawny Phil:

• Inflation will remain low and so will rates.  You can reasonably expect to see rates well below 7.0% for a while.
• ARM's (Adjustable Rate Mortgages) are going to be a big player in 2007.  Many of the homeowners that bought or refinanced in the refi-boom will see their ARM begin to adjust.  So, to combat that, these homeowners will refinance, but a majority will switch to fixed rate mortgages.  We'll see a considerable drop in ARM's
• New construction will hit bottom in the first half of 2007 and begin to increase again as we approach fall.  With interest rates remaining low, buyers will begin to stimulate the market in the second half.
• Don't expect prices of homes to fall through the floor.  Instead, look for creative incentives from sellers.  Seller Paid Closing Costs, Appliance upgrades, warranties, etc.
• Mortgage activity will decrease from 2006 numbers, but total mortgage debt will increase do to refinances of ARM's

As always, your predictions and comments are welcomed.

-Your Mortgage Broker in Columbia and all of Missouri

Mortgage Myths and Misconceptions

Mortgage products are always evolving, and lenders are constantly trying to build a comprehensive portfolio of products to capture as much of the market as possible. Distinguishing between fact and fiction can reveal many loan tools that can ultimately save you time and money. Whether you're purchasing or refinancing, you may be misinformed due to some common mortgage misconceptions. As with any big purchase, be sure to weigh all options to decide which is best for you.

Myth #1 - A 30-year fixed mortgage is the best mortgage option out there.
If you are in your final home or plan to live in your home for a very long time, a 30 year fixed mortgage is the way to go if you can find a low interest rate. Today, the average homeowner will stay in a house for nine years. If you're a first time home buyer, that average goes down to just a few years. If you fall under this category, an adjustable-rate mortgage (ARM) might be better for you. While interest rates on fixed mortgages are fairly low right now, ARM rates may be lower (but not always). There are even interest only options that can give you the lowest possible payment. These introductory rates could last up to 10 years before it is time for them to adjust. It all comes down to your own personal situation and goals. Do the math and analyze each option and decide what fits best for you. None of these are bad options. They just have advantages for different situation. Remember, these products were developed for a reason .Learn more about your loan options.

Myth #2 - You have to save up for a huge down payment before buying a home.
Some people feel that a minimum 10 percent of the purchase price is required for a down payment on a home. Some even go as high as 20 percent. However, there are many lenders out there with loan programs for home buyers that can only afford five percent or less on a down payment. Some lenders will even accept zero down. So, if you're living paycheck to paycheck right now and feel like you're stuck in a vicious bill cycle without an opportunity to save, don't panic. There may be a loan option out there for you.

Myth #3 - If you don't pay 20 percent down, you have to buy mortgage insurance.
This is not necessarily true. Now there's an option out there called piggyback financing or a combo loan that can help you avoid purchasing mortgage insurance. A piggyback loan is a second loan designed to minimize your down payment. Your first mortgage loan covers 80 percent of the purchase price, and, depending on how much you can afford, the second loan can cover up to 20 percent of the remaining costs. There are a couple advantages to taking this route. First of all, it maximizes the amount of house you can afford by decreasing your down payment. Second, it allows you to use the entire tax benefit of your mortgage. The interest on a piggyback loan is tax deductible, while the premiums for mortgage insurance are not.

(NOTE: The new tax bill is working to make mortgage insurance tax-deductible! Check back for more news and updates on this!) There are also lenders that have more affordable mortgage insurance than others. Your situation may call for a much cheaper mortgage insurance premium than your buddies. As always, just look at your options and ask your mortgage advisor for their advice.

Myth #4 - Refinancing your mortgage extends your loan term by another 30 years. Many homeowners are reluctant to refinance for fear of starting over on their payment plan. However, there are ways to get a lower monthly payment and still stay on track to finish at the same time. All you need to do is ask your lender to amortize your payments to a shorter payment schedule. There are also ways to accelerate your amortization if you are unable to lower your term when you refinance for that lower rate or cash out. Learn more about refinancing.

Myth #5 - Bad credit takes away your chances to qualify for a loan.
If you have a damaged credit history, you could still be qualified for a home loan. Things like bankruptcy, repossession or paying bills late can make you a very high-risk loan candidate. The truth is, there are a lot of lenders out there that make it their business to help home buyers with less than perfect credit. Learn more about your credit score at http://www.myfico.com/. If you have damaged credit and want to see what you qualify for, click here!

Myth #6 - You need to pay off your mortgage as quickly as you can.
Usually, homeowners feel like they need to get rid of their monthly mortgage payments as soon as possible. However, the interest rate on your mortgage can be deducted from your federal taxes. This is where the term effective interest rate derives. Your effective rate considers your tax savings. Therefore, it may make more sense to pay off other forms of debt first, such as high-interest credit cards or car loans. It can be a good idea to pay off a mortgage early, if doing so helps you achieve your long-term financial goals and if you have no other debt.

Myth #7 - It doesn't matter where you get your loan, all lenders offer the same products.
This couldn't be further from the truth. Different lenders have different incentives and they might not have your best interests in mind. Most banks and credit unions usually don't have the variety of loan options that a mortgage broker will. Because mortgage brokers carry a wider variety of loan products, you can find a mortgage that best fits your specific financial situation. Remember a mortgage broker works for you, and they don't get paid until your loan closes. So, like you, they have a vested interest in seeing your loan through in the most efficient manner possible. The bottom line? If you have a unique situation or specific goals, seek the advice and services of an experienced mortgage broker. More times than not, they'll have a number of products to help reach homeownership.

Your comments are welcomed!

Is The Cash Out Refinance Dead?

OK, so we've had a period of increasing real estate values and rates have remained low to allow for a refinance boom.  During this boom, there was a large trend of people taking cash out against the equity in their homes, and fortunately the property values were increasing so there was plenty of room to take that cash out.  Well, things are beginning to shift.  Many real estate markets are beginning to correct.  Meaning that the values are beginning to fall due to a surplus of properties.  We are seeing some (not a huge amount, but some)of that here in Columbia, MO.  So what does that mean for refinanciers?  It means there isn't enough value in a lot of properties (relative to the amount owed) to pull any cash out.  In some cases, people who did a cash out in the recent past will find themselves owing more on their house than the market will bare.  This is called "upside down" in your home.  There are still some good opportunities and justifications for refinance, but as property values trickle down, the opportunity to take any equity in your home in the form of cash is dwindling.

Real Estate Speculation, House Flipping

All laughing aside, real estate speculation can be lucrative and it can be very risky.  The combination of increasing property values and low interest rates have brought "house flippers" out of the woodwork.  Suddenly everybody is a pro at new paint, carpet, and landscaping.  I watch television shows all the time that glamorize "flipping" by showing six figure profits in 4 weeks time.  Not that it can't be done, but not every house that is flipped will be a homerun.  There are thousands of considerations that can cost you thousands of dollars if neglected or poorly executed.

So, enjoy the video.  It made me laugh, but it also gives you an idea of how many people have their fingers in the pie.

Is Refinancing Your Mortgage a Good Idea

Yes, rates are still low enough to refinance.  But, is it a good idea?  Whenever I'm approached by a client looking to refinance, I always try to get a look at the big picture and list their short term and long term ramifications.  There are three reasons to refinance.

1. To lock in a lower interest rate
2. Consolidate other high interest debt
3. Take cash out of the equity in your home

But each of these reasons are very different in the logic used to justify or rationalize the effort and expense of a refinance.

First, if your goal is simply to refinance for the sake of getting a lower interest rate and consequently a lower monthly payment, you need to examine the cost of the transaction and how long it will take to recoup those expenses.  For example, If the refinance costs $1800.00 and you are only saving $18.00 per month.  Do the math.  You can see that it will take you 100 months to recoup the initial expense.  Not a very good plan in my book.  But, if you can save $100.00 regain those expenses within 18 months, and that rate will be locked for the next 30 years, then it sounds like a reasonable direction.  As a general rule, you always want to try to recoup those expenses within 24 months.

Most of the people that contact me are looking to consolidate other debt.  High interest rates on credit cards, automobiles, and personal loans are usually the best debts to eliminate because these can save you the most money on a monthly basis.  In a perfect world, you may be able to refinance all of your high interest debt AND get a lower rate.  However, in some cases it may be worth taking a higher interest rate in order to eliminate other, more expensive, debts (and are not tax deductible).  For Example,  It may be worth taking a $50.00 bump in monthly mortgage payment, in order to eliminate $500.00 or $600.00 in credit card payments.

And lastly, to get cash-out from the equity in your home, you really have to be honest with yourself regarding the reasons for the refinance.  Are you using this cash to pay off other debts, pay for home improvements, or is it some emergency financial situation?  If you are paying for home improvements, will these improvements raise the value of your home?  If your paying other debts, have you learned a valuable lesson?  And if its an emergency, is your home the best fiinancial tool to use in this situation?

Refinance can be the financial answer to many goals and objectives.  But it is not the answer to all things.  An experienced and service based mortgage broker will be able to anticipate problems and help you organize your thoughts and goals, to help you determine the best course of action.

I look forward to your comments, your service based mortgage broker for Columbia, MO.

Combo Loan or 80/20, An Alternative for "No Down Payment" Mortgages

“What is a Combo Loan?”
It’s a simple way of breaking a 100% loan into two portions. Typically 80/20, 85/15, or 75/25. Each portion is its own loan, and there are very significant advantages and benefits to the borrower who chooses to put no money down.

“Are Combo Loans complicated?”
No. They use the same information to determine loan approval for both loans at the same time. And, there will be just one closing like any other loan. These are two different loans, but they are usually held by the same lender. So you can make your monthly payment to one company. Just like any other mortgage.

“Why a Combo Loan?”
Avoid Private Mortgage Insurance (PMI). This is the biggest advantage in choosing a Combo Loan. Private Mortgage Insurance, or PMI, is insurance for the bank. Unless you are prepared to invest a 20% down payment, lenders will require you to purchase mortgage insurance for their protection. It serves no benefit to you, the borrower, it only benefits the bank. In your situation this could equate to an additional $160.00 per month. You'll also have the opportunity to receive the full tax benefit from your mortgage. All of the interest associated with both loans may be deducted from your personal income tax. PMI is not deductible. Additionally, you can accelerate payments and pay the smaller loan quicker if you choose. Thus, building more ownership in your home quicker. and the blended rate is lower. In many cases, there are rates available for a single loan covering the entire loan amount. And although they do not have PMI, the single loan rates are usually higher than the blended rate of a combo loan. Lower blended rate = Lower monthly payment.

“Blended Rate?
Do not make the mistake of adding these rates together. This is not the case. You are borrowing different amounts at different rates. For example an 80/20 Combo Loan with rates of 7.0% on the first $100,000 (80) and 10% on the next $25,000 (20) does not equal $125,000 at 17.0%. Instead, your blended rate would be the combination of the rates and the respective portions to which they are assigned. Your blended rate in this situation would be $125,000 at 7.6%. So, by accepting an additional 0.6% in rate, you will eliminate the need for PMI or $160.00 per month, and receive the opportunity for an additional tax deduction.

Credit Scores, How, How To

By now you should realize that your ability to secure a home loan or any loan, is largely based on your credit score.  A credit score is nothing more than a tool, used by lenders, to gauge your credit worthiness.  There are 3 major credit bureaus (Equifax, TransUnion, and Experian) that are considered the industry standard.  Their scales range from 350 (poor credit) to 900 (excellent credit) with most people fall somewhere between 600 and 800.  Although your score will usually vary between these three, they all use very similar processes by which they compute a score.  Variances in scores are usually the result of the creditors reporting different information to different bureaus.  Below is a diagram to show you the factors, and by what portion, that are used to compute a score.

I certainly don't profess to being a credit expert, but more times than not, I find myself advising borrowers of things that can be done to get the approval for their home loan.  Here are the things to remember:

1. Keep making on time payments.  Nothing will kill an approval deal quicker than a late payment or collection that pops up right before closing.
2. Do not open OR close any lines of credit.  Avoiding new lines may seem like an obvious no-no, but closing one can be more detrimental.  By closing a line of credit you are eliminating available credit which can make your debt ratio appear higher.
3. No large expenditures.  It never fails, 1 out of 10 clients will get approved and immediately run out and buy all new furniture or a big screen TV which sends their debt ratios through the roof.  If you must refurnish, wait 'til after closing.
4. Avoid credit inquiries.  Everytime somebody looks at your credit, the bureaus know it.  Different inquiries have different affects on your scores.  The safest path is to avoid all inquiries until after the closing.

These are the four most common things I see clients do that can easily disqualify you from a loan program.  But, consequently, there are a couple of tricks that can (in some situations) help your credit scores.

1. Pay down your credit cards.  Don't close them, but pay the balance down.  The amount of debt you are carrying in relation to the amount of credit you have available can dramatically affects your score.
2. Try a credit supplement.  A credit supplement is something that a mortgage broker can order through the credit bureaus.  Its basically a way of asking the bureau "are you sure this is accurate?"  The bureau will then contact the reporting creditor to find out if it is, in fact, accurate.  The creditor has to either prove the derogatory item is valid or remove it from your report.  So, in some cases when you've disputed an item, but nothing came of it, it may be a good idea to ask for a supplement.

But definitely, the best advise I give to my clients is to take a proactive approach.  If your thinking of buying a home in the next year or 6 months, now is the time to get a copy of your credit report (www.myFICO.com or www.annualcreditreport.com) to find out what the scores are and what your creditors have been saying.  Trying to fix blemishes or inaccuracies during the loan process usually causes delays and add expenses.

Obviously, this can be a complex subject.  And, every credit history is different, affording different obstacles and different opportunities.  Check back with this blog, as credit scoring and credit repair will continue to be a lively topic.

Comments welcomed, Your Columbia, MO Mortgage Broker,

Mortgage Links, Information is Power

I am consistently asked questions by my clients to help them understand our industry. I always give solid advice which ultimately leads to a quality loan product for my borrower. When my clients leave the closing table, they are fully aware of their product and the hard work everyone has contributed to get them into their new home.

This Blog is another resource created to educate our clients about the mortgage industry and the loan process. I've received feedback from several clients regarding websites that they found helpful during their home buying experience. I've put together a quick list of some of these useful sites. I encourage you to browse any or all of these.

http://www.realtor.com/. This is a great site to search for home listings.
http://www.zillow.com/. Featured in a previous post and can help calculate market value of your home
http://www.fanniemae.com/ They are the largest buyer of securitized mortgage paper.
http://www.freddiemac.com/ Another large buyer of mortgage paper.
www.bloomberg.com/markets/rates/ Mortgage and bond rates.
http://www.mortgage-x.com/. Helpful site for mortgage calculators and information.
http://www.bankrate.com/. More calculators and informational tools.
http://www.google.com/. Everyone has heard of Google! Use this site to search for anything!
http://www.wellsfargo.com/ Large well known bank with some nice educational content.
http://www.countrywide.com/ Another well known mortgage lender with good educational tools.

Be sure to check back to this blog for new postings. You can even subscribe by clicking here. Subscribing is a spam proof and virus free way to get the information you choose to review. That's what makes this blog such a good resource. Instead of searching the Internet for 20 different websites for information on residential lending, please use this forum as your resource. We'll take all the information in and make it available to you in one convenient page. You can find links on the right hand side that are updated every hour. And, we will continue to discuss new and developing trends in the industry. As always your feedback is welcome.

Your mortgage resource for Columbia, MO