It’s the first week into the new year, and many financial changes have already occurred that will affect many households. However, one change did not take affect that could have devastated struggling homeowners. The Mortgage Forgiveness Debt Relief Act was extended for another year.
Before the end of 2012, we had discussed in previous blog postings, the negative implications this could have caused for many struggling homeowners. This Mortgage Forgiveness Debt Relief Act waived forgiveness of mortgage debt from being counted as taxable income from homeowners who had a short sale or mortgage loan modification. The Mortgage Forgiveness Debt Relief Act was implemented in 2007 and was set to expire Dec. 31, 2012. It was recently reported to be extended to the end of 2013.
How does this Mortgage Forgiveness Debt Relief work? Well as a simple example, many homeowners are struggling with having an “underwater mortgage.” This meaning, they owe more on their home that what it is currently worth in today’s market. In many instances, homeowners are agreeing to short sell their home which gets a bank to agree that they can sell their home for less than what they owe on it.
Example: A homeowner owes $250,000 on their mortgage. They bank agrees they can short sell their home for $200,000. This Mortgage Forgiveness Debt Relief waives them from having to pay taxes on the $50,000 difference.
If this act didn’t pass, many homeowners would be paying taxes on debt that would not have been considered forgiven. Thankfully, for the year 2013, homeowners do not need to worry about this tax affecting them because the Mortgage Forgiveness Debt Relief Act was extended.
Own a FHA Loan? This may be the perfect time for you to refinance if you are stuck with a high interest rate. Rates are still at historic lows, and are providing great opportunities for homeowners to refinance and save a great deal of money.
We have many clients in line to benefit from this program. There are borrowers saving anywhere from $100-$600. The savings is amazing, and truly beneficial to homeowners.
There are many benefits to refinancing your FHA loan to the low interest rates. If you are comfortable with your monthly payment then consider refinancing to lower your rate, but continue making the same payments and pay off your mortgage early!
If you are not comfortable with your payment and want to lower it, then you can do that as well.
If your current loan is a FHA loan, the refinance transaction is one of the most simple and hassle free processes. There is good news to those who owe more on their home than what it is worth– no equity is required. If you have lost equity in your home due to the housing down turn that has taken place, the FHA Streamline is still a possibility to save you money. With a FHA Streamline Refinance, no appraisal is required. The purpose of the FHA Streamline is to reduce your interest rate.
The process is even simple in regards to income verification — there is none. With a FHA Streamline Refinance, we actually leave the income section blank on the application because it is not required to refinance your loan.
Even better, this refinance program is no cost. A true FHA Streamline should be no cost to the borrower.
Right now is a great time to refinance. The word needs to spread to borrowers who feel stuck with a high interest rate and a high monthly payment. There are opportunities to refinance, and you should take advantage of them today.
If you are interested in a FHA Streamline you can contact our mortgage office, Stateline Funding Corp., to get started right away.
In today’s economy with many underwater mortgages, many homeowners are opting to short sale their home when unable to refinance or sell for profit. A short sale is when the bank agrees to allow a home to sell for less than the outstanding debt of the mortgage. If the mortgage value is more than what the property was sold for, then that would be considered a short sale.
Many homeowners are turning to this route to avoid foreclosure, and to get out of a situation where they owe more than what their home is worth.
But, how does a short sale affect one’s credit? Many homeowners want to know this answer and what the long-term effects will be.
When doing a short sale, it typically affects your credit in the same way as a foreclosure would. They both damage your credit, and will take years to rebuild.
According to an article in the LA Times by Liz Weston, “If your scores weren’t that high to begin with—say 680 in the 300-to-800 FICO scale—it would take about three years for them to return to their old levels. If they were high, say 780, it would take about seven years.”
According to Fair Isaac, here is a breakdown of how late payments and a short sale can affect one’s credit:
30 days late: 40 to 110 points
90 days late: 70 to 135 points
Foreclosure, short sale or deed-in-lieu: 85 to 160
Bankruptcy: 130 to 240
Keep in mind, the years to rebuild credit also depends on how the individual manages their credit after the short sale.
When it comes to buying a home after a short sale the time frame can range between two and seven years depending on the circumstances of the individuals.
For example, if buying FHA after a short sale and the homeowner never had a late payment during the whole process, they may be able to buy with no waiting period.
However, when buying a conventional loan, the time frame ranges from two to seven years. One would need to speak to a mortgage professional in order to determine the length needed to wait based on specific situations.
As mortgage planning specialists, we advise checking with a lender first to see if you are qualified to refinance your current mortgage and reduce the monthly payment with a better interest rate or lengthening the term.
If you are unable to refinance and want to short sale, speak to a mortgage professional and real estate agent who specializes in short sales. Short sales require specific guidelines and you should make sure you are working with a professional that understands the complexity.
Why are mortgage refinances on the rise?
Many homeowners want to take advantage of the historically low interest rates and reduce their monthly payment. When rates drop, it does not necessarily increase home purchases, but rather increases mortgage refinances.
The demand for refinancing has gone up since rates have dropped below four percent. Homeowners are reducing their monthly payments a great deal, and some even paying off their mortgage early by reducing the length of their term.
According to the Mortgage Bankers Association, nearly 30 percent of refinances are for the HARP 2.0. With the HARP 2.0 program, borrowers are able to refinance their mortgage regardless of equity as long as they are current on their payments. It is estimated that HARP 2.0 refinances are lowering borrowers’ payments by as much as 26 percent according to the economists at the Federal Reserve Bank of New York.
What other programs are homeowners refinancing under?
The other popular program that has just recently been launched is the Federal Housing Agency’s version of HARP. Changes have been made to the FHA Streamline that will benefit FHA borrowers who have a mortgage owned prior to June 1, 2009. The FHA Streamline is an extremely easy refinance that can be completed in 30 days or less when done correctly. The biggest benefit of this program is that there are no costs involved. The borrower will pay nothing to refinance, and no costs will be added to the loan balance. It is just to lower the borrower’s interest rate and monthly payment.
If you are interested in refinancing your current mortgage to the historically low interest rates you can get started here.
Today is June 11, 2012 which means the new FHA Streamline Refinance Program is available to FHA borrowers. The new changes to the FHA Streamline are a similar version of the HARP program that is available for Fannie Mae and Freddie Mac borrowers.
This new FHA Streamline program allows FHA borrowers to refinance to the current low interest rates, saving hundreds of dollars on their monthly payment and reducing the interest paid over time.
What are the qualifications for this New FHA Streamline Refinance Program?
For this special program your loan must be owned my FHA prior to June 1, 2009. If you received your loan prior to June 1, 2009 then you can utilize this special program.
What are the costs?
The great thing about this program is that it truly is NO cost to the borrower. There are no closing costs and no additional costs added to your loan balance. You truly get to refinance, lower your rate and monthly payment for free. This is done by providing the borrower a credit to cover all costs in the loan transaction.
What is required?
This loan process is one of the easiest refinance transactions available. There is no income documentation needed. There is no appraisal required. There is no verification of assets needed. There is no equity required. This program is just meant to help the borrower reduce their rate and monthly payment.
When it comes to pulling your credit profile, a mortgage only credit report will be pulled. This meaning, no other debts or obligations on your credit report will be pulled. We only care about your mortgage and how you have been paying it.
Will my mortgage insurance increase?
Actually, one of the great benefits of the New FHA Streamline is that the mortgage insurance will be lowered. The new annual MIP (monthly insurance premium) will be .010 points. The PMI will be .55 points. This is only available for this New FHA Streamline Program.
This is a great program for FHA borrowers and you should take advantage of such a great refinance opportunity.
CA Licensed Lender # DRE 00891765/ NMLS 342259
Currently, 15-year fixed rate mortgages carry lower interest rates than 30-year fixed rate mortgages, but obviously have a higher monthly payment. Last week, the 15-year fixed rate mortgage fell below three percent to 2.97% on average. This is incredibly low, which makes sense why homeowners are taking advantage and reducing their loan terms.
How does this work to your benefit?
Since a 15-year mortgage is clearly half the time of a 30-year mortgage, your monthly payment is going to be higher; however, it’s not doubled like most people may think. When making your monthly payment, a good chunk is mainly dedicated to paying interest on your loan, and a smaller portion is actually paying down the principal balance.
The reason homeowners are choosing a 15-year fixed rate mortgage is to avoid the thousands of dollars that they would be paying on mortgage interest.
For example, when comparing a 15-year fixed rate mortgage to a 30-year fixed rate mortgage you can potentially save $46,000 in long-term costs for every $100,000 you borrow. These are estimates, but it gives you an idea of the potential savings you could make by either refinancing to a shorter term, or purchasing a home for a shorter term to lock in these low-interest rates.
According to Freddie Mac’s first quarter results for 2012, 31% of refinance transactions that occurred chose to shorten their loan terms.
To determine if you are in a financial situation that will benefit you to lower your loan term, you should speak with a mortgage professional in your area. If you are in California, we will gladly help you and discuss what your options may be and what will benefit you in the long term.
Even though we are seeing signs of improvement in our economy, there are still areas that are severely struggling with underwater mortgages.
According to the published article, 1 in 3 L.A. County homes are underwater. That is a significant amount of borrowers who owe far more than what their home is worth due to the housing crash.
Further more, it states that roughly 10% of Southern California cities are experiencing 1 out of 5 homeowners being underwater with their mortgage.
The article states that underwater mortgages in the counties of Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego have a negative equity totaled to $138.9 billion this last quarter. The Inland Empire is one of the areas that is being severely affected by the housing market.
Now what does this mean to the underwater homeowners?
There are programs available to help lower your payments and reduce your interest rate in order to give some ease in this situation.
One program is HARP. This program is for Fannie Mae and Freddie Mac owned loans. This program is specifically for homeowners that have no equity, and allows them to refinance and reduce their interest rate as well as their monthly payment. This program began in December of 2011, and will continue through 2013. For more information regarding HARP visit Harp2Lender.info.
The second program that is going to be released in June of 2012 is the FHA Streamline. This, in a way, is FHA’s version of HARP. For homeowners who have a loan owned by FHA, you can refinance with no equity in your home. The great benefit of this program is it is No Cost. It will not cost you anything to refinance your home if done correctly with an experienced mortgage broker. This program will allow you to refinance to the low-interest rates and save you a minimum of 5% on your monthly payment. From our experience with the FHA Streamline, the savings is typically much greater than 5 percent. For more information on the FHA Streamline visit FHAStreamlineLender.com
Although the housing market has really negatively affected Southern California, there are programs available to help. Take advantage of these programs that have become available to help homeowners in need.
With the new guidelines, the Upfront Mortgage Insurance Premium (UFMIP) will be dropping to only .01 percent for FHA Streamlines. This is great news because recently FHA just increased their UFMIP to 1.75 percent for new purchases. The annual mortgage insurance is currently at 1.25 percent, but for the FHA Streamlines this will be reduced to only .55 percent.
FHA Streamlines are a great way to help homeowners simply lower their monthly payment, but many have refused to refinance because of the increased mortgage insurance premiums. However, with this new set of guidelines, many more households will benefit and be able to reduce their monthly payments and interest rates.
It is estimated that 2-3 million FHA borrowers will benefit from this program.
What is required to refinance using the new FHA Streamline?
No employment verification required for FHA Streamlines
No income verification required for FHA Streamlines
No new appraisal required for FHA Streamlines
The FHA Streamline is one of the smoothest and easiest refinance transactions that you could apply for. To be eligible for the FHA Streamline, your loan must have been originated prior to June 1, 2009. You must also have an FHA loan as well as be current on your mortgage payments.
What will you save?
The amount that one will save on their monthly mortgage payment will vary per loan. We have clients that have lowered their monthly payment by $300 using the current FHA Streamline. The savings with the new streamline this June could possibly be the same or greater. That’s a savings of $3,600 a year!
Here’s an example from HUD.gov:
Reduction in Fees Could Save the Typical Borrower About a Thousand Dollars a Year – On Top of Savings from Refinancing
Consider a typical FHA borrower with $175,000 outstanding on their mortgage. Currently, if this borrower refinanced into a 4% loan, they could reduce their monthly payments to nearly $1,010 a month, including both the upfront and monthly mortgage insurance premiums.
With lower mortgage insurance premiums, this borrower could reduce their total monthly payments to about $915 per month. That means nearly $100 in additional savings per month for an FHA borrower – on top of the savings they would receive from refinancing to a lower interest rate.
Who is offering the FHA Streamline?
You can refinance using the FHA Streamline with any lender of your choosing. You do not need to refinance with your current lender. Stateline Funding Corp. is a California lender that offers this program.
**Not all guidelines have been published regarding the FHA Streamline. Information and guidelines have the potential to change. Any changes that occur will be updated once released to the public.
What are the tips and tricks to obtaining the lowest rate possible when refinancing? Well to be honest, you won’t find any. In order to obtain the lowest and best interest rate possible when refinancing, you need to work with a certified mortgage planning specialist.
What is a certified mortgage planning specialist? A certified mortgage planning specialist is someone who has training in the following areas:
- Financial Market and Interest Rate Analysis
- Cash Flow & Debt Analysis
- Real Estate Investment Planning
- Mortgage & Real Estate Taxation
- Ethics and Compliance
The key training that a mortgage professional has when helping you receive a low-interest rate, is the training to be able to analyze the market in order to understand how and why interest rates are continually changing.
So often, consumers shop around looking for the best interest rate, and do not understand why they are receiving so many different quotes from different lenders. What many consumers don’t understand is how interest rates fluctuate and what causes them to change on a daily, even hourly basis.
With a certified mortgage planning specialist, you can be certain that he or she will lock your rate at the opportune time to ensure the best outcome occurs.
We have created a brief four-minute video that will explain what a certified mortgage planning specialist will be able to monitor, such as Stateline Funding Corporation, when it comes to finding the right interest rate for you.
New changes have been made to benefit FHA borrowers who are going to refinance using a FHA Streamline. Only borrowers with a FHA loan can do this, and this refinance does not allow cash to be taken out. However, a FHA Streamline is the fastest, simplest way for borrowers to refinance a FHA mortgage.
The new benefit for the FHA Streamline is the decrease in the upfront mortgage insurance premium, as well as the annual mortgage insurance premium. The FHA upfront MIP is decreasing to .01 percent. The annual mortgage insurance premium is decreasing to .55 percent. These changes will begin June 11, 2012. Any FHA case number that is assigned on or after June 11, 2012 will be given these lowered MIP’s.
In order to qualify for a FHA Streamline Refinance, your loan must have been taken out prior to June 1, 2009 (similar to the HARP program). You must also currently have a FHA mortgage in order to refinance using the FHA Streamline Refinance.
1. There will be no appraisal required for the FHA Streamline Refinance.
No equity required. You can use your original purchase price for your home’s current value.
2. There will be no employment verification for the FHA Streamline Refinance.
You will not be required to be employed.
3. There will be no income verification for the FHA Streamline Refinance.
You will not be required to have set income.
This change will benefit borrowers by lowering their interest rate and reducing the mortgage insurance premiums, both upfront and annual. The FHA Streamline Refinance offers huge savings for current FHA borrowers and will hopefully result in fewer loan defaults in the market.