Posts Tagged ‘prequalify’

Republican tax plan and mortgage rates

December 12, 2017

All signs are pointing to the Republican party passing tax reform. The Republicans are using the “budge reconciliation” process to get the bill passed. By going this route, the Republicans avoid the need for 60 votes for approval in the Senate while preventing the Democrats the ability to use  a filibuster. Whether you opposed tax reform OR couldn’t wait until it arrived, tax reform seems likely to be here once the House and Senate finish reconciling their two tax reform bills.

What does this mean for mortgage rates?

Initially, nothing. On the surface, tax reform has no direct impact on mortgage rates. This is just like when the Federal Reserve raises the Federal Funds Rate. The Funds rate impacts second mortgages, car loans, credit card rates, etc., and not mortgage rates. But…. the impact these have on the market can impact mortgage rates.

Stocks have been on a major rally for roughly two years now. The DOW continues to set record highs. Why the surge? Wall Street has bet on tax reform that would benefit business. Trump’s election prompted a big rally back in November 2016, and this rally continued throughout 2017.

Now that tax reform is here, stocks seem poised to continue their good run and maybe continue to push higher. As stock values rise, bond prices normally fall due to the fact that people are putting more money into stocks than bonds. As bond values fall (specifically mortgage backed security bonds), mortgage rates go up. While tax reform doesn’t directly affect mortgages rates, the impact on stocks can influence mortgage rates.

Frequent readers of this blog are aware of how stock prices/mortgage backed security bond prices impact mortgage rates. If you are new to this blog, use this link to read past posts about the subject. 

Currently mortgage rates are definitely off of their yearly lows and moving back toward their yearly highs of 2017. Combine tax reform, continued stock market rally, and the Federal Reserve no longer purchasing bonds from quantitative easing (they are beginning to sell their bonds now), and you have an environment where mortgage rates could go noticeably higher.

Market analysts have said for years now (since 2010) that “this is the year mortgage rates go up,” and rates haven’t gone up. When do I think rates will go up? At this point, I’ll believe it when I see it. That said, the environment for mortgage rates to increase is as real as it has ever been in the past several years.

Considering refinancing or buying a home, but been pushing it off since rates are so low? Maybe now is the time to at least have a conversation about your plans, timing, and how to proceed? If the home loan will be in the state of Georgia, I can help! Contact me today and we’ll get started!

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Conforming Loan Limits going up!

December 5, 2017

For the first time since 2006, there is a significant increase in the conventional loan limit. The new maximum loan amount for conventional loans will be $453,100. Technically there was an increase from 2016 to 2017 (from $417,000 to $424,100, which is less than a 2% increase). This time the maximum limit gets a more significant increase.

What does this mean?

Buyers can purchase a $477,000 home with only a 5% down payment. If using a 3% down conventional loan, then the buyer can purchase a home as high as $467,000 in value. Prior to the increase, if a buyer wanted to purchase a home at $500,000 and avoid a Jumbo loan, then the down payment needed to be 15% to get the loan down to $424,100. Now a $500,000 home can be purchased with less than a 10% down payment.

This increases the purchase power for home buyers, and these new conventional loan limits can be used now! The start date for the conforming loan limit increase is January 2018, but the loan process can start today and close after the start of the new year!

Looking to buy a home in the state of Georgia? Wanting to use a conventional loan to purchase $500,000 or so home using a small down payment? Now you can! Contact me today and we’ll get going on your new home!

 

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.

PIWs are back!

October 10, 2017

Every few months, there are changes made to loan guidelines. Often, the changes are minute and not worth talking about very much. This time, there is something worth discussing.

Property Inspection Waivers (PIW) are back! Technically, they’ve been back for a while, but it was rare to use them. But what are PIWs? Property Inspection Waivers mean a borrower does not need to order an appraisal for the loan if they are satisfied with the value Automated Underwriting (AUS) assigns it. These have been available, but really only used with making a significant down payment (or having lots of equity if the loan is a refinance). How much is significant? Lets say 40% or more in equity.

With this latest change, Fannie Mae/Freddie Mac are saying it will be more widely used and available for clients with smaller down payments/amount in equity – even for purchase transactions.

Currently, I am working with clients on a refinance with just 20% equity and no appraisal needed. How is this of benefit to the borrower? For one, it saves money. Appraisal costs range from $450-$500, and the PIW fee is only $75. It also creates a much quicker turn time for closing. Imagine closing start to finish in under two weeks.

Lenders will not know if a loan will qualify until it gets into Automated Underwriting. That means the borrower will have to apply and be under contract on a home with the final purchase price. That said, it is always great to have the opportunity to save money and close faster! We’ll see how well this rolls out, but it’s good to have PIWs back as an option.

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.

The Truth About Down Payments…

August 25, 2017

Many young adults and other potential home buyers mistakenly assume that they cannot buy a house.  Why?  Because they believe the myth that a home buyer must make a 20% down payment to buy a home.  A recent study by the National Association of Realtors® (NAR) shows that the average down payment for 60% of first time buyers is 6% or less.  However, their research indicates that just 13% of adults age 34 and younger understand that they can buy a home with as little as 5% down, or less.  Their analysis shows that, over the last 5 years, more than 70% of non-cash, first time buyers, along with 54% of all home buyers, made down payments of less than 20%.

So why do so many Americans not understand this home buying truth?  Perhaps it is because 20% is the down payment benchmark most often quoted by “experts” in print and other news media.  And perhaps it is because that to avoid mortgage insurance on a conventional loan, you must make at least a 20% down payment.

Whatever the reason, it is time for us to spread the truth about down payments.  That truth is, the majority of home buyers make down payments of less than 20%.  Here are some quick options for folks who want to buy, but don’t have a lot of cash saved for a purchase:

  • Active duty military, National Guard, Reserves, or military veterans may qualify for a 0% down VA loan.
  • FHA loans offer minimum down payments of 3.5% with low interest rates.
  • Buyer who qualify can obtain a Home Ready conventional loan for 3% down, with competitive interest rates and discounted mortgage insurance premiums.
  • Buyers who do not qualify for Home Ready may still qualify for a 3% down payment, but possibly with a higher interest rate.  In this case, the buyer will likely receive a lower interest rate if she makes a 5% down payment.

Bottom line, many home buying options exist for folks who can afford less than a 20% down payment.  These home buyers need a mortgage expert to coach them to the best option for their financial situation.  That is the type of individualized service we deliver at Dunwoody Mortgage.  We work closely with our clients to help them obtain the mortgage solution that best meets their needs.

If you know a young adult in Georgia who has a good job, who is renting and doesn’t think she can buy her own home, suggest that she call me at Dunwoody Mortgage.  She just might be able to fire her landlord, buy her own place, and start building equity.  Don’t let her believe the down payment myths.

 

The Feds are halfway there

August 22, 2017

One of the Federal Reserve presidents recently said the Fed was halfway home to raising rates. Currently, the rate sits at 1.25%, and the statement implies the target is 2.5%. The San Francisco Fed President feels a rate of 2.5% is the normal target rate for the US economy.

If true, what does that mean for rates, economy, etc.?

One interesting aspect would be the ability of the Fed to help when the economy experiences another downturn – and it will. The economy rises and falls, and it will slow down again at some point. Before 2008, the Federal Funds rate sat at 5.25%. The Fed lowered the rate to virtually zero to help the economy. What happens the next time there is a down turn, and the rate sits at 2.5%? There wouldn’t be as much room to lower the rate to stimulate the economy. Of course, no one expects another down turn like 2008 to happen.

What about mortgage rates? Since the Feds began raising the Federal Funds rate, mortgage rates have improved every time. The only reason rates haven’t set new historic lows is due to the rapid rise of mortgage rates after the 2016 election. In fact, was the dropping of the Federal Funds rate that helped pushed mortgages rate lower. Over the past 5 months, mortgage rates have been flat. As they are near historic lows, there really isn’t that much more room for improvement. That said, more rate hikes could help push them lower as an increasing Federal Funds rate can help mortgage rates improve.

In the end, it will probably be more of the same when it comes to rates… staying low. That has been the Fed’s goal since the 2008 market crash. They’ve achieved this goal by buying bonds and then several rounds of quantitative easing. Now that the economy has improved, the Fed’s attention turns to keeping inflation in check. They do this by increasing the Federal Funds rate, which helps mortgage rates improve (mortgage rates hate inflation). The Fed continues their goal to keep mortgage rates low. When will rates go up? Honestly, at this point, I don’t think anyone knows. I’ll believe it when I see it!

Potential Shake Up at the Federal Reserve

August 1, 2017

Janet Yellen’s days may be numbered. She is the current head of the Federal Reserve, and her role is up for renewal by President Trump. While he has been coy in the past about his plans to (or not to) replace her, signs are pointing to the fact he might indeed do so.

Trump has made no secret about his desire for low interest rates. This tends to fuel stock values/growth (something President Trump enjoys), but it could cause problems down the road. It also marks a significant shift in the philosophies of our major political parties:

  • Democrats traditionally want lower rates to encourage job and wage growth.
  • Republicans tend to want the Federal Funds rate to be higher to fight off inflation.

There is another angle to consider: Ammunition for the Federal Reserve when there is another economic down turn. Lowering the Federal Funds rate is a classic monetary policy employed by the Federal Reserve to help stimulate the economy in times of slow growth/recession. We saw the Federal Reserve lower the funds rate after the “.com” bubble burst, and then raise it as the economy recovered. This repeated after the housing collapse, and the Feds are now raising the rate again to have this as a fallback position for next time (there will be a next time). If rates are kept low, the Feds won’t have this as an option. Japan have kept their “federal funds” equivalent at zero for many, many years with little impact. They recently started a “negative” rate policy that has also shown little results in getting their economy back on track.

It is a delicate balance, and will be interesting to see how it plays out.

The question that most people reading this blog want to know is how will this impact mortgage rates. Mortgage rates tend to work in opposite fashion to the Federal Funds rate.

  • the Federal Funds rate directly impacts rates on second mortgages, car loans, credit cards.
  • mortgage rates are determined by the value of mortgage backed security bonds. These bonds (and all bonds) hate inflation. As inflation rises, bond values drop. As bond values go down, mortgage rates go up.

It stands to reason that mortgage rates could improve as the Federal Reserve raises the Federal Funding Rate. That is exactly what has happened as the Fed raised rates. Mortgage rates improved after the Federal Reserve raised rates in December 2015. Mortgage rates skyrocketed after the election (when stock prices went up dramatically). Mortgage rates have improved since the Fed began raising the Federal Funds rate again at the end of 2016 and into 2017 (while stock values have been mostly flat/slightly higher).

It will be fascinating to watch how this unfolds as traditional party philosophies, the economy, monetary policy, and mortgage rates all stand to be impacted by the decision.

Homebuyers squeezed out of the market

June 13, 2017

Last week there were a series of articles published by the Wall Street Journal, CNN Money, and more describing how Millennials are being squeezed out of buying homes. For the most part, articles focused solely on lending requirements. Honestly, that misses the mark on what is really going on out there right now. Let’s dig into this a little more.

The articles primarily focused on how lending guidelines are stricter. While that is true when compared to 2007, lending requirements have loosened up quite a bit over the past several years. Here are some quick examples:

  • Conventional loans allow borrowers with a credit score of 620 (the same as FHA). Average credit is 660-680 depending on what article/source you read, so home buyers with below average credit can qualify to purchase a home.
  • Smaller down payments are back. VA and USDA loans do not require a down payment, FHA only requires 3.5% down, and Conventional loans can be used to buy a home with as little as 3% down.
  • Self-employed borrowers with an established business of 5+ years can qualify to buy a home with only one year of tax returns.
  • Condos can be purchased with as little as 3% down.
  • Rental income from investment properties can be used even if the property hasn’t been rented out for two years.

Lending guidelines are much more lenient today than they were just a few years ago. That isn’t really the problem.

A Washington Post article from January discussed the elephant in the room, and nailed it when it comes to the issue that all home buyers are facing – inventory.

I attended a Realtor meeting recently where a stat was given stating there is less than a 3-month supply of homes available in in-town Atlanta. A balanced market is a 6-month supply, and nationwide the supply of homes is well under 6 months. That’s not good. Think it is bad in Atlanta? It’s worse in Seattle. The lack of inventory puts Millennials (and any home buyer with a smaller down payment) at a disadvantage. Also, it is pushing home values higher than a normal market due to the impact of supply and demand.

How does one compete in this market? A few things come to mind.

  1. Home buyers must go out and look at homes as soon as they are listed. This can be difficult depending on one’s schedule, but homes are going under contract in a few days in most cases.
  2. Home buyers should be underwritten prior to going out to look at a home. This way the offer letter isn’t a prequalification letter or pre-approval letter, but the letter can read the home buyers are “approved to purchase a home pending a satisfactory appraisal, clear title, and sufficient insurance coverage.” That is much stronger than a simple “prequalification” letter, and I go into more detail this in a previous blog post.

By planning and being ready to move on a home at a moment’s notice, home buyers can increase their odds of getting under contract on a home.

Looking to purchase in Georgia? Wanting to get ahead of the game? Contact me today, and we’ll get started toward achieving the goal of your home ownership!

PMI vs MIP vs MPI… What is the difference?

May 17, 2017

Lots of acronyms there. What do they all mean?

Many people are familiar with the term “PMI” or Private Mortgage Insurance. This is insurance the borrower pays on behalf of the lender in case of a mortgage default. The insurance protects the lender and becomes a requirement when purchasing a home with less than a 20% down payment (or refinancing with less than 20% equity in the home).

MIP stands for Mortgage Insurance Premium and is completely the same thing as PMI, but that is what mortgage insurance is called on FHA loans.

So what is MPI? That stands for Mortgage Protection Insurance. When buying or refinancing a home, the home owner will get plenty of these offers in the mail in the weeks/months after buying a home. Why? Companies pay people to search through newly recorded deeds at the county. This is legal since the deed is a matter of public record. With the deed information, a company knows your name, your new home address, and who did your loan. The offers for Mortgage Protection Insurance will come regularly in the mail, and these companies make it look like the letter is from your mortgage company. They can be sneaky with these letters.

What does MPI do? If you choose this option, MPI will pay the loan balance off for a borrower in the event of their death. Sounds good, but let’s dig a little deeper. The premiums for this insurance are typically significantly higher thank those for life insurance as they require minimal to no medical examination or health screening. Anyone in any health condition can get this insurance by paying the monthly premiums. The other downside is that as mortgage payments are made, the principal balance of their loan reduces. This means the payout in the event of the borrower’s death reduces… in other words, the premiums stay the same, but the death benefit decreases every month.

MPI is a fantastic option for someone who cannot, for whatever reason, qualify for term life insurance. If you can get term life insurance, it is the better way to go. Typically, people can get more coverage that doesn’t diminish each month for a lower monthly premium.

Just bought your first home and don’t have life insurance? Or maybe you’ve owned your home for a few years, but your family has grown since you last looked at your life insurance coverage. Regardless of your need, my friends at the Sheldon Baker Group can assist you in getting free quotes from the top carriers in the life insurance industry. You can check out the Sheldon Baker Group life insurance page here. You can also call 678-793-2322 or email to sheldon@sheldonbakergroup.com.

Whether you use my friends at the Sheldon Baker Group or someone else, life insurance is important as you own a home and/or have a growing family. Use the MPI offers in the mail as a reminder to evaluate your coverage.