Preapproved with FHA Financing? You Better Double Check with your Lender.

March 8, 2012 by Leave a Comment

If you are currently preapproved to buy a home using FHA for your financing, I highly recommend you check with your mortgage originator to make sure your preapproval is still valid.  

Why the worry?  FHA will have higher mortgage insurance rates effective with new loans (case numbers issued as of) April 9, 2012.  How much somebody is preapproved for is based on their debt to income ratios, which includes the proposed new mortgage payment.

Based on the scenarios I used on my post announcing these changes, a loan amount of $417,000 would see an increase in payment of $48.95.  For a borrower who’s currently maxed out on their debt to income ratios (DTI), this could reduce their borrowing power by about $10,500.  FHA “jumbo” borrowers are hit extra hard with FHA’s additonal tax fee, my previous post for a loan amount based on the Seattle FHA loan limit of $567,500 has an increase in payment of $183.85. For the borrower pushing their DTI, $183.85 increase in monthly payment pencils out to $39,700 in less home someone will qualify for.

Even if your preapproval letter states it’s valid until a certain date beyond April 9, 2012, it is subject to “changing market conditions”. Your scenario is not “locked in” or approved until you have a signed around contract that you’ve submitted to your lender to complete your loan application. Changing mortgage rates and property taxes also impact how much you qualify for.

Your mortgage originator can (and should) review your current preapproved scenario and plug in the mortgage insurance rates to determine how much your payment will be going up and to see if it impacts how much you’re preapproved for. 

If you are considering buying or refinancing a home anywhere in Washington State, I’m happy to help you! Please click the links at the top of this page for a rate quote or to apply.

PS: This also impacts home owners who are considering refinancing from a non-FHA loan to an FHA or who are doing a credit qualifying (full doc) FHA streamlined refinance.

Filed Under: FHA, Mortgage Insurance, Residential Purchase Tagged With: ,

Are you really preapproved or just prequalified for a mortgage? Part 2

February 23, 2012 by 1 Comment

preapprovalA preapproval is the next step after becoming prequalifed.   Essentially, this means that you are supplying all of the documentation that is required to support your loan scenario.   Everything you have told the Loan Originator needs to be backed up for a “full doc” loan.   The mortgage originator will review your supporting documentation  (W2s, paystubs, asset accounts, credit report—tax returns if you’re self employed or paid commission…etc.) and make sure that they have a strong file for the underwriter.   Once you have selected your mortgage program, your information is typically submitted to an AUS (automated underwriting system aka a computer) which produces “findings”.   The findings detail what type of documentation is required for the loan approval.   Sometimes the findings will require less or more documentation than a mortgage originator has obtained. Different lenders may have their own underwriting overlays in addition to what the AUS has provided.

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Filed Under: Residential Purchase Tagged With: , , ,

Are you really preapproved or just prequalified for a mortgage? Part 1

February 21, 2012 by 3 Comments

I Spy FisheyeThere’s quite a difference between being prequalifed for a mortgage and preapproved.   The letters that Loan Originators provide when requested for a prequal or preapproval may appear very similar.  In fact, I’ve talked to borrowers on the phone who thought they were actually preapproved, when all they really had was a rate quote worksheet or possible a good faith estimate from a lender.  A good faith estimate, loan estiamte or rate quote worksheet are not a commitment to lend and do not indicate that someone has been prequalified.

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Filed Under: Residential Purchase Tagged With: , ,

What Do You Need for a Preapproval?

February 16, 2012 by 5 Comments

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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Filed Under: First Time Home Buyer, Residential Purchase, The Mortgage Process Tagged With: , , , , , , ,

What’s the difference between Fannie Mae Homepath and Freddie Mac Homesteps?

February 11, 2012 by 1 Comment

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.

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Filed Under: Fannie, Freddie and FHFA, Homepath, Homesteps, Residential Purchase Tagged With: , ,

The Risk of Extended Closings

November 22, 2011 by Leave a Comment

With more short sales taking place, many home buyers are having to wait months before their closing date is here. The same may be true for those who are buying homes that are being constructed.  With a delayed closing, there are some additional risk involved that buyers should be aware of so they can take action, when possible, to protect themselves. Some risks, borrowers have more control over than others. [Read more…]

Filed Under: Credit Scores and Reporting, Escrow and closing, Residential Purchase

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

Buying Your First Investment Property

September 19, 2011 by 1 Comment

EDITORS NOTE: This post was written in 2011. Some of the programs, like Fannie MaeHomePath, may no longer be available.

With real estate becoming more affordable and mortgage interest rates at an historic low, it’s easy to see why some people are considering buying their first investment property.  Financing an investment property has more requirements to it than buying an owner occupied property because it carries more risk to the lender. However if you have enough income, plenty of reserves set aside and good credit, you may be surprised how easy the process can be and what programs are available.

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Filed Under: Investment Property, Residential Purchase, Underwriting and Qualifying Tagged With: ,
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