Posts Tagged ‘conventional loan’

Millennials and Home Ownership

July 30, 2020

Millennials are the largest generational group in US history.  This year, the largest section of Millennials will turn age 30, entering what many consider to be “prime homeownership years.”  So how is the pandemic impacting these potential home buyers?  Two recent studies have addressed this topic.

The first, by First American economist Mark Fleming is more optimistic than the second.  Fleming states that the pandemic has delayed, but not denied, homeownership for Millennials.  He notes that household formation is a key driver of home demand, and that the Millennial generation is making lifestyle decisions that “will continue to support potential homeownership demand in the years ahead.”  He further states that Millennials “may fuel a ‘roaring 20’s’ of homeownership demand.”  As a loan officer, I love optimism in the housing market!

On a less optimistic note, a realtor.com report stated that pandemic-related unemployment could further delay Millennials’ homeownership dreams.  It expresses concern that unemployed potential homebuyers will live from their savings.  And it could take them years to recoup their savings once the go back to work.  The article then references how a 10% down payment on a $320,000 home (the median list price of a US home in April), is $32,000.  Ultimately, it can take people months, if not years to save tens of thousands of dollars for a down payment.Here’s the good news related to down payments – a 10% down payment is not required.  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.

While obtaining a mortgage with a less than 20% down payment requires paying for mortgage insurance (except for VA loans), my opinion is that paying the mortgage insurance to buy a house sooner is often better than waiting and paying rent.  As long as home prices continue appreciating, the homeowner will likely build wealth even if they have to pay the mortgage insurance.  And in my opinion, growing wealth is superior to expense only home rental payments.

Are you or someone you know a Millennial wanting to buy a home in Georgia?  I would love to help.  We can explore low down payment and other options to help you buy a home (and start growing your wealth) sooner rather than later.  Give me a call and let’s get started.

 

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.

COVID Could Negatively Impact the Rental Market

June 18, 2020

It’s fascinating to see studies about how the pandemic could impact the future residential real estate market.  The latest Mortgage Blog post noted that many city dwellers are now considering a move to the suburbs.  Here’s another impact:  A recent renters survey showed that 35.9% of all renters say they likely will not renew their lease, while another 38% are not sure or are somewhat likely to renew their lease.  Most striking is that 41.6% of renters who pay $1,750 or more per month say they will likely not renew their lease.  The article states that apartment fitness centers, pools, and clubhouses closed due to the pandemic contributed to this renter sentiment.

As someone who likes growing my net worth, I must say this survey makes sense to me.  At today’s historically low interest rates, it is possible for someone in the Atlanta area to buy a $300,000 home with a 5% down payment, and have a mortgage payment of only about $1,750 per month.  (This assumes a 3.5% interest rate.)  With a monthly rent payment, the entire amount is an expense.  Renters do not build wealth from their residence.  But a home buyer begins building her net worth with her first mortgage payment.  For the scenario mentioned here, the very first mortgage payment includes $448.53 of principal, or equity in the home.  So only $1,302 is an expense.  That seems like a better use of money to me.

And, given recent home price appreciation, it is reasonable to assume that an owner’s home will appreciate over time, building additional wealth.  So home owners build wealth with appreciation over time and with each payment.  My question is, “Why would someone pay $1,750 in monthly rent when they could own a $300,000 home instead?”  I suppose I can understand if people love their apartment’s amenities or if they don’t want to deal with home maintenance issues.

But many people believe myths that make them think they cannot buy, when they actually can.  One myth is that a buyer must make a 20% down payment.  I have closed many mortgages where the home buyer made only a 3% down payment.  And I’ve closed VA loans where the borrower paid $0 down.  To fund 3% down payment a buyer can get a gift from a relative or perhaps borrow from a 401K account.  Another myth people believe is that they must have “great” credit.  Even in the pandemic world, we can close mortgages for people with a 620 credit score.  And there are ways to improve a credit score over time.

Would you like to grow your wealth every month with homeownership in Georgia instead of making an expense-only rent payment?  If yes, contact me today.  We can start planning now to help you buy a home as soon as possible.

 

 

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.

An isolated event or a trend?

April 14, 2020

More Covid related news… this week a large nation wide bank stated they were changing conventional loan requirements for buyers. Instead of using Fannie Mae and Freddie Mac guidelines, now buyers will need at least 20% down and a 700 (or higher) credit score.

Is this a growing trend in the mortgage industry? Is this bank acting alone?

The real question is “what are Fannie Mae and Freddie Mac saying?” Fannie and Freddie have made no changes to their guidelines in terms of existing credit scores or minimum down payments.

  • 3% is still the minimum required down payment for conventional loans
  • 620 is the minimum required credit score

While there have been changes to credit score requirements on government loans, increasing the down payment and credit score on conventional loans is not in play. Until Fannie Mae or Freddie Mac change their guidelines, this is an isolated event and not a trend.

Wanting to purchase a home in the spring market? Needing to buy a home with below average credit or a small down payment? Those loans still exist! If you are looking to buy in the state of Georgia, contact me today. I can get you prequalified in a few minutes, and we can have a talk about the landscape of the mortgage industry in the time of Covid.

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.

Home Affordability at its Highest Point in Years

November 1, 2019

According to a recent report by Black Knight, Inc., home affordability reached its best level in years in August 2019.  This follows a consistent decline in home affordability from late 2016 through late 2018.  Home affordability hit a nine-year low in November 2018, as mortgage rates rose to the 5% range.  At that time, the national home payment to income ratio rose to 23.7%.  According to Black Rock, this led to an extended slow down in home price growth.

Since November 2018, mortgage rate declines plus this slower home appreciation has greatly improved home affordability.  The national payment to income ratio has dropped to 20.7%.  This ratio means that the monthly principal and interest (P&I) payment on an average-priced home now requires only 20.7% of the national median income.

Put another way, interest rate declines between November 2018 and August 2019 has increased home buying power by about $46,000. In August 2019, a home buyer would pay the same P&I amount on a $246,000 home mortgage as she would have paid on a $200,000 home mortgage in November 2018.

On the other hand, I found websites and recent articles showing that Atlanta-area rents have risen around 4% in the preceding 12 months.  In short, owning a home in Atlanta has gotten more affordable while renting has gotten more expensive.

Do you rent your home in Georgia?  Has your rent increased making money tight?  Give me a call and let’s talk about mortgage affordability.  You don’t need perfect credit to buy a home, and you will need only a minimum 3% to 3.5% for your down payment.  (Military veterans can obtain VA loans with a 0% down payment.)  With the current low mortgage rates, you might be able to buy more home than you thought you could, for a lower monthly payment than you thought you would have to make.  And with buying a home, you will get the equity / wealth benefits from potential home appreciation.  It’s a GREAT time to buy a home in Georgia!!

Is It Time to Refinance An FHA Mortgage?

October 11, 2019

As discussed previously, using an FHA loan to buy a home makes sense for home buyers with relatively low credit scores and limited down payment funds. FHA loans offer very attractive pricing for these home buyers.

Interest rates have now fallen to their lowest level in three years, so it may be time for current FHA mortgage holders to consider a conventional mortgage refinance. The interest rate savings may not be huge, but changing from FHA mortgage insurance to private mortgage insurance could bring significant financial benefits.

I’m working with a couple now (we’ll call them Jack and Diane) who bought their home in 2017.  At that time, their qualifying credit score was in the mid-600’s and they had just enough cash for the FHA minimum down payment.  This was an ideal scenario for an FHA mortgage.

Fast forward to 2019 – their credit scores have increased and home appreciation in their neighborhood has given them more equity.  A conventional loan now makes sense for their updated situation.  They can refinance to a new interest rate that is just 0.25% less than their current rate.  Normally such a small monthly savings, by itself, does not justify the cost of refinancing.

In addition to the interest rate savings, they will also save money every month with lower mortgage insurance payments.  Switching from their FHA loan to a conventional loan will lower the mortgage insurance monthly premiums by about $120.  Their total monthly savings equal $160, and their refinance has a break-even point of just over two years.  Considering the interest rate savings plus the mortgage insurance savings makes their refinance worthwhile.

An added benefit is that their new private mortgage insurance will cancel in a few years (unlike the FHA insurance which is permanent), increasing their monthly savings to about $200. So, Jack and Diane will realize this bonus savings in just a few years.

Ultimately, home buyers who used an FHA loan two or three years ago may reap big rewards from a conventional refinance now, assuming their property value has increased.

Ron moved into your neighborhood in the last three years or so. At the neighborhood Halloween party, ask Ron if he has heard of an FHA mortgage. If he replies, “Yes, that’s the type of loan I have,” ask him if he would like to lower his monthly payment.  Then connect Ron with me.  We will quickly determine whether moving to a conventional mortgage can help Ron financially.