Differences between conventional loans

June 6, 2019 by

blog-author-clayjeffreys3

Fannie Mae and Freddie Mac offer conventional loans. Their guidelines are almost completely identical, yet there are some unique differences that can come in handy under the right circumstances.

Here are some differences between Fannie and Freddie:

Freddie Mac:

  • Often only requires one bank statement (Fannie requires the two most recent bank statements).
  • When doing a refinance, the borrower can take the greater of 1% of the loan amount or $2,000. If the loan is $400,000, then the borrower could get up to $4,000 back and not be a cash out refinance (Fannie Mae has a $2,000 limit).
  • Employed by a family member? Only one year of tax returns are required (Fannie Mae requires 2 years).
  • Student loans in deferment have a payment calculated by taking 0.5% of the total balance (Fannie Mae is 1% of the balance).
  • Self employed buyers only need one year of tax returns if the business is over 5 years old. If less than 5 years, then two years are required (requirements for Fannie Mae are not as straight forward as Freddie Mac*).

Fannie Mae:

  • Higher likelihood of getting a Property Inspection Waiver using a Fannie Mae conventional loan.
  • If a buyer has a second job that loses money as shown on a filed tax return, the loss can be ignored with Fannie Mae so long as the job is not in the same line of work as their primary job (Freddie Mac counts all income losses from tax returns).
  • Student Loan Cash Out – a homeowner can do a cash out refinance to pay off student loans without taking the interest rate increase from doing a cash out refinance.
  • DACA recipients eligible to purchase a home with a Fannie Mae conventional loan (Freddie Mac does not allow DACA buyers).
  • Normally requires fewer months of reserves than Freddie Mac.

spot-the-difference-worksheets-pandaNext time you apply for a home loan and look to do a conventional loan, you may not think it matters if it is a Freddie Mac or Fannie Mae loan. As you just read, choosing Fannie or Freddie under the right situation can make all the difference in the world. That’s why you want to work with a Loan Officer who is aware of these small differences.

Looking to get prequalified for a home purchase in the state of Georgia? If yes, contact me today.  I’ll ask very specific questions about your situation and make sure the correct conventional loan product is chosen.

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*With Fannie Mae, self employed buyers may only need 1 year of tax returns regardless of how long the business has been open. The default is two years of tax returns, but could be one year under the right circumstance (low debt to income ratio, high down payment, excellent credit, etc.). 

Buying a Home Earlier Delivers Long Term Wealth Benefits

May 22, 2019 by


It is common knowledge that many Millennials are delaying “life milestones.”  A recent study by the Urban Institute shows this by documenting the increase in young adults living with their parents.  People often assume that adults living with parents can save more money, better positioning themselves for a home purchase.  But this study reports that although the intentions are positive, the actual economic results tend to be negative.  The study concludes that adults who lived with their parents between ages 25 and 34 were less likely to form independent households and buy homes 10 years later, as compared with young adults who did not live with their parents.  And this result can negatively impact their future wealth.

The study reported that the percent of young adults living with parents almost doubled between 2000 and 2017 – growing from 11.9% to 22%.  This means 5.6 million more young adults live with parents now.  Reasons for this increase include, but are not limited to (1) Student debt – since 2000, student loan debt has more than tripled.  This debt burden makes it harder for young adults to live independently.  (2) Income – adults with lower incomes are more likely to live with parents.  (3) Housing costs – real rents are at historic highs, making it harder for young adults to live independently.  (4) Below average credit – in 2016, the median credit score was 640 for Millennials and 662 for Gen Xers.

So how does this trend affect young adults over time?  Studies show that home ownership is one of the best tools for building wealth.  And UI reports here that the biggest housing investment returns go to adults who bought homes at younger ages.  The study concludes, “our results suggest that living with parents has negative long-term economic consequences.”

As mentioned in a previous blog post, perhaps many of these young adults believe the many untrue myths that stop people from pursuing home ownership.  The fact is, buying a home with a small down payment, below average credit, and other debt can be easier than many people imagine.

Do you have friends in Georgia whose adult children live with them?  Do you know a young co-worker living with his parents?  Perhaps they fear they cannot buy a home because of below average credit scores or limited available cash.  Since the study shows these young adults may wind up better off financially if they buy a home sooner, refer these people to me.  We at Dunwoody Mortgage will do everything we can to help them buy a home and start building their wealth now, positioning them for a better economic future.

Still cheaper to own than rent

May 21, 2019 by

The trend continues – especially in Atlanta – it is cheaper to own than rent.

With the latest housing push over the past few years, homebuyers have fared better than those who continue to rent. In the recent CoreLogic report:

  • On average, renters tend to be more cost-burdened than homeowners
  • Across the US, monthly rents continue to rise.
  • Home loan payments and associated home ownership costs are lower.

Another stat from the study shows the rental index is up 36% from during the during the housing boom through today, yet home loan payments are down just shy of 5% over the same time period. The study looked at twelve metro areas. On average the rent increases ranged from 20-60% while reporting a drop in the home loan payments anywhere from 3-24%. Lastly, these are sound loans being issued today. With a combination of income growth during the economic recovery, home values appreciating, and sound underwriting guidelines, delinquency rates are lower than they’ve been in decades.

So what is preventing potential buyers from purchasing a home? Often it is misinformation. Too many people feel you must have 20% down to purchase a home (one can buy with as little as 3% down), perfect credit (loan approval can be obtained with a score as low as 620), and no debt (debt to income ratios can be as high as 50% for conventional loans and 55% on FHA loans). This is simply not true. Owing a home with a small down payment, below average credit, and other debt is easier than most imagine.

Contact me today. If the home you are looking to buy a home in the state of Georgia, you can be ready to purchase in as little as a 10 minute phone call. We can also start the process online. It can be that easy!

 

Trade wars and mortgage rates

May 14, 2019 by

Last week was to be the culmination of negotiations between the US and China about a trade deal. Then came some finger pointing, blaming, and honestly tactics you see as negotiations come to an end. What is all of this doing to the market? I’m glad you asked!

Stocks were all over the place last week and this week… down 500 points to open one day only to rebound and finish the day flat… down a few hundred points… down over 600 points Monday… up 350 points as I write this post. Stocks are all over the map.

Brace yourselves!

Mortgage rates are in a similar position. The talk toward the end of the year (slowing economy, trade wars, bad economic news) pushed mortgage rates lower. In fact, rates are well over a half a point lower today than they were this time last year. The many months of tariffs and speculation pushed stocks lower and rates higher.

What happens with the trade negotiations:

  • If a trade deal is reached, one would expect stocks to rebound back to their all-time highs. Obviously this depends on the final details of the trade agreement, but overall expect to see rates get a little worse.
  • If both sides walk away from the negotiating table, then expect stocks to get worse and mortgage rates continue to improve.

What to do? If considering a refinance, this is a good time to move forward. Mortgage rates are as low as they’ve been in over a year. If considering a refinance to lower one’s rate OR take equity out of a home, there hasn’t been a better time in quite some time to do it. If you’ve been sitting on the fence about buying a home hoping rates could go lower, this angle is trickier. On the one hand, sure, mortgage rates could improve should trade negotiations fail. On the other hand, rates were much higher than they are now when stocks were at all-time highs. If a trade deal is finalized, we could see stocks jump back up to or surpass the all-time high. If that happens, expect mortgage rates to rise. It’s no coincidence that mortgage rates improved towards the end of 2018 as stock values fell. The same will happen should stocks take off again.

With rates sitting as low as they’ve been in over a year, now is the time to take advantage of them whether you are looking to purchase or refinance. If you are in need of a mortgage in the state of Georgia, contact me today. I can have you ready to move forward on a purchase or refinance is a little over 10 minutes. It’s that easy!

Home Sales Sentiment on the Rise

May 1, 2019 by

Lower than expected mortgage interest rates in the first four months of 2019 have helped drive Fannie Mae’s Home Purchase Sentiment Index (HPSI) to its highest level since June 2018.  Economists and experts have predicted higher mortgage rates for the last few years.  Rates trended higher in 2018 until the stock market volatility happened in November.  Then interest rates declined to below 4.5% and have stayed there for the last few months.  Lower interest rates occurring when potential home buyers expected higher rates translates to great news for home buyers.

HPSI jumped 5.5 points in March to the highest level since last June.  Survey responses considering now a “good time to buy” rose 7% while responses considering now a “good time to sell” rose 13%.  And the study shows that more consumers expect interest rates to decrease further.

Doug Duncan, senior vice president and chief economist at Fannie Mae stated, “The results further corroborate the positive effect of falling mortgage rates on affordability, which we expect will help support a rebound in home sales.”  Duncan further noted, “job confidence…also continues to support housing sentiment, while income growth perceptions firmed from both prior month and year-ago levels, potentially supporting an uptick in housing demand.”  Ultimately, lower interest rates, job confidence, and growing income expectations are fueling the current housing market.

Personally, I am seeing more interested buyers and homes for sale than I have seen since 2016.  That is a great thing.  Ultimately, with the lower rates and positive overall economic news, now is a great time to buy or sell a home.

Do you have a friend who complains about high rent and an inattentive landlord?  Tell her that now is a great time to fire her landlord and start building equity in her own home.  Then have her call me.  We at Dunwoody Mortgage will deliver outstanding mortgage experience along with these great low mortgage rates.

 

 

Taking on the spring market

April 16, 2019 by

It is definitely spring, and the housing market is heating up. It is time to take advantage of new homes on the market. What am I seeing this year that is different from last year:

  1. Mortgage rates are lower this year than they were last year at this time. Right now, they are lower by roughly a half point!
  2. The rise in home values has slowed each month for the past 10 months. The combination of slowing home values and a drop in mortgage rates gives buyers roughly 6% more buying power today than they had this time last year.
  3. I am seeing sellers begin to give money toward closing costs. Don’t read this statement as sellers are paying ALL closing costs again. What I mean is instead of every purchase contract I see where the seller is giving $0 to the buyer for closing costs, now I am seeing contracts with the seller giving a few thousand to the buyer.
  4. Homes sitting on the market for sale for too long are now getting price reductions. Last year, homes weren’t sitting that long and few were getting price reductions.

What to make of all this information? While still a seller’s market, the market is softening and buyers have more purchasing power. Now is the time to act!

I know what you may be thinking…

  • I don’t have enough money to put 20% down…  Not a problem. Did you know a $500,000 home can be purchased with about a 3% down payment. While one’s target may not be $500,000, 3% is all it takes to get into a home.
  • My credit isn’t perfect… Again, not a problem. You don’t need perfect credit to purchase a home. Conventional and FHA loans allow for credit scores down to 620, which is below average credit.
  • I just started a new job, so I can’t buy a home… Not necessarily. A new job doesn’t mean someone lost their chance at buying a home. Being able to qualify for a home depends more on how they are paid (W2, hourly, salary, 1099) versus how much they are paid.

Don’t let what you’ve read on the internet get you down. Just because you read it online, or someone in the office break room told you something doesn’t make it true. It is easier to buy a home than many people think. If you are looking to buy a home in Georgia, contact me  today. Let’s get the process started. In just a few minutes, we’ll be well on our way to getting you into a new home.

Making dreams reality

April 9, 2019 by

A recent Bankrate.com study showed a majority of Americans still consider owning a home part of the American dream. The survey found close to 80% of respondents chose this as the number one indicator of achieving the American dream. This comes in ahead of other goals such as achieving retirement, having a successful career, and owning a car. If owning a home is still a goal, how do we achieve the goal of home ownership? Here are some steps to consider.

#1. Plan Ahead – whether one is self employed or in a salaried job, planning ahead is key. This way one will know options to consider and obstacles to avoid.

#2. Apply Early – getting prequalified is one option, but being pre-underwritten is a better option. In this seller’s market, being able to make an offer stating the loan is approved pending an appraisal and clear title helps the offer stand out in a crowded playing field.

#3. Know your loan programs – Sure, most of us have heard of conventional loans or FHA loans. Do we know the details of them? For example:

  • One could have below average credit and yet still get a great rate and a small down payment option using an FHA loan.
  • Conventional loans normally require a first time home buyer in order to get a 3% down loan, but that isn’t always the case. The Home Ready and Home Possible programs allow for anyone to use the 3% down payment option.
  • For current home owners, qualifying to buy a new home without selling a current home isn’t as difficult as one may imagine.

With these three items in mind, you can be ready to move quickly when the property you want becomes available. And you better be ready as good homes move fast in this market.

You could check out other posts in this blog where we talk about housing inventory levels (or the lack of inventory), qualifying with student loans, low down payment options, low credit score options, buying without selling, recasting…. OR you could give me a call to discuss further. If you are buying a home in the great state of Georgia, a 15 minute phone call and can you prequalified and well on your way to homeownership.

What are you waiting for? Being able to achieve the dream of home ownership is within your grasp!

 

The Impact of Student Loans on Home Purchases

March 20, 2019 by


Homeownership among people aged 24 through 32 declined 9% between 2005 and 2014.  There are many factors contributing to this trend.  One, obviously, was the Great Recession.  With higher unemployment, people underemployed, and people laid off, those in the 24 – 32 age bracket (just coming out of college) found a difficult labor market.  This caused them to delay their home buying plans.  On top of this, the Federal Reserve recently reported that increasing student loan debt has also lowered home ownership in this age group.

Millennials now carry a collective $1.5 trillion in student loan debt.  A recent Bankrate.com study reports that 31% of millennials (aged 23 – 38) have delayed buying a home because of student loan debt.  According to the study, almost 75% of the survey respondents stated that they have delayed major life financial milestones such as getting married, having children, saving for retirement, creating an emergency fund, and buying a car.

Reading studies like this makes it sound as though student loans are preventing people from qualifying for a home loan  Don’t confuse the ability to qualify for a home purchase versus simply putting off buying a home.  They are not the same.  I’ve helped people purchase a home that suits their budget even with student loan debt hitting six figures.  A potential home buyer will make a housing payment.  If they plan to live in one area for several years and have a good job, why not make a mortgage payment and build wealth instead of paying rent?  Again, they will have a housing payment of some kind.


Here are some loan options that may allow people with student loan debt to buy a home now rather than waiting:

  • 3% down Home Ready and Home Possible mortgages.
  • 3.5% down FHA mortgages.
  • 0% down VA mortgages for military veterans.
  • 3% down conventional mortgages.

To me, the report’s most eye-opening statement is this:  77% of millennials with student loan debt would approach college differently if they could go back and change it.  The respondents stated that they would apply for more scholarships or enroll in less expensive universities or colleges.

Do you have a friend or family member who thinks they cannot buy a home due to their student loan debt?  If so, refer them to me.  I will analyze their income and debts relative to all loan programs and help them chart the fastest course to home ownership.  With the many loan programs available, they might be able to buy now.


Potential new rules for condos with FHA loans

March 12, 2019 by

While potential condo buyers aren’t on pins and needles waiting to hear from HUD like we would be for who wins an election, still, buyers would love to know the direction HUD will go with FHA loans and condos. Current loan guidelines for buying condos with FHA loans are tough. The condominium project must be pre-approved by HUD to use an FHA loan. Then during the loan process, the condo project is re-certified; meaning, the criteria needed to get pre-approved is double checked to make sure the condo is still within the guidelines for its pre-approval.

Basically, buying a condo with an FHA loan is a lot of work. The condo homeowner association (HOA) must go through the hoops to get the complex approved for an FHA loan. Most HOAs don’t want to deal with the burden. Then repeat the process for the loan itself – twice the work for the same payout. Hopefully this will change soon.

A proposal was made a few years ago to HUD that would open up the number of condo complexes eligible to use FHA loans. The loosening of guidelines would also reinstitute spot approvals (similar to what conventional loans do for condos). This makes buying condos WAY easier with FHA loans.

This change will benefit home buyers with average to below average credit making a smaller down payment. Currently, almost all condos are purchased using conventional loans. While someone can qualify for a conventional loan with a credit score of 620+, the mortgage rate and monthly private mortgage insurance rates (for loans with PMI) are significantly higher than an FHA loan. The difference is big – easily over a half a point higher in rate and almost double the monthly PMI (depending on the down payment being made). Home buyers with average to below average credit could be in a position soon to save a couple thousand dollars annually.

Seriously HUD…. What’s the latest?

Looking to buy a condo in Georgia? One program we could use instead of an FHA loan is the Fannie Mae HomeReady loan. This has some advantages over a normal conventional loan that helps those making a minimum down payment on a home purchase. Contact me today, and we’ll see if you qualify for HomeReady whether buying a condo or not.

Recasting a mortgage

February 25, 2019 by

My recent post discussed ways in which a buyer can make a non-contingent offer on a home in this competitive seller’s market. I mentioned recasting as an option to consider if a buyer could only make a minimum down payment on the new home if they don’t sell their current home. Having the mortgage recast later is a good way to get around not making a large down payment when going through the buying/selling process in reverse order (buying the new home and then selling the current home instead of selling then buying). What does recast mean?

A recast is a feature most loan servicers allow where remaining payments are recalculated based on the new principal balance. This is often done after a significant principal reduction takes place on the loan. A recast is a cheaper alternative than simply refinancing. If today’s mortgage rates are higher than the rate on the home owners current mortgage, then a recast would be a very good option should one make a large principal reduction and want to lower the monthly payment.

Here is an example of recasting. My client wants to purchase a new home without selling her current home. This way she makes a non-contingent offer to buy her new home. Ideally, my client would love to make a 20% down payment, but the money for the down payment is tied up as equity in her current home. All she could afford to do right now is 5% down. The purchase price is $400,000 with 5% down, so the loan amount is $380,000. This makes a monthly mortgage payment of $1,870 (not including taxes/insurance/PMI). My client buys the new home, then sells the current home. She now has an extra $100,000 to pay down the mortgage balance on her new home.

The new loan amount is $280,000, which is great! But… since this is a fixed rate loan, the monthly payment is still $1,870. Now she contacts her loan servicer and requests a recast of mortgage. The rate is the same, but the principal balance is much lower. When the loan is recast, now the payment drops to $1,377. This is how my client can purchase her new home without selling her current home first AND eventually get the payment to reflect the new loan amount.

Looking to buy a home in the state of Georgia, want to make a non-contingent offer, and recast later, contact me today. In just a few minutes, I can have you well on your way to make an offer on a home.

Also, a note to existing home owners who want to recast their loan. Be sure to contact your loan servicer before making the large principal reduction. You want to make sure the loan servicer will allow a recast. You also want to know the steps they want you to take to complete it. Perhaps they want you to complete a form and start the recast request prior to making the large principal reduction. Every loan servicer is different, so be sure to contact them to know exactly how they want you to go about it.