Zillow.com has a new mortgage page. The information is, for the most part, pretty informative and practical. A good place to educate yourself about both the mortgage and real estate process.

However…their “find a lender” (or, I guess, the lender finds you) search is not unlike many of the internet-based companies that are trying to lure people into believing that finding a lender is like buying a bottle of ketchup:  all are the same and you just want the cheapest (and we all know that all ketchup is not the same.)

I could go on and on about the many dangers of using this site for finding a lender, but instead I would go to Lenderama’s site and read this post. It’s great and explains the objections in a sensible and thoughtful manner.

The good news is that the limits for lending have increased for many areas. As outlined in the Allregs guide:

“The Act provides that the mortgage limit for any given area shall be set at 125% of the median house price in that area, as determined by the Department of Housing and Urban Development, except that the FHA mortgage limit in any given area cannot exceed 175% of the 2008 Freddie Mac conforming loan limit of $417,000, nor be lower than 65% of the same 2008 Freddie Mac conforming loan limit for a residence of applicable size.

Thus, in areas where 125% of the median house price is less than 65% of the Freddie Mac limit, the FHA limits are set at the 65% limit, i.e., the “floor,” as follows:

          1 Unit:  $271,050

          2 Units: $347,000

          3 Units: $419,400

          4 Units: $521,250

In areas where 125% of the median house price exceeds the 175% limit of $729,750 for a 1-unit property, the mortgage limits are set at the 175% amount, i.e., the “ceiling,” as follows:

          1 Unit:  $729,750

          2 Units: $934,200

          3 Units: $1,129,250

          4 Units: $1,403,400

For all other areas, i.e., those where 125% of the median home price for the area is in between the floor and the ceiling, the limit shall be at 125% of the median home price.”

So the news, for a change, is good for everyone. Buyers who need a more liberal mortgage program (i.e. have little down payment, not spectacular credit scores/history, little money in reserves, etc.), FHA is a great way to go. Sellers will have more opportunity to sell their homes, as there may be more buyers available, particularly for higher priced homes.

Here’s my thought though: I looked up the word “limit,” and the definitions point to the idea of boundary or restraint. I think we should keep this in mind.

Yes, the new FHA limits allow more people to buy “more home.” Sound familiar? Remember all those programs, in the last four years, that were able to “buy more home” buy offering high LTV (low down payment), interest only, and negative amortization programs? No income or assets required? No job, no problem? Remember those programs and remind ourselves of all the heartbreak that has spread not only throughout the country but also throughout the world.

Let’s make sure we do the right thing. Budget. Limit ourselves. Just because the limit is $729,750, doesn’t mean that we have to take a loan for that much.

Still, this is great news for the beginning of the spring season.

Regarding the mortgage industry, one item stands out.  If the President signs the bill, there is a good possiblity that the conforming loan limits will increase.

It is estimated that conforming loan limits for 1 unit properties will go from the current $417,000 to (an estimated) $729,000! For many people who are going to be buying properties and would be stuck with jumbo loans (i.e. much higher interest rates), this is big news.  And many people will be able to refinance from two loans, often with higher-interest second mortgages, into one loan with better interest rates.

Look for updates.

A client, interested in making an offer for a new construction unit, referred to me by a previous client, called last week and wanted to know “my best 30-year fixed, and my best 30-year fixed interest only, doing a 100% LTV loan.” He did not want to give me any income or asset information, and certainly did not want to give me his social security number to evaluate credit history. He just wanted his rate. 

I can’t do anything. Well, I could do something:  I could just give unrealistic, low rates, try to lure this person in, and then change things as we get near the closing date.  But that would be ’somewhat’ unethical, at the very least.

I am not alone.  Tony Gallegos, in a recent post, refers to a really wonderful post about the same idea. One of the main points:  don’t choose your loan officer by (only) interest rates. If you want the lowest payment, an interest only program may be for you, though that 5-year ARM with an interest only payment will have a higher interest rate than the same ARM with a principal and interest payment. There are many, many examples of choosing a program with a higher interest rate

Again, a higher interest rate may be in your best interests.

But for homebuyers, once the weather breaks the plans to buy a home that have been growing all winter now become reality. Everyone is out walking and driving with their real estate agents, pounding the pavement, and, eventually, negotiating terms for the purchase of a property.

Lately, many people have been asking about “the old” fixed rate mortgage versus adjustable rate mortgage debate. I have posted recently about the main ideas, but here’s a thought: what about retirement?

No matter what situation you find yourself in, I am a big believer in starting to save early. Most first time homebuyers think short-term. And this is obviously important. But what if someone told you that if you were to hold the property that you are buying for 30 years, even if you move out, and you would make $70,000? Or $100,000? Or more?

What does this have to do with the mortgage? Fixed rate mortgages allow you to keep the same interest rate and maintain a steady payment no matter what may happen. So, even though a borrower may not anticipate living in the new home for more than, say, three years, it may be prudent to think of the home as retirement income as well. In addition, once you have moved out and you have found a renter, the rental income should, hopefully, balance out a good portion of the mortgage debt.

As you talk with your agent about properties, get their take on long-term buying in the neighborhoods in which you plan to buy a home. Your first little nest could be the foundation of your retirement mansion.

Not too long ago borrowers with perfect risk factors were getting 3-year ARMs for 4.00%!  And so a principal and interest payment on, say, a $300,000 loan would be $1,432.25. Now, those borrowers would be at around 5.875% and the payment would be $1,774.61. That’s a difference of $342.36. Big difference. Big problem now also because anyone who chose that 3-year ARM three years ago and has not refinanced or sold the property has a huge adjustment in payment coming up.

“I am shopping around and am looking for the best rate,” is the most common statement that someone makes to a loan officer. As I emphasize over and over, the best rate is relative to many factors.

There has been great focus on the subprime collapse, and several people have noted how many people who took very short-term ARMs with a subprime loan could be facing catastrophic payment problems soon, as the rate will be increasing significantly. People with subprime loans who started at 6.00% two or three years ago may be adjusting to 9.00% or higher now.

And as I noted above, even many strong (A paper) borrowers who  were able to get “sexy,” extremely low rates, three years ago, and were able to save a considerable amount of money monthly, and never sold their home or refinanced, also now may be facing much higher payments. 

Things change.  So do ARMS. So you have to ask yourself: what’s more important? A lower (temporary) payment with an ARM, or long-term rate/payment protection and slightly higher rate/payment (with a fixed rate mortgage)? Three years ago borrowers could have chosen a fixed rate at (say) 5.375%. Yes, the payment would have been higher than that sexy 3-year ARM, but the fixed rate would look real sexy now.

(Note: that is not my arm but a photo of what it will look like in about a year after my newly imposed workout schedule kicks in. I hope.)