At least one thing happened as expected in 2020… the CFPB extends the patch on qualified mortgages. The extension lasts until the mandatory compliance date of a final rule amending the General Qualified Mortgage.
The announcement comes only a few months before the expiration date of January 10, 2021. The CFPB is releasing the final rule to “ensure a smooth and orderly transition away from the GSE Patch and to maintain access to responsible, affordable mortgage credit upon its expiration.”
So no major disruption to the housing market, which is ideal considering the current economic situation.
Once the CFPB releases details of the new rule, I’ll be sure to post the details.
The Covid-19 virus created a = interesting dynamic in the housing market (and also for those looking to refinance). The impact on the economy helped push interest rates down to record/near record levels. Covid also caused unemployment to jump for record lows to around 15% (before improving some from the May jobs report).
This combination is interesting for home buyers and home owners. Yes, rates are low (super low). Yet millions of people considering a home loan find themselves either temporarily furloughed and/or laid off from their jobs. The income needed to qualify to take advantage of these super low rates is now missing.
How does one qualify when furloughed/returning to work. It is not as bad as one may think:
for those who received a temporary reduction in pay, an updated pay stub showing the new income. Also an updated verification of employment from HR stating the new pay. As long as the buyer still qualifies at the reduced pay, then no need to wait for their salary go back to normal.
for those who are furloughed, so far all that is being required is an updated pay stub showing normal income and documentation from HR (such as a letter or an updated Written Verification of Employment) stating the employee is no longer furloughed and back to work full time.
for those laid off and finding a new job, if the new job is a W2 salaried position, the first pay stub at the new job.
One doesn’t need to worry about a job gap at this time. When out of work for 6+ months, additional requirements could apply. Considering furloughs/lay offs began in mid March, we are well inside of the 6 month time frame for being unemployed.
I’ve even helped someone buy a home who was furloughed and the brought back to work at 75% of their normal salary. As long as one qualifies at the reduced level, we are good to go.
Two areas I did not touch on that are very important – self employed and those who took advantage of mortgage forbearance. My colleague Rodney Shaffer posted on these topics last month, and you can find those posts here (for self employed) and here (for forbearance).
Covid-19 causing problems for your home buying plans? Impacted by being furloughed, laid off, or a reduction in pay? This doesn’t mean buying a home in 2020 is no longer an option. Contact me today! If buying a home in the state of Georgia, we can run some numbers and see where everything stands. You may be able to buy a home faster than you think!
I know… I know…. we’ve had our fill of Covid related news. I hear you! I know your head is probably spinning trying to keep up. Mine too! To compensate, let’s get straight to the point!
A post from earlier in April detailed changes in the mortgage industry. One of the changes focused on the increased scrutiny of continued employment due to many layoffs/furloughs throughout the country. Since the post, we’ve experienced more changes.
Year to Date Profit and Loss statements are often being required for self employed borrowers. This is to show stable income in the time of Covid.
Those getting temporary or permanent salary reductions can still qualify for a home loan. So long as we can show the updated income (pay stub reflecting the reduced pay), and the borrower still qualifies for the loan with the reduced pay, then we can proceed as normal.
Investment accounts had a mandatory manual reduction of 50% from the statement balance due to the losses in the stock market (if an investment account shows $200,000, then we could only use $100,000 toward the loan). With the rebound in stocks, the manual adjustment is now 30%.
While the entire experience right now can be frustrating, underwriting has shown some flexibility:
P&Ls: I had a client closing where half of their income is earned in the 4th quarter. If you took the first quarter earnings and multiplied by 4 to get a yearly total, the pace would be way off! I had my client compile a P&L from the first quarter in 2019 to compare it to year to date 2020 to show income is similar when compared to the same time last year. The loan was approved.
Normally when there is a reduction of income/hours, we need to show the reduction has been in place for a period of time (not just one pay period). Well, we have successfully closed clients after one pay period of the reduced pay so long as they still qualify for the loan with the reduced pay.
Updates are happening in relatively real time as the investment account requirement updated as market conditions improved.
I feel underwriting is trying to work with us during this tough time while still meeting the agency guidelines. I’ll work with my clients to present the best case for continued stability of income for those who are in the loan process and being impacted by the fallout from Covid.
Thinking of getting a home loan right now? Rates are still low for those looking to refinance… people are still out looking for homes to purchase. The housing market is still very active. Contact me today, and we can talk about how Covid will impact your ability to purchase a home (if any impact at all). If you are looking to get the loan on a property in the state of Georgia, I can gladly help you with the loan!
At The Mortgage Blog, we talk often about making a plan for the mortgage. Today, let’s talk about a different type of plan – the move itself!
It makes perfect sense. I mean, we make plans to ensure the home loan goes smoothly. There is a plan for the home we look to buy (area of town, school districts, size of home, size of yard, etc.). I mean, why wouldn’t we tackle moving with the same concepts.
So here’s to planning the move! Where to begin? Let’s begin the same way we begin a home search, with a plan. Just like you’d sort potential homes by number of beds, baths, etc., let’s begin sorting our possessions into categories such as:
clothes
kitchen items
plates
glasses
decorative items
toys
important documents
toiletries
books
Looking at an entire house full of items is overwhelming. Sorting through each category becomes more manageable. With the categories in place, it makes the next step of sorting easier.
Once everything is sorted, it becomes obvious what to do with all of the possessions. Reviewing each category separately, you can begin to see what items you want to keep, what items to sell/donate/give away, and what items simply need to be recycled or thrown away.
The final step is to begin packing as soon as you are able to do so. Planning a summer move? Well, you don’t need winter clothes in the spring. Pack them up! Use the same logic for other items you don’t need access to all of the time. By getting a head start on packing, it will lessen the burden when it comes to packing up the entire house.
Still overwhelmed? Packing and organizing just isn’t your thing? No worries! Lots of people don’t like this stuff. If you want to consult a professional, how about Amber Blandford with Joyful Spaces. Amber owns and operates the professional organizing services provided by Joyful Spaces. When some people run screaming in fear of organizing, Amber feels a rush of joy! She’ll help you get going!
So there are some thoughts on planning a move. Still need to plan on how to pay for the home purchase? I’m always happy to help! Contact me today. If buying in the state of Georgia, I can get you prequalified in a few minutes and have you well on your way to making an offer on your new home!
Fannie Mae and Freddie Mac offer conventional loans. Their guidelines are almost completely identical, yet there are some unique differences that can come in handy under the right circumstances.
Here are some differences between Fannie and Freddie:
Freddie Mac:
Often only requires one bank statement (Fannie requires the two most recent bank statements).
When doing a refinance, the borrower can take the greater of 1% of the loan amount or $2,000. If the loan is $400,000, then the borrower could get up to $4,000 back and not be a cash out refinance (Fannie Mae has a $2,000 limit).
Employed by a family member? Only one year of tax returns are required (Fannie Mae requires 2 years).
Student loans in deferment have a payment calculated by taking 0.5% of the total balance (Fannie Mae is 1% of the balance).
Self employed buyers only need one year of tax returns if the business is over 5 years old. If less than 5 years, then two years are required (requirements for Fannie Mae are not as straight forward as Freddie Mac*).
If a buyer has a second job that loses money as shown on a filed tax return, the loss can be ignored with Fannie Mae so long as the job is not in the same line of work as their primary job (Freddie Mac counts all income losses from tax returns).
Student Loan Cash Out – a homeowner can do a cash out refinance to pay off student loans without taking the interest rate increase from doing a cash out refinance.
DACA recipients eligible to purchase a home with a Fannie Mae conventional loan (Freddie Mac does not allow DACA buyers).
Normally requires fewer months of reserves than Freddie Mac.
Next time you apply for a home loan and look to do a conventional loan, you may not think it matters if it is a Freddie Mac or Fannie Mae loan. As you just read, choosing Fannie or Freddie under the right situation can make all the difference in the world. That’s why you want to work with a Loan Officer who is aware of these small differences.
Looking to get prequalified for a home purchase in the state of Georgia? If yes, contact me today. I’ll ask very specific questions about your situation and make sure the correct conventional loan product is chosen.
*With Fannie Mae, self employed buyers may only need 1 year of tax returns regardless of how long the business has been open. The default is two years of tax returns, but could be one year under the right circumstance (low debt to income ratio, high down payment, excellent credit, etc.).
Rents are still going up and just hit an all-time high, again. The U.S. Census Bureau reported that during the third quarter, the nationwide median asking rent topped $1,000 for the first time ever. According to the Census data, the median asking rent during the third quarter was $1,003, an increase of $52 over the second quarter and an increase of $91 over the same time period last year. That’s an increase of nearly 10% in just one year, when rents checked in at $912.
The increase has been dramatic over the last few years. Just three years ago, the asking rent was a full $200 less per month than it is right now.
Since we are a Georgia based company, I try and bring these topics back to the local area.
The Bad News: Rents are going up in Georgia.
The Not as Great News: So are home prices for buying.
The Good News: Metro Atlanta is a city where it is cheaper to own that rent.
A recent study by Trulia has Atlanta around the 60th cheapest metro area to rent (out of the top 100), and in the top 40 for cheapest metro area to own. While rents are going up, by living in the metro Atlanta area, you have the opportunity to own a home, build equity, and have your monthly housing payment go toward your financial goals (instead of your landlord’s).
Now here is the question – should I buy a home? To answer that question, ask yourself how long you plan to be in the home? Atlanta is a transient town, so maybe your time here is only for a year or two. In that case, renting could be the better option. If you plan to stay in a home for 3 years or more, that same Trulia article mentioned earlier says it is cheaper to buy than rent. Three years seems to be a good number for judging whether or not to consider buying a home or continuing to rent.
So… how long do you plan to stay in the home?
If you are looking to buy in the state of Georgia, contact me today! I can help get you prequalified for the home purchase. More importantly, we can discuss how much home you should buy versus how much home you qualify to buy. Often the amount one can qualify isn’t the amount one wants to pay each month as a mortgage payment. We’ll tackle those topics and more!
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!
Last time, we discussed how mortgage rates change. It isn’t from the Federal Reserve raising rates. Mortgage rates move up and down along with the value of mortgage-backed securities. As these bond values go up, rates go down – and vice-versa.
Is there a better day to lock a rate? I think a better question is this… how much volatility can you handle?
The two days of the week that see the biggest swing in mortgage rates are Wednesdays and Fridays. That isn’t a surprise since the Federal Reserve release their meeting minutes on Wednesdays. Those meeting minutes are definitely market changers. Fridays is typically the day when economic news is released – such as the jobs report. Again, this can have a big impact on interest rates.
Mondays are the quietest day of the week as the Fed doesn’t release any information on Mondays, and very few economic news releases come out on Monday.
Do you like to hit at 17 when playing Blackjack? If so, then waiting to lock a rate until Wednesday afternoon or Monday morning (from Friday’s market changes) might be the way to go. Depending on the market that day, you may see rates get better (or worse) by 0.125%.
Don’t have the stomach for gambling? Want to think about a rate prior to locking? Then a Monday rate quote/lock is probably best for you.
Want to know more about rates, how they change, and why you should lock. Contact me today for more information. If you live in the state of Georgia, I can also prequalify you for your new home loan.
Since my last post, I’ve received a few emails inquiring why FHA continues to increase the mortgage insurance on their loans. Does FHA even want to lend money anymore?!? I’ve blogged about some of the reasons for the changes in a few posts over the past year. Here is a consolidated version of those posts for easy reading.
First and foremost, FHA is running out of money. They are at the lowest point ever in their history, and it isn’t getting better. Since FHA fully guarantees the loans they issue, with all of the foreclosures, the “bank” is running out of money. FHA has always been self funded. Given the current state of the federal budget in D.C., now isn’t the time to look for a handout. So they will raise money the only way they know how – by increasing the monthly mortgage insurance premiums.
FHA wants to go back to being the niche program they were AND designed to be in the mortgage industry. Prior to the housing burst, FHA made up less than 10% of the originated mortgages. During the past few years, they have climbed to as much as 50% of the loans being originated. FHA never intended their loans to be used in this way. By increasing the monthly mortgage insurance, it makes conventional loans with 3% or 5% down look much more appealing.
Eventually, the government wants private lenders to begin working their way into the mortgage industry. If the monthly mortgage insurance is raised to 2.05% (up from its current 1.25%), at some point other companies will come in and say “we’ll do that deal, but only charge 1.50% annually on mortgage insurance…” or something along those lines. Ideally, this would happen to FHA and conventional loans so the government doesn’t have to keep backing Fannie and Freddie either. At this point, we are a long way from this taking place. That said, could this be the start of moving the mortgage industry in that direction?
While there are a few reasons for the increase, the most pressing reason is the lack of money to fund FHA. If they run out of money, then FHA loans go away entirely. While the government would like to see the number of newly originated FHA loans decrease, having FHA eliminated all together isn’t their goal. By increasing the monthly mortgage insurance, it should increase the money coming into FHA’s coffers while probably reducing the number of buyers using FHA loans to purchase their home.
Hopefully this post has shed some light on why FHA has annually increased their monthly mortgage insurance.
Today is the third and final part in a series on the re-pulling of one’s credit report when applying for a loan. The first post discussed why this is required, and gave a helpful list of things not to do in order to avoid problems with the re-pull. The second post discussed the “new-look” loan approval process and how the re-pull can impact loan approval. Today, we’ll focus on what an underwriter looks for on the re-pulled credit report.
When reviewing the re-pulled report, an underwriter is mainly looking for three things:
Credit Scores: this is the quickest and easiest thing an underwriter will check on the re-pull of the credit report. If one hasn’t opened a new credit card account, charged up existing credit cards, bought a car, etc., the credit scores should be the same. Just follow the steps outlined from the first post, and all should be fine.
Review Minimum Payment Due Figures: each credit card, student loan, car payment, etc. has a minimum payment due listed on the credit report. On the re-pull of the report, the minimum amount due is compared to the original. If there are no new credit accounts OR one hasn’t charged up existing accounts, then the underwriter will move on to the last item they’ll be reviewing on the re-pulled report.
Recent Inquiries: I know what some of you reading this may be thinking… “I can finance new furniture or a new car before closing because there won’t be time for the newly financed account to show up on my credit report.”… That is true, there won’t be time. BUT… an inquiry is instantly added to your report. If an underwriter sees a recent inquiry made by someone other than the lender underwriting the loan, the borrower will have to explain why the inquiry was made.
#1. It is a quick and easy explanation if an inquiry was made while shopping for a mortgage. The borrower would write a letter saying “I applied for a mortgage with ABC Bank, but decided not to use them for my mortgage.” Done and done and on to closing.
#2. However, if it is something else, it could delay closing until it can be established how much the new minimum payment will be AND an underwriter re-review your file with the new debt obligation – not fun!
Again, this can all be avoided by not applying for ANY new credit (cards, furniture, car) or charging up existing credit cards. It all comes down to this… what would you rather do? Move in on time to that new home OR have a possible delay in closing, interest rate changed, or possibly have the loan denied by financing a car for the new garage OR financing furniture for the new living room. You’ll have plenty of time to finance a car and/or furniture after closing.
Fannie Mae’s Loan Quality Initiative is one of many hoops borrowers have to jump through when applying for a mortgage. Fortunately, this is actually one of the easier ones to avoid. If you are buying a home in the state of Georgia and would like to work with a professional who is aware of the changes in the industry, call me today to get started. I would be happy to go discuss all of the stages and potential hurdles of the loan process.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
Next time you apply for a home loan and look to do a conventional loan, you may not think it matters if it is a Freddie Mac or Fannie Mae loan. As you just read, choosing Fannie or Freddie under the right situation can make all the difference in the world. That’s why you want to work with a Loan Officer who is aware of these small differences.
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