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 down payment.  The 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.

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

iStock_000020110629XSmallBorrowers 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.

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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!

What Do You Need for a Preapproval?

preapprovalIf you’re considering buying a home, many real estate agents and/or sellers will require a preapproval letter. A preapproval letter is different than being “prequalified”. Being prequalifed means that you have provided verbal information to a mortgage originator to get an idea of what you qualify for. Being preapproved means that you are providing documentation that supports the information you have provided. Income, employment, assets and credit are verified for a preapproval.

Some preapproval letters aren’t worth the paper they’re written on. Especially if the mortgage originator you’re working with does not require supporting documentation before preparing the letter. If you have not provided supporting documentation (listed below) to your mortgage originator – you’re probably just prequalified and not actually preapproved.

Here is a list of documents you may be required to provide in order to obtain a preapproval:

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The Low Down: Comparing FHA to Fannie Mae Homepath Mortgages

EDITORS NOTE: Fannie Mae is no longer offering the FannieMae HomePath mortgage program. If you are considering buying a Fannie Mae HomePath property (foreclosure that is owned by Fannie Mae) in Washington state, I’m happy to help you. 

If you’re thinking about buying a home with minimum down payment requirements in the greater Seattle area, you may be considering a property that is owned by Fannie Mae and eligible for the Fannie Mae Homepath Mortgage or using an FHA insured loan which most properties qualify for.  When home buyers contact me about a Fannie Mae Homepath mortgage, they often ask how it compares to an FHA insured loan. Both are great programs and the benefits may vary depending on credit score, down payment and the type of property.

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Shallow Credit can leave you in the Deep End when Qualifying for a Mortgage

Shallowcredit When in comes to qualifying for a mortgage, lenders are generally looking for borrowers who have established a history of paying their obligations on time. Ideally this would consist of four accounts that have been open and used for the last one to two years.  When someone does not have active accounts, or when their accounts are all new, their credit history appears “shallow” to some lenders.

You don’t have to be a first time home buyer to have “shallow credit”. 

Recently I helped a couple in Bellevue who were buying a “move-up” home using a jumbo loan for financing. They had excellent credit, plenty of savings and liked to pay cash instead using credit. When they did use credit, they would payoff and close the account immediately. You could see they had a credit history, they even had stellar credit scores, but they lacked having active trade-lines. One lender that we worked with actually declined the loan. Luckily we have several resources for non-conforming mortgages and we closed on the transaction after we switched to a different lender with less rigid guidelines.

Credit scores are impacted more dramatically for borrowers with “shallow credit” over those with established credit.

Because the borrower has less of a credit history to illustrate their borrowing and repayment patterns, their credit scores tend to be more sensitive to situations than a person with a long established good credit history. Don’t get me wrong, an established credit user with great scores will suffer a ding if they make a late payment or open a new debt, however it tends not to be as damaging as it is for someone with a lighter history.  

What can you do to improve your credit history? Here are some tips for if you are considering getting a mortgage:

  • Pay your debts on time. NOTE: paying off and closing an account where you have made a late payment will not erase the damage from the late payment…in fact, it might hurt your score more if that account was established…
  • Do not close established credit accounts. Credit bureaus LOVE established credit history. If you have an older account, you may want to consider using it to buy a tank of gas or groceries and pay it off each month. If the account is not kept active, it will eventually be treated as a closed account and you will no longer receive points for that positive history.
  • Do not obtain new debt. New cars and credit cards will drop your score.  Not only is it a new debt “ding”, you’re also getting dinged for having a debt at 100% of it’s credit line.
  • Keep your debts below 50% of the credit limit (30% is even better).  For example, if you have a credit card that has a credit line of $1,000; try to keep your balance below $500 or 50% of that credit line. 
  • WAIT to pay off collections. Sadly the scoring system factors this as new activity (kind of like getting a new collection) against your score. Often times it may be best to pay off the collection at closing if needed. Your Licensed Mortgage Professional can help you determine this.

Other tidbits about credit scoring…

  • Size doesn’t matter with credit scoring. Paying down a smaller credit card has the same impact as paying down a larger one. (I recommend starting with the accounts that will take the least amount of funds to pay down). And a $70 collection hurts your score just as much as a $700 or $7000 collection.  
  • Charge-offs hurt. Many borrowers believe that because the creditor has written off a debt, they’re in the clear when they actually still owe on the debt. When a charge-off is reported to the credit bureau, they are viewed (and scored) as a collection.  

If you are planning on buying a home in the next year or refinancing, it doesn’t hurt to start very early with a mortgage professional who can help you review your credit and provide advice to help you be in the best position possible.  It’s more important than ever with tighter underwriting guidelines and mortgage rates that are based on credit scores.  I often meet people who have tried to fix their own credit, believing they’re doing what any normal person would believe are the right things (like paying off debt and closing accounts) only to discover they’re scores have tanked. It takes time to repair or establish good credit.

If you, or someone you know, is considering buying or refinancing a home anywhere in Washington, I’m happy to help!