So you’ve just received the exciting news – your offer was accepted! Now you need to get your earnest money deposit turned in to the designated holder by the date outlined in your Purchase and Sale Contract (PSA).
Experienced buyers and sellers know that an appraisal has the power to make or break a real estate transaction. In this short video, mortgage lending expert Carese Busby shares why high-quality appraisers are critical to successful outcomes and how that should influence your lender selection.
5 mortgage misconceptions
(1.) Mortgage rates are only released once per day:
Mortgage rates are priced live with the market for all types of mortgages and can change frequently, sometimes dramatically, throughout the day. Because of the rapid changes in mortgage rates and a lender’s ability to control what is offered, it is important to lock the rate to hedge against the risk of rising rates.
(2.) Borrowers will almost always get the best mortgage interest rates at the bank where you have a checking account:
Interest rates are largely market driven and it’s unlikely your bank will offer the most competitive interest rate available simply because you bank there. The regulatory environment is such that lenders and banks use non-discriminatory factors such as FICO credit score, LTV, property type, occupancy, loan purpose to name a few in determining overall interest rate.
(3.) You must put at least 5% down in order to get a home loan:
It is a common misconception that you need to put down at least 10 percent or even 20 percent on a home, especially in light of the recent housing crash. But FHA (Federal Housing Administration) loans allow borrowers to put down as little as 3.5 percent. FHA loans have gained popularity and may be a good loan option for those who may not have a large down payment or have a challenged credit history. FHA loans are available to everyone, not just first-time home buyers. There are also alternative loan programs through other agencies, including the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA). These loans also require little-to-no money down. Source: Click Here
(4.) When doing a loan with two borrowers, lenders will look at each of your credit reports equally when determining qualifications and interest rate:
When applying jointly for a mortgage, lenders will pull a borrower’s credit scores from each of the three major credit reporting agencies: Experian, Equifax and TransUnion. The lower of the two middle scores from each report will be used to help determine your mortgage qualifications and interest rate. This means that the least creditworthy borrower will have the greatest effect on interest rate and monthly payment regardless of who the primary or secondary borrowers are.
(5.) If a borrower goes through a short sale or foreclosure, they must wait 7 years before getting another home loan:
Not necessarily. In most cases, you’ll typically only need to wait 2-4 years to buy a home after short sale depending on your down payment and the loan type you select. The FHA back to work program only requires a 12 month waiting period if you can prove loss of household income of 20% and loss of employment for a period of 6 months. The waiting period after a foreclosure is longer. Typically you’ll need to wait 3-7 years before getting another home loan. Even if you can afford to get a mortgage right now, you’ll need to rebuild credit to have a good credit score, which can take a few years to rebuild. Unique circumstances can lead to different outcomes, so make sure to check with your lender. Source: Click Here
5 Mortgage Don’ts
(1.) Make any large unexplained deposits into bank accounts. Large deposits will need to be explained within 90 days of applying for a mortgage loan and will be questioned by underwriting unless the deposit is a documented gift.
(2.) Make changes to your employment or income. Job stability is a major factor in the underwriting of a mortgage loan. Changing or quitting jobs, or deciding to become self-employed can greatly endanger the loan approval. Talk with your loan officer before you make any changes in your employment or income structure.
(3.) Apply for new credit of any kind leading up to applying for your mortgage or during the process before closing. For example, don’t establish credit lines for furniture, computers, appliances, etc. .
(4.) Overcharge or max out existing credit cards. This can cause havoc on your credit score and you need to show a track record of responsibility and show that you can manage your money.
(5.) Move money around or make any adjustments or transfers in your asset picture. Refrain from changing investments, moving positions, opening or closing accounts or substantially changing your asset picture without contacting first contacting your loan officer.
Thank you to Carese Busby of Colbalt Mortgage for these helpful tips!
Economic indicators Released Last Week:
o Monday, December 2, 2013: Construction Spending – rose .8% in October; PMI Manufacturing Index – rose slightly 54.7 growth
o Wednesday, December 4, 2013: New Home Sales (Oct) 444K versus 420K market expectations
o Thursday, December 5, 2013: Jobless Claims –298K versus 330K market expectations
o Friday, December 6, 2013: Unemployment rate ticked down to 7% versus the 7.2% expectation ; 203K jobs added in November, higher than the 180K Wall Street anticipated. Consumer sentiment jumped to 82.5 for December, up from 75.1 in November.
• Janet Yellen is expected to be confirmed this week as next Federal Reserve Chairperson. She has indicated she will follow suit with current Federal Reserve quantitative-easing policy until employment picture is much stronger. Employment participation rate is at 63%, the lowest level in 3 decades.
2013 Reflective Highlights:
- FHA increases monthly mortgage insurance premiums and lengthens length of time requirements that mortgage insurance remains in place on loans
- Minimum down payment was raised to 5% on all conventional loan programs
- Asset based lending makes it debut – Asset rich borrowers with non-traditional income streams will now have the opportunity to finance real estate
2014 Looking forward:
- Buckle your seat belts and be ready for a financial strip search… The QRM (Qualified Residential Mortgage) is set to take effect January 10, 2014 as part of further Dodd-Frank legislation.
- QRM requires borrowers to show greater strength in employment history, lower debt to income ratios, and qualify based on tighter credit and income guidelines than in the past.
- Buyers be prepared for a financial strip search and get pre-approved prior to shopping for a home. Preparation and education is key!
- Don’t be caught in a web of surprise. Even buyers who think they are among the qualified elite may be in for surprise with the strengthened guidelines.
- There are still plenty of great loan program options for borrowers even with all of these changes!
-Enrico Pozzo, Barry Bergner & the SeattlebyDesign Team
Original Post: https://www.rsir.com/blog/?p=3983
With big changes coming to the mortgage industry at the beginning of next year, many consumers will want to evaluate their homebuying plans. Regulations drafted by the Consumer Financial Protection Bureau will change the definition of a qualified mortgage for any loan applications received on and after Jan. 10, and many consumers may find themselves unable to meet the new requirements.
Qualified mortgages are loans that meet certain standards designed to ensure that borrowers are highly likely to be able to pay back the amount in question. Facing this challenge, it’s up to the hopeful homeowner to improve their chances of mortgage approval by doing the necessary research, improving their credit profiles and meeting the qualified mortgage standards well in advance of filling out loan applications.
It’s important to meet qualified mortgage standards because government-sponsored enterprises, known as GSEs, like Fannie Mae and Freddie Mac have said they won’t buy non-qualified mortgages starting next year, said Joshua Weinberg, senior vice president of compliance with First Choice Lending/Bank. Fannie and Freddie don’t lend to homeowners directly, rather they purchase mortgages from banks and then bundle them into securities and sell those securities to investors.
For lenders that originate mortgages with the intention of selling them to the GSEs, as many do, originating non-qualified mortgages won’t be feasible. Other lenders own the mortgages they originate, meaning they don’t have to worry about selling them to GSEs, and such larger portfolios could probably take on non-qualified mortgages.
What’s Changing? Mortgages must pass tests of sorts to meet the standards of a qualified mortgage: The APR must be within 150 basis points (1.5 percentage points) of the annual prime offer rate, the loan term cannot exceed 30 years, points and fees cannot exceed 3 percent of the loan balance and there can be no negative amortization or interest-only payments. Under these conditions, the mortgage qualifies for safe harbor, meaning the lender is not at risk of being sued by a borrower who is unable to repay the loan.
There’s a class of loans called higher-priced qualified mortgages, in which the APR exceeds the 150 basis-point limit, and in those cases, the loan falls under rebuttable presumption, meaning the lender is assumed to have complied with ability-to-pay requirements, unless a borrower or attorney argues otherwise. Loans with rebuttable presumption will likely come at an additional premium, said Cameron Findlay, chief economist at Discover Home Loans, though the price of that premium is unclear at this point.
The ability to repay comprises a series of requirements that must be met by the borrower and verified by the lender, including income and debt levels. All of these CFPB regulations are aimed at protecting consumers from mortgages they can’t reasonably expect to repay, because such faulty loans triggered the recent financial crisis. Given these limitations, and some new restrictions on lenders that also go into effect in January, some have suggested that consumers may find themselves struggling to acquire a mortgage.
Weinberg described it this way: Originating a mortgage has been a process that blends science and art. The science includes the regulations that give clear guidelines for what does and does not meet qualified mortgage standards. The art comes in when an originator decides to approve or deny a mortgage application, even if a borrower doesn’t meet every requirement in the book, because his or her experiences can give important context to a case that numbers and rules cannot.
“With this QM rule we’re seeing an elimination of the art and a focus on the science,” Weinberg said. “The way the points and fees will be calculated is now a pretty defined standard. My gut says because of the shrinking art component and the emphasis on the science, fewer people are going to qualify for loans.”
While the new regulations are beyond consumer control, there are several things potential homeowners can do to prepare for buying residential property in 2014.
1. Ask Questions: If this all sounds a bit confusing, don’t worry. You’re not alone. Both Findlay and Weinberg acknowledged the complexity of the new rules and said there’s confusion among lenders. For potential homeowners who don’t understand what these changes mean for them, there’s no shame in asking someone to explain them.
There are a lot of components to mortgages that first-time homebuyers may not be familiar with. Say a lender instructs you to reduce your debt-to-income ratio — that means how much of your income is tied up in student loan payments, collections accounts, judgments and other existing loan obligations. You’ve just learned that points and fees can’t exceed 3 percent of the loan balance, but what’s a point?
A point, for the record, is prepaid interest on the loan, with one point equal to 1 percent of the loan. If a borrower would rather have a lower interest rate than the one they’re offered then they can pay points to lower that rate.
There’s bound to be something that confuses the borrower, and no one should enter into such a large financial decision with uncertainty. Ask a lender to explain it to you, but understand that the lenders are nailing down the new processes, as well. “It doesn’t bode well for the consumer when there’s this confusion,” Findlay said.
It’s important to shop around for mortgages, and consumers should know that they can concentrate their mortgage search into a few weeks in order to minimize the impact on their credit scores. Inquiries are a major factor in your credit scores, and too many inquiries can hurt your credit. Mortgage inquiries made within that short period (which varies by credit scoring model) will count as a single inquiry on their credit reports, and because multiple inquiries would normally ding credit scores, this allows consumers to find the best offer without harming their credit profiles. If you want to see how inquiries are affecting your credit, you can look at your free Credit Report Card, which grades you on important credit score factors and gives you free credit scores.
2. Tackle Debt: If you have debt, you should try to reduce it, and this is true for all consumers, not just those looking to buy a house. Potential homeowners, however, should be extra motivated to conquer their debt: Under new ability-to-repay requirements necessary to attain a qualified mortgage, a borrower’s debt-to-income ratio must be 43 percent or less, including the potential mortgage payment.
“Not only do we consider the debts that show up on your credit report, but we have to look at debts you may expect to pay in the future,” Weinberg said, giving the examples of child support and student loans in deferment. “They are also going to need to be comfortable and aware of managing that debt. They are going to be asked questions about that.”
Whether you’re looking to buy a home next year or in two years, make a plan to manage debts now. It can only help.
3. Start the Paperwork: Though these new requirements impact consumers, they also affect lenders, and no one wants to be the first to screw up. The ability-to-repay measures require a lot of documentation, which will need to come from you, the applicant.
“We’re really needing to get a very holistic perspective on the borrower in order to complete the analysis necessary to meet compliance,” Weinberg said. Borrowers should ask a lender exactly what they’ll need to provide, and in order to answer lenders’ questions, they should also take stock of their credit profile.
Consumers are entitled to a free annual copy of their credit report from each of the three major credit bureaus — Experian, Equifax and TransUnion. That’s three credit reports, so it’s smart to review at least one before starting the homebuying process.
No one is sugar-coating these changes — they’re a lot to handle. Changes are common in this post-crisis climate, so the best consumers can do is ask questions and do their part to prepare and educate themselves. “If we’re making better loans, and the consumers are protected better, that’s better at the end of the day,” Weinberg said.
Ready to buy? Let us help you through the lending process. Give us a call today.
Enrico Pozzo, Barry Bergner & the SeattlebyDesign Team
Original article: https://www.aol.com/real-estate//#!