Posts Tagged ‘changes in the mortgage industry’

Tax Advantages for Down Payment Savings?

August 13, 2020

I am very excited about this news.  A bipartisan group of Washington legislators has introduced the American Dream Down Payment Act of 2020.   If enacted, this bill would create special tax-advantaged savings accounts for eligible housing costs.  The goal is to create down payment savings accounts similar to the 529 college education savings accounts.  As a parent of college-aged children, I can say from experience that the 529 accounts have been a real blessing for my family.  I think the tax savings are a great incentive to get potential home buyers saving for a purchase.

Alabama Senator Doug Jones stated, “Down payments are the biggest barrier to homeownership for first-time homebuyers, especially among low-income and minority Americans, and make it harder to build generational wealth that is often tied to home-ownership. Our legislation would provide a new path to help make the dream of buying a home a reality by making it easier to save money for down payments and other housing-related costs.”

Colorado Senator Cory Gardner said, “A down payment on a home can be a significant barrier to becoming a homeowner.  Inspired by the popular 529 education savings accounts, this bipartisan bill will make it easier for people to save for a down payment.”

The bill’s sponsors cite a survey of renters that shows two-thirds view a down payment as a significant barrier to home ownership.  Saving for a down payment can be harder with rising rents and student loan debts.  Under the American Dream Act, states would establish the accounts and manage them like they manage 529 accounts today.  The bill would allow potential home buyers to save up to 20% of today’s housing cost to use for eligible down payments and other housing costs.  The bill would also allow family and friends to contribute to the accounts, the earnings from which could be used tax-free when withdrawn for eligible housing expenses.

The National Association of Realtors, Habitat for Humanity and the National Association of Real Estate Brokers all support this legislation.

I will now reiterate a statement I made in a recent blog post, a 20% down payment is not required to buy a home.  Many home buyers obtain conventional loans with only a 5% down payment – even 3% down if they are willing to pay a higher interest rate.  And there are income-based conventional loan programs that offer discounted interest rates and mortgage insurance for a 3% down payment – for those buyers who qualify.  Home buyers can obtain 3.5% down FHA loans.  And military veterans can buy a home with a zero down VA loan.  Many potential home buyers might be able to purchase a lot sooner than they think.

Do you know someone (a friend or family member) who wants to buy a Georgia home, but who is afraid she won’t qualify?  Connect your friend or relative with me.  I’ll help her understand where she stands regarding qualifying for a home purchase.  And, if necessary, I will help her plan for a future home purchase when she is ready, perhaps using a new American Dream account.

Good News for (Some) Home Buyers!

July 16, 2020

As a loan officer, I really like the Home Possible and Home Ready conventional loan programs.  For eligible borrowers, these programs offer discounted interest rate pricing and discounted mortgage insurance premiums.  To qualify, home buyers must make a down payment between 3% and 20% and complete an online homeownership class.  Borrowers must also earn an income of 80% or less than the area median income for the census tract where they will buy a home.

I think these programs are such good deals that I have recommended (1) borrowers who planned to make a 20%+ down payment actually make less than a 20% down payment to qualify for the lower rate and (2) spouses or domestic partners put only one person on the loan application to keep income lower to qualify for the discounts (that’s perfectly legal and within guidelines, by the way!!)  The discounts are especially powerful for people wanting to buy condominiums, as these programs allow the buyer to avoid the expensive “condominium price adjustment” in the interest rate calculation.  The Mortgage Blog has covered these programs in the past.

So, what’s the good news?  On July 12, Freddie Mac updated its Home Possible Eligibility Tool to reflect the new 2020 area median income limits issued by the Federal Housing Finance Agency (FIFA).  Approximately 87% of counties will experience AMI increases in 2020.  That means that more home buyers can now qualify for these great loan programs.

I checked the tool for some addresses in the Atlanta Metro Area.  Before July 12, the Home Possible annual income limit in these areas was $63,360.  Now the annual income limit is higher at $65,760.  I also checked Fannie Mae’s Home Ready website and found the same adjustment.  While the income increases are not huge, every little bit helps, right?  Home buyers earning $64,000 to $65,000 now can take advantage of these great programs, whereas they could not before July 12.

I recently talked with a first-time home buyer.  She said another lender suggested she get an FHA mortgage.  I recommended that with her 740 credit score and qualifying income, the Home Ready / Home Possible programs would be much better for her.  She could get a similar interest rate with a 3% down payment, and she could avoid the FHA up-front mortgage insurance, which would cost her over $4,500.  She agreed with me.

Do you know someone who wants to buy their first home in Georgia?  They need to find a mortgage lender who will explore all loan options to find the loan that best fits their own unique situation.  Tell your friend or coworker to call me.  I’ll make sure we structure the loan and their application to take advantage of the best loan program available.

Updated News Regarding Mortgage Forbearance….

June 3, 2020

In late April, the Mortgage Blog reported on mortgage forbearance impacts to home owners.  But policies change quickly in our 2020 pandemic world, so it is now time for a forbearance policy update.

The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, recently announced that borrowers who have opted for forbearance can now refinance or buy a new home much sooner than previously thought.  On May 19, FHFA stated that borrowers can obtain a new conventional mortgage after making three straight months of payments following the end of their forbearance period.  Before this announcement, the policy was unclear and many experts thought that homeowners would not be able to obtain a new conventional loan for 12 months after exiting forbearance.

Fannie Mae clarified two other policy details:

  • Borrowers who missed payments due to a COVID-19 financial hardship but have repaid the full amount of the missed payments will have no waiting period to obtain a new mortgage.
  • Borrowers who requested forbearance but did not actually miss a payment will also have no waiting period.

FHFA Director Mark Calabria said, “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”

Ultimately, these announcements are positive for the industry, but they do not make me change my recommendations from the prior forbearance post.  Those are: (1) If a borrower cannot make a mortgage payment, forbearance is a better option than a late payment or default, and (2) Forbearance is not a wise move for someone who still earns enough to make timely mortgage payments.  Using forbearance to skip payments to save for something else such as a down payment on an investment property will still cause the borrower to wait before obtaining a new mortgage.  Only now, the wait will not be as long as previously thought.

Do you have a friend who keeps talking about the current historically low interest rates but hasn’t taken action yet?  Connect your friend with me and I’ll help them navigate our pandemic-minded guidelines to close a new mortgage and realize potentially great monthly savings with a low rate.

Pandemic Impacts to Self-Employed Borrowers

May 19, 2020

In the world of mortgage origination and underwriting, the greatest focus is limiting risk.  COVID-19 has caused underwriting guidelines to get a little tighter as millions are unemployed, furloughed, and going into a forbearance status on mortgage payments. Today, I’ll focus on the tighter guidelines for self-employed buyers.

The guidelines can change depending on the lender you use. For example:

  • One lender now requires that self-employed borrowers asset statements show 6 months of “reserves” to cover mortgage payments after closing.  That means that the borrower’s bank statements must show enough available cash, after closing, to cover 6 months of mortgage payments.
  • One lender now requires an audited profit and loss statement from the most recent month to verify recent business performance (The word “audited” got my attention and I don’t believe I’ll be working with them on self employed buyers anytime soon).
  • Another lender now requires the following for self-employed borrowers:
    • Year to date profit and loss statement showing income consistent with previously filed tax returns.
    • Most recent three months of bank statements showing deposits consistent with sales / gross receipts specified on the P&L statement.
    • If the monthly statements show declining deposits, the underwriter will determine if the revenue decline results from an interruption from COVID or some other reason.  Ultimately, the underwriter will want to determine that the income is “stable and likely to continue” before approving the loan.

 

In this economy, it is wise for self-employed home buyers to review their filed tax returns and recent business performance and bank statements with their loan officer before searching for new homes.  A loan originator who understands new underwriting guidelines and will take the time to review details up front can save borrowers time, money, and potential disappointment.

Working at Dunwoody Mortgage, I represent some national mortgage companies that have not implemented stricter standards for the self-employed.  If you know a self-employed person who wants to buy a home in Georgia, please connect that person with me.  I will invest the time needed to best position the self-employed for underwriting approval in this changing and challenging mortgage world.

 

Mortgage Forbearance in the Covid-19 World

April 28, 2020

Many aspects of our daily lives continue to be impacted by Covid-19. From social distancing, no going out to eat, job furloughs, job layoffs, to the Paycheck Protection Program, I could go on and on.  Here at The Mortgage Blog, let’s continue to focus on Covid’s impact in the mortgage world. One important topic right is now mortgage loan forbearance.  In this post, we will explain what forbearance means and its potential implications for homeowners.

A recent Wall Street Journal article defined forbearance as follows, “The stimulus package that Congress passed in March allows homeowners with federally-backed loans to suspend monthly payments for up to a year without penalty, if they face financial hardship.”  Forbearance is when the mortgage servicer allows the borrower to pause or reduce monthly payments for a specific time period.  Forbearance does not erase the payments owed.  The borrower must repay the missed or reduced payments at a future date.  Ultimately, forbearance is not a grant with no strings attached like other stimulus components.

As the article also notes, the law does not specify how loan servicers must handle loans when forbearance ends.  Some borrowers are hearing that their loan servicers may require a balloon payment when forbearance ends.  Other loan servicers have proposed adding the delayed payments (and accrued interest) to the loan balance, thus requiring full repayment when the loan is eventually paid in full.  At this point, the federal government has not issued guidelines, so homeowners are hearing different solutions from different servicers.

Here are some important thoughts about forbearance.  First of all, if a homeowner cannot make a mortgage payment due to a job loss or income reduction, forbearance is a better option than a late payment or default.  It would be wise for homeowners who cannot pay to contact their loan servicer about forbearance.  But know that forbearance may impact the borrower’s credit.  Forbearance is better than late or missed mortgage payments, but the forbearance status is noted on a credit report.  Lenders may consider forbearance status when applying for a home loan. For example, a potential borrower must be current on their mortgage payments to apply for a conventional loan. While the CARES Act states a credit score should not be negatively impacted by forbearance, being in forbearance could still be considered in evaluating the overall credit risk of the borrower.

In other words, forbearance is not a wise move for someone who still earns enough to pay the mortgage.  Borrowers with the ability to pay should not see this as an opportunity to skip payments. For those considering using forbearance to skip mortgage payments and save money for a down payment, this is not a wise strategy. Those doing something along these lines may be sad to learn they may not be approved for a mortgage on the new home.

Ultimately, if a borrower still has their job, the wisest move is to keep making mortgage payments.  If someone finds themselves laid off or furloughed and cannot pay, forbearance is better than late or missed mortgage payments.

Do you know someone who wants to buy a home in Georgia?  If so, please refer them to me.  Dunwoody Mortgage will help home buyers navigate the new more stringent loan guidelines to successfully close on a house soon.

More changes due to Covid

April 21, 2020

I know… I know…. we’ve had our fill of Covid related news. I hear you! I know your head is probably spinning trying to keep up. Mine too! To compensate, let’s get straight to the point!

A post from earlier in April detailed changes in the mortgage industry. One of the changes focused on the increased scrutiny of continued employment due to many layoffs/furloughs throughout the country. Since the post, we’ve experienced more changes.

  • Year to Date Profit and Loss statements are often being required for self employed borrowers. This is to show stable income in the time of Covid.
  • Those getting temporary or permanent salary reductions can still qualify for a home loan. So long as we can show the updated income (pay stub reflecting the reduced pay), and the borrower still qualifies for the loan with the reduced pay, then we can proceed as normal.
  • Investment accounts had a mandatory manual reduction of 50% from the statement balance due to the losses in the stock market (if an investment account shows $200,000, then we could only use $100,000 toward the loan). With the rebound in stocks, the manual adjustment is now 30%.

While the entire experience right now can be frustrating, underwriting has shown some flexibility:

  • P&Ls: I had a client closing where half of their income is earned in the 4th quarter. If you took the first quarter earnings and multiplied by 4 to get a yearly total, the pace would be way off! I had my client compile a P&L from the first quarter in 2019 to compare it to year to date 2020 to show income is similar when compared to the same time last year. The loan was approved.
  • Normally when there is a reduction of income/hours, we need to show the reduction has been in place for a period of time (not just one pay period). Well, we have successfully closed clients after one pay period of the reduced pay so long as they still qualify for the loan with the reduced pay.
  • Updates are happening in relatively real time as the investment account requirement updated as market conditions improved.

I feel underwriting is trying to work with us during this tough time while still meeting the agency guidelines. I’ll work with my clients to present the best case for continued stability of income for those who are in the loan process and being impacted by the fallout from Covid.

Thinking of getting a home loan right now? Rates are still low for those looking to refinance… people are still out looking for homes to purchase. The housing market is still very active. Contact me today, and we can talk about how Covid will impact your ability to purchase a home (if any impact at all). If you are looking to get the loan on a property in the state of Georgia, I can gladly help you with the loan!

Covid-19 creating more changes in mortgage industry

April 2, 2020

Covid-19’s reach extends everywhere in the world. The scope of the impact is staggering. It seems like every day there is something new. Lets try and cover some of the impacts to the mortgage industry.

If you are tired of Covid coverage, then how about something completely unrelated. Who can resist watching hamsters eat burritos!

 Previous posts touched on how Covid impacts mortgage rates and changes for appraisals and foreclosures. Today, let’s touch on more changes.

  • Verification of Employment: there is no standard policy across the board right now. Just know with all of the furloughs and layoffs across the country, documenting continued paid employment is emphasized. This can range from providing additional pay stubs (even if the loan is already approved) to multiple verbal verifications of employment up to the closing date. One good thing is employers are allowed to be called on their mobile phones for these verbal verifications. This is a great change as many offices are closed and everyone is telecommuting.
  • Government loans experienced a change to qualifying credit scores. Most banks increased the minimum credit score for government loans (FHA, VA, USDA) from 580 to 660.
  • Some banks have put caps on the amount of equity that can be taken out during a cash out refinance. Not everyone has made this change. Those who implemented the cap set a limit of $50,000 maximum cash out.
  • Many banks stopped offering Jumbo loans (a Jumbo loan is a loan amount over $510,400).
  • Almost all banks offering non-Qualified Mortgages (non-QM) have stopped funding closings altogether. A non-QM loan is any loan not backed by Fannie Mae, Freddie Mac, or Ginnie Mae (FHA/VA/USDA loans).
  • The CARES Act contained language and the option for home owners impacted by Covid to request loan forbearance on their mortgage payments from their loan servicers.

A forbearance is pretty much like deferring a student loan payment. Payments do not need to be made, but interest accrues. For example, let’s say the monthly interest on a mortgage payment is $750, and six mortgage payments are deferred. This means the principal balance of the home loan is increased by $4,500.

Who qualifies? It is designed for home owners who have been directly impacted by Covid. The forbearance provision isn’t really designed for people in this category. Given the increase to one’s principal balance, forbearance also isn’t something one should use unless desperately needed.

Do you qualify? There is so much misinformation out there, be careful when investigating. I cannot stress this enough. To see if you qualify, contact your loan servicer (who you make your mortgage payment to each month). They will let you know more about applying/qualifying.

So… that is a lot!… and that is only this week. Stay tuned as The Mortgage Blog will put up more information as things unfold.

Still looking to buy a home? People are still buying and selling real estate. Looking to take advantage of historically low interest rates? If the property is in Georgia, contact me today. In a few minutes, I can get you qualified and ready for your new home loan.

Made it this far? Need a laugh? Enjoy…

The Mortgage World and COVID-19…

March 26, 2020

The Mortgage Blog has documented the recent rapid swings in mortgage interest rates based on COVID-19 economic impacts.  Now let’s look at some positive (non-interest rate) news from the mortgage world, specifically regulatory changes resulting from the massive disruption to the world economy.

First of all, Fannie Mae and Freddie Mac will ease their appraisal and employment verification standards, based on a Federal Housing Finance Agency directive.  The goal is to “facilitate liquidity in the mortgage market during the coronavirus national emergency.”  Appraisal management companies can now use “appraisal alternatives” that reduce the need for appraisers to enter homes “for eligible mortgages.”  Appraisers can use desktop appraisals and drive-by appraisals in certain circumstances.  Fannie Mae stated these alternatives may be used “when an interior inspection is not feasible because of COVID-19 concerns.”

The second source of good news is from financial regulators working to help borrowers avoid foreclosures.  On March 17, Fannie Mae, Freddie Mac, and HUD (FHA’s loan guarantor) announced that they will suspend foreclosures and evictions for 60 days to help borrowers stay in their homes while COVID-19 spreads.  The State of New York went further, as Gov. Andrew Cuomo announced that the state will enact a 90-day mortgage relief period.  Options for relief include forebearance, which allows borrowers to suspend mortgage payments for up to 12 months due to COVID-19 caused hardship.  Other options may include mortgage modifications and “other mortgage payment relief options available based on the borrower’s individual circumstances.”

I find this mortgage-market news encouraging, and hopefully it will reassure people considering a home purchase.  Just a reminder if you are thinking about a home purchase – interest rates are at very low levels historically.  From a mortgage perspective, now is still a good time to buy a home.  If you want to buy a home in the State of Georgia, reach out to me.  I promise that Dunwoody Mortgage will deliver outstanding service and will go the extra mile to close your purchase as quickly and with as little hassle as possible.

Mortgage Interest Rates Continue Falling

February 18, 2020

Mortgage rates – already at near historic lows – continue to improve.  Current interest rates are basically a full percentage point lower than this time last year.  I’ve recently locked clients into rates lower than I’ve ever had the privilege of doing in my entire career as a loan officer.    

What factors allow rates to continue improving?  One key component is the continuing spread of Coronavirus and the fears related to this public health concern.  In times of fear and uncertainty, investors typically move money to less-risky investments.  Given the fear and uncertainty related to coronavirus, investors have recently been doing this very thing.  Investors have been putting more money into US government bonds.  This drives bond prices up and interest rates down.  The US 10 Year bond trended upward from August 2019 until December.  Since then, the interest rate on this bond has moved consistently downward.

Investors consider mortgage backed securities to have a risk profile similar to US government bonds, so mortgage interest rates have declined along with rates on government bonds.  So mortgage rates now sit very close to historic lows.

How long will these low rates last?  That requires a crystal ball and I don’t have one.  If health officials can control the coronavirus spread and ease public concerns, perhaps rates will start moving higher again.  But looming over the entire situation is the 2020 Presidential and Congressional elections, which could bring more uncertainty to offset any positive news on the coronavirus front.

The bottom line is this:  Home owners who purchased or refinanced in 2017, 2018, or the first half of 2019 may have a great opportunity now to lower their interest rate by refinancing.  And home owners with FHA loans a couple of years old may be able to refi to a conventional loan now and lower or eliminate their mortgage insurance premiums.  Some of my clients have lowered their monthly payments by over $200 a month.  One even lowered her payment by over $300 a month.  Did I just describe you or a friend you know?  If yes, call me (or tell your friend to call me) to discuss refinancing now, before rates start increasing.  Don’t miss out on potentially large savings.

Changes to minimum down payment loans

January 10, 2020

It’s a new year! With a new year, always expect changes in the mortgage industry. This blog discussed some changes last month:

Why stop there?!? We will keep it going for a conventional loan programs with small down payments. I’ll touch base on the new guideline compared to the previous requirements.

NEW: When making less than a 5% down payment on a conventional loan, if all borrower’s on the loan are first time home buyers, one of the borrowers must complete a homeownership education course.

Previously there was no education requirement for those putting less than 5% down to purchase a home. Note if one of the buyers has previously owned a home, then there is no education requirement regardless of the down payment amount.

For those keeping score at home, a “first time home buyer” is defined as anyone who has never owned a home OR has not owned a home in the past three years. If the last home you owned was more than three years ago, then you are now a first time home buyer.

NEW: Home Ready loans no longer require the homeownership education course if one of the occupying buyers has previously owned a home (again, means has owned a home in the past 3 years).

Prior to the change, one borrower had to complete the education course even if they had previously owned a home.

NEW: The homeowner education course is free if the borrower’s use this link – https://educate.frameworkhomeownership.org . Note if using another accepted education course, there may be a non-refundable fee of $75.

Prior to this change, the cost of the course was $75 to everyone regardless of where the course was completed.

New years… new changes… a lot to keep up with… your head spinning? Don’t worry! It is my job to keep up with the changes.

The Spring Market is upon us. If you are ready to get out and purchase a home in 2020, contact me  today. If the property is in Georgia, I can get you ready to make an offer in just a few minutes. You can be well on your way to owning a new home faster than you’d ever expect!