Posts Tagged ‘how much home should I buy’

PIWs are back!

October 10, 2017

Every few months, there are changes made to loan guidelines. Often, the changes are minute and not worth talking about very much. This time, there is something worth discussing.

Property Inspection Waivers (PIW) are back! Technically, they’ve been back for a while, but it was rare to use them. But what are PIWs? Property Inspection Waivers mean a borrower does not need to order an appraisal for the loan if they are satisfied with the value Automated Underwriting (AUS) assigns it. These have been available, but really only used with making a significant down payment (or having lots of equity if the loan is a refinance). How much is significant? Lets say 40% or more in equity.

With this latest change, Fannie Mae/Freddie Mac are saying it will be more widely used and available for clients with smaller down payments/amount in equity – even for purchase transactions.

Currently, I am working with clients on a refinance with just 20% equity and no appraisal needed. How is this of benefit to the borrower? For one, it saves money. Appraisal costs range from $450-$500, and the PIW fee is only $75. It also creates a much quicker turn time for closing. Imagine closing start to finish in under two weeks.

Lenders will not know if a loan will qualify until it gets into Automated Underwriting. That means the borrower will have to apply and be under contract on a home with the final purchase price. That said, it is always great to have the opportunity to save money and close faster! We’ll see how well this rolls out, but it’s good to have PIWs back as an option.

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Helping People Qualify to Buy a House – Coborrowers

September 25, 2017

Another way for people to qualify to buy a home is finding a co-borrower on the loan.  In most circumstances, a parent is used as a non-occupant co-borrower.  They can help qualify and sign for the loan without living in the subject property.  Don’t have a parent that can assist? Today’s guidelines state that if the non-occupant borrower is not a family member, there must be an established relationship and motivation not including equity participation for profit. In other words, it is much easier when it is a family member involved, but not out of the realm of possibility if it is a non-family member.

That said, this technique can pose some challenges for the generous non-occupant co-borrower. So, when is it used and what are the drawbacks?

Non-occupant co-borrwers are often used when our buyer’s debt to income ratio is too high to qualify for the loan on their own.  Whether it’s because of student loans, needing to buy a new home before selling the current home, auto loans, etc., the situation is that the buyer’s debts make up a higher proportion of her income than permitted in underwriting guidelines. It is rarely used when assets are needed as these can be gifted to the borrower MUCH easier than adding someone as a non-occupant co-borrower.

A few years ago, Paul (not his real name) called me.  He wanted to buy the perfect new home, but he had to make an offer without a contingency to sell his current home.  So we had to underwrite him with two mortgages.  He could not qualify for both loans on his salary.  His mother, Beth (not her real name), agreed to sign on the loan with him.  So we completed loan applications for both Paul and Beth, merged the files, and submitted the joint file for underwriting review.  Beth had a great income and little debt, so the two of them together easily won loan approval.

One year later, Beth decided she wanted to buy her own home.  Now the challenge for her – Paul’s home loan showed in her credit report and had to be included in her debt to income calculation.  Now Beth was the one who could not qualify for two mortgage payments.  And this is the “drawback.”  Those who cosign are legally obligated to pay the loan on behalf of the child-the loan belongs to them both!  So cosigning affects the everyone’s credit and may impact their ability to qualify for future loans.

By the time Beth decided to buy, Paul had sold his original house, so he could qualify for a new mortgage by himself.  Therefore, we refinanced his mortgage in his name only, freed Beth from the original loan, and then won loan approval for Beth’s home purchase.

Bottom line, being a non-occupant co-borrwer can help someone buying a home with debt to income limitations, but this solution can eventually impact the cosigner’s financial goals.  It’s an option to be considered carefully.

Do you know a parent who wants to help their adult child escape the landlord and start building home equity?  Refer them to me at Dunwoody Mortgage and we will review all options.  We’ll cover the pros and cons of each option, and let that parent choose the best way to help the child.

 

The Feds are halfway there

August 22, 2017

One of the Federal Reserve presidents recently said the Fed was halfway home to raising rates. Currently, the rate sits at 1.25%, and the statement implies the target is 2.5%. The San Francisco Fed President feels a rate of 2.5% is the normal target rate for the US economy.

If true, what does that mean for rates, economy, etc.?

One interesting aspect would be the ability of the Fed to help when the economy experiences another downturn – and it will. The economy rises and falls, and it will slow down again at some point. Before 2008, the Federal Funds rate sat at 5.25%. The Fed lowered the rate to virtually zero to help the economy. What happens the next time there is a down turn, and the rate sits at 2.5%? There wouldn’t be as much room to lower the rate to stimulate the economy. Of course, no one expects another down turn like 2008 to happen.

What about mortgage rates? Since the Feds began raising the Federal Funds rate, mortgage rates have improved every time. The only reason rates haven’t set new historic lows is due to the rapid rise of mortgage rates after the 2016 election. In fact, was the dropping of the Federal Funds rate that helped pushed mortgages rate lower. Over the past 5 months, mortgage rates have been flat. As they are near historic lows, there really isn’t that much more room for improvement. That said, more rate hikes could help push them lower as an increasing Federal Funds rate can help mortgage rates improve.

In the end, it will probably be more of the same when it comes to rates… staying low. That has been the Fed’s goal since the 2008 market crash. They’ve achieved this goal by buying bonds and then several rounds of quantitative easing. Now that the economy has improved, the Fed’s attention turns to keeping inflation in check. They do this by increasing the Federal Funds rate, which helps mortgage rates improve (mortgage rates hate inflation). The Fed continues their goal to keep mortgage rates low. When will rates go up? Honestly, at this point, I don’t think anyone knows. I’ll believe it when I see it!

Homebuyers squeezed out of the market

June 13, 2017

Last week there were a series of articles published by the Wall Street Journal, CNN Money, and more describing how Millennials are being squeezed out of buying homes. For the most part, articles focused solely on lending requirements. Honestly, that misses the mark on what is really going on out there right now. Let’s dig into this a little more.

The articles primarily focused on how lending guidelines are stricter. While that is true when compared to 2007, lending requirements have loosened up quite a bit over the past several years. Here are some quick examples:

  • Conventional loans allow borrowers with a credit score of 620 (the same as FHA). Average credit is 660-680 depending on what article/source you read, so home buyers with below average credit can qualify to purchase a home.
  • Smaller down payments are back. VA and USDA loans do not require a down payment, FHA only requires 3.5% down, and Conventional loans can be used to buy a home with as little as 3% down.
  • Self-employed borrowers with an established business of 5+ years can qualify to buy a home with only one year of tax returns.
  • Condos can be purchased with as little as 3% down.
  • Rental income from investment properties can be used even if the property hasn’t been rented out for two years.

Lending guidelines are much more lenient today than they were just a few years ago. That isn’t really the problem.

A Washington Post article from January discussed the elephant in the room, and nailed it when it comes to the issue that all home buyers are facing – inventory.

I attended a Realtor meeting recently where a stat was given stating there is less than a 3-month supply of homes available in in-town Atlanta. A balanced market is a 6-month supply, and nationwide the supply of homes is well under 6 months. That’s not good. Think it is bad in Atlanta? It’s worse in Seattle. The lack of inventory puts Millennials (and any home buyer with a smaller down payment) at a disadvantage. Also, it is pushing home values higher than a normal market due to the impact of supply and demand.

How does one compete in this market? A few things come to mind.

  1. Home buyers must go out and look at homes as soon as they are listed. This can be difficult depending on one’s schedule, but homes are going under contract in a few days in most cases.
  2. Home buyers should be underwritten prior to going out to look at a home. This way the offer letter isn’t a prequalification letter or pre-approval letter, but the letter can read the home buyers are “approved to purchase a home pending a satisfactory appraisal, clear title, and sufficient insurance coverage.” That is much stronger than a simple “prequalification” letter, and I go into more detail this in a previous blog post.

By planning and being ready to move on a home at a moment’s notice, home buyers can increase their odds of getting under contract on a home.

Looking to purchase in Georgia? Wanting to get ahead of the game? Contact me today, and we’ll get started toward achieving the goal of your home ownership!

PMI vs MIP vs MPI… What is the difference?

May 17, 2017

Lots of acronyms there. What do they all mean?

Many people are familiar with the term “PMI” or Private Mortgage Insurance. This is insurance the borrower pays on behalf of the lender in case of a mortgage default. The insurance protects the lender and becomes a requirement when purchasing a home with less than a 20% down payment (or refinancing with less than 20% equity in the home).

MIP stands for Mortgage Insurance Premium and is completely the same thing as PMI, but that is what mortgage insurance is called on FHA loans.

So what is MPI? That stands for Mortgage Protection Insurance. When buying or refinancing a home, the home owner will get plenty of these offers in the mail in the weeks/months after buying a home. Why? Companies pay people to search through newly recorded deeds at the county. This is legal since the deed is a matter of public record. With the deed information, a company knows your name, your new home address, and who did your loan. The offers for Mortgage Protection Insurance will come regularly in the mail, and these companies make it look like the letter is from your mortgage company. They can be sneaky with these letters.

What does MPI do? If you choose this option, MPI will pay the loan balance off for a borrower in the event of their death. Sounds good, but let’s dig a little deeper. The premiums for this insurance are typically significantly higher thank those for life insurance as they require minimal to no medical examination or health screening. Anyone in any health condition can get this insurance by paying the monthly premiums. The other downside is that as mortgage payments are made, the principal balance of their loan reduces. This means the payout in the event of the borrower’s death reduces… in other words, the premiums stay the same, but the death benefit decreases every month.

MPI is a fantastic option for someone who cannot, for whatever reason, qualify for term life insurance. If you can get term life insurance, it is the better way to go. Typically, people can get more coverage that doesn’t diminish each month for a lower monthly premium.

Just bought your first home and don’t have life insurance? Or maybe you’ve owned your home for a few years, but your family has grown since you last looked at your life insurance coverage. Regardless of your need, my friends at the Sheldon Baker Group can assist you in getting free quotes from the top carriers in the life insurance industry. You can check out the Sheldon Baker Group life insurance page here. You can also call 678-793-2322 or email to sheldon@sheldonbakergroup.com.

Whether you use my friends at the Sheldon Baker Group or someone else, life insurance is important as you own a home and/or have a growing family. Use the MPI offers in the mail as a reminder to evaluate your coverage.

 

Lock and shop with rate float down

April 25, 2017

Last time we discussed the competitive market for home buyers. I suggested getting underwritten prior to making an offer on a home. That way the offer can say the buyer is “approved” and can close in about two weeks (only need the appraisal!). When I talk about this option with clients, they also ask about whether they can lock the interest rate. Most lenders/banks prefer a buyer be under contract to purchase a home, but that isn’t the case with Lock and Shop.

Buyers can lock in their interest rate today without a purchase contract, and then go out looking for a home. The program typically works like this:

  • We start the loan process as if we have a contract to purchase a home.
  • We submit the loan to underwriting for approval, and can lock the borrower into a 60 day rate lock.
  • This provides plenty of time to find a home, get under contract, and complete the closing

This is a great program for buyers. They can go ahead and get underwritten for a home purchase. They can also lock in a rate now, and not feel so pressured to find a home before rates could possibly get worse. With a 60 day lock, there really isn’t a rush on either side of the equation (finding a house and then getting loan approval). 60 days is more than enough time for both!

On top of that, there is a one-time FREE float down on the rate lock. The window to use the float down is within 30 days of closing (or rate expiration) and 8 days prior to closing (or rate expiration). If interest rates have improved by 0.250% or more, the rate can be lowered to the current market. That’s it. No fees and no tricks. There is a roughly 3-week window to use the float down, and rates must be improved by 0.250% or more.

If you’d like to learn more about the lock and shop program for a home purchase in Georgia, you know where to find me!

Competing in a seller’s market

April 18, 2017

By now I’m sure everyone is aware it is a seller’s market right now. In metro Atlanta, there is less than a 3 month supply of homes available to purchase. For a balanced market, it is good to have close to 6 months of homes available. This is a big change from a few years ago when it was a buyer’s market… low ball offers, take time looking, find the absolute perfect home. Today when making an offer, the initial offer starts at the list price. You better get to a property within day or two of it being listed or it may be under contract, and buyers are making compromises on a home. If the home has, say, 80-90% of what they are looking for in a home, make an offer!

Even with those strategies, buyers can still find themselves being one of many offers on a home in this crowded real estate market. How else can a buyer differentiate themselves from the competition?

                              How some home buyers feel in this market!

One way is being underwritten prior to being under contract on a home purchase. I can start the loan process, send out loan docs, collect financial docs, and submit to underwriting with a “To Be Determined” property address. Once out of underwriting, I can give a letter to my clients for an offer that says “Approved”…. not a prequalification letter… not a preapproval letter… a letter that says the buyer is approved for the purchase pending the appraisal. The buyer can also close in as little as two weeks. We only need the appraisal back at that point!

Looking to buy a home in Georgia? Having problems differentiating yourself from other buyers in this crowded market? Contact me today. I can not only help you get prequalified, but we can submit your loan to underwriting for an approval on the loan. That will give you a major advantage over buyers with a letter that says “prequalified” or “preapproved.”

Using government loans after a derogatory credit event

February 21, 2017

blog-author-clayjeffreys3

Last week, we focused on using conventional loans to purchase a home after a major derogatory credit event such as a bankruptcy, short sale, foreclosure, etc. This week, we will focus on VA and FHA loans offered by the government.

In every instance, a government loan has a shorter waiting period after one of these events. It is the loan of choice to use if it will fit your needs. Let’s discuss the waiting periods:

  • Chapter 7 bankruptcy: requires a 2-year wait
  • Chapter 13 bankruptcy: requires a 1-year wait from the beginning of the payout period
  • Multiple bankruptcy filings: VA requires only 2 years, but FHA is a case-by-case basis
  • Foreclosure: VA once again is only 2 years, but FHA is 3 years.
  • VA Specific: in order the qualify for a VA loan (in addition to being a veteran), there must be a 1 year minimum of re-established after the judgement dates and other derogatory events paid/resolved
  • FHA Specific: If HUD has a claim against a borrower for a foreclosed/short sold home (and that home was financed using an FHA loan), a borrower isn’t eligible for a new FHA loan until after 3 years from the date of the claim being paid.

As anyone can read here, government loans have a much shorter waiting period than conventional loans. As low as one year, but mostly just a 2-year wait. An FHA or VA loan would be the preferred method for buying a home after one of these major events. That said, there a couple of situations that make conventional loans the way to go:

  • the borrower is not eligible for a VA loan (so you go FHA unless….)
  • the loan needed to purchase a home will exceed the maximum FHA allowed loan amount
  • there is a claim against the borrower from HUD
  • a borrower is not eligible for an FHA loan due to CAIVRS (a government credit monitoring tool to ensure people who take out government loans pay them back)

The last two on the list are not that common, so buying a home within the FHA maximum loan limits would be the way to go. In addition to a shorter waiting period, the interest rate tends to be better than conventional loans, the borrower only needs a 3.5% down payment, and the monthly mortgage insurance rate is lower. A borrower’s credit score will confirm those items, but in general, those are all reasons why FHA loans are the best way to go after a derogatory credit event.

Completed a bankruptcy two years ago, and ready to buy a home in Georgia? If so, we can get started today in the process. Contact me and we’ll make sure you qualify for a loan, and then send you out looking for your next home.

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Planning Your Home Purchase While Renting

February 16, 2017

A recent survey reported that 2.9 times more first time home buyers than repeat buyers expect a home purchase delay due to their current lease terms.  My first reaction to this statement is “No duh!”  I would expect most repeat buyers do not have a lease but own their home.  Lease terms definitely can affect a first time buyers’ purchase timeframe.  A lease is a written legal contract between the landlord and the lessee.  Note that I am not an attorney, but here are some common sense thoughts about leases and home purchases.

Firstly, plan ahead.  If you know your lease terminates in 6 months and you want to buy a house, go ahead and start planning now.  Submit a mortgage application and get prequalified.  Build a relationship with a Realtor.  Set aside more money for a down payment and closing.  Planning ahead may help you win loan approval and buy your dream home.  Waiting until the last minute will likely cause you stress and frustration.

landlord

Secondly, know your lease terms.  What is the penalty for terminating your lease early?  Do you forfeit your security deposit?  Is there a different penalty?  Then evaluate the contractual penalty versus the home you want.  If you find and can buy your dream home, and the lease termination penalty is not too steep, you may want to go ahead and buy now.  The key here is to know the penalty so you can evaluate your opportunities.  Is missing the opportunity to buy the perfect home worth saving the security deposit you paid a few years ago?  Only you can make that choice.

Thirdly, talk with your landlord.  If your lease expires in 30 days and you still haven’t found the perfect house, perhaps you can negotiate a month to month lease or a 90 day lease continuation instead of signing a longer term lease.  Perhaps you could offer a slightly higher monthly rent to compensate the landlord for the shorter term lease, thus “buying more time” to search for and find the right home for you.

In short, planning ahead, knowing your lease details, and making an effort to negotiate with your landlord may give you the flexibility you need to find the perfect first home, without the stress of having a “deadline” hanging over you.  When you are ready to do your home purchase planning, call me.  I will give you as much time as you need to coach and counsel you, making sure you are truly ready to buy your first home.

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Feds may not raise rates at all this year

October 18, 2016


blog-author-clayjeffreys3

Well over a year ago, the Federal Reserve indicated they would begin raising the Federal Funding Rate. This started in December 2015 when the rate increased by 0.250% for the first time in almost a decade. While we didn’t expect a 0.250% increase each time the Feds met this year, surely there would be another increase at some point. Right?

The year is almost over, and the Feds have stood their ground. The comments from the most recent Fed meeting made it sound as if it is doubtful there would be an increase this year, but could be in 2017 as the economy continues to reach employment goals.

Does that mean potential buyers should panic as rates may go up in 2017? No, it doesn’t.

  • The Federal Funding rate does not impact mortgage rates. When the Federal Funding rate increases, rates go up on second mortgages, credit cards, car loans, etc.
  • Mortgage Rates go up and down along with the value of Mortgage Backed Security Bonds. To see plenty of previous posts on this topic, do a search for “MBS” in the “search this site” box in the upper right corner of the page.
  • The last time the Feds raised the Federal Funding Rate, Mortgage Rates improved. Rates are roughly 0.500% lower now than they were in December 2015.

So what to make of this? Don’t make home buying plans on what the Feds may or may not do. Don’t buy a home out of fear of rates going up. The best strategy is to get prequalified to buy a home, and purchase a home when the time is right for you… and not what the Feds or media dictates.

Looking to buy a home in Georgia? Contact me today. I’ll get you prequalified and get you ready for your home buying experience.

 

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