I’m getting a lot of phone calls asking about articles people are reading in different publications. I’m also talking to people who like most of us are hearing all of the terrible stories on the TV news regarding the mortgage/credit crunch but not paying complete attention because it doesn’t effect us. That may be wrong…you may think it doesn’t effect you because you’re responsible and have great credit. What I’m telling you is you may want to check around if you have an ARM coming due and see if you’re as good as you think you are. Better safe than sorry. Here is my advice. If you have a 3-5 or 7 year ARM (adjustable rate mortgage) that is coming due in the next 12 months it might not be a bad idea to give your lender a call and see what your best course of action is.
The reason I want you to know this and do this is with all the horror stories we are hearing about foreclosures and short sales the banks are protecting themselves and tightening up the criteria in order to purchase AND refinance. If you were banking on the equity in your home to help you along when you refinance it may not be enough 12 months from now. What was 5% minimum down is quickly becoming 10% down…….and if you’re property is in a declining market then there is a chance you will need to add another 5% on top of that. So what once used to be 5% down and something you can handle could quickly become 15% and something that will prevent you from refinancing.
How is that helping??? I know the banks are in as much trouble as a lot of home owners but a lot of these people are trying to refinance into 30 year fixed mortgages. These people are trying to do the right thing…..the kicker to this whole thing is these decisions are not being based on your credit score. While this is still important in getting the best rate it is not swaying the banks on their down payment requirements. They are making these decisions on the area not the borrowers credit score.
So talk to you lender is you’re planning on refinancing and ask the following questions:
- How much am I going to need to put down in order to refinance?
- Can I use the equity in my house and will it be enough?
- What closing costs are associated with refinancing? Can I roll them into the mortgage?
- What is a declining market? Will if have an effect on my refinancing?
- Should I do this now before things get tougher and I may not be able to refinance?
- What is the worst case scenerio?
I do this in no way to scare you but to make you aware.
This type of situation has mainly had an effect on people who put little to no money down within the past 3 to 5 years….did interest only loans…..and did ARMs in order to keep the payment as low as possible. In order to refinance they will need to use the equity in their home in order to put money down again and acquire a fixed mortgage. As we’ve been hearing the equity may not be enough. Hope this helps….it is getting tough out there and it in many ways has nothing to do with you or your ability to pay the loan back. It has to do with the fact that most of Chicago and the Suburbs of Chicago are in a declining market and the banks are freaking out!!! Let me know if you have any questions.
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The most recent surprise news in the mortgage industry, that has everyone talking, is about HELOCS (home equity lines of credit). The disturbing buzz here is that people who have these equity lines are being given notice of the lenders intent to revise the terms and loan limits and in some cases, the lender will actually advise of their intention to close the line involuntarily immediately.
Most of the lines they involuntarily close have had small balances or have no balance at all. Most have been condominiums, but not all. People who have small balances are being asked to pay off that balance by a certain date or the lender implies it will freeze the account and address as needed.
Others have been advised of their loan limits being substantially reduced and are calling to ask us if they need be concerned. Our opinion is that this will become more widespread and is tied to loan-to-values on properties that banks have become uncomfortable with. For those of you who have equity lines on properties that you have rented or leased, it would appear these are of greatest concern. Equity line lenders are selling default second mortgages for 5 cents(or less) on the dollar where properties have begun foreclosure so it is our opinion that the equity lines most in danger of recall are those on properties that are not primary residences.
We have seen a substantial decrease of lenders willing to do second mortgages for new home purchases too. Many buyers have long been advised of the benefits of using 80/10/10 mortgage products to purchase their homes. Our recent experiences suggest that PMI will once again be considered the option most certain of success.
Mortgage insurance will once again be considered the safe option for home buying success because of the skittishness of banks in this continued declining market environment. If you advise your clients or if they remark to you their wish or desire to only buy a home using a 1st. and 2nd. mortgage product, PLEASE be advised they may be disappointed with the result of that wish. Give them balance in their expectation and you’ll be the better agent for it.
Let’s hope things get better soon and that this blip is short lived and temporary in our market.
Mike I thought this might be helpful to some of your readers. Realtors and attorneys need to know what the reality is out there too.
Have a nice day,
Sean
I need some advise, I have a 5/1 that adjusts once every year no higher than 1% my current interest rate is at 6.35 and I am wondering if I should refi. I also have a HELOC with a current rate of 7.75 I would like to get these two combined into one fixed rate loan. What are my chances, I have a heavy debt load with credit cards and student loans. What are my chances of getting a good 30 year fixed rate. Any advice will be greatly appreciated!
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