Don't Fear the Changes!

The new changes coming down the pike for mortgage loan qualifying have some people talking. Fannie Mae and the Credit Bureaus have set out some new guidelines that will be allowing more people to qualify for a mortgage.

The credit bureaus are holding municipalities to stricter standards when reporting tax liens and judgements. This means that those individuals who have their credit affected by tax liens or judgements may no longer have those derogatory items on their credit profile. For these people that will result in higher credit scores and more ability to borrow.

Fannie Mae is allowing higher debt ratios. What this means is that portion of a person's income that is dedicated to monthly expenses (liabilities) can be higher now compared to what it was in the past. An example of this is if you gross $10,000 a month in income, the old rule said you could spend no more than $4,300 on your monthly liabilities including housing payment. Now the rule has been amended to allow $5,000 on your monthly liabilities including housing payment. The spokesperson from Fannie Mae said this was due to the large number of Americans who are subject to student loans. Sure there are other characteristics of the loan file that must be present, but this is the general idea of the recent (July 29, 2017) change.

A couple of things to note regarding these changes and why not to "fear" them. Tax liens and judgements will continue to be present if the proper identifying factors are present. This just eliminates the ones that stick on a person's credit report long after being paid or belonging to someone with a similar name (both great reasons to make this long overdue change).

For Fannie, there are numerous things that are not taken into consideration for income in a borrower's file (e.g. income from a roommate, tip income/bonus income/commission income received less than two years, etc.). So Fannie is allowing borrower's to make up the income through creativity ( because less and less people are punching W-2 clocks these days...right UBER), which is a very good thing. Sure it would be nice to see them adapt a bit better to the chainging income profile of Americans, but this is a good start.

In conclusion, there is little to fear in these changes. The major factors to be concerned about in our economy are what the "big money" is up to and whether they are continuing to invest in derivatives with little to no underlying investment. We all know where that went in 2006 and hopefully they have learned their lesson because one thing we know that is for certain - change will ensue.

We are always available for your questions/comments at www.FirstAmericanMortgage.net

Thank you very much!

Closing Time - Be "Johnny on the Spot!"

Many title people, realtors and notaries are surprised to see me at closings. Apparently, a good majority of my competitors do not attend the closing of their loan files. I have always felt it is very important to be present at the closing to answer any questions that might arise and to be "present" for my customers.

Throughout my 15 years in the mortgage origination business, I have seen plenty of mishaps/errors on loan files. Conservatively, there are six people that work a loan file through the process from beginning to end. It is only reasonable to assume that occasionally the interpretation or familiarization process from one person to the next can allow typos or mistakes. The important thing is for me, the loan officer, to be the person who catches the mistake or makes things "right" - and to be at the closing table for my customer if there is any detail that seems out of order.

There are plenty of studies and surveys that will corroborate what I am saying above, but it shouldn't necessitate a survey to motivate a service provider to be "present" for their customers.

We are always available for your questions at www.FirstAmericanMortgage.net ...or at your next loan closing!!!

Thank you!

Renovation Loans

Did you know that you can use the bank's money to make repairs/upgrades to a home you are purchasing (or refinancing)? It is truly a great way to find a "bargain" in today's real estate marketplace. Look for things like "handyman special" or "fixer upper" in the description of properties for sale. This normally will mean that a property is being listed for sale below market price because it is in need of repairs. Got questions...we are always available to answer at www.FirstAmericanMortgage.net.

Thank you!

Spread the WORD!

I read this morning the results of a survey conducted by the National Association of Realtors that 87% of non-homeowners believe they need 10% down or more to purchase a home. This is entirely inaccurate and I am very surprised that so many people do not know better. So for your "good deed of the day", spread the word that the minimum down payment for purchasing a home is normally around 3%. Sure, there are Jumbo loans and other circumstances that require a larger than 3% down payment. However, with the majority of loans 3% is sufficient, and in some cases a 1% down payment is available (and Veterans loans allow 0% down payment)!

The monthly payment is higher when you put less down, but the barrier to entry for most home buyers is the down payment - not monthly payment. Once you are in the game, you are normally in it to stay as your home equity will move with the market (up or down).

As always, I am excited to discuss these topics and can be found at www.FirstAmericanMortgage.net

Thank you very much!

FHA Mortgagge Insurance Premium - Up, Down, Up

Many of you have read about the FHA mortgage insurance premium reduction being suspended by Ben Carson, the newly appointed head of The Department of Housing and Urban Development (HUD). The plan was on 1/27/17, the FHA mortgage insurance premiums were going to be reduced for the majority of the products offered by FHA. The principle reason is the insurance coffers at FHA have been replenished since paying out millions in claims as a result of the mortgage crisis. However, there was also the end result of the premium reduction that netted a lower payment for borrowers - causing a bit of concern when the reduction was suspended. All this being said, we are back at square one with FHA products.

So let me tell you where square one is:

1. A mortgage product with few pricing differences for credit scores from 500 - 850. Credit score and history is not a large factor with FHA products.
2. A mortgage product that, no matter how large your down payment, has mortgage insurance that NEVER goes away no matter your equity position over the life of the loan.
3. A mortgage product with a 1.75% upfront mortgage insurance premium ($300,000 x 1.75% = $5,250) in addition to the monthly mortgage insurance.
4. A mortgage product that will allow you to purchase a duplex, triplex, fourplex with 3.5% down payment.
5. A mortgage product that will allow you to buy a property and completely remodel/renovate down to the foundation and build additional structures (garage, ADU, etc.) with only 3.5% down payment.

The bottom line is that although there are a very few borrowers who may have been hurt by this suspense of the monthly mortgage insurance premium, FHA products are not long term products and should not be used as such. They are meant to be used the way a pole vaulter uses the pole. To get up to the place you need to be. Then once you are up to the bar (stick with me on the pole vaulting references here), you refinance out of that FHA product to a conventional product when your credit is better, your renovated home has given you equity, or your multi-family property has paid down the loan balance - and you clear the bar and perform your "fly-away" and let go of the pole (or FHA loan).

HUD is doing what it has to in order to keep this "pole" or "facilitation" product viable and if that means we stay at the higher monthly mortgage insurance premiums so creative buyers have a product, so be it. It is a good product for those who know how to use it. Also, HUD is being cautious and conservative to ensure the replenishment of the coffers is actual and sufficient - not a bad idea at all!

I am always available to discuss FHA/HUD or any real estate financing questions you might have at www.FirstAmericanMortgage.net

Thank you very much!