Keith & Jason Renno

Points are up-front fees paid by the borrower to obtain a better interest rate on a loan. One point equals one percent of the loan amount. And while a lower interest rate may result in a lower monthly payment, it is important to consider how long you intend to be in the loan and to compare current interest rates to historical market trends. This will help you to determine whether paying points is a worthwhile investment.

Let's look at a common sample scenario for Santa Clarita, CA. If you take out a $300,000 mortgage and decide to pay one point in order to lower your interest rate, this would translate into an up-front cost of $3,000. To keep things simple, we'll assume that paying this one point will save you $50 a month. This means it will take you 60 months to recoup the cost of that point. If you decide to refinance or sell the home before the 60-month mark, your money is lost - not to mention the opportunity cost of not having this money invested elsewhere. In this scenario, you would only benefit financially from paying points if you were to remain in the home for no less than 60 months.

It's also important to remember that interest rates run in cycles. When rates are at historical lows, it makes more sense to pay points if you plan to live in the home for an extended period of time. If it's unlikely that rates will go down in the near future, then there will be no need to refinance.

When interest rates are high, however, there is a strong likelihood that they will come down again before too long. Therefore, this is not a good time to pay points. The chances of refinancing in the near future are extremely high, and you will likely not be in the loan long enough to recoup the up-front cost of the points.

Tax deductibility is another thing to consider when choosing whether or not to pay points. For new purchases, interest from both points paid and your mortgage are tax deductible up front. For refinances, however, points are not deductible up front. Instead the deductions are spread out over the term of the loan (unless the entire loan is paid off early), making points more costly in comparison.

Ultimately, there's a lot to consider when it comes to points and whether or not they are a worthwhile investment. An experienced mortgage professional will work with you to determine the best course of action based upon your specific situation. Request a comprehensive cost comparison to see whether paying points could be financially beneficial to you.

If you or someone you know would like to learn more about points and whether they should be a part of your mortgage plan, give us a call. We would be happy to assist you!

Once your loan package has been sent to the lender, there are a number of things you should avoid doing that will change your financial picture. Remember, the lender is looking for stability and consistency. If you want the best interest rate, keep that in mind. Here are a few things to consider:

The lender is looking to see what your source of down payment is.

Your lender will most likely ask you to provide proof of your liquid assets. This includes bank statements for checking and savings accounts, verification of investments, and any other liquid assets. Some of the things they ask for may seem trivial, but keep in mind, if you are planning a move to a new home, it's important to have all documentation readily available. If the lender asks for cancelled checks or deposit receipts to meet certain conditions, you want to be able to find these things quickly to avoid delaying the closing of your loan. Make sure your paper trail is easy to document, and don't move money from one account to another.

Major purchases tip the scales against your favor.

Avoid making any major purchases. You might be thinking about purchasing new appliances for the new home. This is not the time to do it. Avoid making any major purchases on jewelry, appliances, furniture, vacations, or anything with a significant price tag.

Buying or leasing a car can make a negative impact on the way the lender views your financial status. This is a big ticket item that dramatically affects your debt-to-income ratio. You may feel you have room in your budget to purchase a new car, and think this is a worthy investment if you are looking for a home that will mean a longer commute for you on a daily basis. But by tacking a car payment onto your existing debt, you reduce the amount that you will qualify for in a home loan. A $400 a month car payment can reduce your approved loan limit by as much as $50,000. Think about doing this after your loan is approved if you really need it.

If you have to change jobs, you may be asked to document why this change occurred.

If you are changing jobs to increase your income, that's a no-brainer for the lender. If you have an erratic work history to start with, another job change may make it look worse for you.

If you are an hourly wage employee, most likely a job change will have no effect on your ability to qualify for a loan. If you have a track record of a consistent amount of overtime or consistent bonuses over the last two years, the lender views this favorably. If you change jobs, there is no way of knowing if the new employer will pay overtime. Many do not! If you work on a salary + commission or straight commission basis, it has a dramatic effect on your stability. If you are considering starting your own business, again, this is something to consider after your loan is funded.

In Santa Clarita, CA, FHA loans have not been utilized for years, so a lot of real estate agents and mortgage originators aren't familiar with this great resource. The following are a just a few of the recent changes that have made FHA loans a more attractive option again for some consumers looking to buy a new home or refinance an existing one:

1) Congress passed the Stimulus Act of 2008. During the recent housing boom, home values surpassed FHA loan limits in many regions of the US. The recent enactment of this important legislation, however, increased FHA loan limits up to $729,500 in many high-cost regions of the US through the end of the year. FHA loan limits vary by county, so give us a call for loan limits in your area.
2) The FHA changed its appraisal and fee negotiating guidelines. In the past, many sellers steered clear of FHA loans because the appraisals were too strict and certain fees were non-negotiable. The FHA has greatly loosened these guidelines to make it easier for both buyers and sellers.
3) FHA loans are much cheaper now. Because FHA loans are federally insured, they tend to trade at a higher premium in the secondary market. This means lenders can often charge a lower rate.

Other FHA Benefits:

1) FHA loans are typically not credit-score driven. Borrowers usually can have a lower score than with other products and still qualify for a good rate.
2) FHA loans require as little as 3.5% down, and allows a) Sellers to finance up to 6% of the buyer's costs to close; b) Homeowners to take cash out up to 95% of the home's value; and c) Homeowners to consolidate first and second mortgages up to 97% of the home's value.
3) FHA loans allow down-payment assistance programs that are not seller-funded. *It is important to note that there are 22 ways in which FHA allows the funds for buyer contribution, including relative gifts and loans.
4) FHA loans allow non-occupying co-signers (i.e., mom/dad) to co-sign on the mortgage, even if the occupying signer (i.e. son/daughter) has no income. Note that specific restrictions apply.

If you or someone you know are thinking about buying or refinancing a home, give us a call. We'll see if an FHA loan is right for your financial goals and needs.

What's the difference between pre-qualification and pre-approval?

Pre-qualification is the starting point in your search for mortgage financing. A quick snapshot is taken which includes income, existing debt, savings, length of employment, etc. All of these factors will then be analyzed to determine your loan eligibility.

Pre-approval is written documentation that shows you have the support of a lender who is willing to finance you. It means an underwriter has reviewed your loan application. Based on your income, debt ratio and savings, the underwriter provides the dollar amount you are eligible to borrow. Now you can shop around for houses that fit into that loan amount category.

Here is the nice thing about the pre-approval: It gives you the leverage to shop as a cash buyer! With a pre-approval in hand, you now have the power to negotiate. The seller will take your offer much more seriously knowing you are already approved by a lender. Pre-approval can also shorten the time it takes to close, making even a lower bid attractive to sellers who are seeking to move quickly.

What will my monthly payments be?

The amount of your monthly payment depends on what loan program you choose. We like to provide our clients with an easy-to-read spreadsheet that narrows their choices down and compares different loan programs that meet both current and long-term goals. You will have the opportunity to select a program you feel comfortable with before you make an offer on a home.

What does it cost to get pre-approved?

Pre-approval is FREE! You have absolutely nothing to lose and everything to gain.

Give us a call to begin your pre-approval process. We have a network of Santa Clarita Real Estate professionals ready to provide you with excellent service!

Act Now, Before the Fed Does

The Federal Reserve is scheduled to meet this week and announce its new Policy Statement and Interest Rate Decision Wednesday...and will cut the Fed Funds Rate once again. This is no big surprise. Throughout 2008, the Fed has lowered key interest rates in an effort to stimulate the economy - including cuts in its Fed Funds and Discount Rates earlier this month in an unscheduled meeting. As we know however, cuts in these interest rates do not translate into lower home loan rates. In fact, they typically move in the exact opposite direction.

That's the reason I wanted to share this information with you today. If you want to secure a lower mortgage rate, the best time to act could be before the Fed meets and announces its latest cut.

In the chart below, notice the pink line. That line represents the interest rate the Fed impacts with its financial policy. As you can see, the line has been consistently lower since January. The blue line, which represents 30-year fixed-rate mortgages, shows that mortgage rates have risen since the first Fed rate cut announcement.

So don't wait until Wednesday. Whether you're considering buying a home or refinancing your existing property, call us today. We'll review your individual situation and see what's best for you and your family. And don't believe the hype about credit being impossible to get. Credit standards for many loans have tightened up, but mortgage money is widely available on home purchases for borrowers who can provide documentation and support their mortgage application.

And even if you don't have a home loan need at the present time, feel free to check in with us anyway. We can discuss your current situation, plan for the future, and make sure you are in the best possible position for any financial needs that may be coming down the road.