Category: Housing Market (Page 35 of 40)

Warrantable & Non-Warrantable Condo Mortgages

October 17, 2016 / Tom Bonetto

There is confusion about condo financing versus financing for detached single family residences. I suppose this is why buyers and agents ask me about the financing differences between these two property types. It really is important to understand what “warrantable” means and how it impacts the condo sale transaction.

Source: The Mortgage Reports

What is a “warrantable” condo and does it affect financing?

A warrantable condominium is a condo unit or building that meets specific financing and operations standards required for a government-backed mortgage loan approval.

These condos satisfy Fannie and Freddie conventional financing guidelines…and therefore qualify for purchase and sale on the secondary market. This is important because lenders buy and sell mortgages this way.

If you are an agent working with buyers interested in condos, make sure you have done the research to determine the warrantability of the condo.

A qualified lender can give you guidance and a condo questionnaire – and the ownership of the condo complex should provide the information for the questionnaire. Once complete, the lender can send it to underwriting for evaluation to determine its warrantability.

To be “warrantable” a condo community must meet certain requirements. For example, the condos can’t be part of a timeshare, and at least half of the units must be owner-occupied. In addition, the community must contribute at least 10% of its annual budget to its reserve account every year.

Do lenders think condos are more risky than detached homes?

Yes, condos are more risky for a lender than a detached home. The lender on a single unit shares some of the risk for the entire complex. Because of this shared risk items such as liability, fire, foreclosed units, vacant units, and delinquent HOA fees are all risks carried by both the lender and the individual owner. Before the lender will loan money for the condo, the lender does the research necessary to quantify the financial risk of the property.

What happens if the condo is “non-warrantable”?

A full service direct lender has access to a multitude of financial products. There are products for both warrantable and non-warrantable condos. Since the non-warrantable condo does not satisfy conventional guidelines the cost of financing will show increased risk.

It’s important to understand that non-warrantable condos aren’t sub-standard, they just don’t meet the lending guidelines for Fannie Mae, Freddie Mac, and the FHA.

A non-warrantable condo is also one that can operate as a hotel or provides short-term rentals. Therefore, these types of condos are sometimes located in touristy areas like beach resorts and in college towns.

Other features of a non-warrantable condo can include:

a single person or entity owns more than 10% of the units
many units are rentals
more than 25% of the space within the community is used commercially
the community is involved in a litigation

Click on the article linked at the top of this blog for more information. Gina Pogol wrote the article for The Mortgage Reports.

If you are a buyer looking at condos, make sure you have the warrantability conversation with the agent early in the process. Nothing is more heartbreaking to find the condo of your dreams only to have the financing fall through late in the approval process.

The Bank Statement Mortgage – A Great Option

September 19, 2016 / Tom Bonetto

Borrowers that have incomes that are less documented have a much more difficult time qualifying for a traditional home loan. In general, self-employed borrowers or those who write off 2106 un-reimbursed expenses will be the most likely to benefit from the bank statement program. These programs can be used for a primary residence, a second home or an investment property.

“Bank Statement loans are designed specifically for the self-employed and others whose tax returns and employment history may not adequately express their financial viability”

As its name would suggest, the concept is predicated on providing evidence of future payment ability, in the form of bank statements from the past 12 to 24 months. These can serve as the means for a down payment, in addition to taking the place of a traditional employment history for the years of W -2 forms typically required of buyers during the application process.

The bank statement program is designed to alleviate this shortfall of standard documentation. We will determine an applicant’s ability to repay based on a more pragmatic, case-by-case approach.

Bank Statement Program Verification

Lenders may allow the use of personal or business bank statements to support a self-employed borrower’s income for qualification purposes. The documentation provided needs to document that the income is stable, likely to continue and sufficient to enable the borrower to repay the debt.

The income presented must be reasonable for the profession or type of business. In addition, when using business bank statements to support the borrower’s income, the nature and structure of business must be evaluated to determine if the applied expense assumptions are reasonable.

The borrower’s business may be a sole proprietorship, a partnership (general or limited), or a corporation. They may also receive income documented by Form 1099, or filed on a Schedule C.

Borrower must have been in the same line of work or own the same business for two years. Self-employed borrowers must be able to document by a neutral third-party that the business has been in operation for the last two years and that they have had ownership for that period of time. Third-party verification generally includes:

A letter from a certified public accountant (CPA)
A letter from a regulatory agency or professional organization
Copy of business license

Borrowers that are employed by the seller, property seller, realtor, or receive foreign income are ineligible.

Income Documentation Requirements

The Borrower’s application must include all sources and amounts of income. The bank statements must support income listed on the application. Deposits from income sources that are not reflected on the 1003 or those not needed to qualify will not be included in the qualifying income calculation.

Income sources separate from self-employment must be verified. Examples of verification include social security letter, employment verification, or divorce decree. If tax returns are provided for the borrower using bank statements to support their income, the loan must be fully documented.

Income may be documented by either personal or business bank statements. However, the co-mingling of personal and business or multiple business accounts is prohibited. If multiple accounts are used to show income and reserves, documentation must be provided to show evidence that the funds are separate and distinct.

Here are a few of the key features of this type of loan:

Up to 45 percent debt-to-income ratio
5/1 & 7/1 adjustable-rate mortgage options
Loan-to-value ratios of up to 75 percent
Cash-out options of up to $350,000 for a primary residence
Loan amounts of up to $2 million

While the bank statement program is truly unique, there are signs the rest of the mortgage market is catching up to the evolution. These types of transactions are becoming more and more common – and for good reason!

Find A Lender That Will Take the Time to Know You – A Mortgage Is Personal

September 12, 2016 / Tom Bonetto

A real estate transaction and mortgage is personal. The right mortgage, for example, should reflect your goals – both long and short term. A mortgage is certainly not 15 minutes on the web with a completed application and a rate ready to lock. Especially for the self-employed borrower.

In the past weeks, I’ve had multiple questions from Realtors and borrowers asking me about the “quick and easy on-line loan application”. On the face of it, the filling out of the application is relatively quick and it seems to be pretty easy.

The problem is this process can actually be more expensive – and, most importantly, almost never reflects the goals of the borrower.

Source: The Mortgage Reports

Which brings me to the article linked above. Give it a read – it’s a good one. Towards the end of the article, the author discusses the differences in loan underwriting systems. It’s a little bit of “inside baseball”, but one of the key differences between these systems is the need for tax returns. In many cases, one will yield an eligible finding with only one year of tax returns – while the other requires two. The subtle difference in two underwriting programs can be the difference between credit approval and denial.

The point is this, you must have a relationship with a loan officer who knows the subtle details. The subtle details of borrower qualification relative to the borrower’s circumstances can be the difference between getting the loan approved or being denied.

I spend a lot of time working with real estate agents. I want to build profitable relationships with the agents to help them grow their business. Key to these relationships is my ability to know a borrower and find a way to secure funding within the limits of regulation and law. This requires both product knowledge and understanding of borrower needs.

11 million Americans spend half their income on rent

August 22, 2016 / Tom Bonetto

The number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.

Source: Money Magazine

While renters are paying more, affordability is improving for those who own their homes. The number of cost-burdened homeowners declined in 2014 for the fourth consecutive year, according to the report, thanks to low mortgage rates.

Over 11 million spend nearly 50% of their income on rent and 21.3 million are spending 30% or more of their paycheck to cover the rent — also a record high.

Personal finance experts generally suggest budgeting around 30% of monthly income to cover housing costs. But according to the article, that’s getting harder to do with rent prices rising faster than wages.

Last year saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Middle-aged renters made up a lot of the new demand, with 40% of renters aged 30-49.

And renters are sitting on both ends of the pay scale: almost half of new renters in 2015 earned less than $25,000, while top-income households have been the fastest-growing segment of new renters for the past three years.

What’s really fascinating about this phenomenon is that housing prices are relatively affordable and interest rates are extremely low, both based on historical norms.

The 5/1 ARM for First Time Home Buyers – a solid option

July 26, 2016 / Tom Bonetto

As many of you know, rents have climbed nationwide, while mortgage rates have fallen significantly. According to Freddie Mac, 30-year conventional mortgage rates are the lowest they’ve been in at least three years; and rates for FHA and VA mortgage rates have averaged even lower.

For many buyers, though, the 30-year mortgage is a wasteful choice. There are more logical, “less expensive” options to finance a new home.

An adjustable-rate mortgage (ARM), for example, can be a more suitable choice for a first-time buyer; and, for a buyer who intends to move or do a home refinance within the next 10 years.

Source: The Mortgage Reports

ARMs offer lower mortgage rates than a fixed-rate loan and, sometimes, the savings is substantial. It’s best to sit down with your mortgage lender to figure out what options are best for you.

Why an ARM?

The Adjustable Rate Loan (or ARM), isn’t something to shy away from – here’s why: the typical homeowner moves every 7 years. If you know you’re going to move, then, why pay extra for a 30-year loan?

According to Freddie Mac, 30-year mortgage rates currently average near 3.50% nationwide for borrowers willing to pay an accompanying 0.6 discount points at closing.

5-year ARMs, meanwhile, average 2.74% with only 0.5 discount points.

The majority of today’s ARMs work like this :

For the first group of years, your mortgage rate is fixed and unchanged
After the initial group of years, your mortgage rate adjusts once per year
After 30 years, your loan is paid-in-full, as with any other 30-year loan

So, the key to an ARM is how it will adjust each year. Thankfully, this process is regulated for loans via Fannie Mae and Freddie Mac (i.e.; conventional loans); and loans via the FHA and the VA.

Regulation protects mortgage borrowers from having to accept huge jumps in a mortgage rate on an annual basis. Mortgage rate changes are severely limited.

For example, with a 5-year ARM, the initial mortgage rate of the loan remains fixed for a period of 5 years. After the 5 years are over, the mortgage rate changes on the loan’s “anniversary” every year for the next twenty-five years.

Buying A First Home? ARMs May Be Best.

According to the National Association of REALTORS® and its 2015 Home Buyer and Seller Generational Trends Report, the typical under-40 home buyer expects to live in their home for a period of 10 years.

The report also notes that “expected tenure is generally longer than actual tenure“, which means that homeowners tend to over-estimate the number of years they’ll spend in a house.

Indeed, the youngest group of buyers, the report says, tend to sell within five years of purchase, which makes them ideal candidates for the 5-year ARM.

Read the complete article here…..

Category: Housing Market (Page 35 of 40)

Warrantable & Non-Warrantable Condo Mortgages

What is a “warrantable” condo and does it affect financing?

Do lenders think condos are more risky than detached homes?

What happens if the condo is “non-warrantable”?

The Bank Statement Mortgage – A Great Option

Bank Statement Program Verification

Income Documentation Requirements

Find A Lender That Will Take the Time to Know You – A Mortgage Is Personal

11 million Americans spend half their income on rent

The 5/1 ARM for First Time Home Buyers – a solid option

Why an ARM?

Buying A First Home? ARMs May Be Best.

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