FHA makes it easier to qualify with student loans

 Loan Guidelines, Residential Mortgage  Comments Off on FHA makes it easier to qualify with student loans
Apr 292016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last fall, FHA changed its loan guidelines to require lenders to include a homebuyer’s deferred student loans in the buyer’s debt calculation. The change made FHA consistent with other loan programs. If a creditor didn’t report a payment for a student loan, FHA instructed lenders to use 2% of the loan’s balance. Unfortunately, this was twice the percentage other loan programs required and made it more difficult for many first-time homebuyers to qualify.

Well, apparently FHA heard our complaints. For FHA loans registered on or after 6/30, FHA has changed the guideline to 1%, consistent with other programs. (I can’t explain why they didn’t make the change effective immediately.)

So, how does this change affect one’s ability to qualify? Consider a homebuyer who earns $4000/m. She has a $500/m car payment and $20k in student debt. She wants to buy a $200k home, which requires an estimated FHA mortgage payment of $1432.

Under the existing 2% guideline, the ratio of her debt to income would be 58%, and she would not qualify. However, under the new guideline, the ratio drops to 53%, and she could qualify.

Will your credit score improve with trended data?

 Credit Scoring  Comments Off on Will your credit score improve with trended data?
Apr 252016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Fannie Mae has announced that this summer it’s going to require that lenders start using “trended” credit data to qualify borrowers. What in the world is trended credit data and how will its use affect your ability to qualify for a mortgage?

Currently, your credit report is a snapshot in time of your credit usage. The report shows your current account balances, limits, and minimum payments. A trended credit report shows how those amounts have varied over the last two years. Thus, it augments usage with insights into your credit habits. Do you pay off your credit cards each month? Do you pay more than the minimum balance? A trended report will reveal these habits.

TransUnion claims credit scores based on trended data will increase the number of what it calls prime and super-prime consumers by more than 3 million. Analysts expect those who pay off their credit card debt every month will see their scores rise. Other winners may include folks whose trended data shows their revolving balances decreasing over time.

Rate update: Languid market – Should you lock or float?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Languid market – Should you lock or float?
Apr 192016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates moved very little last week and remain near 3-year lows, and I don’t expect them to move much this week either. The only US economic data of consequence is housing-related, and I suspect it would have to be really scary to perk the interest of bond traders. It’s more likely traders will focus on stock and oil prices and market fundamentals.

Of more interest may be the European Central Bank meeting this week and Federal Reserve meeting next week. Neither is expected to announce any changes to current benchmark rates or programs. And that’s where things could get interesting if either drops a surprise. However, I think that’s very unlikely. The following week, the first week of May, is another jobs report week, which always is a potential market mover.

So, should you lock or float your rate? Locking certainly is a reasonable choice given our closeness to recent lows and given the inability of the market to move lower. However, floating is not an unreasonable strategy given the market’s lack of conviction to move rates higher. If you do choose to float, I suggest you choose your maximum pain point, the rate at which you’ll lock if the market moves against you.

One way to cash out an LLC-held rental property

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on One way to cash out an LLC-held rental property
Apr 162016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Yesterday, we discussed how Fannie Mae has rescinded a portion of its loan guidelines concerning investors’ ownership of properties in LLCs. Specifically, according to conversations with Fannie, the change means an investor must move a property into his or her name 6 months prior to being eligible to take cash out of the property.

However, Fannie left open one avenue for cashing out a property in an LLC. It’s called the Delayed Financing program. If an investor purchases a property using cash, and holds the property in an LLC, the investor may pull out up to 75% of the equity within the first 6 months of ownership as long as all the members of the LLC will be on the cash out loan.

Note the two important conditions: It must be a cash purchase, and the cash-out refinancing must close within 6 months of purchase.

I suspect Fannie may eventually realize how silly the conflicting guidelines are, but the inertia that must be overcome to correct them is pretty grand.

In the meantime, please don’t forget that neither Fannie nor Freddie allow you to close a loan with an LLC holding title to the property. You must close in your name. Many investors move properties to their LLCs after closing, but be aware that doing so could trigger the loan’s “Due on Sale” clause.

Fannie makes it harder to cash out rental properties

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on Fannie makes it harder to cash out rental properties
Apr 152016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Investors who choose to hold their properties through LLCs need to be aware of a recent change Fannie Mae made to its loan guidelines. The guideline in question was called Continuity of Obligation, and Fannie enacted it in response to the financial crisis to combat fraud. The guideline established a timeframe a party must have owned a home prior to being eligible for refinancing.

For investors, the guideline specifically identified a property held by the investor in an LLC as meeting the requirement as long as that same investor was refinancing the property in his or her own name.

Earlier this year, Fannie rescinded the guideline in whole. The problem for investors is that means Fannie also rescinded the specific carve out for LLCs. Based on recent conversations with Fannie, without the carve out, an investor must first move the property into his or her own name prior to refinancing.

This becomes a big deal if the investor is trying to cash out the equity in the property. Fannie Mae still has a 6-month “seasoning” requirement for cash out loans. Without the LLC carve out, the investor now must move the property into his or her name 6 months prior to being eligible to take cash out of the property using a Fannie loan.

There still is one option available to investors using LLCs, and we’ll look at that tomorrow.

Rate update: Will the rate rally continue?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will the rate rally continue?
Apr 052016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Bond markets have reacted favorably to Fed Chair Yellen’s dovish comments about interest rate hikes and the current state of the economy. Markets, both bond and stock, rallied, then rallied some more. Even a fairly strong jobs report last Fri couldn’t dissuade them.

On that note, let’s review some of the factors in play.

– Fed members cut their rate hike expectations for 2016 from 4 to 2. That wasn’t the surprise. The surprise was Yellen’s comments suggesting the Fed could consider a rate drop.

– European economic data remains pretty lousy, and German bond rates are near record lows. Low German rates exert downward pressure on US rates.

– Most economists have lowered their predictions for 1st quarter GDP, some to near zero. Remember that this is backward looking data, but it does suggest some inertia the economy must overcome to generate growth.

– Recent US manufacturing data is showing a rebound in that sector. That might suggest growth in the 2nd quarter.

– Wage growth exceeded expectations in last week’s jobs report. That could foretell budding inflationary pressures, which could force the Fed to raise rates more quickly.

On balance, I can make a case for optimism or pessimism concerning interest rates. In the short term, I think rates are likely to follow the lead of the stock market. The pullback from recent highs is helping rates, and weak earnings reports could accelerate the downtrend.

I’ll leave you with one note of caution. The Fed releases the minutes from its Mar meeting tomorrow. If other Fed members didn’t share Yellen’s dovish outlook, it could snuff out our rate rally. Personally, I think that’s unlikely.