Posts Tagged ‘mortgage advice’

How Government Policy Impacts Mortgage Rates

February 20, 2018

Mortgage interest rates continue rising.  Other recent blog posts have covered the impacts of inflation, the Federal Funds rate, and stock market influences on mortgage rates.  Another major influence on mortgage rates is government policy. 

In 2008, the Federal Reserve implemented a program called “quantitative easing” (QE).  The Fed created money to buy securities like mortgage backed securities and public bonds from banks.  This new money increased bank reserves.  The idea is that the new cash would motivate banks to lend more money.  In buying new assets, stock prices would rise, and interest rates would fall, thus boosting investment further.  Given the trillions of dollars of assets purchased, it’s logical to assume that interest rates on all types of debt are lower than they would have been without QE.

The Fed ceased QE security purchases in October 2014.  A government policy used to keep rates low ended, and experts wondered if mortgage rates would increase.  But rates stayed near their historic lows until November 2016.  Rates rose quickly after the election by almost a full percentage point, and then slowly retreated over most of 2017.

In October 2017, the Fed began “normalizing its balance sheet” by selling its securities holdings – selling the bonds purchased in QE.  Experts predicted this policy would have the reverse effect of QE:

·       Bond price decreases due to increased supply (as the Fed sells its holdings).

·       Falling bond prices lead to increases in bond yields, which translates to rising interest rates.

And that appears to be happening.  From a lender’s perspective – QE was great.  I loved quoting interest rates less than 4%.  And now it’s frustrating and stressful to see interest rates rising and continuing higher.  But it makes sense given the broader economic and government policy environment.

It is impossible to accurately predict where mortgage rates will go.  Sudden changes in government policy, international relations, etc. can cause mortgage rates to change direction.  Given that caveat, it appears likely that mortgage rates have truly left the historic low levels of the last few years and will likely not return there anytime soon.  I think it is logical to expect rates to continue rising for the short term.

So, if you know someone in Georgia who is considering a home purchase, it may be a good financial move to pull the trigger before rates go much higher.  Refer that someone to me and we can explore their loan options together.  We at Dunwoody Mortgage offer competitive rates in this changing environment, and as a small company, we can go directly to our executives to work out the best pricing “deal” possible.  In addition to competitive rates, we consistently deliver outstanding service to get home buyers to closing on time.


Recent Mortgage Rate Changes

February 13, 2018

Wow!  Our economic world has gone crazy in recent weeks.  The Dow Jones average has dropped about 7.9% since its high on January 26, less than 3 weeks ago.

Mortgage interest rates have been changing dramatically too.  Rates have increased a half point (0.5%) since January 2.  Back in mid-December, I quoted an interest rate to a first-time home buyer named John.  Today, in mid-February, I would likely have to charge him 0.625% more than what I quoted in December.

So, what is driving the rapid mortgage rate changes?  In short, Wall Street, economic factors, and government policy.

To understand the basics, first realize that the vast majority of conventional mortgages are sold by lenders to Fannie Mae and Freddie Mac.  Fannie and Freddie then package these mortgages into mortgage backed securities (MBS).  Money managers, pension funds, insurance companies, mutual funds, etc. buy the MBS to keep in their investment portfolios.  They buy and they sell them like other investments. 

That means that the same economic factors that influence stock and bond prices – economic productivity, unemployment, inflation, and government policy – all impact mortgage interest rates.  And MBS must compete with other investment vehicles such as stocks and bonds to attract investors.

Many experts consider the market for 10 Year Treasuries as a benchmark or comparison for MBS.  Both investments offer stable, predictable cash flows.  Since January 2, 2018, the 10 Year Treasury rate has increased almost 0.4%.  Looks like interest rates on these competing investment vehicles are rising at the same time.

Given recent positive unemployment figures and wage growth, inflation concerns are increasing.  Higher inflation expectations tend to drive higher interest rates on Treasuries, bonds, and MBS.  Let’s face it, if investors expect inflation to be 3%, they will want to earn more than 3% on their fixed-income investments, right.  So as inflation concerns rise, it is logical to expect mortgage interest rates to rise accordingly.

When it comes to mortgage interest rates, there’s much more to consider, and we will delve into more details in future posts.  For now, if you know someone in Georgia who is considering a home purchase, please have them contact me.  We at Dunwoody Mortgage offer competitive rates in this changing environment, along with outstanding service to get home buyers to closing on time.

Tools to Access Your Home’s Equity

January 11, 2018

Home owners often seek to use their home equity as a source of cash.  They can use this cash for renovations, paying off other high interest debt, funding college educations, etc.

Owners typically access their equity by either (1) paying off their current mortgage and obtaining a new, higher-balance mortgage using a “cash out” refinance or (2) obtaining a home equity line of credit (HELOC).  Each option has some pros and cons.  The new federal tax law somewhat changes the pro / con dynamic.

Under the 2017 tax law, mortgage interest paid on loan balances up to $750,000 remains deductible on your federal taxes.  However, the tax law eliminated the mortgage interest deduction on new home equity loans and lines of credit.  But note that this only affects home owners who itemize their taxes.  And with the doubling of the standard deduction under the new tax law, the number of households that itemize deductions is expected to drop from 34 million to 14 million.

So, if you are considering accessing your home equity, first think through whether this tax change will affect you.  If you are a single filer and your itemized deductions including mortgage interest would be less than $12,000, the interest deductibility will not affect your decision.  If you file jointly and your itemized deductions would be less than $24,000, interest deductibility will again not affect your decision.

Here is my list of benefits for each option:

Cash Out Refi:

·        You can obtain a fixed rate loan.  The monthly principal and interest payment will never change.  HELOC rates are variable and your payments will increase when market interest rates increase.

·        You can deduct all interest (on loan balances up to $750,000) as part of your federal tax calculations as described above.

·        You reduce your outstanding loan principal with every payment.  The monthly payments reduce your outstanding principal every month.  HELOC payments are interest only.  For people who don’t have the financial discipline to pay down HELOC balances, the cash out refi forces you to reduce the loan balance monthly.


·        You can access more of your home’s equity.  HELOC’s typically allow up to 85% loan balance (first mortgage plus HELOC) to home value or loan to value “LTV.”  Cash out refis only allow a maximum 80% LTV.

·        You pay less for the loan itself.  Closing costs are typically lower for a HELOC than for a mortgage.

·        You can pay less each month.  Required HELOC payments are interest only.  By not paying down part of the principal each month, your monthly payments will likely be lower with a HELOC versus a traditional  mortgage.   

Next post, we will cover some “rules of thumb” when choosing between a refi and a HELOC.  Own a home in Georgia and want to access some equity?  Give me a call at Dunwoody Mortgage and let’s review your options.  We can consider the advantages of each as we guide you to the best solution for your situation.

My (FHA Loan) Christmas Wish List

December 19, 2017

FHA loans are great for certain borrowers.  I look to FHA loans when my clients have credit scores of say 680 or less, little available cash for a down payment, and want a 30 year mortgage.  FHA loans also can help a home buyer who has a higher level of other outstanding debt, as FHA guidelines allow slightly higher debt to income ratios.

FHA loans typically offer lower interest rates than conventional loans, but they do have some limitations.  But now there is some movement in Washington to change some of these limitations.  Let’s pretend that the federal government is Santa Claus.  Here’s my FHA mortgage wish list:

  • Rep. Maxine Waters, D-Calif has introduced the Making FHA More Affordable Act.  This bill would repeal the “life of the loan requirement” for FHA mortgage insurance.  Right now, if a borrower closes an FHA loan with a less than 10% down payment, the mortgage insurance is permanent – it never goes away.  In contrast, the mortgage insurance is cancelled automatically on a conventional (non-FHA) mortgage when the outstanding principal balance reaches 78% of the home’s original value.  In my opinion, this would be a good change for consumers who need FHA financing.  I don’t think they should have to pay the mortgage insurance after they have 22% equity in their home.
  • Under Ben Carson, the federal Department of Housing and Urban Development (HUD) issued a report signaling an easing in FHA requirements for condominiums.  Currently, to close a FHA loan on a condo, the condo complex must be on the FHA approved list.  Condos apply for FHA approval based on a number of FHA-specified criteria.  If the complex is not on the FHA approved list, a buyer cannot obtain a FHA loan and must obtain conventional financing.  The National Association of Realtors reported that of the 614,000 condo sales in 2016, only 4% were closed with FHA financing. 
  • In addition to loosening FHA condo complex approval guidelines, the administration is also indicating that it wants to revive FHA’s “spot loan” program.  This program allows homebuyers to purchase a  condo in a complex that has not been approved for FHA financing.  Some estimates have claimed that without the spot loan program, 90% of condo projects cannot have buyers with FHA mortgages. 

We mortgage lenders must work within the rules defined by the regulators – we don’t make the decisions.  But I think the above changes would be very positive, as they would make home and condo ownership less expensive and more realistic for buyers who need the FHA loan program. 

If you know a potential home buyer in Georgia who wants to know if they are on Santa’s, sorry, FHA’s, “good list,” have them contact me at Dunwoody Mortgage.  We will work within FHA guidelines (and explore other potential loan options) to make sure they get the best deal on their mortgage, and hopefully enjoy some FHA guideline “gifts” from Washington soon.

Merry Christmas and Happy Holidays!!

Waiting Periods After Derogatory Credit Items – Bankruptcies

October 30, 2017

In the last post, we looked at how lending guidelines require specific waiting periods for different types of “derogatory items” on a borrower’s credit report.  Then we zeroed in on waiting periods following a property foreclosure.  In this post, we will cover the waiting periods required after bankruptcy filings.  As with foreclosures, the different mortgage types specify different waiting periods.  The waiting periods also vary by the type of bankruptcy filed – Chapter 7 or Chapter 13.

Let’s start with Chapter 7 – the required waiting periods are as follows:

  • FHA – 2 years from the discharge date
  • VA – 2 years from the discharge date
  • Conventional – 4 years from the discharge or dismissal date
  • Jumbo – 7 years from the discharge date

The waiting period calculations get a bit more complicated with Chapter 13 bankruptcy filings.  The Chapter 13 waiting periods are as follows:

  • FHA – 1 year from the start of the payout period, as long as the borrower has made all required payments on time.
  • VA – 2 years from the discharge date, or if the Chapter 13 is in repayment, the Trustee must document satisfactory payment history for 12 months of the payout period and the court must give permission to enter into a mortgage transaction
  • Conventional – 2 years from the discharge date or 4 years from the dismissal date
  • Jumbo – 7 years from the discharge date.

So ultimately the good news here is that you don’t have to wait “forever” to apply for a new mortgage after a bankruptcy – unless of course you want a jumbo loan.  (7 years is a long time to wait.)  As always, FHA and VA loans are more “forgiving” of past credit problems.

Do you or someone you know have a bankruptcy in your past and now want to buy a home?  It may be possible to make it happen.  Be sure to work with a lender who will ask detailed questions and help coach you to the best option for your specific situation.  I’ve recently closed loans for multiple clients “bouncing back” after a bankruptcy.  It brings joy to close that loan and help my clients reach another financial milestone following their struggles.  Call me at Dunwoody Mortgage and let’s determine the best option for you or whomever you know with a past bankruptcy.


Georgia’s TV and Film Industry is Booming. Forget Hollywood! Put Down Roots Right Here.

October 26, 2017

On your commute today, you probably passed a yellow TV or movie production sign – they are that common around Atlanta these days.

Look at the numbers:

  • FilmLA says Georgia is the #1 filming location in the world.
  • 320 film & TV productions will be shot here in 2017, generating $9.5 billion in direct spending.
  • The Motion Picture Association of America reports that more than 28,600 Georgians are directly employed by the film industry, while an additional 12,500 people work in production-related jobs.

The movie business may be kind to Georgia, but the mortgage industry traditionally hasn’t been kind to movie makers.

Film and TV studio workers may earn great livings, but they often have irregular employment schedules. Their employer of record can change with each project, and that’s a big red flag for mortgage underwriting. When it comes time to get financing for a home, regularly employed studio employees may be denied because they can’t demonstrate the stable income underwriters demand.

Until now.

I have access to a new loan program that can ease the way to home ownership for film & TV union members. The qualification requirements are simple.

Union members:

  • Who receive W-2s as salary employees
  • Who have two full years of filed tax returns in the film & TV industry

Underwriting will view the union as the employer, rather than the studio, and the union will be able to verify length of employment. The qualifying income will be based on the monthly average income. The borrower will still produce pay stubs to document current year earnings.

If you know someone in the film & TV industry who complains about renting or apartment life, please forward this email.  They may finally be able to put down roots in the new movie mecca.


Waiting Periods After Derogatory Credit Items – Foreclosures

October 24, 2017

Our nation’s economy has shown positive growth for several years now, following the Great Recession.  Many folks who were hit hard during the recession have rebounded and are doing well now.  Back when times were tough, they may have faced financial crises like home foreclosures or bankruptcies.  These financial crises appear as “derogatory items” on a credit report.

So let’s say your cousin Phil went through a really tough stretch financially.  But he persevered, got that new job, has been paying his bills on time and is saving some money.  He asks you if you think he can win mortgage approval now so he can buy a new home.  Like most people, you really don’t know how to counsel Phil, until now!

You can tell Phil that certain derogatory credit items carry mandatory waiting periods – he must let a specific amount of time pass before he can apply for a new mortgage.  There are different waiting periods for foreclosures, bankruptcies, and short sales.  And the waiting periods also vary by the type of loan Phil can get – FHA, VA, jumbo, or conventional.

Let’s start with a foreclosure.  Phil wasn’t able to make his home payments and the bank foreclosed.  Here are the required waiting periods by loan type:

  • FHA – 3 years
  • VA – 2 years
  • Conventional – 7 years, unless the foreclosure was part of a bankruptcy, in which case the wait is 4 years
  • Jumbo – 7 years

It is important to note that the waiting period “clock” starts when the foreclosure deed is recorded with the county.  In some cases, it may take the foreclosing bank several months to document and record the foreclosure deed after seizing the property.  So as a borrower with a past foreclosure, Phil needs to understand that the waiting period clock does not start on the date that the bank seizes the home.  I have run into situations where the bank took quite a few months to record the foreclosure deed, and this little date detail almost delayed the new mortgage.  Many times, the borrower may not know when the prior bank filed the deed after the foreclosure; however, this information is public record and most counties have the data available online now.

We will look at waiting periods after bankruptcies in the next post.  For now, if you or someone you know is like Phil and wants to buy a home, but has a past foreclosure, please refer them to me at Dunwoody Mortgage.  I will pay close attention to the details and even look up the old property online, if necessary, to make sure the borrower meets all lending guidelines.  Don’t waste time looking for a home until you have a high degree of confidence you can close!  I’ll work with you up front to give you the confidence you need.

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.


Helping Relatives Buy a Home – Cash Gifts

September 19, 2017

Our recent posts have debunked home buying myths and reviewed tools that can help young adults (or any other home buyers) buy a home.  To recap, buyers can often win mortgage approval with down payments of 5%, 3.5%, and even 3%, if the buyer qualifies.  If the buyer is short on cash to close, there are multiple ways to help cover the cash shortfall.  In this post, let’s review how a home buyer can receive a cash gift from a relative.

First and foremost, the gift must come from a current relative such as a spouse, parents, siblings, grandparents, aunts, uncles, etc.  I have encountered a situation where an ex-spouse was willing to give money for closing, but that is not allowed.  The ex-spouse is no longer considered a “relative” so that will not work.

Secondly, the cash provided must be a gift given to the home buyer.  This cannot be a loan.  Both the giver and recipient must sign documents declaring that the cash is truly a gift and no repayment is expected.  We call this the “gift letter” and it specifies details about the giver, the recipient, the relationship, the gift amount, the gift date, and the source of the gift funds.

Thirdly, we must document a “paper trail” to win underwriting approval.  The documents required depend on HOW the gift is delivered to the recipient.  In all gift situations, the giver must submit their most recent bank statement showing that they have the funds to make the gift and that the account truly belongs to them.  In addition, other documents can be required depending on the gift delivery, as shown below:

  • The giver can wire the funds directly to the closing attorney.  In this case, only the gift letter and the bank statement described above are needed.
  • The giver can electronically transfer the funds to the recipient’s bank account.  In this case, the giver must show a bank account activity listing showing the funds transfer and the recipient must show a bank account activity listing showing the deposit, in addition to the gift letter and bank statement.
  • The giver can write a check to the recipient.  In this case, the borrower must submit a copy of the gift check in addition to all other gift documents described above.

The key here is advance planning to make sure all documents are ready and submitted in a timely manner so the loan can close on time.

Do you know a parent of an adult child who wants to help that child buy their first home?  Refer them to me at Dunwoody Mortgage. We will make sure document the gift right the first time, so everyone can be happy with an on-time closing.

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.