Columbus Home Buyers-With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities. 

The downside of today’s unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business.  Especially with all the refinancing going on. My lenders always tell me that sales always get put before refi’s but …

As a result, the process of underwriting and approving new mortgage applications is taking some conforming lenders as long as 2 months to complete(!)

This is double the time needed as recently as six months ago.

Because there may be 60 days between the application date and the closing date, it’s important for applicants to remember that mortgage approvals can be revoked at any time prior to funding. 

As mortgage applicants, there are many events that are out of our control — job security and health matters, for example.  But there are also events that are within our control. 

I always tell my clients that, once we’re in contract, don’t so much as buy a toaster on layaway. Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process.  It may be the difference between being approved by the bank, and being turned down.

1. Don’t buy a new car or trade-up to a bigger lease.
2. Don’t quit your job to change industries
3. Don’t switch from a salaried job to a heavily-commissioned job
4. Don’t transfer large sums of money between bank accounts
5. Don’t forget to pay your bills — even the ones in dispute
6. Don’t open new credit cards — even if you’re getting 20% off
7. Don’t accept a cash gift without filing the proper “gift” paperwork
8. Don’t make random, undocumented deposits into your bank account

Now, avoiding these items may not be practical for everyone.  For example, if your car lease is expiring and you need a larger vehicle, it doesn’t mean you can’t buy the car — just check with your loan officer first to be sure the new payments won’t “break” your approval. 

The same goes for accepting cash gifts from parents.  There’s a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.

Mortgage lending is full of “gotchas” and with underwriting times stretching to 60 days, it’s a lot more likely that a mortgage applicant will trip into one.  Following these 8 rules, though, is a good start.

The President hasn’t signed anything yet but….Because Congress appears to have reached an agreement on a $789 billion stimulus package for America and because the President is expected to sign it into law, the clock may be ticking for this year’s home buyers and homeowners.

The package contains two main benefits related to housing:

• The first provision is fairly well-known.  It gives first-time home buyers (a first time home buyer is defined as anyone who hasn’t owned a principal residence in the last three years) an $8,000 tax credit provided they purchase a home between January 1, 2009 and (I’ve heard all three) either June 30, August 31, 2009 or December 1, 2009.

Yesterday I read Aug. 31, today I read Dec. 1 and the Dispatch had end of June in a blub this morning. The good news for current buyers–go ahead and buy, you’re covered. If you bought last month, you’re OK too.

This is a true tax credit.  To reduce misuse and abuse, however, the $8,000 credit is contingent on home buyers holding property for at least 3 years.  If the home is sold in fewer than 3 years, the tax credit must be repaid to the government.  It’s also worth noting that the date range applies to closings and not sales agreements. 

• A second noteworthy feature in the package is that the stimulus package gives existing homeowners incentive to “green” their homes.  With available tax credits for energy-efficient windows and doors, furnaces and insulation, homeowners can claim larger tax deductions based on home improvement, up to $1,500.

But, just because the government provides housing-related tax benefits doesn’t mean you should act on them blindly. Tax liability is a highly individual item and you may be ineligible for any number of reasons–income limits?  Be sure to discuss your plans with a qualified accountant before committing to a plan.

The best we could do is take a look at two distinct moments in time. If we are comparing July’s conforming mortgage rates to today’s average rates, there’s a 1.5 percent difference in favor of homeowners.  That means the annual percentage rate on the loan (everything else being the same such as 720+ credit score, no points, etc. etc.) is less currently than it was last summer (though more than a few weeks ago).

Rate drops like that certainly can make a big differences in a household budget.  Look at these before-and-after payments, based on rates from the chart:

$150,000 mortgage ($144 savings/month)

• July 2008: $958 monthly
• February 2009: $814 monthly

$250,000 mortgage ($240 savings/month)

• July 2008: $1,597 monthly
• February 2009: $1,357 monthly

$350,000 mortgage ($335 savings/month)

• July 2008: $2,235 monthly
• February 2009: $1,900 monthly

Of course, the flip side of this story is that while mortgage rates fell through late-2008, the mandatory lender fees that accompanied them rose.  That lessened some of the benefits of getting lower rates, but certainly not all of them.

According to recent housing data, buyers are back writing contracts and listed homes are selling quickly.  Considering how mortgage rates have led monthly payments lower, maybe it shouldn’t be much of a surprise.

(Image courtesy: The Wall Street Journal)

Tip - If you've only talked to one lender, talk to another or two.

Again, this is National mortgage news and might not effect us here. I did not personally take a survey of local lenders, but if local Columbus Mortgage lenders are willing to loosen their mortgage requirements, it could bode for a great Spring.

If the unfreezing of credit is paramount to an economic rebound, the first signs of a thaw may have reached Central Ohio.

Monday, the Federal Reserve released its quarterly survey of 84 member banks.  In it, the Fed says that fewer than half of its responding banks tightened “prime” mortgage guidelines over the last 3 months.

This is good news for active Franklin County home buyers who want a mortgage.

The word “Prime” is a vague term with respect to home loans, but it usually refers to mortgage applicants who can document:

• Equity or downpayment in a home 
• Credit scores over 740
• Excessive income versus debt

In looking at the Fed’s survey, one could infer that because less than 50% of banks made credit less available, more than 50% did not.  Borrowing may not be easier for prime borrowers, in other words, but it’s not harder, either.  Count this as a small victory for the housing market. 

All of this said, however, guidelines remain restrictive. 

In the 12-month period beginning late-2007, banks continuously clamped down on low credit scores, low downpayments, and high debt-to-income levels.  In addition, Fannie Mae added new fees based specific loan traits and second mortgages practically vanished from the marketplace.

The cumulative outcome of these actions precludes many Americans from participating in the current Refi Boom.  However, if the trend reported by the Fed continues, lending may open up a bit later this year, providing a boost to housing and to the economy.

If so called “Experts” believe that the tightening of credit helped create this recession. The loosening of credit, therefore, may be the way out.