Posts Tagged ‘the mortgage blog’

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.

 

Good News for (Some) Home Buyers!

July 16, 2020

As a loan officer, I really like the Home Possible and Home Ready conventional loan programs.  For eligible borrowers, these programs offer discounted interest rate pricing and discounted mortgage insurance premiums.  To qualify, home buyers must make a down payment between 3% and 20% and complete an online homeownership class.  Borrowers must also earn an income of 80% or less than the area median income for the census tract where they will buy a home.

I think these programs are such good deals that I have recommended (1) borrowers who planned to make a 20%+ down payment actually make less than a 20% down payment to qualify for the lower rate and (2) spouses or domestic partners put only one person on the loan application to keep income lower to qualify for the discounts (that’s perfectly legal and within guidelines, by the way!!)  The discounts are especially powerful for people wanting to buy condominiums, as these programs allow the buyer to avoid the expensive “condominium price adjustment” in the interest rate calculation.  The Mortgage Blog has covered these programs in the past.

So, what’s the good news?  On July 12, Freddie Mac updated its Home Possible Eligibility Tool to reflect the new 2020 area median income limits issued by the Federal Housing Finance Agency (FIFA).  Approximately 87% of counties will experience AMI increases in 2020.  That means that more home buyers can now qualify for these great loan programs.

I checked the tool for some addresses in the Atlanta Metro Area.  Before July 12, the Home Possible annual income limit in these areas was $63,360.  Now the annual income limit is higher at $65,760.  I also checked Fannie Mae’s Home Ready website and found the same adjustment.  While the income increases are not huge, every little bit helps, right?  Home buyers earning $64,000 to $65,000 now can take advantage of these great programs, whereas they could not before July 12.

I recently talked with a first-time home buyer.  She said another lender suggested she get an FHA mortgage.  I recommended that with her 740 credit score and qualifying income, the Home Ready / Home Possible programs would be much better for her.  She could get a similar interest rate with a 3% down payment, and she could avoid the FHA up-front mortgage insurance, which would cost her over $4,500.  She agreed with me.

Do you know someone who wants to buy their first home in Georgia?  They need to find a mortgage lender who will explore all loan options to find the loan that best fits their own unique situation.  Tell your friend or coworker to call me.  I’ll make sure we structure the loan and their application to take advantage of the best loan program available.

A patch for the QM patch

July 14, 2020

Back in February 2020 BC (before Covid), the Qualified Mortgage Patch (QM patch) situation made headlines in the mortgage industry. And a month later, Covid took over all headlines.

The Consumer Financial Protection Bureau (CFPB) provided an update to the QM patch. For those of you who like reading, check out my previous posts on the proposed changes to QM loans and the history of how we got to QM loans.

The TL;DR version is simply… there is a debt to income exemption for those applying for a mortgage backed by Fannie Mae, Freddie Mac, FHA, VA and USDA loans. The CFPB wrote in 2014 the debt to income ratio could not exceed 43%, yet allowed a temporary “patch” to allow the loan programs listed above time to transition.

Eliminating the patch would be shattering for the mortgage industry. Conventional loans (Fannie/Freddie) allow for a debt to income ratio up to 50%, and FHA can go as high as 55%.

I know what some readers may be thinking… “someone should not be able to purchase a home with a debt load that high.” While I get the sentiment, it isn’t always straight forward as “too much debt.” Here are some examples:

  • self employed borrower writing off a lot of their gross income. This lowers what appears to be their income on paper through the “magic of accounting,” yet their real income is higher.
  • joint applicants deciding to apply with only one person. Let’s say two people are buying a home. One has great credit. The other does not. The person with great credit qualifies (barely) on their own, so on paper the debt to income ratio is high. But without the other applicant, we are not seeing the true house hold income (because the other person’s income is not on the loan).
  • Often student loans allow for income-based repayment, yet many loan programs require student loan payments to be either 1% of the balance OR an amortized payment. The higher debt to income ratio allows the higher student loan payments to be absorbed when the client actually won’t be making that high of a student loan payment.

Almost all of my clients with high debt to income ratios fit in these boxes. Meaning the real household cash flow is better than what loan guidelines allow. By requiring a maximum 43% debt to income ratio, it will really hurt many buyers out there (especially those with student loan debt).

The proposed change by the CFPB – eliminate debt to income qualification entirely (Really?ok.), and use a price based approach (measuring the loans APR to an average prime rate of a comparable transaction) as a more reasonable indication of someone’s ability to repay.

Who knows exactly what that means… how it will be implemented… or what loan guidelines will look like for documenting it… the takeaway is this… with the January 2021 deadline approaching, the CFPB is going to find a way to prevent the mortgage/housing industry from being impacted by the implementation of a hard cap of 43% on the debt to income ratio.

Who knows what the final result will be, but it appears we are going to get some sort of change to keep the industry going. If nothing else, perhaps a several year extension of the QM Patch. The last thing anyone wants right now is the slowing of the housing market during a recession!

Moving to the suburbs?

June 16, 2020

Another change in sentiment from Covid is the possibility of people moving from the city and into the suburbs. A recent Harris poll stated about a third of those surveyed are considering moving to the suburbs in light of the pandemic.

Larger lots… more green space… less population density… easier to get to grocery stores… these are essential items for those surveyed considering moving out from the city. Couple this with the my recent post detailing an increased desire for dedicated home office space, we have definite trend changes in home buying due to Covid.

Homes are going fast right now. I’m seeing my clients getting under contract on homes just hitting the market. How does one set their offer apart from such a competitive field. Consider either:

  1. Making a non-contingent offer. If one qualifies to carry two mortgages, it makes the offer more appealing to the seller when they see the offer to buy their home is not contingent on the sale of the potential buyer’s home.
  2. Getting pre-underwritten. Using a “TBD” underwrite strategy is great for potential offers. The seller knows the potential buyer’s credit file (credit score, income, assets) has been reviewed and approved. This gives the seller more confidence the potential buyer’s offer will close.

Using either one (or both) of these options can set an offer apart from others in such a crowded market.

The purchase market is definitely hot right now. If you are buying in the state of Georgia, contact me today. We can get you prequalified and on your way to a “TBD” underwrite to help make your offer more competitive and stand out in the crowd.

Furloughs, layoffs, and low rates

June 9, 2020

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!

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 baby boom?

May 26, 2020

Recent comments coming from the Mortgage Brokers Association point to another potential increase to housing demand. The theory is pretty simple based on most of population being asked to stay at home:

  • toward the end of this year/early 2021, there will be a baby boom.
  • there will more than likely be an uptick in divorce filings.
  • many families will want homes with better home office space.

If extremely low inventory wasn’t frustrating enough, the market could see even more buyers coming into it for the reasons listed above. How can one make their offer stand out in such a competitive market?

As mentioned on this blog in previous posts, the best way to make an offer on a home is with a credit approved offer letter. Simply apply for the loan with a “TBD address.” We’ll collect bank statements, pay stubs, tax returns, and submit the file for an underwriting review.

Once approved, the offer letter to the seller will say the file has been reviewed and approved by underwriting. All in the way of getting a loan approval is an appraisal, home insurance, and clear title. Doing this will set your offer apart from others.

Ready to buy in the delayed but not hopping spring market? Want to set your offer apart from others? If buying in the state of Georgia, contact me today! We can get started, pre-underwrite your file, and help you make a strong offer to purchase your next home.

Will home values drop?

May 12, 2020

Will home values drop? Many, many people want to know as the housing market is a major economic indicator for the U.S. If a recent survey conducted by the National Association of Realtors (NAR) is true, we may not experience much of a decline in values.

While home buyers hope values will reduce given the Covid-19 situation, the NAR survey seems to indicate values will hold steady for a few reasons:

  • available homes for sale are lower than normal due to the pandemic impact on the market. A lower supply of homes will mitigate a dramatic drop of home values.
  • NAR expects the normal Spring market activity will shift to later in 2020 as the country/economy/our lives/etc. shift back toward “normal.”
  • with forbearance and most people who filed for unemployment benefits in the “furlough” and not “laid off” category, there is not the concern over high numbers of foreclosures.

So far sellers are holding firm to their list prices with roughly 70% saying they have not lowered prices to attract buyers. About 60% of sellers in the survey admit Covid is only delaying them selling their home this year at their originally intended list price.

In the same survey, about 60% of buyers felt home values would drop due to less competition of people out looking to purchase homes. While the demand for those looking may be down, the supply of homes is also down. As I mentioned earlier in this post, the lack of available homes may mitigate any drop of home values.

What should a buyer do? This is a national survey, so let me address more of the local market.

My advice to buyers is always this… if you find the home meeting your needs, go ahead and make an offer on the home. You cannot always count on the next home being there, or hoping values drop, or hoping mortgage rates stay low. If the home is the right one, go for it!

Buyers are heading back out into the market place. Over the past two weeks, I’ve had several clients go under contract to purchase their new home. The homes under contract went for near, at, or more than the list price. Some of my clients were involved in multiple offer situations.

In other words, in metro Atlanta, it appears recently listed home values are holding and buyers are headed back out into the market. I had one agent tell me there is one home for every three buyers in the metro Atlanta market. If the statement is true, it is still a seller’s market and home values may not come crashing down as some hope (at least not in the near term).

Looking to get out into the delayed Spring market? The housing market is coming back to life! If you are buying in the state of Georgia, contact me today! We can get you prequalified in a few minutes, and you’ll be ready to purchase your new home!

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.

More changes due to Covid

April 21, 2020

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!