Nick Pakulla - Mortgage Lender Loan Officer in MD, DC, VA

FHA Updates Loan Limits as of November 18, 2011

On November 18, 2011, the President signed into law H.R. 2112, Consolidated and Further Continuing Appropriations Act 2012 (HR2112). Section 238 of HR 2112 re-establishes the FHA loan limit at the higher of the dollar limit in Section 203(b)(2) or the dollar limit prescribed in Section 202 of the Economic Stimulus Act of 2008 for Forward mortgages.

Therefore, effective for all Forward mortgages with a case number assigned on, or after, November 18, 2011 through December 31, 2011, the loan limits referenced in Mortgagee letter 10-40 shall be in effect.

The Department will be issuing a Mortgagee Letter by mid-next week that will include more detailed guidance and applicable updated loan limit tables for 2012. We expect supporting system changes to be completed within that same time frame.

VA Funding Fees Revert Back to pre-change levels

FUNDING FEE UPDATE AS OF NOVEMBER 22, 2011:  On November 21, 2011, the President signed H.R. 674. Section 265 of the law raises funding fees to the pre-November 18, 2011 levels.  The fees specified in Section 265 are valid through September 30, 2016.

First Time Use

• < 5% down = 2.15%
• 5-10% down = 1.5%
• 10% or more = 1.25%

Second and Subsequent Use

• < 5% down = 3.3%
• 5-10% down = 1.5%
• 10% or more = 1.25%

Nick Pakulla

First Place Bank

Loan Officer

15400 Calhoun Drive Suite 170

Rockville, MD 20855

Direct: 301.585.RATE (7283) | Cell: 443.956.8774 | Fax: 301.560.6303

NMLS# 728211

Email:  NPakulla@fpfc.net

Apply now: http://www.firstplacebank.com/NickPakulla

It was just announced today that a bill has been approved that will raise the FHA (FHA only) mortgage loan limit back to $729,750 for the DC area and $560,000 for the Baltimore metro area.  Unfortunately, they did not raise the Fannie / Freddie conventional mortgage loan limit and they still remain at $625,500 and $494,500 respectively.  Although the conventional limits are not raised, this will still help buyers who don’t have 10% down and are looking to buy above the conventional limits.  

Below is the link to an article if you would like to read more about the change.  Remember, for borrowers with 10% down our bank’s 2^nd Mortgage can bridge the gap between conforming and true jumbo, and will be much more cost effective than going FHA (see example below).  Please call us with any questions.  Thanks and Happy Friday! 

http://www.bloomberg.com/news/2011-11-18/u-s-congress-votes-to-raise-top-limit-for-government-insured-mortgages.html 

Example – FHA with 10% down vs. First Place Bank second mortgage:

$800,000 purchase with FHA 10% down:
$720,000 financed @ 4.25% = $3,542 per month
FHA MIP = $660 per month ($0 going towards principal / not tax deductible)
Total = $4,202  

$800,000 purchase with First Place Bank Second Mortgage 10% down:
$625,500 first mortgage @ 4.25% = $3,077 per month
$94,500 second mortgage @ 7.25% = $645 per month (tax deductible and part of payment is going towards principal)
Total = $3,723 – much better option!

Thanks,
Nick 

Nick Pakulla
First Place Bank
Loan Officer 
15400 Calhoun Drive Suite 170
Rockville, MD 20855
Direct: 301.585.RATE (7283) | Cell: 443.956.8774 | Fax: 301.560.6303
NMLS# 728211
Email:  NPakulla@fpfc.net
Apply now: http://www.firstplacebank.com/NickPakulla

Some encouraging mortgage headlines that all point for positive signs for the housing market in the coming months for buyers in Silver Spring and Bethesda Maryland, DC, and Virginia: 

• For buyers across the country and locally here in Bethesda MD, monthly payments based on median home prices and mortgage rates are now lower than they’ve been in 40 years!  Marketwatch.com http://bit.ly/o21FAN
• There is beginning to be a reversal in the trend towards renting in the Washington area – landlords have raised rents an average of 3.7% per year since 2006, low mortgage rates and home prices are driving purchases for young professionals: Washington Post http://wapo.st/o7AyFa
• Up to 2 million people are waiting to jump into the housing market in the next 2 years, and the typical American still places a high value on home ownership: http://bit.ly/peqpOz  

In other news the Senate voted late last night to restore the high-balance loan limits ($729,750) through 2013 and the vote passed 60-38.  This still needs to go to the House of Representatives, but will be positive for the DC Metro area, especially places like Bethesda and Silver Spring.  Wall Street Journal http://on.wsj.com/pVnppa    

Mortgage Rates continue to bounce near all time lows! 

Have a great weekend!  Keep us in mind for your next buyer, with our in-office operations and appraisal system our loan packages arrive to the title company days before settlement.  301-585-7283

September 30^th and October 1^st are important in our industry as several government loan limits are set to change:

• Conventional Fannie Mae loan limits will be changing,
• FHA mortgage loan limits will be changing, and
• VA loan limits will not be changing yet, however, VA funding fees will be changing

Fannie Mae loan limits: https://www.efanniemae.com/sf/refmaterials/loanlimits/xls/loanlimref.xls

Use the above referenced table to check the Fannie Mae loan limits.  Additionally, if your home purchase is affected by the loan limits going down utilize our bank’s second trust mortgage to allow you to purchase your home above the loan limits with as little as 10% down.  See my 80/10/10 second mortgage blog post and an article in the Wall Street Journal referencing our bank

FHA:

FHA loan limits https://entp.hud.gov/idapp/html/hicostlook.cfm

The FHA loan limits will also generally follow the change in the Fannie loan limits, but you can search by state via the link above.

VA:

VA Loan limits http://www.benefits.va.gov/homeloans/loan_limits.asp

The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.

VA Funding Fee Changes

VA Funding fees going down: http://activerain.com/blogsview/2514838/va-funding-fee-changes-going-down-effective-october-1st

Cherry Blossom Festival Peak Bloom Period - One of the Perks of Living in Montgomery County!

ALL PHOTOS: ©2011 Nick Pakulla

How to calculate a monthly mortgage payment?  This is a calculation I run through many times per day for buyers, however, a number of first time homebuyers are confused about what goes into a mortgage payment.  So below I have it broken down -- we’ll keep it in 2 main categories FHA mortgages and Conventional mortgages.

The basic calculations are the same no matter which type of mortgage program you are using.  The most important thing to remember is that your mortgage payment is comprised of 5 main components:

• Principal and Interest,
• Taxes,
• Homeowner’s Insurance, 
• Monthly mortgage insurance premiums (if you put down less than 20% and don't have a second mortgage),
• Homeowner’s association or condo dues (will be paid separately from your mortgage payment).

Conventional Example with 20% down, $500,000 sales price, $6,000 annual taxes, $50 HOA

Loan Amount = Sales Price ($500,000) * .8 (1 – Down payment percentage) = $400,000

• Principal and Interest = You will need to use an amortization schedule, I like this one: http://www.bretwhissel.net/cgi-bin/amortize.  Enter in the loan amount ($400,000), payments per year (12), interest rate 5%, payments (360) = $2147.29 / month
• Taxes = Check the taxes on the listing, or for a more accurate number go to your county tax website and lookup the property, take the annual tax amount and divide by 12 to get a monthly amount (make sure to use the full tax bill and does not include any of the homestead deductions).  $6,000 / 12 = $500 / month
• Homeowner’s Insurance Estimate = Take the sales price ($500,000) * 0.2% = $1000 / 12 = $83.  Then round up to the next quarter = $100 / month

Add everything together: $2148 P/I + 500 Taxes + 100 Insurance + 50 HOA = $2,798 / month

FHA Example 3.5% down, $225,000 sales price, $3,000 annual taxes, $75 HOA

Everything is the same as conventional except FHA has an upfront mortgage insurance premium and also a monthly mortgage insurance premium.  The upfront is normally financed into the loan amount.

• Base loan amount = Take the sales price (225,000)* .965 = Base loan amount $217,125
• Final loan amount = $217,125 * 1.01 (upfront MIP) = $219,296 @ 5% (run an amortization schedule) = $1,140 / month 
• Monthly Mortgage insurance: Base loan amount * .009 / 12 = $217,125 * .009 = 1954 / 12 = $163 / month ** monthly MI is slated to increase on April 18th
• Taxes: total tax bill divided by 12.  $3000 / 12 = $250 / month
• Insurance: estimate $50 / month
• HOA: $75

Add everything together: $1140 + 250 + 50 + 163 + 75 = $1678 / month

Happy calculating!

With the new year approaching (wow it's almost 2011 already?) and "best of" 2010 information coming from other sources, I thought it would be fitting to post a recap of what happened to mortgage rates in 2010.  2010 presented an unexpected rollercoaster ride when it came to mortgage rates. 

We were able to witness some of the lowest mortgage rates ever recorded.  The year started out with benchmark 30 year conforming (below $417,000) fixed rates very steady around 5% from about January until April.  There was a small uptick in rates to about 5.25% in early April followed by an unprecedented 21 week period where rates continually went lower, down to about 4.32%.  Rates had some hesitancy breaking the 4.25% mark until October and early November where there were a couple days where 4% with 0 points was the going rate!  Unfortunately for rate-shoppers and late refinancers, near the end of November and into December we saw rates climb back up into the low 5%'s and the high 4%'s.

2010 started out steady but a few key issues controlled the mortgage market for a large part of the year driving rates to historic lows and shooting them back up again near the end of the year.  The ride kicked off in late March when the Federal Reserve ended its $1.25 trillion mortgage-backed securities (MBS) purchase.  Everyone speculated that less demand for MBS would drive mortgage rates up.  Instead, the Greece debt crisis re-emerged, which developed into a European debt crisis.

The general fear of a potential further world economic collapse drove investors into safe-haven buying of bonds and MBS thus pushing mortgage rates to all time lows.  For the rest of the summer and into early fall continuing fears about the economy and mixed economic reports stayed at the forefront.  In October, there was speculation about the Fed pumping more money into the economy via a new round of bond and MBS purchases.  In the background, general sentiment on key economic indicators were improving, but not at a pace fast enough for the Fed.  On November 3rd the Fed announced that they would release a $600 billion dollar purchase package for the bond market over the coming months.  This should have continued to drive rates down further, however, 40 hours after the announcement the October jobs report tripled analysts estimates with 151,000 new jobs created.  This sparked an intense reaction about inflation fears that shot around the world.  In a matter of days the mortgage market rocketed back up, 12 weeks of gains gone in 10 days, 26 weeks of gains gone in 5 weeks.  The bond rally ended and the stock market rally may just have begun!

Coming out of the greatest recession we have faced in the last 7 decades, it is no wonder why 2010 showed to be an uncertain year when it came to the economy.  As was evident by the remarkable year mortgage rates had in 2010, 2011 will likely continue on an uncertain path.  If you are interested about consulting with a loan officer about your specific situation please don't hesitate to contact me.  I would be happy to add you to my list of clients who I monitor rates for.

First Place Bank is an established community bank new to the MD/DC market. With all of the struggles the "large banks" are facing, the community banking model has proven to be much more efficient.  Our level of service is unsurpassed as all of our processing, underwriting and closing operations are done in our Rockville, MD office and we have a select group of local bank-approved appraisers familiar with our area.  Additionally, we offer some unique financing opportunities such as bridge loans, 80/10/10 loans, along with all of the standard products. 

FHA Condo Expiration of 12/7/10 Now Extended!!

In what seems like a last ditch effort (without any warning that I know of) FHA has extended the condo projects that were set to expire December 7^th 2010.  The new expiration dates are based off of the initial project approval year.  Great news for condo owners and condo sellers!

FHA announces extension of condominium project approvals with an expiration date of December 7, 2010. Provided below are the extension dates based on five-year time frames with the exception of those condominium projects with original approval dates from 1972 -1985.

Initial Project Approval Dates     Current Expiration Date        New Expiration Date

1972 - 1980                              December 7, 2010               December 31, 2010

1981 - 1985                              December 7, 2010               December 31, 2010

1986 - 1990                              December 7, 2010               May 31, 2011

1991 - 1995                              December 7, 2010               July 31, 2011

1996 - 2000                              December 7, 2010               August 31, 2011

2001 - 2005                              December 7, 2010               September 30, 2011

2006 - 2008 (Sept)                    December 7, 2010               March 31, 2011

The extensions were granted to reduce the impact of processing and reviewing the number of project approvals expiring at the same time while recognizing current housing market conditions.  Lenders and/or other interested parties are encouraged to begin the re-approval or recertification process as early as possible as it is not anticipated that any further extensions of project approvals will be issued.

The Condominium look-up page and the FHA Connection databases were updated on December 7, 2010 and now reflect the extended expiration dates.  The links to the sites are:

Condominium look-up page: https://entp.hud.gov/idapp/html/condlook.cfm

With mortgage rates at their all time lows and predictions that mortgage interest rates will edge up in 2011 and 2012 there is a huge long-term interest savings for home buyers to buy now instead of waiting. 

Some scenarios:

$300,000 borrowed

Interest paid over 30 years with current market rates (4.125%) = $223,422

Compared to 5.5% = $313,213

Interest Cost of waiting = $89,791

$500,000 borrowed

Interest paid over 30 years with current market rates (4.25%) = $385,492

Compared to 5.75% = $550,429

Interest Cost of waiting = $164,937

$700,000 borrowed (in high-balance areas)

Interest paid over 30 years with current market rates (4.25%) = $539,688

Compared to 5.75% = $770,603

Interest Cost of waiting = $230,915

Scary stuff!! HAPPY HALLOWEEN!

Show me the money!

Sometimes it is more motivating to see things in real numbers instead of just hearing that it is recommended to have a “good credit” score for the best mortgage rates.

Below are two tables:

• One that shows how much extra in upfront points may be required due to your credit score.
  
• Another table that shows what the actual costs of a lower credit score would be.

This scenario applies to conventional and high balance conforming loans with greater than 15 year terms. So this example is focusing on loans with a Loan to Value (LTV) of 80% and below (75.01 – 80.00% in the table).

An 80% LTV on a purchase can be accomplished by:

1. Putting 20% down
2. Using an 80-10-10 loan

How do mortgage lenders determine credit scores?

Credit scores are pulled from all three bureaus, commonly called a tri merge credit report, for all borrows applying for the mortgage. Then they compare the middle score of each borrower and select the lowest middle score as the representative credit score for the mortgage loan.

To interpret the Loan Level Price Adjustment (LLPA) table below, take the LTV (ie: 80%), and take the representative credit score (ie: 715) to arrive at an adjustment of .75 points.

This Loan Level Price Adjustment Table can be found directly on the Fannie Mae website: https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf. Freddie Mac has a very similar table. The main difference being that instead of a top out of 3.00 points Freddie tops out at 2.75 points.

So, what does this mean for homebuyers with good but not “perfect” credit?

GCAAR recently released housing data February 2010, and the average single family home sale price for Montgomery County for 2010 thus far came in at $454,251. Assuming a first loan value of 80% of the sale price, this would equate to $363,400 financed. What does this mean in terms of actual equivalent dollar amount due to credit score price adjustments?

Looking through the table this means that someone with a credit score between 700-719 and an 80% LTV on a $454,251 property would basically need an additional $2,725.50 to get the same rate as someone with a 740 credit score.

Often lenders price some of the adjustments into the interest rate quote so the borrower isn’t directly paying upfront for the extra, however, the money is coming from somewhere.

Note: If your lender is giving you a loan with Mortgage Insurance (MI), those monthly requirements also go up with lower credit scores. However, since we are able to offer 80-10-10 loans, it is very rare that we do a loan with mortgage insurance, so that analysis is not presented here.

Bottom line: maintaining your credit is important!  Lenders are tightining their belts from what it used to be.

However, there is still good news for buyers without “perfect” credit is that FHA / VA loans do not have nearly as strict credit scoring criteria. FHA funding may be something to consider depending on your specific situation.

A future blog will show some tips to improve and maintain a good credit score.