Navigating the housing market

Mar 19, 2013

Craig Strent, chief executive officer and founder of Apex Home Loans in Rockville, takes your questions about mortgages and refinancing.

Thanks for joining me for the chat today. I have been a mortgage originator in Greater Washington for 18 years and I look forward to answering as many of your questions as I can. Let's have at it!

I am looking ahead to 19 more payments on a 20 year mortgage at 6%. This year I only paid around $800 in interest. I'm 64 and would very much like to wait until I'm 66 to reach my full retirement age for Social Security and am facing a year and a half of unemployment. I have a small IRA and a TIAA annuity. I am seeing mortgage rates on line at 2.8%. Given the costs, does it make sense for me to refinance the last $7500 with a $10,000 mortgage to bridge the gap?

No, the closing costs will exceed your savings and that rate may not even be an option given the size of your mortgage.  Some closing costs are fixed amounts and smaller loan amounts often result in longer breakeven period. Your not paying a whole lot of interest anymore in mortgage terms and if you would like to pay event less, make extra payments to your principal.

Hi, question about down payments of under 20%: if I put 10% down on a condo, can I expect to pay a PMI fee along with my mortgage? What other issues would I be up against or be aware of if I have less than 20% for a deposit? Thanks

With 10% down, you'll need  to either pay PMI or obtain a 2nd mortgage for 10% of the pruchase price in order to avoid the PMI. Nowadays, PMI is typically cheaper than the two mortgage structure and paying one time upfront PMI (single premim MI), rather than monthly, is often the most cost effective option.

My husband and I have started talking about buying a place when our current lease runs out. From what I've read, the first step in the process is meeting with a mortgage lender to get approved, determine what we can realistically afford, etc. But how do we go about finding/deciding on one? Should we just use one of the institutions that we bank with?

You can certainly check with the institution that you bank with and I recommend checking with 2-3 lenders total. You may want to consider speaking an independent company that focuses only on residential mortgages. Typically these companies will have a wider universe of products and might be more service oriented as mortgages are all they do.  I would gather the companies through recommendations from your financial advisor and other homeowners that you are friendly with that have conveyed good experiences with their lender.

Are VA mortgages much easier to get than others? Are there fewer hoops to go through? How do I find a lender offering them?

Down payment guidelines are looser on VA loans in that you can finance 100% of the property. VA itself has a different set of guidelines than conventional loans, including of course, eligibility restrictions to your service.  Debt to income requirements can be tricky dependng on your individual scenario.  Bottom line is that VA is a good option if you qualify. check out va.gov to find approved lenders like myself.

Thanks for taking my question. We currently have about 7 to 10% to put down on a home. We have been looking for 6 weeks and have become discouraged since there is limited inventory and what there is sells quickly and for above asking. We can rent for another year and save for closer to 20% down and maybe there will be more on the market then. Our realtor tells us this is a mistake because interest rates are so low now and there are no guarantees in a year. What are your thoughts on both the interest rate and 10% down versus 20%?

Don't get discouraged. Inventory levels tend to pick up going into the spring and more should come online soon.  With regard to the downpayment, financing will be more expensive with less than 20% down, but that can be offset by the fact that rates MAY be higher one year  from now.  I would continue looking, but don't necessarily compromise and buy a home just because rates are low as that is only one factor that should affect your decision.

I have a Bank of America loan that isn't backed by Freddie or Fannie, so the government refinance plans don't apply to me. The loan is also at 5.85%, so I'd really like to refinance, but my condo is also underwater. What resources are there for me? I've had the mortgage for about 5 years, and it consists of 2 loans, 1 interest-only 10 year than a principle loan. Total loan amount is $160,000. Thank you!

Check with your servicer as they are the best option usually for a modification. FHA may be an option if you are willing to bring cash to closing, which actually has a decent return on investment in many cases in that it effectuates a lower rate and a significant return on your money.

How legit are the "fha streamline refinance" mailers that we keep getting in the mail? We are entering year 4 of an fha loan. I don't think we have 20% equity yet, but these mailers indicate we could refi and a much lower rate. We checked with our broker about 6 months ago and he said due to when we got our loan (July 2009), our mortgage insurance would be at a much higher percentage eliminating almost all savings we would gain at the lower rate. Inquiries with our loan provider directly have gone nowhere. We'd like to refi if possible as we're paying 5.75%.

The mailers are pulling public data and showing you savings based on the lower rate without usually accounting for the higher MIP that your broker is alluding to, so there is probably not much opportunity for you there.  

Craig, Posting as a buyer from outside DC-MD-VA: How important is a 20% down payment to home buyers' financial security and mortgage affordability? Particularly first time home buyers? Granted, you sell mortgages, so maybe you're not the right person to ask?

From a financing standpoint, a  20% down payment is only important to the extent that it allows  you to avoid mortgage insurance. Most home purchases in this region occur with less than 20% down and if buying makes sense over renting after running the numbers even with a down payment less than 20%, then you should look closely at it.  Obviously mortgage affordabiliy is also a function of your income.  In terms of financial security, it really depends on your other assets outside of the home.

If you have a jumbo loan, is there any hope at all to refinance? I'm clearly upset that we can't move our 6.25% mortgage when we are just barely underwater. Is there no one who will work with a jumbo unless you have 80%?

Some jumbo lenders go as high as 85% loan to value with a equity line piggyback structure. However, if you mean you are underwater in terms of having zero equity, then there really are not any refi options without paying down your loan on a jumbo.

So, a DoD civilian who works at the Pentagon wants to get a house loan. Do you qualify him based on his salary or 80% of his salary? Because from April to September, we are all getting Fridays off unpaid whether we like it or not. And next year looks bleak, also.

80% of the salary as it is indicative of your income moving forward

As an investor with SOME cash on hand, does it make better investment sense to pay cash for a decent deal on a purchase such as a foreclosure or short sale or to still finance the purchase and keep the cash for a rainy day?

Don't put down more than 25%. You'll want to remain liquid, particularly when owning multiple properties. Money is cheap, so if the cash flow works, limit the down payment and diversify your asset base.

Housing inventory has been pretty low in DC area the last few months. I suppose that's typical in winter, but do you forsee it picking up a lot during the spring/summer? Interest rates are still low and we're at a point where we are ready to buy, I'm just worried we won't find anything in our price range (<$400k).

We just hosted our 5th Annual Spring Housing Briefing and the data pointed to more inventory coming on in the spring as it always does. People often sell and buy as school is coming to an end and before it starts back up again. Check out GMU's Center for Regional Analysis for some great housing data. 

I bought my present coop apartment in 1990, so there is a great deal of appreciation that I have in it. I plan to sell this unit when I retire in about four years and re-locate to Florida. Given the price differential between the DC area and Florida, I should be able to purchase my retirement home with cash. But what would be the advantages to obtaining a mortgage if I can pay cash? Thanks.

Retirees are predisposed to not having a mortgage as they worry about cash flow after working. My feeling is that you never know when you will need the cash, so take a mortgage for 80% of the home value, get a tax break on the interest and keep your cash separated from the house. You can always use it to subisdize the mortgage payments if needed. If you put the money all down and have no loan and then need cash later, you'll be stuck with a reverse mortgage, which is very expensive and you will then be paying someone else to borrow your OWN money back.

Just a followup question to your earlier answer about how to start the home buying process. How are mortgage lender meetings, approvals, etc affected by different state regulations? My wife and I are considering areas in both MD, VA, and DC. Will one lender typically be able to service all of these areas, or will we have to talk with someone different for each area?

In our region, most lenders are licensed in all 3 jurisdictions. Check the homepages of their website to check which states they are licensed to lend.  

We bought a new house over a year ago and got an FHA loan with 10% down. The neighborhood we are in is appreciating quite quickly. Would refinancing be an option to get rid of the PMI once the house appreciates enough?

Sure. Once you have 20% equity, you could refinance to a conventional loan without mortgage insurance 

I paid off our mortgage this past July, and called the mortgage servicer to get the canceled note - what was sent to me was a reduced copy of the note, with "Paid in Full" or words to that effect stamped on it. I also just got our bi-annual properly tax bill which still indicates that a mortgager is supposed to be responsible for it (we did get the remaining escrow money back, and are paying the taxes ourselves). Please advise, what documentation should they be sending, and what should I be asking for? Why didn't I get the original note back, and shouldn't I be able to demand that?

Many servicers use electronic records, so the original may no longer exist. The paid in full note is good and you should also ask for a copy of the "release,"  which would have been sent to the courthouse for recording and should have then been returned to you.  You can also send copies of those items to the county to remove the lender from your tax bill.

What is the process for getting a constuction loan approved? Can you go to a typical mortgage lender or is it more specialized than that? I know there would need to be an "as completed" appraisal done to demonstrate that the work being performed will add value. How much equity is generally required for the incremental funds (or can that fluctuate based on the equity already in the house)? And is it required to refinance your entire first mortgage? Or do construction loans convert to 2nd mortgages when the interest-only period ends and the permanent financing is implemented?

I don't offer construction loans and there are lenders that typically specialize in these types of loans. Generically speaking, the loan is based on the as completed value as you indicated and draws are released based on each stage of construction being completed. These are typically done in a first lien position with interest only payments during the construction period, after which time you would modify or refi the loan into a more permanent option. Some lenders offer "one time close" options, which is typically an ARM based loan product.

I have a 2 year old FHA loan with PMI, but my house will appraise for 20 percent above what I paid for it. Can I refinance with a conventional mortgage and aviod paying the rest of the PMI.

Yes, you can refianance at anytime as FHA loans don't have pre-pay penalties .  If it is a jumbo loan, you are still ok, but can only get a super conforming loan up to $625,500. Above that, it is a jumbo, but if you have 20% equity, you still won't need PMI.

Why didn't you suggest that the questioner who was near the end of their mortgage should take out a home equity loan or (preferably) a home equity line of credit -- they could then borrow what they need to pay off the first mortgage, probably get a lower rate on what they borrow, pay that off and keep the line of credit open in case they need to borrow in the future?

They could do that, but they would take on additional exposure as equity lines are based on prime and nowadays typically come with a margin of 1 to 1.5%. I recognize that's better than the 6% they are paying now, but with 7 years left on the loan, it's certainly possible that prime plus it's margin could rise above their current 6% rate. Additionally, equity lines typically come with a penalty if paid in full or closed in the first 3 years. I agree that having a ready line of access to your home's equity is valuable and to the extent that this homeowner is ok with the rate risk, then the options is fine. Savings are really not that subtantial given the size of their current loan. 

I'm looking to buy this spring, likely in the $700-900K range (already pre-qual'd). I am not a first time home-buyer and am currently renting. Credit score in the high 700's. Plan to put down 20%. Lucky me. But I'm not sure WHAT type of mortgage to go for. I've always done conventional in the past, but the last one was in 2007. Is there a good place to find this out? I don't know about VA vs/ Fannie Mae vs/ anything. I am just looking for the best interest rate. Where can I find out information like this?

With 20% down, conventional is your best option but if you go above $ 625,500, you will pay jumbo rates, which tend to be about .5% higher.  Get recommendations for lenders from other satisfied homebuyers, then interview about product, service, and turn times, and pricing.

Hey Craig, I have a question regarding delinquent tax payments I have on two of my vacant rental properties. I'm looking to get an FHA loan and my lender is telling me that I have delinquent tax payments on both my rental properties in another state. However I've provided her information that both homes are paid off. Is this grounds to deny an FHA loan?

If they are tax liens, then typically you would have to pay them ahead of closing. From a lending standpoint, it does not sit well with the lender to make loans against property to a borrower with a history of not paying their property taxes, which means that the lender would need to step in and outlay funds to avoid a tax sale.

Want to know how big a deposit would be required from a foreigner wanting to buy a property in the U.S.?

Typically at least 25% down, though the citizenship status is the real hurdle there with diplomatic immunity usually being a non starter. Often, lenders follow a 2/2/2 rule, meaning 2 years U.S. credit history, 2 years residency in the U.S., and 2 years employment.

We have excellent credit ratings but got turned down for refinancing due to lack of clear title. We don't have our own insurance for this, but when we refinanced in the past this was not a problem. How hard will this be to fix and how do you go about doing it?

Depends on the specific title issue. You probably purchased an "owner's policy of title insurance" when you bought your home and may need to make a claim on that document. Often, it may just be an old unreleased lien against your home from the last refinance, in which case you can go back to your previous lender or settlement company to track down a release. 

How do you expect the sequester and decrease in overall government spending to effect the housing market in 6 months, 1 year, and 2 year time periods in DC? What advice do you have for people currently renting?

Sequestration will hit our market harder than most.  I don't see big mortgage defaults coming, but the job market may slow with the decrease in governement spending, which could put downward pressure on home prices as it decreases the universe of buyers. We'll start seeing this in the next few months as the cuts ripple through and what happens 1-2 years out is really dependent on what happens with the current budget talks.

"I would gather the companies through recommendations from your financial advisor and other homeowners that you are friendly with that have conveyed good experiences with their lender." Do you have any personal recommendations for such companies? We don't have a financial advisor and most of our friends either purchased their homes years ago or still rent.

Of course you can call me at Apex Home Loans.  :) LendRight is another good site that will have good locally owned mortgage firms and the CMPS (Certified Mortgage Planning Specialist) Institute will list mortgage originators that are well versed in tax and financial planning issues affecting the mortgage as well.

The family that bought our house got a mortgage and because they were in such a hurry, they waived getting a house inspection except for one inspection for termites. Our house was in good condition, but why would a mortgage company agree to this? It makes me want to partially blame the banks when a homeowner misses the payments because of many unexpected costly repairs.

 Lenders generally rely on the appraiser to point out any major deficiency's and the seller makes certain representations with regard to the quality and functionability of the home in the contract. 

My wife and I are thinking about buying a town house for investment property in Northern Virginia. Do you think it's a good time for rentals? Is it a good investment?

This depends on numerous factors, the least of which is not your total asset diversification. Rental property can be a goood idea IF you have strong cash reserves, the proper insurance policies in place, and are doing a good job funding your retirement and possible future college expenses. You don't want to have all of your wealth in just the real estate category. Also remember that unlike buying a mutual fund, rental property is an "active" investment, requiring you to be on call often to fix problems. Run the numbers to make sure the rent will support the mortgage payment plus another 25% to account for vacancy, repairs, and improvements.  My experience with rental property investors is that those that do it casually without their eyes open often get hurt, whereas those that do it as a fulltime or second job and manage multiple properties tend to be more successful. 

Any advice for first-time home buyers fatigue? My husband and I have been looking to buy for several months but with no luck. We've tried to focus on our "must haves" which has helped, but we're almost to the point where we'll buy anything just so we can stop looking! How do we know if we're being too picky?

I would not compromise on your "must haves,"  but remember that no house is absolutely perfect. Reset your expectations and find a home that will meet your needs for at least the next 5-7 years.

The estimated current selling price of my house is about $100K under what I paid for it. Do you think the housing market is likely to recover that much in a year? In maybe two years? or five? Or do I just sell when I feel like it and take the loss?

You may have heard, but real estate is all about location, so it really depends on where your home is and what is going on around you. It also depends on what you want to do and when you want to move. If you are happy and can afford the payments, don't worry about the fact that it is underwater.  If you are anxious to move, consider renting out your home and taking an incremental loss, which retains the possible long term upside of recovering your gains through appreciation down the road.

Thanks for all the great questions. For more information, you can contact me at cstrent@apexhomeloans.com or visit my website at www.apexhomeloans.com/craigstrent

In This Chat
Craig Strent
Craig Strent is chief executive officer and founder of Apex Home Loans in Rockville. Apex Home Loans is Montgomery County's largest independent mortgage banker. The company originates residential home loans in Maryland, the District and Virginia. The company's Web site is www.apexhomeloans.com.
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