Tools to Access Your Home’s Equity

January 11, 2018 by

Home owners often seek to use their home equity as a source of cash.  They can use this cash for renovations, paying off other high interest debt, funding college educations, etc.

Owners typically access their equity by either (1) paying off their current mortgage and obtaining a new, higher-balance mortgage using a “cash out” refinance or (2) obtaining a home equity line of credit (HELOC).  Each option has some pros and cons.  The new federal tax law somewhat changes the pro / con dynamic.

Under the 2017 tax law, mortgage interest paid on loan balances up to $750,000 remains deductible on your federal taxes.  However, the tax law eliminated the mortgage interest deduction on new home equity loans and lines of credit.  But note that this only affects home owners who itemize their taxes.  And with the doubling of the standard deduction under the new tax law, the number of households that itemize deductions is expected to drop from 34 million to 14 million.

So, if you are considering accessing your home equity, first think through whether this tax change will affect you.  If you are a single filer and your itemized deductions including mortgage interest would be less than $12,000, the interest deductibility will not affect your decision.  If you file jointly and your itemized deductions would be less than $24,000, interest deductibility will again not affect your decision.

Here is my list of benefits for each option:

Cash Out Refi:

·        You can obtain a fixed rate loan.  The monthly principal and interest payment will never change.  HELOC rates are variable and your payments will increase when market interest rates increase.

·        You can deduct all interest (on loan balances up to $750,000) as part of your federal tax calculations as described above.

·        You reduce your outstanding loan principal with every payment.  The monthly payments reduce your outstanding principal every month.  HELOC payments are interest only.  For people who don’t have the financial discipline to pay down HELOC balances, the cash out refi forces you to reduce the loan balance monthly.

HELOC:

·        You can access more of your home’s equity.  HELOC’s typically allow up to 85% loan balance (first mortgage plus HELOC) to home value or loan to value “LTV.”  Cash out refis only allow a maximum 80% LTV.

·        You pay less for the loan itself.  Closing costs are typically lower for a HELOC than for a mortgage.

·        You can pay less each month.  Required HELOC payments are interest only.  By not paying down part of the principal each month, your monthly payments will likely be lower with a HELOC versus a traditional  mortgage.   

Next post, we will cover some “rules of thumb” when choosing between a refi and a HELOC.  Own a home in Georgia and want to access some equity?  Give me a call at Dunwoody Mortgage and let’s review your options.  We can consider the advantages of each as we guide you to the best solution for your situation.

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My (FHA Loan) Christmas Wish List

December 19, 2017 by

FHA loans are great for certain borrowers.  I look to FHA loans when my clients have credit scores of say 680 or less, little available cash for a down payment, and want a 30 year mortgage.  FHA loans also can help a home buyer who has a higher level of other outstanding debt, as FHA guidelines allow slightly higher debt to income ratios.

FHA loans typically offer lower interest rates than conventional loans, but they do have some limitations.  But now there is some movement in Washington to change some of these limitations.  Let’s pretend that the federal government is Santa Claus.  Here’s my FHA mortgage wish list:

  • Rep. Maxine Waters, D-Calif has introduced the Making FHA More Affordable Act.  This bill would repeal the “life of the loan requirement” for FHA mortgage insurance.  Right now, if a borrower closes an FHA loan with a less than 10% down payment, the mortgage insurance is permanent – it never goes away.  In contrast, the mortgage insurance is cancelled automatically on a conventional (non-FHA) mortgage when the outstanding principal balance reaches 78% of the home’s original value.  In my opinion, this would be a good change for consumers who need FHA financing.  I don’t think they should have to pay the mortgage insurance after they have 22% equity in their home.
  • Under Ben Carson, the federal Department of Housing and Urban Development (HUD) issued a report signaling an easing in FHA requirements for condominiums.  Currently, to close a FHA loan on a condo, the condo complex must be on the FHA approved list.  Condos apply for FHA approval based on a number of FHA-specified criteria.  If the complex is not on the FHA approved list, a buyer cannot obtain a FHA loan and must obtain conventional financing.  The National Association of Realtors reported that of the 614,000 condo sales in 2016, only 4% were closed with FHA financing. 
  • In addition to loosening FHA condo complex approval guidelines, the administration is also indicating that it wants to revive FHA’s “spot loan” program.  This program allows homebuyers to purchase a  condo in a complex that has not been approved for FHA financing.  Some estimates have claimed that without the spot loan program, 90% of condo projects cannot have buyers with FHA mortgages. 

We mortgage lenders must work within the rules defined by the regulators – we don’t make the decisions.  But I think the above changes would be very positive, as they would make home and condo ownership less expensive and more realistic for buyers who need the FHA loan program. 

If you know a potential home buyer in Georgia who wants to know if they are on Santa’s, sorry, FHA’s, “good list,” have them contact me at Dunwoody Mortgage.  We will work within FHA guidelines (and explore other potential loan options) to make sure they get the best deal on their mortgage, and hopefully enjoy some FHA guideline “gifts” from Washington soon.

Merry Christmas and Happy Holidays!!

Happy Holidays

December 17, 2017 by
Happy Holidays!

Happy Holidays!

Republican tax plan and mortgage rates

December 12, 2017 by

All signs are pointing to the Republican party passing tax reform. The Republicans are using the “budge reconciliation” process to get the bill passed. By going this route, the Republicans avoid the need for 60 votes for approval in the Senate while preventing the Democrats the ability to use  a filibuster. Whether you opposed tax reform OR couldn’t wait until it arrived, tax reform seems likely to be here once the House and Senate finish reconciling their two tax reform bills.

What does this mean for mortgage rates?

Initially, nothing. On the surface, tax reform has no direct impact on mortgage rates. This is just like when the Federal Reserve raises the Federal Funds Rate. The Funds rate impacts second mortgages, car loans, credit card rates, etc., and not mortgage rates. But…. the impact these have on the market can impact mortgage rates.

Stocks have been on a major rally for roughly two years now. The DOW continues to set record highs. Why the surge? Wall Street has bet on tax reform that would benefit business. Trump’s election prompted a big rally back in November 2016, and this rally continued throughout 2017.

Now that tax reform is here, stocks seem poised to continue their good run and maybe continue to push higher. As stock values rise, bond prices normally fall due to the fact that people are putting more money into stocks than bonds. As bond values fall (specifically mortgage backed security bonds), mortgage rates go up. While tax reform doesn’t directly affect mortgages rates, the impact on stocks can influence mortgage rates.

Frequent readers of this blog are aware of how stock prices/mortgage backed security bond prices impact mortgage rates. If you are new to this blog, use this link to read past posts about the subject. 

Currently mortgage rates are definitely off of their yearly lows and moving back toward their yearly highs of 2017. Combine tax reform, continued stock market rally, and the Federal Reserve no longer purchasing bonds from quantitative easing (they are beginning to sell their bonds now), and you have an environment where mortgage rates could go noticeably higher.

Market analysts have said for years now (since 2010) that “this is the year mortgage rates go up,” and rates haven’t gone up. When do I think rates will go up? At this point, I’ll believe it when I see it. That said, the environment for mortgage rates to increase is as real as it has ever been in the past several years.

Considering refinancing or buying a home, but been pushing it off since rates are so low? Maybe now is the time to at least have a conversation about your plans, timing, and how to proceed? If the home loan will be in the state of Georgia, I can help! Contact me today and we’ll get started!

Conforming Loan Limits going up!

December 5, 2017 by

For the first time since 2006, there is a significant increase in the conventional loan limit. The new maximum loan amount for conventional loans will be $453,100. Technically there was an increase from 2016 to 2017 (from $417,000 to $424,100, which is less than a 2% increase). This time the maximum limit gets a more significant increase.

What does this mean?

Buyers can purchase a $477,000 home with only a 5% down payment. If using a 3% down conventional loan, then the buyer can purchase a home as high as $467,000 in value. Prior to the increase, if a buyer wanted to purchase a home at $500,000 and avoid a Jumbo loan, then the down payment needed to be 15% to get the loan down to $424,100. Now a $500,000 home can be purchased with less than a 10% down payment.

This increases the purchase power for home buyers, and these new conventional loan limits can be used now! The start date for the conforming loan limit increase is January 2018, but the loan process can start today and close after the start of the new year!

Looking to buy a home in the state of Georgia? Wanting to use a conventional loan to purchase $500,000 or so home using a small down payment? Now you can! Contact me today and we’ll get going on your new home!

 

Waiting Periods After Derogatory Credit Items – Bankruptcies

October 30, 2017 by

In the last post, we looked at how lending guidelines require specific waiting periods for different types of “derogatory items” on a borrower’s credit report.  Then we zeroed in on waiting periods following a property foreclosure.  In this post, we will cover the waiting periods required after bankruptcy filings.  As with foreclosures, the different mortgage types specify different waiting periods.  The waiting periods also vary by the type of bankruptcy filed – Chapter 7 or Chapter 13.

Let’s start with Chapter 7 – the required waiting periods are as follows:

  • FHA – 2 years from the discharge date
  • VA – 2 years from the discharge date
  • Conventional – 4 years from the discharge or dismissal date
  • Jumbo – 7 years from the discharge date

The waiting period calculations get a bit more complicated with Chapter 13 bankruptcy filings.  The Chapter 13 waiting periods are as follows:

  • FHA – 1 year from the start of the payout period, as long as the borrower has made all required payments on time.
  • VA – 2 years from the discharge date, or if the Chapter 13 is in repayment, the Trustee must document satisfactory payment history for 12 months of the payout period and the court must give permission to enter into a mortgage transaction
  • Conventional – 2 years from the discharge date or 4 years from the dismissal date
  • Jumbo – 7 years from the discharge date.

So ultimately the good news here is that you don’t have to wait “forever” to apply for a new mortgage after a bankruptcy – unless of course you want a jumbo loan.  (7 years is a long time to wait.)  As always, FHA and VA loans are more “forgiving” of past credit problems.

Do you or someone you know have a bankruptcy in your past and now want to buy a home?  It may be possible to make it happen.  Be sure to work with a lender who will ask detailed questions and help coach you to the best option for your specific situation.  I’ve recently closed loans for multiple clients “bouncing back” after a bankruptcy.  It brings joy to close that loan and help my clients reach another financial milestone following their struggles.  Call me at Dunwoody Mortgage and let’s determine the best option for you or whomever you know with a past bankruptcy.

 

Georgia’s TV and Film Industry is Booming. Forget Hollywood! Put Down Roots Right Here.

October 26, 2017 by

On your commute today, you probably passed a yellow TV or movie production sign – they are that common around Atlanta these days.

Look at the numbers:

  • FilmLA says Georgia is the #1 filming location in the world.
  • 320 film & TV productions will be shot here in 2017, generating $9.5 billion in direct spending.
  • The Motion Picture Association of America reports that more than 28,600 Georgians are directly employed by the film industry, while an additional 12,500 people work in production-related jobs.

The movie business may be kind to Georgia, but the mortgage industry traditionally hasn’t been kind to movie makers.

Film and TV studio workers may earn great livings, but they often have irregular employment schedules. Their employer of record can change with each project, and that’s a big red flag for mortgage underwriting. When it comes time to get financing for a home, regularly employed studio employees may be denied because they can’t demonstrate the stable income underwriters demand.

Until now.

I have access to a new loan program that can ease the way to home ownership for film & TV union members. The qualification requirements are simple.

Union members:

  • Who receive W-2s as salary employees
  • Who have two full years of filed tax returns in the film & TV industry

Underwriting will view the union as the employer, rather than the studio, and the union will be able to verify length of employment. The qualifying income will be based on the monthly average income. The borrower will still produce pay stubs to document current year earnings.

If you know someone in the film & TV industry who complains about renting or apartment life, please forward this email.  They may finally be able to put down roots in the new movie mecca.

 

Waiting Periods After Derogatory Credit Items – Foreclosures

October 24, 2017 by

Our nation’s economy has shown positive growth for several years now, following the Great Recession.  Many folks who were hit hard during the recession have rebounded and are doing well now.  Back when times were tough, they may have faced financial crises like home foreclosures or bankruptcies.  These financial crises appear as “derogatory items” on a credit report.

So let’s say your cousin Phil went through a really tough stretch financially.  But he persevered, got that new job, has been paying his bills on time and is saving some money.  He asks you if you think he can win mortgage approval now so he can buy a new home.  Like most people, you really don’t know how to counsel Phil, until now!

You can tell Phil that certain derogatory credit items carry mandatory waiting periods – he must let a specific amount of time pass before he can apply for a new mortgage.  There are different waiting periods for foreclosures, bankruptcies, and short sales.  And the waiting periods also vary by the type of loan Phil can get – FHA, VA, jumbo, or conventional.

Let’s start with a foreclosure.  Phil wasn’t able to make his home payments and the bank foreclosed.  Here are the required waiting periods by loan type:

  • FHA – 3 years
  • VA – 2 years
  • Conventional – 7 years, unless the foreclosure was part of a bankruptcy, in which case the wait is 4 years
  • Jumbo – 7 years

It is important to note that the waiting period “clock” starts when the foreclosure deed is recorded with the county.  In some cases, it may take the foreclosing bank several months to document and record the foreclosure deed after seizing the property.  So as a borrower with a past foreclosure, Phil needs to understand that the waiting period clock does not start on the date that the bank seizes the home.  I have run into situations where the bank took quite a few months to record the foreclosure deed, and this little date detail almost delayed the new mortgage.  Many times, the borrower may not know when the prior bank filed the deed after the foreclosure; however, this information is public record and most counties have the data available online now.

We will look at waiting periods after bankruptcies in the next post.  For now, if you or someone you know is like Phil and wants to buy a home, but has a past foreclosure, please refer them to me at Dunwoody Mortgage.  I will pay close attention to the details and even look up the old property online, if necessary, to make sure the borrower meets all lending guidelines.  Don’t waste time looking for a home until you have a high degree of confidence you can close!  I’ll work with you up front to give you the confidence you need.

PIWs are back!

October 10, 2017 by

Every few months, there are changes made to loan guidelines. Often, the changes are minute and not worth talking about very much. This time, there is something worth discussing.

Property Inspection Waivers (PIW) are back! Technically, they’ve been back for a while, but it was rare to use them. But what are PIWs? Property Inspection Waivers mean a borrower does not need to order an appraisal for the loan if they are satisfied with the value Automated Underwriting (AUS) assigns it. These have been available, but really only used with making a significant down payment (or having lots of equity if the loan is a refinance). How much is significant? Lets say 40% or more in equity.

With this latest change, Fannie Mae/Freddie Mac are saying it will be more widely used and available for clients with smaller down payments/amount in equity – even for purchase transactions.

Currently, I am working with clients on a refinance with just 20% equity and no appraisal needed. How is this of benefit to the borrower? For one, it saves money. Appraisal costs range from $450-$500, and the PIW fee is only $75. It also creates a much quicker turn time for closing. Imagine closing start to finish in under two weeks.

Lenders will not know if a loan will qualify until it gets into Automated Underwriting. That means the borrower will have to apply and be under contract on a home with the final purchase price. That said, it is always great to have the opportunity to save money and close faster! We’ll see how well this rolls out, but it’s good to have PIWs back as an option.

Helping People Qualify to Buy a House – Coborrowers

September 25, 2017 by

Another way for people to qualify to buy a home is finding a co-borrower on the loan.  In most circumstances, a parent is used as a non-occupant co-borrower.  They can help qualify and sign for the loan without living in the subject property.  Don’t have a parent that can assist? Today’s guidelines state that if the non-occupant borrower is not a family member, there must be an established relationship and motivation not including equity participation for profit. In other words, it is much easier when it is a family member involved, but not out of the realm of possibility if it is a non-family member.

That said, this technique can pose some challenges for the generous non-occupant co-borrower. So, when is it used and what are the drawbacks?

Non-occupant co-borrwers are often used when our buyer’s debt to income ratio is too high to qualify for the loan on their own.  Whether it’s because of student loans, needing to buy a new home before selling the current home, auto loans, etc., the situation is that the buyer’s debts make up a higher proportion of her income than permitted in underwriting guidelines. It is rarely used when assets are needed as these can be gifted to the borrower MUCH easier than adding someone as a non-occupant co-borrower.

A few years ago, Paul (not his real name) called me.  He wanted to buy the perfect new home, but he had to make an offer without a contingency to sell his current home.  So we had to underwrite him with two mortgages.  He could not qualify for both loans on his salary.  His mother, Beth (not her real name), agreed to sign on the loan with him.  So we completed loan applications for both Paul and Beth, merged the files, and submitted the joint file for underwriting review.  Beth had a great income and little debt, so the two of them together easily won loan approval.

One year later, Beth decided she wanted to buy her own home.  Now the challenge for her – Paul’s home loan showed in her credit report and had to be included in her debt to income calculation.  Now Beth was the one who could not qualify for two mortgage payments.  And this is the “drawback.”  Those who cosign are legally obligated to pay the loan on behalf of the child-the loan belongs to them both!  So cosigning affects the everyone’s credit and may impact their ability to qualify for future loans.

By the time Beth decided to buy, Paul had sold his original house, so he could qualify for a new mortgage by himself.  Therefore, we refinanced his mortgage in his name only, freed Beth from the original loan, and then won loan approval for Beth’s home purchase.

Bottom line, being a non-occupant co-borrwer can help someone buying a home with debt to income limitations, but this solution can eventually impact the cosigner’s financial goals.  It’s an option to be considered carefully.

Do you know a parent who wants to help their adult child escape the landlord and start building home equity?  Refer them to me at Dunwoody Mortgage and we will review all options.  We’ll cover the pros and cons of each option, and let that parent choose the best way to help the child.