Posts Tagged ‘how much do I qualify for’

The history of Qualified Mortgages

February 5, 2020

Six years have passed since the Consumer Financial Protection Bureau (CFPB) introduced Qualified Mortgages and the term “ability to repay.” For a loan product to be considered a Qualified Mortgage, it needs to:

  • not have excessive upfront points and fees
  • no “toxic” loan features (such as interest only, negative amortization, prepayment penalties, and balloon payments)
  • fully documented ability for the borrower to be able to repay the loan
  • maximum debt to income ratio of 43%.

The final item in the list drew the most attention. In 2014, the country was still recovering from the housing crash. Foreclosures rates were still high, and there were plenty of short sales. The CFPD didn’t want to introduce rules to hamper the housing recovery, yet standards needed to be set to ensure 2008 didn’t happen again.

The first three items in the list were obvious – especially the third item and the “ability to repay.” Loan products such as “stated income” and “no documentation” helped pave the way for the foreclosure crisis.

Making the maximum debt to income ratio at 43% also seemed logical too. The idea with the cap was to prevent home buyers from getting overextended with their debt. Again, logical as this was part of what led to the housing crash.

To prevent the debt to income provision from hampering the housing recovery, a “patch” was put into place for Fannie Mae, Freddie Mac, FHA, and VA loans allowing the 43% cap to be exceeded. The QM Patch would last seven years, and we’d see how Qualified Mortgages impacted the industry.

That was 2014… it is now 2020… so the QM Patch is coming to an end in 2021. How will this impact home buyers? Find out more next week.

Looking to buy a home in 2020? Concerned about how much home you could purchase? Think student loan debt will prevent you from owning a home? It probably won’t. If you are looking to buy a home in the state of Georgia, contact me today to find out exactly how much home you can afford!

The mysterious case of home ownership

July 9, 2019

Home buyers continue to make assumptions (most of which are bad) when it comes to buying a home. Meaning, the options for education for buying a home are not as good as they should be.

That is why you have The Mortgage Blog!

This misinformation is undoubtedly holding some back from even looking to try and purchase a home. Let’s take a look at a recent survey by Fannie Mae to see some of the false assumptions buyers have about purchasing a home:

  • most buyers assume the minimum credit score is higher than what is actually required to qualify
  • most buyers assume the down payment is higher than what is actually required as a minimum down payment
  • few home buyers are aware of low down payment programs such as Fannie Mae Home Ready requiring only 3% down

Under these assumptions, many potential buyers assume home ownership isn’t even an option and therefor do not do any further investigating into possibilities of buying a home.

The Mortgage Blog has covered all of these topics and more:

The Mortgage Blog has your back! Reading over these, one will learn a large down payment is not needed to buy a home (as little as 3% down on a conventional loan and 3.5% on an FHA loan), perfect credit is not required (down to 620 on FHA and conventional and sometimes as low as 580 on FHA), and there are programs out there for first time home buyers.

Been wanting to own a home but confused at all of the misinformation out there? Just want a straight answer or two? Contact me! I will be happy to answer your questions about home ownership. If you are looking to buy in the state of Georgia, I can get you prequalified and on your way to owning a home!

Education is the key to home ownership

July 10, 2018

My colleague, Rodney Shaffer, is putting together a series on the advantages of home ownership. There are four posts as of this entry. They all focus on how home ownership, over time, provides a solid return in investment along with stabilizing/increasing the home owners own net worth.  Those are very good reasons to consider home ownership, but there is still on major hurdle for potential home buyers.

Many potential homebuyers are not aware of the realities of getting a mortgage and may be putting off their purchase because of it.

A new survey from FDIC-insured bank Laurel Road asked college-educated Americans about their homebuying plans. The poll found many misconceptions about the housing market and arranging financing, with down payments, interest rates, and affordability all weighing on potential buyers. The survey found that almost half of respondents are unaware of alterative down payment requirements; instead, believing that 20% down is barrier to their homeownership dreams. This is fundamentally untrue. Conventional loans require as little as 3% down and this is not limited to first time home buyers. FHA loans only require 3.5% down.

There is also a misconception about interest rates with many thinking they will hit 6% by year-end and believing they’ve missed out. This is also untrue. The Mortgage Bankers Association forecast for year end is just 4.6%, which is about where rates sit now. Why do people think mortgage rates will continue to rise? While mortgage rates can rise, most believe they will rise exponentially due to the Federal Reserve raising rates. The Federal Reserve raising rates doesn’t directly impact mortgage rates (it does impact home equity lines, car loan rates, credit card rates, etc.). This blog has discussed ad nauseam the fact that mortgage rates are not directly tied to the Federal Reserve raising rates. Recent examples can be found here, here and here. For the full list of entries dealing with this topic, check out this link. It is a lot of posts.

In reality, you STILL do not need 20% down in order to qualify to purchase a home. While rates are higher in 2018 versus previous years, they are not anywhere close to 6%. Don’t get mortgage rates confused with prime rate (that is over 5% and will be closer to 6% by the end of the year. Prime rate and mortgage rates are not the same thing!

Wanting to buy a home in Georgia but don’t have 20% down? Not a problem! Contact me today, and I can help you toward owning your new home!

Just kidding

June 20, 2012

Apparently using the “Charlie Brown” picture in a previous post was even more appropriate that I first thought. As you read last week, FHA had a new change coming that forced borrowers to pay off all debt out for collection if the total exceeded $1,000.

FHA has apparently changed their mind. Just as the 21st amendment repealed the 18th amendment (prohibition), FHA has repealed this coming change.

  •  As long as a borrower is able to receive an approval through automated underwriting, collection accounts are not taken into consideration so long as they do not impact the borrower’s ability to repay the new mortgage.
  • Court ordered judgements still must be paid off in full prior to closing.

In this analogy, Lucy will be playing the role of FHA.

Those two items were the guidelines prior to the announced change, and they will be the guidelines moving forward. Well, that is until FHA repeals the repealing letter?!? Who knows? Things change so much at times, that just might happen!

FHA is at it again

June 14, 2012

It seems every time we turn around, FHA has a new change and/or tweak to their guidelines. Just when we think we know what is coming, FHA moves the ball on us again. Most of the time the changes involve mortgage insurance, but not this time.

As of July 1st, all FHA loans will have new guidelines regarding how borrowers are qualified for a loan. The new change specifically relates to disputed/collection accounts on one’s credit report.  If the total amount of collection/disputed accounts is less than $1,000, then nothing has changed. However, if the sum total of all accounts out for collections is $1,000 or more:

  • the borrower must pay off all of the items in full OR
  • the borrower must make payment arrangements with the creditor. Before being able to close, 3 months of payments made according to the terms of the agreement must be verified
  • court ordered judgements (regardless of the amount) must be paid off in full prior to closing

In the past, as long as automated underwriting gave a potential borrower approval, collection/disputed accounts could be ignored. That is no longer the case if the total of all the combined accounts is more than $1,000.

FHA does make allowances for disputed accounts resulting from identity theft, credit card theft, or unauthorized use. Documentation is required, so don’t view this as a quick solution to the change.

As you can read, the more things change, the more things change :-)… as I’ve said many, many times, planning ahead is key. If you are looking to buy or refinance a home and you know this could affect you, talking to someone now rather than later will help ensure a smooth loan process. If the home is in the state of Georgia, I’d be more than happy to help you get started!

are the rumors true?

November 9, 2010

The past several years have brought so many changes to the mortgage and real estate industries, it is hard to keep track of everything. With that in mind, it is natural for rumors to get started.. “I heard one of the changes allows…” and you fill in the rest of the sentence.

What I would like to do with this post is discuss three of those “rumors” to see what is real and what is not.

#1. Conventional and FHA loan programs allow for hardship exceptions for individuals out of work in regards to  income requirements. This one is not real. With the ever tightening guidelines for both conventional and (especially) FHA loans,  income must be documented. The income could come from a variety of sources (job, alimony, child support, disability, commission, bonuses, social security, etc.), but it must exist in some form. Hardship exceptions are not allowed.

#2. I can make less than a 20% down payment and not pay mortgage insurance on a monthly basis. This one is true! Conventional loans have a program that allows the lender to make a one time fee payment to waive the monthly mortgage insurance. The catch? The fee is paid “by the lender” when you agree to take a higher interest rate. In short, you are still paying for it through a higher monthly mortgage payment. Bottom line, in most cases it is cheaper to go the lender paid route instead of the monthly route, but the loan still has an increased monthly payment because of the higher rate.

The better alternative – go with an FHA 15 year fixed mortgage. If a borrower puts 10% down OR has 10% equity in a refinance using a 15 year fixed FHA mortgage, there will be no monthly mortgage insurance payment. The catch? There isn’t one! There is no rate adjustment of any kind. The borrower will still be required to pay the 1% up front mortgage insurance premium fee (rolled into the loan amount), but that fee is required on all FHA loans regardless of the down payment amount.

#3. A no doc FHA loan is coming. This one is unknown at this time. These rumors began when some politicians asked the government to allow FHA to issue no doc loans so home owners can take advantage of the historically low interest rates. The catch? If this ever comes to fruition, it will be for refinances only. There would be no appraisal, no income documentation, no assets verified. As currently proposed, the home owner would only need to have owned the home for at least one year and NEVER missed a mortgage payment.

Why would the government consider doing this? Well, there isn’t a ton of risk involved with the loan. I know that sounds crazy, but hear me out. These loans would have an up front mortgage insurance payment, and probably a monthly requirement too. Also, the current home owner would have made at least 12 on time mortgage payments. Theoretically, if the home owner is already making their mortgage payments, wouldn’t they be able to consistently make a smaller monthly payment? Also, the hope is the monthly savings would be put back into the economy through consumer spending – which helps the economy. That is the real motivation… helping the economy.

Again, this is NOT a program that is available today. It may NEVER be available. I’m only writing about it today because some members of Congress have mentioned it, and I’ve received some emails from friends/clients asking about its validity.

Heard any other bits of news on mortgages that you are not sure if it is real or not? Feel free to contact me, and we’ll go through your rumor to find the truth!

Rates holding at historic lows

July 3, 2010

Interest rates are high, aren’t they? The experts predicted higher rates by mid year, and I even mentioned that would happen here, here, here, here, here, and here (if not more). If you read those posts, you will see there were several reasons why I (and essentially everyone else) thought this would happen. These reasons primarily revolved around the Federal Reserve ending their buying mortgage backed security (MBS) bonds.

* – definitely read the first lined post to get some more background information on that program from the Federal Reserve

SO… why are interest rates at their lowest point of 2010? Why did rates not dramatically rise when the Federal Reserve ended their program of buying bonds?

Thanks to the debacle in Europe (along with our own economy that isn’t back on its feet), investors in the US and around the world are back to buying our debt (bonds) and not those of Europe. It was the heavy investing in Europe and the Euro that caused the precipitous drop in the value of the Dollar, which motivated the Federal Reserve to begin buying MBS bonds in late 2008 and increase their value.

Why is this important? – As the value of MBS bonds rise, interest rates fall. This cause and effect pattern, heavily influenced by the Federal Reserve over the past 18 months, led us to these historically low interest rates. When the program ended this past March, everyone assumed rates would rise. Well, they obviously didn’t and there were plenty of other investors more than willing to step in and buy bonds to keep rates low!

Now for the question we would ALL love to have answered, “What’s next for rates?”

In the past when interest rates got to these low levels, they almost immediately went back up. This seemed to be the self-imposed floor. Today? Not only have rates held, but they have slightly improved. They might actually get lower this time because:

  • The US economy is definitely not back on its feet and private sector hiring is down
  • The problems in Europe are just getting started as Hungary’s credit rating was down graded and Portugal, Spain, & Italy all share similar problems
  • Analysts are mixed whether or not the bailout for Greece will actually work

Regardless of what interest rates do (and it is anyone’s guess at this point), now is the time to speak with someone to get prequalified to buy a home OR to review your current mortgage to refinance. By doing so, you would be in a prime position to take advantage of interest rates at their current levels OR ready to move at a moments notice if rates continued to fall.

If that is you, I would enjoy the chance to speak with you and get everything in order for your new mortgage.