Money Saving Mortgage Tips

Your mortgage payment is most likely your largest monthly expense. But there are ways you can decrease your monthly payment and pay off your loan faster.

Let's walk through the tips using this mortgage example:

$200,000 mortgage
30-year fixed rate mortgage
6% interest rate
$1,199 monthly principal and interest payment
Savings will vary based on your actual loan facts and timing of the change

1. Make an Extra Payment Each Year

If you have the means, the easiest way to save money on your mortgage is by making an extra mortgage payment each year. These extra payments are automatically applied on your principal, not interest. Not only does your remaining balance drop, but you will not have to pay interest each month on that principal for the remainder of the loan term.

Savings: $47,000. By making one extra payment of $1,199 each year and applying it to your principal, you could save over $47,000 in interest and cut 5 years off the life of the loan.

2. Create Bi-Weekly Payments

Another way to pay off your loan early is by creating a bi-weekly payment plan. Put half of your monthly mortgage payment in a savings account every other Friday (or, on your pay day). Each month, pay your mortgage from the account. At the end of the year, you will have made 26 half payments, which is 13 full payments. This will leave with you an extra payment that you can put toward your principal. Most people manage the separate accounts themselves, but there are companies that you can hire to act as an escrow service and manage the payments for you.

Savings: $47,000. Same as extra payment.

3. Cut your PMI

Many people are forced to pay private mortgage insurance (PMI) because their down payment is less than 20 percent. If you are in this boat, you can petition your lender to cancel the insurance as soon as your mortgage balance falls below 80 percent of the home's appraised value. This can happen if your home's value has gone up or you have repaid some of the principal. This may require a new appraisal but could shave hundreds of dollars off your monthly payment.

Savings: $130 per month. If you only put down 5 percent and had a PMI rate of .78 percent, you could save $130 per month.

4. Fight Your Property Assessment

Property taxes can be thousands of dollars a year. If you think your home's value has decreased in the last year and it was not properly accounted for in your tax assessment, you can petition your assessor and fight your assessment. Lowering your tax assessment will lower your yearly taxes.  Since the New River Valley has just reassessed property, now may be a perfect time to hire an appraiser independently so that you can contest the taxable assessment that the municipalities have determined your home is worth.  Just the other day, for example, I closed a loan that the property appraised for $110,000.00 however, the city had the property assessed for tax purposes at $195,000.00.  My closed borrower is taking a copy of her appraisal to the assessors office and will likely receive relief from such an enormously high assessment, and subsequent tax levy.

Savings: Varies. Depends on your local tax rate and home adjustment, but could be hundreds of dollars a year.

5. Recast Your Mortgage

Some lenders are willing to recast (reset) your monthly payment when you make large payments toward the principal of your mortgage. Usually, when you put money toward your balance, your monthly payment stays the same but the term of your loan shortens. When the loan is recast, your monthly principal and interest is recalculated so you end up with a lower monthly payment over the existing term of the loan.  Banks that participate typically charge you a fee for recasting, however, this is still cheaper than refinancing the entire loan again.

Savings: $120 per month. Putting $20,000 into the loan would reset the payment to $1,079, saving you $120 per month.

6. Loan Modification

If you are late on your payments and are going through a financial hardship, you may be eligible to modify terms of your loan (such as rate, term, or principal balance) to make it more affordable. The goal of these programs is to allow borrowers to stay in their homes and continue making their monthly payments. Not everyone qualifies for these types of programs, but if you do, they can save you a lot of money. To find out if you qualify, contact the servicer of your mortgage or visit the Making Home Affordable eligibility site.

Savings: Varies. It can reduce your interest rate to as low as 2 percent, extend your term to 40 years, or reduce your principal.

7. Refinance Your Mortgage

The most common way to save money is by refinancing your mortgage to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments. However, there are costs associated with refinancing so you want to be sure you are going to save enough to cover the refinancing fees. With rates at historic lows, if you can refinance, and you haven't already, you should.

Savings: $126 per month. By lowering your interest rate to 5 percent, you would have a payment of $1,073 which would save you $126 per month. If the refinance costs $5,000, you would recoup the fees after 40 months.

Class action lawsuits appear to be filed against banks for the foreclosure debacle

Well, it appears that the foreclosure mess is still heating up with Yahoo Financial News reporting that class action lawsuits have been filed in Maryland, New Jersey and Massachusetts. 

Allegedly, the reporting states that Bank of America, Wells Fargo, HSBC PLC, and JPMorgan Chase have been named, and in Florida and Maine, Ally Financial formerly GMAC Mortgage is also involved. 

Bank of America has had additional scrutiny placed against it having been named in a lawsuit through the RICO law, or the civil Racketeering Influenced and Corrupt Organizations law.

You can read the entire story at http://finance.yahoo.com/news/Foreclosure-class-actions-apf-676420498.html?x=0&sec=topStories&pos=2&asset=&ccode.

Tie up the boot straps and hang on.  It looks like that roller coaster ride we were on in 2008 and 2009 is coming back.  The market is already worse by .25% in rate this morning, and the rates have increase by almost .50% on the 30 year note since last Wednesday.

Long and Foster REALTORS and Prosperity Mortgage participate in Toys for Tots

This week, we kick off our 20th annual Toys for Tots campaign. That's right -- for 20 years, Long & Foster and Prosperity Mortgage has been collecting thousands of toys to support the local U.S. Marine Corps Reserves in their efforts to bring holiday cheer to deserving families.

Arguably, this year may be our most important year to contribute. According to data released in September by the U.S. Census Bureau, the poverty rate in the United States climbed more than 14 percent from 2008 to 2009. The Long & Foster Companies Toys for Tots campaign can help the Marines keep pace with this significant jump as they aim to serve families in the Mid-Atlantic region.

From now until mid-December (the actual cut-off date will depend on your office’s final donation date), Long & Foster and Prosperity Mortgage will run its sponsorship toy collection campaign. Offices across our service area will participate, along with our headquarters building in Chantilly—all serving as donation sites for new, unwrapped toys. If your office is participating, I hope you will once again consider contributing to this important initiative.

Contact your friends, family members and clients to let them know that their local Long & Foster and Prosperity Mortgage office is a convenient drop-off point for Toys for Tots donations. In addition to individual offices throughout the Mid-Atlantic region serving as official drop-off points, the Chantilly headquarters building will accept donations in the lobby through December 14th.

Long & Foster Companies aims to be an integral part of the communities we serve and there’s no better time to get involved than the holidays. Together, I anticipate Long & Foster and Prosperity Mortgage will be the facilitator of the donation of thousands of toys this holiday season.

Thank you for your participation in the 2010 Toys for Tots campaign. Good luck and have fun!

Mortgage 101-Back to the Future

When the financial crisis hit, many banks became tightfisted, and plenty of potential borrowers walked away empty-handed. But financial institutions have emerged from the recession stronger and ready to lend. Credit is readily available for those who qualify. Banks want to lend money, but the days of not knowing your income and failing to manage your credit are gone.


Keep in mind that from mortgages to car loans, your credit history and score matter more than they did prior to the crunch. Rates are at rock-bottom levels for borrowers with top-tier credit -- generally credit scores above 720. Before you shop rates, get a copy of your credit report. Make sure that you buy your credit score. With the free reports, you get a copy of the report that contains your tradelines, but it will not give you a credit score. If you do this, you can see where you stand before you apply for a loan.

Mortgages: Stricter Rules

Mortgage lenders want to make loans now, and they may even bid against one another for your business. But lending standards remain tight, and you must be prepared to produce a mound of paperwork to document your income and assets.

Rates are as low as they were in the 1950s, so going through the motions could pay off. In mid September, the average interest rate for a 30-year, fixed-rate conforming loan -- a mortgage of $417,000 or less -- was 4.5%, according to HSH Associates, a mortgage-tracking firm. The initial rate for a 5/1 adjustable-rate mortgage (a fixed rate for five years, followed by annual adjustments) was 3.6%.

Fannie Mae, Freddie Mac and the Federal Housing Administration continue to dominate the mortgage market, setting the standards for the loans that lenders make and sell to investors. So lenders strive to dot every i and cross every t when they qualify you.

If you're buying or refinancing the mortgage on your primary home, you'll need a minimum down payment of 5% to 10% for a conforming loan or 10% to 15% for a conforming jumbo loan (125% of a metro area's median home price, up to $729,750). With 20% or more down, you avoid private mortgage insurance, which typically costs 0.5% to 1.5% of your loan amount per year.

Fannie Mae and Freddie Mac allow a minimum credit score of 620 if you have at least 25% equity in the property or a score of 660 with equity of less than 25%; you'll get the best rate if your score exceeds 720. The FHA will soon require a minimum credit score of 580 to qualify with a down payment of 3.5%, but FHA lenders often impose a higher minimum score of 620. This is important to note that Prosperity Mortgage will accept a 600 score, and a 580 score may be acceptable with extremely strong compensating factors. The key with a 580 score is your proven compensating factors.

In addition to your credit, lenders will also scrutinize your ability to pay, starting with your ratio of debt to income. Monthly housing expenses (principal, interest, taxes, hazard insurance, private mortgage insurance and association fees) shouldn't account for more than 28% of gross monthly income. Total debt shouldn't exceed 41% of gross income, but in some cases lenders stretch the maximum to 41%. FHA has more flexibility with the 41% ratio, with loans receiving an accept automated finding to 50%. With a conventional loan, you are really going to be pressed to exceed the 41% ratio. Exception requests can be made to 45%, however, you must have 20% down and have very strong compensating factors to impress the underwriter to exceed the 41% tolerance.

Prove It.

At a minimum, you must supply your pay stubs for the past 30 days and W-2 forms for the past two years. Lenders will want to see bank, retirement-account and investment statements for the past 60 days. There are three types of borrowers that will face additional scrutiny and requirements. These borrowers are:

If you're self-employed or if 25% or more of your income is from commissions or bonuses, you must provide two years of tax returns. Lenders will average your income over the past two years to figure your debt-to-income ratio. If you have pursued opportunities to reduce your taxable income, you may not have sufficient income to qualify even though you may have a lot of money in the bank. Note, business expenses written off on your tax return are typically dollar for dollar. Be careful here. Remember, “No Taxey, No Usey.” If you don’t pay taxes on the income, you can not use the income for qualifying.

If you want to rent out your home and buy a new one, you must provide a signed lease for a minimum of 12 months. You can use only 75% of rental income to help qualify for the mortgage, and you must have at least 30% equity in your former home. You may also be required to provide copies of your tax return if you leased the property the previous year. If you are leasing the property and not paying taxes on the income, you may not be able to offset the debt with the rents. Again, the “No Taxey, No Usey” guideline applies.

If you and your spouse are relocating for work and your spouse doesn't have a job yet, you must qualify for the loan based on one income unless your spouse has a signed agreement with an employer to begin work within 45 days of closing the loan.

Even if you qualify, you can throw a monkey wrench into the final loan approval if you take on new debt that could affect your credit score or your debt-to-income ratio. Some lenders pull another credit report just before closing. Another possible sticking point is the appraisal. Overly generous appraisals helped to fuel the housing bubble. Now, miserly ones may thwart your closing. Lenders will estimate the value of your home conservatively, and appraisers are generally following suit, especially if the local market is in flux.

Home Equity: Lower Limits

Several years ago, home values were rising so rapidly that you could build a pile of equity practically before the ink was dry on your settlement papers -- and then borrow against it to pay for everything from home repairs to college tuition. But as prices have tumbled, lenders have tightened their criteria for approving fixed-rate home-equity loans and variable-rate lines of credit.

Now in most cities you'll be able to borrow no more than 80% of the appraised value, less the mortgage. This is very important when refinancing a cash our refi. If you bought your home in 2005 and then took an equity loan or HELOC out in 2007, and now you want to refinance both mortgages, you are looking at a cash out refinance and the maximum LTV is 80%. With values slipping and appraisals harder to come by, this may not be an option so make sure to due your homework and get a good value indicator from an agent or appraiser.

You'll need a credit score of at least 720, as opposed to the 650 to 680 you could get away with a few years ago. And as with first mortgages, you'll have to document income and assets. Interest rates depend on the amount you borrow and your location.

Congress Passes Tax Credit Extension

The National Association of Realtors estimates that 180,000 homebuyers who reached the first hurdle of the home buyer tax credit—signing a contract by April 30—were at risk of not reaching the second hurdle in time to claim the credit, which was closing before June 30.

The House of Representatives overwhelmingly passed its extension bill, officially called HR 5623, the Homebuyer Assistance and Improvement Act of 2010; Senators were divided but pushed the bill through on June 30th. The bill now heads to President Obama’s desk to be signed into law.

The Senate joined its counterparts in the House by approving a three month extension to the closing component of the tax credit. This extension only applies to those who had ratified contracts by April 30, and addresses the bottleneck that happened this month to bring settlements for some buyers to the table before the original June 30 deadline.

Be prepared to clarify to buyers that this extension does not apply to current shoppers. The extension applies only to those who had a contract by April 30 but were delayed on the way to the settlement table. Those buyers will now have until September 30 to close.

I am proud to report that Prosperity Mortgage did an outstanding job getting our mutual clients to settlement by the original date of June 30 - outperforming many other lenders in the industry. My thanks to the Prosperity team for helping our agents and our clients take advantage of the program and close on time.

NAR has an informative section of its website dedicated to the tax credit extension. You may want to check it out if you have additional questions.

Getting Perspective-Take Housing Data In Context To Get The Full Picture.

The news headlines of the last 48 hours are enough to get any consumer rattled. Media outlets across the country are shouting far and wide about a “double dip housing recession” and housing sales that have “plunged 33 percent.”

I think it’s important to put these numbers in context, and help our customers understand that national media headlines are not always reflective of the entire picture of our real estate markets.

Let’s break down a couple of this week’s rather dramatic headlines.

New home sales plummet to record low (CNNMoney.com)

The U.S. Commerce Department reported Wednesday that new home sales declined almost 33 percent from April levels, to a seasonally adjusted rate of 300,000 sold units. Year-over-year, this number represents an 18.3 percent decline in sales.

Here’s what you need to know and communicate to your customers:

This sales report is for new construction homes, not existing homes that have resold. The headline says “new home sales,” for sure, but the media does little to clarify that this report is for new construction sales only.

Further, new construction sales made up only 5 percent of all home sales in May. The vast majority of the market was existing home sales.

Due to the seasonality of home sales, month to month increases or declines are far less pertinent than year-over-year changes.

Housing sales decrease in May, dashing hopes of quick recovery (The Washington Post)

The Washington Post may be located in Long & Foster’s territory, but it’s not necessarily a local publication. This article, and many like it, reported existing home sales figures released this week by the National Association of Realtors. These numbers are reported on a national level.

NAR reported that sales of existing single-family homes, townhouses and condos fell 2.2 percent from April to a seasonally adjusted rate of 5.66 million units in May. On the heels of big sales gains the previous two months, the media positions this number as representing a housing market that lost momentum toward the end of the tax incentive period.

Here’s what you need to know and communicate to your customers:

Sales vary greatly by region—even by county. With the market recovering at different rates—even within the Long & Foster footprint—consumers will increasingly rely on their Long & Foster sales associate to communicate the dynamics of their local market. This is why we launched The Long & Foster Market Minute for more than 100 metro areas we serve. This data is not only local, it’s updated monthly. Share it with your customers to give them the real existing homes sales picture for their region.

Looking at existing home sales in a broader context, year-to-date sales as of May climbed at least 10 percent (tracking right alongside Long & Foster’s sales, as I reported in my last WIN). Further, compared to May of last year, May’s sales were up 19.2 percent. There are definitely some bright spots in these numbers that don’t tend to make the headlines or initial paragraphs of most news reports.

As we expected, the market did see a decline in written contracts in May following the wrap-up of the tax credit period. Much of May's decrease was due to the pull-forward phenomenon we experienced in April.

Behind the headlines.  The news agencies and media are reporting:

1-Big decreases in home sales

2-Housing stats paint a deteriorating housing recovery

3-The housing market is "double dipping"

The facts are:

New home sales (only 5 percent of the market) are down, but existing home sales (95 percent of the market) are up.

Written contracts were down in May, but we projected this with the pull-forward phenomenon caused by the tax credits.

We expect June numbers to get back on track as the market works through the ripple effects of the tax credit.

Keep yourself informed of the real story behind housing data. If you’re informed, you’ll be better equipped to educate your buyers and sellers about what’s really happening in their markets.

Everything we do begins with a real estate transaction and a professional Sales Associate and we recognize and celebrate that fact.

New home sales hit the largest increase in 47 years.

Mortgage bonds prices remain negative this morning piling on top of the already bad day of trading yesterday.

Durable goods orders fell 1.3%, weaker than the expected 0.3% increase. Unfortunately the data is being overshadowed by talk of the Fed selling assets off their balance sheet. More supply pressures prices down and rates higher.

Yesterday Treasury secretary Geithner made remarks about Fannie Mae and Freddie Mac that have the market unsettled. Geithner said they were a “colossal mess, colossal mistake, never should have happened.” He said the administration plans to “change that system completely” next year. Those remarks don't really instill much confidence in mortgage backed securities.

New home sales rose a shocking 26.9%. This was the largest increase in 47 years and just added fuel to the fire of an already negative mortgage bond market.

Existing Home Sales Increase 8.2% in February

Nationally, the number of buyers who wrote contracts to purchase previously existed homes increased sharply exceeding analysts expectations for the month of February. 

Home sales had been sluggish during the winter months due to the unusal weather patterns and the Mid Atlantic regions having several larger than expected snow storms. 

Additional thoughts for the increased business is that the Federal Government has offerred the First Time Homebuyers tax credit of up to $8,000.00 and an existing homeowners credit of $6,500.00 if they were to move and buy a new primary residence.

Thinking of waiting to Purchase or Refi.....think again!

If you want to refinance your mortgage into a loan with a sub-5.00% interest rate, better hurry. Your window of opportunity is closing fast.

Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5.00%-plus category.  This is especially prevalent if your credit score is below 740.

During the week of January 7, the average 30-year, fixed-rate loan closed at 5.09%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the end December.

While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs should call to see if they should lock in.

Why are rates going up. Well, the big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.

However, the Fed's program lapses on March 31, when it concedes the playing field to private investors. These investors will demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.

Not only have mortgage rates turned north but Treasury yields have as well. This is another indication that mortgage rates are headed skyward.

The yield on the benchmark 10-year Treasury has grown rapidly over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.

Don’t look (or yet, LOOK!!!) now, but yes, the economy is bouncing back.

Have you reviewed your 401K, 403B and ROTH’s lately? When I checked mine on December 31st, it was touting an increase of 32% over 2008. I spoke with a local financial advisor yesterday and she indicated that this type of increase was actually the norm and not the exception this past year.

As the economy improves, businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.

My prediction is we will see rates in the mid-5.00% by June 2010 and likely near 6.00% by December. There will be some days within the year that the fluctuation may even take us to 6.25% but the overall picture should be in the mid to high 5%’s until fall.

Frequently Asked Questions about RESPA Reform

1.Does RESPA Reform apply to all loan types?

No. It applies to all open-end and closed-end loans but does not apply to home equity lines of credit.

2. At what point can a loan originator collect upfront fees?

An applicant must receive his or her initial disclosures before upfront fees can be collected from that applicant. The only exception is the credit report fee which can be collected at application.

3.What if the settlement agent or attorney that the REALTOR or customer prefers to use is unable to fulfill on the expectations set forth in the closing agent instructions?

In any such case, another settlement agent or attorney who can execute based on our closing agent instructions will need to be selected.

4. Is there anything a REALTOR or Builder needs to look for with settlement agents or attorneys?

We recommend REALTORS and Builders talk to the settlement agents or attorneys right away about the RESPA Reform requirements to ensure the closing agents are prepared to issue the new HUD-1 as required. This may help avoid the possibility of having to select a new closing agent midstream which could impact the closing date.

5. Is a GFE a loan commitment?

No, the GFE is not a loan commitment. A GFE is an estimate of the total charges associated with obtaining the loan, regardless of who is responsible for paying each of those charges, but neither the borrower nor the lender is obligated to enter into the loan. We, however, are bound to the charges quoted on the GFE for 10 days, unless a valid changed circumstance arises.

6. If a charge on the HUD-1 is less than the charge on the GFE, could this cause a delay in the closing?

No. It is permissible for charges to the borrower to decrease without a need for the GFE to be reissued or the closing to be delayed.

7.Are there additional impacts to new construction loans?

In transactions involving newhome purchaseswhere settlement is anticipated to occur more than 60 calendar days from the time the GFE is provided, the loan originator may provide the GFE to the borrower with a disclosure stating that at any time up until 60 calendar days prior to closing, a revised GFE may be issued, even without changed circumstances.

RESPA Reform and How it Affects You

So, 2009 is in the past and 2010 has started. Several things happened in 2009 that will forever impact the mortgage and real estate industry going forward. Specifically, an item called RESPA Reform.

As the mortgage industry continues to implement changes that help provide customers the essential information and adequate time to understand their home purchase or refinance options, it is the goal of all mortgage lenders to keep consumers and real estate professionals informed.

Several months ago, we introduced many to the Home Valuation Code of Conduct (HVCC) and the Housing and Economic Recovery Act (HERA) requirements that took effect July 30, 2009. In November, we again sought to educate many about the new home lending settlement statement and its impacts that will be seen as of January 1, 2010.

What exactly is RESPA and how is it to be reformed? RESPA stands for the Real Estate Settlement Procedures Act and was enacted by the U.S.Department of Housing and Urban Development (HUD) with the intent to help protect borrowers applying for home financing by standardizing the industry. Furthermore, RESPA provides for a more thorough explanation and disclosure of key loan terms and settlement charges.

This is done by implementing revisions to both the Good Faith Estimate (GFE) and the Settlement Statement (HUD-1). This includes a side by side chart ( on the new page 3 of the HUD-1) to help compare the estimated charges shown on the GFE with the actual charges at closing; and it requires that fees not increase between the issuance of the GFE and closing except under limited circumstances.

The objective of the new changes was to assist the new home buyer in making better choices regarding their mortgage lending options, all the while, mandating that lenders stand behind their initial estimates by requiring the lender to absorb any overage in final fees that exceed the greater of 10% initially disclosed on the GFE.

Now, don’t get overly excited here. While the new procedure offers greater protection from those shady lenders and brokers that like to participate in a slight of hand or bait and switch, there will be the occasion that fees may increase. RESPA explains that an allowable fee increase can only be charged to the borrower if it occurred due to what HUD refers as a valid changed circumstance. For example, if the borrower chooses to make a significant change to his or her loan (such as a loan product or term change) or if a full review of the appraisal results in discovery that a survey is required, this constitutes a valid change circumstance and the associated fee increase can be charged to the borrower. Another example is in the event a power of attorney (POA) is needed for a borrower who cannot attend a closing.

In the end, while you may or may not agree with the new RESPA change, it is what it is. HUD is trying to protect borrowers from those in the real estate industry that are not looking after their clients best interests. Like any change, it is difficult to swallow in the beginning, but as time passes, it will become common practice and everyone will forget “how it used to be.