Vince Kingston

A loan point is equal to 1% of the loan amount and is a typical reference point used when quoting an interest rate.  The points paid (or lack thereof) can be thought of as the cost of obtaining a particular rate.  There are other costs associated with getting a mortgage (such as title, escrow, appraisal, pre-paid property taxes, recording fees, etc.) but these costs are independent of the point/rate combination. There is always an inverse correlation between points paid and rate, where the more points one pays, the lower the interest rate.  The less points one pays, the higher the interest rate.  This is why an interest rate quote by itself means very little unless you know the overall points and fees associated with that rate. 

On a $200,000 loan amount, a typical set of point/rate alternatives could look something like this:

4.5% at 2 points ($4000 cost, $1013 monthly payment)

4.75% at 1 point ($2000 cost, $1043 monthly payment)

4.875% at .5 points ($1000 cost, $1058 monthly payment)

5% at 0 points ($0 cost, $1073 monthly payment)

Now that we know the cost associated with each interest rate, we can determine what our best option is based on how long you anticipate being in the home/and or loan.  Realize that the lowest interest rate will cost you more upfront and will be rendered meaningless the second you sell or refinance your home.  That’s why to determine your best option its so important to be candid with yourself about how long you really think you will have the loan.  For example, regarding the above example 4.5% certainly sounds better than 5%.  However it costs $4000 upfront to secure the 4.5% interest rate.  At 4.5% our monthly payment is approximately $60 a month less than the 5% 0 point option.  So to make an informed decision, we need to divide our upfront cost for the 4.5% option of $4000 by the monthly payment savings of $60 to see what our break even period is on the upfront investment for the lower rate.  In this case, it is 5.5 years before you break even on the extra cost required to secure the 4.5% rate.  It you felt very strongly that you would not move or refinance within the next 6 years, then this might be the best option for you. 

Payback period is not the only consideration however.  For most homeowners, its always a more secure position to be in to have liquid funds in the bank vs. a marginally lower interest rate and mortgage payment.  For example, if $4000 represented the bulk of your available funds, then you would have no liquid savings left over after paying 2 points for the 4.5% option.  So even though you have a monthly payment that is $60 less per month, that’s going to be a very small comfort if you lose your job or are unable to make your mortgage payment for any other reason.  Alternatively, if you had taken the 5% option and kept the $4000 in savings, then even though your mortgage payment is slightly higher, you would be able to cover 100% of your mortgage payment for almost four months with your $4000 savings. 

Securing the lowest interest rate can help you save money over the long run but you should carefully consider how long you will actually keep the loan and the cost associated with the lower rate to determine what your best option is.  Above all, having adequate liquid savings should be your number one priority and will definitely help you sleep better at night!

You can contact me anytime for a friendly review of your options.  You can reach me directly at 971-221-8525 or vince@vincekingston.com        

Buying a 2-4 unit multiplex can be a great way to establish an investment portfolio.  Particularly so for the First Time Homebuyer who is willing to occupy one of the units for at least a year in order to categorize it as a primary residence.  You get a cash flow asset that historically appreciates in value and provides tax advantages while your renters simultaneously pay-down the mortgage liability and grow your equity. 

The problem is that using Conforming financing, it can be very expensive to purchase a 2-4 unit property, and impossible for a first time homebuyer as Conforming will not allow a first time homebuyer to purchase a 3-4 unit property.  In addition, you will be required to put a minimum 20% down payment and the interest rate will be considerably higher than if you were to purchase a single family residence. 

That’s where FHA comes in.  FHA allows a first time homebuyer (or any other homebuyer) to purchase up to a 4 unit property with as little as 3.5% down payment and no interest rate hit as long as you intend to occupy one of the units for at least one year.  That means you get the same great interest rate on a 4 unit as you would on a single family home and with very little cash out of pocket.  On an investment property that you may own for 30 years or more, FHA can make the difference between building a solid retirement portfolio and never even getting started.

Furthermore, FHA will allow the fair market rents received on the other units to help offset the mortgage liability.  This means a borrower can potentially qualify for a much larger loan amount then they would on a comparable single family home because the rents from the other units will offset the higher mortgage payment. 

The one big caveat is that for a 3-4 unit (but not 2 unit duplexes), the total of the rents received for all units must equal or exceed the total mortgage payment.  If it does not, then FHA will require the down payment to be increased until the mortgage equals the rents received.  They will take into account rent from all units, even the unit you will be occupying as your primary residence.  What this means is that not all 3-4 unit properties will qualify for the minimum 3.5% down payments.  The down payment needed will depend on the total fair market rents on all the units as well as current interest rates, property taxes, and homeowners insurance.  Again, duplexes are not subject to this rule so a first time homebuyer can purchase a 2 unit property with only 3.5% out of pocket.  Unlike Conforming financing, FHA will allow non-occupant co-borrowers to help qualify, although be aware that when there is a non-occupant co-borrower on a 2-4 unit transaction, the minimum down payment is increased to 25%. 

For the most part 100% or Zero down payment financing is a relic of the past however, there are options for 100% financing in the Portland area (in addition to USDA rural loans and VA loans).  The two different 100% financing programs are called the MAP 80 and MAP 100 (map stands for mortgage assistance program).  These loans are actually two loans: one loan at 80% loan to value, and another 2^nd mortgage at 20% loan to value.  The interest rate on the second loan is slightly higher, but there is no mortgage insurance ever, and this dramatically decreases the cost of low down payment homeownership.  The loans will even go up to 105% loan to value, meaning you can finance your closing costs if necessary.  The credit score requirements are lenient as both loans only require a 620 or above (although the interest rate on the first mortgage will be higher if your credit score is not 740 or above).  It should be noted though that both loans require a $500 contribution from the borrower and carry slightly higher closing costs because of the two loan nature of the programs.  The programs are only for First Time Homebuyers or those who have not owned a home in the last three years.     

Now don’t get all crazy with joy just yet as these programs come with income and geographical restrictions and can be a little more complicated that traditional financing.  Both loans have income limitations (your gross income must be at or below the income restriction to qualify).  The idea behind this is that these programs are for those who truly need assistance.  There are great Conforming and FHA programs that only require 3% and 3.5% down payments respectively.  The good news is that the income limitations increase depending on the number of people in your house hold. 

For the MAP 80, a one person household has an income limit of $39,200 although that income limit increases to $56,000 for a four person household (this includes children).  The advantage of the MAP 80 program is that it has no geographical limitations.  Any single family residence or condo in Multnomah or Washington County is eligible. 

The MAP 100 has higher income restrictions.  For a one person household, the income restriction is a robust $49,000 and this increases to $70,000 for a four person household.  However the big disadvantage of the MAP 100 is that only homes and/or condos in certain areas qualify for eligibility.  The property must me located in a census tract that represents 80% or less of the median income.  This can be determined by going to http://www.ffiec.gov/Geocode/default.aspx, inputting the property address, click “Search”, and then click “Get Census Demographic”.  The next page will show a box titled “Tract Median Family Income %”.  This must be 80% or less for the property to qualify.  This can be a little frustrating as there is no easy way to search for general areas that qualify.  The search can only be completed by manually inputting specific addresses.  But hey, its 100% financing, and worth the search if you qualify.

Both loans don’t want an individual to show too many liquid assets after the loan has closed and carry a few other qualifying guidelines unique to these programs, but in practice if you meet the income and geographical requirements, these other conditions rarely disqualify borrowers.

You can contact me anytime at vince@vincekingston.com or 971-221-8525 to learn more about the MAP 80 and 100 programs and discuss 100% financing as it pertains to your unique situation.    

Congress has acknowledged the unique position of Military personal by extending the $8000 homebuyer tax credit until April 1, 2011 for those stationed abroad.  The extension is applicable to Members of the Military, the Foreign Service
and the Intelligence Community provided they are First Time Homebuyers or have not owned a home in the last three years (or have owned their primary residence for at least 5 years and are purchasing a new primary residence, in which case they can qualify for the $6500 credit) and were stationed abroad for at least 90 days from December 1, 2008 and May 1, 2010.  They have also made an exception for those disabled while abroad so that even if you were not stationed abroad for at least 90 days between December 31, 2008 and May 1, 2010, you may still qualify.  You can go here (http://www.federalhousingtaxcredit.com/service_mem.php) to review eligibility guidelines. 

To honor our disabled Veterans, VA will waive the upfront funding fee on the VA home loan.  This makes the VA home loan option for qualified individuals a truly outstanding financing option since the upfront funding fee of 2.15% can be the main disadvantage of a VA loan (however this funding fee is not a cash expense, it is financed into the loan amount so that you end up with a loan amount that is 2.15% higher than the base loan amount).  This means a disabled Veteran can get 100% financing with no mortgage insurance and without any upfront VA funding fee; truly a loan alternative worthy of our Veterans.

I am always available happy to answer your questions.  You can call me direct at 971-221-8525 or email at vince@vincekingston.com 

In the not too distant dark days of the mortgage crisis, Mortgage Insurance companies all but shuttered their doors and withdrew all of their products.  This meant that even though technically Fannie & Freddie were still providing low down payment options, without the requisite mortgage insurance from the MI companies, these programs were useless and only existed on paper.

In a sign of positive change, mortgage insurance companies are now starting to come back to the table and have significantly opened up their product offerings.  This is especially great news for First Time Homebuyers who generally are working with a smaller down payment.  FHA has been the go-to loan for First Time Homebuyers and those looking for low down payment options en lieu of any Conforming options.  However with FHA increasing their Up Front Funding Premium to 2.25%! of the financed amount, FHA has suddenly become very expensive (unless of course it is your only option, which then makes FHA awesome).

Less than 12 months ago, the maximum loan to value for Conforming Financing was 90% and you needed a robust 740 credit score just to qualify for the required mortgage insurance.  Now there is 97% Conforming financing available down to a 720 fico and 95% down to 680!  Maybe the dark days are over and better options are on the horizon.  This is all great news for borrowers as more options means better alternatives and ultimately lower loan costs and payments. 

I am always available happy to answer your questions.  You can call me direct at 971-221-8525 or email at vince@vincekingston.com 

Mortgage Insurance.  For most homebuyers it’s unavoidable, particularly on the west coast where the 20% down payment required to avoid mortgage insurance is out of reach for all but a lucky few.  I’m big on positivity so instead of looking at mortgage insurance as a necessary evil, I view it as a small premium that allows borrowers not to give up their life savings to purchase a home.  See, feels better doesn’t it? 

However even with only a 3% down payment there is a way to avoid mortgage insurance all together and that is by using the Fannie Mae HomePath program.  HomePath is special financing available on Fannie Mae owned homes (homes that have been foreclosed on).  You can go to www.homepath.com to locate available properties in your area.  You can also contact my Realtor partner Jesse Knight at www.pdxclassichomes.com to learn more about these properties.  Typically the minimum down payment on a Conforming loan is 5% and there is always mortgage insurance so the savings of purchasing a HomePath qualified home can be significant, especially for First Time Homebuyers.  For example on a $200,000 loan, all other things being equal, you would save $156/month in mortgage insurance costs with the HomePath program vs. normal 95% Conforming financing.  Even investors can utilize the HomePath program and are only required to make a 15% down payment, again with no mortgage insurance.     

I am always available happy to answer your questions.  You can call me direct at 971-221-8525 or email at vince@vincekingston.com 

Here is the truth from an industry insider: lenders do not treat self-employed income as equitably as W2 income.  Lenders apply a heavy hand of skepticism and increased requirements if your income happens to be from self-employed or 1099 endeavors.  To be fair, its not really the lenders fault.  We have Fannie Mae, Freddie Mac, and FHA guidelines to blame. 

Here’s the rub, if you are a full time W2 hourly/salary employee, lenders will credit you 100% of your gross monthly income as qualifying income, in most cases even if you have only been on the job for one month!  Furthermore, the majority of W2 borrowers will not be required to submit tax returns and its ok if you have job gaps.

Contrast that with trying to qualify as self-employed or 1099.  You must have a full two years of tax returns demonstrating self-employed income before lenders will use a dime of it as your qualifying income.  The income will be averaged over two years so that if you made $50K your first year and $100K your second year, your qualifying income would be $75K (even though you may be making $100K now).  Where it gets really difficult is that unlike W2 employees, lenders will only grant self-employed individuals there net income after all business deductions.  So even though almost every W2 employee I have met still pays for a cell phone, a portion of their health insurance, goes out to dinner/lunch with colleagues, etc., since the self-employed person can write this off, they are penalized by lenders by having these deductions subtracted from their net income, whereas the W2 folks still get credited their full gross income, even though all parties realize that is nowhere near their take home pay.

If you are W2 but a majority of your income is commission or bonus, then lenders will require a two year history of receipt of this income and will average it over two years just like self-employed income.  If you do take large unreimbursed employee deductions, lenders will hit a W2 employees income for this as well (although if they never requested the tax returns there is a chance this would be overlooked). 

So the moral of the story is that while the self-employed and independents out there deserve all praise and respect for having the courage to go it alone, your not going to get any respect from lenders, and all things being equal, you will qualify for less mortgage as self-employed and with more conditions then if you were a W2 employee.

The one silver lining is that in some cases and with some lenders, at least FHA guidelines do provide the possibility of qualifying with self-employed income with only one year of tax returns to prove income.  However you must have a consistent history of working W2 in that same line of work that you are now self-employed in (think of a Medical Doctor who was W2 in a clinic and then bought that clinic and became the owner and self-employed).

I am always available for your questions.  You can contact me anytime at 971-221-8525 or vince@vincekingston.com   

Ever noticed how gorgeous and perfect those hamburgers look on a McDonalds commercial?  Have you ever actually gotten such an outrageously handsome looking burger from McDonalds?  Probably not.  The same is true with internet and advertised mortgage interest rates.  See, when you’re a marketer trying to cast a wide net and lure total strangers into doing business with you, you are naturally going to put your best foot forward.  And that is exactly what mortgage advertisers attempt to do.  The simple fact is that for Conforming financing, if you don’t have a 740 credit score or better, those sexy advertised rates do not apply to you.  Below a 740, Conventional financing imposes interest rate hits so that you will end up paying a higher rate and/or fees.  And according to the most recent Nilson report, over 80% of Americans have less than a 740 fico score.  That’s why most advertised interest rates can be misleading at best. 

I am always available for your questions.  You can contact me directly at 971-221-8525 or vince@vincekingston.com  

FHA loans are fantastic for many borrowers.  Why you ask?  Primarily because FHA requires the lowest down payment of any loan option (currently just 3.5%) and has no punishing credit score interest rate hits.  For many people without perfect credit and a large down payment, its simply the only option.  However FHA does have one big disadvantage to be aware of: all FHA loans carry an up front insurance premium charge of 1.75% (this will go up to 2.25% after April 5^th this year).  This is not an out of pocket charge, it is financed onto the loan amount and does not affect your minimum down payment requirement.  So the net effect is that on an FHA loan you will end up with a loan amount that is 1.75% (2.25%) higher than if you could use Conforming financing. 

I haven’t met anyone that liked the sound of an up front premium BUT, and this is a big but, FHA loans are ASSUMABLE (Conforming loans are not).  This means that in the future, as long as you are dealing with a qualified buyer, you may be able to offer your interest rate to that buyer and sell your home for a nice premium.  So here is how FHA’s assumability can potentially more than compensate for that up front premium:  You are driven, you are excited, you are a current first time homebuyer and you close on your FHA loan with a 4.875% 30 yr fx interest rate.  Wow.  Now fast forward six years.  You are successful, you have equity now(!), its time to sell your first home and move up in the world.  It’s not hard to envision mortgage interest rates being 7-9% in six years, remember it was only a little over ten years ago where the 30 yr fixed was over 7%, and our country was far less indebted and inflationary then we could potentially be in the future.  So if you are able to offer a potential buyer a 4.875% interest rate in a say 8% interest rate market, it doesn’t take a stretch of the imagination to envision selling your home to that buyer at a much larger premium than the 1.75% up front premium you incurred to get the loan.  And that’s what makes an FHA different; the ability to potentially more than pay for itself some day. 

I am always available for your questions.  You can contact me direct at 971-221-8525 or vince@vincekingston.com 

Everything in Real Estate is based on dead lines, and just like Real Estate, all homebuyer benefits have their own finite time line as well.  Today’s blog is a quick reminder of three important timelines you’ll want to be aware of if you are currently in the housing market. 

FHA Up Front Mortgage Insurance to Increase April 5-FHA is now responsible for over 30% of the loans done in this country.  This is a dramatic increase as FHA offers a number of compelling benefits (particularly for First Time Homebuyers) that Conforming financing cannot (lowest down payment available, allowing co-signers and gifts to help qualifying, much more lenient on credit scores, etc.).  The down side to all these benefits is that on all FHA loans, there is an up front premium charged to cover the FHA insurance pool.  This is in addition to the monthly mortgage insurance.  Currently the premium is 1.75%.  With all case numbers assigned on or after April 5^th, this premium will increase to 2.25%.  This premium can be financed 100% into the loan amount without affecting down payment requirements, so the net effect of this increase is that borrowers will end up with a loan amount that is .5% higher than they currently would.

First Time Homebuyer Credit to expire April 30-you must be in contract no later than April 30^th 2010 to qualify for the $8000 first time homebuyer credit (or the $6500 credit in the case of non-first time homebuyers who have owned for at least five years and are buying a new primary residence).  However the transaction does not need to close until the end of June. 

The Fed’s Mortgage Security Repurchase program set to expire March 31-The not so dirty little secret is that the Fed has spend almost $1.2 TRILLION dollars over the last 14 months to artificially drive down mortgage interest rates.  The current historically low interest rates are the direct result of the Fed’s benevolent action (with our collective national future income as its collateral!).  This program will expire March 31^st and many market experts agree that rates will begin to rise once the program is eliminated.

I am always available for your questions.  You can contact me at 971-221-8525 or vince@vincekingston.com