While the real estate market is still in the process of stabilizing, there is a definite silver lining that all homeowners should be taking advantage of these days. Interest rates are at truly historic lows. What kind of numbers are we talking about? How about rates on a fixed loan of 3.7 percent and another full point below that for variable loans. Think about that for a moment. When in your life have rates been so low? It is staggering. Looking a few years down the road, the rates on home loans will have nowhere to go but up. When they return to the six or 7 percent level, how happy will you be that you refinanced your loan and locked it in at a 2 or 3 percent level?

Can interest rates go any lower on these loans? Nobody knows for sure, but it seems doubtful since inflation is starting to rear its ugly head. I really don’t have to tell you this because you already know. Have your grocery bills gone up? How about the cost of clothes? The simple fact is when the government prints money to revive a dormant economy, it eventually leads to inflation. To fight inflation, the Federal Reserve Bank will have to raise the rates it charges banks to borrow money. The banks will then pass along that increase to the mortgage market. Refinance now and lock in the incredibly low rates that will probably not occur again in our lifetime.

Before retiring from the mortgage business I would receive at least one call each week from someone asking me to tell them when rates will be at their lowest. I always told them the truth; I don’t have a crystal ball and neither does anyone else.

So here’s my theory for those of you who care about the best time to make a decision on buying a new home or refinancing the one you are in. You start with today because that’s all you really have to work with right now; this moment. Find out what the rate is for the type of loan you want and know that for right now that’s what it is.

If you are buying a new home, sit down with your loan officer and calculate what the overall payment will be and see if it fits into your budget the way you envisioned. If so, it’s a good rate and price for you and you can move forward with the help of your lender and realtor. If it’s not within your budget you are either looking at a house that is not affordable for you at the moment or the rates are too high right now.

If you are considering a refinance to your current loan, take your most recent mortgage statement to a lender and let them help you determine if it makes sense to refinance your current loan. This is more than just comparing payments because the new loan has additional costs to it that need to be factored in. If you make that cost up within the first two to three years due to a lower payment, it just might make sense to refinance your loan. However, when in doubt, get several opinions before moving forward.

Either way, now is a great time to check it out because rates are low right now and no one really knows what will happen tomorrow, next week or next year. That’s the truth!

• Will I stay in this house long enough to recoup the closing costs of a refinance? This is traditionally 4 to 5  years.
• How much will this actually cost me to do a refinance and am I willing to pay that?

Most people just see the interest rate as lower and assume (you know what they say about assumptions…) it’s a better deal. However, that is just not true in many cases and as much as the regulators have tried to protect the consumer, it is still up to you to make the final decision. And making that decision is not always an easy one. This is just one reason to work with someone who can fully explain your cost and show you how much time it will take to pay those cost in savings to your payment.

If you are considering a refinance for your home it is also a great time to take a look at your homeowners insurance as well to make sure you are fully protected. Insurance is another place you need someone that can explain the in’s and out’s for you so you don’t get caught not able to fully rebuild or recover from a loss.

In essence, what you do is this; take the cost of the loan, which is all the expenses except for the pre-paid items that include taxes and homeowners insurance, and divide that by the monthly savings the new loan will give you.  Take that and divide by 12 to give you the months that you will have to pay the new loan to break even.  Here is an example.

• Old payment: $1210.00 per month
• New Payment: $1130.00 per month
• Savings: $80 per month
• Cost of the loan (does not include the pre paid items – taxes and insurance) $3,300
• $3300 / 80 = 41.25 months to break even
• 41.25 / 12 = 3.44 years to break even

If you plan to move within the 3.5 yrs it will take you to make up the difference in payments then you should not refinance unless there are other circumstances like an ARM that will adjust.  However, if you plan on living in the home for 5 plus years, then it makes since to refinance the property.

I just talked to a couple of other people in the mortgage business around the country and they are experiencing the same thing lenders are experiencing here in Middle Tennessee; many people no longer qualify for a loan.  I have taken refinance questions and applications over the last few months and there are people who no longer qualify to refinance their current properties, even though it would save them up to $400 per month AND they have never missed a payment on their house or other bills.  The bottom line is many families have been forced to borrow money to survive over the past few years and their debt to income is now too high.

In one family the wife has gone back to school and also working but between the student loans and the reduced hours she is now getting on the job, they can no longer qualify.  I have another gentlemen who started a business, an again has never missed a payment on anything but because he had to finance his business with personal credit cards, his debt to income is too high to qualify.

These people are not freeloaders or behind on payments on any kind and have outstanding credit.  It’s just simply by taking the initiative to better themselves and pay their bills they are being punished by a system that is broken and won’t be fixed for quite awhile.  In the old days their local bank would lend them money based on their good reputation and business practice.  Today, if you don’t fit into a score or a ratio you are just out of luck.  Maybe that’s one reason we ‘re in this mess to begin with.

All of a sudden the holidays are over and everyone is looking to refinance their homes.  It does look like another refinance boom and there are plenty of companies that are soliciting clients through the mail.  I’ve had several people call me just this past weekend about letters they have received.  Both of these families are not in position to really do a refinance at the current rate but it’s always wise to keep options open to reducing your mortgage payments.

The one thing I counsel people not to get hung up on is the interest rate alone.  You must always consider the cost of the loan in tandem with the rate to make sure you can recoup that cost within about 36 months from savings due to the reduction of your mortgage payment.  There are a few exceptions to this rule and you will need to discuss those with your lender as they will need additional information about your debt load and other criteria to see if a refinance will better your situation overall.  It is always better to pick up the phone and call your lender to see if it will help you out than miss the opportunity all together.

This past week has been a rough one for some of the people I have talked to, all of who have multiple houses and are paying their bills and mortgages on time.  The issues have to do with being self employed and not showing enough income on taxes and wanting to refinance a second home for cash out.

Since every loan is basically a full documented loan these days it means that you have to prove your income.  There is no more stating an income or doing a no-doc loan.  These loans, at least for now, are a thing of the past and no one expects them to come back any time soon, if ever again.  Lenders want to see income and it needs to be income that has come in over the last 2 years, or capital gains income that has been consistent for 3 years.

The other restrictions have to do with cash out refinances.  There are no cash out refinances for second homes, period.  The only loans that you can get above 85% cash out are through FHA and they are still at 95% though we have heard that they are lowering it to 85% as well.  We just don’t know when.  So if you think you are going to take advantage of this low interest rate, you may want to think again if you can’t prove your income, meet the debt to income ratio or try to get cash out with little or no equity in your home.  It can be a tough row to hoe and the only way to see if you can qualify is contact your lender and go through the motions.

THDA traditionally does not provide for refinance loans.  However, because of the changing market, Congress passed the Housing and Economic Recovery Act this year and has made this possible.  There are a couple of things you need to know and the most important is that this refinance loan is not for people who have let their credit fall due to getting behind on their house payments.  It is for people who are making their payments but feel they might get behind once their loans reset.

If you think preventative then you are on the right track.  Most people don’t try to get a refinance until they have already missed several house payments and by this time it is too late.  This is a great loan as long as you take action BEFORE you get behind.

This loan is no different than other THDA loans that must meet other criteria as well in Davidson and many surrounding Counties.  The loans cap is $226,100 and there are income restrictions; $61,600 for 1 or 2 person households and $70,840 for 3 or more people; you can only get these loans through approved lenders that sell the loans to THDA; loans that are larger than 78%LTV (loan to value) must be insured by FHA, VA, Fannie Mae or Freddie Mac and; you must show hardship in one of five areas including a high interest rate and reduction of household income.

You can find out more by contacting THDA or email Taylor at thill@newsouthfederal.com