Susan Deierling, Assoc. Broker
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Realty Executives Northern Arizona
Category Archives: Mortgage Guidelines
Although the financial markets have tightened lending guidelines and financing requirements over the last few years, the right advice when applying for your loan can make a big difference.
Not all loans are approved. And even when they aren’t approved immediately, it doesn’t have to be the end of your real estate dreams.
There are many reasons why a mortgage loan for the purchase of your real estate could be declined.
Here are a few things to understand and prepare for when applying for a mortgage:
The loan-to-value ratio (LTV) is the percentage of the appraised value of the real estate that you are trying to finance.
For example, if you are trying to finance a home that costs $100,000, and want to borrow $75,000, your LTV is 75%.
Lenders generally don’t like a high LTV ratio. The higher the ratio, the harder it normally is to qualify for a mortgage.
You can positively affect the LTV by saving for a larger down payment.
Your credit score can be affected negatively, which in turn affects your mortgage loan if you have a high credit-to-debt ratio.
The ratio is figured by dividing the amount of credit available to you on a credit card or auto loan, and dividing it by how much you are currently owe.
High debt loads make a borrower less attractive to many lenders.
Try to keep your debt to under 50% of what is available to you. Lenders will appreciate it, and you will be more likely to get approved for a mortgage.
No Credit or Bad Credit
Few things can derail your mortgage loan approval like negative credit issues.
Having no credit record can sometimes present as much difficulty with your loan approval as having negative credit.
With no record of timely loan payments in your credit history, a lender is unable to determine your likelihood to repay the new mortgage.
Some lenders and loan programs may consider other records of payment, like utility bills and rent reports from your landlord.
Talk to your loan officer to determine which of these issues might apply to you, and take the steps to correct them.
Then, you can finance the home of your dreams.
Have you heard the term Private Mortgage Insurance (PMI) when looking to finance real estate?
You may be wondering what PMI is and how you know when you need to purchase it.
These answers can be hard to find among all the real estate jargon you might be hearing lately.
Below is the short version of what you need to know.
What is Private Mortgage Insurance?
Private Mortgage Insurance is an insurance premium required by some lenders to offset the risk of a borrower defaulting on their home loan.
When you put down less than 20 percent of the real estate’s purchase price, the lender will generally require that PMI is added to the loan.
It is usually added into the monthly mortgage payment until the equity position in the real estate reaches 20 percent. However, there may be other options available in your area.
Under the current law, PMI will be canceled automatically when you reach 22 percent equity in your home, if you are current on your payments.
If you aren’t current, the lender may not be required to cancel the mortgage insurance because the loan is considered high-risk.
After getting caught up on your payments, the PMI will likely be cancelled. Any money that you have overpaid must be refunded to you within 45 days.
What if Your Real Estate Increases in Value?
With a conventional loan, it may take as many as 15 years of a 30-year loan to pay your balance down 20 percent making the minimum monthly payment.
But, if property values in your area rise, you might be able to cancel the PMI sooner.
Some lenders may be willing to consider the new value of your home to determine the equity in your home.
You may, however, be responsible for any fees, like an appraisal, that are incurred to assess the new value of your property.
In the end, private mortgage insurance is likely a good option if you can’t afford a down payment of 20 percent of the purchase price.
Now May Be A Very Good Time To Take Action
With all of the activity happening the housing market, now may be the best time for you to purchase your new home.
A smart next move would be speaking with a qualified home financing professional to learn which programs and down payment options are available in the Cornville area.
According to the Federal Reserve’s quarterly Senior Loan Officer Survey, it’s getting easier to get approved for a home loan.
Between July – September 2012, fewer than 6% of banks tightened mortgage guidelines — the fourth straight quarter that’s happened– and roughly 10% of banks actually loosened them.
For today’s buyers and refinancing homeowners in Cornville , softening guidelines hint at a quicker, simpler mortgage approval process; one which gives more U.S. homeowners better access to today’s ultra-low mortgage rates.
However, although banks are easing guidelines, it doesn’t mean that we’re returned to the days of no-verification home loans. Today’s mortgage applicants should still expect to provide lenders with documentation to support a proper loan approval.
Some of the more commonly requested documents include :
- Tax returns, W-2s, and pay stubs : In order to prove income, lenders will want to see up to two years of income documentation. Self-employed applicants may be asked for additional business information. Borrowers earning income via Social Security, Disability Income, Pension or other means should expect to provide documentation.
- Bank and asset statements : To verify “reserves”, banks will often require up to 60 days of printed bank statements, or the most recently quarterly reports. Be prepared to explain deposits which are not payroll-related — banks adhere to federal anti-money laundering laws.
- Personal identification documents : To verify your identity, banks often require photocopies of both sides of your drivers license and/or U.S. passport, and may also ask for copies of your social security card.
In addition, if your credit report lists collection items, judgments, or federal tax liens, be prepared to discuss these items with your lender. Sometimes, a derogatory credit event can be eliminated or ignored during underwriting. Other times, it cannot.
The more information that you share with your lender, the smoother your mortgage approval process can be.
As the housing market improves and lender confidence increases, mortgage guidelines are expected to loosen more. 2013 may open lending to even more mortgage applicants.
As another signal of an improving U.S. economy, the nation’s biggest banks have started to loosen mortgage lending guidelines.
As reported by the Federal Reserve, last quarter, no “big banks” reported stricter mortgage standards as compared to the quarter prior and “modest fractions” of banks reported easier mortgage standards.
The data comes from the Fed’s quarterly Senior Loan Officer Survey, a questionnaire sent to 64 domestic banks and 23 U.S. branches of foreign banks. The survey is meant to gauge, among other things, direct demand for consumer loans and banks’ willingness to meet this demand.
Not surprisingly, as mortgage rates fell to all-time lows last quarter, nearly all responding banks reported an increase in demand for prime residential mortgages where “prime residential mortgage” is defined as a mortgage for an applicant whose credit scores are high; whose payment history is unblemished; and, whose debt-to-income ratios are low.
Consumers were eager to buy homes and/or refinance them last quarter and 6% of the nation’s big banks said their credit standards “eased somewhat” during that time frame. The remaining 94% of big banks said standards were left unchanged.
The ease of getting approved for a home loan, however, is relative.
As compared to 5 years ago, Sedona home buyers and rate shoppers face a distinctly more challenging mortgage environment. Not only are today’s minimum FICO score requirements higher by up to 100 points, depending on the loan product, applicants face new income scrutiny and must also demonstrate a more clear capacity to make repayments.
Tougher lending standards are among the reasons why the national home ownership rate is at its lowest point since 1997. It is harder to get mortgage-approved today as compared to late-last decade.
For those who apply and succeed, the reward is access to the lowest mortgage rates in a lifetime. Mortgage rates throughout Arizona continue to push home affordability to all-time highs.
If you’ve been shopping for a home, or planning to refinance, with mortgage rates low, it’s a good time to commit.
Beginning Monday, June 11, the FHA is changing its mortgage insurance premium schedule for the second time this year.
Some FHA mortgage applicants will pay lower mortgage insurance premiums going forward. Others will pay more. The new premiums apply to all FHA mortgages, both purchase and refinance.
The MIP update will be the 5th time in four years that the FHA has changed its mortgage insurance premium schedule.
FHA-backed homeowners who have not refinanced within the last 3 years will benefit from the new MIP. This is because, beginning with all FHA Case Numbers assigned on, or after, June 11, 2012, homeowners whose current FHA mortgage pre-dates June 1, 2009 will be entitled to dramatically reduced annual mortgage insurance premiums and almost zero upfront MIP via the FHA Streamline Refinance program.
Whereas new FHA applicants may pay up to 1.25% per year for annual mortgage insurance plus 175 basis points at closing for upfront MIP, the “grandfathered” FHA applicants will pay just 0.55% per year for mortgage insurance and 1 basis point at closing.
Assuming an FHA loan size of $200,000, the savings are large :
- New FHA applicant : $208 per month for annual MIP; $3,500 due at closing for upfront MIP.
- Pre-June 2009 FHA applicant : $92 per month for annual MIP; $20 due at closing for upfront MIP.
The premiums apply to all FHA mortgage applicants, regardless of loan product or term. For example, 15-year FHA mortgage will follow the same mortgage insurance premium schedule as a 30-year FHA mortgages.
Another class of FHA-backed homeowners won’t get so lucky. For homeowners in high-cost areas whose mortgages are between $625,500 and the local FHA loan limit, annual mortgage insurance premiums will be raised by 0.25% for all 15-year and 30-year loan terms.
For loan sizes above $625,500, the new annual FHA mortgage insurance premiums are as follows :
- Loan term of 15 years or fewer, loan-to-value of 90% or less : 0.35% per year
- Loan term of 15 years or fewer, loan-to-value greater than 90% : 0.60% per year
- Loan term of more than 15 years, loan-to-value of 95% or less : 1.45% per year
- Loan term of more than 15 years, loan-to-value greater than 95% : 1.50% per year
FHA-backed homeowners with loan terms of 15 years or fewer, and with loan-to-values below 78%, are exempt from annual MIP. Upfront MIP payments, however, remain mandatory.
The FHA continues to tinker with its mortgage insurance premiums, attempting to strike a balance between affordability for its homeowners and solvency for its program. Experts expect the FHA to change its premiums again. And, when it does, it’s likely that premiums will rise.
If your FHA mortgage will be for more than $625,000, and you plan to make a purchase or refinance application soon, it’s best to get your FHA Case Number prior to Monday, June 11. Otherwise, you’ll pay higher annual MIP.
Against a $700,000 mortgage, the extra 0.25% in MIP per year will add $1,750 to your annual housing payment.
Despite several big-name banks pulling the product from their respective home loan offerings, reverse mortgages remain a popular mortgage choice among homeowners aged 62 or over.
A reverse mortgage is exactly what it sounds like — a mortgage in reverse. Rather than borrow a fixed amount of money then pay that loan balance down to zero as with a “forward” mortgage, a reverse mortgage starts at a given loan balance and works its way up as scheduled payments are added to the existing loan balance.
This 4-minute piece from NBC’s The Today Show highlights a few pros and cons of reverse mortgages, and the reasons why you may want to consider one, including :
- No mortgage payments are ever due on your home
- There is no credit check required for a reverse mortgage
- There is no income requirement to qualify for a reverse mortgage
There are some basic qualification standards for the reverse mortgage program including a requirement that all borrowers on title must be 62 years of age or older; and that the subject property be a primary residence. Loan fees can also be higher than with a conventional-type mortgage.
If you meet the qualification standards, though, with a reverse mortgage, you have flexibility in how your home equity is distributed to you. You can receive a lump-sum payment, elect for monthly installments over time, create a line of credit, or a combination of all three.
Like all mortgages, reverse mortgages are complex instruments. That’s one reason why all reverse mortgage borrowers are required to attend counseling — the government wants you to be certain that you understand the nuances of the reverse mortgage program.
Your lender will want you to understand the program, too.
Despite an improving U.S. economy, the nation’s banks remain cautious about what they will lend, and to whom.
Last quarter, by a margin of 3-to-2, more banks tightened residential mortgage lending standards for “prime borrowers” than did loosen them.
A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio. The insight comes from the Federal Reserve’s quarterly survey of its member banks.
Last quarter, of the 54 responding banks :
- 0 banks tightened mortgage guidelines considerably
- 3 banks tightened mortgage guidelines somewhat
- 49 banks left guidelines basically unchanged
- 2 banks eased mortgage guidelines somewhat
- 0 banks eased mortgage guidelines considerably
By contrast, in the quarter prior, not a single surveyed bank reported tighter residential mortgage guidelines. The period from January-March was a step backwards, therefore, for the fledgling U.S. housing market.
Overall, getting approved for a mortgage is tougher than it used to be. Banks enforce higher minimum credit score standards; ask for larger downpayment/equity positions; and require higher monthly income relative to monthly debt obligations.
It’s one reason why the homeownership rate is at its lowest point since 1997.
Another reason why homeownership rates may be down is that prospective home buyers believe the hurdles of today’s mortgage approval process may be impassably high. That’s untrue.
There are many U.S. homeowners and renters — even here in Cornville — that were approved for a home loan last quarter — prime borrowers or otherwise. Some had excellent credit, some had modest credit. Some had high income, some had moderate income. Many, however, took advantage of low-downpayment mortgage options such as the FHA’s 3.5% downpayment program, and the VA’s 100% mortgage program for military veterans.
Despite a general tightening in mortgage standards, loans are still available and banks remain eager to lend.
It is harder to get approved today as compared to 5 years ago, but for those that try and succeed, the reward is access to the lowest mortgage rates in a lifetime. Mortgage rates throughout Arizona continue to push home affordability to all-time highs.
If you’re in the market to buy a new a home or refinance one, your timing is excellent.
Planning to use an FHA-backed mortgage for your next home loan? You might want to get your application in gear today.
Beginning next week, the Federal Housing Administration (FHA) is changing the way it charges mortgage insurance to U.S. homeowners. For the fourth time since 2010, FHA mortgage insurance premiums are rising for all FHA-backed homeowners.
For FHA Case Numbers assigned on, or after, Monday, April 9, 2012, there are two planned changes.
First, FHA Upfront Mortgage Insurance Premiums (UFMIP) will increase by 75 basis points to 1.75%, or $1,750 per $100,000 borrowed. Upfront Mortgage Insurance Premium is paid at closing, and typically added to an FHA borrower’s loan size.
The current UFMIP rate is 1.000 percent.
Second, annual FHA mortgage insurance premiums are rising. All new FHA-backed loans will be subject to a 10 basis point increase in annual mortgage insurance premiums, costing homeowners an extra $100 per $100,000 borrowed per year.
The new FHA annual mortgage insurance premium schedule follows :
- 15-year loan term, loan-to-value > 90% : 0.60% MIP per year
- 15-year loan term, loan-to-value <= 90% : 0.35% MIP per year
- 15-year loan term, loan-to-value <= 78% : 0.00% MIP per year
- 30-year loan term, loan-to-value > 95% : 1.25% MIP per year
- 30-year loan term, loan-to-value <= 95% : 1.20% MIP per year
In addition, for loans above $625,500, beginning with FHA Case Numbers assigned on, or after, June 11, 2012, there will be an additional 25 basis point increase in annual MIP.
To calculate your monthly MIP obligation as a FHA homeowners, multiply your starting loan size by your insurance rate from the list above, then divide by 12.
Note that the FHA mortgage insurance changes apply to new FHA Case Numbers only. If you have an FHA mortgage approval in-process, or an existing FHA home loan, you are not subject to the new MIP schedule. To avoid paying the FHA’s new MIP schedule, therefore, begin your FHA mortgage application today.
Once your FHA Case Number is assigned, you’re locked in to today’s lower premiums.
The new, revamped HARP program is now available in Arizona and nationwide. It was officially released Saturday, March 17, 2012 by Fannie Mae and Freddie Mac.
HARP is an acronym. It stands for Home Affordable Refinance Program. HARP is the conforming mortgage loan product meant for “underwater homeowners”. Under the HARP program, homeowners in Sedona can get access to today’s low mortgage rates despite having little or no equity whatsoever.
HARP is expected to reach up to 6 million U.S. homeowners who would otherwise be unable to refinance.
HARP is not a new program. It was originally launched in 2009. However, the program’s first iteration reached fewer than 1 million U.S. households because loan risks were high for banks, and loan costs were high for consumers.
With HARP’s re-release — dubbed HARP 2.0 — the government removed many of HARP’s hurdles.
In order to qualify for HARP, homeowners must first meet 3 qualifying criteria.
First, their current mortgage must be backed either Fannie Mae or Freddie Mac. Loans backed by the FHA or VA are ineligible, as are loans backed by private entities. This means jumbo loans and most loans from community banks cannot be refinanced via HARP.
- To check if your loan is Fannie Mae-backed, click here.
- To check if your loan is Freddie Mac-backed, click here.
The second qualification standard for HARP is that all loans to be refinanced must have been securitized by Fannie Mae or Freddie Mac prior to June 1, 2009. Mortgages securitized on, or after, June 1, 2009 are HARP-ineligible.
There are no exceptions to this rule.
And, lastly, the third HARP qualification standard is that the existing mortgage must be accompanied by a strong repayment history. Homeowners must have made the last 6 mortgage payments on-time, and may not have had more than one 30-day late within the last 12 months.
If the above three qualifiers are met, HARP applicants in Verde Santa Fe will find mortgage guidelines lenient overall :
- Refinancing into a fixed rate mortgage allows for unlimited loan-to-value
- The standard 7-year “waiting period” after a foreclosure is waived in full
- Except in rare cases, home appraisals aren’t required for HARP
Furthermore, HARP mortgage rates are on par with non-HARP rates. This means that HARP applicants get access to the same mortgage rates and loan fees as non-HARP applicants. There’s no “penalty” for using HARP.
To apply for HARP, check with your loan officer today.
The FHA is making more changes to its flagship FHA Streamline Refinance program.
Beginning mid-June 2012, certain current, FHA-backed homeowners will be able to refinance their existing FHA mortgage into a new one, without having to pay the government-backed group’s new, costly mortgage insurance premium schedule.
Earlier this week, the FHA rolled out its new MIP schedule.
Beginning April 9, 2012, new FHA mortgages are subject to a 1.75% upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium of up to 1.25% for loan sizes up to, and including, $625,500; or 1.60% for loan sizes exceeding $625,500.
Upfront MIP is typically added to the loan size as a lump sum. Annual MIP is paid via 12 monthly installments. Both add to the long-term costs of homeownership.
However, the FHA’s new MIP schedules will not apply to all FHA-backed homeowners equally. Homeowners whose FHA mortgages were endorsed prior to June 1, 2009 will benefit from a different, less costly MIP schedule.
For these homeowners in search of a streamline, the MIP schedule is as follows :
- Upfront MIP : 0.01% of the loan size
- Annual MIP : 0.55% of the loan size, with no adjuster for loan sizes over $625,500
The new schedule is detailed in FHA Mortgagee Letter 12-04 and it lowers the cost of FHA Streamline Refinancing for long-time, FHA-backed households in Arizona and nationwide to almost nothing.
As a real-life example, an FHA-backed homeowner whose $100,000 mortgage dates to 2008 could refinance via the FHA Streamline Refinance program and pay just $10 in upfront MIP, with a corresponding annual MIP payment of just $550, or $45.83 monthly.
By comparison, every other FHA-backed homeowner with a $100,000 mortgage pays $1,750 in UFMIP and as much as $1,600 in annual MIP.
The new streamline refinance MIP schedule is in effect for FHA mortgage applications with case numbers assigned on, or after, June 11, 2012. It is not available for loan applications made prior to that date.
There are lots of dates and deadlines in the FHA’s new streamline program. If you’re too early — or too late — you could miss your optimal refinance window. Talk with your loan officer, therefore, and put a plan in place. You’ll be glad to be prepared.