To Doc or Not to Doc, That is The Question!!!

Many borrowers shopping for mortgage loans are pretty well informed about the different types of loan products available. A qualified & competent Loan Consultant can guide and advice borrowers through some of the options: 40, 30 and 15-year fixed, 10/1, 7/1, 5/1, 3/1, interest only, or option ARM. But many borrowers and even a few Real Estate Agents are not fully informed about the different levels of documentation required.

Different lenders name and describe these levels of documentation differently, but in general they all fall into these categories: Full Document Loan (Full Doc), Stated Income Loan Verified Asset Loan, and No Document Loan.

The fully documented loan (Full Doc) give borrowers the advantage to obtain the most competitive rates, highest loan amount, widest band of lenders, and a lot more variety of loan products. The “Full Doc” loan requires detailed documentation supporting income and assets like: 2 or 3 months of asset statements (savings, checking, 401K, etc, etc), 1 or 2 months of pay-stubs and W2’s for the most recent 2 years. Self employed borrowers must document their incomes with the last 2 years of Federal Tax returns and a year-to-date profit and loss statement.

The Stated Income Loan is for borrowers who either cannot or prefer not to provide documentation of their income with W-2’s or tax returns. An example might be a self-employed individual who writes off a lot of expenses. Lenders will charge a higher rate for these types of loans.

The No Document Loan depends heavily on the equity in the property and the borrower’s credit. This type of loan invariably carries a higher interest rate.

The important point of this article is to know that all these different types of loans exist to serve the interest and requirements of virtually every borrower.

June 27th, 2006 · Filed Under Mortgage - Loan Information

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Confused About ARMs and FRMs??

A year ago if you were planning to get a 30-year fixed loan and compared it to a variable loan, you might of chosen what seemed as the best choice at the time. This choice would have been a variable (with a fixed term of course) loan. Today that decision for many homebuyers and homeowners is not as simple.

Today’s variable mortgage rates are very close to the fixed mortgage rates. Why is this happening? Since a year ago the Federal Reserve has raised the Federal Funds rate (short term rates) from 2.75% to 5%.

The Fed’s action has pushed the rate for short-term mortgages higher while long-term rates have kept relatively with out any major changes. Interpretation of these actions is that inflation is threatening to holders of long-term debt and increasing short-term rates is designed to prevent inflation.

What difference does it make to me and what does it mean to potential homebuyers? Obviously it presents a more difficult decision as to what type loan to use when purchasing or refinancing.

A year ago the difference in payments of a 30-year FRM loan was substantial compared to the monthly payment on an ARM loan. Today the difference is not as significant.

A simple solution to the dilemma of a low payment, which could rapidly increase at the end of the fixed term of an ARM is 30-year fixed rate mortgage with an interest only option for 10 or 15 years.

A year ago a 5/1 ARM loan (first 5 years the rate is fixed) at 4.75% for an amount of $650,000 had a payment of $3,390.71. Compare that to an interest only at 6.5%, which has a monthly payment of $3,520.83. This payment is slightly higher but knowing that the interest rate is fixed for next 30 years is a great peace of mind. By fixing a rate for a long term with an option to make interest only payments eliminates the danger of payment increase due to rising interest rates. And to add icing to the cake, when the borrower makes principal payments, the monthly payments are reduced.

This is a great safe option for many homeowner and homebuyers.

June 2nd, 2006 · Filed Under Mortgage - Loan Information

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Mortgage rates rise this week was caused by the fear of inflation!

This week, Freddie Mac’s Primary Mortgage Market Survey showed that the 30-year fixed-rate mortgage (FRM) averaged 6.67% (with an average of 0.4 points) for the week ending June 1, 2006. This average is HIGHER from last week; which was at 6.62%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.26% for the same week (with an average of 0.5 points). This average went HIGHER from last week when it averaged 6.21%.

One-year Treasury-indexed ARMs averaged 5.68% for the same week (with an average of 0.7 points). This average went HIGHER from last week when the average was at 5.61%.

Frank Nothaft, Freddie Mac vice president and chief economist, explained “The Fed released the minutes of its most recent FOMC meeting, which showed that some members were concerned about inflationary pressure. This caused the bond market yields to rise, and brought about market speculation that the Fed may hikes rates sooner than had been expected,” ”All this combined to nudge rates up again this week”

If you are thinking about refinancing those interest only, option arm or a short term hybrid arm, do it now get an fixed rate mortgage or a long term hybrid arm.

June 2nd, 2006 · Filed Under Keeping an Eye on the Market