Posts Tagged ‘Mortgage’

What Changes Occurred In FHA And FNMA Rules During 2018?

March 22, 2018

What Changes Occurred In FHA And FNMA Rules During 2018?

The FNMA HomeReady Program

Those who are involved in the mortgage industry must keep updated on changes to FHA, and Fannie Mae (FNMA) loans. Since loan limits and other changes are often made annually, keeping up with these changes helps make sure consumers get the right information at the time of their application.

Many of the changes for 2018 are modest, but still impact existing, and new homeowners.

Changes To Loan Limit Amounts

FHA loan limits change on an annual basis as per the Housing and Economic Recovery Act of 2008. Using this, the FHA is required to base the insured mortgage amounts on 115 percent of median housing prices by county.  While many counties in the United States did not see changes this year, 3,011 counties saw a change for loan applications submitted after January 1, 2018. These changes mean the upper loan limits in higher-priced markets increases to $679,650 and the lower limits are $294,515. These limits are for new home purchases and for refinancing existing FHA loans.

Another significant change which must be considered is what FHA or FNMA considers a conforming loan. In prior years, this amount was $424,100, it has now been increased to $453,100. This is important because for many homeowners, jumbo mortgages seem out of reach.

Changes To Down Payment Requirements

While FNMA did have a minimum requirement for down payment at five percent, FNMA and Freddie Mac are both offering three percent down payment programs in 2018. It is important to be aware that FNMA limits this program to those borrowers who intend to use the home as their primary residence. The following conditions must be met to qualify for the 97 percent loan to value program:

  • The mortgage securing the property must be at a fixed rate
  • The property must be a co-op, PUD, condo or other one-unit home.
  • The property cannot be a manufactured home
  • The borrower must intend to occupy the property as their primary residence
  • One of the buyers cannot have owned a home in the last three years
  • Loans must be equal to or less than $453,100
  • Borrower’s credit score should be 620 or higher

FHA loans do require borrower to put down a minimum of 3.5 percent of their new mortgage. However, the also offer greater flexibility with credit requiring borrowers have a credit score of 580 and further allows the entire down payment to be gifted to the buyer. Borrowers with credit scores between 500 and 579 who can put down 10 percent are eligible for FHA mortgages.

Another important program FNMA offers is for first-time buyers. Specifically, the idea was to make owning a home easier for a larger market of buyers. This program offers some flexibility that standard FNMA loans do not offer including:

  • Lower private mortgage insurance (PMI) rates
  • 100 percent gifted down payments and closing costs
  • 97 percent loan to value
  • Co-borrower income may be used to qualify for a loan
  • Household member income may be included, even if not a borrower
  • Rental income and/or boarder income may help a borrower qualify
  • Borrowers must complete a home buyer’s education course

These changes are significant for many borrowers and include some flexibility with income limits. Borrowers living in low-income areas face no maximum income limits. Borrowers in other areas cannot exceed 100 percent of the median income for the area.

Do Not Overlook FHA Streamline Refinance

Borrowers who have an existing FHA loan can take advantage of this program. Borrowers who changed jobs, have faced credit issues, or who have homes who lost some value may be able to refinance their home into a lower interest rate, or eliminate mortgage insurance premiums. To qualify, borrowers must be current on their mortgage payments, cannot have been late on their mortgage payments more than 30 days in 12 months, and have had their current mortgage for a minimum of 210 days. Because of this seasoning requirement, borrowers must have made six mortgage payments at the time of the refinancing.

Thanks to the flexibility of this program, borrowers need not worry about income verification, appraisals, or credit score. The refinance terms must benefit the borrower in a tangible way. For example, a borrower who currently has a six percent adjustable mortgage and now qualifies for a six percent fixed rate mortgage can demonstrate a tangible gain. Therefore, assuming they meet the other requirements, their mortgage would qualify for the streamline finance. For many borrowers, this could help significantly, particularly if their home has lost value, or they have suffered a temporary decrease in their income.

Mortgage programs change frequently making it imperative to verify all program requirements before presenting them to borrowers. Fortunately, FNMA and FHA are making home ownership attainable for more borrowers than ever before thanks to more flexible down payment options, credit scoring changes and increased loan limits.


The Four Best Questions To Ask Before Refinancing Your Mortgage

March 20, 2018

The Best Questions to Ask Before Refinancing Your Mortgage1) Do I have enough equity to get a mortgage?

To get a conventional loan, you will usually need to have at least 20 percent equity. This means that your house will have to be worth at least $250,000 to get a $200,000 loan. If you have less equity, you could end up having to pay for private mortgage insurance, which can easily add $100 or more to your monthly payment.

2) How’s my credit?

Most lenders will look at your credit score as a part of determining whether or not to make you a loan. With conventional lenders, your rate will depend on your score and the higher it is, the lower your payment will be. Other lenders, like the FHA and VA programs have an all or nothing rule. If you qualify, your rate won’t be based on your credit, but if your score is too low, you won’t be able to get any loan. 

3) What do I want to accomplish?

Mortgages typically offer a choice as to their term. While the 30-year loan is the most popular, shorter term mortgages save you money since you pay less interest over their lives. They also get you out of debt sooner, at least with regard to your house.

The drawback is that they carry higher payments since you pay off more principal every month. This can make them less affordable for some borrowers.

4) How’s my current loan?

If you have an adjustable rate mortgage, you may want to switch to a fixed rate mortgage simply for the additional security it offers you. On the other hand, if you are planning to move relatively soon, your current mortgage could be a better deal whehter it’s fixed- or adjustable-rate.

When trying to decide what to do, compare the cost of refinancing with what it would cost you in additional interest to hold on to your existing loan. While the breakdown is different for every borrower, generally, you’ll need to keep your current house and loan for anywhere from three to six years to break even on the costs of refinancing.

Deciding what to do with your mortgage can be complicated. Working with a qualified loan broker that can consider every angle with you can help you to make a better decision.

What Are The Benefits And Drawbacks Of Putting 20 Percent Down On A Home Purchase?

March 15, 2018

Should You Put 20 Percent Down On Your Home Purchase?Several generations ago, lenders required home buyers to have a 20 percent down payment in order to get a mortgage. While there were a few options out there for people who couldn’t save this substantial amount, the reality was that for the majority of people, the 20 percent down was a requirement.

It was the way to show that you were financially responsible enough for homeownership. And it was a strong way that the banks felt secure in making a home loan.

Today, however, homebuyers have many options available to them as they shop for a new home, and those mortgage options mean that the 20 percent down payment is no longer as much of a requirement. For most buyers, especially those who do not have the equity of an existing home to help with their purchase, the 20 percent down payment is not even a possibility.

Yet for those who can do so, putting 20 percent down carries some benefits worth considering. Here is a closer look at when the large down payment makes sense, and what the potential drawbacks are that buyers should consider.

How The 20 Percent Down Payment Helps

When it is possible for the buyer to save enough, the 20 percent down payment does have some benefits that are worth considering. First, when you are able to save 20 percent, you can get a mortgage that has no private mortgage insurance or similar fees. Because lenders consider a borrower with less than 20 percent for the down payment to be higher risk, they charge additional fees to serve as insurance on these loans.

Putting 20 percent down also means you are borrowing less. Because every dollar you borrow will be charged interest, the less you borrow the lower your repayment costs should be over the life of the loan. If you have the ability to save 20 percent, this is a benefit worth considering.

The Drawbacks Of 20 Percent Down

While saving 20 percent does have some benefits, it also has drawbacks that you must also consider. First, 20 percent of a home loan is a significant amount of money. On a modestly priced $100,000 house, that means you have to save $20,000. For the average home buyer, this represents years of saving. And you could be giving up years of price appreciation on the home that you could have purchased earlier by using one of the other financing options.

Also, if you are putting all of that money down as your down payment, you may find yourself cash strapped for other home buying costs, like new furniture or closing costs on your mortgage. The Consumer Financial Protection Bureau warns that this can be a significant downside, especially for first-time buyers who have a lot of expenses as they make the move into their first homes.

Many people find themselves digging into their other investments, like their 401(k), to come up with the money for the down payment. When mortgage interest rates are low, this can be an unwise move. Paying a bit more in interest over the life of a mortgage is often better than creating a serious financial bind for your future needs. Digging into your retirement also means you are not getting that vital compounding interest.

Finally, saving 20 percent often means you can’t buy a home quite as quickly. Since home prices historically tend to rise, not fall, the longer you wait, the more you may spend on your home. If home prices rise by 5 percent a year, which is fairly standard, waiting two years to purchase the home means $10,000 in extra costs for a $100,000 home. The higher purchase price counters any savings you may have when you put down 20 percent.

Can You Buy With Less Than 20 Percent Down?

So can you buy a home with less than 20 percent down? The answer to that question is yes, and often it makes more financial sense to do so. In fact, according to Freddie Mac, 40 percent of homebuyers in today’s markets are making down payments of less than 10 percent. So if you are going to buy a home without saving the 20 percent, what are your options?

If you have strong credit, many lenders are still offering piggyback loans. These loans allow you to take out a smaller loan for part of your down payment, then a traditional loan for the rest of the purchase price. You may still need about 5 percent of your own money to put down on the purchase. Then you can work with your lender to borrow 15 percent with a smaller, and many times shorter-term loan, and the remainder with a conventional mortgage.

Down payment assistance is another option to consider. These programs, which are available through non-profit organizations or government-run programs, give homeowners a hand in coming up with the down payment they need to purchase the home.

Finally, consider the low down payment options that are out there. USDA loans, VA loans, FHA loans and similar loan products are designed for those with just a little bit to put down on the home. The FHA loan, for example, is a government-backed loan that requires just 3.5 percent down on the home.

Forbes indicates it is even possible to get a conventional loan with as little as 3 percent down. In some instances, like the USDA home loan program, you can even buy a home with no down payment.

While these home loans do have additional costs, like the funding fee for the VA loan or private mortgage insurance for conventional low down payment loans, they give you the ability to buy now without 20 percent down so you can start enjoying the benefits of homeownership sooner.

When buying a home, getting sound financial advice is always wise. Whether you choose to put down a large amount on your home or take advantage of these different loan options to buy with a smaller amount down, make sure you weigh your options before making your choice.

What Items Can Change My Mortgage Pre-Approval Status?

March 14, 2018

What is a mortgage pre-approvalWhen you are purchasing a home, your lender may recommend you obtain a mortgage pre-approval before you find the home of your dreams. There are some benefits to being pre-approved before you find a home, but oftentimes, people confuse pre-qualifications with pre-approvals.

So the question many buyers have is what exactly is a mortgage pre-approval? In a nutshell, it’s when the lender provides you (the buyer) with a letter stating that your mortgage will be granted up to a specific dollar amount.

What Do I Need For Pre-Approval?

In order to obtain a pre-approval for your home purchase, you will have to provide your lender all of the same information you would need to show for qualifying for a mortgage. This means providing tax returns, bank statements and other documents that prove your net worth, how much you have saved for your down payment and your current obligations.

What Conditions Are Attached to a Pre-Approval?

Generally speaking, a pre-approval does have some caveats attached to it. Typically, you can expect to see some of the following clauses in a pre-approval letter:

  • Interest rate changes – a pre-approval is done based on current interest rates. When rates increase, your borrowing power may decrease
  • Property passes valuation and inspection – your lender will require the property you ultimately purchase to come in with a proper appraisal and meet all inspection requirements
  • Credit check requirements – regardless of whether it’s been a week or six months since you were pre-approved, your lender will require a new credit report. Changes in your credit report could negate the pre-approval
  • Changes in jobs/assets – after a pre-approval is received, a change in your employment status or any substantial assets may result in the pre-approval becoming worthless

What Items Can Change My Mortgage Pre-Approval Status?

One of the major issues that affect some borrowers as they are preparing to purchase their new home is financing large ticket items before the home purchase loan is completely funded.  Even if you are buying new furniture or other items for the home, it’s best to wait until after your home loan is entirely complete before purchasing any of these new items.

Work changes can also drasitically affect your pre-approval status.  Make sure your loan professional is well aware of any changes well in advance of them happening in order to plan effectively.  There are ways to work with job changes but it is a delicate matter during the mortgage underwriting process.

Getting pre-approved for a home mortgage may allow you more negotiation power with sellers and may help streamline the entire loan process. It is however important to keep in mind there are still things that may have a negative impact on actually getting the loan.

It is important to make sure you keep in contact with the lender, especially if interest rates increase or your employment status changes after you are pre-approved.

Can I Have A Co-Signer For My Mortgage Loan?

March 13, 2018

Can I Have A Co-Signer For My Mortgage LoanLike credit cards or car loans, some mortgages allow borrowers to have co-signers on the loan with them, enhancing their application. However, a co-signer on a mortgage loan doesn’t have the same impact that it might on another loan. Furthermore, it poses serious drawbacks for the co-signer.

Mortgage Co-Signers

A mortgage co-signer is a person that isn’t an owner or occupant of the house. However, the co-signer is on the hook for the loan. Typically, a co-signer is a family member or close friend that wants to help the main borrower qualify for a mortgage. To that end, he signs the loan documents along with the main borrower, taking full responsibility for them.

When a co-signer applies for a mortgage, the lender considers the co-signer’s income and savings along with the borrower’s. For instance, if a borrower only has $3,000 per month in income but wants to have a mortgage that, when added up with his other payments, works out to a total debt load of $1,800 per month, a lender might not be willing to make the loan.

If the borrower adds a co-signer with $3,000 per month in income and no debt, the lender looks at the $1,800 in payments against the combined income of $6,000, and may be much more likely to approve it.

Co-Signer Limitations

Co-signers can add income, but they can’t mitigate credit problems. Typically, the lender will look at the least qualified borrower’s credit score when deciding whether or not to make the loan. This means that a co-signer might not be able to help a borrower who has adequate income but doesn’t have adequate credit.

Risks of Co-Signing

Co-signing arrangements carry risks for both the borrower and the co-signer. The co-signer gets all of the downsides of debt without the benefits. He doesn’t get to use or own the house, but he’s responsible for it if the mortgage goes unpaid.

The co-signer’s credit could be ruined and he could be sued (in some states) if the borrower doesn’t pay and he doesn’t step in. For the borrower, having a co-signer adds an additional level of pressure to make payments since defaulting on the loan will hurt him and his co-signer.

As always, it’s a good idea to speak with your trusted mortgage loan professional for advice in your specific situation.

Should You Get Pre-Qualified Or Pre-Approved For Your New Home Purchase?

March 1, 2018

How Pre-Qualifying Helps You Find The Right New HomeOften times, home buyers can be disappointed when they find their dream home only to discover they are not able to get a mortgage to purchase the property. There are methods that potential buyers can use to ensure this does not happen to them.

One of the options is to ensure you obtain a pre-qualification from your lender. It is important to understand the difference between a pre-approval and a pre-qualification. While both are helpful, they do not carry the same weight.

What are the differences between these options?

A pre-qualification allows a borrower to determine how much money they may be able to borrow. For most borrowers, this allows them to start the house-hunting process with a mortgage amount in mind. Borrowers should understand, while the loan amount can be calculated, changes in interest rate as well as the borrowers credit are not evaluated in this process.

In general, the lender will request specific information from the borrower including income and expenses as well as ask about their credit. None of this information is typically verified by the lender through an underwriting process before sending a pre-qualification letter.

On the other hand, a pre-approval requires the borrower to provide a number of documents to the lender, typically the same documents borrowers need to apply for a loan. The documentation supplied to the loan professional is then treated as a full purchase loan application and run through underwriting to secure a conditional commitment from a bank or mortgage lender.

Oftentimes, this difference between the two options leads borrowers to speculate as to whether a pre-qualification is useful.

Why pre-qualification helps in your home hunting?

There are many valid reasons why potential homebuyers should ask about pre-qualifying for their mortgage. Some of these include:

  • Home prices – if a borrower is eligible for a mortgage of $200,000 they will know they will have to seek homes in a specific price range. If a borrower is only able to put down 10 percent, they know the maximum home price they can afford is $220,000.
  • Down payments – in most cases, borrowers who can afford to put down a large down payment will have more options available to them. In some cases, understanding how much mortgage a borrower may qualify for beforehand allows them to save additional money for a down payment.
  • Estimates of dollars needed – another advantage to pre-qualifying is borrowers can get an idea of what additional closing costs they may need to qualify for a mortgage. This can be very helpful for a first time home buyer.

Pre-qualifying for a loan can save a home buyer from being disappointed. There are few things that are more upsetting than finding a home you love only to discover you are not eligible for the loan you need in order to purchase that home.

Typically, when you are seriously looking for your next home it would be a good idea to move to the full pre-approval process in order to get the most leverage when you find the home of your dreams.

As always, it’s a good idea to consult with your trusted mortgage professional for both loan pre-qualification as well as pre-approval.


How To Successfully Use Your Down Payment to Achieve Your Home Buying Goals

February 27, 2018

How To Successfully Use Your Down Payment to Achieve Your Home Buying GoalsWhen you are considering purchasing a home , understanding the lending guidelines regarding a down payment is important. 

Here are a few key tips to consider:

Gifting of a Down Payment

There are some programs that will allow you to use a gift for your home down payment. However, before you assume this, make sure you talk to your loan officer. Generally speaking, the lender will require the person making the gift to provide a letter stating the money was a gift and does not require repayment.

Windfalls as a Down Payment

When people hit the lottery or come into money through an inheritance, one of the first things they may consider is buying a new home. However, it is important ot keep in mind that lenders will typically want to know exactly how you came up with your down payment.

Borrowers still need to show a “paper trail” of how they came into money. If your down payment amount has not been “seasoned” the lender may not accept your loan.

What is a Seasoned Down Payment?

Generally speaking, your loan officer will want a “paper trail” to document your down payment. Most lenders require down payment funds to be at a minimum 60 days old. For example, let’s assume a borrower did win the lottery: If they deposit the funds into their checking account and leave it there for 2 months or more, the funds would be considered seasoned.

However not all lending guidelines are the same. Some lenders require even more seasoning to consider the money in your account truly yours. So it’s a good idea to plan well ahead of your purchase date to get your down payment funds in your account if you plan on getting money from another source.

Lender restrictions on down payment funds are fairly common. If you are uncertain if your funds meet the lender’s criteria, talk to your loan officer. In most cases, a lender will require at least one-half your down payment fall into the category of seasoned funds.

The One Place You Can Borrow For Your Down Payment

Some borrowers may use their retirement account or other savings to make their home down payment.  And most lenders are perfectly fine with you borrowing against your own savings in a 401(k) or IRA account. Of course you will likely want to discuss the tax implications with your accountant or financial advisor before making these withdrawals.

Don’t wait until the last minute to discuss your down payment with your loan officer because you may wind up disappointed. Keep in mind, every lender has different requirements and these rules may not apply to your lender.

3 Great Homebuying Tools Millenials Have Available to Them Right Now

February 22, 2018

Millennials Have Great Home Buying Tools AvailableThe economy seems to be heating up rapidly, but home loan interest rates are still at historically low levels. Real estate values have climbed a bit across the country, but low interest rates and affordable prices makes for an excellent opportunity for new homeowners to get into their first home before it rates and prices rise higher.

According to the recent studies, there were 4 consecutive quarters of homeownership growth where new homeowners outpaced new renters.  The solid economic fundamentals are likely responsible for creating this excellent home buying environment.

Over the past year, Millennials seem to be on board and helping to drive the upward trend. They represent the next generation of homebuyers, and as this group is getting older, they are getting married more frequently. They are also starting families which tend to encourage the idea of home ownership. In fact, a recent analysis showed that home ownership is 30% higher among married couples than non-married couples.

Specifically, low unemployment numbers and a progressively aging pool of Millennials with a desire for home ownership appear to be driving this trend. US homeownership actually increased over 2017 to an unadjusted rate of 64.2%, which was a significant uptick from the previous year at 63.7%.

Here are a few very helpful tools are still available for new buyers:

  • Any homebuyer with military status can take advantage of Veterans Administration loans with far better rates than the normal market, making mortgage payments cheaper.
  • Those buying in rural areas can take advantage of rural homebuyer’s assistance programs provided by the U.S. Department of Agriculture to help people move to small towns and similar communities.
  • The Housing and Urban Development Agency provides HUD loans that make it very affordable for those with limited income to purchase HUD-owned homes as first-time buyers and get into real estate.

Of course, the big response from Millenials is how do I earn more to even get started. Like Generation X folks before them, Millenials can’t wait for a job to be made available on a platter.

While looking, many smart folks have started their own businesses online or in their local marketplace. If a current job is enough to cover current bills, a second income can be entirely dedicated to saving, which can generate thousands of dollars quickly.

Even a part-time second job that creates $1,000 a month produces $12,000 a year and in two years enough for a sizable down payment. 

If you have questions about buying your next home, give us a call. We’d be happy to help!

Questions and Answers Regarding Escrow Accounts

February 21, 2018

Questions and Answers Regarding Escrow AccountsWhether you are purchasing a new home or you are considering applying to refinance your home, chances are the lender will require an escrow account. These accounts are often a source of confusion for homeowners. In reality, these accounts benefit the homeowner and help protect the lender.

What is an escrow account?

Escrow accounts are sometimes called “impound” accounts. These accounts are set up to help manage payments of property taxes and homeowner’s insurance. Depending on the individual requirements of the lender, you may be asked to pay as much as one-quarter of these upfront and they will be put into the account for the purposes of making payments.

Who controls escrow accounts?

Lenders have complete control over escrow accounts. However, homeowners are entitled to receive an annual statement advising them of their escrow balance. If there is an increase or decrease in insurance payments through the year, a homeowner may request the lender evaluate the escrow account and change the amount that is paid.

Is interest paid on escrow accounts?

There is no mandate to pay interest on escrow accounts. When you refinance your home, the funds for your taxes and insurance are calculated into your overall payment. The portion that is to be used to pay taxes and insurance is placed in escrow. Federal laws do not require lenders to pay interest on these accounts.

What happens if I sell my home or refinance?

When you sell or refinance your home, your escrow account will be credited at closing. The amount may be used to lower your out-of-pocket costs or may be turned over to you as a direct payment.

What happens if there is not enough/too much money in escrow?

If your lender has underestimated your escrow payments, they may request you send an additional payment to make up the difference. In the event you are paying too much into escrow, your lender has the discretion to release the overage amount directly to you. In most cases, shortfalls or overages of $50 or less are typically not a major concern.

If your lender requires you to have an escrow account for the taxes and insurance portion of your mortgage payment, it can be very helpful. Escrow accounts help ensure you do not have to come up with a large payment once a year for insurance or quarterly for taxes.

In some cases, if a lender does not require an escrow account, as a borrower, you may request they escrow your taxes and insurance for convenience.

Why Should One Consider Refinancing Their Mortgage Now?

February 16, 2018

Why Should One Consider Refinancing Their Mortgage Now?Refinancing a mortgage is a golden opportunity to lock in today’s low interest rate for the next 15 or 30 years. While interest rates now are still low, there’s a good chance they may be heading up in the coming months.

The Fed may not maintain the current bond purchasing level forever, and any changes that the Fed makes will likely affect mortgage interest rate levels.

As interest rates remain near low for 30 and 15 year mortgages, homeowners can benefit greatly from a refinance. Several types of people in particular should consider refinancing.

Carrying a high rate

Anyone with an interest rate well above today’s level should think about a refinance. Unless the homeowner is planning to sell within the next few years, a refinance will almost always save money in the long run if the rate can be lowered by at least a percent.

Switching from FHA to conventional

Given that FHA mortgages now carry mortgage insurance premiums for the life of the loan, it makes a lot of sense for borrowers to switch away from them when they can. Refinancing may be possible once the homeowner has built up enough equity to qualify for a mortgage from a traditional lender, without the burden of mortgage insurance.

ARM coming up on adjustment

The low rate of an adjustable rate mortgage may not stay low beyond the first few years of the mortgage. After this point, the rate adjusts each year based on market trends. Rather than paying the adjusted rate, which is almost always higher, homeowners can refinance into a new fixed rate mortgage to lock in one of today’s low fixed rates for the duration of the mortgage.

Cash out to consolidate debt

Homeowners carrying high-interest debt, like credit cards and personal loans, can often benefit from consolidating it into their mortgage. As long as they maintain at least 20 percent equity in their home, they can get a cash-out refinance for an amount higher than their current mortgage balance. They can then use the difference to pay off high-interest debt.