Each week the Mortgage Bankers Association (MBA) releases a report on how many new applications for mortgages and refinances occur throughout America. A recent report was a promising one. Overall applications were up almost 20% from the week prior, if you look at the unadjusted numbers. The real hero in the past week, however, is refinance applications.
The Refinance Index (an MBA marker which tracks refinance applications and converts those numbers to an index) is up over 8% from last week. This is the highest the index has been in over a year. Refinance applications also count for almost 80% of all home loan applications across the board. It is clear that many see now as the right time to begin the refinance process.
While refinance applications were the story this week, purchase applications were up as well. The seasonally adjusted numbers show a small increase in purchase applications led by an 8% increase in government loan applications. This is not surprising as many seek homeownership through less costly means, such as an FHA loan.
Across the board, it seems like homeowners are beginning to understand that low, low interest rates are not going to stick around forever. Making smart choices about which mortgage product is best for you will ensure that you get the most out of your refinance. If you are unsure what options are available to you, I recommend you check your Mortgage Grade and find out exactly what options you have.
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Whether you are refinancing your current mortgage or buying a home for the first time, closing costs are something we all have to deal with. Saving the most on either of these mortgage transactions means keeping those costs to a minimum. The problem many consumers run into is that these closing costs vary so much from one lender to another. This can make shopping for the right mortgage product a real hassle. Here are a few tips that just might save you some cash the next time you close:
Tip 1: Make a Fuss about Extra Fees
There are dozens of different fees that can be charged to consumers at the time of close. Make sure you understand exactly what fees you are being charged. Often asking why you are being charged a certain fee can lead to it being eliminated from your closing costs.
Tip 2: Ask an Expert
The Mortgage Professor, Jack Guttentag, is always available to answer your questions. If you are unclear about any fee you may be charged at your close, ask. There is no other way you are going to get the right answer.
Tip 3: Keep it in Perspective
Closing fees are a part of life when it comes to a mortgage. Understanding what to expect is the best way to avoid surprises when you go to close on your loan. This means carefully reading your Good Faith Estimate as well as all your documentation to make sure that no extra fees will be charged for any reason.
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It is clear that the European financial situation has helped to keep interest rates low. Investors are unsure about banks who report heavy losses in many European countries. When they decide to invest in American products, interest rates drop further. This is why it is important for smart consumers to stay mindful of world events. Let’s have a look at some of the particulars of the stress test European banks undertook last week.
Of the 91 banks tested only 7 failed. While 5 of these were small Spanish banks, two were larger lenders: Hypo Real Estate (Germany) and ATEBank in Greece. All other major European banks passed. Throughout Europe these tests were seen as a success, showing that even in a high stress financial situation, it is unlikely that many banks will crumble.
So what does that mean for American Homeowners?
Just like the debt crisis in Greece and the rest of Europe helped to hold interest rates down, improvement in European markets will help to bring interest rates back up. With marginal success and continuing uncertainly overseas, it is unlikely that the findings of the stress test will alter rates much. In the coming weeks, however, I would not be surprised if rates hung around current levels, rather than dropping.
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It doesn’t matter what city you’re in. If you live in America, you’ve felt the crunch of a busted housing market. Undervalued homes and a market filled with foreclosures or short sales is something we’ve all had to deal with. The question that everyone seems to be asking is, “When will it end?”
Unfortunately, the answer to that question is still unclear. The tide of foreclosures must pass before stock can be taken to really get an idea of what shape we are in. What isn’t helping the recovery is the deluge of information that consumers can find confusing. Understanding some common misconceptions may help you decide when to make your next move:
- The Home Buyer Tax Credit Ended the Housing Recession: While it is true that the ending of the credit boosted sales earlier this year, the drop in home sales after its expiration is a clear sign that the home buyer tax credit did not end the recession.
- Once Home Prices Hit Bottom They Will Rebound Fast: Markets like housing are usually cyclical. Though this is generally true, how long the cycle takes to occur is a matter of economics. With unemployment rates still high and many foreclosed homes still on the market, don’t expect dramatic change even after a bottom is felt.
- Foreclosures are Slowing: Unfortunately, many lenders have been holding onto defaulted properties and are only now going through the rest of the foreclosure process. It is expected that we will not see a slowing of new foreclosures on the market until the fall.
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The numbers are in from last week and once again we sit on or near record lows for nearly all mortgage types. From jumbo loans to ARMs (Adjustable Rate Mortgages), everything is at or near the lowest levels ever. It is not surprising that refinance applications have also increased recently.
The number of Americans looking to refinance has hit the highest levels since May last year. More homeowners than ever are looking to take advantage of today’s interest rates. So, why are consumers deciding that the time is now?
Mortgage rates have been low for quite some time. It is only in the past few weeks that we have seen any sign of a bottom. Once rates hit bottom, smart consumers (who have already begun the refinance process) will be able to close and get the most out of their deal. Those who wait may find higher interest rates and fewer savings than they had hoped for.
The most important thing to note about refinancing is that it is not like it used to be. Increasing strictness on lending practices as well as new rules for lenders makes the process slower than you might have remembered. Having all your documents in order as well as staying up-to-date on where your refinance is what can make the difference between a refinance nightmare and a refinance dream come true.
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There have been a lot of new interested homeowners on the refinance front even though applications have remained low across the nation. While some of these consumers feel they know exactly what to expect, many have only gone through the process of applying for a loan or refinance just once.
There is a general timeline you can expect in applying for a home loan. After you have sent off your request to your chosen lender, they have two days to contact you and begin the application process. If you have made an informed choice about your lender as well as your loan, there is little reason for a lender not to begin this process. Their response should include a letter of commitment stating the offer. Conditions on this letter will need to be met in order for the close to occur, so make sure you look it over carefully, understand the terms, and ask questions if you need to. Some conditions may include correcting violations in building or zoning codes. These can be subject to change and are easy to overlook.
Sometimes after submitting a lock request, the lender does not respond. If this happens you will be able to once again choose a lender and submit another request. I recommend that you have another look at your mortgage situation and check your Mortgage Grade to make sure you are making the best decision.
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As this week has progressed, I have been bombarded with questions about what refinance hopefuls should do. Most of these questions come from consumers who are already engaged in the process. I’ve boiled down all these specific questions into a few general ones that I can answer for all.
Here goes:
“I am ready to close and worried that rates will go up. Should I close now?”
If you have a rate lock, I would not be worried as changes in rates over the past months have been quite small, so close when you are ready. I would not rush it just because interest rates have recently made a small jump. It is also not a great idea to leave your close to the final day of the offer. If something were to be out of order when you attempt your close and it is the last day, you may be in danger of having your offer expire. This would mean redoing the entire process.
“I have started the refinance process, but did not get a rate lock. Should I have?”
While rates have made only small changes recently and were on a downward trend, I would still recommend a rate lock. Ensuring your rate is always the best policy, especially if you consider that a mortgage is likely the largest investment most consumers ever make.
“I’m thinking of refinancing. Is now the time or should I wait for a bottom?”
The choice about when to begin a refinance will always be up to you. While I don’t think we have seen the bottom of interest rates this year, extended rate locks are available to make sure you take full advantage of current rates should they continue to rise.
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There are many consumers interested in refinancing. Some have taken advantage, but a lot of homeowners are on the fence about whether they can get a good deal when considering closing costs and so much more information required by many lenders. If you are sitting on the refinance fence, here are a few things that can ruin your chances, even before you start:
- Not Finishing the Fixes: If you are thinking of refinancing, it is time to finish up all those home improvement projects that are half done. A ripped out sink in the basement bathroom or exposed wall will cause your appraisal to be lower than it should be. Finishing these projects and not starting new ones is important if you want to get the most out of your refinance.
- Overestimating Your Home’s Value: Even in today’s market, homeowners may assume that their home has not depreciated as much as it actually has. This may lead to confusion and frustration for consumers and lenders alike.
- Long Vacations: If you are thinking about a refinance, don’t plan a long vacation. Extended time without communication with your lender could lead to a failed application. It is usually best to wait until after your refinance has closed to head out for a vacation longer than a weekend.
- No Rate Lock: If you are thinking of applying for a refinance soon, you should think about getting a rate lock. If you let your interest rate float instead, there is always a chance that increased rates could leave you saving thousands less than you might have. A rate lock ensures you get what you paid for.
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Taking out a second mortgage today is different than it was ten years ago. I think most consumers realize this. Lenders have higher standards than before and want to know more about every borrower. If you consider the added risk of being second on a property, it all adds up to consumers being more informed about their personal financial situation and mortgage readiness.
Typically, a second mortgage would be more expensive to consumers, but in today’s low interest era, finding a second mortgage that pays less interest is possible. Just ask our resident Mortgage Professor, Jack Guttentag. These investments are riskier and usually entail a floating interest rate, but can save you money if you have a high interest first loan and are not able to refinance it.
Whether you want to make home improvements or pay off debt, accessing the equity in your home is possible through second mortgages, but you have to tread the waters carefully. I recommend that anyone who is thinking of applying for a second mortgage of any type should check their Mortgage Grade. This will help you easily assess your mortgage situation and make sure you have the information you need to make the right decision.
So, can you have a second mortgage lower than your first? I think so, don’t you?
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Interest rates have made a small jump over the last week. This comes after 6 weeks of falling rates and an overall downward trend that has been visible since April. The rate increase marks only the second time weekly rates have improved in the last 3 months. When interest rates begin to rise, I always seem to get the same question from homeowners: When’s the best time to refinance? I always tell these savvy consumers, “Only you can tell me that.”
The only way to know whether you are ready to refinance is by assessing your situation as well as your needs, then setting some goals. Deciding what you hope to gain (cash to remodel or a lower monthly payment for instance) and knowing what all your mortgage options are is the only way to prepare for getting the best deal on a refinance.
Once you know what you want and what you can get, finding the best rates or deciding when the market is best for you isn’t easy. I recommend a rate lock if you are ready and would like to see if rates will continue to fall in future weeks. While I don’t think we’ve seen the end of falling interest rates, I do believe that little change in current rates will mean the “best time” to refinance is probably sooner rather than later.
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