Posts Tagged ‘how much home can I afford’

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.

A patch for the QM patch

July 14, 2020

Back in February 2020 BC (before Covid), the Qualified Mortgage Patch (QM patch) situation made headlines in the mortgage industry. And a month later, Covid took over all headlines.

The Consumer Financial Protection Bureau (CFPB) provided an update to the QM patch. For those of you who like reading, check out my previous posts on the proposed changes to QM loans and the history of how we got to QM loans.

The TL;DR version is simply… there is a debt to income exemption for those applying for a mortgage backed by Fannie Mae, Freddie Mac, FHA, VA and USDA loans. The CFPB wrote in 2014 the debt to income ratio could not exceed 43%, yet allowed a temporary “patch” to allow the loan programs listed above time to transition.

Eliminating the patch would be shattering for the mortgage industry. Conventional loans (Fannie/Freddie) allow for a debt to income ratio up to 50%, and FHA can go as high as 55%.

I know what some readers may be thinking… “someone should not be able to purchase a home with a debt load that high.” While I get the sentiment, it isn’t always straight forward as “too much debt.” Here are some examples:

  • self employed borrower writing off a lot of their gross income. This lowers what appears to be their income on paper through the “magic of accounting,” yet their real income is higher.
  • joint applicants deciding to apply with only one person. Let’s say two people are buying a home. One has great credit. The other does not. The person with great credit qualifies (barely) on their own, so on paper the debt to income ratio is high. But without the other applicant, we are not seeing the true house hold income (because the other person’s income is not on the loan).
  • Often student loans allow for income-based repayment, yet many loan programs require student loan payments to be either 1% of the balance OR an amortized payment. The higher debt to income ratio allows the higher student loan payments to be absorbed when the client actually won’t be making that high of a student loan payment.

Almost all of my clients with high debt to income ratios fit in these boxes. Meaning the real household cash flow is better than what loan guidelines allow. By requiring a maximum 43% debt to income ratio, it will really hurt many buyers out there (especially those with student loan debt).

The proposed change by the CFPB – eliminate debt to income qualification entirely (Really?ok.), and use a price based approach (measuring the loans APR to an average prime rate of a comparable transaction) as a more reasonable indication of someone’s ability to repay.

Who knows exactly what that means… how it will be implemented… or what loan guidelines will look like for documenting it… the takeaway is this… with the January 2021 deadline approaching, the CFPB is going to find a way to prevent the mortgage/housing industry from being impacted by the implementation of a hard cap of 43% on the debt to income ratio.

Who knows what the final result will be, but it appears we are going to get some sort of change to keep the industry going. If nothing else, perhaps a several year extension of the QM Patch. The last thing anyone wants right now is the slowing of the housing market during a recession!

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.

 

 

Moving to the suburbs?

June 16, 2020

Another change in sentiment from Covid is the possibility of people moving from the city and into the suburbs. A recent Harris poll stated about a third of those surveyed are considering moving to the suburbs in light of the pandemic.

Larger lots… more green space… less population density… easier to get to grocery stores… these are essential items for those surveyed considering moving out from the city. Couple this with the my recent post detailing an increased desire for dedicated home office space, we have definite trend changes in home buying due to Covid.

Homes are going fast right now. I’m seeing my clients getting under contract on homes just hitting the market. How does one set their offer apart from such a competitive field. Consider either:

  1. Making a non-contingent offer. If one qualifies to carry two mortgages, it makes the offer more appealing to the seller when they see the offer to buy their home is not contingent on the sale of the potential buyer’s home.
  2. Getting pre-underwritten. Using a “TBD” underwrite strategy is great for potential offers. The seller knows the potential buyer’s credit file (credit score, income, assets) has been reviewed and approved. This gives the seller more confidence the potential buyer’s offer will close.

Using either one (or both) of these options can set an offer apart from others in such a crowded market.

The purchase market is definitely hot right now. If you are buying in the state of Georgia, contact me today. We can get you prequalified and on your way to a “TBD” underwrite to help make your offer more competitive and stand out in the crowd.

Furloughs, layoffs, and low rates

June 9, 2020

The Covid-19 virus created a = interesting dynamic in the housing market (and also for those looking to refinance). The impact on the economy helped push interest rates down to record/near record levels. Covid also caused unemployment to jump for record lows to around 15% (before improving some from the May jobs report).

This combination is interesting for home buyers and home owners. Yes, rates are low (super low). Yet millions of people considering a home loan find themselves either temporarily furloughed and/or laid off from their jobs. The income needed to qualify to take advantage of these super low rates is now missing.

How does one qualify when furloughed/returning to work. It is not as bad as one may think:

  • for those who received a temporary reduction in pay, an updated pay stub showing the new income. Also an updated verification of employment from HR stating the new pay. As long as the buyer still qualifies at the reduced pay, then no need to wait for their salary go back to normal.
  • for those who are furloughed, so far all that is being required is an updated pay stub showing normal income and documentation from HR (such as a letter or an updated Written Verification of Employment) stating the employee is no longer furloughed and back to work full time.
  • for those laid off and finding a new job, if the new job is a W2 salaried position, the first pay stub at the new job.

One doesn’t need to worry about a job gap at this time. When out of work for 6+ months, additional requirements could apply. Considering furloughs/lay offs began in mid March, we are well inside of the 6 month time frame for being unemployed.

I’ve even helped someone buy a home who was furloughed and the brought back to work at 75% of their normal salary. As long as one qualifies at the reduced level, we are good to go.

Two areas I did not touch on that are very important – self employed and those who took advantage of mortgage forbearance. My colleague Rodney Shaffer posted on these topics last month, and you can find those posts here (for self employed) and here (for forbearance).

Covid-19 causing problems for your home buying plans? Impacted by being furloughed, laid off, or a reduction in pay? This doesn’t mean buying a home in 2020 is no longer an option. Contact me today! If buying a home in the state of Georgia, we can run some numbers and see where everything stands. You may be able to buy a home faster than you think!

Pandemic baby boom?

May 26, 2020

Recent comments coming from the Mortgage Brokers Association point to another potential increase to housing demand. The theory is pretty simple based on most of population being asked to stay at home:

  • toward the end of this year/early 2021, there will be a baby boom.
  • there will more than likely be an uptick in divorce filings.
  • many families will want homes with better home office space.

If extremely low inventory wasn’t frustrating enough, the market could see even more buyers coming into it for the reasons listed above. How can one make their offer stand out in such a competitive market?

As mentioned on this blog in previous posts, the best way to make an offer on a home is with a credit approved offer letter. Simply apply for the loan with a “TBD address.” We’ll collect bank statements, pay stubs, tax returns, and submit the file for an underwriting review.

Once approved, the offer letter to the seller will say the file has been reviewed and approved by underwriting. All in the way of getting a loan approval is an appraisal, home insurance, and clear title. Doing this will set your offer apart from others.

Ready to buy in the delayed but not hopping spring market? Want to set your offer apart from others? If buying in the state of Georgia, contact me today! We can get started, pre-underwrite your file, and help you make a strong offer to purchase your next home.

Will home values drop?

May 12, 2020

Will home values drop? Many, many people want to know as the housing market is a major economic indicator for the U.S. If a recent survey conducted by the National Association of Realtors (NAR) is true, we may not experience much of a decline in values.

While home buyers hope values will reduce given the Covid-19 situation, the NAR survey seems to indicate values will hold steady for a few reasons:

  • available homes for sale are lower than normal due to the pandemic impact on the market. A lower supply of homes will mitigate a dramatic drop of home values.
  • NAR expects the normal Spring market activity will shift to later in 2020 as the country/economy/our lives/etc. shift back toward “normal.”
  • with forbearance and most people who filed for unemployment benefits in the “furlough” and not “laid off” category, there is not the concern over high numbers of foreclosures.

So far sellers are holding firm to their list prices with roughly 70% saying they have not lowered prices to attract buyers. About 60% of sellers in the survey admit Covid is only delaying them selling their home this year at their originally intended list price.

In the same survey, about 60% of buyers felt home values would drop due to less competition of people out looking to purchase homes. While the demand for those looking may be down, the supply of homes is also down. As I mentioned earlier in this post, the lack of available homes may mitigate any drop of home values.

What should a buyer do? This is a national survey, so let me address more of the local market.

My advice to buyers is always this… if you find the home meeting your needs, go ahead and make an offer on the home. You cannot always count on the next home being there, or hoping values drop, or hoping mortgage rates stay low. If the home is the right one, go for it!

Buyers are heading back out into the market place. Over the past two weeks, I’ve had several clients go under contract to purchase their new home. The homes under contract went for near, at, or more than the list price. Some of my clients were involved in multiple offer situations.

In other words, in metro Atlanta, it appears recently listed home values are holding and buyers are headed back out into the market. I had one agent tell me there is one home for every three buyers in the metro Atlanta market. If the statement is true, it is still a seller’s market and home values may not come crashing down as some hope (at least not in the near term).

Looking to get out into the delayed Spring market? The housing market is coming back to life! If you are buying in the state of Georgia, contact me today! We can get you prequalified in a few minutes, and you’ll be ready to purchase your new home!

How Relatives Can Assist Home Buyers…

April 16, 2020

A recent survey of 1,045 adults found that 77% of the Gen Z and Millennial cohorts expect their parents’ financial assistance when purchasing their first home.  Of the young people surveyed, 38% expected help funding a down payment, 31% expected parents to co-sign on their mortgage, and 24% percent expected help covering closing costs.  From the lender’s perspective, this is all very doable as long as the needed documentation is delivered and all other lending criteria (e.g., credit scores and debt to income ratios) are carefully met.  Documenting financial assistance from relatives can be challenging if the borrower does not plan in advance, so here are some suggested “best practices” for home buyers who expect this help.

The “gifts of cash” concept covers help covering both down payments and closing costs, as mentioned in the survey.  Parents and other relatives can give cash to cover all aspects of the buyer’s cash to close – down payment, closing costs, and prepaid escrow.  To be approved, such gifts need to come from documented relatives, which includes parents, grandparents, siblings, and even aunts and uncles, along with spouses, domestic partners, and fiancés.  From experience, I can report that underwriters will likely not approve gifts from nieces or nephews and not from ex-spouses, as the relationship has been legally terminated.

Underwriters expect gifts to be carefully documented.  This includes a gift letter signed by both giver and buyer.  The letter states that the money given is a gift, and not a loan.  Loans to help buyers are prohibited.  If the giver makes the gift using a check, the underwriter will want to see a copy of the check.  And if the gift occurs before closing, the underwriter will want to see bank statements from the giver and the buyer showing the funds coming out of the giver’s account and into the buyer’s account.  For some loan types, the giver may have to show proof of funds and document the source of any “large deposits” into the giving account.  My preference for conventional loans is to have the giver wire the funds directly to the closing attorney’s escrow account.  When this is done for a conventional loan, the only documentation typically required for the buyer and giver is the gift letter itself.  It’s much simpler and less time consuming, so I recommend this approach when possible.

Relatives and even friends can co-sign mortgages along with the home buyer.  (Yes, friends can co-sign…I recently verified this for a potential client.)  To do this, we combine loan files for the buyer and the co-signer.  As long as the combined file meets all underwriting criteria (credit scores, available cash to close, and combined debt to income ratio), underwriting will approve mortgages including the “non-occupant co-borrower.”

Do you know a young person who wants to end her expense-only monthly rental cost?  Ask her if she is expecting an income tax refund this year.  Then connect her with me.  I’ll help her explore how best to fund a home purchase with that refund and assistance from family, if necessary.

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.

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…