Posts Tagged ‘changes in the mortgage industry’

How Could Fed Rate Increase Affect Mortgage Rates?

December 20, 2016

For the first time in a year, the United States Federal Reserve raised the federal funds rate by 0.25%.  How will that impact mortgage interest rates?

Here’s a history lesson:  The last time the FED raised the federal funds rate was in December 2015.  By the end of January 2016, mortgage interest rates actually improved by about a half point.  Mortgage rates then stayed flat (for the most part) until June and July, when they continued to improve.  Mortgage rates stayed at this very low level until election day.  From election day through December 15, 2016,  mortgage interest rates increased about 0.75%.

When trying to analyze mortgage interest rates, it makes sense to look at a mortgage loan as an investment.  Here’s why…Fannie Mae and Freddie Mac purchase most of the conforming mortgages originated in the USA.  They “pool” these mortgages into mortgage-backed securities (“MBS”) which are bought and sold on Wall Street just like other investments.  MBS provide investors with regular, predictable income (from the interest payments on the mortgages), so they are considered less “risky” than stocks and mutual funds.

But ultimately, MBS must compete with all other investments for investors’ dollars.  In the recent, post-election period, stock values have increased making equity investments more attractive.  To compete, lenders had to raise mortgage interest rates to provide a greater return and compete with the high-flying equities.

 

mbs-image

In addition, China has been selling large amounts of its US government debt holdings.  As China sells, that creates pressure to raise interest rates on US government debt.  Again, government debt competes with MBS for investor dollars.  As interest rates on government debt increase, mortgage rates may have to rise to remain attractive to investors.

So what is a home buyer to do?  If you plan to buy soon, you can relax knowing that, once you get a home under contract, your lender can lock your interest rate through your closing date.  This means that if market interest rates rise between the time you lock your rate until closing, you still pay the lower rate specified in your lock.  You are protected against rate increases.

In addition, Dunwoody Mortgage offers a free interest rate float down on some mortgage products.  This means that, if market mortgage rates drop after you lock your rate, we might be able to lower your rate before closing.  With the free float down, after you lock your rate, you are protected should interest rates increase, and you may still be allowed to benefit if market rates decrease.

Ultimately, we at Dunwoody Mortgage are working in the best interest of our borrowers.  If you are looking to buy a house anywhere in Georgia, and mortgage interest rate changes make you nervous, contact me.  We can set you up with a loan program that can help protect you against the ups and downs of mortgage interest rate changes.

blog_footer_RShaffer1

Interest Rates Jump

November 15, 2016

Blog Header

One thing that I did not expect from this election was the change in interest rates.  Mortgage interest rates on November 14 were a half a percentage point higher than they were on November 7.  Rates are still close to their historic lows, and still lower than rates back in the second half of 2015, but they definitely have taken a quick upward turn in the last week.  And there’s really no way to predict how far rates may rise.  For a better understanding of what drives mortgage interest rates, take a look at these prior posts:  https://themortgageblog.wordpress.com/2016/07/12/interest-rates-lower-from-brexit/ and https://themortgageblog.wordpress.com/2016/10/18/feds-may-not-raise-rates-at-all-this-year/

While I don’t have a crystal ball to forecast interest rates, I will simply apply a bit of common sense.  Interest rates have been very, very low for multiple years now.  There really isn’t much opportunity for rates to go lower.  So logically, if rates are going to move, they will likely go up.  If you are ready to buy a house, how do you protect yourself from a rate increase?  Answer:  You lock your rate.

rate-increase-image

When a home buyer goes under contract, I can lock rates for periods from 30 days up to 90 days.  The longer the rate lock period, the higher the price.  Locking your interest rate is the sure way to protect yourself against rate increases.  I locked a refinance on November 8, just before the close of business.  I hate to think that this client’s rate would now be 0.50% higher if we had delayed.  Because she locked for 45 days, her rate will not increase if we close the loan before the end of business on December 23.  As long as you can close before the lock expires, your rate will not change.  If something delays closing past the lock expiration, that might cost you.  (Moral of the story, quickly respond to any request from your loan officer.  Delays can cost you.)

Borrowers also want to know what happens if market rates decrease after they lock their interest rate.  Dunwoody Mortgage can also offer a free rate float down option on some loans.  If your qualifying rate drops by more than 0.25% and we can relock it (1) less than 30 days and (2) more than 7 days before closing, we may be able to do that at no charge.

So if you want to buy a home and you are worried about interest rate fluctuations, know that Dunwoody Mortgage can protect you regardless of which way the market moves.  Moving forward with a Georgia home purchase soon?  Call me here at Dunwoody Mortgage now, before rates go up any more.  We can answer your questions and offer the counsel to best protect you against interest rate changes.

blog_footer_RShaffer1

Credit Reports and Qualifying for a Mortgage #2

October 12, 2016

The last post covered the credit score component of a credit report.  But remember, there is much more to a mortgage credit report than just the score.  After looking at a client’s credit score, I next review any public record filed against the client (let’s call him “Matt”) in a court of law.  These include liens, judgements, foreclosures, and bankruptcies.  How do these items affect Matt’s ability to win loan approval?

  • Liens – A tax lien is a big red flag. The IRS doesn’t play around when it comes to collecting money you owe them.  And lenders don’t want to get in line behind the IRS when it comes to collecting payments.  If Matt has a tax lien, he will likely need to pay it off before we can win loan approval.  We may be able to win loan approval if Matt has a tax lien, but it will take some extra work.
  • Bankruptcies – Bankruptcies stay on a credit report for 7 years.  Matt cannot obtain a conventional loan for 4 years following the bankruptcy discharge date (the date when Matt was officially released from personal liability for debts included in the bankruptcy).  For FHA loans, the waiting period is 2 years after the bankruptcy discharge date.  There are some differences in how we treat Chapter 13 vs. Chapter 7 or 11 bankruptcies.
  • Foreclosures – Foreclosures also stay on a credit report for 7 years.  It is possible to win loan approval even with a foreclosure.  For conventional loans, a 7 year waiting period is required.  For FHA loans a 3 year waiting period is required.  And note that the clock starts when the foreclosing bank sells the old house to someone else.  Not when the bank first takes the house.
Gavel with money background

Gavel with money background

  • Short Sales – Once again, short sales stay on the report for 7 years. A short sale occurs when a loan servicer agrees to the sale of a property by the borrower to a third-party for less than the outstanding mortgage balance.  Waiting periods are 4 years for a conventional loans and 2 years for FHA loans.
  • Legal Judgments – Outstanding legal judgements must be paid off prior to or at closing.  Note that we can include payment of Matt’s legal judgments as part of the closing itself.

There is much more to a credit report than just the score.  When a lender pulls your report and quickly says “you qualify,” he or she might be doing you a disservice.  You want a lender who will take some time to look closely at your report, and deal with any potential issues up front.  If you plan to buy a home in Georgia and expect your lender to invest time in the details, call Dunwoody Mortgage Services.  We will help you avoid surprises.

blog_footer_RShaffer1

 

 

Credit Reports and Qualifying for a Mortgage #1

October 5, 2016

Portrait of Rodney Shaffer

This news may shock you – mortgage underwriters actually look at a borrower’s credit report.  Notice I said, credit report, not credit score.  The score is only one component of the full report.

When we pull a credit report, the first thing we do review is the credit score.  If the score doesn’t qualify, there’s no need to spend time on the report details.  My lending guidelines state that minimum qualifying credit scores for my clients are:

  • 620 for FHA and VA loans.
  • 620 for conventional loans.

Mortgage credit scores are different from consumer credit scores people get from websites like credit karma.  Issues pertaining to past mortgages carry more weight on a mortgage score than a consumer score.  So your mortgage score may differ significantly from a consumer score given to you by a credit card company or a website.  I’ve had clients with mortgage scores higher than their consumer scores and other clients with scores less than their consumer scores.  You never know for sure until you actually pull the mortgage report.

your-credit-score

We look at scores from all three credit bureaus – Equifax, Experion, and Transunion.  We are required to use the borrower’s middle score for loan qualification.  And if there are multiple borrowers, then the lowest middle score is the score we use to qualify the application.  When I pull a report, if the score is less than 620, the client and I will discuss ways that they can improve their score, which may be simply waiting for their score to rise while they pay their bills on time, or contacting a credit counselor who might be able to help improve their score.

Regardless of how good the score is, I will look carefully at additional report details.  Sometimes these details can cause some underwriting questions or challenges, even if the score qualifies.  It’s usuaully best to deal with any credit questions proactively.

Home buyers deserve to know as early as possible whether they can realistically win loan approval.  There’s no need for them to waste their time or a Realtor’s time searching for a home when they cannot qualify for a mortgage.

We will review other key credit report details in future blog posts.  But for now, if you know someone looking to buy a home in Georgia, and this person may have a few “skeletons” in their “credit closet,” (hey Halloween is approaching!), refer them to me.  I’ll take the time to look at all the details, giving them the level of service they truly deserve.


 

blog_footer_RShaffer1

 

 

 

Declining Asset Loan Option

May 16, 2016

Blog Header

In the last post, I commented on a situation where a retiree with over half a million dollars in a brokerage account could not count his $4,000 monthly withdrawals from that account as “income” for a mortgage qualification.

So here’s what he can do with his current assets….I represent an investor who will do a “declining asset” loan for this retiree.  (Not all lenders will do this type of loan.)  We start with his account balance and multiply by 70%.  This is to adjust the balance for potential stock and bond market fluctuations.  That gets him to $350,000.

Then to fit this amount into a 10 year monthly income forecast – I divide by 120 months.  That yields about $2,915 per month in available income.  And that is all the “income” I can use based on his assets.

Retirement Income

This retiree told me that he had been “prequalified” by another lender for the full $4,000 “income” that he withdraws every month.  I asked, “Did that lender ask you any questions about HOW you earn your income?”  His response was, “No.”

We at Dunwoody Mortgage are trained to ask important questions up front.  By digging in just a little bit, we might discover potential underwriting road blocks early in the process.  Then we can either determine a way to work through the road blocks or stop the process early, before the buyer and the Realtor waste a lot of time and the buyer’s money (for home inspections, appraisals, etc.) on starting the home purchase process when they cannot win underwriting approval.  His Realtor was very appreciative that I helped him avoid wasting a lot of time searching for houses that this retiree could not afford.

If you know a retiree who is thinking about buying a home in Georgia, tell them to carefully consider how their assets are allocated and how they receive their income.  Not all assets and income are treated equally.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their options and we can even help them coordinate with their financial planner if necessary.  I can help them structure the deal right the first time – without wasting their time on homes that they cannot buy using their current asset accounts.

blog_footer_RShaffer1

Q: How Do You Earn? A: Salary or Hourly

October 22, 2015

Blog Header

If you saw my last post, you’ll remember that, in the mortgage world, how you earn your income is almost as important as how much income you earn.  See http://bit.ly/1KT9Snx for a quick refresher.

So let’s unpack how we underwrite the different types of income earning methods.  I’ll start with the easy ones first.

Salary Income:  If you earn a salary, we will need to know your gross monthly income.  That is, your monthly salary before taxes and withholdings.  We basically take your annual salary and divide by 12 months.

Underwriting will review your 2 most recent pay stubs and W-2 statements.  Don’t worry if you just started a new job.  So long as you are in a W-2 salaried job and you did not have a job gap of more than 6 months prior to your current job, you can qualify once you have 30 days of pay stubs.

Hourly Income:  If you are paid by the hour, underwriters will base your income on your average earnings over the last 24 months.  We will obtain a “Verification of Employment” (VOE) from your employer to document your income.  This employer-provided VOE is ultimately what underwriting will use when reviewing your application.

I know, it sounds confusing and very detailed.  That’s why it’s my job to know the details, understand the guidelines, and walk you through the process so you know exactly where you stand with underwriting.  I love handling the details and coaching my clients so that they can buy the home of their dreams.  If you are looking to buy in the State of Georgia and you want great mortgage service plus great rates, email or call me today.  We will make buying your dream home as easy as it can be.

blog_footer_RShaffer1

So How Much Money Do You Make?

September 24, 2015

Blog Header

It pretty much goes without saying that everyone needs an income and most people need a job to qualify for a mortgage.  “No duh, Sherlock, right?”

Some people can qualify for a mortgage if they have an income and no job.  For example, retirees who have income from Social Security and retirement assets can use income from these sources to qualify without a job.

But the majority of us must be employed and earning a regular paycheck to qualify.  So here are some important income questions underwriting will want to consider when you apply for a mortgage.  #1:  What is your income?

Income Image

#2:  How do you earn your income?  Your answer to that question dramatically impacts your ability to qualify for a mortgage and the documentation you must provide to verify that income.  It also affects how we calculate the monthly income that we enter on your mortgage application.

Below is a quick summary of different income earning methods we frequently see in the mortgage world.  In future posts, we will review in more detail how underwriting verifies each different method of earning your wages.

  1. Salary income
  2. Commission income
  3. Hourly income
  4. Bonus and overtime income
  5. Part time job, second job, and multiple job income
  6. Self-employment income
  7. Rental income
  8. Child support, alimony, maintenance income
  9. Asset based income
  10. Social security / survivor and dependent benefit income
  11. Tip income

Not sure whether your income will qualify for a mortgage on your Georgia dream home?  No worries, just give a call to Dunwoody Mortgage Services.  We will ask you the right questions to make sure that your eligible income is recorded correctly for underwriting.  Give me a call or send me an email to start the process.  We will make sure that we do this right the first time!

blog_footer_RShaffer1

You Can Do It!! Part 3

July 27, 2015

Blog Header

 

Let’s finalize our mortgage myth busting process right now.  We have previously exploded myths regarding the character and capital criteria in mortgage lending.  Now let’s deal with myths regarding your “capacity” to obtain a mortgage.

When it comes to loans, the term “capacity” is your ability to make your monthly payments.  To determine your capacity to pay your mortgage, underwriters will compare your monthly gross income (before taxes, retirement, and other deductions) to all of your monthly debt payments.  If your debt payments are not too high relative to your income, you are deemed to have sufficient capacity to obtain the loan.

A surprising percentage of people believe that if they simply have a student loan – regardless of the amount – they cannot qualify for a mortgage.  The TRUTH here is that you can still qualify for a mortgage even if you do have a student loan (or an auto loan, or an auto lease, or credit cards, or other types of debt).

The critical question here is not IF you have a student loan, instead it is, “How large are your payments relative to your income?”  Underwriters will scrutinize your “back ratio,” which is the sum of all your monthly debt payments – student loans, auto loans, the new mortgage payment on that house you want, etc. – divided by your monthly gross income.

We-Can-Do-It

As long as your back ratio is not too high, say 45% or less for a conventional loan and 50% or less for a FHA loan, you will likely have your loan approved (assuming no other underwriting “issues,” of course).

So let’s summarize the mortgage myth destroying logic with this:  if your credit score is 620 or higher, and you have (or can get from relatives) enough cash for a 3% or more down payment, and if your current monthly debt payments are not excessive, and you want to buy a house, then remember, “You can do it!”

Actually, I’ll correct this as you will need help from someone licensed to originate loans, so let’s just say, “We Can Do It!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss your situation.  I’ll be honest and tell you what the real situation is.  Don’t believe the myths and then wait to take action.  The TRUTH is we might be able to get you into your dream home sooner than you think.

blog_footer_RShaffer1

You Can Do It!! Part 1

July 20, 2015

Blog Header

A high percentage of Americans believe that owning your own home is a good thing.  A recent study of 2,000 adults showed that 65% of Americans believe that owning your own home is an accomplishment that would give them pride.  Another study from late 2014 showed that almost 90% of Americans wanted to own their own home.

As desirable as home ownership is in America, many people don’t investigate buying a home because they believe the many myths telling them that homeownership is not within their reach.  Let’s look at the truth here, and debunk some of those myths.

First of all, here’s a quick summary of what mortgage lenders look for when evaluating your loan application:  (1) character, (2) capital, and (3) capacity.  Some people call this this “the Three C’s.”  Let’s look at the myths regarding (1) character today.

When you obtain a loan, the lender wants to trust that you will have the character to repay the loan.  How do they measure your character?  They look at your credit score.  Your credit score serves as your track record, your history, of repaying your financial obligations.  Lenders believe your credit score serves as the strongest indicator of whether or not you will repay your mortgage.  Therefore, your credit score is very important to lenders.

Now for the credit score myth:  A high percentage of Americans believe that they must have a very good credit score to qualify for a mortgage.  What is a “good credit score” anyway?  I just ran an Internet search using “what is a good credit score?”  Answers I received ranged from 660 up to 720.

The truth is, you can get a home mortgage if your qualifying credit score is as low as 620.  The web sites I reviewed put a 620 score in the “poor” to “fair” categories.  The bottom line is you can still qualify for a mortgage when your credit score is “less than good.”

We’ll consider other mortgage myths in my next blog post.  But for now, if your credit score is 620 or higher, and you want to buy a house, just remember, “You can do it!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss it.  Don’t believe the myths.  We might be able to get you into your dream home sooner than you think.

blog_footer_RShaffer1

Relaxing Criteria for Condo Mortgages

June 19, 2015

Blog Header

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.

Condo Photo

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!

blog_footer_RShaffer1