Bulls & Blogs

Important news before you get a HELOC

Owner-occupied, Regulations Comments Off

Feb 052018

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

By G. Steven Bray

With rising home prices, you may be eyeing your increasing home equity with plans for remodeling or some other important need. However, before you do, take a few minutes to consider how the changes to the mortgage interest deduction might affect your tax bill.

It’s been well-reported that the new tax law reduces the max mortgage that qualifies for the mortgage interest deduction from $1m to $750k. For most of us, that’s not a big deal. The bigger deal is that starting this year, interest paid on a home equity line of credit (HELOC) no longer will be eligible for the deduction.

When you take cash out of your home, you have a couple options if you have an existing first mortgage. You can refinance the first mortgage adding to the balance the amount of cash you want, a so-called cash-out refinance, or you can use a HELOC, which typically is a 2nd lien on your home that leaves the existing first mortgage in place. Many folks prefer a HELOC because they have a really low rate for their existing first mortgage.

With the new tax law, the interest paid on a cash-out refinance is still eligible for the mortgage interest deduction. The interest paid on a HELOC is not.

So, before you decide which option to use, consider whether getting a new first mortgage would allow you to itemize your deductions. If it does, then you may find it’s a better financial decision to cash-out refinance your existing mortgage even though you may end up with a slightly higher interest rate.

Two troublesome quirks in the new TX home equity rules

Loan Guidelines, Owner-occupied, Residential Mortgage Comments Off

Jan 042018

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

By G. Steven Bray

As we discussed last year, Texans changed the rules for homeowners who want to take equity out of their homes. TX Equity loans, what we call cash out loans, are a special type of conventional loan because the TX constitution provides homeowners some unique protections. As a result, the loans have slightly higher interest rates and higher closing costs than other conventional loans.

The changes approved by voters last fall mainly benefited homeowners with lower-priced homes and homeowners in rural areas. However, attorneys, as they’re apt to do, have noticed a couple quirks in the wording that could cause problems.

– The rules now allow a lender to charge closing costs equal to 2% of the loan amount, down from the previous limit of 3%. However, this amount now excludes the appraisal and survey fees and a fee for a title policy and policy endorsements established in accordance with state law. It’s the “in accordance with state law” part that is at issue. Our attorneys are recommending a conservative reading, which could add a few hundred dollars back to the total subject to the 2% limit.

– The rules also now allow homeowners on ag-exempt land to take out home equity loans. The issue is the state tax code says an ag-exemption is not allowed on land that secures an equity loan. While this likely was an oversight, and the Comptroller may correct the problem soon, the risk for homeowners is that they’ll lose their ag-exemption. That raises the horror of property tax rollbacks.

Even with the issues, the changes are a welcome relief for homeowners wanting to use their home equity, and in time I suspect the state will resolve the issues in the favor of homeowners.

Tax plan shouldn’t stop you from buying a home

Owner-occupied, Residential Mortgage Comments Off

Nov 272017

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

By G. Steven Bray

The tax reform plans currently being considered in Washington could change the mortgage interest deduction, and housing industry leaders are asserting that the change is going to decimate homebuying. Let’s see if the facts support their outrage.

Currently, only 21% of taxpayers use the mortgage interest deduction, and most reside in coastal states where home prices and/or property taxes are high.

If the House tax reform plan were to become law, the loan amount eligible for the mortgage interest deduction would drop from $1 million to $500k, and it would reduce the maximum deduction for property taxes to $10k.

Let’s consider the case of couple with a $300k mortgage. In the first year, they would pay roughly $13k in mortgage interest. If we assume their yearly property tax bill is $7k, they probably would be much better off under the House tax plan. Instead of a $20k deduction, they would get a $24k standard deduction. And remember that mortgage interest declines over the life of the loan, so the advantage of the new plan would increase each year.

Given that the median home price in TX is $269k, most TX homebuyers clearly would be better off under the new plan. Those who would be worse off will be folks who have mortgages greater than $500k and folks in areas with very high property taxes. Thus, any effects to the TX housing industry would be limited to high-end communities.

TX home equity loans on the ballot in Nov

Owner-occupied, Regulations, Residential Mortgage Comments Off

Jun 142017

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

By G. Steven Bray

Texans will have a chance to vote this fall on important changes to lending rules for home equity loans. The changes will allow those with lower-valued homes and rural homes to gain access to their home equity.

Texas has strong homestead protections that are written into the state constitution. Thus, changes to rules governing home equity require voter approval.

Currently, fees associated with a home equity loan are capped at 3% of the loan amount. While a cap on fees sounds great, it doesn’t take into account that certain fees, such as the appraisal and survey fees, don’t vary by loan size. This has prevented many homeowners of lower-valued homes from accessing their equity because the fees would exceed the cap. The new rules cap the fees at 2% but exclude fees associated with the appraisal, survey, and title policy.

The new rules also will allow owners of homes on agricultural land to apply for home equity loans. While this is a favorable development, it will be interesting to see which lenders will be interested in these loans. I suspect conventional lenders will shy away because the loans will be difficult to package with other home equity loans.

A final change will particularly benefit homeowners who used higher-rate, home equity second mortgages for things like remodeling their homes. Previously, a home equity loan only could be refinanced with another home equity loan. The change allows the homeowner to refinance their first and second mortgages into a new conventional loan that is free from the home equity restrictions.

Click here for more information about the amendment.

Could spot condo approval return for FHA?

Owner-occupied, Regulations, Residential Mortgage Comments Off

Oct 242016

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

By G. Steven Bray

We talked a couple weeks ago about the changes FHA adopted to make it easier to get FHA financing for condos. Unfortunately, the changes are temporary, but FHA is trying to rectify that by proposing new regulations that take these changes a step further and make them permanent.

The biggest news is FHA is proposing the reinstate spot approvals for condos. Typically, a condo project must be FHA-certified for its units to be eligible for FHA financing. A spot approval allows a lender to seek approval for a single unit in an otherwise uncertified project.

Another proposed change that’s receiving mixed reviews would establish a range within which FHA could set the minimum percentage of units that must be owner-occupied. Currently, the minimum is 50%. The proposed range is 25% to 75%. FHA says this would give it flexibility to respond to market conditions. Congress has suggested 35% is appropriate, and the housing industry would prefer the certainty of the fixed, lower number.

FHA also is proposing to establish a range for the maximum commercial space within a mixed-use development. The current maximum is 50%. The proposed range is 25% to 60%.

You can find the proposed rule on HUD’s Web site, hud.gov, and FHA invites your comments.

FHA makes it easier to get a condo loan

Loan Guidelines, Owner-occupied, Residential Mortgage Comments Off

Oct 032016

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

By G. Steven Bray

The FHA loan program once was a major source of financing for condo purchases, but due to regulatory changes, its volume dropped by almost 75%. The changes disqualified thousands of condo projects, and in turn limited the housing choices for first-time homebuyers and others with limited credit, a target market for the FHA program, and limited the pool of potential buyers for condo owners in those disqualified projects.

Well, it seems FHA may have seen the light. New rules FHA adopted this summer loosen up some of the more onerous restrictions. The two biggest changes affecting TX condos are:

– FHA agreed to include second homes that are not rentals in its calculation for owner-occupied units. A condo project qualifies for FHA financing only if at least 50% of the units are owner-occupied. This change could make a huge difference for projects in vacation areas.

– FHA also has simplified the recertification process that condos must go through every two years to remain approved. Some condo associations allowed their FHA approvals to lapse because the old process was so burdensome. Lenders often pursued the recertification process for the project because of a buyer’s interest in a condo, but imagine the number of potential buyers who didn’t apply because the project wasn’t already approved.

The new rules are only good for a year, but that gives FHA time to listen to feedback and enact permanent rules that don’t unfairly restrict lending for condos.

USDA to make its loans more affordable

Loan Programs, Owner-occupied, Residential Mortgage Comments Off

May 072016

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

By G. Steven Bray

The USDA recently announced that for fiscal year 2017 (which begins on Oct 1st) it’s dropping the fees it charges for its guaranteed rural housing loans. Currently, USDA charges an upfront guarantee fee of 2.75% of the loan amount and an annual fee, or monthly mortgage insurance (MI), of 0.5%. On Oct 1st, those rates drop to 1% and 0.35%. That really is a huge change.

So, how would that affect a potential homebuyer? Let’s say you’re trying to buy a $180k home. Remember the USDA program doesn’t require a down payment, and most folks roll the upfront guarantee fee into the loan, so we have a roughly $185k mortgage. Using today’s fees, the monthly principal, interest, and MI payment would be about $908.

Okay, what if the fees are at 2017 levels? The monthly payment drops to $869. Over the life of the 30-year loan, that $39/m adds up to more than $14k in savings.

I find the timing of the announcement interesting. Based on our experience, USDA has lost of lot of market share to FHA, which lowered its mortgage insurance rates last year. While I suspect the announcement will shut down use of the program for the summer, maybe it will build some anticipation for it again in the fall.

USDA makes qualifying for a mortgage a little easier

Loan Guidelines, Owner-occupied, Residential Mortgage Comments Off

Feb 202016

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

By G. Steven Bray

USDA offers one of the few no-money-down loans, but its credit restrictions have disqualified some first-time homebuyers who don’t have established credit histories. USDA required a loan applicant to have at least 3 credit accounts with a 12 month or longer payment history.

That changed last week. USDA dropped the number of required accounts to 2, which makes it a little easier.

For homebuyers who don’t use traditional credit that appears on a credit report, USDA still allows the use of non-traditional credit accounts to achieve the required 2. Non-traditional credit includes rent, utility, and insurance payments.

However, good payment histories on non-traditional accounts cannot be used to replace accounts that appears on your credit report. In other words, if your credit score is low because of negative items on your credit report, USDA won’t ignore these items just because you have good payment history for rent and utilities.

Minimum credit score for mortgage falling

Loan Guidelines, Owner-occupied, Residential Mortgage Comments Off

Jan 292015

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

By G. Steven Bray

It’s nice to be able to report some good news. Credit standards are relaxing just a bit. Our minimum credit score for using an FHA loan to purchase a home is now 600. This minimum applies to single-family homes and duplexes, assuming you plan to live in one of the units. The minimum score for 3- and 4-unit homes remains 620.

Even better, if you want to refinance an FHA loan, we can accept a credit score as low as 580. In some cases we’ll be able to use FHA’s streamline process, which means you can qualify regardless of your current income and debts. However, if your credit report shows a foreclosure, your credit score needs to be at least 600.

The minimum credit score for conventional loans remains 620.

Act quickly if using USDA home loan

Loan Programs, Owner-occupied, Residential Mortgage Comments Off

Nov 122014

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

By G. Steven Bray

If you’re using a USDA RD loan to purchase a home this fall, Fri, Nov 21st is a very important date. At the close of business that day, USDA will stop accepting applications for the remainder of Nov. If your loan has not been approved by USDA, you will need to sign new application documents, and the effect could add a week or two to your loan processing time.

USDA has adopted new regulations for its RD program, and it doesn’t want to maintain two processing systems. Thus, it will stop taking applications after next Fri and clear out its queue. This may not be a trivial task given the backlog of applications in some areas. On Dec 1st, USDA will start accepting applications under the new regulations.

If you have a pending application, check with your lender on its status. If your lender needs any documentation from you, act on that request urgently. The new regulations aren’t likely to harm your chances for approval, but if you have an early Dec contract date, the delay in processing could bust your closing.

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