How Much Home Can I Afford?

October 8, 2009 by 2 Comments

This is a common question from first time home buyers.  When working with home buyers who are just beginning the process, after discussing credit and other information, I like to ask in return:

  • What type of monthly mortgage payment would you be comfortable making?
  • How much money are you planning on using for a down payment and closing costs.

To me, it’s better to solve for your potential sales price rather than finding a home or getting your heart set on a certain sales price first before knowing what you actually qualify for.

For example, Seattle Sally has saved up $75,000 and would like to use $40,000 towards a home purchase.  She has been paying anywhere from $2,200 – $2,000 a month for rent and would like to keep her payment around $2000. 

NOTE: Rates quoted below are from October 2009 and are outdated. If you would like a current mortgage rate quote for your home located in Washington, please contact me.

Beginning with a conventional scenario, a payment of $2038 (principal, interest, estimated property taxes, estimated home owners insurance and private mortgage insurance) with about $40,000 for down payment and closing costs would produce a sales price of $325,000.  This is based on a 30 year fixed rate of 4.625%* (apr 4.790).

A sales price of $365,000 with a 10% down payment and the sellers contributing towards closing costs would produce a payment of about $2283.

The only issue I would have with the conventional financing is that private mortgage insurance is that these days, pmi underwriters are picking all mortgages to pieces.

FHA would provide a total payment of $2076 with about $40,000 for down payment and closing costs and a sales price of $325,000.  This is based on a rate of 4.875% (apr 5.400).

If we have the seller pay most of the closing costs and prepaids, a payment of $2287 would produce a sales price of $365,000 with Sally bringing in approx. $38,000 for down payment and closing.

One thing to consider, beyond more forgiving underwriting, with FHA is that your mortgage will be assumable.  Imagine having a rate of 4.875% a few years from now when rates will most likely be much higher.  If you are a seller competing with other similar home on the market, and you can offer an assumable mortgage at a tempting rate–this will be a serious advantage.   Once inflation happens, mortgage rates will be much higher.

If Seattle Sally’s credit score comes in lower than expected (this is all based on very preliminary information) FHA may become a better option as well.  

*rates quotes are as of 1:30pm on October 8, 2009 and are based on mid credit scores of 740 or higher.  Rates can and do change often.  Follow me on Twitter to see live rate quotes.

For your personal rate quote on a home located anywhere in Washington, click here.

Filed Under: Fannie, Freddie and FHFA, FHA, First Time Home Buyer, Mortgage Insurance, Residential Purchase Tagged With: , , , , ,

Good Faith Estimate Part 3: Escrow Account Information

August 31, 2009 by Leave a Comment

This next section of HUD's new Good Faith Estimate covers the escrow account, also known as the reserve account. (Click the graphics for a larger picture).

GFEEscrow

According to HUD's New RESPA FAQs, the block you see above does not include the taxes or insurance (the escrow/reserves portion of the payment). 

"…the first block is for the monthly amount that will be owed for principal, interest and mortgage insurance only.  Additional information on charges relating to the escrow account is in Block 9 on page 2 of the GFE."

This section primarily addresses whether or not there is an escrow reserve account.  Borrowers may elect to waive their reserve account when they have conventional finanancing and at least 20% equity in their home.  Most lenders charge a fee of 0.25% of the loan amount should a borrower elect to pay their own taxes and insurance.   Having an escrow reserve account when a home owner has enough home equity is generally not "required" as stated on the new GFE, however the home owner will receive either a slightly better rate or lower cost opting to have taxes and insurance included in their payment.

Hop on over to "Your Charges for All Other Settlement Services on page 2, Boxes 9 – 11 of the GFE to see how much will be collected to initiate your escrow reserves (boxes 9 and 11) account and prepaid interest (box 10).

GFEreservespp

Our current good faith estimate (below) shows the escrow reserve account with a detailed account of how many months of taxes and insurance are due verses the dumbed down lumped version of the new GFE.

GoumazReservesPP

The current (soon to be retired) GFE includes taxes and insurance in the mortgage payment–even if the borrower has elected to waive the reserve account (pay taxes and insurance on their own) since borrowers are qualified based on the entire mortgage payment due (principal, interest, taxes and insurance).

Is this easier to understand so far? I don't think so…but I would love to hear from you.

Filed Under: Fannie, Freddie and FHFA, Good Faith Estimate

More Upcoming Changes to Underwriting

August 29, 2009 by 2 Comments

I originally wrote this post at Rain City Guide back in June of this year.  Fannie Maes tougher guidelines will go into effect in just a few days on September 1, 2009.  You can read the original post and comments by clicking here. 

Fannie Mae issued Announcement 09-19 amending some very basic underwriting guidelines that will not only impact conventional financing; it will apply to FHA insured loans that are underwriting using Fannie Mae’s DU.   You can read the entire announcement by clicking  here.

Here are some of the changes:

  • Credit documents will be valid for 90 days instead of the current 120 for existing construction.   The age of the document is measured from the date of the document to the date the Note is signed.
  • IRS Forms 4506 or 4506-T is required at application and at closing.  This is due to fraud (misrepresentation of income).
  • Age of appraisal is reduced from 6 months to 4 months.
  • Trailing Secondary Wage Earner Income is eliminated.   Now with a relocation, only the income of the spouse with actual employment may be considered.  Previously, it was possible to use the relocating spouse’s income from their employment prior to the relo without having an actual job.
  • Verbal Verification of Employment required within 10 days of signing the Note for employment income and within 30 days for self-employed income.  (Our company has always performed a verbal VOE prior to funding).
  • Stocks, bonds and mutual funds now valued at 70% instead of 100% to be used as reserves.   Due to market volatility, Fannie Mae is devaluing your portfolio.   This means that if you provide your mortgage originator with a stock, bond or mutual fund statement showing an ending balance of $10,000; the figure used for qualifying and on the application will be $7,000 (70% of the value).   Stock options and non-vested restricted stocks are no longer eligible to use as reserves.
  • Retirement accounts valued at 60% instead of 70% to be used as reserves.  

Fannie Mae’s effective dates are to follow…if the loan is manually underwritten, this applies to applications dated on or after September 1, 2009.   However, expect to see lenders and banks to adopt these guidelines early.

Filed Under: Fannie, Freddie and FHFA, Underwriting and Qualifying

HVCC: Why Should YOU Care?

June 6, 2009 by 7 Comments

You may or may not have heard about HVCC.  You'll have the opportunity to learn about it first hand if you obtain a conventional mortgage.  In a nutshell, mortgage originators and processors (anyone considered to be in "production") are no longer allowed to order appraisals or know who the appraiser willbe until AFTER they receive the appraisal.  HVCC just went into effect in May, I wrote a post about my experience at Rain City Guide where a Real Estate Agent asked me:

If I understand you correctly:

  1. We don’t know who the appraiser is
  2. We cannot contact the appraiser even if we knew.   [Note:  the real estate agent CAN contact the appraiser if they somehow know who it is…the loan production staff cannot].
  3. We have no idea when the appraisal will be done.

The Home Value Code of Conduct was created as a result of the New York Attorney General investigating Washington Mutual (once a large bank) and eAppraiseit (an appraisal management company) for manipulating appraisers to produce higher values. 

HVCC was suppose to create a professional distance between mortgage originators and appraisers so that an appraiser could perform their task without pressures to produce a higher value.  Appraisals now go through an appraisal management company (which take on average 40% of the appraisal fee from the appraiser) to create this distance and supposedly reduce any conflicts of interest.  However, the code was amended to allow AMCs (appraisal management companies) to be owned by the very banks who are ordering the appraisals. 

From Fannie Mae's HVCC FAQs update on May 9, 2009 (Question 36):

Q. May an AMC Affiliate with, or that owns or is owned in whole or part by the lender or a lender-affiliate, order appraisals?

A: Yes, an AMC affiliated with, or that owns or is owned in whole or part by the lender or a lender affiliate, may order appraisals…

This smacks of the WaMU eAppraiseit scenario all over again!

So big bank owns an AMC where they order all their appraisals through and if a mortgage originator is brokering a loan to that big bank, the appraisal may be ordered through that AMC.  Big bank/title company collects an average of 40% of the appraisal fee from the appraiser just for ordering the appraisal.  If an appraisal cost $500; the AMC keeps $200 just for controlling and placing the order.  The appraiser, who once collected $500 for producing the report now receives $300.  Many appraisers are having to increase appraisal fees in order to make a living since AMCs are stripping them of 40% of their income. 

Instead of being able to select an appraiser by their qualifications, experience or expertise in a certain area; it's a crap-shoot based on which appraisers are participating (agreeing to lower compensation) with the AMCs.  

From CNBC's Diana Olick on the impact of HVCC:

"As many brokers expected, the HVCC is also resulting in some lower appraisals. Since the appraisers now may be unfamiliar with the local market, they will err on the lower side. Of course it may also be that the lack of a relationship with the lender is removing the 'expectation' of a certain appraised value. If the appraisal comes in lower than the sale price, then the deal is off."

HVCC does not allow second appraisals to be ordered due to low appraisal as it's considered "value shopping".  

With a refinance, no value can be provided to the appraiser–I can't even let the appraiser know what the home owner thinks the value of their home may be.  The home owner, if the appraisal comes in low, is out the appraisal fee (typically around $500).  

The National Association of Mortgage Brokers has been trying to battle this code with strong political opposition.  (NOTE to Mortgage Originators: NOW is the time to belong to your local chapter of NAMB if you care about the future of your industry).

The intentions of HVCC to stop the strong-arming of appraisers to create false values are good.  The results are terrible and many of us are trying to have this reversed.  I encourage you to please sign this petition and to contact your representatives in Congress.   

HVCC is going to hurt the consumer and will only help pad the pockets the owners of the Appraisal Management Companies.  

Filed Under: Appraisals, Fannie, Freddie and FHFA

Making Home Affordable Refinance – Can I Help You? Maybe…Maybe Not.

April 4, 2009 by 11 Comments

UPDATE JUNE 19, 2010:  The Home Affordable Refinance Program has become much easier to do since writing this post with both Fannie Mae and Freddie Mac securitized mortgages.  This post is pretty outdated (the hazards of writing about mortgages on a blog!)  If you need help with refinancing your home in Washington, please contact me.

Here is an updated information on Fannie Mae's Home Affordable Refi.

NOTE:  This program is still "evolving". Wholesale lenders/banks and private mortgage insurance companies are still issuing and revising their guidelines.  I'll try to update this post with current information as I receive it.

Fannie Mae will be implementing the Making Home Affordable Refi starting April 4, 2009.  Some home owners will be free to use any mortgage professional (as long as they are Fannie Mae approved) and others will be forced to return to their mortgage servicer.

First of all, I am only licensed to provide residential mortgages for homes located in Washington State.

UPDATE: IF YOUR MORTGAGE IS OWNED BY FREDDIE MAC, I MAY BE ABLE TO HELP YOU.  YOU DO NOT HAVE TO GO TO YOUR MORTGAGE SERVICER (WHO YOU MAKE YOUR PAYMENTS TO).

Currently, for the Home Affordable Refinance, Freddie Mac is requiring that home owners return to their mortgage servicer.  To determine if your mortgage is owned by Freddie Mac, click here. If your mortgage is owned by Freddie Mac, I probably cannot help you with an Making Home Affordable refinance.   However if your current mortgage is owned by Freddie Mac and you have home equity (you're not upside down); I may be able to help you.   Fannie Mae has a larger market-share than Freddie Mac…odds are in your favor, but check Freddie Mac first.  UPDATE:  Since writing this post, one major bank has informed us they will allow us to originate Home Affordable/Freddie Mac mortgages as long as we broker the loan back to them. 

If your mortgage is not owned by Freddie Mac, the next step is to see if it's owned by Fannie Mae. You can determine that by clicking here.   Unlike Freddie Mac, Fannie Mae is allowing home owners to use eligible mortgage brokers, bankers and correspondent lenders of their choice.  If your mortgage is owned by Fannie Mae (and your home is in WA); I may be able to assist you with your Home Affordable refinance.

Here are some important pointers about Fannie Mae's Home Affordable refinance (homes at a higher loan to value):

  • Second mortgages must be subordinated.  They may not be included (paid off) with the home affordable refinance.
  • Borrowers on the existing mortgage must match the new mortgage.  Borrowers may be added but they may not be removed.   UPDATE:  Borrowers can be removed under certain circumstances.
  • If a borrower currently has lender paid mortgage insurance (a slightly higher rate that financed private mortgage insurance) they may have to return to their mortgage servicer (who they make their mortgage payments to) for a Home Affordable refinance.  

What if your existing mortgage is FHA or VA?  You may qualify for a FHA or VA Streamline refinance which may not require an appraisal or income verification (you will need a mid-credit score of 620 or higher).

Lenders are currently inundated with refinance and purchase business due to the current low mortgage rates.   I encourage you to apply early and be very patient.   Washington State home owners can apply using my secure on-line application under "Favorite Links".

The bottom line is, if your home is in Washington I can at the very least help point you in the right direction and at the most, I can help you with your new refinance.

Filed Under: Fannie, Freddie and FHFA, Refinance

Revised 2009 Conforming Loan Limits for Washington State

February 23, 2009 by Leave a Comment

Conforming loan limits are tiered with some areas qualifying as "high cost" and provided a second level before being considered a "jumbo" loan.  Today, FHFA announced the new limits aka "Conforming High Balance" or "Agency Jumbo".

King, Pierce and Snohomish Counties

$567,500 – 1 Unit

$726,500 – 2 Unit

$878,150 – 3 Unit

$1,091,350 – 4 Unit

Jefferson County

$437,500 – 1 Unit

$560,500 – 2 Unit

$677,000  – 3 Unit

$841,350 – 4 Unit

Kitsap County

$475,000 – 1 Unit

$608,100 – 2 Unit

$735,050 – 3 Unit

$913,450 – 4 Unit

San Juan County

$593,750 – 1 Unit

$760,100 – 2 Unit

$918,800 – 3 Unit

$1,141,850 – 4 Unit

Skamania and Clark Counties

$418,750 – 1 Unit

$536,050 – 2 Unit

$648,000 – 3 Unit

$805,300 – 4 Unit

Conforming loan limits (true) and for all other Washington counties not listed above:

$417,000 – 1 Unit

$533,850 – 2 Unit

$645,300 – 3 Unit

$801,950 – 4 Unit

 

 

Filed Under: Fannie, Freddie and FHFA

Upside down in your home with good credit? March 4, 2009 may be an important date for you.

February 23, 2009 by Leave a Comment

Just received this email, which I'm sure echos the thoughts of many home owners:

"Been meaning to contact you to get your take on the recent wholesale changes that are coming hard and fast at the mortgage bankers out there and, of course, see if there can be any benefit to a re-fi given the new lending "rules" (for lack of a better term). We're horribly upside-down on our current loan balance vs. current home value, so we don't know what can happen for us, if anything. But if there's a way to get that rate down and send out less each month. we're listening! What do you think about all this?"

Last week, President Obama announced his plans to help stimulate the economy and help provide stability with America's housing.  With the Homeowner Affordibility and Stability Plan, home owners who are "credit worthy" may be able to refinance their home up to 105% loan to value. 

On March 4, 2009, more details are suppose to be announced.  Here's what we understand so far:

  • The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

  • First mortgage may not be more than 105% of the value of the property. 

  • Borrowers with a second mortgage may still be able to refinance if the second mortgage lien holder is willing to remain in second lien position and if the borrower still qualifies.

  • The program will offer 30 year or 15 year fixed interest rates based on market rates.

  • The program only applies to the home you live in.  It does not apply towards vacation or second homes or investment properties.

According the the Treasury, this program will not be available until March 4, 2009.  Lenders will become even more buried with refinance business once this happens.  It is to your advantage to be prepared.  By gathering the following information:

  • 2008 W2s (if self employed or paid commission, 2 years of complete tax returns)
  • Most recent paystubs covering 30 days of income.

  • Most recent mortgage statements.

  • Information on current monthly debts including amount paid monthly and amount owed.

  • Most recent bank statements/asset accounts (all pages).

If your home is located in Washington State, you can apply on line now by clicking the link under my photo.  However, I don't anticipate having more details until March 4, 2009.

More to follow.

Filed Under: Debt Restructuring, Economy, Fannie, Freddie and FHFA, Mortgage, Refinance

Got Stimulus?

February 19, 2009 by Leave a Comment

Earlier this week, President Obama signed H.R. 1, The American Recovery and Reinvestment Act of 2009, to the tune of $787,000,000,000. This is roughly the same as giving every American man, woman and child $2,500.  President Obama announced that we can see how the funds are being spent by visiting www.recovery.gov.

Here are a few items designed to help the housing markets:

Loan Limits to be Reversed 2008.  At the end of 2008, the conforming jumbo limits were replaced with conforming high balance.  In the Seattle area, this meant that the fine line between a jumbo and conforming mortgage went from $567,500 to $506,000 for a single family dwelling.  Watch for Fannie, Freddie and FHA to implement the higher loan limits soon through December 31, 2009.

2009 Tax Credit for First Time Homebuyers. A tax credit up to $8000 is available to first time home buyers (someone who has not owned a home in the past 36 months) who close on a home between January 1, 2009 – November 30, 2009.  Unlike the 2008 plan, this tax credit does not have to be paid back.

NOTE:  If you are a qualified first time home buyer who bought a home from April 9, 2008 – December 31, 2008; you're still under the original plan with the $7,500 credit which requires you to pay it back (interest free loan).  

More to follow….much more.

Filed Under: Fannie, Freddie and FHFA, FHA, Legislation
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