Category: Mortgage (Page 45 of 60)

Second Home Purchasing – What You Need To Know

October 8, 2017 / Tom Bonetto

Hotels are great, but they are certainly not a good investment….unless your last name is Hilton.

Second homes, on the other hand, potentially yield a return while providing a vacation spot over which you have 100% control.

Source: The Mortgage Reports – Lisa Pogol

A Second Home Purchase Could Be a Brilliant Play

According to the Case-Shiller Home Price Index, home prices are up nationwide by more than 5% since last year. That means your vacation home might pay for your vacation.

Nearly one million buyers purchased 2nd homes last year, as no doubt they had grown weary of spending excessively on hotels and vacation rentals.

But buying a vacation home can be a bit trickier than you think – and it’s different than purchasing a primary residence. Make sure you have the right lender on your side – and here’s what you need to know before making that plunge.

Be Clear on All of the Costs

Affording the total cost is different than qualifying for the mortgage. Mortgage underwriters only look at expenses for principal, interest, property taxes, insurance, and, if applicable, HOA dues. If these expenditures check out (along with your current mortgage, if you have one), they approve your loan.

One thing to know is that you should plan carefully before getting started. Owning a second home comes with extra responsibility.

You’ll be maintaining two households, and that could be more expensive than you planned for.

You must consider travel costs, regular maintenance, repairs, utilities, furnishings and household items.

On the plus side, you might offset some or even all of the costs if you rent your home part-time. Make sure to check with your lender, as some loan programs don’t allow you to rent out a second home. You may also be able to write off your mortgage interest and property taxes to reduce overall cost.

What’s the Difference Between a Rental and Vacation Home?

Rental homes and vacation properties are financed differently.

If you can qualify for your purchase without the property generating any income, buy it as a vacation home. You’ll get a better interest rate, and qualifying is more straightforward when rental income is off the table.

However, if you need to rent out your place to afford it, it becomes an investment property, not a second home.

In this case, your lender will want to see an appraisal with a comparable rental schedule. This document tells the underwriter the property’s potential income.

The lender counts 75 percent of the anticipated rents as income to you, and the monthly mortgage, taxes and insurance are added to your expenses when calculating your debt-to-income ratio (DTI).

Please note that investment property mortgages almost always require at least 20 percent down and their mortgage rates can be 50 basis points (0.50%) percent or higher than rates for primary residences.

Know Your Down Payment Requirements

You can buy a primary residence with just three percent down in many cases, but it takes at least ten percent down to buy a vacation home, and that’s if your application is very strong. Otherwise, your lender may require at least 20 percent.

If you don’t have a lot of cash on hand, you may be able to borrow your down payment. The National Association of REALTORS® says that about one-fifth of buyers tap into equity from their primary residence to make the down payment on the second home.

Your loan of choice will probably be a conventional loan, offered by lenders nationwide, and underwritten by standards set out by Fannie Mae and Freddie Mac.

What Are the Assets Needed to Qualify?

When you buy a vacation property, you’ll more than likely need reserves. Reserves are funds available to pay your mortgage if you experience an interruption in income.

You’ll need at least two months of reserves if you’re a well-qualified wage earner, and at least six months if you’re self-employed or have any weaknesses in your file.

One month of reserves is equal to the amount of money it would take to make one months’ payment on both your primary residence and future second home.

Choose Wisely – and Do the Math

It is tempting to jump into a vacation home purchase, but first, weigh the benefits and costs.

Ensure that it makes long-term financial sense to buy. While there are upfront costs, a second home purchase can be a nice addition to your real estate portfolio or retirement plan.

To make ownership even more affordable, shop around for rates by calling at least three lenders. Most, if not all, lenders who offer primary residence loans also offer second home mortgages.

Fall 2017 Real Estate and Mortgage Forecast

October 2, 2017 / Tom Bonetto

The housing markets in Arizona and California have undergone some very positive changes over the last couple of years. Here’s a roundup of some of the real estate and mortgage industry trends that are relevant to homeowners here in the great southwest this fall:

Equity levels for homeowners have risen steadily

According to a reports published by Case-Shiller and other bureaus, median home prices have risen over 6% per year for the last few years here in the southwest.

As a result of this trend, the majority of homeowners now have more equity in their homes than they did when they first purchased their properties. This is good news for those who are considering a mortgage refinance, because positive equity is typically one of the key requirements for refinancing.

Mortgage rates are still in the 4% range, on average

During the middle of September, the average rate for a 30-year mortgage loan sank to its lowest point of 2017. They have ticked upward a bit, but rates are still hovering in the 4% range.

This brings even more good news for homeowners who are thinking about purchasing or refinancing. Buyers can now secure a lower rate and save some money over the long term.

Rates are predicted to rise gradually over the coming months.

Buyers and owners should also know that the Mortgage Bankers Association (MBA) and Freddie Mac both expect mortgage rates to rise gradually through the end of 2017 and into 2018. The MBA recently updated its finance forecast for the U.S. economy, predicting that the average rate for a 30-year home loan would rise over .25% at the end of 2017.

If these forecasts prove to be accurate, it means that buying or refinancing now might be a good idea.

Higher debt-to-income ratios now allowed for some borrowers

As I’ve mentioned previously, Fannie Mae (one of the two government-sponsored enterprises that buy mortgage loans from lenders) announced it would allow higher debt-to-income limits for borrowers seeking a home loan.

Fannie Mae raised its debt-to-income ratio limit from o5% to 50%. This change will affect homeowners and home buyers alike, particularly those who have relatively high debt levels from student loans, credit cards, and other sources.

It looks like there will be a seller’s market for a while

The points listed previously are for those who are thinking of purchasing or refinancing their homes. Here’s a final point for those who are thinking about selling:

Due to strong demand and limited inventory, local housing markets across the southwest will likely continue to favor sellers over buyers.

This has been the case for the last couple of years, and it seems as though the trend will continue into 2018.

As with most real estate trends, this one is driven by supply and demand. Major cities across the southwest are experiencing very low inventory levels right now, below a two-month supply in some cases. (A “balanced” real estate market has five to six months of supply, according to experts.)

As a result, homeowners are generally able to sell quickly and for full market value — if not more.

Bottom line: A lot has changed in the real estate market, and there have been several key developments within the mortgage industry as well. Many of these trends bode well for homeowners, particularly those who are thinking about a refinance.

Investor Specific Mortgage Option – Debt Service Coverage

September 25, 2017 / Tom Bonetto

It’s finally possible for self-employed borrowers or independent contractors who have difficulty documenting their income to actually get a stated income loan to buy a non-occupant property for investment purposes.

The “debt-service-coverage” loan program helps these investors, house flippers and landlords who have multiple expense write-offs on their tax returns to buy investment properties without having to document their income.

The new option – use the anticipated monthly rent as income to qualify for the loan.

No Income Stated or Verified

If you have been aggressive with deductions on your tax return but have adequate cash flow, this type of loan may be for you.

The debt coverage ratio measures the ability to pay the property’s monthly mortgage payments from the cash generated from renting the property.

Lenders use this ratio as a guide to help them understand whether the property will generate enough cash to pay the mortgage expense.

The debt coverage ratio is calculated by dividing the property’s month net operating income (NOI) by a property’s monthly debt service. The monthly debt service is the total of the mortgage principal and interest payment, taxes, insurance, and any HOA fees.

Investors can qualify if the net operating income from the property is equal to or greater than 1.0 times the monthly debt service.

So, if you have a property that can generate $2,000 per month in rent, investors can qualify with an “all-in” mortgage payment of $2,000!

Debt Service Coverage Ratio (DSCR) Investor Loan

Loan-To-Values up to 80%
Credit Score down to 600
Qualification based upon cash flow of subject property
Interest only option available
5/1, 7/1, and 30-year fixed options available

Non-Owner Occupied and Investment Purposes Only

This is only for Non Owner Occupied properties for investment purposes. You will be required to sign a statement that states you live in another property that you own.

Please do contact me for more specific information regarding qualification!

Home Purchasing Is Easier Than You Might Think

September 10, 2017 / Tom Bonetto

I hear frequently from potential buyers in today’s market – and many are fearful of taking that leap into homeownership. Some are intimidated by the process, expecting a never-ending slog through their financial history.

Actually, the homebuying experience can vary depending on your preparation, and the team you have at your side. The lender you choose, the real estate professional involved, and other factors can make a big difference when buying a home.

You may even know someone who’s recently been though a less-than-pleasurable home buying experience, you may be apprehensive about the process.

I’ve got some good news….buying a home is easier than you probably think.

The key is understanding what it takes to get approved for a mortgage, and being properly prepared. These things will make all the difference in the story you will soon be telling your friends.

Source: Craig Berry and The Mortgage Reports

First Things First: Get Pre-approved

One of the best ways to ensure a smooth home buying process is what you do before you begin your home search.

First, check your credit report and know your credit scores.

Taking this step early in the process will tell you which loans may work better for you. Checking your credit will also give you time to clear up any possible errors or issues you find.

Mortgage pre-approval, without the pressure of a closing date, is easier than trying to engineer a full approval from the ground up. And having a pre-approved mortgage means you can close faster when you’re ready to buy.

If you’re pre-approved, you will have less to worry about when you begin your home search. You will know you’re a qualified buyer, and your offers will get more respect from sellers and their agents.

Please reach out to me to discuss the pre-approval process and how I can help!

Loan Approval Guidelines Have Loosened

The good news? Loans originated in May 2017 increased to more than 70 percent from the prior year. This is great news for homebuyers, as it means more approvals for mortgage applicants.

A common myth is that most folks buying or refinancing a home have a near-perfect credit score. In reality, the average FICO score on all closed loans is 723, and for FHA mortgages, it’s just 684. Many homebuyers are purchasing homes with considerably lower scores.

Mortgage Approval is Now Easier

Changes in the mortgage industry are making it easier for applicants to get approved and buy homes.

Recently, the Consumer Protection Financial Bureau (CFPB) determined that of the millions of consumers with medical collections on their credit reports aren’t as likely to default on future credit accounts as those with other types of collections. For this reason, many loan programs now treat medical debt differently.

Another major reason that homebuyers put off buying a home is that they think they don’t have enough money needed for their down payment.

In fact, many programs require very little down — from zero to five percent. You can find out more here. Even better, down payment assistance programs can help with grants or loans. Many who qualify have no idea this kind of help exists.

Again, you can find out more by vising The Mortgage Reports – but do know that I’m here to coach you through the entire process, from start to finish!

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

Rental Income and Qualification for Investors

September 2, 2017 / Tom Bonetto

I receive a fair amount of questions from real estate investors, asking about rental income and how that is calculated in their overall income that will enable them to qualify for mortgage.

The amount of rental income that may be used and how it is calculated will depend on multiple factors – such as when the borrower obtained the rental property, when rents were collected, and what how many units there are with the subject property.

Underwriters are looking for the likelihood that the rental income will continue, as well as any potential losses too.

If your rental is producing a net loss, it will absolutely be factored into the debt-to-income ratios that are used for qualifying.

Here are some of the standard guidelines for determining rental income.

Calculating rental income when the property is being purchased

If the property is leased, then copies of the current signed lease agreements may be required.
If the property is not currently leased, then the lender may use “market rent” information provided by the appraiser.
When there is no rental income for the subject property on the borrowers tax returns, the rental income will be reduced to 75% of the gross rental income provided on the lease.

Calculating rental income when the subject property is being refinanced

Copies of the fully executed lease agreements must be provided (assuming the home is currently rented).
If the borrower owned the property during the previous year, they will need to provide tax returns. The lender will use the information provided on Schedule E to determine the net rental income/loss.
If the property was rented for a portion of the previous year, the lender will still need to provide a copy of the tax returns, including Schedule E. The borrower will also need to explain (and document) why the home was not rented for the full year. For example, was the home recently purchased or out of service to be renovated.
Rental income will be averaged based on the months the home was in service the previous year.
The lender may also rely on “market rent” data from the appraisal.

What if you’re converting your existing home into a rental to buy another home?

The rental income may be used if you can provide:
- A fully executed lease agreement – and this lease may be month-to-month
- proof of security deposit from the tenant and first month’s rent (cancelled check); and
- a bank statement showing the deposited security and rent deposit.
- 75% of the verified rental income can be used to offset housing expenses

With that said, there are other options – outside of the standard conventional products for investors. Some enable borrowers to use only the expected rental income to qualify – without providing income or tax returns. Contact me for more information, as it would be my pleasure to help!