What is a Mortgage Credit Certificate or MCC?

Mortgage Credit Certificate (or also referred to as MCC) is a federal tax credit available to first time home buyers who meet certain requirements. With the tax credit, eligible home buyers can adjust their their withholding to take advantage of the savings monthly instead of waiting until they file their taxes.  The MCC remains available as long as the borrower owns and occupies the property.

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Freddie Mac Home Possible Mortgage

2013-03-07_0746Freddie Mac’s Home Possible Mortgage is a great mortgage program designed for first time home buyers. What’s so special about this program is that it allows a home buyer to qualify for dramatically reduced mortgage insurance premiums with a minimum 5% down payment.  The 5% down payment may be gifted by a family member. No reserves are required for a single family dwelling.

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Your First Home Mortgage Guide Book

My most recent guide book, Your First Home Mortgage, is filled with information that I hope first time home buyers will find useful. Please feel free to share this book with anyone you know who is considering buying their first home.

You can find a collection of my other guide books and slide shows by visiting the Mortgage Porter library.

Remember, if I can help you with your mortgage needs, including buying or refinancing a home located anywhere in Washington state, I’m happy to help you! Click here for a free rate quote.

PS: If you’re interested in attending one of my home buyer seminars sponsored by the Washington State Housing Finance Commission, click here.

Three different 3 Percent Down Conventional Loan Programs

UPDATE February 21, 2014: Conventional financing currently has increased the minimum down payment to 5% from 3% unless you are considering the Home Advantage Mortgage Program. Mortgage programs and guidelines change constantly so please check with your local mortgage professional regarding what is currently available for you. 

I’m pricing out a scenario for a first time home buyer who’s looking at buying a home priced at $250,000 and they have roughly 3% set aside for down payment plus closing cost. Since they have excellent credit, they are leaning towards conventional financing instead of FHA, which has much more expensive mortgage insurance (upfront and monthly).

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More options for Washington home buyers

Yesterday I was “in class” at the Washington State Housing Finance Commission learning about programs they have to offer Washington home buyers, including down payment assistance programs.

In order to obtain the down payment assistance, you must use a WSHFC first mortgage product, which includes:

The first mortgages may be FHA, USDA, VA or conventional mortgages with private mortgage insurance.

The down payment assistance (DPA) is in the form of a second mortgage that have specific criteria home buyers must meet to qualify.

  • Home Advantage DPA has an income limit of $97,000 and does not have a “needs assessment”.
  • Commissioned Second Mortgage works with the House Key Opportunity and is available to home buyers with special needs.

Home buyers interested in either program must attend a 5 hour class in order to qualify for these programs. While at class yesterday, I also received training to be a “Commission trained instructor”.

Watch for more details to follow soon!

The ABC’s of Preparing to Buy Your First Home

Borrowers getting ready to buy their first home are often surprised…for different reasons. I find that some are surprised to learn that they do qualify for a home in their price range and some are disappointed to learn that they have a little work to do before they can buy a home. Getting preapproved with a mortgage professional helps take some of the “surprise” out of the process.

Here are some of the bare minimum “basics” that we look for qualifying a home buyer.

Assets: If you have a 401k, retirement or stock accounts that you’re not planning on using for down payment, often times these accounts are great to have on your application to show that you have “reserves” after savings. Additional assets add financial strength to your application.

Bank statements: Be prepared to provide all pages of your bank statements (even if the last page is blank) and to document any large deposits that are on your statements. Lenders want to know where your funds came from.

Credit history: It’s ideal to have three to four lines of credit in good standing for two years or more. Your credit lines should be used once a month with less than 30% of the credit line in use for revolving debt. New credit lowers scores and old established credit that is paid on time raises credit scores.

Credit scores: Most lenders that we work with currently have a minimum credit score requirement of 640. Lenders use the lowest “middle score” of all borrowers applying for the loan.

Debt-to-income ratios: Lenders like to see your back end ratio no higher than 45%. This is calculated by dividing all of your monthly debts plus the proposed total mortgage insurance payment by your gross monthly income.

Down payment: Currently (as of the publishing of this post) FHA allows a 3.5% minimum down payment; Fannie Mae Homepath allows for 3% down; VA and USDA are still zero down payment. Conforming loans will allow for a minimum down payment of 3% with private mortgage insurance. Some programs will allow gifts from family for your down payment and/or closing cost. These funds do need to be documented and “paper-trailed” with the donor providing a written letter stating no repayment is expected.

Employment: Lenders need to see a two year job history in the same line of work. Good news if you went to school for your field, this may factor into your job history with supporting documentation (transcripts, diploma, etc.).  Gaps in employment over the past 24 months will need to be explained and second jobs are often not be factored if they have not been held for 24 months or more. 

Income: How you are paid (your pay structure) will impact what lenders can use for qualifying. Those paid an annual salary are the easiest to calculate. Borrowers who are paid hourly with hours varying will probably find their income averaged over the last two years. Self employed or commissioned borrowers will also find their net income averaged over the last two years. If a borrower receives annual bonuses, they will probably need to be received by that employer over the last two years and will be averaged.

You may have strong employment or assets and your credit is “shallow” causing you to have a lower credit score. Or perhaps you need to work on saving up for a down payment and delay buying that new car. This is why it’s important to meet with a mortgage professional as soon as possible. I often help clients who aren’t planning to buy a home for six months or even longer – they want to be prepared to put their best foot forward.

If you’re considering buying your first home, I’m happy to help you! I have been helping first time home buyers at Mortgage Master Service Corporation since April 2000 buy homes in Renton, West Seattle, Redmond, Bainbridge Island and all over Washington state, where I’m licensed to originate mortgages. If you would like me to provide you with a rate quote, click here.

Are First Time Home Buyers Missing Out?

A recent survey shows that those buying their first home are making up a smaller percentage of home buyers. From US News:

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, released last week, found that first-time home buyers were purchasing only 34.7 percent of the homes sold in October. That’s down from 37.1 percent in September, and is the lowest percentage ever recorded by the survey.

This decline surfaces as purchases of non-distressed homes—houses that are not in foreclosure—have increased dramatically in 2012. The report shows that the vast majority of the homes being sold are regular purchases—accounting for 64.7 percent of all houses sold in October, up from 55.7 percent in February. The increase is a sign of strength in the housing market, as fewer people are buying homes in foreclosure.

The article continues to speculate that part of the reason why first time home buyers are not participating as much as other buyers is partly due to tightening underwriting guidelines. If someone has been considering buying their first home, I highly recommend they get started with the pre-approval process early. 

Lenders want to avoid another mortgage meltdown and want to make sure that borrowers qualify for the new mortgage. That might sound like a silly or obvious comment, however during the “subprime era” many home buyers did not qualify for the mortgage. Ultimately, underwriting guidelines are intended to measure a borrowers capability to repay the mortgage and to not have the home become a “distressed property”. 

Underwriters are looking for a borrowers financial strengths and weaknesses when reviewing an application for a mortgage. In an article I wrote a few years ago, I compared this to a chair with each leg of a chair representing a financial quality that underwriters consider: credit, employment, income and assets.

First time home buyers don’t need to be discouraged, they do need to be prepared. Mortgage rates are extremely low making this a great opportunity to buy if one wants to.

I’ll share some tips on what first time home buyers can do in a follow-up post.

Stay tuned!

Qualifying to buy a $200,000 home in Seattle

I’m working with a first time home buyer who’s interested in buying a home priced around $200,000 in the greater Seattle area. I thought I’d share some of the programs we have available at Mortgage Master Service Corporation that may help her accomplish her home buying goals.

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