To ease the mortgage process, be prepared

Yes, these are hard economic times, but the disarray in the economy has continued to help keep mortgage rates at levels our generation has not seen.

This week the Federal Reserve basically said that inflation continues to be low, and Federal Reserve Chairman Ben Bernanke has said the Fed would “provide additional accommodation.” What that means is that the Central Bank is ready to jump in again if need be. And those words, mixed in with uncertainty in the marketplace, pushed rates lower.

Bankrate.com reported this week that its benchmark 30-year fixed rate fell to 4.50 percent with a total of 0.350 in discount or origination fees, the lowest rate since it began surveying in 1985. Just for historical comparison, it reported that in its first survey — Sept. 25, 1985 — the 30-year average rate was 12.31 percent. Ah, the good old days.

Basically, if you haven’t refinanced, what are you waiting for? Even if you refinanced last year and have a rate hovering around 5 percent, or slightly higher, it makes sense to look at the numbers again.

The biggest problem lenders will have as rates go lower is that demand will begin to clog pipelines, causing delays in getting people to the settlement table. And the only way that lenders can smooth out a pipeline is to raise rates — despite what is happening in the financial markets — so that they can slow down traffic.

So what should a borrower expect from their lender if they seek to refinance? First, don’t count on a 30-day turnaround. Most lenders are locking people in for 60 days and even 90 days because that is how long it is taking to get them through the process. The best way for a borrower to help his cause is to be prepared and get the requested documentation to their lender as soon as possible and not to drip it in. Talk to any loan officer and it seems that this is the biggest complaint — passive borrowers. To get an idea of what the lender is going to ask for, here is a quick list:

– W2s and tax returns from 2008 and 2009.

– Your two most recent paystubs, showing 30 days of wages.

– Your two most recent bank/brokerage/retirement statements.

– Copy of your current mortgage statement.

– Copy of your homeowners insurance policy.

– Copy of your driver’s license.

– If you have a home equity loan, a copy of the note that describes the terms of the equity line.

That typically is a good starter set for any lender; the general rule is that the more documentation that is given up front, the faster the back end of the process will go.

Changes coming to FHA

Beginning with loans originated on Oct. 4, FHA will be raising its annual mortgage insurance premium from 0.55 percent of the mortgage amount to 0.90 (for loan to values higher than 95 percent) or 0.85 percent (for LTVs lower than 95 percent). This change will result in higher monthly payments for FHA borrowers. However, the overall size of their loan amounts will drop as the required upfront mortgage insurance — a one-time single premium that is financed into the overall loan amount — goes from 2.25 percent of the loan amount to 1 percent.

If you take a $250,000 purchase, under the current FHA mortgage insurance framework the upfront premium would be $5,428, for a total loan amount of $246,678 (after the required 3.5 percent down payment). And the monthly mortgage insurance would be $110.57. With an interest rate of 4.625 percent, the principal and interest payment would be $1,268.27. Add the $110.57 and you get $1,378.84.

Under the new guidelines, the new upfront amount would be $2,412 and an overall loan amount of $243,662. However, the monthly insurance jumps to $180.94. Take the same interest rate, and the principal and interest payment decreases to $1,252.76, but because of the higher premium, the total payment comes in at $1,433.70, an increase of almost $54 a month.

Robert Nusgart is a loan officer with Prospect Mortgage, LLC., which is associated with The Strata Group in Baltimore. He can be reached at 443-632-0858 or by e-mail at [email protected] Visit his website at www.RobertNusgart.com for the latest mortgage and financial news.