The SCOOP! Blog by ChangeMyRate.com®

Buying a home is one of the biggest financial decisions you’ll make in your lifetime, and it can be difficult to choose a mortgage amid the swirl of terminology and numbers. In addition to understanding the interest rate, points and years of repayment, changing any one of these variables results in your paying more or less each month — and possibly much more or less over the life of the loan.

 

Recent government regulations aimed at protecting both consumers and lenders from the misunderstandings that can arise from all this data, help make the entire process more transparent. Known as Qualified Mortgage, these loans require lenders to get more information from potential buyers and do more paperwork, but in the end, it gives lenders and buyers a better understanding of the buyers ability to repay the type of mortgage they want.

 

How Does a Qualified Mortgage Work?  

Qualified Mortgages were implemented in 2014 by the Consumer Financial Protection Bureau as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It aims to make sure lenders aren’t giving loans to consumers that will be difficult to pay back. These rules were a direct result of the financial crisis of 2008 that left many homeowners underwater on their mortgages and unable to pay for their homes, which in turn resulted in record numbers of foreclosures during the Great Recession.

 

The rules about Qualified Mortgages include the following:

  • No loans may be longer than a 30-year term.

  • Points and fees must equal less than 3% of the total loan amount.

  • No interest-only payback periods.

  • No negative amortization, so the amount you owe in principal can never rise.

  • No balloon payments, which are extra-large payments near the end of the loan’s term.

  • A limit to how much of your income can go toward your debt, meaning that you can’t be approved for a loan that takes up too much of your income.

  • Banks must take into account your ability to pay back the loan before approving the amount to avoid predatory lending situations.

Choosing a Qualified Mortgage means that you can be confident that your lender is following these rules and that, barring any drastic changes in your income or life circumstances, you should be able to repay the mortgage on schedule. This will help you keep your home and avoid any damage to your credit score by defaulting on the loan.

 

How Your Credit Score Affects Your Qualified Mortgage

While these rules are helpful to homebuyers and offer a level of protection against predatory lending practices, the government does not regulate the interest rates charged by banks. Your rate is largely determined by your credit score, which lenders use as a measure of risk. A high credit score means that, based on your payment history, you are likely to make your mortgage payments on time and in full. Likewise, late payments or defaulting on a loan will lower your score and indicate to a bank that you are not as good a risk for them — and they’ll likely charge you higher interest rates as a protection for their investment in your house.

 

It’s in your best interest to know your credit score and to check your credit report for any errors that could make a bank want to charge you higher interest rates. The Fair Credit Reporting Act (FCRA) requires Equifax, Experian and TransUnion — the big three credit score reporting companies — to provide a free copy of your credit report once a year. 

 

You can access these on AnnualCreditReport.com.

 

You can also sign up for a free credit monitoring service, which will alert you to any changes in your credit report so you can nip any errors in the bud. Mistakes happen, but they can be costly when it comes time to apply for a loan or mortgage. You also can get two free credit scores from Credit.com. This service also provides a helpful explanation and breakdown of your score that allows you to plan for improvements that will build your credit.

 

Understanding Your Borrowing Rights

Understanding your rights as a borrower and knowing your credit score are crucial tools for getting a great rate on your mortgage. Being able to borrow at an affordable rate will open the doors to your dream home, so all you have to do is move in.

 

By Credit.com – To view the original article click here

Posted by Jackie A. Graves, President on December 10th, 2017 9:24 AM

When you’re buying a home, it can be exciting and frightening! If you’re a first time homebuyer, it can be hard to know what to expect. That’s why we created this infographic that walks you through the complete home-buying process.

Surprisingly, buying a home doesn’t actually start with looking at homes. It starts with looking at your budget to see how much of a mortgage payment you could afford each month. Then, you begin saving for a down payment and shop around for the best mortgage with the least expensive interest rate. During this time, you can hire a highly recommended buyer’s agent who can help you find your dream home.

After getting your finances in order, you should decide what you want and need in a home, and then give that list to your buyer’s agent. The agent can take this list and find possible houses that you may be interested in at your price range.

Once you have found the perfect home, make an offer. Depending on your offer, you and the seller may haggle until you agree on a price, in which time you will enter into contract on the home. While the home is under contract you as the buyer must finalize the mortgage, have the home appraised, surveyed and inspected, and purchase title and home insurance.

Finally, you and the seller enter closing, where you will pay for the down payment and provided services that got the home ready. (Title insurance, appraisals and home inspections.) The seller hands over the keys, and with that you’re the owner of a home!

By Whitney Bennett – To view the original article click here

Posted by Jackie A. Graves, President on December 9th, 2017 9:04 AM

More than 3,000 counties to see increases

The Federal Housing Administration announced Thursday that nearly every area of the U.S. will see FHA loan limits increase in 2018.

The new loan limits will take effect for FHA case numbers assigned on or after Jan. 1, 2018.

FHA is required by the National Housing Act, as amended by the Housing and Economic Recovery Act of 2008, to set Single Family forward loan limits at 115% of median house prices, subject to a floor and a ceiling on the limits. FHA calculates forward mortgage limits by Metropolitan Statistical Area and county.

Back in 2016, the FHA increased loan limits for just 188 counties. Then, in 2017, this number jumped to 2,948 counties that saw an increase. And now, the number of counties increased even further to 3,011 counties for 2018.

In high-cost areas, the FHA’s loan limit ceiling will increase to $679,650, up from $636,150 this year. The floor will also increase from $275,665 to $294,515 in 2018.

However, in 223 counties, the FHA loan limits will remain the same.

The National Mortgage Limit for FHA-insured Home Equity Conversion Mortgages, or reverse mortgages, will also increase, rising from $636,150 to $679,650. Currently, the FHA regulations implementing the National Housing Act’s HECM limits do not allow loan limits for reverse mortgages to vary by MSA or county; instead, the single limit applies to all mortgages regardless of where the property is located.

The FHA’s minimum national loan limit, or floor, is currently set at 65% of the national conforming loan limit of $453,100. This floor applies to those areas where 115% of the median home price is less than the floor limit. Any areas where the loan limit exceeds this floor is considered a high-cost area, and HERA requires FHA to set its maximum loan limit ceiling for high-cost areas at 150% of the national conforming limit.

Click here for a complete list of FHA loan limits.

The news follows Federal Housing Finance Agency’s recent announcement that it plans to increase the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2018.

By  Kelsey Ramírez – To view the original article click here

Posted by Jackie A. Graves, President on December 8th, 2017 7:00 AM

We can make two predictions with confidence about 2018: Home sales will accelerate, and your taxes will probably be affected in some way. As for mortgage rates, who knows? They were low throughout 2017, and even after the Fed raised rates twice, they remain low by historical standards.

Whether you are buying a home or refinancing your loan, here are 10 mortgage tips for 2018.

1. You can make a small down payment — or none at all

Lenders say they often dispel the mistaken idea that homebuyers have to make down payments of at least 20 percent. In fact, some loan programs allow qualified people to buy homes with no down payment at all. Other loan programs allow down payments as small as 3 percent or 3.5 percent.

The Department of Veterans Affairs guarantees zero-down VA mortgages for qualified borrowers: veterans, active-duty service members and certain members of the National Guard and Reserves.

The U.S. Department of Agriculture guarantees zero-down mortgages as part of its Rural Development program. The loan guarantees are available in eligible areas — mostly rural areas, though some are suburban.

Navy Federal Credit Union offers zero-down mortgages for qualified members to buy primary residences.

Finally, Federal Housing Administration-insured mortgages allow down payments as small as 3.5 percent. And a few lenders offer conventional mortgages with down payments of as little as 3 percent with private mortgage insurance.

2. With FHA, you can get a loan with imperfect credit

Federal Housing Administration-insured loans are appealing because they’re widely available to borrowers with imperfect credit. In 2016, the average credit score for an FHA homebuyer was around 686, while the average conventional homebuyer had a credit score around 753.

You need a credit score of 580 or higher to get an FHA-insured mortgage with a down payment as low as 3.5 percent. If your credit score is between 500 and 579, you need to make a down payment of at least 10 percent to get an FHA mortgage. But first you would have to find a lender that would approve the loan.

Here are more crucial facts about FHA loans.

3. Keep some savings in reserve

Mortgage lenders don’t want you to deplete your savings on the down payment and closing costs. They want you to have “reserves” — cash, or assets that can be sold quickly, so you can take care of unexpected expenses without missing house payments.

Your lender will calculate the minimum reserves you’ll need to qualify for a mortgage. There’s a possibility that the reserve requirements will oblige you to unexpectedly make a down payment of less than 20 percent, triggering the need for mortgage insurance. To avoid mortgage insurance in this case, you’d have to cancel the deal, scrape up more money for a down payment and wait while you put aside more money.

Lenders would rather you have an emergency fund than not, even if it means you’ll have to make higher house payments because of mortgage insurance.

Depleting your reserves is just one of five first-time homebuyer mistakes.

4. You can save by refinancing into a 15-year loan

Even though mortgage rates are likely to rise in 2018, some homeowners will have reason to refinance. There are various refi triggers, even after interest rates have risen above record lows:
  • Divorce.
  • Finally recovering from a low credit score.
  • To get rid of mortgage insurance.
  • Finally having positive equity.
  • To cash out some equity.
  • To save money in the long term by refinancing into a 15-year loan.
The last item — refinancing into a 15-year mortgage — saves money in two ways: 15-year mortgages tend to have lower interest rates than 30-year loans, and you pay interest over a shorter period. In most cases, the monthly payments on a new 15-year mortgage are higher than for a 30-year loan, but the total interest paid over the life of the loan is less.

5. Borrow what you can afford to repay

When people buy homes, they often “stretch” to make their initial monthly payments, on the theory that their incomes will go up over time, making house payments easier to cover.

But it’s smarter to live within your means. You can move up to a more expensive house after (and not before) your income rises. A conservative rule of thumb is that all of your monthly debt obligations, including the house payment, shouldn’t exceed 36 percent of your income before taxes.

Let’s say your household income is $5,000 a month: The monthly house payment, car payments, student loans, credit cards, child support and other obligations shouldn’t be more than $1,800, or 36 percent of that $5,000.

Now, if you have a high credit score and will have plenty of money in the bank after you close on the loan, the lender will be willing to let you accept a higher house payment. But if your debt obligations are well above 36 percent of gross income, you won’t have much money left over to have fun and save.

6. Ask about a no-closing-cost mortgage

A typical mortgage has thousands of dollars in mortgage fees and other closing costs. If you pay those fees out of pocket, you tend to get the lowest interest rate you're eligible for. But you might want to accept a higher interest rate in exchange for the lender paying some or all of the closing costs.

For example, you might be offered an interest rate of 3.75 percent if you pay all the closing costs, or a rate of 4.125 percent if the lender pays the closing costs.

Generally speaking, no-closing-cost mortgages are attractive to people who plan to sell their homes within five years or so. If you plan to stay longer than five or six years, your total costs will be lower if you go ahead and pay the closing costs out of pocket. It’s a balancing act, because paying the closing costs could push you into making a smaller down payment, potentially forcing you to pay for mortgage insurance.

7. Get a zero-down VA loan

We already mentioned Veterans Affairs-guaranteed mortgages, but these home loans may be underused, even though they’re popular.

The primary feature of VA loans is that they can be used to buy a primary home without a down payment.

In 2016, approximately one-eighth of mortgages were guaranteed by the VA, according to the Mortgage Bankers Association. But a 2010 survey found that many home-buying veterans weren’t aware of the VA loan benefit or didn’t know much about it. About a quarter of active-duty military personnel weren’t aware that they were eligible for VA loans.

Comparison shop for a VA loan today.

Maybe those active-duty personnel believed that the VA loan benefit was available only to retirees or veterans who have been discharged. In fact, VA loans are available to honorably discharged veterans, those who are on active duty, or who have completed at least six years of service in the National Guard or selected Reserve units. Certain surviving spouses of veterans are eligible, too. See a detailed eligibility table.

8. A cash-out refi might work for you

A cash-out refinance happens when the homeowner refinances the mortgage for more than the amount owed. The borrower pockets the difference.

Cash-out refinances were popular during the real estate boom of the early 2000s. Then they almost disappeared after the housing bust wiped out billions of dollars in home equity. Now that home values have climbed near their pre-recession peaks in many markets, cash-out refinances have returned.

Compare rates on a mortgage refinance.

The other way to extract cash from equity is through a home equity loan or line of credit. When you want to spend the money on something short-term — like a vacation or a wedding — it’s probably better to get the money through a home equity loan or line of credit. But if the purpose of the money is long-term — like building an addition to the house — then a cash-out refi might make more sense.

9. You might be able to refinance into a VA loan

If you’re eligible for a VA-guaranteed mortgage, you might be able to refinance from a conventional mortgage (or an FHA-insured mortgage) into a VA loan.

Comparison shop for a VA loan today.

In many cases, you can refinance for up to 100 percent of the home’s current value. This means you can do a cash-out refinance using a VA loan. Funding fees for cash-out VA refinances vary from 2.15 percent to 3.3 percent, and the fee can be added to the loan balance.

10. Be patient during underwriting

Keep your finances as boring and steady as possible between the time you apply for a mortgage and the time you close on the loan.

That sounds simple in theory, but it’s sometimes difficult in practice, especially for first-time homebuyers. What it means is this: Don’t charge up your credit cards and don’t apply for new credit while the mortgage is going through the underwriting process.

When you apply for the mortgage, the lender looks at your credit report and your credit score. Then, shortly before closing, the lender surveys your credit again. If there’s a substantial change — say you maxed out your credit cards to buy furniture and appliances, or you got a loan to buy a car — the lender might have to delay your mortgage closing. In drastic cases, you could torpedo your mortgage and have to apply all over again.

By Robin Saks Frankel – To view the original article click here

Posted by Jackie A. Graves, President on December 7th, 2017 8:01 AM

Thinking about buying a home but not sure whether you qualify for a mortgage? Consider the following facts.

 

What Do Lenders Look For?

Freddie Mac buys mortgages that meet our requirements from lenders — we don't make the loans. The lenders decide the standards they ultimately apply in making loans.

When deciding whether to make a loan, lenders evaluate the four Cs:

  • Capacity to pay back the loan. Lenders look at your income, employment history, savings, and monthly debt payments, such as credit card charges and other financial obligations, to make sure that you have the means to take on a mortgage comfortably.
  • Capital. Lenders consider your readily available money and savings plus investments, properties, and other assets that you could sell fairly quickly for cash. Having these reserves proves that you can manage your money and have funds, in addition to your income, to pay the mortgage.
  • Collateral. Lenders take into account the value of the property and other possessions that you're pledging as security against the loan.
  • Credit. Lenders check your credit score and history to assess your record of paying bills and other debts on time. (Even if you don't plan to buy a home now, it's always a good idea to build and maintain strong credit. Landlords often check it to make sure that you can pay the rent. It's also important if you want to apply for a mortgage or other credit line in the future, such as a student loan, car loan, or credit card.)

Visit My Home for information, resources, and tools to help you gauge your options and understand what's involved in looking for, buying, and maintaining your own home.

Courtesy of Freddie Mac – To view the original article click here

Posted by Jackie A. Graves, President on December 6th, 2017 7:10 AM

Mortgage Loan Process

There are six distinct phases of the mortgage loan process: pre-approval, house shopping; mortgage application; loan processing; underwriting and closing. Here’s what you need to know about each step.

1. Mortgage Pre-Approval Process

Mortgage Pre-Approval

A loan pre-approval sets you up for a smooth home buying experience.

A few things have changed since the real estate meltdown a few years ago. For purchase transactions, real estate agents will first want to know if you can get a loan. In the old days, financial institutions were doling out money to anyone with a heartbeat. Unfortunately, soft lending standards helped fuel an eventual rash of foreclosures. Suffice it to say, conditions on the ground have changed since then. Today, the best way to approach a real estate agent is with a lender pre-approval in hand. It shows that you’re ready and able to buy.

 

Pre-approvals don’t take much time. They involve pulling a three-bureau credit report (called a tri-merge) that shows your credit score and credit history as reported by third-party, respected institutions. Within the credit report, a lender can see your payment history (to see if payment obligations have been on-time and in-full) and your lines of credit (past and present).

You lender will be able to pinpoint a loan amount for which you qualify. This pre-approval will save you a lot of time since you will be able to focus exclusively on houses in your price range.

Mortgage pre-approvals also signal to the seller that you’re a serious buyer. Being prepared is particularly useful when making an offer on a house. If you intend to negotiate the deal (and why wouldn’t you?), a pre-approval gives your offer a little extra gravity. Being ready to go can also help in a hot market where it’s not uncommon for sellers to entertain multiple, simultaneous offers. Sellers tend to focus on the path of least resistance: the buyer who is pre-approved.

Mortgage Pre-Qualification

As you do your online research, you may read the term mortgage pre-qualification. It is not the same as pre-approval, and it’s important to know the difference.

 

A pre-qualification is a less meaningful measure of a person’s actual ability to get a loan. It’s a very lightweight “at a glance” look at a borrower’s credit and capacity to repay a mortgage. It’s usually determined by a loan officer asking a potential borrower a few basic questions like,

 

“How is your credit?” There’s no third-party verification of the borrower’s answers. While the conversation with a loan officer can be helpful for other reasons, there’s no tangible result that proves anything to anyone (like to your real estate agent or a seller).

 

Getting Organized

During the pre-approval phase, one of the best things to do is to gather up documents needed for mortgage pre-approval. Anything you can do, to prepare in advance, will reduce the stress when you find the right home and make an offer. At that stage, you’ll be able to hand over all your paperwork to your loan officer at once. Being ready is a solid move! You can even download a pre-approval document checklist.

 

2. House Shopping

 

You may have already started shopping online via real estate portals like Zillow, Trulia or Redfin. At this stage, it’s a good idea to start working with a real estate agent and viewing homes.

Search Online

Shopping for houses online is convenient, easy and fun. There are a few things you’ll want to know in advance.

First, none of the online resources are 100% accurate. In fact, Zillow’s home price estimates, called Zestimates, are off nationally by about 8%. And that’s at a very broad, national level. The accuracy can drop even more as shoppers drill down to specific towns and neighborhoods. Zestimate inaccuracy isn’t necessarily a bad thing, it’s just something a smart shopper should know. There’re still a lot of reasons to use a real estate shopping and comparison.

 

There’s a strategy that can help you deal with Zestimates. The 8% inaccuracy cited above can swing in either direction. Zestimates can be high or low. Here’s what that means to you. If you are pre-approved for a $400,000 loan, that means you could include searches on homes up to $432,000 (8% greater than the $400,000 baseline approval). You real estate agent can help you fine tune your choices. An experienced realtor, with a good understanding of the local market, will have a sense about which homes may be negotiated down to a price you can afford.

 

The second thing you’ll want to know is that listings on big real estate portals are not always up-to-date. Multiple Listing Services (MLS), used by real estate agents, reflect the most up-to-date inventory.

Lastly, for whatever technical reason, portals don’t show 100% of the available inventory. Furthermore, agents may know about homes that are coming on the market before the listings are made public. It’s good to have a professional with his or her ear on the ground in the market where you want to buy.

Real estate shopping engines are great for:

  • Searching by location using map-based queries

  • Getting ideas about neighborhoods that fall in your price range

  • Putting together a list of properties you want to see in person

They are not as good at:

  • Predicting a precise and final sales price

  • Showing all listings in the market

  • Revealing listings that will hit the market soon

Make an Offer

 

When you’ve visited properties with your agent and picked out the home you want, it’s time to make an offer. Your real estate agent will know the ins-and-outs of how to structure it. It will include contingencies (or conditions) that must be satisfied before the deal is complete. Here are a few common ones:

 

  • Appraisal must come in close to the loan amount, not lower

  • Home inspection does not find issues with property

  • Borrower is approved for loan

In fact, HUD mandates a VA Escape Clause on every purchase offer.

It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs.

 

Contingencies protect you and your earnest money, a deposit that tells the seller you’re a committed buyer. Typical earnest money deposits are 1% to 2% of the sale price. The funds are released from escrow and applied to your down payment at closing.

 

With terms of the deal approved by both parties, the purchase agreement (a binding offer) is signed by the seller and buyer. At this point, you can move forward to finalize the loan.

 

3. Mortgage Loan Application Process 

Applying for a Mortgage

A few documents are needed to get a loan file through underwriting. Some of the information will be gathered online or over the phone. A lot of it will already be stated on some documents you’ll provide, like employer address which can be found on a pay stub. While the list looks long, it won’t take much effort to round them up. The lists below will help you keep track. Your loan officer will also indicate which items will not be needed and also help you prioritize which items to send in first.

 

Employment
  • Name of current employer, phone and street address

  • Length of time at current employer

  • Position/title

  • Salary including overtime, bonuses or commissions

Income
  • Two years of W-2s

  • Profit & Loss statement if self-employed

  • Pensions, Social Security

  • Public assistance

  • Child support

  • Alimony

Assets
  • Bank accounts (savings, checking, brokerage accounts)

  • Real property

  • Investments (stocks, bonds, retirement accounts)

  • Proceeds from sale of current home

  • Gifted funds from relatives (e.g. down payment gift for FHA loan)

Debts
  • Current mortgage

  • Liens

  • Alimony

  • Child support

  • Car loans

  • Credit cards

  • Real property

Property Information

Your real estate agent will be able to grab some of the harder-to-find items such as property taxes.

  • Street address

  • Expected sales price

  • Type of home (single family residence, condo, etc.)

  • Size of property

  • Real estate taxes (annual)

  • Homeowner’s association dues (HOA)

  • Estimated closing date

Financial Blemishes

Be prepared to explain any missteps in your financial background. It’s good to have dates, amounts and causes for any of the following:

  • Bankruptcies

  • Collections

  • Foreclosures

  • Delinquencies

Type of Mortgage
  • Fixed or adjustable

  • Forward or reverse

  • Conventional

  • Government insured: VA, FHA, USDA

  • Jumbo

 

VA Certificate of Eligibility (COE)

If you are applying for a VA loan you will need proof of your military service. The VA can provide a Certificate of Eligibility (COE). Your lender will be able to pull it for you. If you want to get it yourself, you can do so via the eBenefits website.

Loan Estimate

 

All the documentation from above is pulled together to produce the Loan Estimate. The Loan Estimate describes the terms and predicts the costs associated with your loan. By law, you must receive it within three days of your application.

 

The Loan Estimate includes closing costs, the interest rate and monthly payments (principal, interest, taxes and insurance). A notification is included if interest rates can change in the future, as would be the case with Adjustable Rate Loans (ARMs). It also includes information about any special features such as pre-payment penalties or if the loan balance can ever increase in spite of you paying on time (called negative amortization).

At this stage, you’re not yet approved nor denied a loan. A loan estimate is simply a statement of the terms and estimated fees in plain English. It’s like getting an estimate for car repairs; no one has picked up a wrench yet, you’re just getting a sense of the work that will be done and how much it’ll cost.

Quick note: Most types of loans — but not all — use the Loan Estimate at the application stage. Some loan products, like reverse mortgages, still use two older forms – the Good Faith Estimate (GFE) and Truth-in-Lending (TIL) disclosure.

 

You can get a sneak peek of what Loan Estimates look like plus an even more detailed explanation of each section of it on the Consumer Financial Protection Bureau (CFPB) website.

 

4. Mortgage Loan Processing

Opening the File

Loan processors gather documentation about the borrower and property, review all information in the loan file and assemble an orderly and complete package for the underwriter. They’ll open the file and get the following wheels in motion:

  • Order credit report (if not already pulled for a pre-approval)

  • Start verifying employment (VOE) and bank deposits (VOD)

  • Order property inspection if required

  • Order property appraisal

  • Order title search

5. Mortgage Loan Underwriting

 

The underwriter is the key decision-maker. They closely evaluate all the documentation prepared by the loan processor in the loan package. They cross check to see if the borrower and property match the eligibility requirements of the loan product for which the borrower applied. For example, for a VA loan, the underwriter will verify the borrower’s military service.

Underwriters review at the borrower’s credit history and their capacity to repay the loan. The collateral (the property) is also weighed into the decision. They verify information and double check for accuracy. They’ll sniff out any red flags that indicate potential fraud.

Underwriting Decision

With everything reviewed, the underwriter approves or rejects the loan. Sometimes underwriters approve the loan with conditions. For example, they might ask for a written explanation of borrower’s credit history, such as late payments or collections.


Lock Interest Rate

At some point after initial approval and before closing, the interest rate for your loan is locked. Interest rates trade up and down every day that bond markets are open for business. You and your loan officer will choose the time to make the commitment.

Pre-Closing

Title insurance is ordered before the closing meeting so that you can walk away with the keys to your new home, ready to move in. This is also the time to make sure that all the offer contingencies have been satisfied. Once any conditions are satisfied, the closing is scheduled.

 

6. Mortgage Closing Process

 

Documents (everyone in the mortgage industry calls them loan docs) are drawn, meaning they are printed out and sent to the title company (or attorney’s office) where the closing meeting takes place. You can expect a big stack of papers.

 

One of the documents worth calling attention to is the Closing Disclosure. It should look somewhat familiar. Think of it as the companion to one the first documents you received in the mortgage loan process, the Loan Estimate. The Loan Estimate gave you the expected costs. The Closing Disclosure confirms those costs. In fact, the two should match pretty closely. Laws prevent them from differing too much.


Three-Day Review Period

You have the right to review the Closing Disclosure three days prior to the closing meeting. This quite period gives you a chance to review all of the terms of the loan. In most cases, you’ll compare the Loan Estimate to the Closing Disclosure but in some cases, you’ll compare the GFE to the HUD-1 Settlement Statement.

 

At this stage, you’re like a space ship on the launching pad. The countdown has begun. Most of the time, everything goes as planned. Small things in the loan docs are allowed to change, like typos. However, bigger changes reset the three-day review period. Continuing with the space launch metaphor, the “countdown” would start over if:

  • The APR on the loan changes by more than 1/8th of a percent (most fixed loans) or 1/4th of a percent (most adjustable rate loans).

  • A prepayment penalty is added to the mortgage.

  • There’s a change of loan products (e.g. change from a fixed rate loan to an adjustable rate loan). 

Final Walk-Through

You have the right to a final walk-through of property 24 hours before your closing meeting. You can make sure the seller has vacated property. You can make sure any contractually stipulated repairs are complete.

Closing Meeting

The closing is the moment for which you’ve been waiting. It’s time to sign a bunch of documents and complete your purchase or refinance. Some docs seal the deal between you and the lender. Other docs seal the deal between you and the seller (if it’s a purchase transaction).

Please bring two official forms of identification such as a driver’s license and passport to the closing.

If closing costs are not rolled into the loan amount, talk to your loan officer about how you will transfer funds either electronically or via cashier’s check. Closing costs include settlement fees (the cost of doing the loan) plus any prepaid expenses (put in an escrow account) for homeowner’s insurance, mortgage insurance and taxes.

A checkbook will come in handy for any small differences in the estimated balance owed and the final amount.

The closing meeting will take a couple hours, and there’s a lot of paperwork. Your hand will be tired when it’s all over.

Key Closing Documents
  • Closing Disclosure (or HUD-1 and TIL in some cases) – a summary of loan terms, monthly payments and closing costs.

  • Promissory Note – as it sounds, it’s the promise that you’ll repay the loan. It shows the loan amount and terms of the loan and the lender’s recourse if you fail to make payments.

  • Deed of Trust – secures the note above and gives the lender a claim against the home if you fail to live up to the terms.

  • Certificate of Occupancy – if the house is newly constructed, this is the legal document you’ll need to move in.

 

TIP: Be sure to read all documents. And ask questions! Lastly, don’t sign any forms with blank lines or space.

When everything is signed, your participation in the closing meeting is done. Congrats! The very last closing items happen in the background; the title company will complete the recording and funding.

Right of Rescission

Federal law provides an opt-out or cancellation of some types of mortgage transactions called a Right of Rescission. You have until midnight of the third business day after signing the closing docs to rescind (cancel) the following:

 

  • A refinance transaction on an owner-occupied home

  • Reverse mortgages

Purchase transactions do not have this feature.

SUMMARY:

There you have it, the six distinct phases of the mortgage loan process! Hopefully, you feel a little more educated about each step and feel more comfortable about what to expect along the way.

By Tony Mariotti – To view the original article click here

Posted by Jackie A. Graves, President on December 5th, 2017 10:59 AM

Refinancing a home loan can cut your payments, let you swap an adjustable interest rate for a fixed one and put some cash in your hand from your equity. With all those benefits, it’s no wondering so many homeowners refinance their mortgages every year.

Refinancing can be time-consuming, and you may have to pay some fees out of pocket even if you choose a no-closing-costs loan.

But here are some numbers to help convince you it’s worth your while: Recent declines in mortgage rates mean about 4.4 million borrowers could save an average of $260 per month by refinancing, according to a report from Black Knight Financial Services.

Knowing what to expect before you get started can make refinancing easier and faster. Here are seven steps to refinancing your home loan.

1. Check your credit

Having so-so credit doesn’t mean you can’t refinance, but having good or excellent credit will help you get a lower interest rate for your new loan. That’s why it’s smart to review your credit reports before you apply. You can get free copies from the three major credit bureaus — Experian, Equifax and TransUnion — at least once every 12 months at AnnualCreditReport.com. If you find any mistakes, getting those corrected can boost your credit score and help you get a lower rate.

2. Choose a lender

Many banks, mortgage companies, credit unions and loan brokers can help you refinance, so it’s a good idea to shop around and talk to a few lenders before you pick one to work with. Choose someone who’s responsible, knowledgeable and patient about answering your questions about different loan programs. Getting a low rate is attractive, but it shouldn’t be the only reason you choose a lender.

Shop for the best mortgage rates today at Bankrate.com.

3. Make the application for the loan

The next steps are to complete a loan application and review the Loan Estimate you should have received from your lender. You may need to provide documentation of your income. If your lender hasn’t checked your credit, you should do that now, as well.

Ask your lender to help you decide whether to lock your rate or float your rate. If your rate’s locked, it shouldn’t change unless the terms of your new loan change. If you let your rate float, it could end up being lower or higher.

Use our mortgage refi calculator to help you decide whether refinancing is right for you.

4. Submit your documents

Years ago, homeowners could refinance with very little paperwork, but today, you’ll need to supply copies of many documents. Examples include your driver’s license or passport, W-2 tax forms if you’re an employee, and income tax returns or profit-and-loss statements if you’re self-employed.

Always give your lender every page of every document, even if a page is blank.

5. Get an appraisal

An appraisal of your home’s value may be required for you to refinance. Your lender will order the appraisal, and the appraiser will visit your home and take pictures of it. If the appraiser thinks your home is worth significantly more or less than you and your lender expected, the terms of your loan could change and you might get an updated Loan Estimate. Be sure to review it and ask your lender if you have any questions.

  6. Sign your loan docs

Once you’ve submitted your documents and your appraisal has been completed, your loan should be ready for your lender’s final approval. At this time, you’ll receive your Closing Disclosure form, which you’ll need to review, sign and return to your lender.

The next step will be to sign your loan documents. You might do this electronically online or at your title, escrow, settlement or closing attorney’s office. Closing a loan involves a lot of documents, so it could take an hour or longer for you to sign all of them.

7. Closing

The last step is for your lender to reverify your credit and employment to make sure nothing significant has changed during the loan process. If everything is in order, your existing loan will be paid off and your new one will be recorded with the public records office in the county where your home is located. Depending on the type of loan you’ve chosen, you may need to pay some fees or costs at closing.

If you decided to cash out some of your equity, you’ll receive a check or wire transfer of the funds. Your lender will update you about how and when to make your new monthly mortgage payment.

By Marcie Geffner – To view the original article click here

Posted by Jackie A. Graves, President on December 4th, 2017 7:11 AM

While Spring is traditionally thought of as the peak season for buying a new home, new data suggests that those looking for a starter home should wait until the leaves start to fall.

According to Trulia's Inventory and Price Watch report, the inventory for starter homes increases by 7 percent in the fall. Trulia considers the fall to run from October to the end of the December — also known as the fourth quarter. During this time, 70 of the largest 100 metro areas see their starter home inventory peak.

It's important to differentiate "starter" homes from "trade–up" homes and "premium" homes. For starter homebuyers, an affordable price is typically a much more important factor. So, when inventory is low and prices are high, finding the right fit becomes much harder. According to Trulia's report, the number of starter homes available have dropped over 20 percent from last year, causing first–time homebuyers to shell out 39.7 percent of their income to buy a starter home — a 2.3 percentage–point increase from last year. To put that into perspective, a premium homebuyer only needs to spend 14.2 percent of their income to buy a home.

While the current market for starter homes favors the seller over the buyer, things start to even out when the weather cools. And just as low inventory leads to higher prices, when inventory spikes in the fall, the listing prices follow suit and move lower.

It should be noted that not all inventory spikes uniformly across the country. Some metros see more available starter houses than others. So, where is the best place to look for a home? Go west, young homebuyer! Seven of the top 10 metros with the largest inventory spikes in the fourth quarter are on the West Coast or close to it. Here are the top 10 metros where starter home inventory is higher in the fourth quarter compared to when inventory is at its lowest, according to Trulia:

  1. San Jose, CA (42% higher)
  2. Colorado Springs, CO (34.7%)
  3. Portland Oregon (34.7%)
  4. San Francisco, CA (33.7%)
  5. Phoenix, AZ (32.8%)
  6. Fresno, CA (32.7%)
  7. Wichita, KS (31.7%)
  8. Denver, CO (30.3%)
  9. Grand Rapids, MI (29.1%)
  10. Cape Coral–Fort Myers, FL (28.7%)

 

So, if you're looking to buy a new starter home, I hear that the Plaza de Cesar Chavez in Downtown San Jose is really nice this time of year.

Courtesy of Freddie Mac – To view the original article click here

Posted by Jackie A. Graves, President on December 3rd, 2017 6:20 AM

You may have heard that “government loans” are available for would-be homeowners who are saddled with bad credit and/or a history of bankruptcies or foreclosures. In reality, though, it’s not quite that simple.

The federal government is not in the home-loan business. However, in the interest of promoting home ownership – especially for low-income Americans – it may be willing to guarantee a mortgage for you if you have less-than-optimum credit. In other words, the government promises the lender that it will make good on the loan if you don’t. 

FHA vs. HUD

The federal government agency charged with encouraging individual home ownership is the U.S. Department of Housing and Urban Development (HUD) through one of its offices, the Federal Housing Administration (FHA). While HUD does some loan guarantees on its own, its focus is on multifamily units, not individual homes (with the exception of HUD Section 184 loan guarantees, which are available only to Native Americans buying homes or other real estate). It is solely the FHA that insures mortgages for single-family-home buyers. 

Qualifying for an FHA Loan

To secure an FHA-guaranteed mortgage, you have to go to an FHA-approved lender, typically a bank. One thing that makes an FHA-guaranteed home loan particularly attractive is that you do not need a perfect credit history. Individuals who have gone through bankruptcy or foreclosure are eligible for an FHA loan, depending on how much time has passed and whether good credit has been re-established. Borrowers with a credit score of at least 580 qualify for an FHA loan, although lenders can require a higher score. Still, if you're approved with a FICO score of at least 580, you are only required to put down 3.5% of the home's purchase price in cash

If your FICO score is below 580, however, you will need to come up with 10% of the purchase price for the down payment. Still, that’s better than the 14.8% of the purchase price that the average home buyer put down on closing last year. Research by RealtyTrac shows that in the first quarter of 2015 (the most recent data available), the average dollar amount paid on closing with a conventional mortgage was $72,590, whereas the average FHA insuree put down only $7,069.

If your FICO score is below 580, securing an FHA-guaranteed loan can be tough, cautions FHA mortgage expert Dennis Geist, who is engagement director at Treliant Risk Advisors in Washington, D.C. “Approval of borrowers with credit scores between 500 and 580 is subject to higher down payment requirements and additional underwriting scrutiny,” says Geist. “It’s important to note that ‘nontraditional credit’ can’t be used to offset negative ‘traditional’ credit.” He adds that although you may see information holding out hope for FHA-insured loans to would-be buyers with credit scores under 500, the chances of that actually happening are nil.

Do not, however, mistake FHA-insured loans for “easy credit” lending, Geist adds. "There is a misconception that FHA loans are subprime. Nothing could be further from the truth,” he says. “Although FHA loans provide flexible qualifying guidelines, including lower credit scores and higher debt-to-income ratios, the demonstrated ability to repay is a significant factor in the approval of any FHA loan.”

Another plus of an FHA-insured loan is that, unlike a conventional bank loan’s terms, an FHA loan allows you to get the cash needed for the down payment as a gift from friends, family or a charity. The FHA will even allow the seller to pay your closing costs, although if they do so, it may boost your mortgage’s interest rate, since not having enough money for even that makes you look less loan-worthy. There are FHA-insured loans available with both fixed rates and adjustable rates.

Debt-to-Income Details

The debt-to-income ratio requirement involves several calculations based on the mortgage amount and all other debt payments. First, the amount of the mortgage payment – including mortgage insurance (see below) and all other escrow charges – must be a maximum of 31% of a borrower's gross monthly income. Second, the mortgage added to all other monthly debt payments, such as student loans or credit cards, must be no more than 43% of gross monthly income. Using these ratios, a borrower who has a gross monthly income of $3,000 can have a mortgage payment of up to $930 a month. The total of the mortgage and all other monthly commitments, however, must fall under the maximum of $1,290. For more on this, see What is the debt ratio for an FHA loan?

Any Drawbacks?

Before you decide to pursue an FHA-guaranteed loan, do consider some of the downsides. First, your options are more limited than with a conventional mortgage, because you can only do business with an FHA-approved lender. That limits your ability to shop around for the most favorable rates and terms. “A careful and complete comparison of loan products, fees and mortgage insurance is an important step in determining which loan product is best for you,” notes Geist. 

FHA-insured loans have caps on the amount of the loan that vary by region. The absolute top amount the FHA will insure is $625,000, which in major metropolitan areas may not go very far. Further, many condo developments are not FHA-approved, so some less-expensive housing options are off the table. Also, FHA loans require the home meet a checklist of conditions and also be appraised by an FHA-approved appraiser. They can only be utilized for homes that serve as the buyer’s primary residence.

Consider also that although the cash needed up front may be low, the required FHA insurance premiums will add considerably to your monthly mortgage payments, since you are contributing to a HUD reserve fund that is used to pay off the banks when an FHA-guaranteed mortgage goes bad. And mortgage insurance payments may not always be tax deductible, depending on your income.

You will pay an upfront mortgage insurance premium (UFMIP) of 1.75% of the base loan amount. Then, on a 30-year mortgage, which is the most common FHA loan term, the annual premium can run as high as .85% of the loan amount if you choose the lowest down-payment option. At the opposite end, on a 15-year loan with 10% or more down, the premium drops to .45%.

Added to your monthly payments, these premiums often tend to make the interest rate on FHA-backed mortgages – which nominally is slightly less than that on their conventional counterparts  – actually higher than that of regular mortgages. And, unfortunately, the FHA requires homeowners to carry mortgage insurance for the life of the loan. With a traditional loan, homeowners can usually cancel the mortgage insurance once they have at least 20% equity in the property.

That’s why some FHA loan-guarantee recipients later seek to refinance their properties with a conventional bank loan once their credit history has improved. To do that, and say good-bye to the FHA mortgage-insurance payments, you will have to get FHA approval. “The FHA mortgage insurance continues for the full term of the loan,” says Geist, “so the primary reason to refinance an FHA-insured loan with a conventional loan would be to eliminate mortgage insurance and/or to reduce the term of the loan.”

The Assumable Advantage

On the upside, however, is the fact that FHA-insured mortgages are assumable, meaning that whoever buys your property can take it over from you, while conventional mortgages generally are not.

The buyer has to qualify, meeting the FHA's terms (as you did). Once he's approved, he assumes all the obligations of the mortgage upon the sale of the property, relieving the seller of all liability. In some cases, the seller may still be responsible for the debt if the buyer does not sign a liability release from the lender. This means that if the buyer does not make the payments, the seller's credit could be negatively affected.

“An assumable FHA loan could create a competitive advantage when it’s time to sell, especially if current interest rates are higher than the existing rate on the FHA loan,” says Geist. “Assumption costs are also lower than costs associated with a new loan.”  Closing costs and any mortgage buyout costs are also typically much less than those for a new conventional loan.

So your FHA loan could potentially be an incentive if you find yourself selling in a buyers’ market with rising interest rates. 

The Bottom Line

FHA-guaranteed loans are part of HUD’s mandate to encourage home ownership (HUD itself doesn’t do loan guarantees for individual homes, unless you're a Native American). If you have reasonably good credit but are short on funds for a down payment, an FHA-insured loan can help you become a homeowner. But because of limits on property purchase price, housing type and loan choices – plus the added cost of mortgage insurance – you’re probably better off with a conventional mortgage if you have enough cash on hand. It all comes down to exploring your options fully and doing the math of the upfront and lifetime cost of each loan you are considering.

By Anne M. Russell – To view the original article click here

Posted by Jackie A. Graves, President on December 1st, 2017 7:55 AM

Financial planners don't just help people balance their budgets or plan for retirement; they also help their clients buy homes. After all, a house is very often the biggest financial investment you'll ever make—so, it makes sense that these professionals would have some strong opinions on just how to go about it.

Curious what they want you to know? Read on for their top, no-nonsense tips.

1. Buy only if you plan to stick around

When you purchase a house, you have to shell out a significant amount of cash for closing costs—fees paid to third parties that helped facilitate the sale. Closing costs can vary widely by location, but they typically total 2% to 7% of the home's purchase price. So on a $250,000 home, your closing costs would amount to anywhere from $5,000 to $17,500. That’s a serious chunk of change!

Consequently, Craig Jaffe, a certified financial planner at United Capital in Boca Raton, FL, says it's important to calculate your break-even point—i.e., how long it will take for you to recoup those costs.

“Typically, you want to own a home for at least three years in order to recoup the initial costs of buying the home,” says Jaffe. You can use realtor.com®’s rent or buy calculator to see whether purchasing a house makes financial sense for you.

2. Factor in the full costs of homeownership

When weighing whether it makes more sense to buy a house or continue to rent, don’t focus solely on your mortgage payments—you’ll also have to pay property taxes, interest, home insurance, utilities, and other expenses.

“A lot of people don’t budget for hidden costs” such as maintenance and repairs, says Jaffe.

You should also have an emergency fund set aside in case something goes wrong with the house.

“If your roof gets damaged or a major appliance breaks, you want to have cash on hand to pay for those costs,” Jaffe says. (If you don’t have a rainy day fund in place for those kinds of expenses, you could be forced to take on high-interest credit card debt.) Jaffe recommends building an emergency fund of 1% to 2% of your home’s value.

3. Try to make a 20% down payment

Unless you qualify for a Department of Veteran Affairs loan or Federal Housing Administration loan, you’re going to need to obtain a conventional home loan from a private mortgage lender.

When doing so, “you want to aim to make at least a 20% down payment,” says Jaffe. Why? Because if you put down less, you’ll have to pay private mortgage insurance, an additional monthly fee that protects the lender in case you default on the loan.

PMI can be pricey, amounting to about 1% of your whole loan—or $1,000 per year per $100,000. The good news? You can typically get PMI removed once you’ve gained at least 20% equity in your home.

4. Don't raid your retirement funds

While it's tempting to borrow from your IRA or 401(k) to amass a down payment on a home, “a retirement account is the last place you’d want to go for your down payment,” says Jaffe.

Indeed, if you borrow from either plan before age 59½, you’ll get slapped with a 10% excise tax on the amount you withdraw, on top of the regular income tax you pay on withdrawals from traditional defined contribution plans. Making early withdrawals also obviously prevents the money from accruing interest in these accounts, which could force you to delay retirement.

A better alternative? You could qualify for one of over 2,200 down payment assistance programs nationwide, which help out home buyers with low-interest loans, grants, and tax credits. Home buyers who use down payment assistance programs save an average of $17,766 over the life of their loan.

5. Make sure your credit score is up to snuff

You need to have solid credit—typically at least a 650 credit score—to qualify for a conventional home loan, and you need to have excellent credit (think 760 or above) to qualify for the lowest interest rates.

Hence, “you want to get pre-approved for a loan when your credit is at its strongest point,” says Jaffe.

To assess where you stand, pull a free copy of your credit report from each of the three major U.S. credit bureaus (Experian, Equifax, and TransUnion) using AnnualCreditReport.com. Your report doesn't include your credit score—you'll have to go to each company for that, and pay a small fee—but it shows your credit history, including any black marks (e.g., missed credit card payments, overdue medical bills).

If you notice errors on your report, contact the credit-reporting agency immediately, Jaffe says.

6. When buying a home, watch your spending carefully

In the months leading up to your home purchase, make sure you don’t take any actions that could hurt your credit score. These mistakes include closing old credit card accounts, opening a new credit card, maxing out your credit cards, and making a large purchase such as a new car, says Jeremy David Schachter, mortgage adviser and branch manager at Pinnacle Capital Mortgage in Phoenix.

7. Don’t bite off more house than you can chew

This one might sound obvious, but a lot of people make the mistake of buying a house that’s simply outside what they can comfortably afford.

“You don’t want to stretch yourself so thin that your housing expenses are going to stress you out each month or prevent you from saving for retirement,” says Jaffe. You can use realtor.com’s home affordability calculator to determine a price range that fits your budget.

By Daniel Bortz – To view the original article click here

Posted by Jackie A. Graves, President on November 30th, 2017 7:45 AM

Archives:

My Favorite Blogs:

Sites That Link to This Blog: