Posts Tagged ‘DTI’

Qualified Mortgages

January 21, 2014

blog-author-clayjeffreys3

There has been a lot of news coverage lately on Qualified Mortgages now that the rule has taken hold in the mortgage industry. What is a Qualified Mortgage and how does it impact the mortgage industry?

It is a great question and one that has been hotly debated as of late. Instead of getting into all of the minutia, let’s peer through the matrix and simplify the term Qualified Mortgage.

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In short, a Qualified Mortgage is a mortgage that does not have excessive upfront points and fees, no “toxic” loan features (such as interest only, negative amortization, prepayment penalties, and balloon payments), and a capped debt to income ratio of 43%.

What does that mean? Let’s look at each part:

1. There is now a cap on all lender fees to keep customers from being charged with excessive fees.

2. Over the past several years, negative amortization loans, prepayment penalties, and balloon payments have essentially disappeared from the mortgage industry. Interest only loans did exist, but a buyer needs at least a 30% down payment in order to use an interest only product. In other words, these “toxic” loan features are, for now, already out of the mortgage industry.

3. While the debt to income ratio cannot exceed 43%, there is a temporary exception in place until January 2021 for all loans that are eligible to be sold to Fannie Mae, Freddie Mac, FHA and VA. If the loan being used to buy a home is eligible to be sold to Fannie Mae, Freddie Mac, FHA or the VA, then the debt to income ratio can exceed 43% just as it was allowed prior to Qualified Mortgage rule taking over the mortgage industry. Given the amount of changes in the mortgage industry over the past few years, a 7 year exception might as well be a 700 year exception. By the time 2021 rolls around, odds are there will be another set of rules that has replaced or modified the Qualified Mortgage rule.

How does this impact those looking to buy a home? In all honesty, it really doesn’t. The part most people are concerned about is the cap of 43% on the debt to income ratio, but doesn’t come in to play unless the loan isn’t eligible to be sold to Fannie Mae, Freddie Mac, FHA or the VA. Considering there are VERY few loans  available that are not eligible to be sold to these institutions, the 43% cap on the debt to income ratio won’t impact many home buyers in the near future.

When you are out looking to buy a home this year, don’t worry about any of the “the end is near” stories you are hearing about Qualified Mortgages preventing you from buying a home. Work with a professional who is up to speed on the changes and can guide you through the loan process into your new home. If you are buying a home in the state of Georgia, contact me. I can help you get prequalified and start the home buying process today.

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Loan Guidelines Easing

November 19, 2013

blog-author-clayjeffreys3

I know what you are thinking from reading the title to this post… “really?!? After 3% down conventional loans have gone away, you are saying loan guidelines are easing?”

Yes. Yes, I am. It is true that the minimum down payment for conventional loans is now 5%. That said, guidelines have eased in two other areas.

Credit Scores – home buyers can now qualify to purchase a home (or refinance a home) with as little as 5% down and a credit score as low as 620. Depending on a lender’s guidelines, most stopped offering conventional loans with less than a 20% down payment to borrowers with credit scores under 660. That is no longer the case.

Whether a 5%, 10% or 50% down payment, buyers can now qualify for a conventional loan with a credit score as low as 620.

Debt to Income Ratios – while Automated Underwriting might approve someone with a debt to income ratio of 51%, most lenders stopped these ratios at 45% if mortgage insurance was required and 50% if no mortgage insurance is on the loan. Not anymore.

Regardless of the debt to income ratio, as long as you get Automated Underwriting approval on loans that do not require mortgage insurance, you can move forward with the loan application to buy a home.

The minimum down payment for conventional loans has increased to 5%, but recent changes to the minimum credit score and maximum debt to income ratio will make it easier to qualify. Want to know how this could impact you? If the property is in Georgia, I can help. Contact me today to get started.

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Re-pull of Credit Report – Reviewing the Updated Report

September 18, 2012

Today is the third and final part in a series on the re-pulling of one’s credit report when applying for a loan. The first post discussed why this is required, and gave a helpful list of things not to do in order to avoid problems with the re-pull. The second post discussed the “new-look” loan approval process and how the re-pull can impact loan approval. Today, we’ll focus on what an underwriter looks for on the re-pulled credit report.

When reviewing the re-pulled report, an underwriter is mainly looking for three things:

  • Credit Scores: this is the quickest and easiest thing an underwriter will check on the re-pull of the credit report. If one hasn’t opened a new credit card account, charged up existing credit cards, bought a car, etc., the credit scores should be the same. Just follow the steps outlined from the first post, and all should be fine.
  • Review Minimum Payment Due Figures: each credit card, student loan, car payment, etc. has a minimum payment due listed on the credit report. On the re-pull of the report, the minimum amount due is compared to the original. If there are no new credit accounts OR one hasn’t charged up existing accounts, then the underwriter will move on to the last item they’ll be reviewing on the re-pulled report.
  • Recent Inquiries: I know what some of you reading this may be thinking… “I can finance new furniture or a new car before closing because there won’t be time for the newly financed account to show up on my credit report.”… That is true, there won’t be time. BUT… an inquiry is instantly added to your report. If an underwriter sees a recent inquiry made by someone other than the lender underwriting the loan, the borrower will have to explain why the inquiry was made.

#1. It is a quick and easy explanation if an inquiry was made while shopping for a mortgage. The borrower would write a letter saying “I applied for a mortgage with ABC Bank, but decided not to use them for my mortgage.” Done and done and on to closing.

#2. However, if it is something else, it could delay closing until it can be established how much the new minimum payment will be AND an underwriter re-review your file with the new debt obligation – not fun!

Again, this can all be avoided by not applying for ANY new credit (cards, furniture, car) or charging up existing credit cards. It all comes down to this… what would you rather do? Move in on time to that new home OR have a possible delay in closing, interest rate changed, or possibly have the loan denied by financing a car for the new garage OR financing furniture for the new living room. You’ll have plenty of time to finance a car and/or furniture after closing.

Fannie Mae’s Loan Quality Initiative is one of many hoops borrowers have to jump through when applying for a mortgage. Fortunately, this is actually one of the easier ones to avoid. If you are buying a home in the state of Georgia and would like to work with a professional who is aware of the changes in the industry, call me today to get started. I would be happy to go discuss all of the stages and potential hurdles of the loan process.

Re-pull of Credit Report – Loan Approval Process

September 11, 2012

In part 1 of the series, we discussed the Loan Quality Initiative started by Fannie Mae. That post included the reason behind the initiative and some easy steps to take to avoid any complications during the loan process.

This week we’ll focus on the loan approval process itself.

Prior to Fannie Mae’s Loan Quality Initiative, the loan process has one less step in it. If someone was looking to buy or refinance a home, they would first apply for a mortgage. Then they would have a credit check. If everything was in order, then the loan would be submitted to underwriting for approval. Once the loan was approved by the underwriter, then we’d close the loan.

Now there is one extra step between underwriting and closing that can definitely impact the approval process. Lenders are required to re-pull the credit report right before closing. This makes the loan approval process look more like applying for the loan, credit check, underwriting approval, re-credit check (which is confirming the underwriting approval) and then closing.

Did you notice that extra step? This means a loan isn’t officially approved until the credit score re-pull step is completed. Why?

If a borrower has opened a new credit account, financed a car, or closed a credit account, it can impact a credit report in a variety of ways:

  • a newly opened credit account can negatively impact a credit score. If the credit score goes down too much, it could also negatively impact the interest rate
  • a newly financed car can also reduce one’s credit score. A newly financed car can also drastically impact the debt to income ratio. If this ratio is pushed up too high, it could cause someone to no longer qualify for the mortgage
  • both of these examples would put the loan back into underwriting for a second review. This could delay closing.

It is easy to avoid this pitfall. Simply follow the steps outlined in Part 1 of this series. If you do not change your credit report by opening or closing credit accounts, you’ll be fine when it comes to the review of the re-pulled credit report.

If you are looking to buy or refinance a home in the state of Georgia and would like to work with a loan officer who is aware of the coming credit re-pull and can help you avoid this potential pitfall, I know just the person to connect you with :-). Contact me today to get started.

Next week, the third and final part of the series. We’ll discuss the things an underwriter will look for on the re-pull of the credit report.