Last week I touched on a new down payment assistance grant Fannie Mae and Freddie Mac rolled out. This program is connected to Area Median Income (AMI). This $2,500 grant isn’t the only loan program out there tied to AMI. Let’s discuss the others!
First off, to qualify for anything listed below, the applicant must be at or below 100% of the area median income (AMI), which is mapped out to the street level. Meaning, it is different all over the country. Fortunately, there are online lookup tools for AMI. Fannie’s can be found here, and Freddie’s here.
For most of metro Atlanta, the AMI is $102,900. Qualifying at 80% of this threshold is $82,320, and 50% of this number is $51,450. With those details out of the way, let’s jump into the options.
100% of AMI:
Buyer’s whose qualifying income is at or below $102,900 but higher than $82,320 would be eligible for a better interest rate. To qualify, the buyer must be a first time home buyer (FTHB). The definition of a first time buyer is anyone who has not owned a home in 3 or more years. Those who qualify have the Loan Level Pricing Adjustments (LLPAs) waived. Essentially, credit score adjustments are waived. LLPAs also include other things such as the adjustment for purchasing a condo, which is a pretty significant adjustment.
I’m working with a client now who earns over $103,000 in total compensation. Their base income is below $102,900, and they qualify just on their base income. Since these AMI programs use qualifying income only, I had them apply for the loan using just their base income. This allowed us to waive all credit score adjustments. Since the home is a condo, I got to waive this adjustment too. Removing these adjustments allowed my client to get an interest rate 0.375% lower than it would have been otherwise!
Again, this is for actual First Time Home Buyers (FTHB). The next two are for anyone as long as their qualifying income is under the different thresholds.
80% of AMI:
This is where HomeReady (Fannie Mae) and HomePossible (Freddie Mac) come into play. Not only are credit score adjustments waived (as described above), the rates on these programs are better than the rates on a normal 30 year fixed loan. Qualified buyers will see a big improvement on the interest rate, and even more so if purchasing a condo.
As previosly stated, this is qualifying income. If an applicant gets base + commission and only need their base income to qualify (even if they barely qualify), this is the route they should take as the interest rate is noticeably different from a normal 30 year fixed rate loan.
Reminder… anyone can use HomeRead/Home Possible as long as their qualifying income is 80% or less of the AMI.
50% of AMI:
Again, any buyer can use this as long as their qualifying income is 50% or less of the AMI. This is the program I discussed last week. Buyers get the benefits of the HomeReady and HomePossible programs (as described above) along with the $2,500 grant. For more details, see the full post from last week.
And there they are! All the programs tied to Area Median Income (AMI). The Federal Housing Finance Agency (FHFA) uses these programs to help true first time buyers (who have the highest allowed income threshold) and all lower income qualifying buyers get into market to own a home. Regardless of what some may say on social media, home ownership is still a goal of a vast majority of people. The FHFA is using this to help those who need it get started on their home owning journey.
Wondering if you qualify to use one of these programs? If you are looking to purchase in the state of Georgia, contact me today. We can discuss your income and scenarios to make sure you take advantage of everything available to you!
Fannie Mae and Freddie Mac introduced a new enhancement to their HomeReady (Fannie) and Home Possible (Freddie) programs. The enhancement targets those the Federal Housing Finance Agency considers to be Very Low Income Purchase (VLIP) borrowers. HomeReady and HomePossible buyers who qualify will receive a $2,500 credit to use towards down payment and/or closing costs.
To qualify as a very low income purchase borrower, the applicant must have an income at/below 50% of the area median income (AMI). There are online lookup tools for area median income. Fannie’s can be found here, and Freddie’s here.
A couple of notes about HomeReady and HomePossible:
Buyers do not have to be considered a first time home buyer to use the program.
Qualifying income is used to determine eligibility. For example, say someone’s base salary is $50,000 a year, and they also receive $20,000 in overtime. If they qualify on just the base income, then they would be eligible for the $2,500 grant.
Area Median Income is zoned out to the street level; meaning, it is different all over the country. For most of metro Atlanta, the AMI is $102,900. To qualify for HomeReady or HomePossible, buyers need to be at 80% of this amount, which is $82,320. To qualify for HomeReady/Possible and get the grant, qualifying income is at 50% of the AMI, which is $51,450.
An example of qualifying for the grant would be someone purchasing a $260,000 single family home with 5% down. An estimated payment could be $1980. This would leave some room for other debt as well. While a majority of buyers out there will not be able to use this grant, it isn’t impossible to qualify for it either.
There are some other programs for buyers at or below the 100% AMI threshold, and I’ll touch on everything next time!
For now, if you are looking to purchase in the state of Georgia, contact me today. We can go over first time home buyer programs along with HomeRead/Possible and see what all you may qualify to use.
In addition to impacting life quality for homeowners, mandatory homeowners’ association (HOA) memberships directly impact mortgage underwriting. For all homes with mandatory HOAs, lenders add the monthly HOA dues to the standard mortgage payment components when calculating a borrower’s debt to income (DTI) ratio. High cost HOAs can sometimes push a borrower’s DTI beyond acceptable levels, and when that happens, underwriting will deny the loan application. So, home buyers should carefully consider any required HOA fees when planning for a home purchase.
In addition, when the borrower is purchasing a condominium, underwriting will review HOA management and may deny the loan application based on HOA details, even if the borrower herself is well qualified to buy the home. Note that this additional HOA-specific underwriting applies only to condo purchases, and not to purchases of townhomes or single-family homes.
When processing a condo loan, the lender must obtain answers to a “condo questionnaire.” The lender works directly with the HOA management company to obtain the completed questionnaire. Most HOA management companies charge fees (often several hundred dollars) to complete the questionnaires. Lenders typically pass the questionnaire fees directly on to the borrower at closing.
Here are some of the main condominium HOA underwriting considerations:
Does the HOA have any active or pending lawsuits? If yes, underwriting will likely deny the loan application.
Is the HOA setting aside at least 10% of annual HOA dues revenue in a separate “reserves” bank account to cover major repairs? If not, underwriting may deny the loan application.
Does the HOA have an active master insurance policy that meets minimum coverage levels? If not, the loan will be denied.
How many unit owners are 60 days or more delinquent on paying their assessments? If more than 15%, underwriting will likely deny the loan.
What percentage of the facility’s square footage is commercial space? If more than 35%, underwriting will likely deny the loan.
Does any single entity own more than 20% of the units? If yes, underwriting will likely deny the loan. (Note that Freddie Mac allows 25%.)
Does the condo facility have significant deferred maintenance issues or unsafe conditions? If yes, underwriting will request inspection reports, engineering documents, etc., and may deny the loan depending on the severity of the issues.
Does the HOA have any current or planned special assessments? If yes, more detailed documentation will be required and potential financial issues could lead underwriting to deny the loan.
If you are considering a condo purchase, it is wise vet the HOA yourself and to talk with your lender about HOA underwriting implications early in the process. Identifying potential concerns early could possibly save you time, money, and headaches.
Looking to buy a home in Georgia soon? Now is a great time to buy. Buyers can obtain reasonable due diligence periods, finance contingencies, and appraisal contingencies now. And sometimes they can negotiate lower prices and seller contributions to closing costs. Contact me to discuss the best financing options for your situation. Buy now, and when interest rates do drop, we can refinance your mortgage to take advantage of the lower rates.
A recent CNBC article delivered some key considerations for home buyers whose target homes belong to a mandatory-membership homeowners association (HOA). With home affordability at its worst level in two decades, prospective buyers must consider how HOA costs impact their home budgets. HOAs manage, maintain, and repair subdivision common areas such as greenspace, sidewalks, amenities such as pools, roads, etc. HOAs are typically managed by boards of directors elected by residents. The boards govern the neighborhood using published regulations and rules. These boards have the power to set and collect HOA dues from residents. And these monthly dues can be significant – from several hundred to even one thousand dollars per month or more.
HOAs most often impact townhome and condominium owners, but many single-family home communities are also subject to HOA governance. The Census Bureau reported that 84% of single-family homes built in 2022 belonged to HOAs. Therefore, it is important for home buyers to vet the HOAs before signing a home purchase contract.
The article notes that real estate agents are not required to tell buyers whether a home is part of a mandatory HOA. So the article recommends that home buyers take initiative and review any HOA implications themselves. Their recommendations include:
Obtain and review copies of all important HOA documents such as bylaws, covenants, rules and regulations, and minutes of recent meetings.
Inquire about HOA dues and the history of dues levels (and any changes) in recent years.
Examine data on HOA reserve funds, which cover repair and renovation costs – are these reserve accounts adequately funded?
Attend a board meeting and pay close attention to whether residents who attend are content, or complacent, or wanting to fight.
Look at the HOA financial documents to determine whether a significant amount of legal fees are being paid. Significant legal fees can indicate significant issues.
The article closes with a quote from the CEO of the Community Associations Institute, “The most important thing a buyer can do is to ask questions to their agent, the community association and neighbors.” In short, when buying a home, be proactive about identifying and understanding key HOA implications of any home you consider.
Also note, when buying a condominium, mortgage guidelines typically require an underwriting review of key HOA details in addition to underwriting the homebuyer’s creditworthiness. I will cover some key HOA mortgage underwriting criteria in my next Mortgage Blog post.
Are you looking to buy a home in Georgia soon? From a competition standpoint, now is a great time to buy a home. Buyers can obtain reasonable due diligence periods, finance contingencies, and appraisal contingencies now. And sometimes they can negotiate lower prices and seller contributions to closing costs. If interest rates drop sometime soon, competition for available homes could increase and buyers might have to give up some of these protections. If you can make the finances work, now is a great time to buy to obtain more favorable contract terms. Contact me to discuss the best financing options for your situation. Buy now, and when interest rates do drop, we can refinance your mortgage to take advantage of the lower rates.
First-time homebuyers have returned to the housing market. The share of buyers purchasing a home for the first time rebounded to pre-pandemic levels, now representing 45% of all buyers (up from 37% in 2021 per Zillow’s 2022 Consumer Housing Trends Report).
This is primarily attributed to a cooling market, allowing new buyers to survey their housing options. The share of first-time buyers plummeted during the pandemic, as first-time buyers lost out to older, repeat buyers who were able to tap the equity in their existing homes and use cash to make a stronger offer.
This also feeds into my post from last week… less competition for homes makes it easier for first time home buyers to get into their own home!
“First-time buyers now appear to be making relative gains as high mortgage interest rates disproportionately encourage current homeowners to stay put,” said Manny Garcia, a Zillow population scientist. “While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they’re comparing a monthly mortgage payment to what they’re paying in rent.”
As mentioned countless times on this blog, it is definitely cheaper to own than rent in Georgia!
A downside to this? While there are fewer buyers overall, first-time buyers may find more competition for starter homes. This trend will only worsen as the mood shifts to it being a “good time to buy a home.” No one knows when the sentiment will shift, but it will. Just look at how quickly the market cooled. Homes were flying off the market and then precipitously dropped from May to July. The housing market will come roaring back once people believe it is a good time to buy.
Given the current market, it is a good time to get ahead of the curve. Mortgage rates are higher now than in early 2022, but inventory levels are still tight. This means now is a great time to buy a home as the competition is lower than normal. If you are buying in the state of Georgia, contact me today. I can get you ready to make an offer on a home in just a few minutes!
A key concept in sports and business is, “Know your competition.” That concept also applies to home buyers in this very competitive market. So who are you competing with when offering on a home? There are many other people just like you who want to own and live in a primary residence. But increasingly, you are competing with investors, individuals and corporations buying homes which they will then rent. Here are some statistics on recent investor purchases from a second quarter 2021 Redfin study:
Nationwide, investors bought 67,943 homes in Q2 – $48.5 billion.
This is a 15.1% / $9.6 billion increase over Q1.
This is a 106.7% / $27.6 billion increase over last year – 2020 Q2.
Investors bought 15.9% of homes sold – about one in every six homes sold.
Investor purchases of single family homes and condos increased in Q2.
Investors purchased 21.2% of low-priced American homes. But due to Atlanta’s relatively low home prices, investors purchased 23.6% of Atlanta homes.
74% of Q2 investor purchases were all-cash purchases.
OK, “enemy” may be too strong a term, but this tune rocks, and when was the last time you saw a music video in the Mortgage Blog, so let’s use it!
So how do you compete with investors making all cash offers? According to another study by Redfin, noted in this prior Mortgage Blog post, all cash offers deliver the greatest competitive advantage to the home buyer. The second most powerful offer detail is a zero-day finance contingency. By using a zero-day finance contingency, the home buyer is basically waiving her right to an earnest money refund if underwriting denies the loan application. Why would someone take that risk and offer a zero-day finance contingency? Because they have already been fully approved by underwriting prior to making the offer. We call this obtaining underwriting approval on a “to be determined (TBD)” property.
In August 2020, we used this approach with one of my clients. Jim wanted to buy a home in a very competitive market, and he wanted every competitive advantage he could get. So we obtained his TBD approval before he started making offers. When Jim’s Realtor saw the approval letter, he replied, “This is as good as a cash offer!” Now I don’t know that I would totally agree with that, but I would say it’s the next best thing to a cash offer. Then Jim actually beat a cash offer and has been living in his dream home for the last year now. Many more of my clients have successfully used TBD approvals to win their own homes this year.
Not every lender can obtain underwriting approvals for a TBD address. Dunwoody Mortgage can do it. Do you want to buy your own piece of the American Dream in Atlanta before prices rise more and mortgage interest rates increase? Then call me today and let’s get to work on your TBD approval so you can defeat your competition, whom you now know a little better.
The 20% down payment myth is driven by the fact that borrowers must pay PMI when obtaining a conventional loan with less than 20% down. Many home buyers want to avoid the added monthly PMI cost. I personally think that PMI is an effective tool to help some people buy homes sooner. I recently had a friend refer his adult daughter to me. When I counseled her to make a 5% down payment and pay the monthly PMI, Dad challenged me. Here’s how I explained it to him.
His daughter wanted to buy a $200,000 house and had about $25,000 of savings. A 5% down payment was $10,000 and a 20% down payment was $40,000. Remember that a home buyer must pay closing costs and prepaid escrow at closing, in addition to the down payment. And I always recommend that buyers keep cash available in a bank account after closing, to provide a “reserve” should an emergency arise.
The $10,000 down payment left her with $15,000 for closing costs, prepaid escrow, and her “emergency fund.”
To avoid PMI, she would need to save another $25,000 or more for the 20% down payment. I asked Dad how long it would take her to save that and he said 5 to 10 years. I then told Dad that with Anna’s great credit score and 5% down payment, her PMI cost would be less than $60 per month.
She could stop paying rent and buy a house now in a rapidly appreciating home market. Paying PMI to buy now would enable her to build equity as home prices rise, rather than just continuing to save more and more to keep up with rising home prices while she rented and saved (not to mention that a $200,000 home today is no longer going to be a $200,000 home in the 5-10 year time frame it would take to save up 20%).
And current interest rates are near historic lows. There’s no way to predict now what future interest rates would be when she finally saved enough to pay 20% down.
When I explained the math, her dad agreed and she bought a home with a 5% down payment.
Note that PMI premiums are calculated based on the down payment amount and the borrower’s credit score. In general, the lower the down payment, the higher the PMI premium. And in general, the lower the borrower’s credit score, the higher the PMI premium. So not everyone will have such a clear choice as Anna did. But for borrowers with good to great credit scores, my opinion is that paying mortgage insurance is often better for building wealth than paying rent and waiting to save the full 20%.
Do you know someone in Georgia who fears they are “missing out” as they rent while home values rise rapidly? If yes, please connect them with me. I’ll work to help them buy sooner with a mortgage that best fits their need, with as small of a down payment as possible.
I know I posted this information about a year ago, but I hear this myth so often in the mortgage market, I will keep repeating this…..You do NOT need 20% down to buy a home!
According to recent National Association of REALTORS data, the average down payment made by recent home buyers is 12%. Younger buyers tend to put down less. Buyers between age 22 and 30 made an average 6% down payment. Recent home buyers between age 31 and 40 made an average 10% down payment. This ultimately follows common sense, as younger buyers have had less time in the work force to save for a down payment.
Veterans using VA mortgage financing can obtain loans with a 0% down. FHA mortgages have a 3.5% down payment requirement. And borrowers can obtain conventional mortgages with only 3% down.
The 20% down myth is driven by the fact that borrowers must pay PMI when obtaining a conventional loan with less than 20% down. Many home buyers want to avoid the added PMI cost in their monthly payment. But I personally think that PMI is an effective tool to help people buy homes and build wealth sooner. I recently had a friend refer his adult daughter to me. When I counseled her to make a 5% down payment and pay the monthly PMI, Dad challenged me. He did not want her to pay PMI. In my next blog post, I’ll explain my PMI response to Dad. Spoiler alert….the daughter did by a house with 5% down and paying PMI – it made very good financial sense.
Do you know a friend or family member who wants to buy a home in Georgia? Don’t let them by discouraged by the 20% down myth. Tell them that is only a myth and then connect them with me. It is very possible that I can help them finance a home purchase sooner, instead of waiting to save more money. We will work to make their home ownership dreams a reality – hopefully right now.
I have great news for current homeowners, the S&P CoreLogic Case-Shiller index showed that US home values increased at a 13.2% annual rate on average. So homeowners continue building their wealth rapidly. This was up from 12.0% in February. The biggest winners are in Phoenix, San Diego, and Seattle, where home price rose at 20.0%, 19.1%, and 18.3% respectively. Homeowners in the Atlanta realized increases of 11.2% annualized. That ranks #17 out of the top 20 US metro areas.
While this news is great for current homeowners, it poses a challenge for homebuyers. With prices rising and the intense competition for available homes, it’s even more difficult for homebuyers to win a contract.
A Realtor recently explained to me that he now coaches his clients to make smaller down payments to keep more cash in reserve to cover potential appraisal shortfalls. Most houses Atlanta are now selling at prices higher than originally listed. But a high offer price, by itself, may not be attractive to sellers when mortgage financing is involved.
(Yes, I have used this cartoon recently, but I love the smiles on the sellers’ and their Realtor’s faces, so here it is again!!)
Here’s why, the mortgage LTV is calculated based on the lower of the contract purchase price or the appraised value. If a home appraises for lower than the contract price, the mortgage amount will be based on the LTV using the lower appraised value, not the contract price. An offer above the list price is not really convincing unless the buyer commits to cover any appraisal shortfall. And, in this rapidly appreciating market, it can be challenging for appraisal values to keep pace. The appraisers must look back in time to find comparable homes that have already closed. So appraisal values can lag market prices.
My Realtor friend has seen lower cash offers beat out higher financed offers when the financed offers did not include a commitment to cover an appraisal shortfall. So homebuyers with cash available to make larger (say 20%) down payments may want to plan to make 5% to 10% down payments and hold the remaining cash in reserve to cover a possible low appraisal.
This type of environment is VERY challenging for homebuyers who can only afford a small down payment. Buyers with only enough cash to make 5% (or less) down payments have little room to cover appraisal shortfalls. My recommendation is this, talk with parents, grandparents, and in-laws about their ability and willingness to make cash gifts in the event of a low appraisal. Blood relatives can give home buyers cash for closing. This can be a great way to help young adults with little available cash actually win in this environment.
Do you know someone who wants to buy a home in Georgia? Are they uptight thinking about this crazy market? Please refer them to me. I’ll work carefully with them and do everything a lender can do to help them win the contract.
Multiple clients have recently asked me if the currently hot housing market will lead to a housing bubble that “pops” like in 2008. I first tell them that if I could accurately predict the future, I would be sitting on a tropical beach, not working. Then we discuss market fundamentals. I found this recent article from Zillow comparing the current housing market to 2008. It provides MUCH more detail than you’ll find in in this blog post. I think reading the detail is a great time investment for homeowners and home buyers.
With my degree in economics, I tend to view everything in terms of supply vs. demand fundamentals. And this article explains why the fundamentals are different now:
Housing Demand: Several sustainable factors are driving housing demand higher now, in contrast to more artificial demand drivers that led to the 2008 bubble.
The massive Millennial generation is now entering the prime home-buying age. Tens of millions of Americans are approaching their early thirties – the median age for first time home buyers. An estimated 46 million Americans will reach age 34 in the next decade. This demographic fact will cause “built-in” home demand even if other economic factors change.
The “Great Reshuffling” is in its early stages. 95% of experts surveyed believe that working from home at least part-time will continue as the coronavirus fades. Millions of renters living in high-cost areas could afford to buy a home in less-expensive areas, thus taking advantage of increased teleworking opportunities. More companies are making flexible work arrangements permanent, so this could further fuel home buying demand in lower cost communities.
Housing Supply: The current supply of homes for sale is very limited relative to the demand. The mismatch of supply and demand is driving home prices up at a rapid pace. There were less than 1 million homes listed for sale nationwide in March. This is the 18th straight month of annual declines. The number of homes listed for sale in March was down 32% from March 2020! So what is causing the supply problem?
In the years after the Great Recession, the number of homes built was significantly less than the number needed to keep pace with population growth. Many home builders have sought to avoid risk by limiting construction due to memories of unsold homes and bank foreclosures. The supply of vacant homes is now at its lowest level since 1957 – over 60 years ago.
And, due to the pandemic, many potential home sellers decided not to move. Some were concerned that they would quickly sell their home but not be able to secure a new home, so they elected not to sell.
When you combine the demographics driving demand with these housing supply limitations, this article concludes that the 2021 housing market will not implode as did the 2008 market.
Keep in mind that one real estate fundamental is “location, location, location.” It is possible that certain specific markets may see a housing downturn. For example, the ability to work remotely may mean that people leave certain high-cost cities since they need not worry about commutes. This could drive home prices down somewhat in these specific areas. But I believe these fundamentals apply to the housing market nationally.
Are you (or do you know) a Millennial who wants to buy a home in today’s hyper-competitive market? If yes, call me. At Dunwoody Mortgage, we have tools to help our clients win the contract. I would love to help you buy your first (or not first) home, and we will make the process as easy as possible on you.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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