Posts Tagged ‘how much house can I afford’

Political Rhetoric

February 7, 2012

Over the past several weeks we’ve heard political candidates talk about various plans to help the housing industry. What are these plans and how will they impact the housing industry?

The two ideas that are being discussed the most out there include partial debt forgiveness for mortgages that are underwater AND helping homeowners refinance.

How are these going to impact the housing industry? Probably not much as they may never see the light of day. Right now this is all talk. For something to go into effect, it has to be approved by the House and Senate. Then the President has to sign off on the proposal. Since this is an election year, it is doubtful that either side will be eager to work with their opponents in 2012. Expect stagnation (not innovation) out of DC this year through the election.

If any of these talks do signify something substantial, you know The Mortgage Blog will be all over it!

Instead of waiting for news out of DC, take a look around the current state of the market:

  • if you are thinking of buying a home, it is still a buyer’s market and rates are ridiculously low. Now is the time to get out there and take advantage of it. I can help you get started with the prequalification process.
  • if you own a home and are underwater, contact me to see if you qualify for HARP. This is a government sponsored refinance program helping responsible homeowners refinance even if they are underwater. To know more, contact me or read some of my previous posts found here and here.

If the home you are looking to buy or refinance is in the state of Georgia, I can help you get started.

Don’t get caught up in the talk going back-and-forth over the next several months. You might just miss out on the great opportunities already at hand.

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Sell first. Ask questions later.

August 8, 2011

First, I must give credit where credit is due. That title is in a CNN Money article from a quote by Paul Zemsky, who is the head of asset allocation with ING Investment Management. Zemsky’s full quote was “investors are having one reaction to the downgrade: sell first and ask questions later.”

Over the course of the day, I received several calls and emails from clients concerned about interest rates rising. In actuality, it has been a good day for interest rates as they have improved over the course of the day. Why would interest rates improve when stocks plunge?

That reaction is typical- as stocks surge, rates rise… as stocks plunge, rates get lower. Why? As money leave stocks, it usually heads for the safe haven of bonds. Then mortgage backed security bond prices improve, and interest rates improve.

Now I know what you may be thinking, “why would investors put money into US Bonds after the downgrade by the S&P?” It is a great question, and there are a couple of logical reasons for this:

  • During times of financial strife, money often leaves riskier (but higher rate of return) investments such as stocks. That money is moved into the safer (but lower of return) investments like bonds. Viewed at that angle, today’s events followed a logical pattern. If you don’t believe me, ask this guy for a second opinion.
  • The Euro is not a safe bet right now either. With the continued strife and more plans to rescue and/or bolster countries who are struggling, investors don’t have a great choice with the Euro right now. If investors don’t like the Dollar since the downgrade, are they in a hurry to invest in a currency that might become insolvent?
  • The Dollar is still being viewed as a safe haven currency. Even though the Dollar is not a part of the “AAA Club” anymore, it is still a safer bet (for now) than the Euro or any other currency in the world. With the size of the GDP, most investors feel at some point things will turn around.

Bringing this all back to the mortgage world, if you are out looking for a home or thinking about refinancing, what should you do?

  • If thinking about refinancing and have been waiting, now is the time to jump. Interest rates have improved into the low 4’s after being in the mid 4’s most of the year.
  • If you are looking to buy a home, you could consider using the Lock n’ Shop feature we offer. Lock in a rate now for 60 days. That gives you 30 days to make an offer, and then 30 days to close.
  • Buying a short sale property? This one is trickier because you never know how long it will take to get an approval letter from the bank that owns the propety you wish to buy. The Lock n’ Shop wouldn’t exactly fit that scenario. Even so, I wouldn’t panic. Even if interests rates rise, it will probably be only an increase back to the pre-downgrade levels, which were in the mid 4’s.

Remember, investors may be selling now, but they will ask questions at some point in time. When they do begin to think about and question their actions, the markets will more than likely correct themselves and move back to where they were prior to the recent panic attack. That is a typical and logical response. So… logically, you should take advantage of the lower rates while they are available!

Does the APR really show the “truth” in lending?

July 19, 2011

The federal government requires the mortgage industry to use the Annual Percentage Rate (known as APR) for consumers to compare offers from mortgage companies. The idea behind its mandate is to provide a tool for consumers to use as an “apples to apples” way to compare loan offers. The lower the APR, the better the deal. Right?!?

Does the APR really do this? Well… I’ll defer to Tom and Jack from their “discussion” in A Few Good Men answer that question.

Well, the truth is the APR has great intentions, but it isn’t necessarily the best tool to use when evaluating loan offers. Here is why:

  1. The APR is based on fees for services to get the loan closed. If the fees are estimated low early in the process and then increase, the APR would increase. With new laws in place, lenders have to disclose if the APR increases more than 0.125% from the original documents you sign. Still, if you’ve started with a lender, you are less likely to change course later on in the process if there is a slight increase in the fees. This is one way some choose to “lower” their APR on the initial offer to make it more competitive.
  2. The APR assumes you will keep the loan for the life of the loan. For example, on a 30 year fixed mortgage, the APR shows its value over 30 years. If you payoff the loan early, sell the home, refinance, etc., the APR would then change. Since the APR could be impacted by how long you keep the mortgage, it stands to reason the APR may not be the best tool to use when trying to decide on a mortgage program.
  3. The APR is somewhat useless on particular loan programs. Since the APR is based on the life of the loan in an “fixed/ideal” situation, any attempt to hone in on an accurate APR for an adjustable rate mortgage over the life of the loan is laughable. Since ARMs can adjust (typically) up to as much as 5% higher than the initial rate over the life of the loan, how can one possibly figure an accurate APR?!? Also, many consumers choose to refinance their ARM loans prior to them adjusting, and that takes us back to the problem discussed in point #2.

The ARP is a tool for consumers to use, but it is not and should not be the deciding factor on what loan program/lender to choose. When comparing offers, always evaluate the interest rate, closing fees associated with the lender, and closing fees associated with the attorney. Those items are identified in lump sum totals on the good faith estimate.

Good to have options

June 16, 2011

A post from earlier in the week discussed recent changes in guidelines from Private Mortgage Insurance companies, and how those changes impact potential borrowers. For details on the changes, click here.

It got me to thinking. The post reminded me of why I enjoy working for a mortgage broker (especially in this volatile period in the mortgage industry). Let me explain using the previous post as an example.

Instead of being tied to one lender with one set of guidelines, I am able to work with multiple lenders, guidelines, loan programs, and funding sources. In short, I can meet any of my clients loan needs. Currently, I am working with lenders who:

  • Require three trade lines for FHA loans
  • Require only one trade line for FHA loans if it is a major trade line (mortgage, car, boat loan)
  • Require only one trade line period for FHA loans
  • Require three current trade lines of 12+ months of review for conventional loans with PMI
  • Requite three trade lines of 12+ months of review during any point in time of a borrower’s credit history for conventional loans with PMI
  • Require only one trade line for conventional loans with a 20% down payment

I know what you are thinking… “Great! What does that mean?

Well, let me explain. Take a close look at the list above. Whether a borrower has one trade line, 10 trade lines, a minimum down payment, or 20% down, my clients have options. That is only one of the reasons why I feel it is an advantage to work for a broker in this lending environment.

Ready to get started knowing you are working with a professional who has options when it comes to loan programs, guidelines, and funding sources? If you plan to buy/refinance in the state of Georgia, I’m sure I would be able to help!

Fannie Mae paying closing costs on HomePath

April 13, 2011

Breaking news… starting April 12, 2011, Fannie Mae is paying 3.5% of the purchase price towards a buyers closing costs when the buyer purchases a HomePath eligible property.

Great!… but what is a HomePath property?

HomePath properties are Fannie Mae owned foreclosures. This plan to pay 3.5% of a buyers closing costs is designed to encourage qualified buyers to get into the market and purchase some of these foreclosed homes.

What does one need to do to qualify:

  • get prequalified for a loan (credit, income, down payment)
  • plan to reside in the home as one’s primary residence (closing cost incentive not eligible on investment property purchases)
  • close on the HomePath property on or before June 30, 2011

Starting from the day of this post, you have 6 weeks to find the property, and then another 4 weeks to close on the loan before the end of June. That is sufficient time, but not a ton of time. Also like other credits and incentives, the closer we get to the end date, the busier things tend to get.

In other words, start early! To get started, contact me to be prequalified to buy a home as long as the property is in the state of Georgia. The next step would be to find a home, and you can search for HomePath properties at https://www.homepath.com/

Free money to your closing costs! How can one go wrong with that!?!

Say goodbye to the mortgage interest deduction?

April 5, 2011

Like death and taxes, there is one other certainty that home owners have expected to receive for years and years to come – the home mortgage interest deduction. As we’ve also come to expect every time the economy struggles, rumors about the demise of the home mortgage interest deduction will creep back into the news.

Does this mean we should be worried about losing the home mortgage interest deduction on tax returns?

No, I do not believe losing the deduction is something worth worrying about. Why?

Well, it has nothing to do with the government’s interest in the topic. The government would love having the home mortgage interest deduction repealed because millions of tax dollars would be available to use in the federal budget. However, doing that would anger pretty much everyone in the U.S.

And that is why I feel, after much discussion and politicking, the home mortgage interest deduction will not be going away.

Imagine you are running for President, Senate or Congress in 2012 (right around the corner from now). Do you really want to campaign for election knowing you voted to repeal the home mortgage interest deduction (negatively impacting millions of the voting public) versus someone who didn’t vote against the deduction (your opponent)?

If a candidate’s Congressional/Senate seat is in jeopardy, voting to eliminate the home mortgage interest deduction is the exact opposite of a savvy political move.

If anything changes with the home mortgage interest deduction, it would probably involve something like the following scenarios:

  • allowed only up to $500,000 financed. Any interest accumulated over a financed amount of $500,000 would not be a tax deduction.
  • allowed only on one’s primary residence. Would not be allowed on second homes or investment properties.

Those two scenarios have one thing in common. They don’t overwhelming impact the voting middle class. If anything changes (and that is a big IF), it would look something along the lines of the examples listed above instead of out right removing the home mortgage interest deduction for all home owners.

Fannie Mae HomePath Renovation Mortgage

March 1, 2011

I know what you are thinking… “didn’t he recently write about the HomePath program?” Yes, I did recently put up a post about the Fannie Mae HomePath Mortgage program, but I didn’t mention anything about the Fannie Mae HomePath Renovation Mortgage. Think of the “renovation mortgage” as the sibling to the “mortgage.” Let me explain.

The HomePath Renovation Mortgage shares many of the same features of the HomePath Mortgage program:

  • available for primary residence, second homes and investment properties
  • need a minimum of 660+ credit score
  • only a 3% down payment required for primary residence (15% for investment properties)
  • no private mortgage insurance on the loan

The best part of this program is all of the $$$ a buyer can use to put some tender loving care into a home. There is no minimum repair cost associated with the Renovation Mortgage, and buyers can finance the lesser of 20% of the “after completion value” of the home OR up to $30,000.

To simplify things, for homes with an “after completion value” of $150,000 or more, the maximum renovation amount will always be $30,000. Any amount under $150,000 will be 20% of the value. One thing to keep in mind is the maximum renovation amount must include a 10% contingency reserve.

Let’s say you have $30,000 for renovations, what can you do:

  • unlike the FHA 203k streamline mortgage, structural repairs/additions can be made to a home. This means the buyer can knock out walls, add a room onto the home, etc.
  • luxury items such as swimming pools, hot-tubs, fences, etc. are allowed
  • renovations can include appliances
  • all renovations can be 100% cosmetic (no structural changes to the home), so new paint, carpet, tile, etc. is certainly a fine way to go too!

The Fannie Mae HomePath Renovation mortgage is a great way to purchase a home and make some repairs to it with no out of pocket costs to the buyer outside of the down payment on the loan.

Do remember that Fannie Mae designed this loan program to facilitate the sale of homes they own. In other words, they are foreclosed homes. There are numerous properties available, and they can be viewed here.

Those interested in making an offer on a home to use this rehab loan will need a prequalification letter, and that is something I can provide! If you are looking to get prequalified, learn more about interest rates for this program, total monthly payments, etc., feel free to call or email me. I would enjoy helping you through the mortgage process!

Lock and Shop

February 1, 2011

When someone contacts me to get prequalified for a loan, one of the first questions involves locking in their interest rate. Traditionally, lenders do not allow borrowers to lock in an interest rate until they have a contract on a home. The rate lock is “attached” to a property and not a borrower.

Well, not everyone sees it that way!

We have a program known as “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:

  • I prequalify a buyer to purchase a home.
  • Once prequalified, we can lock the borrower into a 60 day rate lock.
  • 60 days is a good time frame. This provides roughly 30 days to look for a home AND then 30 days to get a loan approved once there is a purchase contract. Plenty of time for both!
  • While I can lock in an interest rate prior to having a contract, underwriting will not commence until an executed purchase contract is provided.

This is a great program for buyers. They can go ahead and 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!

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

FHA vs Conventional loans, yes another post!

October 5, 2010

For those of you who followed my posts in a previous life (in other words, my previous blog), you know I spent numerous posts detailing differences between conventional and FHA loans. For example, you can read here, here, here, here, here and here to get you started.

Like the typical never-ending-sequel-horror-movie that comes out every October, here we are again to address the differences between these two!

seriously, we need a 7th Saw film?!?

With the recent changes to FHA mortgage insurance going into effect on October 4, 2010, I know the questions on whether or not to use an FHA versus a conventional loan will pick up again. Consumers will want to know how the new guidelines impact the total monthly payments on conventional and/or FHA loans.

Whether or not to get an FHA or conventional loan should be up to a borrower’s unique situation. In order to accomplish this, borrowers should always speak to a mortgage consultant who take the time to ask probing questions about their situation and goals instead of quoting rates for the same loan program to everyone that comes their way.

That being said, let me try to shed some light on the latest change by using the example of a borrower looking to buy a home for $200,000 with a credit score of 720+ using a 30 year fixed loan.

We will look at principal and interest payments and mortgage insurance payments only. Property taxes and home owners insurance will be ignored as they will be the same regardless of the loan program used under this scenario:

  • FHA: a 3.5% minimum down payment is required and the 1% up front mortgage insurance fee is rolled into the loan. This gives us a total loan amount of $194,930. At a rate of 4.500%, the monthly principal and interest payment is $988 and the monthly mortgage insurance payment is $146. That totals up to $1,134 per month.
  • Conventional: a 5% minimum down payment is required and there is no up front mortgage insurance fee. The loan amount is $190,000. At a rate of 4.500%, the monthly principal and interest payment is $963. This payment is lower than FHA option because the loan amount is almost $5,000 less for the conventional loan. The monthly mortgage insurance is $149 (higher than FHA per month), and the total is $1,112.
  • Under this scenario, an FHA loan is $1134 per month versus $1,112 per month for the conventional loan. A difference of $22, or 2% higher for the FHA loan.

I guess that settles it… it is always better to use a conventional loan… right? Well, maybe or maybe not. This scenario assumes the borrower has at least a 5% down payment and a credit score of 720+. It also assumes the borrower has the credit trade lines necessary to qualify for an FHA loan. That leads us to some great questions:

  • What options are there for a borrower with only 3.5% to put down?
  • What if one borrower has four lines of credit on their credit report, but the co-borrower only has one?
  • What if a family member wishes to gift the entire down payment?
  • What if the borrower needs a non-occupant-co-borrower to qualify?
  • What happens if one’s credit score falls below 720? What about 680?

Those are excellent questions and further proof as to why one should always speak to a mortgage consultant who asks lots of questions and gets all the details pertaining to each individual’s situation. We can talk about pros/cons for FHA and conventional loans, but answers to all of these questions (and more) need to be known before one truly knows which is the better loan program for them to use – FHA or conventional.

Type of income and prequalification

July 5, 2010

“Why does it matter how I’m paid as long as I get paid?”

I’ve received that question numerous times over the past several years being in the mortgage industry. The question does make sense – as long as income from a job is coming in on a regular basis, why does it matter if someone is self- employed, a W2 employee, or a 1099 contract worker?

Unfortunately, for the self-employed or individuals paid on a commission or bonus structure, it does matter. Why? Due to the up-and-down nature of running a business or income based on monthly/annual performance, underwriters want to see a historical record of income that is earned over the course of up to two years.

Unless you are a W2 employee whose salary will be the same every month regardless of the economy or sales, the only way to document your income is through annual federal tax returns. By reviewing tax returns for the past two years, an underwriter can see documented monthly income for 24 months to gauge expected future income.

Here are some examples of different ways one might be paid and what steps are necessary to document the income:

  • W2 salaried income – this is the easiest to document. All that is needed is the past 30 days of pay stubs. If recently moved to a new job in the same field still as a W2 employee, a pay stub reflecting 30 days on the job with an acceptance letter to the new position should do it.
  • W2 base pay with commission/bonus income – if commission/bonus income is less than 25% of the total salary, then the same rules apply as above should apply. If more than 25% of the total salary, then up to two years of tax returns will be required to document the income.
  • Full commission income – up to two years tax returns will be required. Note that any business expense write offs on the tax return will lower the income that can be used to qualify you for the loan.
  • Self-employed – two years of tax returns will be required. Again, any claimed business expenses (personal or for the business itself) will reduce the income that can be used to qualify you for the loan.
  • Bonus income – two years documented bonus income will be required along with documenting its continuance.
  • Same job at the same company but change from W2 salary to commission/bonus income – This is happening more frequently in the business world. Positions that were once salaried are becoming positions with base pay plus commission. If the base salary is sufficient to qualify for the loan, then only pay stubs are required. However, if the commission is also needed to qualify for the loan, then up to two years of tax returns would be required.

Loan programs such as stated income and no documentation loans are no more due to the credit crunch. This means all income must be verified and documented – making how one gets paid all the more important.

If you are looking to buy a home or refinance an existing one and you are not paid as a W2 salaried employee, it is imperative to speaking with a mortgage consultant to ensure everything is order before you are ready to make an offer. If you are in the state of Georgia, I would enjoy the chance to review your situation and help qualify you to buy a home–give me a call!