As many of you may or may not know, Prosperity Mortgage is a joint venture with Wells Fargo Home Mortgage and Long and Foster Real Estate. We operate as both a valuable mortgage lender to all home buyers in the Mid Atlantic states as well as offer services to Long and Foster Real Estate. Recently, there was some studies done that reflected a much more positive experience with affiliated or "Core Services" than when non-affiliated services were used. NAR ( The National Association of REALTOR's) and Harris Interactive did the study, with some very interesting results.
The National Association of REALTORS and Harris Interactive partnered together to conduct a public opinion survey regarding public opinion with consumer preferences when it comes to real estate services. They wanted to know if home buyers perceptions have changed since the economic challenges over the past two years. They conducted an original study in January 2008. In November and December 2010, they surveyed 1,100 recent and future home buyers inquiring about the usage and interest in one-stop shopping. Their findings were surprising in that the ideal of one stop shopping has held steady over the past two years, and in some cases, has increased as the availability of mortgages has tightened.
The familiarity of home buyers with one stop shopping has remained steady with 63% of consumers being extremely or somewhat familiar with the concept. Some of the key results include:
-The appeal of using a real estate affiliated service provider has increased 34%. In 2008, the usage was 29% and in 2010 the usage was 39%. The New River Valley mortgage office had a 41.12% capture rate for Christiansburg and 24.39% capture rate in Blacksburg. This gave a combined rate of 32.76% for 2010.
-Buyers continue to believe that one stop shopping will save them money (78%), make the process more manageable and efficient (75%), prevent things from falling through the cracks (73%), and be more convenient (73%).
-Buyers continue to be more satisfied with one stop shopping providers than with multiple non-affiliated providers.
-Home buyers who used one stop shopping consistently reported higher satisfaction levels (52%)-an 11% increase in satisfaction from 2008-than those who used multiple sources (42%).
-The top four services buyers want to be affiliated with their real estate agent’s firm are closing (69%), home inspection (63%), home warranty (54%) and mortgage (50%).
More than 50% of home buyers who were aware that a firm offered a full range of services reported that it positively impacted their decision to use an agent and the firm’s affiliates than those agencies with no affiliations. Since 2008, home buyers have increasingly used the affiliated services with their real estate firms, with the largest increase being in mortgage use (39% vs 31% in 2008), followed by closing services (49% vs 44% in 2008) and home inspections (59% vs 57% in 2008).
One stop shopping has continued to gain popularity with buyers and satisfaction levels consistently outperform multiple unaffiliated service providers. Nevertheless, there are still many opportunities for real estate firms to increase the percentage of consumers who purchase a home through one stop shopping by means of agent education and training and continued broker buy-in an acceptance. If the brokers do not buy into the programs, and express mandatory usage of the mortgage affiliates for pre-approvals, back up offers and other mortgage/marketing needs, then the agents are less likely to associate themselves with the affiliates, event though that relationship exists.
Friday, February 11, 2011
Will Homebuying be more costly in the near future?
In reading through the online papers today, I came across a very interesting article published by Rick Newman of US News and World Report. I have attached the link the article for you to read as this is a fantastic article about what we can expect to see in the housing market in the near future.
A couple things that I took from this article. First, Barney Frank and Chris Dodd are involved. These are the two representatives that have single handily changed that way banks, mortgage companies and mortgage lenders compensate originators. This new compensation regulation has not been received favorably from those of us in the industry. So, with this type of governmental insight is involved, take it from me, it will not be consumer friendly.
The other item that I see is the "federally mandated down payment". While I am a proponent of everyone having skin in the game, a 20% to 30% mandatory down payment requirement will kill any real estate transactions from happening. Currently, less than 1% of mortgages that originate have a 20% down payment. Folks, this means 99% of home buyers, both first time and resale buyers have to use a lesser down payment. With unemployment in the 9%'s, and housing values off by 10% to 20%, retirement portfolios still off by 20%, where will buyers come up with a 20% to 30% down payment?
Read the article for yourself. Here is the link. There is allot of good information contained within the report.
http://finance.yahoo.com/real-estate/article/112093/how-buying-a-home-is-likely-to-change?mod=realestate-buy
A couple things that I took from this article. First, Barney Frank and Chris Dodd are involved. These are the two representatives that have single handily changed that way banks, mortgage companies and mortgage lenders compensate originators. This new compensation regulation has not been received favorably from those of us in the industry. So, with this type of governmental insight is involved, take it from me, it will not be consumer friendly.
The other item that I see is the "federally mandated down payment". While I am a proponent of everyone having skin in the game, a 20% to 30% mandatory down payment requirement will kill any real estate transactions from happening. Currently, less than 1% of mortgages that originate have a 20% down payment. Folks, this means 99% of home buyers, both first time and resale buyers have to use a lesser down payment. With unemployment in the 9%'s, and housing values off by 10% to 20%, retirement portfolios still off by 20%, where will buyers come up with a 20% to 30% down payment?
Read the article for yourself. Here is the link. There is allot of good information contained within the report.
http://finance.yahoo.com/real-estate/article/112093/how-buying-a-home-is-likely-to-change?mod=realestate-buy
Friday, December 3, 2010
Money Saving Mortgage Tips
Your mortgage payment is most likely your largest monthly expense. But there are ways you can decrease your monthly payment and pay off your loan faster.
Let's walk through the tips using this mortgage example:
$200,000 mortgage
30-year fixed rate mortgage
6% interest rate
$1,199 monthly principal and interest payment
Savings will vary based on your actual loan facts and timing of the change
1. Make an Extra Payment Each Year
If you have the means, the easiest way to save money on your mortgage is by making an extra mortgage payment each year. These extra payments are automatically applied on your principal, not interest. Not only does your remaining balance drop, but you will not have to pay interest each month on that principal for the remainder of the loan term.
Savings: $47,000. By making one extra payment of $1,199 each year and applying it to your principal, you could save over $47,000 in interest and cut 5 years off the life of the loan.
2. Create Bi-Weekly Payments
Another way to pay off your loan early is by creating a bi-weekly payment plan. Put half of your monthly mortgage payment in a savings account every other Friday (or, on your pay day). Each month, pay your mortgage from the account. At the end of the year, you will have made 26 half payments, which is 13 full payments. This will leave with you an extra payment that you can put toward your principal. Most people manage the separate accounts themselves, but there are companies that you can hire to act as an escrow service and manage the payments for you.
Savings: $47,000. Same as extra payment.
3. Cut your PMI
Many people are forced to pay private mortgage insurance (PMI) because their down payment is less than 20 percent. If you are in this boat, you can petition your lender to cancel the insurance as soon as your mortgage balance falls below 80 percent of the home's appraised value. This can happen if your home's value has gone up or you have repaid some of the principal. This may require a new appraisal but could shave hundreds of dollars off your monthly payment.
Savings: $130 per month. If you only put down 5 percent and had a PMI rate of .78 percent, you could save $130 per month.
4. Fight Your Property Assessment
Property taxes can be thousands of dollars a year. If you think your home's value has decreased in the last year and it was not properly accounted for in your tax assessment, you can petition your assessor and fight your assessment. Lowering your tax assessment will lower your yearly taxes. Since the New River Valley has just reassessed property, now may be a perfect time to hire an appraiser independently so that you can contest the taxable assessment that the municipalities have determined your home is worth. Just the other day, for example, I closed a loan that the property appraised for $110,000.00 however, the city had the property assessed for tax purposes at $195,000.00. My closed borrower is taking a copy of her appraisal to the assessors office and will likely receive relief from such an enormously high assessment, and subsequent tax levy.
Savings: Varies. Depends on your local tax rate and home adjustment, but could be hundreds of dollars a year.
5. Recast Your Mortgage
Some lenders are willing to recast (reset) your monthly payment when you make large payments toward the principal of your mortgage. Usually, when you put money toward your balance, your monthly payment stays the same but the term of your loan shortens. When the loan is recast, your monthly principal and interest is recalculated so you end up with a lower monthly payment over the existing term of the loan. Banks that participate typically charge you a fee for recasting, however, this is still cheaper than refinancing the entire loan again.
Savings: $120 per month. Putting $20,000 into the loan would reset the payment to $1,079, saving you $120 per month.
6. Loan Modification
If you are late on your payments and are going through a financial hardship, you may be eligible to modify terms of your loan (such as rate, term, or principal balance) to make it more affordable. The goal of these programs is to allow borrowers to stay in their homes and continue making their monthly payments. Not everyone qualifies for these types of programs, but if you do, they can save you a lot of money. To find out if you qualify, contact the servicer of your mortgage or visit the Making Home Affordable eligibility site.
Savings: Varies. It can reduce your interest rate to as low as 2 percent, extend your term to 40 years, or reduce your principal.
7. Refinance Your Mortgage
The most common way to save money is by refinancing your mortgage to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments. However, there are costs associated with refinancing so you want to be sure you are going to save enough to cover the refinancing fees. With rates at historic lows, if you can refinance, and you haven't already, you should.
Savings: $126 per month. By lowering your interest rate to 5 percent, you would have a payment of $1,073 which would save you $126 per month. If the refinance costs $5,000, you would recoup the fees after 40 months.
Let's walk through the tips using this mortgage example:
$200,000 mortgage
30-year fixed rate mortgage
6% interest rate
$1,199 monthly principal and interest payment
Savings will vary based on your actual loan facts and timing of the change
1. Make an Extra Payment Each Year
If you have the means, the easiest way to save money on your mortgage is by making an extra mortgage payment each year. These extra payments are automatically applied on your principal, not interest. Not only does your remaining balance drop, but you will not have to pay interest each month on that principal for the remainder of the loan term.
Savings: $47,000. By making one extra payment of $1,199 each year and applying it to your principal, you could save over $47,000 in interest and cut 5 years off the life of the loan.
2. Create Bi-Weekly Payments
Another way to pay off your loan early is by creating a bi-weekly payment plan. Put half of your monthly mortgage payment in a savings account every other Friday (or, on your pay day). Each month, pay your mortgage from the account. At the end of the year, you will have made 26 half payments, which is 13 full payments. This will leave with you an extra payment that you can put toward your principal. Most people manage the separate accounts themselves, but there are companies that you can hire to act as an escrow service and manage the payments for you.
Savings: $47,000. Same as extra payment.
3. Cut your PMI
Many people are forced to pay private mortgage insurance (PMI) because their down payment is less than 20 percent. If you are in this boat, you can petition your lender to cancel the insurance as soon as your mortgage balance falls below 80 percent of the home's appraised value. This can happen if your home's value has gone up or you have repaid some of the principal. This may require a new appraisal but could shave hundreds of dollars off your monthly payment.
Savings: $130 per month. If you only put down 5 percent and had a PMI rate of .78 percent, you could save $130 per month.
4. Fight Your Property Assessment
Property taxes can be thousands of dollars a year. If you think your home's value has decreased in the last year and it was not properly accounted for in your tax assessment, you can petition your assessor and fight your assessment. Lowering your tax assessment will lower your yearly taxes. Since the New River Valley has just reassessed property, now may be a perfect time to hire an appraiser independently so that you can contest the taxable assessment that the municipalities have determined your home is worth. Just the other day, for example, I closed a loan that the property appraised for $110,000.00 however, the city had the property assessed for tax purposes at $195,000.00. My closed borrower is taking a copy of her appraisal to the assessors office and will likely receive relief from such an enormously high assessment, and subsequent tax levy.
Savings: Varies. Depends on your local tax rate and home adjustment, but could be hundreds of dollars a year.
5. Recast Your Mortgage
Some lenders are willing to recast (reset) your monthly payment when you make large payments toward the principal of your mortgage. Usually, when you put money toward your balance, your monthly payment stays the same but the term of your loan shortens. When the loan is recast, your monthly principal and interest is recalculated so you end up with a lower monthly payment over the existing term of the loan. Banks that participate typically charge you a fee for recasting, however, this is still cheaper than refinancing the entire loan again.
Savings: $120 per month. Putting $20,000 into the loan would reset the payment to $1,079, saving you $120 per month.
6. Loan Modification
If you are late on your payments and are going through a financial hardship, you may be eligible to modify terms of your loan (such as rate, term, or principal balance) to make it more affordable. The goal of these programs is to allow borrowers to stay in their homes and continue making their monthly payments. Not everyone qualifies for these types of programs, but if you do, they can save you a lot of money. To find out if you qualify, contact the servicer of your mortgage or visit the Making Home Affordable eligibility site.
Savings: Varies. It can reduce your interest rate to as low as 2 percent, extend your term to 40 years, or reduce your principal.
7. Refinance Your Mortgage
The most common way to save money is by refinancing your mortgage to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments. However, there are costs associated with refinancing so you want to be sure you are going to save enough to cover the refinancing fees. With rates at historic lows, if you can refinance, and you haven't already, you should.
Savings: $126 per month. By lowering your interest rate to 5 percent, you would have a payment of $1,073 which would save you $126 per month. If the refinance costs $5,000, you would recoup the fees after 40 months.
Thursday, November 18, 2010
Class action lawsuits appear to be filed against banks for the foreclosure debacle
Well, it appears that the foreclosure mess is still heating up with Yahoo Financial News reporting that class action lawsuits have been filed in Maryland, New Jersey and Massachusetts.
Allegedly, the reporting states that Bank of America, Wells Fargo, HSBC PLC, and JPMorgan Chase have been named, and in Florida and Maine, Ally Financial formerly GMAC Mortgage is also involved.
Bank of America has had additional scrutiny placed against it having been named in a lawsuit through the RICO law, or the civil Racketeering Influenced and Corrupt Organizations law.
You can read the entire story at http://finance.yahoo.com/news/Foreclosure-class-actions-apf-676420498.html?x=0&sec=topStories&pos=2&asset=&ccode.
Tie up the boot straps and hang on. It looks like that roller coaster ride we were on in 2008 and 2009 is coming back. The market is already worse by .25% in rate this morning, and the rates have increase by almost .50% on the 30 year note since last Wednesday.
Allegedly, the reporting states that Bank of America, Wells Fargo, HSBC PLC, and JPMorgan Chase have been named, and in Florida and Maine, Ally Financial formerly GMAC Mortgage is also involved.
Bank of America has had additional scrutiny placed against it having been named in a lawsuit through the RICO law, or the civil Racketeering Influenced and Corrupt Organizations law.
You can read the entire story at http://finance.yahoo.com/news/Foreclosure-class-actions-apf-676420498.html?x=0&sec=topStories&pos=2&asset=&ccode.
Tie up the boot straps and hang on. It looks like that roller coaster ride we were on in 2008 and 2009 is coming back. The market is already worse by .25% in rate this morning, and the rates have increase by almost .50% on the 30 year note since last Wednesday.
Wednesday, November 17, 2010
Long and Foster REALTORS and Prosperity Mortgage participate in Toys for Tots
This week, we kick off our 20th annual Toys for Tots campaign. That's right -- for 20 years, Long & Foster and Prosperity Mortgage has been collecting thousands of toys to support the local U.S. Marine Corps Reserves in their efforts to bring holiday cheer to deserving families.
Arguably, this year may be our most important year to contribute. According to data released in September by the U.S. Census Bureau, the poverty rate in the United States climbed more than 14 percent from 2008 to 2009. The Long & Foster Companies Toys for Tots campaign can help the Marines keep pace with this significant jump as they aim to serve families in the Mid-Atlantic region.
From now until mid-December (the actual cut-off date will depend on your office’s final donation date), Long & Foster and Prosperity Mortgage will run its sponsorship toy collection campaign. Offices across our service area will participate, along with our headquarters building in Chantilly—all serving as donation sites for new, unwrapped toys. If your office is participating, I hope you will once again consider contributing to this important initiative.
Contact your friends, family members and clients to let them know that their local Long & Foster and Prosperity Mortgage office is a convenient drop-off point for Toys for Tots donations. In addition to individual offices throughout the Mid-Atlantic region serving as official drop-off points, the Chantilly headquarters building will accept donations in the lobby through December 14th.
Long & Foster Companies aims to be an integral part of the communities we serve and there’s no better time to get involved than the holidays. Together, I anticipate Long & Foster and Prosperity Mortgage will be the facilitator of the donation of thousands of toys this holiday season.
Thank you for your participation in the 2010 Toys for Tots campaign. Good luck and have fun!
Arguably, this year may be our most important year to contribute. According to data released in September by the U.S. Census Bureau, the poverty rate in the United States climbed more than 14 percent from 2008 to 2009. The Long & Foster Companies Toys for Tots campaign can help the Marines keep pace with this significant jump as they aim to serve families in the Mid-Atlantic region.
From now until mid-December (the actual cut-off date will depend on your office’s final donation date), Long & Foster and Prosperity Mortgage will run its sponsorship toy collection campaign. Offices across our service area will participate, along with our headquarters building in Chantilly—all serving as donation sites for new, unwrapped toys. If your office is participating, I hope you will once again consider contributing to this important initiative.
Contact your friends, family members and clients to let them know that their local Long & Foster and Prosperity Mortgage office is a convenient drop-off point for Toys for Tots donations. In addition to individual offices throughout the Mid-Atlantic region serving as official drop-off points, the Chantilly headquarters building will accept donations in the lobby through December 14th.
Long & Foster Companies aims to be an integral part of the communities we serve and there’s no better time to get involved than the holidays. Together, I anticipate Long & Foster and Prosperity Mortgage will be the facilitator of the donation of thousands of toys this holiday season.
Thank you for your participation in the 2010 Toys for Tots campaign. Good luck and have fun!
Wednesday, October 20, 2010
Mortgage 101-Back to the Future
When the financial crisis hit, many banks became tightfisted, and plenty of potential borrowers walked away empty-handed. But financial institutions have emerged from the recession stronger and ready to lend. Credit is readily available for those who qualify. Banks want to lend money, but the days of not knowing your income and failing to manage your credit are gone.
Keep in mind that from mortgages to car loans, your credit history and score matter more than they did prior to the crunch. Rates are at rock-bottom levels for borrowers with top-tier credit -- generally credit scores above 720. Before you shop rates, get a copy of your credit report. Make sure that you buy your credit score. With the free reports, you get a copy of the report that contains your tradelines, but it will not give you a credit score. If you do this, you can see where you stand before you apply for a loan.
Mortgages: Stricter Rules
Mortgage lenders want to make loans now, and they may even bid against one another for your business. But lending standards remain tight, and you must be prepared to produce a mound of paperwork to document your income and assets.
Rates are as low as they were in the 1950s, so going through the motions could pay off. In mid September, the average interest rate for a 30-year, fixed-rate conforming loan -- a mortgage of $417,000 or less -- was 4.5%, according to HSH Associates, a mortgage-tracking firm. The initial rate for a 5/1 adjustable-rate mortgage (a fixed rate for five years, followed by annual adjustments) was 3.6%.
Fannie Mae, Freddie Mac and the Federal Housing Administration continue to dominate the mortgage market, setting the standards for the loans that lenders make and sell to investors. So lenders strive to dot every i and cross every t when they qualify you.
If you're buying or refinancing the mortgage on your primary home, you'll need a minimum down payment of 5% to 10% for a conforming loan or 10% to 15% for a conforming jumbo loan (125% of a metro area's median home price, up to $729,750). With 20% or more down, you avoid private mortgage insurance, which typically costs 0.5% to 1.5% of your loan amount per year.
Fannie Mae and Freddie Mac allow a minimum credit score of 620 if you have at least 25% equity in the property or a score of 660 with equity of less than 25%; you'll get the best rate if your score exceeds 720. The FHA will soon require a minimum credit score of 580 to qualify with a down payment of 3.5%, but FHA lenders often impose a higher minimum score of 620. This is important to note that Prosperity Mortgage will accept a 600 score, and a 580 score may be acceptable with extremely strong compensating factors. The key with a 580 score is your proven compensating factors.
In addition to your credit, lenders will also scrutinize your ability to pay, starting with your ratio of debt to income. Monthly housing expenses (principal, interest, taxes, hazard insurance, private mortgage insurance and association fees) shouldn't account for more than 28% of gross monthly income. Total debt shouldn't exceed 41% of gross income, but in some cases lenders stretch the maximum to 41%. FHA has more flexibility with the 41% ratio, with loans receiving an accept automated finding to 50%. With a conventional loan, you are really going to be pressed to exceed the 41% ratio. Exception requests can be made to 45%, however, you must have 20% down and have very strong compensating factors to impress the underwriter to exceed the 41% tolerance.
Prove It.
At a minimum, you must supply your pay stubs for the past 30 days and W-2 forms for the past two years. Lenders will want to see bank, retirement-account and investment statements for the past 60 days. There are three types of borrowers that will face additional scrutiny and requirements. These borrowers are:
If you're self-employed or if 25% or more of your income is from commissions or bonuses, you must provide two years of tax returns. Lenders will average your income over the past two years to figure your debt-to-income ratio. If you have pursued opportunities to reduce your taxable income, you may not have sufficient income to qualify even though you may have a lot of money in the bank. Note, business expenses written off on your tax return are typically dollar for dollar. Be careful here. Remember, “No Taxey, No Usey.” If you don’t pay taxes on the income, you can not use the income for qualifying.
If you want to rent out your home and buy a new one, you must provide a signed lease for a minimum of 12 months. You can use only 75% of rental income to help qualify for the mortgage, and you must have at least 30% equity in your former home. You may also be required to provide copies of your tax return if you leased the property the previous year. If you are leasing the property and not paying taxes on the income, you may not be able to offset the debt with the rents. Again, the “No Taxey, No Usey” guideline applies.
If you and your spouse are relocating for work and your spouse doesn't have a job yet, you must qualify for the loan based on one income unless your spouse has a signed agreement with an employer to begin work within 45 days of closing the loan.
Even if you qualify, you can throw a monkey wrench into the final loan approval if you take on new debt that could affect your credit score or your debt-to-income ratio. Some lenders pull another credit report just before closing. Another possible sticking point is the appraisal. Overly generous appraisals helped to fuel the housing bubble. Now, miserly ones may thwart your closing. Lenders will estimate the value of your home conservatively, and appraisers are generally following suit, especially if the local market is in flux.
Home Equity: Lower Limits
Several years ago, home values were rising so rapidly that you could build a pile of equity practically before the ink was dry on your settlement papers -- and then borrow against it to pay for everything from home repairs to college tuition. But as prices have tumbled, lenders have tightened their criteria for approving fixed-rate home-equity loans and variable-rate lines of credit.
Now in most cities you'll be able to borrow no more than 80% of the appraised value, less the mortgage. This is very important when refinancing a cash our refi. If you bought your home in 2005 and then took an equity loan or HELOC out in 2007, and now you want to refinance both mortgages, you are looking at a cash out refinance and the maximum LTV is 80%. With values slipping and appraisals harder to come by, this may not be an option so make sure to due your homework and get a good value indicator from an agent or appraiser.
You'll need a credit score of at least 720, as opposed to the 650 to 680 you could get away with a few years ago. And as with first mortgages, you'll have to document income and assets. Interest rates depend on the amount you borrow and your location.
Keep in mind that from mortgages to car loans, your credit history and score matter more than they did prior to the crunch. Rates are at rock-bottom levels for borrowers with top-tier credit -- generally credit scores above 720. Before you shop rates, get a copy of your credit report. Make sure that you buy your credit score. With the free reports, you get a copy of the report that contains your tradelines, but it will not give you a credit score. If you do this, you can see where you stand before you apply for a loan.
Mortgages: Stricter Rules
Mortgage lenders want to make loans now, and they may even bid against one another for your business. But lending standards remain tight, and you must be prepared to produce a mound of paperwork to document your income and assets.
Rates are as low as they were in the 1950s, so going through the motions could pay off. In mid September, the average interest rate for a 30-year, fixed-rate conforming loan -- a mortgage of $417,000 or less -- was 4.5%, according to HSH Associates, a mortgage-tracking firm. The initial rate for a 5/1 adjustable-rate mortgage (a fixed rate for five years, followed by annual adjustments) was 3.6%.
Fannie Mae, Freddie Mac and the Federal Housing Administration continue to dominate the mortgage market, setting the standards for the loans that lenders make and sell to investors. So lenders strive to dot every i and cross every t when they qualify you.
If you're buying or refinancing the mortgage on your primary home, you'll need a minimum down payment of 5% to 10% for a conforming loan or 10% to 15% for a conforming jumbo loan (125% of a metro area's median home price, up to $729,750). With 20% or more down, you avoid private mortgage insurance, which typically costs 0.5% to 1.5% of your loan amount per year.
Fannie Mae and Freddie Mac allow a minimum credit score of 620 if you have at least 25% equity in the property or a score of 660 with equity of less than 25%; you'll get the best rate if your score exceeds 720. The FHA will soon require a minimum credit score of 580 to qualify with a down payment of 3.5%, but FHA lenders often impose a higher minimum score of 620. This is important to note that Prosperity Mortgage will accept a 600 score, and a 580 score may be acceptable with extremely strong compensating factors. The key with a 580 score is your proven compensating factors.
In addition to your credit, lenders will also scrutinize your ability to pay, starting with your ratio of debt to income. Monthly housing expenses (principal, interest, taxes, hazard insurance, private mortgage insurance and association fees) shouldn't account for more than 28% of gross monthly income. Total debt shouldn't exceed 41% of gross income, but in some cases lenders stretch the maximum to 41%. FHA has more flexibility with the 41% ratio, with loans receiving an accept automated finding to 50%. With a conventional loan, you are really going to be pressed to exceed the 41% ratio. Exception requests can be made to 45%, however, you must have 20% down and have very strong compensating factors to impress the underwriter to exceed the 41% tolerance.
Prove It.
At a minimum, you must supply your pay stubs for the past 30 days and W-2 forms for the past two years. Lenders will want to see bank, retirement-account and investment statements for the past 60 days. There are three types of borrowers that will face additional scrutiny and requirements. These borrowers are:
If you're self-employed or if 25% or more of your income is from commissions or bonuses, you must provide two years of tax returns. Lenders will average your income over the past two years to figure your debt-to-income ratio. If you have pursued opportunities to reduce your taxable income, you may not have sufficient income to qualify even though you may have a lot of money in the bank. Note, business expenses written off on your tax return are typically dollar for dollar. Be careful here. Remember, “No Taxey, No Usey.” If you don’t pay taxes on the income, you can not use the income for qualifying.
If you want to rent out your home and buy a new one, you must provide a signed lease for a minimum of 12 months. You can use only 75% of rental income to help qualify for the mortgage, and you must have at least 30% equity in your former home. You may also be required to provide copies of your tax return if you leased the property the previous year. If you are leasing the property and not paying taxes on the income, you may not be able to offset the debt with the rents. Again, the “No Taxey, No Usey” guideline applies.
If you and your spouse are relocating for work and your spouse doesn't have a job yet, you must qualify for the loan based on one income unless your spouse has a signed agreement with an employer to begin work within 45 days of closing the loan.
Even if you qualify, you can throw a monkey wrench into the final loan approval if you take on new debt that could affect your credit score or your debt-to-income ratio. Some lenders pull another credit report just before closing. Another possible sticking point is the appraisal. Overly generous appraisals helped to fuel the housing bubble. Now, miserly ones may thwart your closing. Lenders will estimate the value of your home conservatively, and appraisers are generally following suit, especially if the local market is in flux.
Home Equity: Lower Limits
Several years ago, home values were rising so rapidly that you could build a pile of equity practically before the ink was dry on your settlement papers -- and then borrow against it to pay for everything from home repairs to college tuition. But as prices have tumbled, lenders have tightened their criteria for approving fixed-rate home-equity loans and variable-rate lines of credit.
Now in most cities you'll be able to borrow no more than 80% of the appraised value, less the mortgage. This is very important when refinancing a cash our refi. If you bought your home in 2005 and then took an equity loan or HELOC out in 2007, and now you want to refinance both mortgages, you are looking at a cash out refinance and the maximum LTV is 80%. With values slipping and appraisals harder to come by, this may not be an option so make sure to due your homework and get a good value indicator from an agent or appraiser.
You'll need a credit score of at least 720, as opposed to the 650 to 680 you could get away with a few years ago. And as with first mortgages, you'll have to document income and assets. Interest rates depend on the amount you borrow and your location.
Wednesday, July 14, 2010
Congress Passes Tax Credit Extension
The National Association of Realtors estimates that 180,000 homebuyers who reached the first hurdle of the home buyer tax credit—signing a contract by April 30—were at risk of not reaching the second hurdle in time to claim the credit, which was closing before June 30.
The House of Representatives overwhelmingly passed its extension bill, officially called HR 5623, the Homebuyer Assistance and Improvement Act of 2010; Senators were divided but pushed the bill through on June 30th. The bill now heads to President Obama’s desk to be signed into law.
The Senate joined its counterparts in the House by approving a three month extension to the closing component of the tax credit. This extension only applies to those who had ratified contracts by April 30, and addresses the bottleneck that happened this month to bring settlements for some buyers to the table before the original June 30 deadline.
Be prepared to clarify to buyers that this extension does not apply to current shoppers. The extension applies only to those who had a contract by April 30 but were delayed on the way to the settlement table. Those buyers will now have until September 30 to close.
I am proud to report that Prosperity Mortgage did an outstanding job getting our mutual clients to settlement by the original date of June 30 - outperforming many other lenders in the industry. My thanks to the Prosperity team for helping our agents and our clients take advantage of the program and close on time.
NAR has an informative section of its website dedicated to the tax credit extension. You may want to check it out if you have additional questions.
The House of Representatives overwhelmingly passed its extension bill, officially called HR 5623, the Homebuyer Assistance and Improvement Act of 2010; Senators were divided but pushed the bill through on June 30th. The bill now heads to President Obama’s desk to be signed into law.
The Senate joined its counterparts in the House by approving a three month extension to the closing component of the tax credit. This extension only applies to those who had ratified contracts by April 30, and addresses the bottleneck that happened this month to bring settlements for some buyers to the table before the original June 30 deadline.
Be prepared to clarify to buyers that this extension does not apply to current shoppers. The extension applies only to those who had a contract by April 30 but were delayed on the way to the settlement table. Those buyers will now have until September 30 to close.
I am proud to report that Prosperity Mortgage did an outstanding job getting our mutual clients to settlement by the original date of June 30 - outperforming many other lenders in the industry. My thanks to the Prosperity team for helping our agents and our clients take advantage of the program and close on time.
NAR has an informative section of its website dedicated to the tax credit extension. You may want to check it out if you have additional questions.
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