Category: Refinance (Page 6 of 10)

New Fannie Program to Solve Student Loan Debt Qualification Issues

May 29, 2017 / Tom Bonetto

A truly groundbreaking mortgage solution is now being offered by Fannie Mae, as the country’s biggest mortgage agency is making getting approved for a mortgage much, much easier.

Fannie Mae announced three new features that will help those burdened with student loans to qualify to buy a house, or pay off their student loans via a refinance.

“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” said Jonathan Lawless, Vice President of Customer Solutions, Fannie Mae.

The new program is called Student Loan Solutions, and represents a huge shift by Fannie Mae.

Source: The Mortgage Reports and Tim Lucas

Change #1: Student Loan Payment Calculation

Fannie Mae has changed how lenders calculate student loan payments.

Lenders may use the student loan payment as it appears on the credit report for qualification. Period. That may seem like common sense, but it’s not how things have been done in the past.

Change #2: Student Debt Paid By Others

Just because a payment shows up on a mortgage applicant’s credit report does not mean he or she pays it.

Often, that obligation is taken care of by a parent or another party.

In these cases, Fannie Mae is disregarding the payment altogether. That applies not only to student loans, but payments for all debts.

Change #3: The New Student Loan Cash-Out Program: Pay Off Education Loans With A Refi

Perhaps the biggest shift of all is Fannie Mae’s rework of cash-out rules regarding student loans.

Typically, cash-out refinances come with higher rates. They are considered higher risk by lenders and Fannie Mae.

So, according to Fannie Mae’s loan level price adjustment matrix, a lender must charge an extra 1%-2% of the loan amount in fees or more, just because the loan is deemed “cash-out”.

Now, Fannie Mae does not consider the loan a cash-out transaction if loan proceeds completely pay off at least one student loan.

This loan classification has never been seen before — a kind of hybrid between no-cash-out and cash-out financing. Fannie Mae simply calls it the Student Loan Cash-Out Refinance.

Please do reach out to me to discuss these significant changes to see how I might be able to help you either purchase or refinance!

Is A Jumbo Mortgage Better Than A Conforming Home Loan?

May 8, 2017 / Tom Bonetto

What Is A “Jumbo” Mortgage?

A “jumbo” mortgage is a loan that larger than the current conforming guidelines established by Fannie Mae or Freddie Mac. Today, a mortgage that exceeds $424,100 is considered “non-conforming.”

So, when you finance expensive property, you need a jumbo mortgage. Interestingly, the borrower has to play by different rules, because mortgages for high-priced homes are not necessarily standardized.

Jumbo Mortgages: They Are Back

During the mortgage crisis a number of years ago, jumbo loans all but vanished. The ones that remained came with guidelines that were nearly impossible for homeowners to meet.

Jumbo loans generally meant high down payments, higher interest rates, and high credit standards – which made these loans essentially obsolete.

But as the real estate market steadily recovered, jumbo loans have been re-entering the lending landscape.

In fact, homebuyers in the market for a larger loan may be pleasantly surprised to know that jumbo mortgage rates are nearly as low as conforming rates.

Source: The Mortgage Reports

Conforming Rates vs. Jumbo Mortgage Rates

Years ago, the difference between conforming mortgage rates and jumbo rates ranged between half a point to two full points.

These days, however, the spread between jumbo rates and conforming rates is minimal – sometimes as little as 1/10th of a percent, according to a number of surveys out in the marketplace.

Look At Jumbo ARMs

Adjustable rate mortgages can be over one percent lower than fixed-rate jumbo loans. For borrowers with larger loans, ARMs are popular alternatives.

That’s because with bigger balances, the effect of a lower interest rate on what you pay each month is more pronounced.

In addition, jumbo ARM rates can sometimes be lower than their conforming counterparts.

Many jumbo ARMS are not sold to investors, but are instead held by lenders on their own books. These “portfolio” mortgages can be made according to whatever guidelines and pricing the lenders establish.

The market is much less homogeneous, and the smart shopper can often find a bargain with a lender trying to expand its market share or build up its pipeline.

Jumbo ARMs come with introductory periods in which their rates are fixed. You can find loans fixed for three, five, seven, or ten years.

If you don’t keep your mortgage for more than the introductory period, you’ll never even have to deal with rate adjustments. And interestingly, most borrowers don’t hold on to those mortgages for more than 7 years.

Compare and Shop Jumbo Mortgage Rates

Unlike conforming mortgage rates, which typically differ by .25 to .5 percent between competitors, jumbo mortgage rates can vary largely from one lender to the next.

Jumbo lenders can serve different markets — alternative documentation, non-prime, unorthodox properties, or borrowers with big down payments and perfect credit — and that affects the rates charged.

This means that when conforming mortgage rates are higher, jumbo rates don’t necessarily follow that the same path.

It definitely pays to shop and compare.

Unlike smaller mortgage loans, a half percent difference in the interest rate on a $700,000 loan amount can add up over time.

$700,000 at 4.375% = $3,495
$700,000 at 4.875% = $3,704

The difference between these two scenarios adds up fast. Over five years, $209 per month saves over $12,500.

Let’s Talk

If you are interested, please do reach out to talk in further detail about jumbo mortgage products. It would be my pleasure to help!

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

5 Ways to Raise Your Credit Score Today

December 2, 2016 / Tom Bonetto

I receive questions all the time regarding the credit scoring system, the FICO score, and how to improve those scores.

Not only can improving your FICO credit score improve your chances of obtaining a mortgage, but it could improve your auto insurance premiums and, possibly, make you a more attractive employment candidate.

FICO scores range from 300 to 850 – and mortgage applicants get the best mortgage rates and terms when their FICO scores are 720 or higher.

For borrowers of all FICO scores, the best way to improve your credit rating is to understand the factors that make up your FICO score, and to take the right actions that can make a positive impact on your score.

Find out more here from The Mortgage Reports and Britt Scearce

What’s Included In Your FICO Score

The FICO credit score takes into account a combination of all of the information found in your credit report.

Your FICO score is made up of the following:

Payment History: 35% of your overall FICO
Total Amounts Owed: 30% of your overall FICO
Length of Credit History: 15% of your overall FICO
New Credit: 10% of your overall FICO
Type of Credit in Use: 10% of your overall FICO

To find out what is impacting your FICO score you will want to review your credit reports. You can obtain a free copy of your credit report from each of the three main credit reporting agencies — Equifax, TransUnion, and Experian — at www.annualcreditreport.com.

Your scores are generated based on a snapshot of the information on your credit report as of the particular moment that the report is pulled. Correcting errors is crucial, therefore, to ensure the highest possible FICO score.

Here are things you can do in the short term to improve your score:

1. Verify your accounts are current

“Payment History” makes the largest impact on your FICO score at 35% of your overall score. It is vital, therefore, that you keep current on all of the accounts reporting to your credit report.

When reviewing your credit report, should you find any accounts that are past due, catch them up as soon as possible and pay at least the minimum payment required by the due date.

2. Dispute your inaccuracies

Should you detect any errors on your credit report, you will want to request a correction as quickly as possible. In order to make a correction, use the information on your report to contact the credit bureaus, and also the creditors which provided the erroneous data to the bureaus. Getting even one late payment removed from your credit report can improve your FICO score dramatically.

3. Ask for a little grace

Sometimes, a creditor may be willing to “help you out”. In cases where you make a relatively small slip-up, with a creditor you’ve never been late with, you can sometimes get a late-payment waived. It’s always a good idea to make a phone call and to ask for a little grace. This works best if you catch the delinquency early and bring the account current right away.

There are many examples of creditors removing a late payment from your credit report if there’s a legitimate story behind what happened, and if you can explain what steps you’ve taken to avoid a repeat occurrence.

4. Settle up collections, charge-offs, judgments and liens

Old collection items, credit card charge-offs, and judgments and liens can hurt your FICO score, too. If you’ve got any of these on your credit report, it’s time to contact your creditors and collection agencies and to settle up one-at-a-time.

In many cases, you can negotiate with your creditors to remove a trade line completely in exchange for settling an account for its full balance. You need to call your credits first, however, to find out.

5. Improve your debt utilization ratio

Another way to improve your FICO is to improve your “amounts owed”, or debt utilization ratio. Debt utilization makes up 30% of your FICO credit score. This is a measure of how much you money you owe to creditors as compared to how much credit is available to you. The FICO scoring model takes into account the utilization of each individual credit account; and the utilization of all of your credit accounts combined.

For example, if you have five credit cards, each with a $2,000 limit, you have a total $10,000 available credit over all five accounts. If you carry a $1,000 balance on one of the five accounts, you would have a 50% utilization on one card and a 10% utilization over all of your credit.

In general, debt utilization of 30% of less is good for FICO scores. Utilization over 30% is often bad.

Now that you are armed with this – get to work and see what you can accomplish to improve that score. Give me a call, as I’d be more than happy to coach you through this process, as well!

Mortgage Approval After One Year of Self-Employment?

November 21, 2016 / Tom Bonetto

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.

Whether 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.

The 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

November 9, 2016 / Tom Bonetto

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 take 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.

HSH.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.