Archive for the ‘Home Ownership’ Category

PMI vs MIP vs MPI… What is the difference?

May 17, 2017

Lots of acronyms there. What do they all mean?

Many people are familiar with the term “PMI” or Private Mortgage Insurance. This is insurance the borrower pays on behalf of the lender in case of a mortgage default. The insurance protects the lender and becomes a requirement when purchasing a home with less than a 20% down payment (or refinancing with less than 20% equity in the home).

MIP stands for Mortgage Insurance Premium and is completely the same thing as PMI, but that is what mortgage insurance is called on FHA loans.

So what is MPI? That stands for Mortgage Protection Insurance. When buying or refinancing a home, the home owner will get plenty of these offers in the mail in the weeks/months after buying a home. Why? Companies pay people to search through newly recorded deeds at the county. This is legal since the deed is a matter of public record. With the deed information, a company knows your name, your new home address, and who did your loan. The offers for Mortgage Protection Insurance will come regularly in the mail, and these companies make it look like the letter is from your mortgage company. They can be sneaky with these letters.

What does MPI do? If you choose this option, MPI will pay the loan balance off for a borrower in the event of their death. Sounds good, but let’s dig a little deeper. The premiums for this insurance are typically significantly higher thank those for life insurance as they require minimal to no medical examination or health screening. Anyone in any health condition can get this insurance by paying the monthly premiums. The other downside is that as mortgage payments are made, the principal balance of their loan reduces. This means the payout in the event of the borrower’s death reduces… in other words, the premiums stay the same, but the death benefit decreases every month.

MPI is a fantastic option for someone who cannot, for whatever reason, qualify for term life insurance. If you can get term life insurance, it is the better way to go. Typically, people can get more coverage that doesn’t diminish each month for a lower monthly premium.

Just bought your first home and don’t have life insurance? Or maybe you’ve owned your home for a few years, but your family has grown since you last looked at your life insurance coverage. Regardless of your need, my friends at the Sheldon Baker Group can assist you in getting free quotes from the top carriers in the life insurance industry. You can check out the Sheldon Baker Group life insurance page here. You can also call 678-793-2322 or email to sheldon@sheldonbakergroup.com.

Whether you use my friends at the Sheldon Baker Group or someone else, life insurance is important as you own a home and/or have a growing family. Use the MPI offers in the mail as a reminder to evaluate your coverage.

 

Competing in a seller’s market

April 18, 2017

By now I’m sure everyone is aware it is a seller’s market right now. In metro Atlanta, there is less than a 3 month supply of homes available to purchase. For a balanced market, it is good to have close to 6 months of homes available. This is a big change from a few years ago when it was a buyer’s market… low ball offers, take time looking, find the absolute perfect home. Today when making an offer, the initial offer starts at the list price. You better get to a property within day or two of it being listed or it may be under contract, and buyers are making compromises on a home. If the home has, say, 80-90% of what they are looking for in a home, make an offer!

Even with those strategies, buyers can still find themselves being one of many offers on a home in this crowded real estate market. How else can a buyer differentiate themselves from the competition?

                              How some home buyers feel in this market!

One way is being underwritten prior to being under contract on a home purchase. I can start the loan process, send out loan docs, collect financial docs, and submit to underwriting with a “To Be Determined” property address. Once out of underwriting, I can give a letter to my clients for an offer that says “Approved”…. not a prequalification letter… not a preapproval letter… a letter that says the buyer is approved for the purchase pending the appraisal. The buyer can also close in as little as two weeks. We only need the appraisal back at that point!

Looking to buy a home in Georgia? Having problems differentiating yourself from other buyers in this crowded market? Contact me today. I can not only help you get prequalified, but we can submit your loan to underwriting for an approval on the loan. That will give you a major advantage over buyers with a letter that says “prequalified” or “preapproved.”

Down Payments Basics for Home Buyers

February 23, 2017

Blog HeaderA recent home ownership survey showed that 3 times more first time home buyers than repeat buyers say they lack enough money for a down payment.  Perhaps this is due to folks not truly understanding down payment requirements.  Many people believe you must make a 20% down payment to buy a home.  That is a myth!! 

Home buyers can purchase a home with as little as 3.5% down for a FHA loan.  Depending on your credit score and available cash, you may be better off going with a 5% down conventional mortgage.  In certain cases, you may be able to qualify (depending on your income and geographic area) for the low interest rate, low cost mortgage insurance “HomeReady” program, for as little as 3% down.  (Certain geographic areas have no income requirements.)

So what if you don’t even have 3% – 5% available for a down payment?  Are there options?  The first question for you is, “Do you have a relative who can give you the down payment?”  If you do have a loving person who will give you the down payment, we can use that with the proper documentation.  Note that the giver must be a blood relative or a spouse.  Generous ex-spouses are not considered family members so they cannot provide a gift.

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If you lack the available cash and you don’t have a giving relative, do you have a 401K or similar retirement account?  Depending on your plan’s rules, you may be able to borrow against your account to help fund your down payment.  Talk with your plan administrator for the details.

If these options are not available to you, you may need to wait and save.  But the time needed to save 3% to 5% is much better than saving for the 20% many people think is required.  Note that you must have 20% to avoid mortgage insurance, but if you can handle the mortgage insurance included in your monthly payment, you can buy a home with much less than 20% down.

Do you need coaching on the best loan / down payment option for you?  That’s what I do!  Call me at Dunwoody Mortgage.  Together we will evaluate your situation, review your options, thus allowing you to make the best decision for you and your family.

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Planning Your Home Purchase While Renting

February 16, 2017

A recent survey reported that 2.9 times more first time home buyers than repeat buyers expect a home purchase delay due to their current lease terms.  My first reaction to this statement is “No duh!”  I would expect most repeat buyers do not have a lease but own their home.  Lease terms definitely can affect a first time buyers’ purchase timeframe.  A lease is a written legal contract between the landlord and the lessee.  Note that I am not an attorney, but here are some common sense thoughts about leases and home purchases.

Firstly, plan ahead.  If you know your lease terminates in 6 months and you want to buy a house, go ahead and start planning now.  Submit a mortgage application and get prequalified.  Build a relationship with a Realtor.  Set aside more money for a down payment and closing.  Planning ahead may help you win loan approval and buy your dream home.  Waiting until the last minute will likely cause you stress and frustration.

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Secondly, know your lease terms.  What is the penalty for terminating your lease early?  Do you forfeit your security deposit?  Is there a different penalty?  Then evaluate the contractual penalty versus the home you want.  If you find and can buy your dream home, and the lease termination penalty is not too steep, you may want to go ahead and buy now.  The key here is to know the penalty so you can evaluate your opportunities.  Is missing the opportunity to buy the perfect home worth saving the security deposit you paid a few years ago?  Only you can make that choice.

Thirdly, talk with your landlord.  If your lease expires in 30 days and you still haven’t found the perfect house, perhaps you can negotiate a month to month lease or a 90 day lease continuation instead of signing a longer term lease.  Perhaps you could offer a slightly higher monthly rent to compensate the landlord for the shorter term lease, thus “buying more time” to search for and find the right home for you.

In short, planning ahead, knowing your lease details, and making an effort to negotiate with your landlord may give you the flexibility you need to find the perfect first home, without the stress of having a “deadline” hanging over you.  When you are ready to do your home purchase planning, call me.  I will give you as much time as you need to coach and counsel you, making sure you are truly ready to buy your first home.

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Educating First Time Home Buyers

February 2, 2017

A recently published survey of 2016 home buyers shows that first time buyers (“FTBs) comprised a larger percentage (35%) of all home buyers than in 2015 (32%).  FTBs face greater challenges than buyers who have previously purchased homes.  In addition to the uncertainty and stress in making such a major financial decision for the first time, FTBs face additional financial challenges, some real and some more perceived.  For example:

  • 2.7 times more FTBs than repeat buyers believe they must improve their credit scores before buying a home.   
  • 2.9 times more FTBs than repeat buyers expect a home purchase delay due to their current lease terms.   
  • 3 times more FTBs than repeat buyers say they lack enough money for a down payment.

In short, first time buyers need significant education, advice and support.  In future blog posts, we will address each of the above challenges in more detail.  For now, let’s take a quick look at some ways Dunwoody Mortgage Services (“DMS”) helps to educate home buyers.

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The DMS staff has created a series of home buyer education videos published on our website:  http://dunwoodymortgage.net/custompage-view.aspx?id=9.  These videos are concise and to the point, each covering a key mortgage process topic, such as cash to close, monthly payments, mortgage insurance, and more. 

We encourage our clients to plan early – last year I closed a loan for I client with whom I had been talking for 2 years.  My boss’ record is 7 years.  In short, we will take the time to listen, to coach, and to help our clients plan for a future home purchase.  And sometimes, it may take a few years to save enough money, to improve credit scores, or to meet tax return guidelines for self-employment.  Helping our clients plan for mortgage success is something the DMS staff enjoys doing.  

Also, we coach our clients to plan a home purchase that best fits their financial situation.  Oftentimes, a home buyer can qualify for a mortgage payment that is so high, they would have to change their lifestyle to live with the payment.  Such high payments can lead to significant financial stress – we call that being “house poor.”  We consult with our clients about how a mortgage payment will fit into their budget and lifestyle.  We encourage discipline and budgeting, with the goal of helping the client buy a home that they love, and that they can comfortably afford.

Know a first time home buyer who needs financial coaching and counsel?  Tell them about us here at Dunwoody Mortgage — we will invest a lot of time in them, so their first home investment will be successful, and with minimal stress. 

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Mortgages and Filing Tax Returns

March 22, 2016

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It’s tax season, and you are trying to buy a home. Not only must you navigate finding a home, applying for the loan, and filing your taxes, you may not realize that the tax filing could impact qualifying for a mortgage.

Well, it can impact qualifying for that home mortgage, and how much it impacts depends on how one is paid.

I’ve talked in the past on this site about how it is just as important how someone is paid instead of just how much someone makes. After April 15th, how someone is paid also impacts the documentation required for the annual income tax filings:

  • W2 salary: will need proof of the filing of the tax returns. If an extension is filed, proof of the filed extension. If money is owed on the tax extension, proof the amount owed is paid. The lender will want the transcripts from the IRS, but will typically waive that requirement and get transcripts from the previous two years instead knowing they can request the current year’s transcripts down the road (more on this in a moment). So long as the current year’s tax return copies aren’t showing any income that must be verified through transcripts (such as rental property income, part time business loss/profit), a W2 salaried employee can move forward with only a few hoops to jump through.
  • Everyone Else: This large category would include the self-employed, 1099 employees, and W2 employees that earn more than 25% of their income through commission and bonuses. In this category, not only does underwriting still need proof of filing/proof of extension (and proof of payment if taxes owed on an extension), but now tax transcripts must be made available. While an e-file means the IRS accepts the return instantly, the time between filing, accepting, processing the return, and making a tax transcript available can take several weeks. This timing definitely comes into play when scheduling a closing time on your new home purchase.

Now one thing you may be thinking to get around the transcripts is to file an extension. That works until October 15th! That said, the strategy won’t work if income is needed from the current tax year. It also may still require a P&L from the current tax year for some borrowers.

Planning on buying a home this Spring? Want to make sure there isn’t an unexpected delay on closing due to needing a tax transcript? Contact me today. We’ll make sure the timing is all planned out so we won’t be sitting around waiting for a transcript to become available.

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Home Buying Preparations – Down Payment

January 19, 2016

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Wrapping up a blog post series to help you keep the new year’s resolution to purchase a new home in 2016. In the first post, we talked about how important it is to know “how” you are paid (in addition to “how much”). Next, we dispelled the rumor that a low credit score means a bad interest rate. That isn’t necessarily true. Today, we’ll finish up with the down payment.

I have written countless posts about how much of a down payment is needed to buy a home. Can you guess how much? If you’ve read this blog in the past, you know that the answer isn’t 20% down. Just like the credit score requirements differs depending on the loan program, so does the down payment requirements. In order to buy a home, you’ll need:

  • 5% down for a conventional loan (3% is also possible if a borrower qualifies)
  • 3.5% for an FHA loan
  • No down payment on a VA loan

When making less than a 20% down payment, there will be PMI (Private Mortgage Insurance) on the loan unless it is a VA loan. There are some differences in mortgage insurance between conventional and FHA loans. Here are some quick notes on them.

  • FHA loans have an up front mortgage insurance premium. The monthly PMI is required regardless of the down payment (even if you put 20% or more down). If making the minimum down payment, FHA mortgage insurance is permanent. The monthly amount is set on a factor of 0.85% of the loan amount regardless of the amount down or the borrower’s credit score. For more information on FHA mortgage insurance, check out this previous post from the Mortgage Blog.
  • Conventional loan mortgage insurance is determined by the amount of the down payment and the credit score. Conventional loans have a sliding scale on the factor determining the monthly PMI. The more down AND the higher the credit score, the lower the factor goes (and vice versa). The mortgage insurance isn’t permanent, and there is no up front premium. For more information on conventional loan mortgage insurance, check out this video post.
  • Conventional loans also have a Lender Paid Mortgage Insurance (LPMI) program. Using this loan, a borrower agrees to a higher interest rate in exchange for no monthly mortgage insurance payment. For more details on this program, read this post from 2015.

If you take nothing else away from this post, please remember that regardless of what you hear on the news OR read on the web, you do not need 20% down to buy a home. I promise! If you are looking to buy a home in the state of Georgia, I can prequalify you today for a home purchase without needing 20% down.

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Home Buying Preparations – Credit

January 12, 2016

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Last time we looked at income when qualifying to buy a home. This time, let’s talk about credit.

I know what most of us hear on the news… need “perfect” credit to buy a home. Well, that just isn’t true. Not only can a buyer qualify to purchase a home with an average credit score (around 660-680), what if I told you someone with a below average credit score could buy a home.

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Yes, it is true.

That brings us to a great question. What is the minimum credit score when buying a home? That depends on the loan program.

  • Conventional Loan – minimum credit score is 620
  • FHA Loan – minimum credit score is 640
  • VA Loan – minimum credit score is 620

Now the next question would shift to the interest rate. The common assumption is that a low credit score will really impact the interest rate. Well, again, that depends on the loan program. Would you believe it if I told you:

  • a buyer with a 640 credit score with only a 3.5% down payment could qualify for an FHA loan with a rate under 4%
  • a buyer with a 620 credit score with no down payment could qualify for a VA loan with a rate under 4%
  • a buyer with a 620 credit score with a 5% down payment could qualify for a conventional loan with a rate in the mid 3’s

Last year I qualified a buyer with a 624 credit score for a 15 year fixed conventional loan at a rate of 3.375%. Why? While a 30 year fixed rate loan has a dramatically higher interest rate with a low credit score, the same interest rate increase does not apply to FHA loans, VA loans or 15 and 10 year conventional loans.

Don’t let anyone make you think a bad credit score means a high interest rate. There are ways around a lower credit score so long as the middle credit score is over 620.

Looking to buy a home, but afraid you will get hosed on the interest rate due to a lower credit score? That may not be the case. Contact me today to get started on your new home loan for properties in the state of Georgia.

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Home Buying Preparations – Income

January 5, 2016

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Welcome 2016! This time of year, people are busy making new year’s resolutions. Popular resolutions are losing weight, eating healthier, saving money, quit smoking, travel, spend more time with family… all of these have one thing in common. If you don’t have a plan, you won’t succeed. For example, no one would make the goal of exercising more on January 1st, and then run a marathon on January 2nd!

Buying a home involves a very similar process. You don’t just find a house and make an offer on it. You need a plan. You need to make sure your financial “house” is in order. Otherwise, you could be wasting time and risking your hard earned Earnest Money. Over the next few weeks, this blog will focus on three main aspects of preparing to buy a home through the prequalification process. Those aspects include income, credit, and assets for the down payment.

This week, we’ll focus on income by linking a few posts my colleague, Rodney Shaffer, wrote toward the end of 2015 in terms of qualifying to buy a home and income. These posts are not all inclusive as income from employment, bonuses, commission, self employed, 1099, child support, alimony, retirement, annuities, trust, disability, social security, tips, part time, asset-based income can be used when buying a home. Covering all of those at once would be an EPIC post, so we’ll stick with some common ones.

Overview – So How Much Money Do You Make

Salary or Hourly – Q: How to you earn? A: Hourly vs Salary

Commission* – Q: How do you earn? A: Commission income

*Note self employed and bonus income documentation is similar to commission with one exception. Self Employed borrowers can get by with only one year of tax returns instead of the two years required of commission and bonus income.

For non-traditional forms of income, such as child support, alimony, retirement, annuities, trust, disability, social security, the main qualifying aspect of these is stability. Currently, income “stability” for these types is considered to be any income stream lasting for 3 years after the closing date. Each one I just mentioned may have one small detail different from another, but the BIG unifying theme in all of these is the three-year continuance.

Don’t see your “type” of income listed? Have questions that aren’t answered? You are in luck. Contact me today, and we can discuss. If you are buying in the state of Georgia, I can help you get prequalified and ready to buy your new home.

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Relaxing Criteria for Condo Mortgages

June 19, 2015

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Considering buying a condo now?  Your timing is good then.  In recent months, mortgage market makers Fannie Mae and Freddie Mac have loosened the lending requirements for condo purchases.  You can buy a condo with a credit score as low as 620 and a down payment of 5% or more.

Understand that the underwriting process is still different for a condo purchase, but the standards are being relaxed now.  As with single family home purchasers, underwriters will review the credit score, available assets, income, and debt of condo purchasers.

In addition, underwriters review the financial stability of the complex in which the condo is being purchased.  Condo complexes assess HOA (home owners association) dues to fund expenses such as maintenance for buildings and common areas, utilities, insurance, reserves for replacing large items like roofs and parking lots, etc.  When the economic crisis hit, owners at many condo complexes became delinquent on their dues payments, causing financial difficulties for the complexes themselves.  In reaction to this, lenders imposed tighter restrictions on condo underwriting.  Now lenders are relaxing these standards.

When underwriting the condo complex, the lender will require documentation from the complex management as follows:

  1. A completed condo questionnaire reporting details about the complex.
  2. Current year HOA budget.
  3. Master insurance policy.

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Below are some key condo criteria that the underwriters consider.  The underwriters will likely deny your condo loan if the complex fails to meet any one of these items:

  1. At least 10% of the annual HOA budget set aside for reserves.
  2. No more than 10% of the units owned by a single individual or corporation.
  3. No more than 20% of the units used for commercial space.
  4. No more than 15% of the homeowners more than 60 days past due on their monthly HOA dues.

Bottom line, if you want to buy a condo in a well-managed complex that meets the above criteria, it has a good possibility of being approved; but it will require some extra work as compared to buying a single family home.  I have financed multiple condos in the last few months and we have not experienced any issues with underwriting.  If you are looking to buy a condo in Georgia, I can help you get started!

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