Category: Refinance (Page 7 of 11)

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.

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

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 hours 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

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!