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Pre-Approvals and “Findings”

June 5, 2017 / Tom Bonetto

Here are a few great quotes from agents regarding the importance of the mortgage pre-qualification process:

“If the buyer I sent in your direction receives a pre-qual, and then three weeks later does not pass underwriting, whose fault is that?”

“To be honest, if the mortgage broker or lender will not invest in the front end, collect and verify the critical information, I truly don’t have much use for them.”

“I need to KNOW that the buyer, who has invested their trust in me, will not be compelled to find someone else at the last minute in order to salvage the transaction.”

With that said, you can actually evaluate the quality of the pre-approval you received from your lender with one question:

“What are your findings?”

This simple question will go a long way in determining the validity of your pre-approval letter. The answer is either Approve/Eligible (Fannie Mae) or Accept (Freddie Mac).

What Are Mortgage Pre-Approval ‘Findings’?

These “findings” are in the report that outlines the factors that were used to either approve or disapprove that loan application.

The Fannie Mae (Desktop Underwriter) or Freddie Mac (Loan Processor) programs are the specific automated underwriting systems. These should absolutely be completed prior to the issuance of that pre-approval letter.

The underwriting report summarizes the overall underwriting recommendation. It lists the steps necessary for the lender to complete the processing of the loan file.

If a lender receives the go-ahead from Fannie or Freddie through these automated systems, underwriting should be relatively easy. If not, the transaction is most likely heading for trouble.

Timeframes

The pre-approval process is not a 15-minute conversation. If you supply me with all the documents necessary for a full document (full doc in industry jargon) review, I need time to read them. I’ll do the analysis, load the data into systems, and run the analytics….which takes a bit more than 15 minutes. Giving your lender time to process the information helps to secure a reliable pre-approval.

If your lender is offering you a super speedy pre-approval, you as the agent need to question your choice of loan officer.

Obvious mortgage killers, un-seasoned BK, late payments, etc, are the exception. These issues take only a minute or two to disqualify the credit approval.

Negotiation Importance

Home sellers and their Realtors insist that home buyers submit a valid pre-approval letter along with their initial offer for the home. Sellers don’t consider offers from people who haven’t taken the time to determine if they can even get approved for a loan in the first place.

Again, make sure to have your client reach out to me prior to going house hunting to get a true pre-approval letter!

New Fannie Program to Solve Student Loan Debt Qualification Issues

May 29, 2017 / Tom Bonetto

A truly groundbreaking mortgage solution is now being offered by Fannie Mae, as the country’s biggest mortgage agency is making getting approved for a mortgage much, much easier.

Fannie Mae announced three new features that will help those burdened with student loans to qualify to buy a house, or pay off their student loans via a refinance.

“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” said Jonathan Lawless, Vice President of Customer Solutions, Fannie Mae.

The new program is called Student Loan Solutions, and represents a huge shift by Fannie Mae.

Source: The Mortgage Reports and Tim Lucas

Change #1: Student Loan Payment Calculation

Fannie Mae has changed how lenders calculate student loan payments.

Lenders may use the student loan payment as it appears on the credit report for qualification. Period. That may seem like common sense, but it’s not how things have been done in the past.

Change #2: Student Debt Paid By Others

Just because a payment shows up on a mortgage applicant’s credit report does not mean he or she pays it.

Often, that obligation is taken care of by a parent or another party.

In these cases, Fannie Mae is disregarding the payment altogether. That applies not only to student loans, but payments for all debts.

Change #3: The New Student Loan Cash-Out Program: Pay Off Education Loans With A Refi

Perhaps the biggest shift of all is Fannie Mae’s rework of cash-out rules regarding student loans.

Typically, cash-out refinances come with higher rates. They are considered higher risk by lenders and Fannie Mae.

So, according to Fannie Mae’s loan level price adjustment matrix, a lender must charge an extra 1%-2% of the loan amount in fees or more, just because the loan is deemed “cash-out”.

Now, Fannie Mae does not consider the loan a cash-out transaction if loan proceeds completely pay off at least one student loan.

This loan classification has never been seen before — a kind of hybrid between no-cash-out and cash-out financing. Fannie Mae simply calls it the Student Loan Cash-Out Refinance.

Please do reach out to me to discuss these significant changes to see how I might be able to help you either purchase or refinance!

Zero Down Payment FHA Loan Option

May 15, 2017 / Tom Bonetto

There is a new option available for homebuyers looking for affordable housing – one with a zero down payment option! This is NOT a governmental down payment assistance program, but an investor that utilizes a first FHA mortgage in conjunction with a “soft second” mortgage.

The 2^nd mortgage, in this case, is 3.5% of the purchase price. Depending on the borrower’s income, the 2nd lien can be forgiven after 36 months of on time first mortgage payments!

Certain credit criteria, debt-to-income ratios, and income must be met (there are other specifics, as well) – but a good number of FHA qualifiers should fall within the guidelines.

A few specifics:

Available in AZ and CA
30, 25, and 20 year terms available
Minimum FICO is 640
Single Family Residence Only
Debt-to-Income restrictions apply

Please do reach out to me for more details, as it would be my pleasure to assist!

How Credit Scores Impact Loan Interest

May 8, 2017 / Tom Bonetto

It seems like those with good credit catch all the breaks when it comes to getting lines of credit. It’s easier for them to qualify, and they get lower interest rates.

Well, there’s a pretty good reason for it.

A person that has good credit has a low statistical probability of defaulting on a loan. Therefore, they are given a lower interest rate. A person with a lower credit score has a much higher probability of defaulting, therefore they are charged a much higher interest rate to cover the losses incurred by lenders by those who do default.

It’s all about mitigating risk.

One of my favorite finance bloggers, Cleverdude, has a great piece with specific examples of credit scores and interest rates that shows how much you can really save by working on that credit score.

Find out more here….

He concludes that “people with good credit also have an easier time keeping and improving their credit because they get lower interest rates, which lowers their monthly payments. This makes loans easier to pay back, and keeps more money in their pockets.”

Wise words from the Cleverdude, indeed.

Is A Jumbo Mortgage Better Than A Conforming Home Loan?

May 8, 2017 / Tom Bonetto

What Is A “Jumbo” Mortgage?

A “jumbo” mortgage is a loan that larger than the current conforming guidelines established by Fannie Mae or Freddie Mac. Today, a mortgage that exceeds $424,100 is considered “non-conforming.”

So, when you finance expensive property, you need a jumbo mortgage. Interestingly, the borrower has to play by different rules, because mortgages for high-priced homes are not necessarily standardized.

Jumbo Mortgages: They Are Back

During the mortgage crisis a number of years ago, jumbo loans all but vanished. The ones that remained came with guidelines that were nearly impossible for homeowners to meet.

Jumbo loans generally meant high down payments, higher interest rates, and high credit standards – which made these loans essentially obsolete.

But as the real estate market steadily recovered, jumbo loans have been re-entering the lending landscape.

In fact, homebuyers in the market for a larger loan may be pleasantly surprised to know that jumbo mortgage rates are nearly as low as conforming rates.

Source: The Mortgage Reports

Conforming Rates vs. Jumbo Mortgage Rates

Years ago, the difference between conforming mortgage rates and jumbo rates ranged between half a point to two full points.

These days, however, the spread between jumbo rates and conforming rates is minimal – sometimes as little as 1/10th of a percent, according to a number of surveys out in the marketplace.

Look At Jumbo ARMs

Adjustable rate mortgages can be over one percent lower than fixed-rate jumbo loans. For borrowers with larger loans, ARMs are popular alternatives.

That’s because with bigger balances, the effect of a lower interest rate on what you pay each month is more pronounced.

In addition, jumbo ARM rates can sometimes be lower than their conforming counterparts.

Many jumbo ARMS are not sold to investors, but are instead held by lenders on their own books. These “portfolio” mortgages can be made according to whatever guidelines and pricing the lenders establish.

The market is much less homogeneous, and the smart shopper can often find a bargain with a lender trying to expand its market share or build up its pipeline.

Jumbo ARMs come with introductory periods in which their rates are fixed. You can find loans fixed for three, five, seven, or ten years.

If you don’t keep your mortgage for more than the introductory period, you’ll never even have to deal with rate adjustments. And interestingly, most borrowers don’t hold on to those mortgages for more than 7 years.

Compare and Shop Jumbo Mortgage Rates

Unlike conforming mortgage rates, which typically differ by .25 to .5 percent between competitors, jumbo mortgage rates can vary largely from one lender to the next.

Jumbo lenders can serve different markets — alternative documentation, non-prime, unorthodox properties, or borrowers with big down payments and perfect credit — and that affects the rates charged.

This means that when conforming mortgage rates are higher, jumbo rates don’t necessarily follow that the same path.

It definitely pays to shop and compare.

Unlike smaller mortgage loans, a half percent difference in the interest rate on a $700,000 loan amount can add up over time.

$700,000 at 4.375% = $3,495
$700,000 at 4.875% = $3,704

The difference between these two scenarios adds up fast. Over five years, $209 per month saves over $12,500.

Let’s Talk

If you are interested, please do reach out to talk in further detail about jumbo mortgage products. It would be my pleasure to help!

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

The Lending Coach