The Washington Post

Mortgage Q&A | A home finance expert takes your questions

Oct 21, 2014

Mortgage rates have plummeted to 14-month lows. New mortgage approval standards are making it much tougher to qualify for a home loan. Craig Strent, CEO of Rockville-based Apex Home Loans, answered your home finance-related questions.

Great to be back on washingtonpost.com today. Looking forward to your questions.

Is there a general rule of thumb regarding how much you need to cut off your interest rate to make it worth your money/time to refinance? I'm 2+ years into a 30 year mortgage at 4.25%. Unless I go to a 15 year mortgage, I don't think rates will go low enough to make it worth my time. Instead of refinancing, I've been paying more to principle (but have the option to pay regular amount if times get tough). While I'd love to get a rate around 3.75%-3.9%, I realize that 4.25% is still very good. Thanks

Determining whether to refinance is all based on your breakeven period.  You want to look at your monthly interest savings and divide that into the transactional costs. The result will be the number of months it takes to breakeven. If you plan to live in your home LONGER than the breakeven period, then the refi generally makes sense, though given that you never really know what the  future holds, I don't like to see breakeven periods beyond 12 months.  General rules that you sometimes read about regarding the rate having to drop a certain percentage before you refi should be disregarded as it really depends more on the loan amount involved and the jurisdiction you are in as that affects costs. For example, dropping 0.25% on an $800k mortgage in DC will make more sense on a refi than dropping 1% on a  $ 100k refi in VA.  Also remember that you can sometimes refinance with NO CLOSING COSTS. by accepting a slightly above market rate.  This is almost always a no brainer, particularly if you keep your term the same or shorten it. Regarding your extra payments to principal, at a rate of 4.25% now, which is even lower after you deduct the interest, you may want to consider deploying that money elsewhere. Your after tax return on investing long term is often better than your cost of borrowing and putting the money to work somewhere else may allow you to own the home even sooner.

My mother is wanting to add me to the deed of her house. We're going to be discussing at length over Thanksgiving. Is the only way to add my name to the deed by her going and refinancing? If so and she adds me by refinancing, am I just on the DEED of the property or am I on both the MORTGAGE and deed for the property? Does this make me responsible for the mortgage? Thank you.

In practice, your Mom should be able to add you to the DEED without having to refinance her mortgage. If you need her to come off the DEED when you go on, you are essentially purchasing the home from her and that should involve a new mortgage. Adding yourself only to the Deed should not obligate you on the mortgage.   A change in title alone technically triggers the due on sale clause in your Deed of Trust, though in practice that is often not enforced when payments continue to be made on time.

We just bought our first home and are curious about why mortgage lenders need every single financial transaction up until the day of closing when they've already seen bank account that show liquid assets? Why does it matter what account it is in, if you already know we have it? This was very frustrating for us as buyers, no one prepared us for the amount of paperwork that would go into getting a mortgage - it was like a part time job!!

I'll address your last statement first and say that your mortgage lender should have prepared you for the onerous requests of asset documentation and cash to close.  With regard to why you have to document the assets, lenders need to verify that funds were not borrowed elsewhere and therefore do not have any payments attached to them that may not be included in your loan qualification. They need to make sure gifts are actually that and that money is not being funneled back to you from the agents or sellers involved. You can thank the mortgage meltdown that started in 2008 for the conservatorship of Fannie & Freddie for all of these onerous documentation requests. Much of the fraud that occurred in mortgages and housing involved the source of funds for cash  to close.

Hello, any advice for refinancing a home that's not your standard property? I'm in the DC-Baltimore region, in a 'good' zipcode. My house is fairly new and modern, but smaller, about 1700 sf. Plus, it's a small farm. Many lenders won't consider the property at all because there's too much land. I tried to refinance about 2 years ago, and got a very low appraisal, based on some comps that IMO were not comparable. I've had similar problems in the past, and in the old days, could discuss the comps with the appraiser and help them find properties that were really comparable. Now, according to the bank, there's no discussion allowed. I'm not underwater, and not having trouble making mortgage payments, but it sure would be nice to lower the my interest rate by 1% or so and free up some more cash each month. Any suggestions?

This is not a conventional loan given that it is a farm and my recommendation is that a community bank in your area is going to be the best option with regard to properly valuing the home.  Terms may not be as good as a conventional loan, but may be an improvement over what you have now.

I'm trying to figure out when (if ever) it makes sense for us to refinance. We bought a $650K house almost 2 years ago, a 30-year mortgage with an FHA loan (3.5% down) at an interest rate of 3.25%. It was great to be able to get our foot in the door to home ownership by using the FHA loan (20% down of a $650K loan would have taken many more years for us to save up), but I hate that we're spending $700/month of our mortgage payment on the extra insurance because we have an FHA loan. I have a couple questions-- 1) how much would our home have to appreciate (or how much equity would we need) in order for us to refinance into a conventional loan without the extra costs associated with our FHA loan? and 2) what are the downsides to refinancing? We would be willing to pay a bit more over the long haul in order to reduce our monthly payments now. Thanks for taking my question!

At 10% equity, numerous options open up for you, including a conventional loan with monthly mortgage insurance, a lender paid insurance option, which is essentially a higher rate in lieu of mortgage insurance, or an 80/10 option, which piggybacks a second mortgage onto your 1st to avoid PMI completely. The downside to the  refi is that you are unlikely to obtain the same low rate you have now, so you have to weigh that against the mortgage insurance savings

We had our house appraised to get rid of the PMI and found that we have a ton of equity. Refi didn't make sense at the time because we already have a mortgage interest rate at 4.25%. We are thinking of using that equity to buy another property to rent out. We'd have to crunch the numbers to make sure we can manage the cashflow, but what do you have any thoughts on how to do this? Refi? HELOC? Would lenders even consider this scenario given the lending climate?

First, consider the non financial costs of being a landlord. Are you willing to manage the property, be on call to fix things and so on. Purchasing a rental property can turn into a 2nd job, so be sure you are ready for that.  Also insure that you have at least 6 months of mortgage payments in reserves for BOTH properties. 

Once you make the decision to buy, tapping your current home equity is worth considering.  You'll want to look at the total payments on your new mortgage with cash out plus the mortgage including taxes and insurance on the rental. Ideally you should be renting the new home for at least 25% more than the total payments. Even at that rate, you are not doing that great after annual repairs. Those that are successful as landlords run the numbers first and make sound investments based on the cash flow. Those that speculate on future value of the property and carry  the house at a breakeven or loss hoping for a big payday down the road often get disappointed.   

I am about to finish an upgrade to my condominium 1/2 bath (the only room that was not updated when I moved in 5 years ago). I plan to apply for a 20-year refinance as soon as this is complete. Based on a cursory review of sold listings and the Zillow estimator I should safely make 20/80 (I put 10 percent down originally and have made small, but consistent, extra principal payments for the last few years). One major question: How rigorous is the appraisal process? As I said, I made some improvements, but I haven't repainted since I moved in. Another: I know about the "two week rule" on applying for mortgages, but is there a limit on the number of firms I can target? I have my current servicer, my major bank, my former employer's credit union where I am still a member, and Costco. And of course, the online direct lending firms. Should I just apply everywhere or is there a strategy involved?

In terms of the appraisal for your condo, your lender will require two like kind recent sales from the same building you are in, ideally within the last 6 months, so be sure to look at units similar to yours that sold recently. Often times homeowners choose the highest sale in the building and then try to argue unsuccessfully  that their unit is the same. In terms of painting and decorating, I would not worry too much. The appraiser is looking at room count, upgrades, and amenities.  In terms of your question about lenders, I would check with your current service and local independent co's that are direct lenders and focus only on mortgages.

Is it possible to get a loan without have a steady income. Specifically if one has at least 3 times the loan amount in savings. If so, would the rate be higher?

In the current environment, you will not get a conventional loan without a steady income in most cases. There are some loopholes that allow for income to be calculated based on the total assets and your age, but not all lenders offer that option. If you are close to retirement and have significant assets, you may be able to get it done.

Where do you think rates are headed? Will they continue to stay low for a while or will they start going up again soon?

If I knew  that for sure I probably would not be taking questions online today.  :)  Rates are expected to stay low through the end of the year, though we have already come off the 14 month lows we saw last week and numerous homeowners missed an opportunity to refinance. October is always a volatile month and this year was no exception.  Of course the long term trend certainly will be to go higher. Existing homeowners  should establish specific targets at which a refinance makes sense, then have their mortgage professional monitor this for them so that they can jump on dips in the market to save thousands on their mortgage long term

While I don't think the industry should go back to the days where they were giving money away, I wonder if they have gone to far the other way. It seems impossible for most people, especially first-time home buyers, to qualify for a mortgage these days. Do you see them loosening the standards anytime soon?

While I believe the government's reaction to the mortgage crisis of the past decade has gone too far the other way,  I believe it is a common misperception of the market that first time buyers can't qualify. After all, you can borrow up to $ 625,500 these days with only 3.5% down.  That seems pretty reasonable to me. Mortgage qualification isn't so much difficult as it is onerous as documentation requirements have gone too far.

If you were getting a mortgage right now, would you use a mortgage broker or would you contact a big bank directly such as Bank of America etc.?

Neither. I would choose an independent mortgage banker (direct lender) that focuses only on residential mortgages.  You're likely to find a very high service level and competitive pricing from many of the local mortgage banks.

We just sold a rental property and understand that we have 45 days from our settlement date to identify 1-3 properties of equal or greater value we could purchase with the proceeds from our sale to completely avoid capital gains taxes. Two questions, please: 1) If we DON'T do a Starker, what is the capital gains tax rate on the gain from our sale (our AGI is above $250K); 2) If we don't do a Starker exchange, what else, if anything, can we do to avoid or minimize capital gains taxes? Thanks.

I am going to advise you to check with your Tax Preparer / CPA on this one as this is much more of a tax question than a mortgage question and particularly the second part will depend on your specific situation.

Mr. Strent, I am most curious and interested in when will you stop grinding so much every single day and smell the golf roses once in a while? It will be good for your soul and allow you to work more productively. That has been my experience in my life and I wish to share my limited wisdom with you. Any questions for me, sir? Respectfully, Ron Bergman

Great advice!  Trying to do balance it all out is never easy.

Just wanted to drop some kudos for Craig and his team. They helped me get a mortgage earlier this year and were fantastic. Apex's professionalism and attention to detail are unparalleled. Any questions I had were answered quickly and courteously. Thanks Craig! Go Habs! -CC

I should probably reply with GO CAPS!  And while I like seeing the CAPS win, I have to say GO ISLANDERS!

Thanks for all your questions everyone!  You can contact me directly at craig@apexhomeloans.com

There was an earlier question about prepaying your mortgage that disappeared as I was typing it.  In my opinion, prepaying your loan is generally not the best use of your money, especially if you are not maxing out your pre-tax retirement account. Generally speaking, properly investing extra cash flow long term is better than paying it towards your loan and will allow you to own your home sooner.

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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