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Fixed mortgage rates fell for the third consecutive week. The federal government’s shutdown and ongoing recovery concerns, particularly the Fed’s decision to continue its bond-buying stimulus program, are attributed to the recent decline of key mortgage loans. The drop in rates comes after averages spiked by more than a percentage point since early May.

The average rate on a 30-year fixed mortgage loan dropped 0.10 percentage point this week, according to the latest survey from mortgage buyer Freddie Mac. After trending at 4.57 percent in early September, the average rate on a 30-year fixed is now at 4.22 percent – a difference of 0.35 percentage point month-over-month and its lowest mark since June 20. Still, the average is considerably higher than it was at this time last year, when the 30-year fixed was trending at 3.36 percent.

The average rate on a 15-year fixed loan also dipped for the third consecutive week. The current average is at 3.29 percent – a difference of 0.08 percentage point week-over-week and a 0.30 percentage point month-over-month. A year ago, the average on a 15-year fixed was 2.69 percent.

There was moderate change with hybrid adjustable-rate mortgages over the last week. The five-year ARM registered a slight drop, falling to 3.03 percent from 3.07 percent. The average rate on a one-year ARM remained at 3.28 percent week-over-week.

Mortgage rates previously spiked in July due to speculation that the Federal Reserve would curb its bond-purchase program, massive stimulus policies involving $85 million worth of Treasury notes and mortgage-backed securities. However, the recent relief is a result of indications from the Federal Reserve that it would maintain its bond-buying program at its current levels until employment numbers improved, which should push mortgage rates down in the future.

Also influencing rates is the current government stoppage, which has impacted the amount of mortgage applications that are processed. Rates hovering near historic lows have kept home buyers interested, but the shutdown has slowed the ability of lenders looking to confirm borrowers’ incomes and identities.

“With the onset of the federal government shutdown and declining consumer confidence, fixed mortgage rates fell for the third consecutive week,” Frank E. Nothaft, Freddie Mac vice president and chief economist, said in a statement. “Consumer sentiment fell for the second month in a row in September to its lowest reading since April, according to the University of Michigan. Moreover, a recent Bloomberg survey of professional forecasters suggests that a partial federal shutdown lasting one week would shave 0.1 percentage points off of GDP growth in the fourth quarter and even more if the shutdown lasts longer.”

The number of mortgage applications submitted showed a decrease this week after a two-week uptick.

Don’t expect to see much of a change over the next week. In the latest Mortgage Rate Trend Index by, analysts were split on whether rates would trend downward or stay the same of the next week.

“There is a lot going on right now that can impact interest rates both higher and lower,” opined FBC Mortgage planner Jim Sahnger. “However, economic numbers continue to be lackluster. Uncertainty will keep the favorable rates we have in check.”

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How to Pull Cash From the Home You Just Bought

by Mike Morse

As this exuberant housing market takes shape, the chance to harvest equity – to tap into idle cash – from your home may prove to be a worthwhile endeavor. In March 2011, Fannie Mae lifted the requirement that you had to hold title to a property for six months before you were allowed to access your cash equity.

The change has since allowed homeowners to acquire property and then immediately cash-out refinance to replenish liquidity, purchase other real estate, do home improvements or pay off debt. However, while it is a viable strategy, successfully sealing the deal on the “delayed financing” is something else entirely. Here’s what you need to know.

A Free and Clear Property
The property – whether it’s a single-family residence, multi-family property, condominium or planned unit development – must be free and clear of any liens. In other words, there can be no recorded mortgages on the title. Essentially, you can pay cash for a house, then turn around and immediately do a cash-out refinance without having to wait six months, as previous guidelines required. In a competitive purchase market with multiple offers, using this strategy to buy other real estate can give you an advantage, because with cash financing, the close of escrow can be days rather than weeks, as other buyers line up financing.

Supporting Documentation
This is where things can get tricky. If you’ve gotten a mortgage in the past three years, you’ll know the level of documentation and scrutiny underwriting gives to supporting documentation, as well as credit, debt, income and assets. Such is true with the “delayed financing rule refinance” – supporting documentation is key to getting the cash.

Delayed Financing Essentials
You can access up to 70% of the current appraised value or the acquisition price of the property, whichever is lower. For example, if the price of the home was $400,000, with an appraised value $425,000 — 70% of $400,000 would be used, so the maximum loan amount would be $280,000. That 70% is applicable to a primary home, second home or investment property.

The new loan amount cannot be more than the documented amount of the initial capital used to acquire the property, including any applicable closing costs, prepaid fees (taxes and insurance) or associated discount points.
The rates and terms are proportionately higher. A cash-out refinance will contain an added small margin because the loan is a “cash-out.” Other factors could lead to adjustments, as well — like your credit score, or the property type you’re refinancing (however, most delayed financing is sought for occupancy and investment properties).
There can be no relationship between the buyer and seller on delayed financing loans. Sorry gang, you cannot buy the home from your grandmother with cash, then re-mortgage immediately. This would revert back to the full six-month hold time. The relationship between the buyer and the seller must be at what’s called an “arm’s length.”
If the original seller of the property was an entity such as an LLC, principles of the LLC must be documented with their ability to sign on behalf of the entity.
The final closing statement from the recently acquired property must be provided, also called a HUD-1. This will support the fact no other liens were used to acquire the property.

Where Things Get Technical Fast
Properly sourcing the funds you use to acquire the property is essential. This means you’ll need to provide bank statements, personal loan documents, how the property was acquired — with every dollar accounted for. This is where it would be helpful to work with a lender who is proficient in successfully closing delayed financing deals.

Finally, while the property for which you’re seeking a cash-out refi must be free and clear of liens, there is an exception. If you took out a personal loan to purchase the property, that can be acceptable, as long as the terms are provided and the personal loan is paid off through the proceeds on the new loan being sought. The same goes for any other loans between parties used to purchase the property — they must be paid off through the net proceeds by closing time. The refinance provides a window for people looking to keep their cash liquid while at the same time conservatively leveraging real estate.

Published by: Scott Sheldon is a senior loan officer and consumer advocate based in Santa Rosa, California. His work has appeared in Yahoo! Homes, CNN Money, MarketWatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages.

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