Homes MSP Real Estate Blog

Mortgage rates

Mortgage interest rates have been fairly steady for most of the last month.  We have had many different economic reports that show some economic growth - unemployment  numbers were better than expected for January 2012.  On Friday, February 3rd when the report came out, the stock market rallied and we did see interest rates move up very slightly.  However by Monday the mortgage market had improved again and rates improved! 

One of the biggest concerns affecting interest rates is still the European economy, specifically Greece.  The proposed deal in Greece calls for bond investors to exchange outstanding bonds for new ones and take losses of about 70% in the process.  If most private investors don't agree, it could trigger credit defaults on the securities leading to a European bank liquidity issue.

As long as there are issues in Europe, it should continue to help keep our mortgage rates down.  The economy is slowly rebounding, although we'll see what the reports continue to show for 2012.  Right now the Federal Reserve is planning to keep interest rates that they loan money on to banks low into 2013, maybe 2014.  That will help keep the mortgage rates low, but as the economy improves, rates will start to increase.  How fast and how much is yet to be determined.  I know that a year ago many people expected rates to be significantly higher than they are now.  I won't even guess where they could be by the end of 2012!!

If you are thinking about buying a new home or refinancing, rates are about as low as they can get!  There are some things that are affecting rates, like the new fee charged to Fannie and Freddie to pay for the payroll tax extension but the rates are still staying low!  It is a great time to buy a new home with home prices and interest rates, so you may want to look at getting qualified now.  You will be able to qualify for more now than you will as rates start to increase.

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

What's a letter of explanation?

Lenders are asking for more explanations than we have in the past.  Several years ago we used to get a letter of explanation regarding for many things and that went away for a few years.  Now it's back again!!

If you have any inquiries on your credit report, you will be asked to write a letter of explanation (LOX) explaining what they were for and if there is any new debt.  If there is new debt and it's not on the credit report, you will need to show information on the loan or credit card - a new statement, the loan papers, etc so the underwriter knows what the new payment is and how it will  affect your loan qualifications.  If you were shopping for a mortgage, you can explain that you were doing that and that there isn't any new debt from the credit inquiries.

An underwriter may also ask for an explanation on why you are buying a home or why a bankruptcy happened.  They may want explanations on employment or other questions.  Sometimes they are worried about occupancy or have questions about your credit.  After the last fewyears, they are concerned about possible fraud and so they are trying to make sure they are comfortable with the transaction.   If you are buying a new home and not selling your current home, they may want to know why.

There are times that I will write an explanation about the transaction to help the underwriter understand what is going on.  I may want information from you to help me explain what is happening in the transaction.  It helps the underwriter to understand what we are using for income or why you are keeping a home as you are buying a new one!

If you are asked to write an explanation, keep it simple, truthful and if you have any supporting documentation, add it to the letter!

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

Do I need 20% down to buy a house?

I have been asked more than once if you still have to have 20% (or more) down in order to buy a home.  I think with so many different stories out in the media, no one is really sure!  I just had a client email me last week asking if he had to put 20% down to buy a new home.

There are many options available for all buyers, first time homebuyers to repeat buyers.  The minimum down is zer0 - but only for those that qualify for VA home loans or USDA rural development loans!  There are some programs available at 3% down for first time homebuyers typically.  They are a My Community homebuyer loan and you need to be under specific income limits and also have a high enough credit score.  These loans are not as common as they used to be.  Most people that are buying with less than 5% down are using FHA loans.

FHA is one of the most common ways to buy a home with less than 5% down, you need 3.5% down and the interest rates are fantastic!  The monthly mortgage insurance is now higher than it used to be but it's still a great option!

Conventional loans are available with as little as 5% down.  You will need to pay mortgage insurance unless you put 20% down, but it's still a good option.  If your credit score is over 700 and you have 5% down of your own money, I would usually recommend doing a conventional loan over FHA due to the mortgage insurance.

Another option is to put 10% down and get a second mortgage for 10% down, by doing this you can avoid the mortgage insurance, but you will have a second mortgage to pay for.  With this option, you need to compare the costs between the second mortgage and MI and see which one makes more sense for you to do.

If you are thinking about buying a home and you have been told you need 20% (or more) down, please talk to a loan officer.  You may have a lot more options than you think you do!!!

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

Mortgage basics!

You have made the big decision!  It's time to buy a home....now what?  Once you decide you want to buy a home, you need to talk with a loan officer to see what the best program is for you and how much you will qualify for.  One of the questions I ask my customers is "what are you comfortable with in a house payment?"  That information gives me an idea of what they want to spend and also may tell me if they are being realistic or not.  Most clients these days are being very conservative in what they want to spend, which will help us on the road to economic recovery.

Once you decide it's time to buy, you need to gather several things for your loan officer.  Most mortgage companies want to see the basic information - 1-2 recent paystubs, two years of w-2's along with your federal tax returns, 1-2 months of bank statements.  You may also need a divorce decree if it applies to you (if you pay or receive child support or have a home that your previous spouse is now responsible for), investment account statements if that is where money is coming from for the down payment, business tax returns if you are self employed VA documents for VA loans. 

Your loan officer will pull your credit report and calculate your income.  They will look at your debt ratio and figure out what you can afford and qualify for.  They should run your file through an automated underwriting system.  They will explain different programs to you and help you decide which program is best for you.

Make sure that you are making your payments on time, if you aren't sure, check with your lender and see what your credit looks like.  If you transfer money between bank accounts, try to limit the transfers.  Your lender will need to see all your bank statements so they can determine where the money is for your closing and if you have enough.  If there are a lot of transfers, it can make it more difficult to determine how much cash you have. 

Once you have applied for a mortgage, make sure you don't open any new accounts, do not apply for any additional credit.  If you have any job changes, make sure your loan officer is aware of the changes.  If you sell something and deposit the money in your bank account, you will need a description of what was sold, a copy of the check and something to show the value of what was sold.  I recently had a client sell a motorcycle, she had a copy of the check and I was able to go online and get documentation to show what the value of the motorcycle was, along with a picture of the bike, etc. 

Because lenders now have to verify employment and credit right before closing, we will check with employers and update credit.  If there are any changes, let your loan officer know so they are aware of any possible changes.

Due to all the changes we have had over the last couple of years, homebuyers need to know that it takes a little more work to get your mortgage approved.  It's not necessarily harder, but there is more documentation required now than there had been for several years!  For those that have bought homes in the past few years, it may seem like we are asking for everything including the kitchen sink!!  We don't try to make it harder, but we do need to document everything.  The more information we have in the beginning of the process, the easier the final mortgage approval will be!

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

FHA mortgage premiums rising again?

Congress voted to extend the payroll tax deduction portion of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.  The measure cuts payroll taxes by 2% during January and February 2012.  To pay for the program, Congress is requiring Fannie Mae, Freddie Mac and FHA to raise their respective fees.

FHA may be raising their monthly mortgage insurance premiums by 10 basis points which would mean a monthly mortgage insurance premium of 1.25% instead of 1.15%.  That would increase the monthly payment on a $150,000 mortgage by $12.5o.  We have not been directed by FHA yet and we do not have a start date, but be prepared that it may be coming!

Conventional loans  will see the interest rates increase by about .125% to cover the cost to Fannie and Freddie.  For a $200,000 mortgage, it will increase your monthly payment by about $17.  Conventional loans are starting to see the increases already in pricing.  Fannie and Freddie were directed to start collecting the money loans delivered in April 2012.

If you have a FHA mortgage and you want to refinance using the FHA streamline program, this will make it more difficult.  In order to qualify for the program your monthly payment of principal, interest and monthly MIP must be reduced by 5% or more.  Because of the increases to the FHA mortgage insurance over the last two years, it will be more difficult to do that.  This increase will make it even more difficult.

If you are thinking about refinancing, you may want to talk to someone about it now.  We know rates will start to go up and with these changes coming, the rates will go up sooner than later!  As soon as we hear definite information about the start date of the increase for FHA mortgage insurance premiums, I'll pass it on.

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

Why do some homes for sale say they won't accept FHA financing?

If you are using FHA financing it's important to understand why some properties may raise red flags and not be approved for FHA financing even if the listing says they will accept it... and why FHA financing could work for some properties even if they don't list it as an approved form of financing.

Appraisals are more strict with FHA financing because they are more cautious about the health and safety of the buyers, as well as protecting buyers from issues which may cause additional expense. If they find issues of concern at the appraisal they may issue work orders which must be completed prior to closing.

Here are just some of the things which may prevent a property from being approved for FHA financing...

• A condominium complex which is not FHA approved (check with your lender before making an offer, even if the listing says they will accept FHA financing)
• Leaking or worn out roof (should have at least 2 years of remaining life)
• Signs of water damage, mold or structural problems
• Broken windows
• Peeling and chipping paint
• A furnace at or near the end of its life

Sometimes the seller is willing to make the required repairs and sometimes not. If not, you may be able to finance with an FHA 203k rehab loan. Check with your lender so you know your options before writing an offer on a property that may be questionable.

Sharlene Hensrud, RE/MAX Results - Email - HomesMSP.com

RELATED POSTS

• FHA 203K rehab loans
• How to find FHA or VA approved condos

HUD extends the anti-flipping rule

HUD has extended the anti-flipping rule through December 2012.  FHA rules prohibit insuring a mortgage on a home that the seller has owned for less than 90 days.  The extension will permit buyers to continue to use FHA insured financing to purchase HUD-owned properties, bank owned properties or properties resold through private sales.  It will allow homes to resell as quickly as possible to help stabilize real estate prices and revitalize neighborhoods.

The rule allows for exceptions as long as the sale meets the following guidelines:

• All transactions must be arms-length, with no identity of interest between the buyer and seller (or other parties to the transaction).
• If the sales price is 20% or more above the seller's acquistion cost, the waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.
• The waiver does not apply to reverse mortgages.
• The seller must be the owner of record.
• The property may not have been repeatedly "flipped" in the past year.
• The property has to be marketed openly and fairly.

When a home is being re-sold for more than 20% over acquistion cost within 90 days of the original sales date, there are additional requirements and many lenders will not accept those loans.  FHA will require a second appraisal (the buyer can not be charged for the second appraisal).  The seller will also have to show documentation to support the increased valuation due to improvements, etc.  There will also have to be a property inspection to determine the quality of the improvements to the property and if there are any health or safety issues.

If the property is being re-sold within 91-180 days after the purchase date at more than 100% of the original acquistion cost, the same requirements will be made.  The buyer can not be charged for the second appraisal. 

Investors that purchase homes and renovate them need to be prepared to provide documentation of improvements made to the property.  Keep all the receipts for repairs, improvements, etc.  They also need to be prepared for the cost of a second appraisal. 

After 180 days, these requirements won't affect the sale of a home.  The sales date is determined by the actual closing date of the property and the new sale is effective with the date on the purchase agreement.

FHA is hoping that this will help stabilize home values to help the housing market.  It will continue to make it easier for buyers to purchase foreclosed homes using FHA financing.

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

 

 

 

 

What happened to 2011?!!

In the mortgage world, it seems like this past year flew by!!  Over the last couple of years, it has been a constant world of change and 2011 wasn't any different!

Some of the major changes were the increased FHA monthly mortgage insurance.  The monthly mortgage insurance almost doubled from where it used to be.  The upfront mortgage insurance dropped, but the overall payments are still higher.  FHA loans are still popular, but many have switched back to conventional loans if they can qualify.

Conventional loans stayed about the same but some mortgage insurance costs actually dropped a little.  A couple mortgage insurance companies went out of business over the past year, that has also affected some of the mortgage programs.

Rural development loans added a small annual fee that is paid on a monthly basis.  They also reduced the guarantee fee.  The program still allows for zero down mortgages!

VA loans went through a possible change, but in the end, the VA funding fee stayed where it has been over the last few years!  For a month or so, it looked like the funding fee was going to drop, but Congress did issue a change that reinstated the previous funding fees.

Overall, mortgage qualifying stayed about the same.  Credit scores are required to be about 640-660 for conventional loans, 620-640 is required by most lenders for FHA loans.  FHA allows for lower scores, but many lenders won't allow that.

The biggest change in qualifying over the last year is simply documentation.  We need to show 2 years of w-2's and tax returns, 30 days of paystubs, 1-2 months of bank statements.  We need more letters of explanation - especially on credit inquiries and large deposits into bank accounts.  We need to verify that credit reports and employment haven't changed right before closing.

Mortgage interest rates have dropped to some of the lowest levels ever seen!  A year ago I would never have expected to see rates where they are now, I expected they would be at least 1-2% higher than they are!!  I expect that rates will increase slowly in 2012, but who knows!!  We do know that they shouldn't get much lower at all - how much lower can they realistically go?!

Now what will happen in 2012??  I would expect rates to slowly increase, mortgage documentation to stay about the same.  Home prices will probably slowly increase.  It will be interesting to see what other changes there will be in the mortgage world!!

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

Is it time to buy a home?

The housing market has changed dramatically over the last couple of years.  Home prices are lower than ever and interest rates are as low as we have seen in years!  It is a wonderful time to buy a new home, yet many are afraid or worried they won't qualify.  There are many that think they can't buy a home.

The top concern is credit.  If your credit isn't where it should be, then contact a loan officer or a credit counselor to see what you need to do to improve it.  Many people can improve their credit scores to an acceptable level in a year.  If that's what you need to work on, then now is the time to start!!  It may be that your credit is fine, but if you aren't sure, talk to a loan officer.  Your loan officer should be able to tell you what you need to do to get your credit score and your credit history to where it needs to be.

One of the other top concerns is the down payment.  If you are a first time homebuyer, there are different programs available to help you with your down payment.  If you don't qualify for a down payment assistance program, maybe you have family that can give you a gift - the minimum down is 3.5% for FHA loans.  There are VA and USDA loans that allow you to buy with zero down if you qualify or are buying a home in the rural areas for USDA.  Maybe you will be getting a tax refund or possibly have a retirement account that you can borrow from.  These are different ideas to see what you may be able to do for the down payment.  If you qualify, there is a conventional loan with 3% down.

Some people just don't think they will qualify.  If you aren't sure, talk to a loan officer.  It doesn't cost you anything other than your time (and for some, maybe the cost of a credit report), to see what you might be able to qualify for. 

We know that home prices will increase and I have seen several articles that say that will happen in 2012.  We also know that interest rates will increase, many expect rates to increase in 2012.  We know that the Fed is trying to keep rates low, but it also depends on the economy and there are indications that things are improving.  As the economy starts to improve, interest rates will increase.

For those thinking that maybe I can buy a home - now is the time to talk to a loan officer or a realtor.  What a wonderful way to start 2012 - maybe you can buy a new home for you and your family!! 

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website

 

Gifts and documentation!

When you are getting a mortgage, the underwriter will want to verify all the cash used for closing.  If you are going to be short, you may want to see if someone in your family can give you a gift.  Most loan programs will allow for gifts and if your family is willing, it's a great way to help with your cash for closing.

Due to all the foreclosures and other issues that mortgage companies have seen with gifts, there is more documentation required now than ever before.  FHA and VA are more specific than conventional, but as long as everyone works together, it can be easy.

All files require a gift letter signed by you and the person giving you the gift.  Most programs require the person giving you a gift to be a family member. 

FHA  and VA require that you also get proof that the donor has the ability to give you the gift.  So we need to get a gift letter along with a bank statement showing that the money is available.  If there are large deposits on the donor's bank statement, they will have to be explained.  We also need to see that the money came from that account.  The easiest way is to have the donor give you a cashier's check with the account number written on it and the proof of withdrawal from that account.

Conventional loans are a little easier.  You still need the gift letter, but usually you are not required to show proof that the donor had the ability to give you the money.  You will need a cashiers check that you can bring to closing for the amount of the gift.

In both cases if you deposit the gift money into your account, we will need to show that the check was deposited and the new balance.

If you aren't sure what you need to do, ask your loan officer for specifics.  With all the changes over the past few years, gifts are still possible, it just takes an extra step or two! 

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email - Website