Category: Housing Market (Page 32 of 39)

Fannie Mae Eases Qualification Requirements

June 12, 2017 / Tom Bonetto

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!

2017 To Be A Breakout Year For FHA Buyers

April 24, 2017 / Tom Bonetto

The FHA mortgage was designed to help home shoppers with lower credit scores and a small amount of cash in the bank – and these loans have long been one of the most popular mortgage types available.

Per mortgage software firm Ellie Mae, approximately twenty percent of all mortgage applicants will opt for an FHA loan because of its buyer-friendly guidelines.

Thanks to recent policy changes within FHA, lenders could start approving more loans. Buyers could have a much easier time purchasing a home, and applicants who were previously turned down could receive an FHA mortgage approval in 2017.

Source: The Mortgage Reports

Lenders and the FHA In 2017

FHA’s new policy will benefit home buyers this year, albeit a bit indirectly.

Per Tim Lucas at The Mortgage Reports, lenders should become more lenient as they experience less scrutiny from FHA. In turn, mortgage banks and brokers could relax lending standards and approve more FHA buyers in 2017.

This should further increase access to FHA loans for the typical home buyer, in line with FHA’s core mission.

FHA, from its inception in 1934, has maintained flexible lending standards – as their goal is to promote homeownership among a population that would not qualify for other types of financing.

Guidelines are so lenient, in fact, that lenders usually set their own FHA lending standards that are much more strict.

For example, states Lucas, the FHA may allow the borrower to qualify with income received for less than two years. A lender can “overlay” a requirement that the borrower needs to be employed a full two years before approving the loan. By-the-book FHA guidelines would result in an approval.

He states that “lender created overlays to reduce risk that their loans will be subject to FHA penalties. Overlays won’t go away. But they could be diminished enough for a subset of borrowers to be approved even if they received a denial in the past.”

FHA Making It Easier To Qualify

The Federal Housing Administration (FHA) is a government agency that insures the loans, which in turn allows lenders to issue approvals with low downpayments and less-than-perfect credit scores.

But FHA will only insure a loan if it meets its standards.

Lenders approve loans imperfectly, sometimes missing the mark when it comes to FHA guidelines. Minor errors and mistakes make their way through the loan process.

States Lucas, “this is an unintended consequence for FHA. The organization’s mandate is to increase homeownership levels in the U.S. But loan refusals were the real-world effect, as lenders feared high penalties for mistakes.

To combat this, the FHA announced that it would not penalize lenders when loans went through with minor mistakes that had no bearing on loan approval.”

This takes a lot of pressure off of lenders. FHA’s goal is that lenders will be more willing to approve home buyers for FHA loans.

FHA Benefits and Their Appeal

FHA loans will continue to be a favorite among first-time home buyers. While the program is well-used by new buyers, applicants also use it to make a subsequent home purchase due to a move or after outgrowing their first home.

One advantage with an FHA loan is its lenient credit score requirements. Lenders genrally require a minimum score between 580 and 640 – and this is one of the lowest required scores among mortgage options.

Another draw to the FHA loan is its low required downpayment. As little as 3.5% down is required at closing.

FHA loans also tend to offer some of the lowest mortgage rates available. According to Ellie Mae, average mortgage rates on FHA loans are between 10 and 15 basis points (0.10% – 0.15%) lower than average rates on conventional loans.

FHA loans provide a unique set of benefits that are a perfect “fit” for a sizable portion of today’s home buyers. Contact me for more regarding FHA home loans!

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

Technology and the Human Touch

April 17, 2017 / Tom Bonetto

“Anyone who has kids probably has seen them experience a moment of confusion over ‘old technology.’ In fact, there are hilarious videos online of children trying to use rotary phones, typewriters and 1980s-era Sony Walkman music players.

When you watch these videos, you can’t help but wonder how long it will be before a child looks at a pencil and piece of paper and wonders: ‘How do these things work?’”

Chris Backe, the Director of Financial Services at Velocify

Source: The Scotsman Guide

Even with all of the technology available in the home buying process today, the overall buying experience hasn’t necessarily gotten better for consumers.

Purchasing and financing a home is still confusing and even a bit daunting — and it’s even more nerve-wracking when buyers don’t get the help they need when they need it.

To reverse this trend, agents and lenders need to find ways to give borrowers both the technology and the human expertise they desire, and at the right times in the transaction.

What is the real technological impact?

Backe states “it could not be a better time to improve the [buying] experience for consumers. Job growth and incomes are relatively strong, the U.S. is experiencing the highest home-sales rate in more than a decade, and the Mortgage Bankers Association expects purchase-loan volume will increase this year and again in 2018.”

Although the gains in technology have given potential buyers greater access to more information about home buying and mortgages, these consumers are not necessarily better informed.

Technology may have actually distanced borrowers from the human expertise they traditionally depended on to make the largest financial transaction in their lifetimes.

Recent data from the McKinsey Group shows that compared to social media, e-mail is 40 times more effective at gaining new customers.

Today, real estate and mortgage professionals are swarming to Facebook and Twitter, yet many agents and originators fail to respond to an e-mail from a potential borrower the same day it was sent.

Focusing on the customer

Making the buying and mortgage process faster and more efficient remains an important goal that also benefits consumers. Yet real estate and loan professionals who want to take advantage of today’s strong housing-market fundamentals to grow their business would be wise to focus less on how quickly they can move prospects through the funnel and more on actual client relationships.

Many lenders, for instance, now offer online portals where borrowers can gain approval for a loan all by themselves simply by answering a few questions, uploading documents and electronically signing a few disclosures.

No loan officer is needed. But is this really the best way available?

Ironically, many borrowers are not using these services. The major drawback of a consumer-driven mortgage process appears when a borrower has a question, and there’s no one around to provide an answer.

For online portals to be truly successful, human expertise must be available at key moments, and it must be provided quickly.

In Conclusion

Bache concludes by stating that “it may still be some time before printed paper goes the way of the rotary telephone. Keep in mind that cell phones have been around for decades, but they did not achieve mass appeal until manufacturers figured out how to deliver a better user experience.”

For what it’s worth, we should continue to push for the technological advances in the home purchase arena….but in doing so, let’s not forget that most buyers and borrowers would prefer the right home and mortgage to a fast one.

Find the right agent and lender that provides the right human touch.

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

Adjustable Rate Mortgages in Today’s Environment

March 13, 2017 / Tom Bonetto

Adjustable rate mortgages (ARMs) are becoming more attractive as home prices rise and fixed interest rates increase.

Buyers can now look to save money with an adjustable rate home loan, as the purchase landscape is now starting to change a bit. These types of mortgage will continue to become more attractive with tighter inventories and monetary policy.

Fixed Rates Are On The Move

The mortgage world has been enjoying the benefits of low interest rates for quite some time. As rates are expected to rise in the immediate future, it is important for realtors and lenders to be knowledgeable about the products available for our customers that will still enable them to get into a home they love.

Source: How ARM Rates Work: 3/1, 5/1, 7/1 And 10/1 Mortgages | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

ARMS Can Open Doors

As rates climb, the adjustable rate mortgage is more important than ever. Often this product is misunderstood, so knowing exactly how ARMS work, and when they can actually benefit your client, is important. The right ARM can actually increase the buyers qualified amount. Lower rate ARMS often allow buyers to qualify for a bigger loan.

Realtors should choose lenders that are able to articulate the benefits of different products to their clients. If clients are educated about their purchasing power, they have a better chance of finding a home mortgage that helps them to achieve their goals.

Educating Your Buyer Increases Their Purchasing Power

Because ARMS work differently than a fixed rate loan, realtors and lenders should work together to help buyers navigate the benefits that come with an ARM’s low interest rate. The borrower must also be educated as to what happens to the rate as the loan matures. Keep in mind that in a rising rate environment, an ARM can be a very smart move. If your buyer hits the cap and the rate continues to climb, they are in the advantage.

Let’s Talk

If you are interested, please do reach out to talk in further detail about the mortgage products and how to expand your market base. I look forward to partnering with agents ready to take on the challenge of the change in interest rates, by offering products tailored to today’s economy.

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

6 Ways Mortgage Shoppers Are Saving On Closing Costs

March 6, 2017 / Tom Bonetto

It is not uncommon for buyers to find the perfect home right at the top of the their budget. While it is our job as realtors and lenders to always find the most competitive rates, these clients need our expertise more than most.

If getting into a home is contingent on affordable closing costs, there are things that can be done to make this process less stressful.

Source: 6 Ways Mortgage Shoppers Are Saving On Closing Costs | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

Lower Your Closing Cost Bill

Depending on the loan amount and the location of the home, loan applicants can pay anywhere from 3% up to about 6% of their home price, in closing costs. While some costs associated with the location of the property cannot be controlled, other steps can be taken to cut costs incurred by the buyer.

Closing costs can accumulate rather quickly as lenders pay for credit reports, attorney services, title services and more.

Those costs are covered by either the borrower, the seller, the lender, or a combination of the three.

It is important to understand what motivates a lender or a seller to cover these costs, as you strategize with your buyers.

Be Aware of the Other Costs that come with a Mortgage Loan

In addition to standard closing costs, buyers should be made aware of other fees associated with a mortgage loan.

Getting buyers ready to hear terms like prepaid interest, homeowner’s insurance, property taxes, escrow deposit for taxes and insurance, and loan discount points, will help the process not seem so daunting, especially to a first time buyer

What Are a Buyer’s Options?

While most people evaluate loans by rate shopping, that is not always the most effective way to choose a loan.

Buyers should know how to compare lender’s charges, and should understand how to avoid paying too many points on a loan.

When possible, advise buyers to close near the end of the month to help save on prepaid interest.

For some buyers, choosing to buy up the interest rate, and not buy it down with loan discount points, can motivate a lender to pay a part or all the closing costs.

Finally, it is always an option to ask a motivated seller to help with closing costs.

Understanding the costs associated with a loan is important for all the parties involved, as a good deal for a buyer benefits all of us.

Please schedule a time to talk if you are interested in more ways to qualify your buyers. I look forward to getting your clients into the home of their dreams.

Category: Housing Market (Page 32 of 39)

Fannie Mae Eases Qualification Requirements

Simple Definition : Debt-To-Income (DTI)

Housing Ratio or “Front-End Ratio”

Total Debt Ratio or “Back-End Ratio”

2017 To Be A Breakout Year For FHA Buyers

Lenders and the FHA In 2017

FHA Making It Easier To Qualify

FHA Benefits and Their Appeal

Technology and the Human Touch

What is the real technological impact?

Focusing on the customer

In Conclusion

Adjustable Rate Mortgages in Today’s Environment

Fixed Rates Are On The Move

ARMS Can Open Doors

Educating Your Buyer Increases Their Purchasing Power

Let’s Talk

6 Ways Mortgage Shoppers Are Saving On Closing Costs

Lower Your Closing Cost Bill

Be Aware of the Other Costs that come with a Mortgage Loan

What Are a Buyer’s Options?

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