Posts Tagged ‘mortgage blog’

Tax Advantages for Down Payment Savings?

August 13, 2020

I am very excited about this news.  A bipartisan group of Washington legislators has introduced the American Dream Down Payment Act of 2020.   If enacted, this bill would create special tax-advantaged savings accounts for eligible housing costs.  The goal is to create down payment savings accounts similar to the 529 college education savings accounts.  As a parent of college-aged children, I can say from experience that the 529 accounts have been a real blessing for my family.  I think the tax savings are a great incentive to get potential home buyers saving for a purchase.

Alabama Senator Doug Jones stated, “Down payments are the biggest barrier to homeownership for first-time homebuyers, especially among low-income and minority Americans, and make it harder to build generational wealth that is often tied to home-ownership. Our legislation would provide a new path to help make the dream of buying a home a reality by making it easier to save money for down payments and other housing-related costs.”

Colorado Senator Cory Gardner said, “A down payment on a home can be a significant barrier to becoming a homeowner.  Inspired by the popular 529 education savings accounts, this bipartisan bill will make it easier for people to save for a down payment.”

The bill’s sponsors cite a survey of renters that shows two-thirds view a down payment as a significant barrier to home ownership.  Saving for a down payment can be harder with rising rents and student loan debts.  Under the American Dream Act, states would establish the accounts and manage them like they manage 529 accounts today.  The bill would allow potential home buyers to save up to 20% of today’s housing cost to use for eligible down payments and other housing costs.  The bill would also allow family and friends to contribute to the accounts, the earnings from which could be used tax-free when withdrawn for eligible housing expenses.

The National Association of Realtors, Habitat for Humanity and the National Association of Real Estate Brokers all support this legislation.

I will now reiterate a statement I made in a recent blog post, a 20% down payment is not required to buy a home.  Many home buyers obtain conventional loans with only a 5% down payment – even 3% down if they are willing to pay a higher interest rate.  And there are income-based conventional loan programs that offer discounted interest rates and mortgage insurance for a 3% down payment – for those buyers who qualify.  Home buyers can obtain 3.5% down FHA loans.  And military veterans can buy a home with a zero down VA loan.  Many potential home buyers might be able to purchase a lot sooner than they think.

Do you know someone (a friend or family member) who wants to buy a Georgia home, but who is afraid she won’t qualify?  Connect your friend or relative with me.  I’ll help her understand where she stands regarding qualifying for a home purchase.  And, if necessary, I will help her plan for a future home purchase when she is ready, perhaps using a new American Dream account.

School Districts, Property Values, and Covid

August 11, 2020

Historically, the quality of the local school district has had a significant impact on home values.   The National Association of Realtors (NAR) reported over a quarter of 2019 home buyers considered school quality as an important factor when buying a new home, and also reported that over one half of home buyers with children move based on school districts alone.

Is Covid causing any new trends?  Well, according to a recent HousingWire article, virtual learning in our pandemic world could significantly reduce the impact of school quality on a home’s value.  According to the article, home buyers now give greater weight to other non-school factors due to COVID-19.  As mentioned in a previous post, 2020 home buyers focus more on outdoor space and home office space.  We will have to see how permanent this trend becomes, but right now given virtual school and virtual work, proximity to school and work is no longer as important as before.

One San Francisco Realtor noted that school quality was a consideration in 100% of 2019 home purchase transactions.  To repeat, school was important in every transaction regardless of the buyer’s age and stage in life.  That same Realtor says that now, school quality is not coming up anymore.  “Like zero.  People aren’t even talking about schools.”

A Massachusetts Realtor reported that now, his clients are focusing on suburbs and homes with yards.  He reported that with a focus on yards and home offices, home buyers are willing to compromise regarding the area schools.  The trend, for now, is a focus on space, not school district.

Does the pandemic make you want a nice yard to entertain friends (social distancing of course), or do you need a home with more room for a home office and virtual learning?  If you answered “Yes,” and you live in Georgia, give me a call.  Interest rates are at historic lows, so now is a GREAT time to buy a home.  I will work with you and your Realtor to give you the best possible mortgage experience, getting you into a pandemic-friendly home as soon as possible.

Millennials and Home Ownership

July 30, 2020

Millennials are the largest generational group in US history.  This year, the largest section of Millennials will turn age 30, entering what many consider to be “prime homeownership years.”  So how is the pandemic impacting these potential home buyers?  Two recent studies have addressed this topic.

The first, by First American economist Mark Fleming is more optimistic than the second.  Fleming states that the pandemic has delayed, but not denied, homeownership for Millennials.  He notes that household formation is a key driver of home demand, and that the Millennial generation is making lifestyle decisions that “will continue to support potential homeownership demand in the years ahead.”  He further states that Millennials “may fuel a ‘roaring 20’s’ of homeownership demand.”  As a loan officer, I love optimism in the housing market!

On a less optimistic note, a realtor.com report stated that pandemic-related unemployment could further delay Millennials’ homeownership dreams.  It expresses concern that unemployed potential homebuyers will live from their savings.  And it could take them years to recoup their savings once the go back to work.  The article then references how a 10% down payment on a $320,000 home (the median list price of a US home in April), is $32,000.  Ultimately, it can take people months, if not years to save tens of thousands of dollars for a down payment.Here’s the good news related to down payments – a 10% down payment is not required.  Many home buyers obtain conventional loans with only a 5% down payment – even 3% down if they are willing to pay a higher interest rate.  And there are income-based conventional loan programs that offer discounted interest rates and mortgage insurance for a 3% down payment – for those buyers who qualify.  Home buyers can obtain 3.5% down FHA loans.  And military veterans can buy a home with a zero down VA loan.

While obtaining a mortgage with a less than 20% down payment requires paying for mortgage insurance (except for VA loans), my opinion is that paying the mortgage insurance to buy a house sooner is often better than waiting and paying rent.  As long as home prices continue appreciating, the homeowner will likely build wealth even if they have to pay the mortgage insurance.  And in my opinion, growing wealth is superior to expense only home rental payments.

Are you or someone you know a Millennial wanting to buy a home in Georgia?  I would love to help.  We can explore low down payment and other options to help you buy a home (and start growing your wealth) sooner rather than later.  Give me a call and let’s get started.

 

COVID Could Negatively Impact the Rental Market

June 18, 2020

It’s fascinating to see studies about how the pandemic could impact the future residential real estate market.  The latest Mortgage Blog post noted that many city dwellers are now considering a move to the suburbs.  Here’s another impact:  A recent renters survey showed that 35.9% of all renters say they likely will not renew their lease, while another 38% are not sure or are somewhat likely to renew their lease.  Most striking is that 41.6% of renters who pay $1,750 or more per month say they will likely not renew their lease.  The article states that apartment fitness centers, pools, and clubhouses closed due to the pandemic contributed to this renter sentiment.

As someone who likes growing my net worth, I must say this survey makes sense to me.  At today’s historically low interest rates, it is possible for someone in the Atlanta area to buy a $300,000 home with a 5% down payment, and have a mortgage payment of only about $1,750 per month.  (This assumes a 3.5% interest rate.)  With a monthly rent payment, the entire amount is an expense.  Renters do not build wealth from their residence.  But a home buyer begins building her net worth with her first mortgage payment.  For the scenario mentioned here, the very first mortgage payment includes $448.53 of principal, or equity in the home.  So only $1,302 is an expense.  That seems like a better use of money to me.

And, given recent home price appreciation, it is reasonable to assume that an owner’s home will appreciate over time, building additional wealth.  So home owners build wealth with appreciation over time and with each payment.  My question is, “Why would someone pay $1,750 in monthly rent when they could own a $300,000 home instead?”  I suppose I can understand if people love their apartment’s amenities or if they don’t want to deal with home maintenance issues.

But many people believe myths that make them think they cannot buy, when they actually can.  One myth is that a buyer must make a 20% down payment.  I have closed many mortgages where the home buyer made only a 3% down payment.  And I’ve closed VA loans where the borrower paid $0 down.  To fund 3% down payment a buyer can get a gift from a relative or perhaps borrow from a 401K account.  Another myth people believe is that they must have “great” credit.  Even in the pandemic world, we can close mortgages for people with a 620 credit score.  And there are ways to improve a credit score over time.

Would you like to grow your wealth every month with homeownership in Georgia instead of making an expense-only rent payment?  If yes, contact me today.  We can start planning now to help you buy a home as soon as possible.

 

 

Updated News Regarding Mortgage Forbearance….

June 3, 2020

In late April, the Mortgage Blog reported on mortgage forbearance impacts to home owners.  But policies change quickly in our 2020 pandemic world, so it is now time for a forbearance policy update.

The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, recently announced that borrowers who have opted for forbearance can now refinance or buy a new home much sooner than previously thought.  On May 19, FHFA stated that borrowers can obtain a new conventional mortgage after making three straight months of payments following the end of their forbearance period.  Before this announcement, the policy was unclear and many experts thought that homeowners would not be able to obtain a new conventional loan for 12 months after exiting forbearance.

Fannie Mae clarified two other policy details:

  • Borrowers who missed payments due to a COVID-19 financial hardship but have repaid the full amount of the missed payments will have no waiting period to obtain a new mortgage.
  • Borrowers who requested forbearance but did not actually miss a payment will also have no waiting period.

FHFA Director Mark Calabria said, “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”

Ultimately, these announcements are positive for the industry, but they do not make me change my recommendations from the prior forbearance post.  Those are: (1) If a borrower cannot make a mortgage payment, forbearance is a better option than a late payment or default, and (2) Forbearance is not a wise move for someone who still earns enough to make timely mortgage payments.  Using forbearance to skip payments to save for something else such as a down payment on an investment property will still cause the borrower to wait before obtaining a new mortgage.  Only now, the wait will not be as long as previously thought.

Do you have a friend who keeps talking about the current historically low interest rates but hasn’t taken action yet?  Connect your friend with me and I’ll help them navigate our pandemic-minded guidelines to close a new mortgage and realize potentially great monthly savings with a low rate.

Pandemic Impacts to Self-Employed Borrowers

May 19, 2020

In the world of mortgage origination and underwriting, the greatest focus is limiting risk.  COVID-19 has caused underwriting guidelines to get a little tighter as millions are unemployed, furloughed, and going into a forbearance status on mortgage payments. Today, I’ll focus on the tighter guidelines for self-employed buyers.

The guidelines can change depending on the lender you use. For example:

  • One lender now requires that self-employed borrowers asset statements show 6 months of “reserves” to cover mortgage payments after closing.  That means that the borrower’s bank statements must show enough available cash, after closing, to cover 6 months of mortgage payments.
  • One lender now requires an audited profit and loss statement from the most recent month to verify recent business performance (The word “audited” got my attention and I don’t believe I’ll be working with them on self employed buyers anytime soon).
  • Another lender now requires the following for self-employed borrowers:
    • Year to date profit and loss statement showing income consistent with previously filed tax returns.
    • Most recent three months of bank statements showing deposits consistent with sales / gross receipts specified on the P&L statement.
    • If the monthly statements show declining deposits, the underwriter will determine if the revenue decline results from an interruption from COVID or some other reason.  Ultimately, the underwriter will want to determine that the income is “stable and likely to continue” before approving the loan.

 

In this economy, it is wise for self-employed home buyers to review their filed tax returns and recent business performance and bank statements with their loan officer before searching for new homes.  A loan originator who understands new underwriting guidelines and will take the time to review details up front can save borrowers time, money, and potential disappointment.

Working at Dunwoody Mortgage, I represent some national mortgage companies that have not implemented stricter standards for the self-employed.  If you know a self-employed person who wants to buy a home in Georgia, please connect that person with me.  I will invest the time needed to best position the self-employed for underwriting approval in this changing and challenging mortgage world.

 

Mortgage Forbearance in the Covid-19 World

April 28, 2020

Many aspects of our daily lives continue to be impacted by Covid-19. From social distancing, no going out to eat, job furloughs, job layoffs, to the Paycheck Protection Program, I could go on and on.  Here at The Mortgage Blog, let’s continue to focus on Covid’s impact in the mortgage world. One important topic right is now mortgage loan forbearance.  In this post, we will explain what forbearance means and its potential implications for homeowners.

A recent Wall Street Journal article defined forbearance as follows, “The stimulus package that Congress passed in March allows homeowners with federally-backed loans to suspend monthly payments for up to a year without penalty, if they face financial hardship.”  Forbearance is when the mortgage servicer allows the borrower to pause or reduce monthly payments for a specific time period.  Forbearance does not erase the payments owed.  The borrower must repay the missed or reduced payments at a future date.  Ultimately, forbearance is not a grant with no strings attached like other stimulus components.

As the article also notes, the law does not specify how loan servicers must handle loans when forbearance ends.  Some borrowers are hearing that their loan servicers may require a balloon payment when forbearance ends.  Other loan servicers have proposed adding the delayed payments (and accrued interest) to the loan balance, thus requiring full repayment when the loan is eventually paid in full.  At this point, the federal government has not issued guidelines, so homeowners are hearing different solutions from different servicers.

Here are some important thoughts about forbearance.  First of all, if a homeowner cannot make a mortgage payment due to a job loss or income reduction, forbearance is a better option than a late payment or default.  It would be wise for homeowners who cannot pay to contact their loan servicer about forbearance.  But know that forbearance may impact the borrower’s credit.  Forbearance is better than late or missed mortgage payments, but the forbearance status is noted on a credit report.  Lenders may consider forbearance status when applying for a home loan. For example, a potential borrower must be current on their mortgage payments to apply for a conventional loan. While the CARES Act states a credit score should not be negatively impacted by forbearance, being in forbearance could still be considered in evaluating the overall credit risk of the borrower.

In other words, forbearance is not a wise move for someone who still earns enough to pay the mortgage.  Borrowers with the ability to pay should not see this as an opportunity to skip payments. For those considering using forbearance to skip mortgage payments and save money for a down payment, this is not a wise strategy. Those doing something along these lines may be sad to learn they may not be approved for a mortgage on the new home.

Ultimately, if a borrower still has their job, the wisest move is to keep making mortgage payments.  If someone finds themselves laid off or furloughed and cannot pay, forbearance is better than late or missed mortgage payments.

Do you know someone who wants to buy a home in Georgia?  If so, please refer them to me.  Dunwoody Mortgage will help home buyers navigate the new more stringent loan guidelines to successfully close on a house soon.

How Relatives Can Assist Home Buyers…

April 16, 2020

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

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

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

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

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

The Mortgage World and COVID-19…

March 26, 2020

The Mortgage Blog has documented the recent rapid swings in mortgage interest rates based on COVID-19 economic impacts.  Now let’s look at some positive (non-interest rate) news from the mortgage world, specifically regulatory changes resulting from the massive disruption to the world economy.

First of all, Fannie Mae and Freddie Mac will ease their appraisal and employment verification standards, based on a Federal Housing Finance Agency directive.  The goal is to “facilitate liquidity in the mortgage market during the coronavirus national emergency.”  Appraisal management companies can now use “appraisal alternatives” that reduce the need for appraisers to enter homes “for eligible mortgages.”  Appraisers can use desktop appraisals and drive-by appraisals in certain circumstances.  Fannie Mae stated these alternatives may be used “when an interior inspection is not feasible because of COVID-19 concerns.”

The second source of good news is from financial regulators working to help borrowers avoid foreclosures.  On March 17, Fannie Mae, Freddie Mac, and HUD (FHA’s loan guarantor) announced that they will suspend foreclosures and evictions for 60 days to help borrowers stay in their homes while COVID-19 spreads.  The State of New York went further, as Gov. Andrew Cuomo announced that the state will enact a 90-day mortgage relief period.  Options for relief include forebearance, which allows borrowers to suspend mortgage payments for up to 12 months due to COVID-19 caused hardship.  Other options may include mortgage modifications and “other mortgage payment relief options available based on the borrower’s individual circumstances.”

I find this mortgage-market news encouraging, and hopefully it will reassure people considering a home purchase.  Just a reminder if you are thinking about a home purchase – interest rates are at very low levels historically.  From a mortgage perspective, now is still a good time to buy a home.  If you want to buy a home in the State of Georgia, reach out to me.  I promise that Dunwoody Mortgage will deliver outstanding service and will go the extra mile to close your purchase as quickly and with as little hassle as possible.

Mortgage Interest Rates Continue Falling

February 18, 2020

Mortgage rates – already at near historic lows – continue to improve.  Current interest rates are basically a full percentage point lower than this time last year.  I’ve recently locked clients into rates lower than I’ve ever had the privilege of doing in my entire career as a loan officer.    

What factors allow rates to continue improving?  One key component is the continuing spread of Coronavirus and the fears related to this public health concern.  In times of fear and uncertainty, investors typically move money to less-risky investments.  Given the fear and uncertainty related to coronavirus, investors have recently been doing this very thing.  Investors have been putting more money into US government bonds.  This drives bond prices up and interest rates down.  The US 10 Year bond trended upward from August 2019 until December.  Since then, the interest rate on this bond has moved consistently downward.

Investors consider mortgage backed securities to have a risk profile similar to US government bonds, so mortgage interest rates have declined along with rates on government bonds.  So mortgage rates now sit very close to historic lows.

How long will these low rates last?  That requires a crystal ball and I don’t have one.  If health officials can control the coronavirus spread and ease public concerns, perhaps rates will start moving higher again.  But looming over the entire situation is the 2020 Presidential and Congressional elections, which could bring more uncertainty to offset any positive news on the coronavirus front.

The bottom line is this:  Home owners who purchased or refinanced in 2017, 2018, or the first half of 2019 may have a great opportunity now to lower their interest rate by refinancing.  And home owners with FHA loans a couple of years old may be able to refi to a conventional loan now and lower or eliminate their mortgage insurance premiums.  Some of my clients have lowered their monthly payments by over $200 a month.  One even lowered her payment by over $300 a month.  Did I just describe you or a friend you know?  If yes, call me (or tell your friend to call me) to discuss refinancing now, before rates start increasing.  Don’t miss out on potentially large savings.