FHA changes may hurt homebuyers with student loans

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on FHA changes may hurt homebuyers with student loans
Oct 082015
 

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

By G. Steven Bray

New FHA loan guidelines may make it harder for you to qualify for a mortgage if you have student loans.

Previous to the new rules, FHA allowed us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered as part of your monthly debt.

If your student loan servicer won’t report a monthly payment, the new rules say we must use 2% of the loan balance. Fortunately, loan servicers typically will provide an effective payment based on the loan’s current balance if you ask, and this payment typically is closer to 1% of the loan balance.

The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the balance if the servicer won’t report a payment.

FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

Buying real estate using a trust

 Loan Guidelines, Residential Mortgage  Comments Off on Buying real estate using a trust
Sep 232015
 

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

By G. Steven Bray

For financial planning purposes, homeowners occasionally choose to hold their property in a trust. I’ve had this situation arise several times recently, so it’s a good time to review some of the conventional loan guidelines concerning ownership in a trust.

Fannie Mae and Freddie Mac are in the business of lending money secured by real estate. Thus, they must be able to foreclose on the real estate in case the borrower defaults. Thus, a trust used in connection with a conventional loan must be a revocable trust, also known as a family trust. This guideline, revocable as opposed to irrevocable trust, probably stops more loans involving trusts than any other.

Also of consequence is that the grantor of the trust must be a natural person and must be a trustee, and the primary beneficiary must be the grantor. The income and assets of the grantor are used to qualify for the mortgage, and the grantor is liable for repayment of the mortgage.

Finally, it’s important to remember that Fannie and Freddie still do not allow borrowers to title property in a corporation’s name, even a single-member LLC. This is true even if the borrower agrees to be personally liable for the mortgage.

Fannie Mae changes make it easier to qualify for a mortgage

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on Fannie Mae changes make it easier to qualify for a mortgage
Aug 262015
 

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

By G. Steven Bray

Let’s look at some recent changes to loan guidelines that make it easier to qualify for a mortgage. These changes apply to Fannie Mae conventional loans.

– First, many folks, especially those employed in sales, have been penalized when applying for a mortgage if they write off business expenses on their tax return. Underwriting rules said we had to deduct the written-off amount from qualifying income. Fannie has changed that. For salaried borrowers or those with commission income that’s less than 25% of total income, the new rules say we can ignore the expenses.

– Second, with recent home price appreciation, some homebuyers are choosing to keep their current homes and rent them. Previous underwriting rules required that the current home have at least 30% equity in order for us to count the rental income and required the homebuyer to have extra cash or reserves to cover up to 6 months of housing payments on the current home. The new rules eliminate the 30% requirement, but the homebuyer still may need reserves depending on the financial strength of the borrower.

– And, finally, if reserves are required, a borrower now can use 100% of vested retirement account balances to satisfy the requirement. The previous rules required that we use a discounting factor of 60%.

Investors: Freddie raising number of homes you can own

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on Investors: Freddie raising number of homes you can own
Aug 122015
 

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

By G. Steven Bray

After the financial meltdown, Fannie Mae and Freddie Mac decided they would limit their loan programs to folks who had no more than 4 mortgaged properties. Freddie finally is raising its limit to 6. The change becomes effective 10/26.

Over at Fannie Mae, it has created a special loan program that allows up to 10 mortgaged properties, but not all lenders offer the program, and it comes with slightly higher interest rates. Freddie’s change is to its conventional loan program, so a borrower who uses the program won’t face higher rates or other hurdles.

Freddie also is removing its requirement that an investment homebuyer have a two-year history of managing investment properties and is removing the requirement that the homebuyer maintain rent loss insurance in order to qualify.

These are huge changes that should make it easier for investment property buyers to qualify for conventional financing.

Changes to conforming mortgage loan limits?

 Loan Guidelines, Residential Mortgage  Comments Off on Changes to conforming mortgage loan limits?
Aug 072015
 

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

By G. Steven Bray

Could the conforming loan limit change this year? The Wall Street Journal seems to think so. If it’s right, this would be the first time in a decade.

The conforming loan limit is the maximum amount you can borrow on a loan financed by Fannie Mae or Freddie Mac. In all areas of TX, that limit is $417k. (In the early 1970’s, the limit was $33k.) A loan amount above the limit is called a jumbo loan, and those loans typically have stricter qualifying criteria, such as higher down payment requirements, and traditionally have carried higher rates. By contrast, the minimum down payment for a conforming loan is 3%.

The limit is based on median home-sale prices reported by the Federal Housing Finance Agency (FHFA) with some wiggle room for higher-priced areas. The Journal notes that home prices in many housing markets have climbed back to pre-recession levels.

We’ll know this fall if FHFA makes a change, which would become effective on Jan 1st.

USDA making housing loan a bit more expensive

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on USDA making housing loan a bit more expensive
Aug 052015
 

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

By G. Steven Bray

USDA is raising its guarantee fee for the Rural Development home loan program on Oct 1st. The Rural Development program is one of the few no-money-down loan programs. It’s only available in areas USDA considers rural in nature, but that definition includes a lot of exurbs of major TX cities.

The guarantee fee is up-front mortgage insurance due at loan closing. Most borrowers choose to roll the fee into the loan amount rather than pay it at closing.

The fee is rising from 2% to 2.75% of the initial loan amount. On a $150k home, that will raise the monthly payment by about $5.50 at today’s interest rate.

USDA is not changing its monthly mortgage insurance rate, called the annual fee, which remains 0.5% of the loan balance.

Please note that USDA will apply the change based on the date it commits to the loan, not the date the borrower applies. In order to beat the change, you really need to find a home this month as it generally takes about 30 days from contract signing to USDA loan approval.

Act quickly if you want a reverse mortgage

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on Act quickly if you want a reverse mortgage
Apr 222015
 

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

By G. Steven Bray

FHA-insured reverse mortgages have been a fairly painless way for seniors to tap into their home equity. FHA has not evaluated applicants’ income, credit, and assets under the assumption that because the borrowers are receiving money that their financial situation is unimportant.

But with the housing downturn, FHA took a bath on reverse mortgages, and it ran into problems with seniors failing to pay property taxes and insurance. As a result, FHA has decided that starting Apr 27th it will only offer the program to seniors who can demonstrate an ability to maintain their homes. FHA calls it a financial assessment, and the evaluation criteria mean that applying for a reverse mortgage will be a lot like applying for a standard forward mortgage. Prepare to provide tax returns, account statements, and other documentation of your financial situation. In addition, now the lender will review a credit report.

If the financial assessment indicates you may have difficulty paying your property taxes and insurance, you’ll be required to set aside part of the mortgage proceeds, similar to way borrowers escrow for taxes and insurance with a forward mortgage.

It appears the changes will disqualify weaker borrowers regardless of how much equity they have in their homes. And given the losses FHA incurred on the program, that probably was the plan. To beat the changes you need to apply before Apr 27th.

Living off the grid with a mortgage

 Loan Guidelines, Residential Mortgage  Comments Off on Living off the grid with a mortgage
Apr 082015
 

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

By G. Steven Bray

I realize it sounds a little silly to live off the grid yet rely on a mortgage to buy a home, but let’s investigate the possibilities of producing your own electricity. Solar panels are becoming more commonplace and more economically practical. How do they affect your ability to qualify for a mortgage?

If the home seller owns the panels, your only issue should be one of value. It’s not clear the market (or appraisers) believes solar panels are worth as much as it costs to install them. If the home’s appraised value is low, you will have to come up with some cash to cover the shortfall if you want the home.

If the seller leases the panels, we have a lot more issues. Among them are:

– the lease payment will be added to your debts when determining if you qualify. If you’re pushing the debt limit on qualifying, this could put you past the limit;

– and, the company that leased the panels must take responsibility for any damage they might cause while installed or when removed.

Finally, whether the panels are leased or owned, the home must remain connected to traditional electrical lines. Even if the panels generate enough power for 3 homes, you still have to be connected to the grid.

File tax return extension if closing mortgage soon

 Loan Guidelines, Residential Mortgage  Comments Off on File tax return extension if closing mortgage soon
Apr 012015
 

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

By G. Steven Bray

If you’re planning to apply for a mortgage, your lender likely will ask you to sign an IRS form that allows it to order a transcript of your tax returns. This is despite the fact that you also provided copies of your returns. We love redundancy.

As we approach the tax filing deadline, you need to keep in mind that when you file your return, the IRS doesn’t make it available immediately. If you file electronically, your return generally will be available 2 to 3 weeks after filing. If you file on paper, you can expect to wait 6 to 8 weeks if you’re due a refund. You’ll wait until mid-to-late June if you have a balance due.

These times are important because once we pass Apr 15th, your lender will expect you to provide either a copy of your 2014 return or a copy of the request for extension. If you provide your return, you may not be able to close your mortgage until the lender receives the tax transcript from the IRS. Thus, if you file on the 15th, closing on the 30th is risky.

If you plan to close in the next couple months, the safest bet may be to file for the automatic extension even if you already have completed your taxes. That way you won’t have to worry about any backlogs at the IRS.

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