Posts Tagged ‘mortgage blog’

Mortgage Rates and the Second Part of the Fed’s Announcement

June 23, 2017

The Federal Reserve’s announcement last week that it was increasing the Federal Funds rate included a second statement regarding the Fed’s bond holdings.  The Fed began buying Treasury and mortgage bonds after the Great Recession to lower long-term loan rates.  In the process, the Fed increased its debt holdings by over five times the previous balance – to over $4.5 trillion.

As part of last week’s announcement, the Fed said it will allow a small amount of bonds to mature without being replaced.  The Fed also said this amount will gradually rise as markets adjusted to the process.  Experts stated, “This process could put upward pressure on long-term borrowing rates.”

With the Fed out of the bond-buying business, the overall demand for Treasury bonds and mortgage backed securities will decrease.  A reduction in the demand for these investments should cause their prices to fall.  Remember that when values of mortgage backed securities fall, mortgage rates rise.

 

That is how the second component of last week’s Fed announcement can push mortgage rates higher.  Not by increasing the Federal Funds Rate, but by no longer buying bonds (and also possibly selling the bonds they already own). We could be entering an environment of lowering bond values and rising mortgage rates.

We can assume that Fed will be careful not to shock the markets too dramatically, so we don’t expect rates to dramatically increase. The goal of the Fed would be to complete the second part of their statement without pushing mortgages rates up.

That being said, mortgage rates are currently at their lowest levels of 2017.  Now is a great time to buy a home – from a mortgage perspective.  If you are looking to buy in Georgia and you want focused service with a keen attention to detail, call me at Dunwoody Mortgage Services.  We will do as much of the “heavy-lifting” as possible so your mortgage experience is as pleasant as possible.

 

How Fed Decisions Could Affect Mortgage Interest Rates

June 19, 2017

Yesterday, the United States Federal Reserve increased its short-term interest rate by 0.25%.  From a historical perspective, the “Federal Funds Rate” is still very low.   Many people assume that this increase in the Federal Funds Rate means that mortgage interest rates will rise too.  Not so fast…it’s possible that the opposite could happen.  When the Fed raised this rate in December 2015, mortgage interest rates declined in the weeks following the announcement.  Mortgage interest rates remained very low throughout 2016 until immediately following the Presidential election in November.  The Fed raised rates again in December 2016 and March 2017.  Current mortgage interest rates are about 0.5% lower than their level when the December 2016 Fed rate increase occurred. 

Why do mortgage rates sometime move in opposition to the Federal Funds Rate?  It’s complicated, but at a high level, mortgage interest rates tie more closely to the investment markets than to the Federal Funds Rate.  The majority of American home mortgages are purchased by Fannie Mae and Freddie Mac.  Fannie and Freddie then “package” these mortgages into mortgage-backed securities (MBS).  They then sell these MBS as investments. 

So insurance companies, mutual fund companies, and other large investors then buy and sell MBS as a component of their larger investment portfolios.  That means that the MBS must compete with other investments for investors’ attention. 

Many times, if the market for equities increases (as reflected by indices like the Dow Jones or NASDAQ), mortgage interest rates will also increase to keep MBS competitive with the equities.  Similarly, if interest rates on certain Treasury Notes and other bond-type investments increase, mortgage interest rates will follow suit.

Ultimately, it means that in many cases, an increase in the Federal Funds rate does not automatically mean that mortgage interest rates will increase too.  If the stock market reacts negatively to the Fed’s decision or other economic news, mortgage rates can decrease even though the Federal Funds rate has increased. 

Yesterday’s Federal Reserve statement also included another announcement that could affect future mortgage interest rates.  The Fed stated that it will begin reducing its huge holdings of Treasury and mortgage bonds.  Let’s talk about the mortgage impacts of that announcement in another blog post next week.

For now, if you, a friend or family member wants to buy a house and fears that home price appreciation and interest rate increases will hurt your ability to buy, give me a call at Dunwoody Mortgage to discuss your options.  We offer VA, FHA, conventional, jumbo, and Home Ready loans – we offer a mix of mortgage products that can help different buyers’ differing situations.   I would love to explore your options with you.

Geographic Income Limits for Home Ready Program

May 1, 2017


One potentially limiting aspect of the Home Ready program is that income limits are specified by census tract.  (Notice I said “potentially.”  We will get back to that point very soon.)  To qualify for the program, the borrower’s income must be less than or equal to the income limit set for the geographic area of the subject property.  Fannie Mae specifies and publishes the geographic income limits as part of the program.  Many areas in Metro Atlanta have an annual income cap of $67,200, but there are many other areas that do not have an income limit.  Now back to the word “potentially.”  If the home you want to buy lies in a no-income-limit area, you could make a million dollars per year or even per month and still qualify for a Home Ready loan for that house.

Two key points to remember here:  First of all, the income limits are based the subject property’s location, so you can have varying income limits in different parts of the same county.  In fact, the eligibility maps go down to the street level, which means that houses on one side of a street could carry a $67,200 income limit and houses on the other side of the same street could have no income limit.  Secondly, the income limits apply only to borrowers on the loan.  If two employed people plan to live in the home, but only one of you is on the loan, then the other occupant’s income does not count toward the income limit.  Of course that means that the sole borrower must qualify for the loan using his or her income only.   

So how can you determine whether you qualify for the Home Ready program’s low down payment / low-interest rate / low mortgage insurance benefits?  You can call me at Dunwoody Mortgage!!  We will first discuss your income and the geographic area where you want to buy.  I can look up the area online and determine whether your income qualifies for Home Ready in that area.  If you meet the geographic income limits, we will complete your loan application, pull your credit report, and run your application through our Automated Underwriting System (“AUS”).  The AUS findings will then determine if you do qualify for Home Ready’s great benefits. 

Buying a house in Georgia and curious whether you can obtain a Home Ready loan?  Give me a call and we will review Home Ready and your other loan options.  Don’t think you will qualify?  We at Dunwoody Mortgage have secured loans for many customers who initially thought they would not qualify.  Don’t assume you cannot win loan approval!  Call me and let’s discuss your situation.  We might just surprise you!! 

 

 

 

Down Payments Basics for Home Buyers

February 23, 2017

Blog HeaderA recent home ownership survey showed that 3 times more first time home buyers than repeat buyers say they lack enough money for a down payment.  Perhaps this is due to folks not truly understanding down payment requirements.  Many people believe you must make a 20% down payment to buy a home.  That is a myth!! 

Home buyers can purchase a home with as little as 3.5% down for a FHA loan.  Depending on your credit score and available cash, you may be better off going with a 5% down conventional mortgage.  In certain cases, you may be able to qualify (depending on your income and geographic area) for the low interest rate, low cost mortgage insurance “HomeReady” program, for as little as 3% down.  (Certain geographic areas have no income requirements.)

So what if you don’t even have 3% – 5% available for a down payment?  Are there options?  The first question for you is, “Do you have a relative who can give you the down payment?”  If you do have a loving person who will give you the down payment, we can use that with the proper documentation.  Note that the giver must be a blood relative or a spouse.  Generous ex-spouses are not considered family members so they cannot provide a gift.

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If you lack the available cash and you don’t have a giving relative, do you have a 401K or similar retirement account?  Depending on your plan’s rules, you may be able to borrow against your account to help fund your down payment.  Talk with your plan administrator for the details.

If these options are not available to you, you may need to wait and save.  But the time needed to save 3% to 5% is much better than saving for the 20% many people think is required.  Note that you must have 20% to avoid mortgage insurance, but if you can handle the mortgage insurance included in your monthly payment, you can buy a home with much less than 20% down.

Do you need coaching on the best loan / down payment option for you?  That’s what I do!  Call me at Dunwoody Mortgage.  Together we will evaluate your situation, review your options, thus allowing you to make the best decision for you and your family.

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Planning Your Home Purchase While Renting

February 16, 2017

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

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

landlord

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

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

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

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Credit Reports and Qualifying for a Mortgage #2

October 12, 2016

The last post covered the credit score component of a credit report.  But remember, there is much more to a mortgage credit report than just the score.  After looking at a client’s credit score, I next review any public record filed against the client (let’s call him “Matt”) in a court of law.  These include liens, judgements, foreclosures, and bankruptcies.  How do these items affect Matt’s ability to win loan approval?

  • Liens – A tax lien is a big red flag. The IRS doesn’t play around when it comes to collecting money you owe them.  And lenders don’t want to get in line behind the IRS when it comes to collecting payments.  If Matt has a tax lien, he will likely need to pay it off before we can win loan approval.  We may be able to win loan approval if Matt has a tax lien, but it will take some extra work.
  • Bankruptcies – Bankruptcies stay on a credit report for 7 years.  Matt cannot obtain a conventional loan for 4 years following the bankruptcy discharge date (the date when Matt was officially released from personal liability for debts included in the bankruptcy).  For FHA loans, the waiting period is 2 years after the bankruptcy discharge date.  There are some differences in how we treat Chapter 13 vs. Chapter 7 or 11 bankruptcies.
  • Foreclosures – Foreclosures also stay on a credit report for 7 years.  It is possible to win loan approval even with a foreclosure.  For conventional loans, a 7 year waiting period is required.  For FHA loans a 3 year waiting period is required.  And note that the clock starts when the foreclosing bank sells the old house to someone else.  Not when the bank first takes the house.
Gavel with money background

Gavel with money background

  • Short Sales – Once again, short sales stay on the report for 7 years. A short sale occurs when a loan servicer agrees to the sale of a property by the borrower to a third-party for less than the outstanding mortgage balance.  Waiting periods are 4 years for a conventional loans and 2 years for FHA loans.
  • Legal Judgments – Outstanding legal judgements must be paid off prior to or at closing.  Note that we can include payment of Matt’s legal judgments as part of the closing itself.

There is much more to a credit report than just the score.  When a lender pulls your report and quickly says “you qualify,” he or she might be doing you a disservice.  You want a lender who will take some time to look closely at your report, and deal with any potential issues up front.  If you plan to buy a home in Georgia and expect your lender to invest time in the details, call Dunwoody Mortgage Services.  We will help you avoid surprises.

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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!

Streamline Definition

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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Declining Asset Loan Option

May 16, 2016

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In the last post, I commented on a situation where a retiree with over half a million dollars in a brokerage account could not count his $4,000 monthly withdrawals from that account as “income” for a mortgage qualification.

So here’s what he can do with his current assets….I represent an investor who will do a “declining asset” loan for this retiree.  (Not all lenders will do this type of loan.)  We start with his account balance and multiply by 70%.  This is to adjust the balance for potential stock and bond market fluctuations.  That gets him to $350,000.

Then to fit this amount into a 10 year monthly income forecast – I divide by 120 months.  That yields about $2,915 per month in available income.  And that is all the “income” I can use based on his assets.

Retirement Income

This retiree told me that he had been “prequalified” by another lender for the full $4,000 “income” that he withdraws every month.  I asked, “Did that lender ask you any questions about HOW you earn your income?”  His response was, “No.”

We at Dunwoody Mortgage are trained to ask important questions up front.  By digging in just a little bit, we might discover potential underwriting road blocks early in the process.  Then we can either determine a way to work through the road blocks or stop the process early, before the buyer and the Realtor waste a lot of time and the buyer’s money (for home inspections, appraisals, etc.) on starting the home purchase process when they cannot win underwriting approval.  His Realtor was very appreciative that I helped him avoid wasting a lot of time searching for houses that this retiree could not afford.

If you know a retiree who is thinking about buying a home in Georgia, tell them to carefully consider how their assets are allocated and how they receive their income.  Not all assets and income are treated equally.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their options and we can even help them coordinate with their financial planner if necessary.  I can help them structure the deal right the first time – without wasting their time on homes that they cannot buy using their current asset accounts.

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When You Can’t Use Assets as “Income”

May 9, 2016

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I’ve been talking this week with Don (not his real name), a retiree from the Northeast who wants to move to Atlanta to be closer to family.  Don has over $500,000 in an investment account and takes out $4,000 every month for living expenses.

And I cannot count these previous monthly distributions as “income” for mortgage purposes.  Don holds his money in a standard brokerage account.  Lending guidelines will not allow use of historical withdrawals from that type of account as a basis for “income.”

Piggy Bank #2

If Don held these funds in a retirement account – an IRA or 401K account – then we might be able to use his historical distributions as a basis for income.  (More about that in a future post.)

Don has found a house that he really likes, but his allowable income will not support the mortgage payments.  I may have to recommend that he buy the house with cash.

If you know a retiree who is thinking about buying a home in Georgia, tell them to carefully consider how their assets are allocated and how they receive their income.  Not all assets and income are treated equally.  Have them call or email me at Dunwoody Mortgage Service.  We will discuss their options and we can even help them coordinate with their financial planner.  I can help them structure the deal right the first time – without wasting their time on homes that they cannot buy with using current asset accounts.

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Origination Fee vs Origination Charge

May 15, 2012

Some new vocabulary came along the new good faith estimate that was introduced in 2010. For anyone who has never been through the loan process before, the terminology change didn’t really matter too much to them. On the other hand, those who got a mortgage prior to the change (and are buying/refinancing now) find the new terms a bit confusing.

These new terms have been around for a couple of years now, but I’m hearing this question more often these days… “‘Origination Fee’ and ‘Origination Charge’… they mean the same thing, don’t they?”

They are similar, but not exactly the same. Let me explain.

  • the origination fee is the traditional one point fee that is paid to the mortgage broker/bank for originating the loan.
  • the origination charge includes all lender fees. This would include any underwriting fee, processing fee, and the origination fee.

Almost all of my clients who are refinancing now are choosing to not pay an “origination fee,” yet they are still seeing an “origination charge.” How does a consumer know they are not paying an origination fee as part of the origination charge?

Look at the good faith estimate. If they origination charge (Box A) is around $1,000, it is highly unlikely it contains an origination fee. Let me give an example.

Suppose you have a loan amount of $200,000, and your loan officer says there is not an origination fee on this loan. There is an origination charge of $1,000 listed in Box A on the good faith estimate. Since the underwriting fee is around $750, and there may be an office processing fee of $250, those two add up to $1,000. That would be your origination charge. There isn’t any room in that figure for the origination fee.

In short – you can have an origination charge without an origination fee, but you can still get loans without the traditional 1 point origination fee.

If you have questions, make sure your loan officer takes time to explain the differences to you. If your loan officer won’t take the time, and the property you are trying to purchase/refinance is in Georgia, I’ll be happy to take the time to explain the differences. To get started, here’s how to find me.