You Are Invited

Please stop by on December 8th, anytime from 4-8pm, for pictures with Santa and Buddy the Elf.  

Bring the kids and enjoy a Christmas tradition!  There will be refreshments, and a “Dear Santa” letter writing station as well so kids can let Santa know what they want for Christmas. 

We will also be collecting canned food for Loaves and Fishes to help those in our community.

Now imagine if Apple held a much publicized  launch for a product.  Investors, reporters, technology fans, and consumers are anxiously awaiting the genius product to be unveiled.  Surely, they can get one to change their lives!  Apple makes the presentation and it blows everyone away.  People can not wait to get the new iLifeChanginingDevice! There is only one problem — it is not available for distribution.  There is a great idea… but they have not yet finished production or ironed out the distribution channels.  Everyone is sad…. they must be patient and wait.

This is where we are with HARP2, the refinance plan announced a month ago-  IT IS GREAT FOR THE PEOPLE WHO FIT IN THE BUCKET, but as an industry is it not ready to be deployed. 

FHFA (Federal Housing Finance Agency) released information on 10/24/11 (news release http://www.box.net/shared/aqe2auxm2p3tcp2oej45) with new initiatives extending program limitations for all HARP (Home Affordable Refinance Programs). This new initiative would allow lenders to provide  more flexibility than programs currently permit by providing some relief in certain areas over the current programs. At this time, most investors in the secondary mortgage markets, banks, lenders, etc. have not released information as to the extent of their participating in the New HARP 2 Initiative. Everyone will need some time to process the information, and work through their systems internally  prior to having the ability to originate loans under this program.

The news release says:

Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.  In addition, some of the enhancements such as delivery of loans with LTV greater than 125 should be operational during the first quarter of 2012.

OK – So we are not quite ready to roll this out as an industry, but it will be in play at some point in the coming months.  There are the enhancements to the current program.

This program will continue to be available to borrowers with loans sold to the Enterprises (must have a current Fannie Mae or Freddie Mac loan) on or before May 31, 2009 with current loan-t0-value (LTV) ratios above 80 percent. 

The new program enhancements address several other key aspects of HARP including:

 Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers

 Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;

 Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;

 Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and

 Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.  It is a hot topic with industry insiders trying to challenge this restriction.  This is the same group that was able to be helped under the old plan. 

So–there are some nice enhancements to the current program, especially if you home has drastically declined in value AND your original loan was 80% of the value at the time you got the mortgage.  Call me at 704-749-3691 or email at mattg@fairwaync.com if you are interested in this program.  I can do an analysis for you to see if you will fit into the program once it is ready to be put into action.

1. You are the one who is staying in the home – This sounds simple.  The spouse moves out and life moves on.  But be sure to consider the size of the home, all utilities, the mortgage payment, insurance, taxes, and upkeep. Make sure the home fits into your new situation because it is likely that overall household income is decreasing (two incomes to one) and/or expenses may be increasing, especially if you have to pay alimony or child support.  You may also be required to refinance the home to remove your ex-spouse from the mortgage (more about this in item 2) as a condition of your separation.

Strategy – Determine if the home fits your needs and budget.  If so, great but check to see if you need to refinance the home.  If so, contact an experienced mortgage planner.  If the home no longer fits your budget and needs, it may be time to contact a good realtor (FYI – I know a few great ones) to see if listing the home for sale makes sense.

2. You are the one leaving the home – The most common mistake is assuming that the vacating party no longer has any responsibility on the mortgage.  If the mortgage is joint or in your name only, then in the eyes of the mortgage company the divorce does not remove your liability.  If you record a quit claim deed, you are removed from title to the property, not the mortgage.  The separation agreement may say your spouse is responsible for the mortgage payment but if your ex-spouse does not pay on time it will severely damage you credit.   This could prevent you from buying a home down the road.  It is very important that your ex remains current on the mortgage until it is paid off or until it is refinanced out of your name.

Strategy – Have your attorney negotiate that your ex must refinance you off of the mortgage.  Make sure your ex contacts an expert mortgage professional to review a potential refinance.  This could save your credit rating and free you up to move on with your life financially.

3. How can I buy a new home – An expert mortgage planner can assist you in determining the correct approach.  Many loan programs will require you to qualify for the home you want to buy AND any mortgages reporting on your credit report related to the house you vacated.  Other programs will allow some flexibility if you have a recorded separation agreement and can prove that the ex-spouse has been making payments on their own for a period of time.  Keep in mind– any accounts in your name on your credit report must be kept current, even if they are now your ex-spouses debts per your separation agreement. 

Strategy – Speak with a mortgage expert early in the process to create a game plan so you are not blindsided down the road.  You do not want to go through a separation and leave the home, and find out later that something is preventing you from buying your own place.  Some in-depth planning goes a long way.

4. One spouse is entitled to home equity or a cash distribution – The amount of equity in a home usually needs to be determined by an appraiser.    The appraised value less the cost of selling (commissions and fees) leaves the equity to be split.  Your attorney may have other factors to consider in determining the distribution, such as money used on the home from pre-martial assets.   Often one party is entitled to a cash distribution to  “buy out” the other.  Normally there are 3 options—-use or liquidate assets (investments, savings, retirement plans, etc.), refinance the home, or get a home equity line. 

Strategy – Call a mortgage expert to review your situation, look at your total pictures, and determine the best solution based on you cash need, the equity in the home, the qualified options, and the need to remove a party from any obligations.  Also, call us if you need an appraisal because an appraisal ordered by you can not be used for mortgage purposes down the road.  Otherwise, you may find yourself spending more money on an additional appraisal if you need to refinance.

5. I will be paying or receiving alimony or child support – If the recipient of alimony or child support wants to purchase or refinance a home in the future—-it is vitally important that the terms of payment for alimony or child support are written into the separation agreement in a manner that can be used for qualifying mortgage income.  In general, this type of income must be received for a minimum of 3 months and continue for another 3 years to be used to qualify.  It MUST be evidenced in a recorded separation agreement that it will continue for at least 3 years from the mortgage application date and receipt proven.

Strategy - Have your Certified Mortgage Planner review your separation agreement at no cost to you and contact you and your attorney with any changes that may impact your ability to purchase or refinance down the road before the agreement is signed and recorded.  Make sure the party paying the alimony or child support pays with a check or through an agency where the payments can be verified–no cash!

Having a trusted mortgage expert working with you and your attorney as early in the process as possible will ensure you give yourself the best chance for a clean and successful financial separation.

Matt Gray, CMPS, CMC

Fairway Independent Mortgage

Branch Manager

NMLS 68261

Tel: 704.749.3691¦Fax:704.749.3687

1. cash
2. an equity line that is maxed at 85-90% of the current appraised value before improvements
3. Fairway’s “Purchase Plus” Home Loan – a 203K Streamline mortgage that allows you to purchase your home AND finance up to $35K in home improvements into one loan at closing!

There is no need to wait to do the improvements or save for years and pay cash!  You can buy (or refinance) a home and renovate the home immediately.  You and your family can enjoy that new kitchen, bathroom, finished basement or bonus room, fresh paint, new carpet or floors, new roof, HVAC or many other improvements NOW instead of gradually over time… AND you do not have to pay for it in one lump sum.  You can:

• Buy a foreclosure, short sale, or distressed property and renovate it
• Buy any single family home (doesn’t have to be foreclosure, etc.) and remodel it
• Refinance your home and use the “after completed” appraised value for the loan and finance in improvements
• Buy a home below market, improve it, and live in a “like new” home
• Enjoy one closing, one loan approval, and a great fixed rate

Contact us at 704-749-3691.  Check out the video below for more information!  Thanks to Brock Zevan, owner and broker-in-charge of Compass Real Estate Group for his help with this video;

1)Interest rates will likely be rising soon whether home prices increase, decrease, or stay the same.  Fannie Mae, Freddie Mac, The National Association of Realtors (NAR), and Moody’s all predict interest rates to rise over 1% in the next 12 months.

2) A 1% increase in interest rates offsets a 10% decrease in home price when it comes to monthly payment.

3) The most in-depth analysis of the Charlotte real estate market by a CEO of a large, local, real estate company predicted that home prices would remain about level (increase 1%) in 2011 in the Charlotte Metro market.  This obviously will vary by zip code or neighborhood.  There is certainly no guarantee that neighborhood where you are looking to buy will have declining values over the next few months. 

Please watch the video below and I explain the correlation between rates and home prices:

Here is the Link for the WSJ and Forbes Articles:

http://kcmblog.com/2011/06/07/financial-news-icons-say-now-is-the-time-to-buy/

a) The client does not know these options exist and has not been educated on the benefits.

b) The originator is not concerned with planning to put the client into the best product when these products are appropriate.

c) The mortgage company/bank/credit union does not offer these products or does not price them competitively because they can make more money on other, more common products.

The Products Are—THE 10 YEAR ARM AND 20 YEAR FIXED

10 Year ARM – Most homeowner’s are in the market for a mortgage about every 7 years. First time buyers are often back in the market much sooner than that. In fact, most first time buyers will never come close to holding their property more than 10 years. Often, step-up buyers will have family or career changes that will create different housing needs within 10 years of their purchase. Yet a 5 or even a 7 year ARM sometimes does not provide enough peace of mind for the homeowner. When the above elements are present, a 10 year ARM is often the safest way to create savings and provide security.

A 10 year ARM offers the safety of a long fixed period for the interest rate with a significant interest rate savings over a comparable 30 year fixed loan. On a $200K loan the savings over a 30 year fixed is normally $50-$60 per month. That’s $6,000-$7,200 over a 10 year period! This is money that could be put to a better use than paying unnecessary interest on a mortgage tied to a property that the buyer will not own in 10 years!

20 Year Fixed – If a client has established a cash reserve, has eliminated bad debt (credit cards, etc.), has insurance to protect what they have, has planned financially for their life (educate kids, retire—whatever is important), and they want to pay off their house early—they should go for it! BUT—sometimes the payment jump from a 30 year mortgage to a 15 or 10 year loan is a bit more than the homeowner can comfortably handle. The 20 year fixed is one of the best VALUES available. I can best explain this with simple numbers.

Let’s take a loan of about $200K. I have rounded some numbers for illustration but this is a very real scenario. Payments on the following loan types (before taxes and insurance) would be roughly:

30 Year Fixed $1,050

20 Year Fixed $1,275—monthly increase over 30 Year = $225—saves 10 years

15 Year Fixed $1,500—monthly increase over 20 Year = $225—saves 5 additional years

You can see from the simple numbers above that for the first $225 increase in payment the borrowers cuts 10 years off the 30 year mortgage. For the next $225 monthly they save an additional 5 years. This makes the 20 year fixed a wonderful value for those looking to cut the term of their mortgage while staying within their monthly comfort zone. We have used this simple formula to save thousands for clients who are looking for a way to safely pay off their home!

Using a certified mortgage planner is critical to ensuring that the homeowner is in the right mortgage to lower the total cost of the mortgage and home ownership. We provide a service that is ALWAYS in the best interest of the client’s needs, not the bank’s needs.

We will be discussing the state of the mortgage market, is there money to borrow (YES, YES, YES – do not believe all of the news reports and internet articles saying it is impossible to get a loan), down payment requirements, mortgage planning, buying foreclosures, refinancing, and what ever else can come up on a live radio show.  I can be reached at:

Matt Gray—704-562-6462 cell—-704-749-3691 office —-   mattg@fairwaync.com

If you are visiting my blog for the first time please subscribe to it!  That way you will get email updates when I make a post.  Please feel free to look at my previous posts–I try to answer questions for borrowers and realtors and turn them into posts.  Sometimes we make a video about the subject to help get a point across.

Is There Money to Borrow?

YES—and you do not have to put 20% down—you can, but you do not have to!

I was watching a report on one of our local, respected news stations this week about an FDIC proposal requiring lenders to keep a 5% stake in loans they sell in the secondary mortgage markets. The story concluded this would lead to lenders requiring a 20% down payment on mortgages because this would exempt the loan from the proposed rule.   The new story was so brief and confusing that I could barely follow it.  I have been in this business for ten years and hold two industry specific certifications–if I didn’t understand the news story how could someone who works in a different industry?  Most reasonable person would have had one takeaway  from the report —I have to put 20% down!  The story also failed to mention that loans with a government guarantees  (FHA, USDA, VA) and loans sold to Fannie Mae and Freddie Mac are also exempt—-THESE LOANS ACCOUNT FOR 90% OF THE MORTGAGE MARKET!  So at the very worst, it the proposal ever passes, it will impact maybe 10% of the mortgage market.

I went to the news station’s website where I found an article with the following quotes:

“Lenders are reluctant to hand out loans unless you can bring some skin to the deal, in the form of a bigger deposit,” “Until that changes, low mortgage rates aren’t going to make that much of a difference. Credit is simply hard to get.” There aren’t many buyers with deep enough pockets who can put 20 to 25 percent down,”

I though–WOW, this is what people see every day!  This is the wrong message! There are a number of loan that do not require 20 to 25% down.  This week we hosted a realtor seminar that covered ways to purchase homes with little or no money down.    Here are the current down payment requirements for the major different types of loans:

VA – 0% Down

USDA – 0% Down

FHA – 3.5% Down – can be a gift or community down payment assistance

Conforming – 5% down – must come from own funds

Fannie Mae HomePath – but a Fannie Mae foreclosure 3% down–can be a gift

HUD $100 Down – Buy a HUD foreclosure with $100 down

As you can see—this is a long way from requiring 20% down payments!

The Loan Process

We are closing a loan on Monday for a buyer who was so discouraged that she almost didn’t even begin to start the buying process.  She was told by her friends not to bother buying a home in today’s market.  She was told  by others at a big bank that it would take 4 months and be a nightmare of a process.

She was finally referred to a good realtor who told her to call us.  They wrote a contract for a 6 week closing–we could have closed it in 2 weeks.  The funds are in the attorney’s account a day in advance of closing and they have had the closing documents for over a week.  All the buyer had to do was get us what we asked for, when we asked for it.  Our loan process made this such a simple transaction she can’t believe it was this easy!

It’s not that difficult.  Here is an overview of our loan process:

Why Did Fannie Mae Create HomePath?

Fannie Mae buys loans underwritten to their guidelines from lenders and banks all across the country.  Fannie then holds the loans to collect payments on these mortgages.  Given the “meltdown” over the past few years Fannie has had to foreclose on a number of properties secured by these mortgages.  Fannie is in the business of collecting payments, not owning homes.  They had to come up with a way to help sell these properties to convert the real estate assets back into a mortgages so they can collect  payments.   The result – HomePath.

Special Rules

When you makes the guidelines for mortgages and you own the real estate to be financed you want to use that power to your advantage.  Fannie Mae has created special financing rules to help sell their foreclosures:

Down Payment – Only 3% required on a primary residence and can come from flexible sources—gift, employer, etc.  Normal conforming loans require the borrower to put down 5% and have the money sourced from their own funds and be in their bank account for 30-60 days.  The down payment on 2nd homes is 10% and 15% on investment properties. 

NO PMI - Fannie Mae has already foreclosed on the home so they do not need foreclosure protection.  The result, no PMI on Homepath!  This is huge.  To compare, PMI on a $200K FHA loan is $191 monthly.  There is no PMI on a HomePath loan, even at 97% of the purchase price.  Now, rates are higher on HomePath than on normal conforming loans but the higher rate is more than offset by the lack of a PMI requirement. 

No Appraisal – This is my favorite benefit of the program.  The buyer saves the expense of the appraisal and eliminates the risk of a bad appraisal negatively impacting the financing.  But the biggest benefit is there is no condition report on the appraisal that creates underwriting issues.  If you have never purchased a foreclosure this point can not be emphasised enough.   Often a foreclosure has a few condition issues that would be highlighted in the appraisal report.  Even if the issues are not major they still would be required to be repaired before closing a normal loan.  The seller is usually selling the property “as-is” because they are a large institution and will not put money into the house prior to closing.  The buyer does not want to put money in the house untill they own it so you have a stalemate.  With no appraisal requirement, the issue is completely avoided.

Seller Paid Closing Costs – Fannie Mae as the seller can, and often will, pay for closing costs.  They program allows for up to 6% seller concessions on occupied homes and 2% on investment properties.  A good realtor can assist with negotiating tactics when writing the offer to purchase.

Condos – There are relaxed requirements for warranting a condo.  This has been a major issue and often a barrier when purchasing a condo in the past year.  Since Fannie Mae owns the property already, they do not make the lender go through the entire process for warranting the condo making the loan process must easier for the buyer.

If you are interested in buying a Fannie Mae foreclosure call me.  I will see if the property is eligible for Homepath and get you qualified to do a HomePath mortgage.  To find a HomePath eligible property go to:

http://www.homepath.com/

For a great discussion on the program, watch the video below:

You may be aware that on April 18  HUD increased the required monthly mortgage insurance premium (MIP) on FHA mortgages.  The new premium increased to a factor of 1.15, up from 0.90 in Oct. 2010, which was up from 0.55.  Sense a trend?  The “meltdown” and increased defaults on HUD insured mortgages has strained the coffers of the organization.  HUD needs additional funds and the way to get them is by making the product they insure more expensive.   Fortunately the upfront premium remains at 1% for this round of changes but the monthly MIP on a $200K FHA loan is now $191.  That’s more than double the cost only 8 months ago. 

With the increased monthly costs of FHA loans are they still a viable option for a number of buyers?

ABSOLUTELY!!! FHA loans are still an option and sometimes the best option… just not the only game in town. Consideration should also be given to the borrower and/or property to see if USDA, VA, and conventional loans are options. 

Conventional loans with PMI

Let’s assume the property is not in a USDA area and the borrower is not eligible for a VA loan.  For those who qualify, your Certified Mortgage Planning Specialist will look into conventional loan options with a 3-5% down payment requirement.  There are a number of ways to structure PMI on coonventional loans.  The traditional structure is to pay the premium monthly.  The entire premium can also be paid upfront (even by the seller) in one lump sum.  This option can leave the borrower with no monthly PMI on their mortgage!   Finally, a potion of the premium can be paid upfront and a portion paid monthly (split premium).  The split premium is a middle ground between the previous options.  The total cost of these loan options should be compared to that of the FHA loan and a decision made with the buyer as to which loan better suits their financial situation.  But PMI (or MIP) is not the only consideration.  Depending of the buyer’s specific situation, FHA may still have the most to offer.

Why FHA loans are still a great option for some buyers:

1) Down payment requirement – 3.5% down and the down payment can come from a flexible source–gift, community down payment assistance, etc.  Most conforming loans require your down payment to be your money and seasoned in your bank account for 30-60 days.

2) Credit scores – FHA loans have a 640 credit score requirement making them more  flexible on underwriting standards for many borrowers.

3) Debt ratio –  A debt ratio is the amount of your income (for mortgage purposes) that goes to pay for your total housing expense and all other items on your credit report.  Your cable bill, cell phone, utilities, etc. do not count.  Most banks limit debt ratio on FHA loans to 45% or 50%.  We have had FHA loans approved with debt ratios as high as 55-57%.  On most conforming loans it is very difficult (if not impossible) to get PMI or a loan over 80% of the value of the house if the debt ratio is over 41-45%.

You may wonder if approving FHA loans with a debt ratio of 55-57% is a prudent thing to do.  Normally no, but sometimes yes!  There are many situations where this approval makes a lot of sense.  Take a situation where we are unable to have all of the borrower’s income counted for underwriting purposes.  Suppose they have been on their job for less than a year and are paid a base salary and commissions.  Underwriting guidelines will only allow you to count the base salary leaving you with a high debt ratio.  That is a situation where we would consider a higher than normal debt ratio if the loan can get approved though FHA.  In another example, assume only one spouse on the loan because the other spouse can’t prove their income, has a credit issue, etc.  This is another situation where we would consider an expanded DTI because we know there is additional household income available to pay the mortgage.

4) Non-occupant Co-Borrowers-  FHA is still the best and easiest way to get this done.  Remember, the borrower living in the house must still qualify from a credit standpoint.  The non-occupant can help out with income but can not offset poor credit.

5) Rates – In many cases interest rates are better on FHA loans.  Conforming price adjustments to interest rate and PMI premiums start with credit scores under 740.  As the credit scores move down in 20 point increments–720, 700, 680, 660, etc. rates go up—fast—and PMI premiums follow suit.  FHA loans do not have these massive adjustments to interest rate so someone with credit scores in the mid to high 600′s likely will get a much better interest rate with FHA.

Game Plan

We love FHA loans and will continue to view FHA an extremely viable source but always make the comparison to conforming loans with multiple PMI options(and USDA and VA when applicable) to ensure the best mortgage and lowest cost alternative for the borrower.  Really nothing changes except FHA is a little more expensive bringing other options back into play in certain situations.