How Much Home Can I Buy in Seattle with $45,000

October 18, 2011 by 2 Comments

I'm working with a couple who have saved $45,000 to buy a home in the greater Seattle area. Since conforming and FHA loan limits have been reduced to $506,000 in King County for the remainder of 2011, it reduces what they could have purchased a month or two ago. 

FHA.  Using an FHA insured mortgage, the couple can buy a home with a sales price of up to $551,000 assuming the seller pays for their closing cost and prepaids or that rebate pricing is used to cover closing cost and prepaids (or a combo of both).  The buyer must pay for the down payment with their own funds and gift funds are allowed by family for the down payment.  This is a pretty straight forward $506,000 loan limit pluse the $45,000 down payment.  

Conventional. $462,000 is the highest sales price with conventional financing based on using a conforming mortgage of $417,000 which would have the loan to value just over 90%. This scenario would also have private mortgage insurance which could be paid monthly, in a one time lump sum or as a "split premium" (a combo of both). With a loan to value of just over 90% means that the rate of private mortgage insurance will be much higher than if the buyers stick to a 90% loan to value. With a loan to value just over 90%, sellers are limited to contributing 3% towards closing cost.

If the buyers go this route, the maximum sales price they would qualify for with 10% down payment is $450,000 and sellers can contribute up to 6% towards allowable closing cost.

Conforming High Balance:  Loan amounts from $417,001 to $506,000 in the Seattle area may go up to 90% loan to value with private mortgage insurance, however 10% of the funds (the down payment) must be the borrowers and gifts are allowed only after the borrower has met the 10% requirement. Conventional loan amounts over $417,000 don't appear to pencil out for this scenario.  

NOTE: With conventional mortgages, if the gift from family is 20% or more, then there are no minimum required investments for the borrower.

VA. If my clients had served in the military and qualified for a VA loan, the maximum sales price in King County with a $45,000 down payment would be $680,000 assuming the sellers pay for all closing cost and prepaids or rebate pricing is used to offset the cost.

Technically, home buyers do not qualify for a "sales price".  They qualify based on the total mortgage payment (income and debts) and based on what funds they have available for down payment will dictate how much "sales price" they can buy.

If you would like to see what sales price you qualify for or become preapproved to buy a home anywhere in Washington, please contact me.

Filed Under: Residential Purchase

Risk and Reward: the Trade-offs of Buying a Distressed Home

September 16, 2011 by Leave a Comment

Foreclosure Many home buyers are interested in taking advantage of the lower prices offered on distressed homes.  Distressed homes are those that are short sales or foreclosures (REO) and in the Seattle area, the sales price of distressed homes were discounted about 37.4% in August over a "non-distressed" home.

Something to keep in mind before you buy a "discounted" distressed home is that these transactions are not as "easy" as a traditional, non-distressed sale.  For starters, you're most likely dealing with a bank (and/or one of their representatives) as one of the selling parties. As much as you would think they really want to sell the property to get it off their books, they can leave you wondering where their heads are at throughout the transaction.  

This may be especially true with a short-sale if there are two mortgages on the property.  Sometimes the second mortgage/lien holder will take their sweet time approving the transaction and just prior to closing, only to demand that "someone" pay them thousands of dollars to close.  By the way, this extortion money payment must be disclosed on the HUD-1 Settlement Statement or it's fraud.  Even if the first and second mortgage are with the same bank/lender, please do not assume they won't play games with you or each other…it happens.

Something else that I've recently seen happen with distressed property is vandalism…just days before closing, someone steals the appliances or even takes plants from the garden. Vandalism could happen to non-distressed home as well but since most of these properties are vacant, they seem to be getting targeted.

Tums These transactions tend to take longer to close and may have more drama. Be prepared to have your rate lock extended, perhaps a few times!  If you're patient and can keep in mind that you're probably getting a discounted price, the rewards may be worth it if you can tolerate the risk and all that goes with it.

In my experience, I've found that Fannie Mae Homepath properties have had the least amount of issues especially when you factor in the attractive financing programs that are available for owner occupied and investment property.  

If you're considering buying a short sale or foreclosed home anywhere in Washington state, I'm happy to help you with the financing.

Filed Under: Economy, Residential Purchase

Seattle Homebuyers Surprised by Multiple Offers on “Ideal” Homes

August 25, 2011 by Leave a Comment

Earlier this month, Aubrey Cohen of the Seattle PI wrote "Home buyers finding competition for nice homes in Seattle".  As a Mortgage Originator, I find that many of the home buyers that I'm working with are discovering it's taking a longer amount of time to find the "right home" due to lack of inventory and then, once they do find one they're interested in, they discover they're not alone.  David Billings of Redfin, says:

"When the ideal, cute, turn-key starter home comes on market at a price that a buyer feels is a decent value, they're shocked to find that there are lots (three, four, maybe six) of other buyers that feel just like they do," …"After having patiently waited out the market and read every article about how terrible Seattle real estate is, they can't believe they'll need to pay full list price, let alone the possibility of paying more in order to beat out others. It takes some time for them to come to grips with this reality and get competitive with their offers, or adjust their search to a home that needs some work, or is in a slightly less prime location."

The article reports the "hottest" homes are priced under $500,000 "turn-key…staged, painted…" located in the neighborhoods of Northeast Seattle, Capitol Hill-Montlake and Ballard-Greenlake. "Multiple offers have jumped from between 30 and 35 percent to 40 and 50 percent, hitting 51.4 percent in Ballard".

What's a Ballard Home Buyer to Do?  Actually, I think this applies to any home buyer who's considering making an offer on a home, especially if it's one that is "ideal" and newly listed. 

  • Meet with a local licensed Mortgage Originator to review your financial options and get preapproved. You really can't start this process too early – even if you're not planning on buying for a year, meeting with a mortgage originator and reviewing your credit and assets (funds for down payment) ahead of time may help put you in the best position possible for when your "ideal home" comes on the market.
  • Have a plan and set your limits. Determine what mortgage payment you're comfortable paying and what down payment you're willing to part with (this may be a lower amount than what you're approved for).  
  • Develop thick skin. Buying a home can be emotional – especially in a bidding situation. Be prepared that you may not win a bid and stick to your price range. 
  • Work with a professional real estate agent. Get referrals and check out your real estate agent just as you would when selecting a mortgage professional. Some agents, especially in this market where their commissions may be down, may be more interested in making a sale than looking out for you. I'm happy share my recommendations with you.
  • Be patient. Some of my clients have taken up to a year or more enduring several bidding wars before landing their home.

In a multiple offer situation, you're going to need to present yourself as a strong buyer, which includes having a well written preapproval letter. The Seller has probably heard plenty of horror stories of failed transactions due to tougher underwriting guidelines and they're going to want to select a strong buyer. Other factors may also include how quickly the transaction can close, especially if the home is vacant or if the seller has an offer pending on their next home.

In a possible bidding situation, I will often prepare several preapproval letters at various price points for my clients so they can determine just how high they want to go with the potential sales price.  

With home prices in Washington reaching "record affordability" combined with historically low mortgage rates, many home buyers are looking for their "ideal home" at a more reasonable price or a distressed property at a discounted price.

Bottom line, be as prepared as possible and start the preapproval process early. If you're considering buying a home located anywhere in Washington State, I'd love to work with you.

Filed Under: Residential Purchase, Seattle

Piggyback Combo Mortgages are Back

June 21, 2011 by Leave a Comment

I’m pleased to announce that we now have second mortgages and home equity loans available in combination with a first mortgage at Mortgage Master Service Corporation. I see this being very useful with keeping loan amounts under conforming limits (especially once they’re scheduled to be reduced on October 1, 2011).  Here’s some quick points on this program:

  • maximum allowed total loan to value is 85% with a mid-credit score of 720 or higher for owner occupied.
  • maximum allowed total loan to value is 70% with a mid-credit score of 700 – 719 for owner occupied.
  • maximum allowed loan to value of 80% with a mid-credit score of 720 or higher for a second home.
  • available for purchases or refinances.
  • maximum allowed debt-to-income ratio of 45%.
  • available as a HELOC (home equity line of credit) or fixed rates.  

Should you consider using a first and second mortgage combo for your home financing? That’s up to you!  What’s important is knowing and understanding what options are available to you so you can make an informed decision.  If you are buying or refinancing a home located anywhere in Washington state, I’m happy to help you with your mortgage needs. 

Filed Under: Home Equity Loans & Second Mortgages, Refinance, Residential Purchase Tagged With: , , ,

My thoughts on NAR’s Pending Home Sales for April: Mortgage Guidelines are NOT “Excessively Tight”

May 27, 2011 by Leave a Comment

This morning NAR released the Pending Home Sales report which revealed that "contract signings, dropped 11.6 percent in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit." Pending home sales is a forward indicator since it's reporting on contracts that are signed but not yet closed.

Lawrence Yun, NAR's Chief Economist states that part of reason for the larger than expected drop is due to how difficult it has become to obtain a mortgage. 

“No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow…We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings….” 

It's my experience that it's not that difficult to obtain a mortgage and underwriting guidelines are not "excessively tight".  The difference between qualifying for a mortgage now and pre-2007 is that borrowers must now prove (provide supporting documentation) that they meet program guidelines.  Stated income, low or no-doc loans are gone.  

  • Every penny of your down payment and funds for closing must be documented with complete bank statements (all pages) or other asset accounts being used.
  • Large deposits on your bank statements must be sourced (more documentation) to show where the funds came from.
  • Employment must be steady.  Buyers are not required to have been on the same job for the past two years…heck, they can be out of college (may count as employment) and there may be some unemployment periods…it needs to make sense and be documented.
  • Income must be steady.  If a potential borrower is not paid salary (hourly, commission, bonus, self-employed, etc.) they need to show they've received this type of income for the past two years.
  • Borrowers must be able to afford their home based on their income and debts. Some debts where payments are deferred, like student loans, are factored into your debt-to-income ratios…one day, you are going to have to make payments on it!  
  • Borrowers who take out new debts before funding (closing) of their loan, may find they no longer qualify for their mortgage.  Doesn't this make sense? Yes, home buyers may need new a washer and dryer…however if they're borderline with their credit or pushed with their qualifying ratios, they risk blowing up the purchase just before closing due to "LQI".  Home buyers need to make sure they honestly reflect the loan application from the start of the transaction to finish.

Okay, I'll admit that credit scoring has become tougher. Pre-2007, a person with 600 credit scores (or lower) could qualify for a mortgage.  Now you pretty much need a mid-credit score of 630 or higher for most loan programs.  And their are price hits (risked based pricing) that are factored into interest rates based on loan to value and credit scores.  Credit scores are reflective and borrowers can work on improving their credit scores (and should).  

Income is also scrutinized more than before with 4506Ts being required on every transaction. If your income is higher on your loan application than what you claim on your tax returns, be prepared…you'll be providing additional documentation (tax returns) even if you're paid a salary and your income may be adjusted lower.

Here's where Congress may really muck up the housing recovery, especially in light of this report:

  • Lowering the conforming loan limits, which is scheduled to happen on October 1, 2011.  In the Seattle area, the current conforming loan limit is $567,500.  Effective October 1, 2011, it's set to roll back to $506,000 meaning that loan amounts of $506,001 or higher will be "jumbo" non-conforming.  Jumbo loans have much tougher guidelines and higher rates which does mean that fewer people will qualify for higher priced homes.  Loan limits are also set to be reduced for FHA and VA loans after September 30, 2011.  By the way, 2012 loan limits may be even lower!
  • Increasing the minimum down payment for FHA loans from 3.5% to 5%. Congress is working on this right now and it's been tossed around by our government for quite a while.  Does having 1.5% more "skin" in the game really make a more responsible borrower?  I don't think so.  I would rather see that a borrower have that 1.5% in their savings than invested as down payment (where they do not have access to it should they have an emergency) in a home.

People can still get a mortgage today.  It bothers me that NAR and others are painting that mortgages are too tough to obtain…painting an inaccurate picture does not help the housing market either.  Today's buyer needs to be prepared to provide plenty of paperwork to support they actually qualify for the mortgage by showing they earn what they say, have the funds for closing and are employed.  What's wrong with that?

If you are considering buying a home, I do recommend meeting with a local licensed mortgage professional as early as possible to start on the prequalification process.  If your next home is located anywhere in Washington State, I'm happy to help you!  

PS: I still believe that it would tremendously help the housing markets recover IF home owners who want to refinance and who qualify based on credit, income and employment are allowed to without an appraisal…very similar to an FHA streamline refi. This would allow people who want to stay in their homes and who qualify, to be able to take advantage of today's lower rates and not cause them to be punished due to lower appraised values.

Filed Under: Legislation, Rant, Real Estate Agents, Residential Purchase, Underwriting and Qualifying

Preapproval Letters Defined and Updated

April 29, 2011 by Leave a Comment

This is an update from a post I wrote back in early 2007 about preapproval letters. So much has changed in the mortgage industry in the past few years that I thought it was worth refreshing this post with updated information.

The preapproval letter is a tool typically drafted by a loan originator to be used by a buyer’s real estate agent when presenting an offer on a property.   The letter may be in the form of a certificate or be an actual letter on the lender’s letterhead.   The preapproval letter is intended to assure the seller and the listing agent that the buyer has been buyer has been approved by the lender and therefore accepting an offer from this buyer, there should ideally not be any financing issues with the buyer.

When I prepare a preapproval letter, it usually contains the following (depending on the program):

  • Effective dates (the date the letter was written) and expiration date.
  • The borrower’s names (who is approved for financing).
  • The sales price and loan amounts they are approved for.  
  • Maximum mortgage payment (including any home owners association dues) the borrower is qualifed for.  NOTE: this is very important when we're in an environment where rates may rise quickly.
  • The type of financing is confirmed (ex. Conventional, FHA, VA, USDA, etc.)
  • Credit has been reviewed.
  • Employment and income has been confirmed.
  • Down payment and funds for closing (closing costs, prepaids and reserves) are verified.
  • Any closing cost that are being requested to be paid for from the seller.
  • Any item the preapproval is subject to (such as satisfactory appraisal, title, complete purchase and sale agreement, etc.).
  • Mortgage originators name and contact information.

If these items have not been actually verified with proper documentation, then a buyer has been prequalified—not preapproved.  BIG DIFFERENCE.  Being prequalified essentially means that a verbal interview has been conducted without providing all of the necessary supporting documents (pay stubs, W2s, bank statements—again, depending on the type documentation required for the specific loan “full doc” to “no doc”).  A Good Faith Estimate does not constitute a preapproval.

The preapproval letter does not contain private information such as a buyer’s credit score or their additional assets.   It is a sales tool for the buyer’s agent and if there are multiple offers presented on a home, having a strong preapproval letter is an advantage.   This is one reason why it is crucial for buyers to become preapproved before they begin shopping for their next home.   Many listings agents will not even consider an offer unless the buyer has been preapproved.    

The preapproval letter is generally effective a specific amount of days, depending on when supporting documentation is set to expire (such as the credit report).  Updating a preapproval letter is simply re-running the credit and possibly obtaining most recent income and asset documentation (paystubs and bank statements).    On occasion, the buyer’s agent may request a revised preapproval letter if they are presenting an offer on a home that is priced for less than what the buyer is approved for and if they are asking for closing costs.  It's not uncommon for me to issue several preapproval letters for a home buyer based on different homes or offers they are presenting.

Real estate agents may also consider who the preapproval letter is from, and they may contact the lender to confirm the buyer is indeed prepproved and not just prequalified.   Many agents will tell you that the preapproval letter is only worth the paper it’s printed on.   This is also why it’s very important to be selective with lender you work with…it could possibly impact whether or not your offer is accepted on your next home.

I highly recommend starting the process early (6 to 12 months before you're planning on buying) just in case there are unknown credit or down payment issues.  I can also prepare preapproval letters on weekends as long as I have been provided all of your supporting documentation.   If you're considering purchasing a home located anywhere in Washington state and need a preapproval letter, I'm happy to help you!   

Filed Under: Residential Purchase

How to Select Your Mortgage Originator

March 25, 2011 by 1 Comment

I’m working with a West Seattle couple who are getting ready to buy their first home.  This is something that is not unusual for me to hear:

“Our real estate agent was wanting us to contact a few lenders and have them all pull GFEs on the same day with the same perameters so we can choose who to go with. Then whoever has the best rates/lowest fees we were planning to have pull our credit…”

The real estate agent has good intentions, however this may not be the best advice for how to select a mortgage originator.   First of all, this couple may find it difficult to estract a good faith estimate from a mortgage originator without being in contract.  This is due to HUD’s [flawed] regulation that if a LO issues a GFE without a property address, once the buyers actually have a contract, the bona fide address of their new home will not constitute a “changed circumstance”.

It is solid advice that if you’re going to shop lenders, do so at the same time with the same perameters–just don’t expect a good faith estimate.  DO get something in writing from the lender (it may go by many different names, including “rate quote” or “worksheet”, etc).

In addition to rates and fees, here are some other suggestions I think one should consider when selecting the professional who will be helping them obtain the financing of their home:

How long have you been a mortgage originator?  I began originating mortgages on April 1, 2000.  Prior to that, I was in the title and escrow business for 14 years.

What type of mortgage company/institution do you work for?  Most will say bank, correspondent lender (some LO’s will call themselves “mortgage bankers”), mortgage broker or credit union.  Each type of company offers unique advantages or disadvantages.  Mortgage Master Service Corporation is a correspondent lender.

What type of programs does your company offer?  We offer FHA, VA, USDA, Conventional, Jumbo (non-confoming mortgages).   If you’re considering a certain program, such as FHA, ask the LO how long they’ve been originating that specific type of program.

Where are your loans physically underwritten?  I’ve worked with our same underwriters for over 10 years at our main office in Kent since 2000. 

Are you NMLS Licensed or Registered?  There are differences between what each type of LO is required per the SAFE Act between Licensed and Registered LOs.  LO’s who work for a bank or credit union will try to tell you that they’ve been adhering to the SAFE Act…only Washington Licensed LO’s are regulated by DFI and have a license to lose.  There is more required of LO’s who are licensed per the SAFE Act than those who are registered.  I’m NMLS Licensed and have been licensed since 2007 (when state licensing started).

I also recommend “googling” your mortgage originator.  It’s totally my opinion, and perhaps a bit biased, that if your mortgage originator blogs or has a social media profile, their reputation is gold to them.  They tend to be more transparent and current on ever-changing guidelines IF they are writing their own content.   Google me!

Filed Under: Real Estate Agents, Residential Purchase

Which Fees Can Change on a Rate Quote Worksheet

March 4, 2011 by Leave a Comment

When a home buyer is shopping for their next home, they often request written rate quotes from mortgage originators to see a detailed list of closing costs and an estimated total monthly mortgage payment.  Before HUD mandated their Good Faith Estimate in 2010, they could rely on a Good Faith Estimate.  Due to the liability a mortgage originator may incur on issuing a GFE before the buyer has a purchase and sales agreement (in contract to buy a home), a buyer would be hard pressed to find a mortgage originator is allowed to issue a GFE pre-contract.  In addition, HUD's GFE does not include the total mortgage payment nor funds required to close the transaction, so it's not best tool for a buyer. 

In lieu of issuing the Good Faith Estimate, mortgage originators can issue a written "rate quote worksheet" which may have different names by different lenders.  Just like the old GFE, the rate quote worksheets also vary in appearance from lender to lender as they had to be created by lenders as a result of the limitations of the HUD's GFE…they are not a standardized document.    The written rate quote worksheet should contain all the same information as the good faith estimate did prior to HUD's 2010 GFE as well as the APR.

The rate quote worksheet is simply a tool to provide an estimate of closing costs as well as what current rates are available if the home buyer were locking at that moment. 

Some fees on the quote can change, including:

Title Insurance and Escrow.  There are several title insurance companies located within each county.  Home buyers DO have the ability to select their title and escrow providerand some offer discounts when you use title and escrow from the same company.  They may discover that their real estate agents try to control who provides this service.   Often times, listings have a title committment prepared by the listing agents preferred title vendor (sometimes called a "TBD").  Until the mortgage originator knows who the title and escrow company are, this fee is an estimate and the fees do vary.

Property taxes.  Property taxes are in the mortgage payment as well as the prepaids/reserves section of the mortgage quote.  The number of months required to collect for reserves may varies based on when the first month's payment is due…so until there is an established closing date, it's a "best estimate".  NOTE:  I use 1.25% of the sales price divided by 12 months, unless I am provided a different figure to use for taxes.  Property taxes are specific to the property that is purchased…and property taxes may change over the years (impacting your mortgage payment).  

Home owners insurance.  Home owners insurance is in the payment as well as the prepaids/reserves.  This fee can vary based on who the provider is (selected by the home buyer) and the amount/type of coverage they request.

Prepaid interest.  This will be based on the very date of closing, paying interest through the end of the month (because you now own the home and have a mortgage).  Until we have that contract, most lenders will use 15 days of interest for purposes of a rate quote.  Closing earlier in the month increases the days of interest and later in the month reduces the days of interest.

Of course, how the loan is priced once the rate is locked (with or without discount points) may also change as the home buyer may not decide this until they know the what pricing (what rate at what cost) is actually available until the moment they are able to "lock".

This post was written based on a question from a home buyer I'm working with in the Seattle area.  If you have a question regarding mortgages that I can answer on Mortgage Porter, contact me!  You just might read your answer on my blog.

Filed Under: Good Faith Estimate, Residential Purchase
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