Author Archives: Rhonda Porter

About Rhonda Porter

Rhonda Porter is an NMLS Licensed Mortgage Originator MLO121324 for homes located in Washington state. Her blog, The Mortgage Porter, is nationally recognized for sharing relevant information to consumers about mortgages. She has been originating mortgages since 2000 at Mortgage Master Service Corporation #40445 Consumer NMLS Website: http://www.nmlsconsumeraccess.org/TuringTestPage.aspx?ReturnUrl=/EntityDetails.aspx/COMPANY/40445 NMLS ID 40445. Equal Housing Opportunity. You can follow Rhonda on @mortgageporter, Facebook and/or Google+

Historic Photos of Your Seattle Home

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Did you know that if your home was built prior to 1930, there may be a photo of it in the State Achieves that you can obtain?

It takes a couple weeks to receive the photo and for a few cents extra, you can order the records that they [photopress:prince.JPG,thumb,alignright]have available from that time.    The black and white photo is from 1939 of the property which was built in 1927.   The color photo is a current picture of the home.

To order a photo of your home from the Puget Sound Achieves, click here to send an email.   You will need to provide:

  • Property address
  • Tax Parcel Number (I can help you find this if you don’t have this handy)
  • Legal Description (lot/block…they just want a brief one)
  • Your name and contact info

You can order anything from a 5×7 for $17.00 to a 16×20 for $55.00.   They will let you know what years are available.  It’s kind of fun to frame the older photos or to at least have them on hand.

Seatte Metropolitan Magazine's Best Places to Live

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This month’s issue of Seattle Metropolitan Magazine features their annual “Best Places to Live”.    What strikes me is their number one pick is[photopress:seattlemet.jpg,thumb,alignright] not any where near Seattle; nor is it “metropolitan”.   It’s Kent.  I’m not knocking Kent.   In fact, my main office is head quartered on the East Hill of Kent and I grew up in south east King County.   It just seems out of place to have 40% of Seattle Metropolitan Magazine’s Best Places to Live be outside of Seattle city limits.

Here is the Best Places to Live according to SMM with the median home price:

  1. Kent $278,500
  2. Lower Queen Anne $289,000
  3. High Point $315,990
  4. Belltown $324,450
  5. Victory Heights/Pinehurst $356,750
  6. Rainier Vista $390,000
  7. South Lake Union $394,000
  8. Issaquah Highlands $569,950
  9. Somerset $697,500
  10. Yarrow Point $1,500,000

Is SMM out of neighborhoods in Seattle they feel are worthy?  Are they searching for newly constructed fresh neighborhoods…Seattle is pretty darn old, afterall.  

Last year, Eileen covered SMMs 2006 Best Neighborhoods on RCG.   She asked why not Burien?  Which I agree–Burien continues to be completely overlooked and…in my opinion, so is Des Moines.   Both of these neighborhoods are technically “Seattle”.  

What Seattle neighborhoods would have made your top 10 that are not receiving recognition on this years list?

How Well Do You Know Your Mortgage?

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I was at my massage therapist yesterday (I was in an auto accident last July) and she was “talking mortgage” with me because she thought I find the conversation relaxing. 🙂  She recently was in the process of going through a refinance (with someone else, aahhhh…even more soothing) and discovered she has a prepayment penalty of $7,000 on her current mortgage.   She called off the refinance even though it could save her a couple hundred dollars a month (she may not keep her current residence for long, so this may not be a good move for her…I do not have all of her financial details, so I cannot provide a professional opinion).

Apparently her original lender never disclosed her prepayment penalty; at least she does not recall such a discussion.    She was very surprised with how little she knows about her largest debt.   She’s not alone.

I’m challenging RCG readers to make sure you understand your current mortgage.   I double dog dare you to dig up your Note (this should be with the inch thick stack of papers you received at your signing appointment) and confirm:

  1. What is your interest rate?  
  2. How is the mortgage amortized?
  3. Is there a prepayment penalty?   

Is your mortgage an Adjustable Rate Mortgage?   I have some additional questions…just for you:

  1. What is the date that your mortgage scheduled to have the first rate adjustment?
  2. How will your new rate be determined?  (What is the margin and index).
  3. How much can your mortgage adjust when the fixed payment period is over?
  4. How often can your mortgage adjust when your fixed period is over?
  5. Do you have deferred interest or negative amortization?

In light of all the press mortgages are getting these days, this is a good excuse to brush up on yours.   Just like my Massage Therapist, your Loan Originator may not have fully explained the details, or maybe you were so caught up in purchasing or financing your home, all those numbers slipped by.  It happens.

It’s up to you to make sure you are massaging your financial future to work in your best interest.   You can always contact your previous Loan Originator and have them explain your mortgage in fine detail or find another Mortgage Professional to help you.     

5 Steps for Shopping Mortgage Interest Rates

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[photopress:693_kick_tire.jpg,thumb,alignright]What?  I’m writing about something I don’t agree with in principle?  True.  I think that many people are spinning their perfectly good wheels in order to try to find a rate they cannot have unless they’re prepared to lock at the precise moment they are shopping.  But, the practice of rate shopping and kicking the tires of Loan Originators appears to be a necessary evil in the mortgage process. 

Here’s my advice, if you feel you must shop rates.

Step 1:  Contact at least three different people you trust financially and ask for referrals.   I suggest family members, friends, co-workers, your real estate agent, CPA, Financial Planner, etc.   Ask your sources what they liked and did not like about their Loan Originator.   Gather their contact information and visit their web sites and blogs, if they have one.  

Step 2:  Prepare your personal financial story.  You’ll need to retell the exact scenario to each Loan Originator so they can each provide you a rate based on the same information.   If you just want to see how skinny someone will quote a rate to you, you can make up a vanilla story of “I’m putting 20% down on a $500,000 house.  My mid credit score is 700 and I would like a 30 year fixed rate with no origination or discount points, please.  I would like the loan priced with a 30 day lock

Second Opinions on Good Faith Estimates

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[photopress:MPj03867450000_1_.jpg,thumb,alignright]

A few weeks ago, one of the Realtors I work with, Suzy Seller, contacted me to see if I could help her client with an out-of-state mortgage.   Ima Rusty (names are changed to protect the innocent), was moving to Arizona to retire and perhaps see the sun.   Ima had gone to her “local bank mortgage company

It may not be your business…but it is all mine!

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Two years ago, our company switched our loan operating system to Encompass, so I have data available for the past two years (closed transactions from March 2005 – March 2007).   I’m pretty surprised at the results after analyzing my purchase transactions and so thought I would share this with you.

Mid Credit Scores

3% had credit scores between 600-619

17% had credit scores between 620-679

25% had credit scores between 680-719

47% had credit scores between 720-799

8% had credit scores above 800

25 % of clients purchased with 100% LTV Financing (80/20 or 100% LPMI)

Average zero down mid credit score = 723

7% FHA Financing

  • Mid credit scores ranging from 644 – 744
  • Average FHA mid credit score = 720

39% had 20% or more for down payment.

The most popular loan programs for my clients:

  • 47% opted for a 30 year fixed conventional
  • 26% have 5 year fixed period ARMs

So what do I make of this?   The consumers with scores under 620 will have a much tougher time, if they’re able to purchase at all.   Especially without a down payment of 5% or better.   Depending on credit history (1-2 years of no late payments), they may be able to go FHA or VA for financing.   The 3% (credit scores of 600 – 619) of my clients who I helped with financing over the past two years, would probably need to go back to drawing board and work on their improving credit scores (and, more importantly, work on changing their credit/spending habits) before being able to obtain financing for a home.   With that said, out of the 3% who were able to buy, I’m only worried about two buyers who may not have followed my advice of working on their credit and revamping their budget (and one of them has a 5 year fixed period ARM).

The 17% (credit scores between 620-679) would probably fit into FHA financing.   Over the past two years, most of my clients would opt for 80/20 or 100% (LPMI) financing over FHA for the following reasons:

  • The upfront PMI (1.5% of the loan amount) is no longer refundable on new loans.
  • Monthly PMI was not tax deductible (VA does not have PMI) for loans originated before 2007.
  • The payment with 80/20s was lower than FHA.
  • Borrowers could keep the 3% down (required with FHA) in reserves instead of draining their savings.  

This information is just a reflection of my purchase business from March of 2005 to my closed transactions as of today.   Historically, I have served more south King County families.   Just over the past year, with my move to Seattle, my business is beginning to expand to Seattle and Bellevue areas.

Before reviewing this data, I was certain that a larger percentage of my business was zero down or subprime.  Now I can see that I’ve done many zero down/subprime “prequalications or preapprovals” and they just didn’t pan out…but the effort that goes into a preapproval almost feels like you completed a transaction…especially for a subprime buyer. 

Again, I don’t represent every lender…just little ol’ me!  😉

The Great Rent vs. Own Debate

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Owning a home is not right for everyone. There are certain benefits to not owning the home you live in. If something goes wrong with the property, you simply ring up the landlord and they get to fix it. You pretty much know what your cost are going to be month to month (unless your landlord decides to sell the property, increase rent, convert the condo, etc.). On comments from last Friday’s post on interest rates, there is a discussion debating if one could consider having a mortgage as a forced savings plan. I know I’m going to seem biased since I am a Mortgage Planner…and I fully expect all of the number-crunching-junkies out there to have a heyday with what I’m about to post…but here goes!

[photopress:northgaterental.jpg,thumb,right]I found two similar homes, both in the north Seattle area. The rental property is available for $1850 per month. The home for sale, with close square footage, rooms, area, etc., is available (actually, an offer is pending) for $499,995.

With the comparison, I’m going to assume someone has 20% down to either invest in the stock market or to buy a home. The current rate for a 30 year fixed is 5.75% (APR 5.904%). Principle Principal and interest is $2,334 plus taxes and insurance equals a total payment of $2623. First year monthly tax benefits are $606 (mortgage interest benefit will decrease, property tax benefit will most likely increase).

The prospects are in the 28% tax bracket; they have a gross income of roughly $8000 per month and can have $700 in monthly debts with credit scores at 680 or better. The investor will receive 11% from the stock market and the homeowner will benefit from an appreciation of 7% on their real estate.

Rent

at 5 years

Homeownership

at 5 years

Total Payment $117,863 Total PITI $157,396
Principal Paid 0 Principal Paid $28,951
Tax Benefit 0 Tax Benefit $35,293
Net Cost

$117,863

Net Cost

$93,152

Real Estate Value 0 Real Estate Value $701,269
Loan Balance 0

Loan Balance

$371,045
Total Home Equity

0

Total Home Equity

$330,224

Rent

at 10 years

Homeownership

at 10 years

Total Payment $254,498 Total PITI $314,792
Principal Paid 0 Principal Paid $67,519
Tax Benefit 0 Tax Benefit $67,893
Net Cost:

$254,498

Net Cost:

$179,381

Real Estate Value 0 Real Estate Value $938,566
Loan Balance 0 Loan Balance $332,477
Total Home Equity

0

Total Home Equity

$651,089

Investment

Investment

Opening Balance $109,000 Opening Balance 0
5 Yr Return @ 11% $188,452 5 Yr Return @11% 0
10 Yr Return @11% $325,817 10 Yr Return@11% 0
5 Year Net Worth

$188,452

5 Year Net Worth

$330,224

10 Year Net Worth

$325,817

10 Year Net Worth

$651,089

The first five years with the mortgage provide an average monthly principle reduction of $482.47 per month. Taking out any appreciation factors, the principle principal paid each month is a forced savings plan. With that said, home equity does not earn interest. And I would probably encourage most clients to consider not using the entire 20% for the down payment to stay more liquid (depending on their entire financial picture).

For many Americans who do not have a savings plan (and the statistics show that many do not save), owning a home is as good as it gets for building savings…and it ain’t so bad.

Let the games begin!

Why Selecting a Lender by Rate Alone is Not in Your Best Interest

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When Ardell suggested that I post rates on Friday, I was a bit reluctant to do so.   Why?   Because it promotes rate shopping and I don’t believe that is the best way for consumers to select the professional who will be advising them on one of the largest financial transactions they will make in their lifetime.   But I must admit, the posts have created a lot of very interesting comments and kudos to Ardell for putting me on the spot to post rates.

Recently, one of RCG’s frequent readers added a comment on Mortgage Rates for Friday Morning that brings home why you should not shop mortgage professionals by rates and that you should select your mortgage professional by referrals instead: 

I got a GFE from a broker recommended to me by my boss. She was smart and knowledgeable, but not particularly personable. 

I also got one from a guy who worked with my Realtor who called himself a Home Mortgage Consultant (with BIG BANK Mortgage). Personable, but not that sharp. 

I also called a few other brokers off the net and paper – straight APR shopping. 

The first broker, the one recommended, had the best rate. Because I liked my Realtor, I gave the (Bank) guy a shot to match her rate, which he did. 

He made numerous mistakes, and I was forced to go over my docs repeatedly with a fine tooth comb to make sure they were correct. 

In retrospect I should have gone with the recommended broker, though perhaps not, given that she was angry with me and showed it. 

In the end, however, I am going to go with the reputable person who gives me the lowest rate in an apples-to-apples comparison. A quarter point could mean 10s of thousands of dollars over the life of a loan. That’s going to trump loyalty every time, and you are fooling yourself if you think otherwise. 

There are many issues with shopping lenders by rate:

  1. You must shop all of the lenders at the same time on the same day.   There can be several price changes throughout a day.  You cannot compare apples to apples if 5 minutes after you receive one quote, you call the next lender and rates have changed up or down.  Brian Brady did an excellent post:  You’ll Never Get the Lowest Rate.
  2. Unless you’re prepared to lock in the rate the moment you’re dialing for dollars, the rate that is being quoted to you may very well not be the rate you receive when you decide to lock.    If it’s not a confirmed locked in rate, you don’t have it.   It’s a quote, not a guarantee.
  3. The lender who is “quoting

What's the Point?

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Brian Brady recently suggested that I explain how mortgage interest rates can be priced with or without a discount point since I’m now posting mortgage interest rates on Fridays here at RCG.  

One point is one percent of the loan amount.   Typically, but not always, one point equals 0.25% in interest rate.   You may hear lenders refer to discount points or origination fees…for me, they’re one in the same.   I’m paid eitiher way.  If you’re a buyer shopping rates, look on the Good Faith Estimate for the origination fee and discount points and add them together.   That’s how many points you’re paying to buy that interest rate for a certain period of time.
For example, if a 30 year fixed rate has a rate of 5.75% with paying 1 point, zero points would probably be 6.00%.   Whether or not someone pays for a point should be decided by how soon they will break even on the point as it is a significant cost.   A simple formula to determine when you break even is to divide the difference in payment between the 1 point and the 0 point scenario into the cost of the point paid.   The scenario below is based on a loan amount of $400,000.

Rate:  5.75% based on 1 point = $4,000
Principle and interest payment:   $2,334.29
Monthly savings over the 6% payment at zero points = $63.91
How long to break even on the $4000 = 63 months

Rate:  6.000% based on 0 points = $0
Principle and interest payment:  $2,398.20

If a borrower is planning on living in their home more than 5 years and not refinance during that time, then paying the point may be the right choice.  
A borrower can also have their loan priced to pay their closing costs. 

Rate:  6.125% = 0 points and approx. $2000 in rebate to cover closing costs (a.k.a. the “no cost mortgage