Documents Needed for Mortgage Loan ApprovalUncategorized / 2 Jul 2022
Underwriters are following more stringent terms than ever, and so lenders will require many documents from you in order to evaluate your mortgage qualification.
But lenders also want your business, so while collecting all documents may be tedious, you can help your mortgage company expedite your approval. Use our Application Checklist to speed up the application process and stay organized!
Best Times to Buy, Sell and List a HomeUncategorized / 2 Jul 2022
If you’re in the home market or are selling your home, you might be interested to know the best times to buy, sell and list a home. These principles are tentative, but generally hold true on a regular year.
The Best Time to Buy: Spring and Fall
If you’re looking to buy a house, the best time to buy is in the spring or the fall. This is because there is usually an increase in home inventory during these seasons. When there’s more inventory, there are more options for you to choose and your shopping process may be lower maintenance.
The Best Time to Sell: Holidays and Winter
It’s not typical for sellers to sell during the Holidays or winter because they’re typically seasons for relaxation. For that very reason, you should sell your house during those seasons. You will have less competition and easily be able to weed out the serious buyers from the less serious buyers. If someone is really passionate about your home, they will reach out to you no matter when it’s for sale.
The Best Time to List: Early in the Week
When you’re listing your house, you have to keep in mind that the first Sunday open house you hold is the most important indicator of how easy it’s going to be to sell your house. Many agents will list houses on a Thursday afternoon or Friday morning to prepare for a Sunday open house so that it’s fresh on the minds of buyers. However, one good strategy to try is to listing your house on Monday or Tuesday in order to build up momentum.
Of course, we encourage prospective buyers to make the purchase while rates are low (which is right now), but depending on your local market these pieces of advice could serve you well. When looking to buy, sell or list, rake advantage of these data or request assistance today!
3 Questions to Ask Your LenderUncategorized / 2 Jul 2022
Every major sales transaction requires a consultation and a home purchase is no exception. Stay in control of your mortgage by asking your lender the following questions:
1. How long will this take?
It looks harsh at first glance, doesn’t it? But in reality it’s a question that will give you a reality check. Many borrowers are bombarded with ads from lenders who guarantee closing in a certain number of days, but each loan application is different and requires varying lengths of time to process. Ask your lender for an estimate of time before you find yourself growing antsy!
2. Will I be penalized if I pay off my loan early?
Early repayment penalties are in place because paying off a loan before its due date results in less interest paid to your lender. It sounds greedy, but interest keeps our operation running. While we try to secure the lowest mortgage rates possible for our customers, it’s quite a blow to hear they’ve repaid an entire loan so quickly that our slow accruing profits have officially been cut off. The early repayment penalty covers those losses.
3. What are my closing costs?
Always ask us for a GFE or Good Faith Estimate. GFEs detail all of the extra fees that are required at loan closing. You will not only want to understand each cost for your own peace of mind, but also your wallet. Do not be one of those borrowers who thinks money for a down payment is enough to cover an entire home purchase – there are always extra fees for those people who work hard to get your loan closed in a timely fashion.
Ultimately, a good mortgage lender will answer all these questions, and more. Click here to schedule a call with our advisor. We will be happy to provide expert advice and support you throughout the mortgage process.
Getting rid of Private Mortgage Insurance (PMI)Uncategorized / 2 Jul 2022
Private mortgage insurance, or PMI, helps to protect the lender in case you default on your mortgage – and the obligation is on you to pay for that protection. Normally, lenders will require you to purchase private mortgage insurance if you have less than 20% to put down or if you refinance and have less than 20% in equity in your home.
Lenders require PMI to hedge the risk of you defaulting on your mortgage loan and the foreclosure not generating enough to cover the balance of your loan plus the lender’s fees. This protection is not cheap, and you’re left footing the bill. As an example, on a $250,000 loan, you could be paying as much as $210 a month.
In a perfect world, you can avoid PMI by waiting to buy until you have saved at least 20% to put down. The realities of life don’t always allow for that through. Taking on the expense of PMI allows you to purchase a home, and start building equity, while you might otherwise be waiting months or years. The purchase and the burden of PMI makes sense when house values are rising, or if the interest rates are low and you want to make sure you are able to lock in today’s rates.
Regardless of how you got there, you’ll want to get rid of PMI as quickly as possible. Below you’ll find the rules and guides on dropping PMI and riding your budget of this expense.
When can I stop paying PMI?
As long as you are current on your mortgage payments, you can stop paying PMI as soon as your loan balance falls to 80% of your homes value. If your home is worth $250,000, you would need to owe $200,000 or less to stop the payment of PMI.
Although your loan will eventually fall to 80% of your home’s value if you continue making your payments, this process can take years as most of your payments are going towards interest in the first years of your mortgage. If you bought a $250,000 home with 10% down payment, your loan balance would be $225,000. You would need to pay that balance down to $200,000 to get rid of the PMI payment. Assuming you have a 30 year fixed mortgage at 4.5%, your loan balance would drop below that threshold only after 6 years.
Making extra payments and rising real estate values could both help get that balance down to 80% faster. If your $250,000 house is now worth $300,000, you’d no longer have to pay PMI because your remaining balance would be roughly 73% of what your house is currently worth.
How can I stop paying PMI?
If you believe your balance has dropped to 80% you can send a written request to your lender asking for them to remove the PMI. This request must include your loan information, property address and information on the equity you believe you’ve built in your home.
In most cases the lender will require a professional appraiser of their choosing to give a current value of the home before proceeding, and will most likely ask you to pay for it. The lender won’t just take your word for it though, an appraisal is necessary if your request to drop PMI is based on an increase in the homes value. Many lenders will even require an appraisal when your request is based on a decrease in the loan balance. The necessity for an appraisal in that case is to ensure that your home hasn’t declined in value since you obtained the mortgage.
If you want to save yourself the cost of the appraisal, lenders are required to automatically drop PMI once your loan balance falls to 78% of the original value of the home when you took out your loan. Regardless of the current value of the home, the lenders still can’t require PMI so long as your are current on your mortgage. While you are saving money on the appraisal, you could be paying for PMI a lot longer then you have to by waiting to reach the 78% mark. With a $250,000 home, your loan balance would be below 78% of its value ($195,000) only after 84 months. That amounts to $2,275 if your PMI costs you $175 and you are making the additional 13 payments.
In most cases, the cost of the appraisal is well worth it. As you get close to the 80% mark, or if you feel your home’s value has increased, you can check the comparable home sales in your area to get a rough estimate of what your home would appraise for. If the comparable sales support your beliefs, you should definitely write your lender to request the removal of PMI.
For more information click here to schedule a call with our advisor. We will be happy to provide expert advice and support you throughout the mortgage process.
No Doc Mortgages Are BackUncategorized / 2 Jul 2022
Less than a decade ago no doc mortgages were the craze that everyone was jumping on top of. While they proved to be a viable alternative for self-employed borrowers, the default rates on these types of mortgages nearly crashed the entire US real estate market.
To recover from the collapse, most lenders have gone from “no doc” to “all doc, all the time.”
As the real estate market has once again found it’s footing, lenders are bringing back alternatives for non-traditional financing that has kept many home buyers on the sidelines.
What Defines a No Doc Loan?
Before the real estate crash of 2008, lenders offered no doc loans to buyers who realistically had no way of repaying the mortgages.
These once popular programs got their name from their lack of documentation requirements as the loans required very few docs to get approved.
The most egregious of these loans was the NINJA loan, with no requirements at all to prove income, job or assets. All the borrowers had to do was state their income, but no one was verifying this information.
Contrary to traditional guidelines, these loans were approved purely on credit history and sometimes assets, but not on employment and income.
How Alternative Income became a “thing”
The no doc loan was originally created to make it easier for business owners to purchase homes. While business owners often have plenty of cash flow, their taxable income, which is used by lenders to qualify for a mortgage, usually came up short.
Standard “no doc” or “stated income” or “no income verification” guidelines required borrowers to have at least six months of their income in reserves. Since this is a form of savings, savings were often used as a substitute for income.
These loans often had fairly high credit score requirements as well. The logic behind this was that if you have the ability to spend money and repay your debts on time, you probably had the income to support it. In this scenario, FICO became another alternative for income.
The problem is that people can borrow money to show sufficient reserves and pay their bills by borrowing even more. This could create the picture of perfect credit and assets without the true means of being able to afford the new mortgage.
The start of the default on No Doc
As the availability of no doc loan options increased, as did their popularity with home buyers. Lenders began pushing the envelope with no doc loans and many removed the safety nets like larger down payments, higher required credit scores and increased asset requirements.
Subprime loans with higher rates, higher fees, no down payment requirements and no income verification quickly took over the market.
As with everything, all good things must come to an end. These “liar loans” were frequently being abused causing far greater default rates than on traditional loans and the lenders started to roll back these options.
This roll back left many without any viable options for new loans in no doc scenarios.
Ability to Repay and QM became a “thing”
To correct the market, the Consumer Finance Protection Bureau (CFPB) introduced new rules for mortgage lenders.
The Bureau amended Regulation Z, which implements the Truth in Lending (TILA), adding the ability-to-repay (ATR) rules.
The new ATR rule simply states that lenders must make a reasonable, good faith determination of a homeowner’s ability to repay their mortgage.
To abide by the new ability-to-repay rule, lenders instituted a “Qualified Mortgage” (QM). These mortgages often include more certain, stable features, making it more likely that the borrower will be able to afford their mortgage.
Non-Prime Lenders Re-Enter the Market
“Subprime” carries a lot of negative connotations after being one of the causing factors behind the recession of 2008.
Non-prime has taken the place of subprime to create programs for borrowers that do not fit into the constraints of the new standards.
Those that still find it difficult to fit into the box of a traditional mortgage program are finding non-prime loans a perfect alternative.
Bank Statement Qualification Standards
Bank Statements are an ideal alternative for the self-employed and independent contractors to prove their income. The programs were designed for those whose tax returns and employment history do not show all the income they’ve truly earned.
At a cursory glance, these mortgage applicants seem to carry more risk than they actually have, because they don’t meet the QM standards.
As opposed to requiring tax returns, W-2’s and paystubs, lenders are basing their approvals on a combination of bank statements and a profit & loss statement for the business.
With Bank Statement programs, the personal deposits from the past 12-24 months are used to calculate income. Some lenders have even gone as far as allowing the use of the businesses bank statements.
Cash Flow Products for Investment Properties
Purchasing investment properties, also known as non-owner occupied properties, provides valuable investment opportunities for the casual homeowner and the seasoned investor alike.
The problem with purchasing these properties is that getting favorable financing terms for investment properties isn’t easy.
What the investor cash flow programs offer is the ability to qualify purely on the cash flow generated by the property, and not the personal income of the borrower. This allows the borrowers to avoid the pitfalls of debt-ratio requirements.
Hard Money Fills the Gap
“Hard money” is a form of financing made by private businesses or individuals for investing in real estate.
Investors often use hard money lenders when purchasing properties in need of work. Properties that are not ready to be immediately occupied make traditional financing next to impossible to obtain.
The key characteristics of Hard Money loans are:
- Beneficial for short term stop-gap measures
- The assumption is always that the property will foreclose and decisions are based on property value
- Often much shorter term with balloon payments due in 6 – 36 months
- Most don’t require any form of income verification.
Non-Prime Mortgage Program Shortcomings
In this post collapse mortgage era we are seeing very stringent lending guidelines and non-prime loans can be a great alternative for those looking to get a no-doc loan.
However, most of these non-prime mortgages come with a set of their very own stringent requirements to qualify.
While lenders exist with lower overall requirements, they typically will want to see a downpayment of at least 20 percent.
Credit score requirements offer a wide range from excellent credit to some that will go as low as a score of 500.
Interest rates for non-prime mortgages are also not what borrowers expect and will generally be several percentage points higher than their prime loan counterparts.
Origination fees and closing costs are also customary with these types of loans.
Over nine million self-employed professionals in the US who have sufficient income fall short of lenders’ income reporting requirements. Fortunately for these homeowners, as well as many others who simply don’t fit the traditional financing mold, great alternatives are starting to once again re-emerge. If you would like to find out more about no doc mortgages, click here to schedule a call with our advisor.
Mortgage rates causes American millennials sharing their homeUncategorized / 2 Jul 2022
Mortgage rates has caused 60 percent of American millennials sharing their home:
Published Date 2/27/2017
The proportion of American millennials sharing their home has hit its highest level in 115 years:
A recent study published in a blog by Trulia shows that 60 percent of young Americans live with parents, other relatives, friends or roommates as high rents and high home prices make solo living unaffordable.
Trulia’s Mark Uh, writes that in Miami a typical renter would need to spend almost half of their income on renting a one-bedroom apartment but for a millennial this rises higher, to 54 percent.
Millennial renters also pay more than typical renters in Boston and Los Angeles but less in San Francisco and New York.
The article highlights the savings that are achievable by renting a two-bedroom home with a roommate rather than living alone in a one-bedroom home.
Double-digit savings can be achieved in eleven of the top 25 rental markets but Miami is a unique case. Despite the saving being the largest among the top rental markets, the 19.2 percent saving from renting with a roomie would still leave the rent unaffordable by US government metrics.
Of course, with many low-down payment options available and mortgage rates still near historic lows, this may be a market segment that needs to be educated on the value of purchasing instead of renting.
This Week’s Mortgage Rate Summary
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.
Rates Currently Trending: Higher
Mortgage rates are trending slightly higher this morning. Last week the MBS market improved by +53 bps. This was enough to improve mortgage rates or fees. Mortgage rates experienced moderate volatility.
This Week’s Rate Forecast: Higher
Three Things: These three areas will receive the most attention from long bond traders and therefore have the greatest potential to impact mortgage rates: 1) Fed, 2) President Trump and 3) Domestic.
1) Fed: There is no question that the majority of voting members and even Janet Yellen herself have attempted to get the markets to move towards a “live” March Fed meeting. But so far, their lip-service has not worked. This is their last week to make an effort to move the needle for a rate expectation as we enter a “black out” period next week for the Fed.
We get their Beige Book on Wednesday which takes all 12 Federal Reserve Districts’ anecdotal reports and combines them specifically to be reviewed and used in their interest rate decision.
- 02/28 Esther George, John Williams and James Bullard
- 02/29 Robert Kaplan and the Beige Book
- 03/01 Loretta Mester
- 03/02 Charles Evans, Jeffrey Lacker and Janet Yellen
2) President Trump: He is speaking today in front of the State Governors and the bond market will react to any statements that he makes to them. But the real key is Tuesday nights address to Congress where he may (or may not) discuss specifics on taxes, spending and could even present a budget that will need to be voted on.
3) Domestic: After last week’s “yawner’ of lower level economic releases, we have a very robust schedule with some of the biggest releases of the quarter. We get the 4th QTR GDP but this has already been released once and will probably see a small upward revision, Durable Goods are too volatile for economists to draw any real correlation with economic growth. So, while those are big name reports, the most important ones are actually the Core PCE on Tuesday (will it move from 1.7% closer to the 2% target?), manufacturing data with Chicago PMI and ISM will be key as will Friday’s ISM Services reading.
This Week’s Potential Volatility: High
Today we expect to see a bit of an uptick in mortgage rates from the move lower last week. Overall, volatility should be relatively high for the week because of the three things listed above.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, click here to schedule a call with our advisor.
3 Strategies to Beat an “All Cash” OfferUncategorized / 2 Jul 2022
3 Strategies to Beat an “All Cash” Offer
As the housing market across the country continues to rebound, many areas have become “seller’s markets” – a market in which there are more buyers than there are homes for sale and where sellers are more likely to have their choice of buyer and to be able to dictate more attractive options for themselves, rather than buyers being able to dictate terms that are beneficial. In many of these markets, buyers have to content with and go up against offers of “all cash”, where the other buyer won’t be taking out a mortgage and will instead be handing the seller a lump sum of cash for the purchase of their home. How can you combat an all-cash offer? It is possible to submit an offer that’s more attractive than an all-cash offer, one that will get you into the home of your dreams. We’ve compiled our top 3 strategies to beat an all-cash offer so that you get into the home of your dreams, which can be found below.
Be ready to move quickly – have your ducks all in a row
Even though someone is offering all-cash, there may be reasons why they couldn’t move on a sale right away. They may be offering all-cash but will need time to withdraw it from one account and transfer it to another, they may want (or need) time to sell their current home and move or they may have personal reasons to ask for a delayed closing date. Use those potential delays to your advantage and be ready to move quickly with your offer! Make sure you are pre-approved and have all your paperwork in order so that your mortgage officer can process your loan quickly. Research home appraisers and inspectors and have a couple of each on standby so that you can arrange to have those appointments set up very quickly after you submit your offer. By showing the seller that you are motivated, you may be able to overcome the flashiness of an all-cash offer.
Make yourself known to the seller / include a personal story or note with your offer
Although some areas have strict rules governing the types of interactions that prospective buyers can have with sellers, many times putting a personal touch on your offer can go a long way. Are you looking to buy the seller’s home because you can see yourself playing catch in the backyard with your kids? Because it’s near to your aging parents who you take care of? Some seller’s can be influenced by these stories, and because their house has been their home, they may favorably look to sell to someone who has similar ideals, goals and dreams for the house. Speak to your agent before contacting a seller directly – but don’t automatically dismiss the idea of sending a card or letter explaining why you want to buy the house.
This one can be tricky because who has tons of extra cash lying around, or who wants to pay more for a home? Not many of us. But, if a buyer comes in with a low but all-cash offer, you pay be able to beat that offer by offering more for the home. You’ll need to take into account the appraisal value of the home, as that will often drive how much mortgage you can be offered, but if the home is appraising higher than the asking value, or you are able to increase your down payment, a higher offer may beat out an all-cash offer.
If you live in an area where a lot of all-cash offers are being made, don’t count yourself out. While it’s true that many sellers will look at an all-cash offer as less risk and will gravitate towards that solution, there are ways to beat out an all-cash offer.
If you’d like to find out more, click here to schedule a call with our advisor.
What You Need To Know About EscrowUncategorized / 2 Jul 2022
What You Need To Know About Escrow
When you purchase or refinance your home, you will receive a GFE (good faith estimate) from your lawyer approximately when you will go into escrow. This GFE will describe in detail the information for your escrow account; this is commonly referred to as insurance impounds and property tax. This may or may not be necessary depending on the agreement you and your lender reach. Here’s what you need to know about escrow:
Previously, home buyers would be responsible for paying their property taxes at the end of the year. However, many homeowners didn’t budget properly throughout the year and thus ran short on funding. Therefore, many lenders started asking homeowners to pay these taxes and fees throughout the course of the year as opposed to at the end of the year. The overall goal of this was to have the lender pay the fees on the borrower’s behalf each month to minimize any errors or missed payments. For their services, lenders receive interest on the escrow funds. Often, lenders will ask for anywhere from three to six months’ of property taxes to open an escrow account.
So, is it worth it for homebuyers? Ultimately, yes. Even though you will technically lose a little bit of interest each month, it’s much easier to budget monthly than yearly for something that is due no matter what. You will find yourself feeling a little more financially secure and not sweating at all when property tax season comes.
Fixed Rate Mortgage or ARM?Uncategorized / 2 Jul 2022
What’s the Best Option: Fixed Rate Mortgage or ARM?
If you’ve never shopped for a mortgage before, you might find the information and options overwhelming. You’ve got conventional fixed rate mortgages for various terms, government-backed or guaranteed mortgages like FHA, VA and USDA loans and adjustable-rate mortgages, or ARMs, for various terms and lengths. What’s the best option for you? In order to determine what your best mortgage option is, you’ll want to compare the types of mortgages.
What is a fixed rate mortgage?
A fixed rate mortgage, which is also often called a “conventional mortgage”, is what you most likely think about when you think about mortgages: you pay a fixed interest rate for the term of the mortgage loan, which is usually 15 or 30 years, although some lenders also offer 20-year terms. Because interest rates are so low right now, getting into a locked, low rate for a set period of time is an attractive option to many buyers, and a fixed rate mortgage gives you some stability for the future, as you’ll know approximately what your mortgage payment will be each month for the lifetime of your loan (allowing, of course, for some adjustments due to fluctuating property tax rates, cost of homeowners insurance, etc.)
What is an ARM?
An adjustable rate mortgage (or, ARM) is pretty much what it sounds like: a mortgage loan where the interest rate you pay will adjust or fluctuate, over the term of the loan. ARMs do not raise interest rates arbitrarily – the interest rate will adjust at specific, known intervals over the life of the loan, generally at 5 or even 7 or 10 years. So, you’ll get the initial low-interest rate for a set period of time, like 5, 7 or 10 years, and then your interest rate will adjust, generally yearly, after that. If you are likely to experience a large promotion at your job in the next several years, or come into a large sum of money or have other financial changes in the coming years, an ARM can be a great way to get a lower interest rate up front and build equity quickly. What are the benefits of one over the other?
Both fixed rate mortgages and ARMs come with their own pros and cons, and it’s important to weigh all your options before committing to one loan type over the other. Your home is likely one of the largest, if not the largest, purchases you’ll make in your lifetime, and small differences in interest rates or repayment terms can dramatically change the total amount you will repay to your mortgage lender. A fixed rate mortgage gives many buyers the long-term stability they are looking for, while ARMs generally have lower interest rates, though for shorter terms. Depending on your unique financial situation, one option may save you more money over the long term. To help determine which option is right for you, call you lender and ask about your options – you might find you have more options than you think you do!
Key Players in the Mortgage ProcessUncategorized / 2 Jul 2022
Key Players in the Mortgage Process?
When you buy a home there will be a lot of people involved in your transaction. Real estate agents, mortgage lenders/brokers, the federal government, appraisers, insurance companies, title attorney / closing attorney and more. Don’t forget that through the entire process, the most important piece of the puzzle is you. To be in the best position to qualify for your dream home at the lowest mortgage interest rate available, make sure you have your personal finances and prospective home finances in place when you begin your home-buying journey. Work on improving your credit if it is less-than-perfect and determine roughly how much of a down payment you’re likely to have and where it will be coming from so that you can complete any required forms and documents within plenty of time. Because there are so many players in each home sale, the roles of each can get confusing. Read a bit about the role each player will play in your home and home loan search below!
Real Estate Agent
The role of the real estate agent is probably one you’re at least somewhat familiar with already. Your agent will find homes for you that match the parameters you’ve set out and will show you home. They are your representative during the home buying process. Realtors can act as dual agents: they can sometimes represent both the buyer and the seller in a transaction; however, it’s ideal for you to have your own agent whose sole job it is to lobby for your interests.
We advise that you get pre-approved for a mortgage before you begin your home ownership search so that once you find the home of your dreams you can act quickly to make an offer and (with any luck!) purchase it. Mortgage brokers are individuals or companies that work with many lenders and work to get you the best loan terms available. You can work either with a broker, or with a single lender.
The Federal Government
The federal government offers several mortgage backing home ownership programs such as FHA loans (through the Federal Housing Authority) and VA loans (through the Veterans Administration.
Appraisers / Insurance / Title Attorneys and more
Once you’ve found the home you intend to purchase and you’ve been approved for a mortgage loan to buy that home, you’ll meet (and sign paper work from!) a number of other real estate professionals. You’ll want to have your prospective home appraised by a licensed and experienced appraiser. When you close on your new home, you’ll meet with a title attorney to go over all the required paperwork. You’ll need to contact an insurance company to purchase homeowners insurance. And finally, you’ll likely also want to contact a moving company, in order to get you, your family and all of your belongings safely and quickly into your new home!