Archive for October, 2009

Home values in southwestern Montgomery County, Texas including The Woodlands and Magnolia have remained very stable, making mortgage refinancing far easier for area residents than for people in other parts of the city, as well as other parts of the country.

According to MLS statistics for the month of August, 2009, home prices have increased marginally over the past year with the year-to-date median single family home sale price increasing from $211,000 to $215,000. While the number of sales has certainly decreased significantly, and the number of months of inventory has increased from 5.4 to 6.1 over the past year, the stability of this area is remarkable.

Steady home values are important, even if you are planning on staying in your current home. This stability is critical in mortgage refinancing because the amount of money you can borrow is heavily dependent upon the market value of your home. For borrowers who put little or no money down on the purchase of their house, the ability to refinance in today’s low rate environment is dependent upon a current market appraisal showing price stability, or even appreciation. Furthermore, state law now limits “cash-out” equity loans and refinancing to 80% of the home’s current market value.

The “loan-to-value” percentage also influences the rate and terms you will receive on your mortgage loan. A borrower seeking to refinance a loan with a remaining balance at 60% of the home’s current value will receive better pricing (i.e. a lower rate) than someone who is refinancing at 80%. Less equity will mean more perceived risk to the bank. The most favorable pricing can be found below a 60% loan-to-value, and refinancing opportunities may be very limited above 80%. The ability to secure mortgage insurance coverage, which protects lenders against default on loans with lower homeowner equity, has become more expensive, and underwriting has become more difficult. Many lenders are wary to undertake any refinance transaction where private mortgage insurance is required, even in a relatively healthy real estate market like The Woodlands.

Borrowers may have some relief even if they have little to no equity in their home. Earlier this year, mortgage giants Fannie Mae and Freddie Mac announced refinance programs designed to assist homeowners who have little to no equity built up in their home. Owners can reduce their mortgage rates through the Freddie Mac Relief Refinance and Fannie Mae DU Refi Plus programs. In order to qualify, your loan must be owned by one of these mortgage agencies. A local mortgage lender can let you know if you qualify for one of these programs.

Fortunately for many area residents, mortgage rates in Texas remain among the lowest in the nation, in no small part due to the relative strength of the Texas economy. Houston-area mortgage rates can often be .25% lower than in other parts of the United States. In addition, certain parts of the country which have been identified as adverse markets may be underwritten much more critically than the Houston metro area.

The bottom line is: If your mortgage rate is above 6%, you should consider all of your refinancing options. Don’t allow the negative press about home values and the credit crunch deter you from determining whether a mortgage refinance can save you money.

Mike Lesmeister, CRMS, is a licensed mortgage broker and partner with Home Loan Specialists, Inc. a Houston-area mortgage lender specializing in low rate mortgage refinancing in The Woodlands, Spring, Tomball, Conroe, and Houston, Texas.