The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

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Fannie Mae Eases Qualification Requirements

June 12, 2017 /

The country’s largest source of mortgage money, Fannie Mae, soon plans to ease its debt-to-income (DTI) requirements, opening the door to home-purchase mortgages for large numbers of new buyers.

This move by the mortgage giant will dramatically increase the number of people who will now be able to qualify for a home loan.

Per The Washington Post, “Studies by the Federal Reserve and FICO, the credit scoring company, have documented that high DTIs doom more mortgage applications — and are viewed more critically by lenders — than any other factor.”

Using data over the last 15 years, Fannie Mae’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have good credit and are not prone to default.

Simple Definition : Debt-To-Income (DTI)

Debt-to-Income (DTI) is a lending term which describes a person’s monthly debt load as compared to their monthly gross income.

Mortgage lenders use debt-to-Income to determine whether a mortgage applicant can maintain payments a given property.

DTI is used for all purchase mortgages and for most refinance transactions.

It can be used to answer the question “How Much Home Can I Afford?”

Debt-to-Income does not indicate the willingness of a person to make their monthly mortgage payment. It only measures a mortgage payment’s economic burden on a household.

Most mortgage guidelines enforce a maximum debt-to-Income limit – and Fannie Mae has essentially “upped” that ratio to help more borrowers qualify!

Housing Ratio or “Front-End Ratio”

Lenders add up your anticipated monthly mortgage payment plus other monthly costs of homeownership. These other costs of homeownership could include homeowner association (HOA) fees, property taxes, mortgage insurance, and homeowner’s insurance.

Normally, some of these expenses are included in your monthly mortgage payment. To calculate your housing ratio or front-end ratio, your lender will divide your anticipated mortgage payment and homeownership expenses by the amount of gross monthly income.

Total Debt Ratio or “Back-End Ratio”

In addition to calculating your housing ratio, lenders will also analyze your total debt ratio. At this time your other installment and revolving debts will be analyzed and added together. Installment and revolving debts will appear on your credit report.

These payments are expenses like minimum monthly credit card payments, student loan payments, alimony, child support, car payments, etc.

Your monthly installment and revolving debts are then added in addition to your estimated monthly mortgage payment and housing expenses and divide that number by your monthly gross income.

Because of these changes by Fannie Mae, many individuals that did not qualify for a home loan might now be eligible under these new regulations.

Please contact me to find out more!

Sports Injuries and the Mental Side of the Comeback

June 10, 2017 /

One of my favorite reads is Dr. Patrick Cohn, he’s a sports psychologist out of Orlando Florida. He’s always preaching mental toughness – and the techniques athletes can use to grasp it.

His recent article on the psychology of a sports injury really caught my attention – and I’d highly recommend that you check it out.

Many, if not all, athletes have been forced down the injury road, and it’s in these trials that they can gain great strength.

Injury is a challenge that most athletes will face at some time during their career. They can range from mild to serious ones requiring surgery – and they are not easy for anyone. For some athletes, the emotional impact of an injury can be devastating.

With injury, athletes have a fear of the unknown, “Will I return one hundred percent?” “Will I lose my starting role?” “What if I get cut from the team?”

How you respond to injury shapes your rehab, return to competition, and post-injury performance.

If you respond with frustration, fear and worry, you will delay recovery and potentially suffer re-injury.

It is normal to experience some negative emotions… the very thing that you love doing has been taken away for a period of time.  The key is to not wallow in those negative emotions and move forward…

What are the anxieties and fears when you are injured?

  • A loss of identity: Since you probably have competed in your sport from an early age, you probably identify with your sport (“I am a baseball player,” “I am a gymnast,” “I am a soccer player,” etc).
  • Losing that connection with your team: Your team is most likely part of your social circle also. You may feel your injury is driving a wedge between you and your friends/teammates.
  • Doubts about your future: You may wonder if you will be able to compete at the same level as before the injury or, even worse, will the injury prevent you from ever playing again. You may fear losing a scholarship or not getting accepted into the college of your choice.
  • Losing your role on the team: You may fear being replaced on the team or having your playing time drastically reduced.
  • The pain of rehab: Rehab can be physically uncomfortable, take a huge chunk of time out of your day and may be a financial strain on your family.
  • Fear of re-injury: When you return to your sport, your head may be filled with images of getting hurt again and may be an even greater source of anxiety.
  • Loss of confidence: Injury can lead some athletes to doubt their ability to return to a prior level of performance before injury.

As Dr. Cohn states, “the mental impact of injury must be handled with care if you are to have a successful return to your sport.”

Again, I invite you to follow the link to learn more – and pass this on to any athlete you know that’s on the comeback trail!!

Pre-Approvals and “Findings”

June 5, 2017 /

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 /

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 /

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 2nd 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!

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