30 Year Fixed vs. 5 Year Hybrid ARM

With fixed rates plunging to record lows, the vast majority of borrowers are choosing the 30 or 15 year fixed rate mortgage. However, in some circumstances, a 5 year ARM, or Hybrid mortgage is a wiser choice. Particularly with FHA loans, the 5 year product is very attractive. The difference between a 30 year fixed rate and a 5 year hybrid ARM, is that the rate on the ARM product starts out at a reduced rate for the first 5 years. Then it can rise as much as 1% per year in the subsequent years. The maximum rise over the entire loan is 5%.

The current FHA 30 year fixed rate mortgage is 4.75%. The 5 year ARM is at 3.25%. So, using a $100,000 loan amount for example, the payment deferential is as follows:

$100,000 at 3.25% = $435.21 per month
$100,000 at 4.75% = $521.62 per month

Net difference of $86.41 per $100,000 financed per month

The 5 year ARM can go up after 5 years. So, using worst case estimates, the payment can rise to $491.94 in year 6, $552.21 in year 7, $615.72 in year 8, $682.18 in year 9, and $751.27 in year 10. It is not until the 10th year that the sum of the ARM payments meets the sum of the fixed rate payments.

Hybrid ARMs are not for everyone, but for a home buyer that expects to sell or refinance within 5 to 10 years, this is a financing option worth considering.

I would be happy to run your custom scenario so determine the best solution to your financing needs.

Below is a graph illustrating the payments:

AVOID EXPENSIVE PMI WITH A "COMBO-LOAN"

This popular program is now back, on a limited basis. Known as 80-10-10 financing, this was a very popular way to structure financing to avoid expensive mortgage insurance. The program was virtually eliminated due to the declining real estate values nationwide. But, now with a stabilizing homes market, I am able to offer this program for purchase and refinance customers in Middlesex and Worcester Counties of Massachusetts.

Simply put, the program sets the First Mortgage at 80% of the property value. The Second Mortgage is then set at up to a total of 90% of property value. Under this arrangement, there is no PMI needed on the first mortgage - saving the borrower hundreds of dollars per month and thousands per year!

A complete pre-approval for financing should be obtained to determine eligibility, rates, and costs associated with this great program. I will provide a side-by-side analysis of this program versus a conventional 90% financing option.

LOWER QUALIFYING CREDIT FOR FHA LOANS

Wells Fargo has announced a MAJOR REDUCTION in minimum credit score for FHA loans. The new minimum credit score to qualify for FHA financing has been lowered to "500". This represents a significant easing of credit floor standards by Wells Fargo. This is not an industry wide change, this is unique to Wells Fargo Home Mortgage. In order to qualify for financing in the newly created lower tier, a maximum of 90% financing is allowed. The following is the new credit (score) guideline:

• Loan score lower than 500 = not allowed
• Loan score 500 to 579 allowed with maximum 90% LTV and the additional requirements listed below
• Loan score 580 - 599 allowed with maximum 95% LTV and the additional requirements listed below
• Loan score 600 and higher allowed with maximum 96.5% LTV

Additional requirements: All of the following requirements apply for transactions with loan scores less than 600:

• Maximum rations of 31/43
• 2 months reserves PITI
• Gift funds not to be used for 5% or 10% down programs
• Down payment assistance programs not allowed for 5% or 10% down programs.

It is IMPORTANT TO NOTE that, unlike Fannie Mae financing, interest rate adjustments/penalties are not applied on a graduating score basis. As a result, a borrower that formerly was assuming a 10% down purchase transaction, Fannie Mae conforming, will have a significant rate advantage with FHA. And, lower score application are ineligible with Fannie Mae, while now eligible down to a 500 score, with the same LOW RATE.

A complete pre-approval is highly recommended to determine eligibility and final rate.

New Program for Bank Owned Properties: HOMEPATH

Fannie Mae, along with Wells Fargo, has created a new loan program designed to assist in the purchase of Foreclosed Properties, or Bank Owned Properties, or REO's. This program, called HomePath, was developed to simplify and expedite the sale of the mounting inventory of these properties. This program will have special appeal to First Time Homebuyers and Investors, as the following key features apply to HOMPATH eligible properties:
97% Financing for Owner Occupies Single Family Residences
90% Financing for Investment Properties
NO Mortgage Insurance Premium
NO Appraisal Necessary
Until now, REOs have been difficult to finance because of appraisal deficiencies. Although the purchase price may have been a "bargain" price, lenders would not lend on properties needing work. Now, with the NO APPRAISAL feature, a "fixer-upper" can be financed through HomePath. Investors may be interested in this program as 90% financing is available. And NO PMI applies to all HomePath loans.
It is important for buyers to understand that proper caution should be taken in evaluating the value of the property. A property inspection is advised so that the buyer is fully aware of any deficiencies that may have otherwise been noted in an appraisal.
A complete list of HomePath Eligible properties in Greater Boston, Massachusetts, or any selected area is available through Wells Fargo Home Mortgage, or by following the link, www.homepath.com.
Loan approval is subject to Wells Fargo underwriting. Contact me for a complete explanation of rules and guidelines.

You Can Refinance Your Home Even if it Has Declined in Value

One of the first laws enacted by President Obama last year was the Economic Stimulus Package. One provision in the law has helped millions of borrowers refinance to today's historic low rates, even though their property has declined in value. Normally, if a property has less than 20% equity, mortgage insurance, or PMI is required to compensate for elevated risk. In 2009, the Home Affordable Refinance Program (HARP) was enacted which allows homeowners with Fannie Mae or Freddie Mac loans to refinance down to the prevailing low rate, even if their house has lost equity. A loan can be refinanced to today's rate even if the (current) property is as much as 105% of the loan amount.
For Example: Home Purchased for $400,000. 20% down, $320,000 mortgage. Since the original purchase, the property value has declined to a value of $305,000. Under the new law, the homeowner can still qualify to refinance the full $320,000 with NO PMI. Many underwriting guidelines are also relaxed, including debt ratios and appraisal requirements.
This program has saved countless homeowners hundreds of dollars per month and thousands of dollars per year. This program is scheduled to end in June of 2011. If you purchased a home in the past 5 years, you most likely fall into this category and will benefit by requesting a HARP refinance.
Qualifications and guidelines do exist, so call me to see if this program can help you save money.

First BLOG Entry!

Welcome to my Wells Fargo BLOG!

The idea of this blog is to cross business with personal. I want to share my experiences with my business friends and associates. I will periodically add useful and interesting updates. I will also share experiences and lessons learned to all my "followers".

I invite your comments as well!