Is 5% Down Available for Homes Priced from up to $600,000?

June 3, 2008 by 6 Comments

EDITORS NOTE – August 30, 2009: Mortgage guidelines are constantly changing–please make sure to get updated guidelines from a local mortgage professional.  This post was written under DU 7.0 and at this time, we are utilizing Fannie Mae/DU Version 7.1.

In King, Snohomish and Pierce County, FHA Jumbo will allow you to put 3% down as long as your loan amount is $567,500 or below.   The buyer's required investment is 3% of the sales price (which can be gifted from a family member) and the seller can contribute up to 6%.   Utilizing a FHA Jumbo, one could by $585,000 with as little as 3% down or up to around $595,000 with 5% down and still be within the FHA loan limits.  The debt to income ratios are typically around 43%.   Click here for more information on FHA Jumbo.

At 5% down with a sales price of $585,000, the FHA scenario would look like this:

Principal and interest @ 6.375% (APR 7.140%): $3,514.50 plus monthly mortgage insurance of $231.56 for a sub-total (not including taxes and home owners insurance) of: $3,746.06.

Amount needed to close estimated at $43,000.  Buyer required investment = $17,550 (3% which can be gifted from a family member).

A conforming-jumbo will allow a 90% loan to value but good luck finding a second mortgage that will accommodate that–most second mortgages are limiting their total loan to value of 85%.  Private mortgage insurance is an option up to 90% loan to value with a loan amount of $567,500.  With a sales price of $600,000, 10% down would provide a loan amount of $540,000.   At 10% down, the seller can contribute up to 6% as long as the buyer has invested a minimum of 5% of their own funds into the transaction. 

Principal and interest @ 6.125% (APR 6.373%): $4,555.10 $3,281.10 plus monthly mortgage insurance in the amount of $316.85 for a sub-total (not including taxes and home owners insurance) of: $4,871.95 $3,597.95.

Amount needed to close estimated at $73,000.  Buyers required investment: $30,000 (5% which must be their own funds–gifts from family not included in the 5% down).

Fannie Mae just released DU 7.0 which promises to provide fewer loan approvals and more "expanded approvals".  Before 7.0, 45% was the maximum debt to income ratio. This new version was released on May 31, 2008.

Note:  Both scenarios are assuming mid-credit scores of 720 or better.  A 719 will cause the rate to be 0.125% higher for the jumbo-conforming example or to cost 0.500% more in fee.   For FHA, the rate would remain the same with a 719 score (and down to a 620 mid score).

I think you'll agree that we'll be seeing more FHA approved buyers than before…this is why Sellers and Real Estate Agents should learn more about FHA and be open to FHA buyers…it's not the FHA of yesteryear in fact, FHA is the future.

Filed Under: FHA, Jumbo/Non-Conforming, Residential Purchase

Do you need great credit and a big down payment to buy a home?

May 28, 2008 by Leave a Comment

Cindy, one of my clients that I helped finance their first home, emailed me this question:

"I know home loans have changed a lot but is it true that you can’t get a home loan with a credit score under 700 and 20% down?"

Not true.  Although I’m sure it feels that way and I’ve even heard some in the media make similar wrong statements…it’s no wonder you would have this question.

Having a high credit score and significant down payment certainly doesn’t hurt a home buyer.  It is true that many of the mortgages of recent years are no longer available.  And actually a 700 credit score pays more for their interest rate than someone with a 720 credit score now.   Conventional underwriting guidelines continue to tighten during these historic times.

FHA continues to be a very strong option for home buyers and home owners needing to refinance.   Even when FHA begins to implement risk based pricing for mortgage insurance, as reported by Kenneth R. Harney, borrowers can still have 3% down and lower credit scores:

"On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5. Borrowers with down payments of less than 5% and poor credit scores — FICOs ranging from 500 to 559 — will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually."

One thing to keep in mind is that borrowers do need to have clean credit (no lates) for the past 12 months.  And even if FHA allows a 500 credit score, many lenders have their own underwriting guidelines that may not allow it and they have higher rates for lower credit scores.

To learn more about FHA, please check out my FHA Resource Center or contact me.   Mortgage Master is proud to have our Full Eagle.  We are a direct endorsed HUD lender…what does this mean to you?   We have an FHA underwriter on site at our King County office…we’ve been providing FHA insured mortgages to Pacific Northwest families for over 30 years.   

Filed Under: Credit Scores and Reporting, FHA, Underwriting and Qualifying

Changes to Conforming Underwriting Guidelines and Why You Should Consider FHA

May 22, 2008 by 2 Comments

A big thanks to Anne for asking me this question:

"I just looked at your blog and didn’t see any mention of upcoming guideline changes.  Any idea what’s on the chopping block this weekend at Fannie and Freddie?"

You see, I’ve written about the changes that are happening with the release of Fannie Mae’s new underwriting guidelines that will take place over Memorial Day weekend…but I did so earlier this week over at Rain City Guide and not at Mortgage Porter.   Please do check out Get Approved before Memorial Day Weekend:  More Changes with Fannie Mae.

In a nutshell, Fannie Mae is anticipating more Expanded Approvals due to tighter underwriting guidelines and fewer approvals.   An Expanded Approval comes with various levels and means that a borrower is receiving an "a-minus" or lower loan approval and a higher interest rate.

This segues into another post I wrote at RCG this week:  Sellers and Agents:  Don’t Rule Out FHA Buyers.   With the new conventional guidelines, I’m anticipating that we are going to have even more FHA buyers.   Just because a borrower is using an FHA mortgage to purchase a home, doesn’t mean that they are subprime or less desirable than buyer using conventional financing.   Remember, the FHA loan limit for a single family dwelling in King, Pierce and Snohomish Counties is $567,500–same as the conforming loan limit. 

A buyer may select FHA over conventional because

  • They are putting less than 20% down.
  • Reduced monthly mortgage insurance.
  • They received an Expanded Approval for a conventional loan and would rather have the lower rate offered by FHA over the higher EA rat

Thanks for your question, Anne!  If you have an idea that you would like me to address at Mortgage Porter, drop me a line.

Filed Under: FHA, Underwriting and Qualifying

It’s Official: Zero Down is Gone

March 21, 2008 by 6 Comments

Iceage_2Unless you’re eligible for VA financing within the conforming loan limits, 100% LTV financing (aka "zero down") is no longer available in the conforming mortgage markets.   

The following products are extinct:

  • Fannie Mae Flex 100
  • Freddie Mac 100
  • My Community Mortgage 100
  • Home Possible 100

If you are short on down payment with credit scores below 680, you should consider FHA financing, which is not as credit score sensitive as conventional programs.  Fannie Mae Flex 97 is still available as well as Home Possible 97.  Both conforming programs allow for 3% down.

Home buyers should also plan on having "reserves" after closing.  The amount of reserves may vary depending on the program from 2 – 6 months of proposed mortgage payments for owner occupied when it’s said and done.   Real estate agents, your first time home buyers may need help with closing costs from Sellers…if they’re willing…in order to meet the reserve account conditions. 

We’re rolling back the underwriting guidelines…not all the way back to the ice age…but close!

If you’re considering buying a home or refinancing, meet with your Mortgage Professional sooner than later so you have time review your credit and consider your options.

Filed Under: Credit Scores and Reporting, Current Affairs, FHA, First Time Home Buyer, Residential Purchase

Shiney New and Temporary Conforming Limits…Not So Fast!

March 7, 2008 by Leave a Comment

I feverishly posted the new FHA and conforming loan limits for Washington State.  It was pretty darn exciting since many of us in the industry were hearing whisper figures of $493k or so and voila, our new FHA and conforming limit for a single family dwelling is $567,500 for King, Snohomish and Pierce Counties.  This could be a nice bump through the end of this year.

The word is out!  Many Seattle, Bellevue, Everett and Tacoma area homeowners are VERY interested and want to take advantage of "conforming rates" now.   Not so fast….sorry.  (Hey…I’m really hoping that on Monday, I’m eating my words…the proof is in the pudding).   So far all that’s happened is that the loan limits have been announced.   This whole process needs to trickle from Fannie Mae and Freddie Mac and through all the wholesale lenders before those of us on "the streets" can offer you any benefits.   

Be prepared.  I fully expect an "add to rate" on loans from $417,000 – $567,500 (or what ever your area conforming limit is).   This will be to compensate Freddie/Fannie for the additional volumes and risk they are taking on.   The big question is: how much will it be?  My best guess is anywhere from 0.25% to 1.00% to what you currently see for conforming.   

"WHAT?" You say… "You’re telling me that you just quoted 6.00% for conforming today…and 7.00% for JUMBO…yet the new conforming rate for loans over $417,000 may still be 7.00% if I were locking today?"

Yes…that’s what I’m saying.  Again, PURE speculation on my part.

The "new conforming limit" goes back to July of 2007.  It’s retroactive for jumbo mortgages still not bought on Wall Street clogging credit lines.   I think that’s where we may see the most action:  rescuing the Thornburg Mortgages of the world (or at least Wall Street).  This from Bloomberg:

Thornburg specialized in so-called jumbo mortgages of more than $417,000, which typically were used to buy more expensive homes. Until recently, such loans were too big to qualify for purchase by government-sponsored entities such as Fannie Mae. Trading for such “non-conforming loans has come to a standstill, cutting off a source of funds for mortgage companies and pushing down the value of their holdings. More than 100 halted operations or sought buyers last year.

The company’s demise would reduce liquidity even more, said Keith Gumbinger, vice president of HSH Associates, a mortgage- market research firm based in Pompton Plains, New Jersey.

“No one has had anything bad to say about Thornburg; they have served the good-quality, high end of the market,” Gumbinger said. “It’s been a good, well-run business that is taking a beating because of market conditions.”

Thornburg is not a part of the subprime melt down they are being sucked into.  My best guess is that due to the volume and risk of loans that Fannie and Freddie will take on through the end of this year, consumers will see a benefit in pricing when the credit lines have been relieved.   

This may not be the band-aid we’re hoping for.  I don’t want to be a "bummer"…I do want to be practical. 

My best advise to those in the "new (temporary) conforming market" is to not wait for the new limits to be in effect.  Check with your Mortgage Professional to see if they can switch your program to "new conforming" IF it’s a better rate/scenario for you if you’ve all ready began the process under the current guidelines.  This is something that I can offer and I would assume most Mortgage Professionals are able to as well.

Filed Under: FHA, Legislation, Mortgage, Residential Purchase

New FHA Loan Limits are here!

March 6, 2008 by 3 Comments

Great news!  HUD has announced the new FHA loan limits for our area:

King, Snohomish and Pierce Counties

Single Family: $567,500 (up $204,710 from $362,790)

Two Family: $726,500

Three Family: $878,150

Four Family: $1,091,350

San Juan County

Single Family:  $593,750 (up $230,960 from $362,790)

Two Family:  $760,100

Three Family:  $918,800

Four Family:  $1,141,850

Kitsap County

Single Family: $475,000 (up $114,000 from $361,000)

Two Family: $608,100

Three Family: $735,050

Four Family: $913,450

Jefferson County

Single Family: $437,500 (up $105,000 from $332,500)

Two Family: $560,050

Three Family: $677,000

Four Family:  $841,350

Clark County

Single Family:  $418,750 (up $113,800 from $304,950)

Two Family: $536,050

Three Family: $648,000

Four Family:  $805,300

Clallam County

Single Family:  $383,750  (up $158,600 from $225,150)

Two Family: $491,250

Three Family:  $593,800

Four Family:  $738,000

Island County

Single Family:  $381,250 (up to $91,500 from $289,750)

Two Family:  $488,050

Three Family:  $589,950

Four Family:  $733,150

Whatcom County

Single Family:  $375,000 (up to $90,000 from $285,000)

Two Family:  $480,050

Three Family:  $580,300

Four Family:  $721,150

Skagit County

Single Family:  $373,750 (up to $89,767 from $283,983)

Two Family:  $478,450

Three Family:  $578,350

Four Family:  $718,750

Thurston County

Single Family: $361,250 (up to $86,700 from $274,550)

Two Family:  $462,450

Three Family: $559,000

Four Family:  $694,799

Kittitas County

Single Family: $328,750  (up $79,000 from $249,750)

Two Family:  $420,850

Three Family:  $508,700

Four Family:  $632,200

Chelan and Douglas Counties

Single Family:  $323,750 (up $78,200 from $245,550)

Two Family:  $414,450

Three Family:  $500,950

Four Family:  $622,600

Mason County

Single Family:  $310,000 (up $74,400 from $235,600)

Two Family: $396,850

Three Family:  $479,700

Four Family:  $596,150

Benton and Franklin Counties

Single Family:  $275,000 (up $66,085 from $208,905)

Two Family:  $352,050

Three Family:  $425,550

Four Family:  $528,850

Adams, Asotin, Columbia, Cowlitz, Ferry, Garfield, Grant, Grays Harbor, Klickitat, Lewis, Lincoln, Okanogan, Pacific, Pend Oreille, Spokane, Stevens, Wahkiakum, Walla Walla, Whitman and Yakima  Counties

Single Family:  $271,050 (up $70,890 from $200,160)

Two Family:  $347,000

Three Family:  $419,400

Four Family:  $521,250

According to the Wall Street Journal, these figures will also be our temporary conforming loan limits.

"The upper mortgage limits also will apply to loans purchased or guaranteed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, FHA officials said."

More information will follow as I receive it.  Remember, these higher loan limits are only through the end of 2008.

 

Filed Under: FHA, Mortgage, Refinance, Residential Purchase

Second Mortgages and “Low Down” Mortgages

February 28, 2008 by Leave a Comment

SunTrust Bank, one of the lenders we work with, is joining the ranks of other lenders who are eliminating or shelving their second mortgage products, including their combos where they have the first and second mortgage (such as an 80/10/10).  Where we once had several options for second mortgages and HELOCs, we are down to just a few.

Another bank that is still offering second mortgages (fixed and HELOCs) are limiting the total loan to value to 80% if your mid-credit score is 680-699.  A 700 credit score will allow you to go up to 85% total loan to value.

We do have another option for second mortgages that will go to a higher loan to value with lower credit scores…you pay the price with rates up to 3 points higher than what the other bank offers (with the lower loan to value).

What are your alternatives if you do not have 20 or 15% down? 

  • Seller financing for a second mortgage (private deed of trust subject to approval with underwriting).
  • Private mortgage insurance.  Upfront, monthly or lender paid.
  • FHA insured mortgages (subject to loan limits which will be changing soon)
  • VA insured mortgages

If you are currently preapproved to purchase a home and you are using an 80/10/10 or 80/15/5, I urge you to contact your Mortgage Professional to confirm your preapproval is still valid and to develop a "Plan B" for your home purchase strategy.   Some private mortgage insurance companies are also pulling back on higher loan to value mortgages (this includes lpmi and Fannie Flex); if you’re using less than 10% down with a pmi scenario–check with your Mortgage Professional for "Plan B" as well.

Filed Under: FHA, First Time Home Buyer, Home Equity Loans & Second Mortgages, Mortgage Insurance, Residential Purchase

Skip Two Mortgage Payments when You Refi!

February 24, 2008 by 7 Comments

Skipping

The promise of not having to write a check for your mortgage payment for two months seems so tempting that many home owners chomp on the bit when a Loan Originator dangles that bait to lure in a refi candidate.  The truth is you’re not skipping anything.

Typically when your close on a mortgage, your first mortgage payment is the following month after 30 days have passed.   So for example, if your mortgage was closing on February 22, your first mortgage payment is due on April 1.  Although it seems like you’re “skipping” a month, what’s happening here is that the mortgage interest on the new loan is prorated from the day you close.  Based on this scenario, your interest is starting on February 22 and is prorated until the 28 (or 29 in a leap year such as we have this year).  The 6 extra days of interest is charged to you at closing under the prorated interest on your HUD-1 Settlement Statement.  Mortgage payments have 30 days of interest in arrears because of this and this is why your payoff is always higher than your monthly statements by about one mortgage payment (30 days of interest).

In order to do the “Skip Two Mortgage Payments” tango, your refinance needs to close as close to the 15th of the calendar month as possible and you, dear home owner, do not make your mortgage for that month.   So using our same example, if you closed your mortgage on February 15 and do not make a mortgage payment for February, your new mortgage payment is still not due until April 1.  You will have 15 days of prorated interest due at closing (half of a mortgage payment).   Did you skip anything?  No.  You only saved writing a check.  The interest is still there and nothing is free. 

When home owners try “skipping” payments, they also risk late fees being assessed by the bank who is being paid off.  If they do not receive the payment by the 15th, the borrower will have a late fee.  Even if the escrow company wires the payoffs to the underlying lender, there’s no guarantee they will receive it in time. 

Click here for a refi rate quote for your home located in Washington.

I was helping a couple with a potential refinance and they were very interested in skipping two month’s payments.  This would have been especially costly for them as we were paying off a FHA mortgage.   FHA mortgages do not prorate the interest when they are being paid off.  It only makes sense whenever possible to close them at the end of a calendar month so that the home owner isn’t paying double interest.   If they would have closed on February 15, they would have felt like they were “skipping” however their mortgage payoff would have had interest through the end of February AND they would have paid 15 days of prorated interest on their new mortgage. 

Loan Originators who use “skip two months payments” are hoping to skip all the way to the bank.  In fact the LO who was trying to lure the couple I helped last month was charging them 3 points for the same rate that I was offering priced with 1 point.  This lender is not from Washington State and has to rely on deceptive mailers in order to get new business…I’m sure it’s because no one who has obtained from them would return or refer their friends and family to them.

There’s nothing wrong with scheduling your closing so you have the illusion of skipping two payments, just know going in what it takes to make this happen and what your risks are (late fees).

Click here for a refi rate quote for your home located in Washington.

Filed Under: FHA, Predatory Lending, Refinance Tagged With: ,
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