Posts Tagged ‘metro Atlanta mortgage’

Beyond the Down Payment…Cash to Close

August 30, 2017

In the last post, we debunked the myth that home buyers must make a 20% down payment to buy their home.  There are many programs enabling buyers to close with 5%, 3.5%, or even 3% down payments.  But there is one other factor to consider regarding the cash you have available to buy a home…your “cash to close.”

Cash to close includes your down payment, PLUS the closing costs and prepaid escrow.  In short, you need more cash than just the down payment to close the purchase.  Here is a quick description of the other items:

  • Closing costs are the actual costs of transferring title and obtaining a mortgage loan.  Closing costs include items such as appraisal fees, transfer taxes, intangible tax, attorney fees, title insurance, etc.  Some of these costs are fixed while others increase with the home purchase price or loan amount.
  • Prepaid escrow represents the cash needed to pay the first year of homeowners insurance and to prefund your escrow account to pay future property taxes and homeowners insurance premiums.  These typically increase as the home price increases.

So what options does a buyer have when he has scraped together that 3.5% down payment, but does not have enough cash to cover the remaining cash to close?  Here’s where a proactive lender, working as a consultant to help the buyer, can make a huge difference.  Typically, the buyer has 4 options, and the lender should explore them all with the buyer:

  1. The seller can agree to contribute cash towards the closing as part of the purchase contract.  There are limits regarding how much the seller can contribute based on the loan type and down payment percentage, but a seller contribution can be a huge help.  Note that the seller contribution cannot be applied to the down payment.
  2. The buyer can choose a “no closing cost” loan.  Many buyers choose not to use this option because it involves a higher interest rate and monthly payment, but it can be a good option for some buyers who have limited available cash.
  3. The buyer can receive a gift from a relative.  We must carefully document the gift, but this is a great way for parents and grandparents to help a young adult get started building equity.  The gift can be applied to the down payment.
  4. We can combine the 3 options above to resolve a cash shortfall.

The key here is to remember (1) more cash than just the down payment is needed to close a mortgage and (2) there are creative ways we can solve a cash shortfall.

If you know a renter with a good job but not much cash, refer them to me at Dunwoody Mortgage Services.  We will work closely with your referral and his / her Realtor to structure a mortgage that best meets their financial situation.

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Credit Score Basics for Home Buyers

February 9, 2017

A recent survey reported that 2.7 times more first time home buyers than repeat buyers believe they must improve their credit scores before buying a house.  First let’s dispel credit score myths.  A home buyer can possibly win mortgage approval with a credit score as low as 620.  If your score is 620 or higher, you can possibly win loan approval.

If your score is less than 620, you need to work to improve it before you can qualify.  If your score is 620 or higher, you may want to take steps to increase your score as better scores tend to lower mortgage costs.  Note that I am not a credit score repair specialist, but here are some basic, fundamental tips to improve your credit score:

Pay down your credit card balances:  You get the best score on each credit card account when your balance is less than 1/3 of that account’s credit limit.  Your score drops when your balance is more than 1/3 of the limit.  And your score drops even further if your score is more than ½ of the credit limit. 

Pay your bills on time:  Late payments lower your score.  The later the payment, the more your score is penalized.

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Time heals all wounds:  The more time that has elapsed since your last late payment, the less those late payments will affect your current score.  Some credit issues have mandatory waiting periods.  For example, if your credit report shows a bankruptcy, 2 years must elapse before you can obtain a FHA mortgage, and 3 years must elapse before you can qualify for a conventional mortgage. 

Resolve account disputes now:  Mortgage underwriters hate account disputes.  If you have disputes on credit accounts, go ahead and resolve them prior to applying for a mortgage.

Be aware of collections accounts:  Note that I didn’t say to pay them off.  Sometimes, paying off a collection account will actually lower your credit score.  If you want to buy a home in the next 12 months or so, it may be best to just know about the collections accounts – you may have to deal with them as part of your mortgage process.  In some cases, we require the borrower to bring enough cash to close and to pay off collections account balances as part of the mortgage closing process.

If you want to buy a house in Georgia, get a good idea of your credit score and your monthly debt payments.  Then call me to discuss your loan options.  I’ll invest time coaching you on the best ways to help you win loan approval. 

More mortgage questions?  Check out our home buyer educational videos.

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The Simplest Loan Around – Part 3

September 8, 2016

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Continuing the FHA streamline refinance theme… Here’s an example.  I’m currently talking with Confidential.  Confidential is self-employed.  Confidential’s spouse, Anonymous, recently took a new all-commission sales job. 

With a standard mortgage, the income and employment verification for Confidential and Anonymous would be very tedious at best, and they likely may not qualify.  Underwriters want to see a 24 month history of income for self-employed persons.  And they will average the 24 month income to determine the borrower’s current monthly income.  That hurts self-employed borrowers whose incomes are growing.  But those normal underwriting concerns do not apply to the FHA Streamline Refinance!

The interest rate on Confidential and Anonymous’ current mortgage is 4.75%.  That is high by today’s standards.  The good news is that they bought their home with a FHA loan several years ago.  I quoted Confidential and Anonymous a new FHA interest rate at less than 3.5%, and we expect to lower their monthly payment by over $220!  Given the closing costs for the loan, this refinance will pay for itself in less than a year.  After that, they are saving over $2,500 per year!

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I’m not worried about this loan being approved in spite of the fact that Confidential and Anonymous are self-employed and they cannot provide the standard 24 month income history.  And we don’t have to fret about an appraisal value.  They have made all FHA mortgage payments on time, and this refinance will reduce their payment by over 15%.  They qualify for what might be the easiest loan around – the FHA Streamline Refinance.

So how do you determine if a refinance is right for you?  There are many considerations, but we have a couple of rules of thumb:  (1) If you can lower your payment by $100 per month or more, and (2) if the refinance will “pay for itself”* in 36 months or less, then you may want to investigate refinancing options.  (*Divide the loan closing costs by the estimated monthly savings to calculate how many months will pass before the savings cover the entire cost of the refinance.  If this time period is 3 years or less, then refinancing may be a good option for you.)

If you want to lower your current monthly payment by taking advantage of current low, low mortgage interest rates, contact me here at Dunwoody Mortgage.  I will take the time to help you understand all of the options available to you, and I will coach you to make the best financial decision possible for you and your family.

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The Simplest Loan Around – Part 2

August 12, 2016

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In the last blog post, I introduced the FHA “streamline” refinance loan. These loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.

The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP).  Like an Olympic swimmer reduces friction by “streamlining” when underwater, the FHA streamline refinance offers much less resistance and effort than a regular purchase loan.

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Here’s a quick summary of the benefits:

  1. No appraisal is required – FHA will use your original purchase price as your home’s current value, regardless of what the house is worth today.
  2. No employment verification is required with the streamline refinance.
  3. No income verification is required.
  4. No detailed review of your credit report is performed. If your score is 600 or higher, you qualify.

So to sum up the benefits, you can be (a) out of work, (b) without income, (c) have a low credit score, and (d) be underwater on your home mortgage and you can still qualify for an FHA streamline refinance.

Now this sounds crazy.  Why would they do this?  Well remember, to qualify, you must already own the home and have an FHA mortgage.  We are not qualifying you to take on a new mortgage payment for a new house.  The FHA is already committed to insuring your home mortgage.

Therefore, it is in the FHA’s best interest to help as many existing mortgage holders as possible lower their payments.  By lowering payments, they will lower the default rate.  So this program helps the FHA, but it also helps the borrower who can lower his monthly payment.

In the next post, we will review example scenarios where this type of loan can really help the homeowner.  But for now, if someone you know in Georgia has a FHA mortgage with an interest rate of 4.00% or higher, have them call me to discuss a potential refinance.  We’ll run the numbers together to make sure it’s a good financial move for them.

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Lower Jumbo Rates

May 23, 2016

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For those out there looking to buy a home with a Jumbo loan, which is a loan amount over $417,000, there are a couple of broad options.

  1. Go with great customer service, but maybe a higher interest rate.
  2. Use one of the big banks who, at times, “discount” the Jumbo interest rate if also opening a checking account at their institution. The larger banks do this sometimes with their Jumbo loan rates as a “loss leader”…. discount the rate to secure a financial relationship with other investment accounts.

So those are the broad options… dealing with some of the potential downfalls with a big bank for a lower rate OR great service but at a higher rate. If there were only a way to combine the two. Well, there is!…

We now have access to one of the larger bank’s Jumbo loan program, which works like this:

  • their Jumbo rates are some of the best in the market, and there is a way to make them even lower.
  • if you open a checking account and agree for the mortgage to be paid via auto draft from that checking account, the interest rate is lowered an additional 0.250% in rate.
  • you get to work directly with a smaller licensed lender at Dunwoody Mortgage Services. I would be your direct contact from start to finish. You would never have to phone a call center or be placed on hold waiting to speak to someone.

It is the best of both worlds!

Looking to buy a home and needing a Jumbo loan? Wanting to avoid call centers and being on hold to get updates on your loan? If you are buying in the state of Georgia, contact me today. I can help you get started toward your home ownership.

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Using Retirement Accounts for “Income”

May 23, 2016

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Prior posts have focused on how to use brokerage account assets to qualify for a mortgage.  Now let’s review using retirement account assets for “income” purposes.  The focus here is retirement accounts recognized by the IRS, such as IRA, Roth IRA, 401K, etc. accounts.

If the borrower can obtain distributions from the qualified retirement account without incurring an IRS penalty, then distributions from the retirement account can be considered as stable qualifying income if the income is expected to continue for at least 3 years.  Assuming that the borrower, “Don,” from my last two posts had his $500,000 in a qualified retirement account, here’s how we would calculate his “income” for a mortgage application.

Now if Don’s retirement portfolio includes stocks, bonds, and / or mutual funds, we start by multiplying the account balance times 70% to adjust for market volatility.  That gets us to $350,000 in usable asset value.  Don has been receiving $4,000 monthly distributions and wants to continue that, so we divide his $350,000 balance by his $4,000 distributions.  The result is 87.5.  So Don can continue these distributions for over 87 months.  The required minimum is 36 months (3 years).  Therefore Don can use his monthly distributions as “income” for his mortgage application.  Let’s go find that house he wants!

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Now let’s assume that Don only has $190,000 in his 401K.  The result after adjusting for market volatility is $133,000.  Assuming Don must pay $12,000 in cash at closing (down payment, closing costs, etc.), his available retirement account balance after closing on his home purchase would be $121,000.  That would allow for only 30 months of distributions at $4,000.  So we would have to adjust Don’s income for mortgage purposes down to about $3,360 and then look for a house he could afford with that monthly income.

There are other guidelines that also apply.  It gets complicated, but that’s why experienced mortgage lenders can really help.  If you know a retiree who is thinking about buying a home in Georgia, recommend that they talk to an experienced lender before planning a home purchase price.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their asset allocations and determine how much of an “income” they can use on their loan application.  I can help them structure the deal right the first time, making their loan experience as smooth as possible.

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Q: How Do You Earn? A: Salary or Hourly

October 22, 2015

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If you saw my last post, you’ll remember that, in the mortgage world, how you earn your income is almost as important as how much income you earn.  See http://bit.ly/1KT9Snx for a quick refresher.

So let’s unpack how we underwrite the different types of income earning methods.  I’ll start with the easy ones first.

Salary Income:  If you earn a salary, we will need to know your gross monthly income.  That is, your monthly salary before taxes and withholdings.  We basically take your annual salary and divide by 12 months.

Underwriting will review your 2 most recent pay stubs and W-2 statements.  Don’t worry if you just started a new job.  So long as you are in a W-2 salaried job and you did not have a job gap of more than 6 months prior to your current job, you can qualify once you have 30 days of pay stubs.

Hourly Income:  If you are paid by the hour, underwriters will base your income on your average earnings over the last 24 months.  We will obtain a “Verification of Employment” (VOE) from your employer to document your income.  This employer-provided VOE is ultimately what underwriting will use when reviewing your application.

I know, it sounds confusing and very detailed.  That’s why it’s my job to know the details, understand the guidelines, and walk you through the process so you know exactly where you stand with underwriting.  I love handling the details and coaching my clients so that they can buy the home of their dreams.  If you are looking to buy in the State of Georgia and you want great mortgage service plus great rates, email or call me today.  We will make buying your dream home as easy as it can be.

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So How Much Money Do You Make?

September 24, 2015

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It pretty much goes without saying that everyone needs an income and most people need a job to qualify for a mortgage.  “No duh, Sherlock, right?”

Some people can qualify for a mortgage if they have an income and no job.  For example, retirees who have income from Social Security and retirement assets can use income from these sources to qualify without a job.

But the majority of us must be employed and earning a regular paycheck to qualify.  So here are some important income questions underwriting will want to consider when you apply for a mortgage.  #1:  What is your income?

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#2:  How do you earn your income?  Your answer to that question dramatically impacts your ability to qualify for a mortgage and the documentation you must provide to verify that income.  It also affects how we calculate the monthly income that we enter on your mortgage application.

Below is a quick summary of different income earning methods we frequently see in the mortgage world.  In future posts, we will review in more detail how underwriting verifies each different method of earning your wages.

  1. Salary income
  2. Commission income
  3. Hourly income
  4. Bonus and overtime income
  5. Part time job, second job, and multiple job income
  6. Self-employment income
  7. Rental income
  8. Child support, alimony, maintenance income
  9. Asset based income
  10. Social security / survivor and dependent benefit income
  11. Tip income

Not sure whether your income will qualify for a mortgage on your Georgia dream home?  No worries, just give a call to Dunwoody Mortgage Services.  We will ask you the right questions to make sure that your eligible income is recorded correctly for underwriting.  Give me a call or send me an email to start the process.  We will make sure that we do this right the first time!

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Should I consider a 15 Year Mortgage?

August 27, 2015

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Someone recently asked me, “Do you recommend a 15 year mortgage now since interest rates are so low?”  To quote a CPA friend of mine when asked if a business expense is deductible, “It depends.”  The question I will ask in response is, “How much can you afford to pay every month?”  The answer to the question depends totally on the borrower’s budget.

While getting a lower interest rate is a very good thing, amortizing a loan over 15 years instead of 30 means that you pay significantly more principal with each payment.

So let’s play with the numbers to put the question in perspective:

Your friend Sally is looking to get a $250,000 mortgage on a single family home.  She has excellent credit and will make a 10% down payment.  Let’s assume that Sally would have received a 4.0% interest rate on a 30 year mortgage and her monthly principal and interest (“P&I”) payment would have been about $1,194.  For a 15 year mortgage, let’s assume that Sally would have received a lower 3.25% interest rate, but her monthly P&I payment would have been much higher at $1,757.

Over the life of the 30 year mortgage, Sally would spend $179,674 in total interest payments.  Over the life of the 15 year mortgage, Sally would spend $66,201 in total interest payments.  Ultimately, Sally would save about $113,500 in total interest payments by selecting the 15 year loan.

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Saving that amount of money over the life of the loan is fantastic.  But, on the flip side, Sally would have to pay an extra $560 per month to “earn” the lower rate.  Only Sally can decide if that fits in her budget.  (And of course, Sally would have to earn an income high enough to support the larger payment based on our debt to income guidelines.)

So if your friend Sally, or anyone else you know, wants to buy a new home and thinks a 15 year mortgage is the way to go, have her contact me and I will run the numbers for her.  I’ll take the time to explain the details, and then let Sally make the decision that is best for her family.  There are other ways to reduce your total interest expense, even if you select the 30 year mortgage.  Curious?  Call my mobile phone or send me an email to start the conversation now.

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You Can Do It!! Part 3

July 27, 2015

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Let’s finalize our mortgage myth busting process right now.  We have previously exploded myths regarding the character and capital criteria in mortgage lending.  Now let’s deal with myths regarding your “capacity” to obtain a mortgage.

When it comes to loans, the term “capacity” is your ability to make your monthly payments.  To determine your capacity to pay your mortgage, underwriters will compare your monthly gross income (before taxes, retirement, and other deductions) to all of your monthly debt payments.  If your debt payments are not too high relative to your income, you are deemed to have sufficient capacity to obtain the loan.

A surprising percentage of people believe that if they simply have a student loan – regardless of the amount – they cannot qualify for a mortgage.  The TRUTH here is that you can still qualify for a mortgage even if you do have a student loan (or an auto loan, or an auto lease, or credit cards, or other types of debt).

The critical question here is not IF you have a student loan, instead it is, “How large are your payments relative to your income?”  Underwriters will scrutinize your “back ratio,” which is the sum of all your monthly debt payments – student loans, auto loans, the new mortgage payment on that house you want, etc. – divided by your monthly gross income.

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As long as your back ratio is not too high, say 45% or less for a conventional loan and 50% or less for a FHA loan, you will likely have your loan approved (assuming no other underwriting “issues,” of course).

So let’s summarize the mortgage myth destroying logic with this:  if your credit score is 620 or higher, and you have (or can get from relatives) enough cash for a 3% or more down payment, and if your current monthly debt payments are not excessive, and you want to buy a house, then remember, “You can do it!”

Actually, I’ll correct this as you will need help from someone licensed to originate loans, so let’s just say, “We Can Do It!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss your situation.  I’ll be honest and tell you what the real situation is.  Don’t believe the myths and then wait to take action.  The TRUTH is we might be able to get you into your dream home sooner than you think.

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