The Lending Coach

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

Category: Mortgage (page 9 of 13)

The Top Benefits of Home Ownership

home-ownership

There are obvious reasons to buy a house.  Interestingly, there are a number of fantastic secondary benefits of owning a home that most renters are not yet aware of.

Not least, of course, is that you have somewhere to live.  But there are a number of other upsides that are considerably less apparent, and they aren’t all about money.  Here’s a great piece from Peter Morgan at The Mortgage Reports that outlines a few of them….

Buying A House Is Generally A Fantastic Investment

The U.S. Census Bureau has a table of historical home values on its website that starts in 1940 and ends in 2000. It uses constant year-2000 dollars for all figures to account for inflation.

Home Ownership Gets Easier Over Time

Paying your mortgage over time means you’re building equity each month. An asset you can sell or borrow against in the future.coinsgrow

Although, when buying a house for the first time, there can be a little financial strain. You have to come up with a down payment and cope with unexpected homeownership costs. You may feel the pinch for a few years.

But gradually things get easier, trust me on that!

Build to Your Tastes, Not Your Landlord’s

Do you  want a bunch of pets?  Does taste in decor matter to you?  Do you like walls painted in crazy shades of pink, or do you spend your weekends tearing apart engines or woodworking in your shop?

No problem. When you own your own place, there’s no landlord to tell you those aren’t allowed.

Improve Your Credit Score

Buying a house can improve your credit score, especially if you don’t have a long credit history or many installment accounts. That’s because your mortgage –provided it’s managed well — helps drive up your credit score by showing you are a responsible borrower when you make your payments on-time and consistently.

coop-refinanceWealth Accumulation via Forced Savings

You can view the equity you build in your home as you make payments every month as a type of saving. Unlike renters, you’ve no choice but to increase your net worth.  The Harvard University Joint Center for Housing Studies confirms this.  In fact, on of their studies showed that homeowners acquire 46 times as much net wealth as renters.

For every $1,000 accumulated by non-homeowners, those who own a home acquire $46,000.

Benefits for Your Family

The National Association of Realtors (NAR) website links to studies and reports that make some pretty extraordinary claims for the benefits of homeownership, including:

  • Better mental and physical health
  • Improved community engagement
  • Higher educational attainments for the children of homeowners

Of course, you have to choose to involve yourself in your neighborhood, and to support your children’s efforts.

Contact your Realtor or Mortgage Lender for more!

 

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

Mortgage Approval After One Year of Self-Employment?

one-year

Self-employed mortgage applicants must prove stability of employment and income, usually going back two years.  This is a bit tougher than it is for regular salaried employees.

Traditionally, mortgage lenders have required two years federal income tax returns in securing a mortgage for purchasing or refinancing real estate.  There’s been changes to the way mortgage lenders underwrite mortgage loans.

Fortunately, there is a way to use just one year of tax returns to qualify for a mortgage.  This can help newer business owners, as well as those who experienced a down year in the past.

Key ExchangeWhether you are looking to buy a home or refinance one, you may be able to qualify by showing only your most recent year of income.  Check out this article by The Mortgage Report’s Adam Lesner for more.

Getting Approved As A Self-Employed Applicant

Generally, a self-employed borrower is any individual who has 25% or greater ownership interest in a business.

According to conventional mortgage guidelines published by Fannie Mae, underwriters consider the following factors to approve a self-employed borrower.

  • The stability of the borrower’s income
  • The location and nature of the borrower’s business
  • The demand for the product or service
  • The financial strength of the business
  • The future outlook of the business

Two points stand out here when getting approved as a business owner: stability and consistency.

The way underwriters measure stability is by looking at length of history in that business specifically, and in that field.

They typically want to see a two-year history in the respective industry. This is where you may be granted an exception if you haven’t been self-employed the whole two years in that line of work.

Ask The Lender To Use Different Approval Software

In some cases, the underwriter won’t ask you to provide a full two years’ worth of tax returns.

Most applicants’ files are run through computerized underwriting systems, then verified by real person. The underwriting software, in some cases, will ask for the most recent year of tax returns only.

Freelancer-Finances-810x552The one-year requirement typically comes from “Loan Prospector,” which is Freddie Mac’s loan approval software. Fannie Mae’s version of the software is less likely to give you a one-year requirement. Most lenders can approve loans via Freddie Mac or Fannie Mae.

If you have been self-employed less than two years, ask your lender to try running your scenario through Loan Prospector. There’s a chance this system will require you to document less self-employment than would another system.

If you receive the reduced, one-year requirement, it’s important to understand that your tax return must reflect a full year of self-employment income.

For example, if you became self-employed in April 2017, that year’s tax returns are not going to reflect a full year.  If you started your business in November 2016, then your 2017 tax returns will demonstrate a full year of experience running your business.

Give your me a call to find out more – as there are multiple alternatives that we can examine!

Use Assets as Income in Loan Qualification

best-banks-for-mortgages-min

A little-known change in Freddie Mac’s rules could be a big help to qualifying retiring Baby Boomers and other savvy homebuyers who have limited incomes, but substantial financial assets, for a low-rate conforming, conventional mortgage.

Without a steady income, how do they qualify for a loan?  By utilizing assets as income, that’s how!

Loans backed by Fannie Mae and Freddie Mac — which means most loans issued these days — can use assets such as IRAs and 401(k)s to help applicants meet income requirements. The provision “lets you takeblue-roof-and-calc advantage of your holdings to a greater degree,” says Keith Gumbinger, vice-president of HSH Associates, which publishes mortgage information and rates.

How Does It Work?

Assets that can be counted under these rules include retirement accounts such as IRAs and 401(k)s, lump-sum retirement account distributions and annuities.

“The borrower must be fully vested, and the retirement assets must be in a retirement account that is immediately accessible,” says Brad German, a spokesman for Freddie Mac.  That means the money cannot be subject to an early-withdrawal penalty and cannot currently be used for income.

The formula takes 70% of qualifying assets, subtracts what will be needed for down payment and closing costs and divides the remainder by 360, the number of months in a standard loan, to arrive at a monthly income used to determine the applicants’ maximum payment and loan amount.

stick figure on cashHSH.com says, for example, that a borrower with $1 million in assets could count $700,000.  After taking out $10,000 for closing costs and dividing by 360, the borrower could show $1,917 in monthly income.

That, of course, is not enough for a gigantic loan.  But it could be very helpful if the borrower needed a relatively modest loan for the gap between the cost of a new home and the proceeds from selling an older one.  And Social Security, pension and other income sources could help the borrower get a bigger loan.

There are some catches, however.  To be counted, the assets, including interest earnings and dividends, cannot be used for current income, HSH says.

If you would like to find out more about utilizing your assets as income for your next home purchase or refinance, reach out to your mortgage lender for more details.

 

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

Cancel Your Mortgage Insurance – Right Now!

Home Mortgage Refinance

If you bought a house with a down payment of less than 20%, your lender required you to buy mortgage insurance. The same goes if you refinanced with less than 20% equity.

Private mortgage insurance is expensive, and you can remove it after you have met some conditions.

How to get rid of PMI

To remove PMI, or private mortgage insurance, you must have at least 20% equity in the home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home’s original appraised value.

The process to do so is straightforward.  Get an estimate of value from a local real estate agent or loan officer.  Online home valuation websites can be inaccurate, so be careful with those.palmgraph

See if you have around 20% equity based on your home’s estimated value.  Be sure to add closing costs onto your existing loan balance if you do not wish to pay them out of pocket.

Then, reach out to your lender and begin the refinance process!

Refinancing to get out of PMI

When mortgage rates are near record lows, as they are now, refinancing can allow you not only to get rid of PMI, but you can reduce your monthly interest payments. It’s a double-whammy of savings.

RefinanceThe refinancing tactic works if your home has gained substantial value since the last time you got a mortgage. Let’s say you bought your house 3 years ago for $100,000, and you borrowed $90,000. That means you have a loan-to-value ratio of 90%, and you pay for PMI.

Three years later, you’ve made all your payments and you have chipped away at the loan balance. Now you owe $85,000. And your home’s value has gone up — now it can be appraised at $112,000. Its value has grown 4% a year.

At this point, you owe $85,000 on a $112,000 house. This means you owe 76% of the home’s value — well under the 80% loan to value that triggers the need for mortgage insurance. Under these circumstances, you can refinance intfha-mipo a new loan without having to pay for PMI.

Here’s a great piece from Craig Berry at the Mortgage Reports for those who have FHA loans and are paying mortgage insurance (MIP). He outlines the benefits of the FHA loan – and examines why right now is a great time to move to a conventional loan.

Now is the time

With rates near historic lows and home values rising consistently, now is a fantastic time to look at refinancing away that PMI.  I’d be happy to sit down with you and talk about alternatives and programs that could fit you needs!

 

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

Stop Paying Rent – A Home Ownership Strategy

no-rent-hi

I have the privilege of talking to many would-be home-buyers, that’s what I do.  You would be surprised how much they understand the market relationship of low inventory at particular price points and high rent.  High rents are partly caused by declining inventories of available, affordable homes.

It’s frustrating to spend a significant percentage of monthly income on rent – and rent doesn’t generate any equity. To add insult to injury, the renter misses out on significant tax advantages of a mortgage.

How Do We As Agents & Lenders Help These Customers?

Long Term Relationships –It is important that buyers develop long term, trusting relationships with real estate agents and mortgage lenders.

Agents and lenders are competing for buyers – and buyers are competing for the affordable listings that are available, putting the sellers at the advantage. Sellers often receive multiple offers and bidding wars have become quite common. It is important that agents and lenders have strategies, outside of just the highest offer, to make their buyer the most attractive.

chalkboardHowever, we must realize a competitive market is not necessarily a bad market.  Homeowners are certainly due their return on investment.  Obviously, the renter wants to enter the ranks of homeowners so they can get their return on investment too.

Back to the question – how do we as agents and lenders help these customers?  The answer is relationships, knowledge, and execution.

The agent who understands the needs of the buyer reacts quickly in a changing market.  The lender who has a keen understanding of all mortgage products equips the buyer to present a compelling offer relative to other bidders.  The point is this, relationships between buyers, agents, and lenders are crucial in a competitive market.

Relationships & Knowledge – Keys to Strategy

Knowledge – Understanding the connections between a buyer’s financial condition, housing inventory, and mortgage products is vital to purchasing a home.

A reputable lender has many wonderful mortgage products at their disposal.  These products give financing options to a lot of potential buyers. Products such as USDA, VA, Conventional, FHA, and Non-Prime all have features that make buyers attractive to sellers.  If your lender doesn’t have a working knowledge of these products, the buyer will be at a competitive disadvantage.

shopping-cartLikewise, the real estate agent that has knowledge of the market will give a competitive advantage to the buyer.  These agents act quickly and fulfill buyer requirements while meeting the financial expectations of the seller.  A strong relationship between the agents, the buyers, and the lenders ensures the perfect home is financed with the right mortgage.

The Execution Phase

ExecuteThe real fun begins once the relationships are in place.  Naturally, the nest step is executing a Purchasing Plan and visiting listings.  The Purchasing Plan must match buyer’s needs, financial ability to purchase, and seller requirements.  A well-executed Purchasing Plan will maximize the buyer’s ability to own their dream home.refinance totter

Maximizing purchasing power relative to the available inventory requires constant communication, partnership, market research, and financial review by the real estate agent, the lender, and the borrower.  It is a team strategy that requires knowledge, relationship, and communication.   Executing a well thought-out Purchase Plan usually results in happy homeowners.

 

Closing Timeframes Continue to Lengthen

spiral-clock

Since the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule last October, continuing evidence shows the impact of TRID in lengthening the time to close real estate transactions.  Both purchase and refinances have been severely impacted by these new regulations.

Now, a report from Ellie Mae shows more statistical evidence on how deeply the impact of TRID is being felt, with the time to close a mortgage loan climbing yet again.  Additionally, 2016’s average time to close a loan is 10 days longer than just one year ago in 2015, when the average time to close a loan was 40 days.

If you find 50 day closes unacceptable (as I do), please reach out to me so we can get your customer in their new home sooner rather than later!  Take advantage of Equity Prime’s 30-day On-Time Closing Guarantee.

The gist of TRID is that mortgage lenders must send particular paperwork to mortgage borrowers 72 houRealtor Guarantee 3-1-2016 (2)rs prior to closing, and that changes to any of the documents require a re-disclosure of said terms and another 72-hour waiting period.

Since October 2015, then, closings have had an additional 3 days tacked on; a government-mandated delay affecting all closed loans.  But Equity Prime is still holding to it’s 30 day on-time closing guarantee!

The faster you can close on a mortgage, the lower the mortgage interest rate can be and the faster your client gets into their new home! Know the steps in a mortgage approval, and where you cut time and corners to get to closing quicker.

Source: The Mortgage Reports

Warrantable & Non-Warrantable Condo Mortgages

new-rules-condo-mortgages

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?

condo-loansA warrantable condo satisfies Fannie and Freddie conventional financing guidelines.  Loans that satisfy Fannie and Freddie guidelines qualify for purchase and sale on the secondary market.  This is important because lenders buy and sell mortgages on the secondary market.

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.

Do lenders think condos are more risky than detached homes?

biltmore-jewel-condos-1Yes, 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.

Click on the article linked at the top of this blog for more information.  Gina Pogol wrote the article this past July and it appeared in 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.

There’s No Rule Against Re-Applying For A Mortgage

dont-give-up-on-your-mortgage-approval

According to Ellie Mae, the 75% mortgage loan approval rate is at its highest level in more than a decade. That is obviously great news for those purchasing a home and for those existing homeowners who are taking advantage of the robust refinance market.

Source: The Mortgage Reports

What Do The Other 25% Do?approved

Denial of credit is, usually, not permanent.  This is good news.  Loan offers and underwriters analyze many financial factors in every loan file. Automated underwriting systems (AUS), FICO scores, debt to equity ratios, loan to value ratios, and the appraised vale of the home are indicative of a borrowers ability to repay a mortgage.

None of house_on_cashthese factors are permanent and all can be improved with good financial planning.

A reputable lender will work with borrowers who are denied credit.  The loan officer must take time to explain the reasons for the denial and offer suggestions for improvement.  For a nominal fee, credit repair companies  provide recommendations for retiring debt that is responsible for the mortgage denial.   Frequently the loan officer will check the AUS findings and make recommendations that will improve FICO scores.

Small Changes, Big Impact

Most lenders approve or turn down a loan based an Automated Underwriting System, or AUS — software that weighs all factors of your loan profile.

The algorithm is not super predictable. In fact, a small tweak can move you to “approved” status.

For example, an applicant might have perfect credit, but a high debt-to-income ratio, and a small downpayment. He does not receive an approval.

But he pays off a high-payment credit card. His debt-to-income drops, and he is approved.

Lenders see these reversals in fortune all the time. Often, they keep mental notes of what works and what doesn’t. If your loan is not approved, ask your loan professional if there’s anything you can change quickly to get approved, such as the following.

  • Make a slightly bigger downpayment
  • Buy down the interest rate by 0.125%minimum-down-payment
  • Obtain a rapid rescore to raise your credit score a few points

You could be surprised at what a seemingly small change can do to your approval status.

Remember, the financial factors that result in credit denial are not permanent.  Credit can be improved.  In many situations the borrower can improve credit within a month or two – quick enough to change the denial to approval.

The attached article  provides a road map for next steps when you or a customer are denied credit.  Make sure you are working with the right lender as well.  A reputable lender welcomes the opportunity to help a potential buyer improve their credit so they can own a home.

The Bank Statement Mortgage – A Great Option

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. Freelancer-Finances-810x552

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

stick figure on cashBorrowers 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

Another-Happy-Homeowner1

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 Reportsrefinance totter

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.

piggybanks marchingI 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.

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