Paying Points on a Boston Area Mortgage Loan

Boston area mortgage loan experts say over 6 million people nationwide will buy homes next year. Statistics expect roughly 2 million will be first-time homebuyers. Both first-time buyers and others always wrestle with whether or not to pay “discount points” on their mortgage.

The Boston Area Mortgage Loan: Points?

Discount points on a Boston area mortgage loan are designed to save interest over a long term loan payback.

Just what the heck are discount points, anyway? Mortgage discount points are a one-time, upfront closing cost designed to discount the existing mortgage interest rate. One point is equal to 1% of your loan amount. Your interest rate is normally reduced by .25% for each discount point.

Since paying discount points lowers your interest rate, the process is often called “buying down” your rate. As an example, on a mortgage amount of $400,000 at 4% interest, you could elect to pay one discount point or $4,000 and lower your interest rate to 3.75%. For a borrower planning to be in that home for as long as a 30-year term, the interest savings over the life of the loan can be substantial.

Should you pay discount points? The answer is a resounding “that depends.” Paying discount points can be expensive. Plus, it will mean you have to come up with more money at the loan closing. Still, it may make sense — especially if you can negotiate with the seller for him to pay part or all of the closing costs.

Paying points to lower your mortgage interest rate could be a good investment over time. However, if you plan to sell your home in a few years or refinance your mortgage you probably won’t recoup the amount you paid in discount points.

Because discount points are used to “buy down” your interest rate, they are usually tax-deductible.

Mortgage experts recommend you consider paying discount points as a luxury, not a necessity. If paying one or more points puts you in a bind by requiring you to pay additional money at the closing, it’s probably best not to do it.

Okay, what’s next? Consult your real estate agent about concessions the seller may make as part of your offer to purchase a home. You never know what you may get until you ask. Discuss discount points with your Boston area mortgage loan professional to find out your best course of action.

Get more up to date news and tips on Boston area mortgage loans by checking out our other articles under the Boston Area Mortgage Info section just below Boston Real Estate Categories to your right. We also post periodic information about mortgages on Facebook and Twitter… follow us there as well.

Boston Area Mortgage Loan Closing Tips

A loan closing attorney who, when reviewing the documents with a new Boston area mortgage borrower, used to jokingly say, “You’re welcome to read all these forms, and if you find anything in your favor the lender will be happy to correct that mistake!” Of course, he was only joking and he used that line as an ice-breaker. However, it’s very important that you review your closing documents to make sure they are correct.

Closing Your Boston Area Mortgage Loan Accurately

Remember, you’re going to be asked to sign almost every document you’ll see in the loan closing paperwork. You will be responsible for everything in those agreements. With mortgage terms up to 30 years, that’s a long-term commitment.

While most mortgage lenders are careful to make sure documents are accurate, mistakes do occur. One real estate expert says she has yet to see a loan closing where there wasn’t at least one typo, numerical error or other mistake. Her advice is to hope for the best and prepare for the worst.

The recent TRID (Truth in Lending/Real Estate Settlement Procedures Act Integrated Disclosure) rules require lenders to give borrowers Closing Disclosures at least three days before the loan closing. Mortgage insiders say borrowers should double-check three key areas: the loan amount, the personal and property information and the interest rate.

If you find an error, call your lender as soon as possible. It will either be corrected or new documents will be drawn up. If the mistake is serious, the lender may be required to restart the three-day disclosure period and delaying the loan closing. Such a delay could create a “domino effect” if the sellers need the proceeds from the closing to purchase their new house.

One last Boston area mortgage loan closing tip — and it may be the most important – remember this: “Read twice, sign once.” Correcting the mistake may prevent problems later.
Find more tips and articles on Boston area mortgage loans to your right in the Boston Mortgage Info section just below Boston Real Estate Categories. And follow us on Facebook and Twitter for daily news and tips we post there.

Boston Area Mortgage Rules to Protect Consumers

The Boston area mortgage industry now has new regulations in effect designed for lenders to be more transparent in their dealings with borrowers. The areas of reform are aimed at simplifying and streamlining some of the consumer disclosure documents in order to make it easier for borrowers to understand various lending programs.

Boston Area Mortgage Rules Change: Know Before You Owe

As a result of the last housing and mortgage crisis and the passage of the Dodd-Frank legislation, the Consumer Financial Protection Bureau (CFPB) was established to design simplified forms to address two key areas: post application disclosures and pre-closing information. The CFPB reportedly spent nearly four years researching and testing the new disclosures and are now ready to require Boston area mortgage lenders to implement them.

For their part, mortgage lenders nationwide say the reform has created a huge technological challenge involving additional software programs and thousands on man hours in training and ramping up for the new disclosure procedures.

The disclosure form that is given to the consumer after the loan application begins — known as the Loan Estimate — covers the rules regarding what can and cannot be done by the lender, including cost estimates that must be approved by the borrower in writing before the loan application process can continue. The Closing Disclosure must be given to the borrower within three business days of closing. It captures all the costs paid by the consumer. If the borrower wants to make any changes during the three-day window, the three-day period resets. This, inevitably, will cause delays and potential “domino effects” that could create additional delays in closing.

Boston area mortgage lenders are keeping their collective fingers crossed that the new disclosure requirements will be seamless. However, there are numerous “moving parts,” as the disclosures now impact the real estate industry. While real estate professionals have no direct responsibilities under the new regulations they still have a role in the process. They need to educate their clients about the changes and help them understand that the loan closing transaction may take longer. Additionally, real estate clients will need to understand that there is an increased risk of delays in the loan closing — especially if borrowers try to make “eleventh hour” negotiations or changes within the three-day waiting period.

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Boston Area Mortgage Tip: Use Caution With Home Equity

As Boston area mortgage borrowers continue to see home prices rise they have increasingly more equity to utilize. Industry experts say that nationwide home equity has risen by nearly $825 billion. That represents a 250% increase over home equity levels of just four years ago. However, tapping into that equity by using a home equity line of credit, or HELOC, is more challenging than ever.

Boston area mortgage borrowers are enjoying increases in home prices and higher home equity.

HELOCs: A Boston Area Mortgage Dilemma

Mortgage analysts report that HELOCs currently being extended to Boston area mortgage borrowers are principally reserved for those with extremely good credit. HELOC originations during the first quarter of 2015 reflected the highest average credit scores since that data has been recorded.

While HELOC lending has increased by 40% from a year ago, origination levels are 85% less than those of the housing boom of 2007. Most notably, in addition to record high credit scores, are the reasons Boston area mortgage borrowers are utilizing the home equity.

Mortgage lenders say the trend these days is for home owners to tap into their home equity for necessities rather than luxuries. Simply put, it’s more about what they need versus what they want. Plus, industry insiders say that most of the HELOC activity is relegated to wealthier homeowners in the more expensive housing markets. During the housing boom, Boston area mortgage borrowers were using the equity in their homes — and then some. Because housing values were artificially inflated and lenders did a poor job of restricting loan-to-value ratios, many homeowners found themselves in trouble when the job market experienced a slowdown and the economy softened. This was a key contributor to the housing crash, and many HELOC borrowers were faced with foreclosure.

Those that were able to weather the housing crisis have HELOCs that were originated between 2005 and 2007 and are nearing the end of their principal draw periods. These borrowers will soon be required to repay the principal and interest, adding on average roughly $250 per month to their mortgage payment. What’s worse is a large number — estimates are as high as 30% — of homeowners have loan-to-value ratios that exceed 85%, meaning a refinance will be difficult.

In summary, the Boston area mortgage market, as well as others throughout the country, will be scrutinized closely in the coming months to see how homeowners react to the impact of the HELOCs.

For more articles pertaining to the Boston area mortgage market, check out other articles in the Boston Mortgage Info section of our site below our Boston Real Estate Categories in the column to your right. Remember, we also post tips daily on Twitter and Facebook. Check us out there too.

Boston Area Mortgage Market To See Changes

In a move to assist Boston area mortgage borrowers, the Federal National Mortgage Association (Fannie Mae) announced it will make substantial changes in a lending program for low-to-moderate-income households. The program, dubbed HomeReady, is scheduled to begin in December. It promises to feature new lending guidelines recognizing that many of Boston area mortgage customers share homes and the accompanying financial responsibilities with their extended family. This is especially true in Hispanic and African American households.

The Boston area mortgage market will see changes thanks to a Fannie Mae loan program for lower-income households.

New Rules in the Boston Area Mortgage Game

Under the new guidelines, Boston area mortgage lenders will be required to include income from non-borrowers living in the same household as the primary borrower. Fannie Mae officials say this income has been proven to the stable over time and contributes greatly to the household and, therefore, the monthly mortgage payments.

Boston area mortgage borrowers may also be allowed to count income from co-borrowers that are not occupants, such as parents or in-laws. As is the case with a number of other mortgage products, the down payment can be as low as 3%. And, closing fees and PMI will also be less than on other loans.

Fannie Mae expects the new program to assist homeowners who suffered losses when home values dropped during the most recent housing crisis. In addition, the new guidelines are designed to assist first-time buyers entering the home market. The new program carries no set income requirements for Boston area mortgage borrowers buying in federally identified low-income census tracts. To qualify, homebuyers in those census tracts cannot earn more than the area’s median income. Income for homebuyers in other census areas cannot exceed 80% of that area’s median income.

The program requires borrowers to enroll and finish an online educational course on homeownership. In addition, borrowers will receive information on counselors in their area specializing in housing advice in the event they have financial trouble in the future.

It remains to be seen how many Boston area mortgage lenders will offer the HomeReady program. Industry experts say the new program could spur some renters into becoming homeowners. Recent statistics released from zillow.com show that on average a renter spends slightly more than 30% of monthly income on rent. The average homeowner spends half that number, 15.1% on a mortgage payment.

While it’s not clear how many lenders will offer the program, HomeReady could offer an opportunity for some households burdened by high rents to get into homeownership. A recent report from Zillow found that the average renter now spends 30.2 percent of his or her monthly income on rent, compared with an average of 15.1 percent for homeowners with a mortgage. In high-cost metro areas, the rental burden rises to as high as 40 percent.

Find more articles about the Boston area mortgage market by checking out our Boston Mortgage Info to your right just below our Boston Real Estate Categories.

We also post on Facebook and Twitter. Follow us there for many other Boston area mortgage related tips, too.