Mortgage interest rates continue to remain at near-historic lows throughout the country, and many homeowners in Northwest Tucson are taking advantage of those rates, seeking to refinance their homes.
But in doing so they have to navigate a maze of information, depending on whether they hold a mortgage from the Federal Housing Administration (FHA), Veterans Administration (VA), Fannie Mae, Freddie Mac or some other lender.
In addition, the borrower might qualify for either a Home Affordable Refinance Program (HARP) or a Home Affordable Modification Program (HAMP) loan.
Paul Volpe, vice president of Nova Home Loans in Tucson, said there is a lot of refinancing going on in Tucson, with Nova’s refinancings doubling in the last couple of months.
“We’re seeing rates in the high 3-percent to low 4-percent range for 30-year fixed mortgages, and in the low 3-percent to 3.25-percent for 15-year fixed mortgages,” he said.
When Volpe talks with a client about refinancing, he first is interested in the client’s current mortgage term and what their long-term goals are for the property. He then analyzes whether a refinance would be beneficial.
“If a client has an FHA loan, the FHA will allow a streamline loan if there is five percent savings between the old mortgage payment and the new one,” Volpe said. “An appraisal isn’t required for the FHA streamline. Likewise with a VA loan, as long as it is on time and meets the VA streamline requirements.”
Those types of situations are the easiest to decipher as to whether Volpe can show a direct savings for the client.
“If the client has a conventional loan, things get a little more complex,” Volpe pointed out. “It depends where the client is on the value of the property and whether it is backed by Fannie Mae or Freddie Mac. In some cases, they may qualify for a HARP loan.”
But, if a loan isn’t backed by the big four – FHA, VA, Fannie or Freddie – then things can get very complicated, Volpe observed.
“Let’s say it’s a portfolio loan,” he said. “An appraisal is the key for that one, which will determine the value the owner is at and if they have to pay the mortgage down or get mortgage insurance.”
Arthur Varney, a 75-year-old, retired San Francisco firefighter who lives in Oro Valley north of Naranja Road, bought a one-story house with four bedrooms and 2.5 bathrooms in 2008.
Now he’s ready to refinance.
“When I bought the house, the interest rate for a 30-year mortgage was 4.5 percent,” Varney said. “Now, a 15-year fixed mortgage is 3.3 percent.”
Varney, who is Volpe’s client, noted the process for refinancing is “very easy, if your credit is good. The appraiser comes out and does his thing, and a week later you hear what you qualify for, percentage-wise.”
Varney pointed out that to avoid having to purchase mortgage insurance, a homeowner should have a mortgage down to 80 percent of the house’s appraised value.
“You have to keep your eye on the interest rates,” he said, “and when they get as low as they are, if you have good credit, you probably should do it (refinance).”
Randy Hotchkiss of Peoples Mortgage Company in Tucson said that homeowners with good credit and stable incomes are not having problems with refinancing mortgages.
“Of course, the requirements of the FICO score have gone up,” Hotchkiss pointed out. “You used to be able to qualify with a 620 FICO, but now 700 FICO is what investors are looking for in order for someone to obtain the better interest rates of around 4 percent.”
Hotchkiss maintained that the refinance market is driven by credit scores these days, along with loan value, income to payment ratio, and income to all other debt ratio.
“The industry has tightened up on its lending practices, but rates are low, the price of housing is low and there are a lot of loan products available to homeowners right now,” he observed. “If you have a mortgage of 4.75 percent or more, you should consider refinancing. We’re seeing a lot of people coming in and refinancing, going from a 30-year loan to a 15-year fixed rate, sometimes making the same payment, but cutting their payment time frame in half.”
However, he noted, very few people are choosing an Adjustable Rate Mortgage (ARM).
“The small difference in the interest rate compared to a 15-year fixed mortgage doesn’t attract a lot of people to go with an ARM because they don’t know what will happen to the rate in three to five years,” Hotchkiss added.
Eugene Fera, lending manager for Chase Home Lending in Tucson, said Chase has seen a dramatic increase in activity with HARP and HAMP loans.
“These programs were created by the federal government to keep borrowers in their houses, even if the house value is less than what they owe on it,” Fera said.
Fera said he’s seen people refinance mortgages not only on their primary residence, but also on second homes and investment property.
“Many of the people who bought between 2004 and 2009 at the height of housing prices are typically in need of a refinance program,” Fera pointed out. “Usually they could qualify for the HARP program, where someone who bought a house around 1995 would have enough equity in the house to do a traditional refinance.”
But no matter the type of refinance, activity has been brisk in recent months.
“In the past two years, we have doubled the number of loan officers in my office alone,” Fera noted. “Things are very strong in the area, both in terms of refinancing and purchasing. And while the loan guidelines have tightened up, that’s a good thing because it doesn’t allow people to get in over their heads.”