Category: Mortgage (Page 38 of 60)

3% Down Payment Options with Fannie Mae and Freddie Mac

October 12, 2018 / Tom Bonetto

Home purchasing has just become a lot easier for a large number of potential buyers. Fannie Mae and Freddie Mac, the country’s two main mortgage giants, now have programs for home purchases with just a 3% down payment.

If you’re shopping for a low down payment mortgage, there are options as low as 3% down!

By the way, that’s even lower than FHA requires.

A 20% down payment is considered ideal when buying a home, but saving up that much can be a challenge. The good news is there are a number of low down payment mortgages available today.

Many homebuyers assume they need impeccable credit scores to qualify for a loan that requires just 3% down. That’s not the case, either.

Here are some of the programs available:

Fannie Mae’s HomeReady

With its new HomeReady mortgage, the giant mortgage backer looks to help first time homebuyers and repeat buyers alike.

Here are few of the highlights of the HomeReady mortgage program:

As little as 3% down payment
Lower private mortgage insurance costs
Down payment sources include gifts, cash-on-hand, and down payment assistance programs.
Use income from non-occupant co-borrowers to qualify
Income from non-borrowing household members helps your approval.
“Boarder income” (income from a roommate) helps you qualify.

Fannie Mae’s HomeReady low down payment home loan allows for buyers to obtain loans up to $453,100 with as little as 3% down.

The borrower(s) must live in the home, so you can’t buy second homes or investment properties. You can buy two- to four-unit properties as long as you’re living in one of the units, but your down payment requirements will increase if you buy a two to four-unit property.

Income Limits for the HomeReady Mortgage

Income limits are set by geographical areas for this particular loan program. In underserved areas, there are no income limits. In more economically developed areas, Fannie Mae has limited the amount of money HomeReady applicants can make.

Essentially, this policy ensures the program is reserved for the ones who need it most. The following is a breakdown of income limits.

Properties in low-income census tracts: no income limit
Homes in high-minority areas and designated disaster areas: 100% of the area’s median income
Properties in any other area: 100% of the area’s median income

For instance, a home buyer in Los Angeles County finds a home within an area that limits income to 100% of the median income. The median income for Los Angeles is $67,200 so that is the most the buyer can make and still buy the home.

If the borrower makes more than this, he or she could find a home in an underserved area with no income limit. Upon a successful home search, he or she could use HomeReady.

Fannie Mae has published HomeReady eligibility maps for each state that detail each geographical area. It can be difficult to see the exact boundaries. Be sure to check the property address of the home you want to buy and your income by contacting me here….and there is a mandatory home counseling class that must be done online for a small fee.

Home Ready mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

For more, see Tim Lucas’ post at My Mortgage Insider

Freddie Mac’s Home Possible (and Home Possible Advantage)

Home Possible and Home Possible Advantage are two conventional loan programs created by Freddie Mac. They are affordable given their smaller 3% to 5% down payment requirement. The one that’s right for you will depend upon your income, the type property you wish to finance, and property location.

Both the Home Possible and Home Possible Advantage programs help primarily first-time home buyers. With that said, neither program restricts “move-up” buyers.

However, to use either program you cannot have an ownership interest in any other residential property.

For example, if you are a move-up buyer, you must sell your current home before taking on a Home Possible loan.

Both programs are used for purchases or refinances. In the case of refinances, no cash-outs are allowed. Refinances can only be used to change the interest rate or term, as would be the case when switching from a 30-year mortgage to a 15-year mortgage.

Home Possible Down Payments

Many mortgage programs require that some of the down payment funds come from the borrower. Home Possible mortgages allow funds from a variety of sources to help you reach the 3% to 5% down requirement. Money used for your down payment can come from:

Family and friends
Affordable seconds programs (federal, state or municipal programs that provide down payment assistance)
Employee assistance programs

If family and friends help you with gift funds, you and your donors will need to sign a mortgage gift letter – a legal document that states all funds are truly a gift, not a temporary loan you’d pay back.

Home Possible Income Limits

Because the Home Possible loan programs are designed for low to moderate-income borrowers, income limits apply. To be eligible for either mortgage program, your income cannot exceed the Area Median Income (AMI) where the property is located.

There are a few exceptions to the income limit guidelines. The first exception is in high-cost areas, as you’d find near big cities. In more expensive areas, higher incomes are allowed. For example, 140% of AMI will still qualify in some parts of California.

Second, there’s no borrower income limit in rural or underserved areas. The easiest way to determine your local income limits and property eligibility (e.g. underserved area) are to search using Freddie Mac’s income and property eligibility tool.

Home Possible mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here…. and there is a mandatory home counseling class that must be done online.

Conventional 97

This low down payment home loan allows for first-time buyers to obtain a loan up to $453,100 with 3% down. It must be used for a primary residence, so this loan isn’t available for a 2^nd home.

The difference between this program and Fannie’s Home Ready version, is that there are NO income limits or geographic restrictions.

You can use your own funds or gift funds from a family member for the down payment, and the home must be an owner-occupied single unit home (including condos).

Conventional 97 Loan Limits

Loan limits are the maximum loan amount available to borrowers who wish to take out a mortgage. Loan limits are set by county (and sometimes at a more granular level). A price adjustment is made so that the maximum loan amount reflects average home prices surrounding the property.

Borrowers get a little more headroom to the upside when buying in a big city than rural areas. So there are two core limits outlined below: the first one applies to most counties across the United States and second one applies to big metro areas. Fannie Mae provides a search tool to find conventional loan limits by property address. Conventional 97 loan limits are as follows:

$453,100 in most counties
$679,650 in high-cost areas

Conventional 97 mortgages are 30-year fixed loans, and do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

As you can see, there are plenty of low down-payment options available to borrowers today please do reach out to me for more information, as it would be my pleasure to help!

Rising Interest Rates and Increasing Property Values – Updated Forecast 2018-2019

October 7, 2018 / Tom Bonetto

The question asked to me most often over the last few months is “is now a good time to buy?”

Many potential buyers are concerned about rising rates and property values. And yes – both are going up.

My answer to their question might surprise you – as I truly believe now is a great time to purchase real estate.

Purchasing Today – Why Now?

It was clearly more advantageous to purchase real estate last year, when looking through the rear view mirror. But I’m convinced that purchasing today will be MUCH better than this time next year.

Why? Well, for one, property values are increasing at over 5% per year, so that home you are looking at today will most likely be 4-5% more expensive next year.

Secondly, the Federal Reserve has signaled 3 to 4 more interest rate hikes over the next 15 months, the next most likely coming in December of this year.

So, let’s be clear about the fact that most experts agree that both prices and rates will most likely be higher next year versus today.

Why the shift? Read on for more….

First: The Good News – and There’s Lots of It

Unemployment is at it’s lowest level since 1969.

“This is the best job market in a generation or more,” said Andrew Chamberlain, chief economist at recruiting site Glassdoor.

Unemployment rates below 4% are extremely rare in 70 years of modern record-keeping. The two longest sustained periods came during the Korean and Vietnam Wars, when the combination of strong growth and the enlistment of young men from the civilian labor force helped to largely wring unemployment out of the economy.

Real wages were up nearly 3% in August of this year.

Per the Wall St. Journal, the Atlanta Fed’s “wage tracker” showed a 3.2% increase year-over-year for June. Most encouraging is the report of a bounce in labor productivity growth in the second quarter to 2.9%. That’s the best jump since the first quarter of 2015,

Home prices are rising steadily at over 5% year-over-year.

Home price gains are starting to decelerate (they are growing, but at a slower rate than last year)— but they’re still strong and are running well ahead of wage gains and inflation.

Inflation, the arch enemy of bonds and interest rates – is holding at the federal reserve target of 2%.

In a speech last week, Fed Chairman Jerome Powell suggested he sees little urgency to accelerate the central bank’s pace of interest-rate increases or to signal a more restrictive policy path ahead, in part because inflation is so low and stable.

Rates Today – and What We Can Expect

The stronger than expected economic data released over the last weeks and months are actually bad news for mortgage rates, and rates reached their highest levels in many years.

Last Wednesday’s bond rout sent the yield on the 10-year U.S. Treasury note, a closely watched barometer of investors’ sentiment toward growth and inflation, to its highest level since July 2011. Risky assets rallied, pushing the Dow Jones Industrial Average to a record and crude-oil prices to multiyear highs.

Together, the moves suggested investors are once again growing more and more about future growth, a shift from the more cautious outlook that many held for much of the year.

Interestingly, mortgage interest rates don’t necessarily move in step with the federal funds rate, as they are more closely tied to the 10-year Treasury Bond. So, borrowers today looking to get a mortgage aren’t directly affected by the latest Fed hike.

However, the federal funds rate does contribute to the longer-term trends of the 10-year Treasury, and long-term fixed mortgages as a result.

Here’s a little perspective on average mortgage rates since 2000:

Graph Courtesy MarketWatch

With the Fed likely lifting rates multiple times over the next year plus, the trend for long-term mortgage rates is up. It would not surprise me to see 6% interest rates in 2019.

Here’s a piece I wrote earlier this year that outlines more regarding rates and what we can expect in 2019…

The Bond Market and Interest Rates

The U.S. unemployment rate fell to 3.7%, its lowest level since 1969, the Labor Department reported Friday. Average hourly earnings, meanwhile, rose a seasonally adjusted 0.3% from August—the third straight month of solid, inflation-beating gains.

Fed officials raised their benchmark short-term rate last week and penciled in four more quarter-percentage-point increases through the end of 2019. That would lift the rate to a range between 3% and 3.25%. Until recently, many investors doubted the Fed would go that far.

The Fed is raising rates to keep the economy from overheating. If the economy becomes “too strong”, that could send inflation higher, and the Fed doesn’t want that to happen. They combat inflation by raising interest rates.

In essence, the bond market is starting to believe the Federal Reserve.

Finally, I’d invite you to read this article on how rising interest rates are not deterring buyers in today’s market…

What About Another Bubble?

Many clients are talking about a potential bubble, and they don’t want to be on the wrong side of it, if it were to burst.

However, most economists are not the slightest bit concerned about this.

Why? It’s about supply and demand. And the supply is tight. It isn’t forecasted to meet demand until sometime in 2021 or beyond.

Actually, it’s the lack of supply and the accompanying home prices quickly rising are the sources of market headaches. Remember your Economics 101 class on supply and demand? When supply is down and demand increases, prices move up.

In reality, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also portends no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is steadily addressed.

As to new home building activity, housing starts did fall by a double-digit percentage in June, as mentioned above, but are up 7.8% year-to-date to June.

More will need to be built, as there is still a shortage. As more homes are built, an additional boost will be provided to the local economy along with more local job creations.

In Conclusion

So, it is safe to say that we will continue to see pressures in the bond market and mortgage interest rates overall. These increases do look to be gradual for the time being, but consistent and into 2019, for sure.

With that said, home prices are increasing nationally at over 5%, so the increase in interest rate will be more than offset by the increasing value of one’s home!

Secondly, home buying power is still extraordinarily high, despite rising home prices and rate hikes.

Find out more about that here.

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

References:

https://www.wsj.com/articles/bond-investors-catch-up-with-feds-plans-1538767826

https://www.forbes.com/sites/lawrenceyun/2018/08/02/no-housing-recession-over-horizon/#3d8212a5f79c

https://www.wsj.com/articles/real-wages-are-rising-1536359667

VA Loans: Some Specifics and Fee Structures

September 19, 2018 / Tom Bonetto

Veterans Affairs mortgages, better known as VA loans, offer considerable benefits for eligible military veterans, service members and spouses who want to buy a home.

What makes the VA loan so attractive to veterans is that they offer no down-payment loans and more lenient credit and income requirements than conventional and FHA mortgages.

With that said, there is some confusion surrounding what can and can’t be charged to the veteran at closing. The article below will outline some of the benefits of the VA loan as well as the fee structure associated with the loan.

The Specifics

VA loans generally offer more competitive rates compared to conventional financing. In many cases, these loans consistently offer the lowest rates on the market, according to reports by mortgage software firm Ellie Mae.

VA mortgages are made through private lenders and are guaranteed by the Department of Veterans Affairs, so they don’t require private mortgage insurance, known as PMI.

Most members of the regular military, veterans, reservists and National Guard are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability also can apply.

The Details and Fee Structures

The seller is allowed to pay all of the veteran’s closing costs, up to 4% of the home price. So, it is possible to avoid paying anything out of pocket to close your home purchase.

If you have little or no funds available for closing cost, let your real estate agent know that you are purchasing your home with a VA loan. Your agent may be able to request that the seller pay for some or all of your closing costs.

Also, the VA limits the amount of fees the lender can charge. This is a great benefit to the VA loan.

Fees Not Allowed to be Charged to the Veteran

Some fees are not allowed to be charged, per VA loan guidelines. Here are the specifics:

Attorney Fee

An attorney fee cannot be charges unless it is for anything besides title work.

Escrow Fee/Settlement Fee/Closing Fee

The VA does not allow the veteran to pay an escrow fee. The escrow fee varies greatly and can be quite expensive, so this is a great benefit to the VA loan.

Application Fee

This is a fee the lender sometimes charges up front before the borrower takes an application. This is not allowed on VA loans.

Mortgage Broker Fee

Sometimes charged by mortgage brokers when they broker a loan out to the lender.

Closing Protection Letter (CPL)

The CPL fee is often included in the escrow fee but sometimes charged separately. It is a letter that makes the title company responsible if escrow does not appropriate loan proceeds correctly.

Document Preparation Fee

Fee charged by escrow for preparing final loan documents.

Lock-in Fees

Fees charged by the lender to lock the interest rate.

Courier Fee/Postage Fees

Sometimes there are original documents that need to be hand-carried or sent via overnight service, and can’t be emailed or faxed. In this case, the escrow company will often charge a courier fee to ensure these services are paid for. The veteran is not allowed to pay these fees.

Notary Fees

Fees charged by escrow to send a notary to the borrower for a signing appointment outside escrow’s office.

Termite Report

The veteran cannot pay for a termite inspection or report in all but 9 states in the US.

Tax Service Fee

This fee is paid to the mortgage company to ensure they pay the real estate taxes.

The Fine Print

This list of allowable and non-allowable fees above is not all-inclusive and there may be other fees on your purchase transaction that are not mentioned here. In that case, it’s best to contact your lender to find out if the charge is allowable on VA loans.

Fees That Can Be Charged to the Veteran

VA Upfront Funding Fee

This fee goes directly to the Veteran’s Administration to defray the costs of the VA program. This is not a fee that is generally paid for in cash at closing – usually VA homebuyers opt to finance it into their loan amount. If the fee is wrapped into the loan amount, it does not increase the total amount of cash needed to close the loan.

Appraisal Fee

The appraisal is paid by the veteran and is usually paid at closing. For more regarding appraisals, go here….

Origination Fee

The VA limits the lender’s compensation on VA loans to 1% of the loan amount. This fee is meant to compensate the lender in full. Fees for items such as processing and underwriting may not be charged if this 1% fee is charged to the veteran.

Third Party Fees

Companies involved in the transaction other than the lender are called third parties. Examples are title and escrow companies, credit reporting agencies, and appraisers. Their charges are called third party fees. Common fees are title insurance policies, recording fee, credit fee, and flood certifications.

Prepaid Items

Prepaid items are items the buyer has to pay in advance. Lenders require insurance policies and taxes to be paid in advance. Not paying for taxes and insurance can jeopardize the integrity of the collateral for the loan, which is the house.

More Information Available

For more information regarding VA loans and eligibility, don’t hesitate to contact me – as it would be my pleasure to help!

Rising Interest Rates Aren’t Deterring Buyers

September 10, 2018 / Tom Bonetto

Mortgage interest rates have risen consistently over the last year-and-a-half. At that time, rates for the 30-year fixed were just under 4%. Lately, the average is closing in on 5% percent for a 30-year fixed-rate mortgage.

Let’s take a look at the facts and crunch the numbers. You’ll likely find that minor rate fluctuations won’t affect a buyer’s ability to purchase a home

Despite these rising mortgage rates, there’s good news:

Rising mortgage rates don’t have to stifle the buyer’s dream of owning
In fact, a new study by Redfin shows that rising rates aren’t scaring off many shoppers
Rates remain historically very affordable, even if they are a bit higher today

Source: You can find out more here – by reading Erik Martin’s entire piece at The Mortgage Reports

What the research found on interest rates and purchasing patterns

A recent survey of potential buyers by Redfin reveals some interesting findings:

Only one in 20 would call off their search if rates rose above 5 percent
One in four said such an increase would have no impact on their search
Nineteen percent would increase their urgency to find a home before further rate increases
Twenty-one percent would look in other areas or search for a more affordable home
One-third would slow down their search to see if rates came back down

This means that many buyers understand the environment today – and realize the long-term benefits of home ownership.

How to read the data

Taylor Marr, senior economist at Redfin, says these results are telling.

“Only a small share of buyers will scrap their plans to buy a home if rates surpass 5 percent. This reflects their determination to be a part of the housing market,” he notes.

Marr says buyers are well aware that rising mortgage rates mean slightly higher monthly payments. Yet buyers are willing to make compromises, as they understand that actual wages are higher today, making the purchase more affordable. Also, they know that real estate generally appreciates. Finally, today’s rates remain very low, compared to historical norms.

“By historical terms, 5 percent mortgages are not that high. A rate below 7 percent is really a good deal on long-term money,” Joshua Harris, clinical assistant professor of real estate at NYU’s Schack Institute of Real Estate, says. “Plus, rents are generally high. So even at 5 percent, many buyers will still be saving money on monthly housing costs.”

What buyers can do now

Most experts recommend the following steps:

Buy now if you can afford it – “While rates are going up, so are home prices in most markets,” says Harris. “The job market is great. Many are seeing wage growth in many sectors. These forces will push rates up and give people more money to spend on a house. So waiting can be a very costly decision if you need a house and don’t want to rent.”

Get your financial house together – start the pre-approval process and get qualified for a loan. “Ask questions and understand the monthly payments you’ll need to make,” suggests Suzanne Hollander, real estate attorney, broker and Florida International University instructor. Will your income be able to cover the principal, interest, taxes and insurance? Will it provide enough money to live the lifestyle you prefer?”

Don’t sweat a minor rate hike – “So long as you intend to hold the home for at least five years, these small fluctuations shouldn’t affect your decision to buy,” Harris adds.

With economic gains outpacing mortgage rate interest rates in many markets, you may be better able to buy a home today than at any time over the last 10 years. Don’t hesitate to reach out to me and find out more!

The Top 5 Down Payment and Mortgage Insurance Myths

August 12, 2018 / Tom Bonetto

For first-time home buyers, it can be more than overwhelming to hear all the stories from friends and colleagues about getting their first home loan.

Many times they are led to some false conclusions.

If they don’t know the real facts about the loan qualification process, it can keep them from taking the necessary steps toward owning the home they’ve been dreaming about.

Let me clear up some facts and make sure the correct information is out there.

The Top 5 Down Payment and Mortgage Insurance Myths

Number 1: Borrowers need a 20% down payment

According to the National Association of Realtors, the majority of first-time home buyers believe they need at least a 10% to 20% down payment. However, that’s simply not true with all of today’s different loan types and programs. Across the US, today’s average down payment is generally in the range of 5-10%. Even so, there are loan programs that allow as low as 3% and even a few no-down loan options.

Number 2: Mortgage Insurance (PMI or MIP) is required on all home loans with less than 20% down

Mortgage insurance is generally required by the lender when a borrower purchases a home using conventional financing with less than a 20% down payment. But there are loan programs available that don’t require PMI. VA Loans do not require PMI, for instance. There are other loan programs with possible reduced mortgage insurance, so be sure to check in your mortgage lender to find out what might fit your particular situation.

Number 3: Mortgage Insurance is Permanent

Mortgage insurance is in place to protect the lender when there is less than 20% equity built up. Once more than 20% equity is in place, this insurance can be removed. Believe it or not, PMI will automatically be terminated when the principal balance reaches 78% of the original value. You can also request cancellation sooner in writing if your home value has increased enough (contact your lender for exact requirements and instructions).

For those with FHA loans, borrowers can refinance into a conventional loan to eliminate the insurance when your loan-to-value reaches 80%.

Number 4: Mortgage Insurance Protects the Borrower

Interestingly, many borrowers make the mistake of thinking that PMI is insurance that either protects the home or protects them if they end up in a foreclosure situation. House_key_digital

Actually, mortgage insurance is in place to protect the lender from default on the loan, which enables lenders to help more borrowers get loans. It does not provide protection for the borrower if they go into foreclosure.

Number 5: No Gifts Can Be Used for a Down Payment

It’s common for today’s U.S. buyers to receive cash down payment gifts. First-time home buyers are most likely to receive a cash gift among all buyer types, but repeat- and move-up buyers receive them, too.

The down payment gift rules are (1) the gift must be documented with a formal “gift letter”; (2) a paper trail must be shown for the gifted monies as they move from the giver’s account to the home buyer’s account; and (3) the gift may not be a loan-in-disguise. You can find out more about the specific of gifts from Dan Green at The Mortgage Reports here.

Now that you know more of the facts about down payments and mortgage insurance, let me know how I can help you begin your home ownership journey!

Tom Title Bar

Category: Mortgage (Page 38 of 60)

3% Down Payment Options with Fannie Mae and Freddie Mac

Fannie Mae’s HomeReady

Income Limits for the HomeReady Mortgage

Freddie Mac’s Home Possible (and Home Possible Advantage)

Home Possible Down Payments

Home Possible Income Limits

Conventional 97

Conventional 97 Loan Limits

Rising Interest Rates and Increasing Property Values – Updated Forecast 2018-2019

Purchasing Today – Why Now?

First: The Good News – and There’s Lots of It

Rates Today – and What We Can Expect

The Bond Market and Interest Rates

What About Another Bubble?

In Conclusion

VA Loans: Some Specifics and Fee Structures

The Specifics

The Details and Fee Structures

Fees Not Allowed to be Charged to the Veteran

Fees That Can Be Charged to the Veteran

More Information Available

Rising Interest Rates Aren’t Deterring Buyers

What the research found on interest rates and purchasing patterns

How to read the data

What buyers can do now

The Top 5 Down Payment and Mortgage Insurance Myths

The Top 5 Down Payment and Mortgage Insurance Myths

Number 1: Borrowers need a 20% down payment

Number 2: Mortgage Insurance (PMI or MIP) is required on all home loans with less than 20% down

Number 3: Mortgage Insurance is Permanent

Number 4: Mortgage Insurance Protects the Borrower

Number 5: No Gifts Can Be Used for a Down Payment

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