Almost a Duplex in West Hill Auburn

March 28, 2007 by Leave a Comment

Modo1_4This West Hill Auburn home is almost a duplex with complete separate living quarters down stairs.   Pefect for guests or caring for extended family.  And plenty of parking with the carport and garage.

This home was virtually rebuilt in 2005 and features hardwood floors, slab granite counters, stainless steel appliances…I could go on and on!

The seller has all ready bought their next home and are getting ready to move.Modo3

You, or someone you know, can be enjoying taking in the Mt.  Rainier, Cascade and valley views from the expansive deck.   For more pictures and details about this home click here. 

  • Offered at $559,990 Modo2
  • MLS# 27039759
  • 5 Bedrooms/3 Bathrooms

This home is listed by Maureen Donhauser of Windermere West Campus.   I’m not a real estate agent…nor do I play one on TV.  I’m just a Mortgage Planner trying to help out my client.    If you need financing for this fine home, I am more than happy to help you.

Filed Under: Real Estate, Real Estate Agents, Residential Purchase

The Low Down on Fannie Mae Flex

March 28, 2007 by 2 Comments

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Update: This is a classic example of the trouble with writing about mortgage programs…some are no longer available. When researching about mortgages on the internet, please be sure to check the date of the article.

With many of the zero down options tightening up, it's time to return to the mortgage programs that were popular a few years ago before the 80/20s were all the craze.   One such program worth considering is the Fannie Mae Flex (97 and 100).   This is truly a low down program offering either a minimum $500 borrower contribution or 3% flexible contribution.   

The Fannie Mae Flex allows for flexible sources of funds for closing costs and prepaids:

  • Borrowers own funds (including loans against a 401(k) account or cash-valued life insurance policy.
  • Gift or unsecured loan from a relative.
  • Grant from non-profit or employer.
  • Interested party contributions (to be applied to closing costs and prepaids) such as a Builder or Real Estate Agent.

The Flex program utilizes automated underwriting so minimum credit scores, reserves and qualifying ratios are determined by Desktop Underwriter. 

There are no income limitations, such as with My Community programs.   The program is limited to conforming loan limits (currently $417,000 for a single family dwelling).   

There is private mortgage insurance with this program.   However, with a credit score of 620 or higher, a borrower may qualify for LPMI (Lender Paid Mortgage Insurance).   The rate with LPMI may or may not pencil out, depending on the credit score and loan to value.   Also, private mortgage insurance is tax deductible this year if you meet income limitations.

Sorry folks, this program will not work for manufactured homes.

Currently, I'm helping a couple buy their first home with this program.   They are utilizing a gift from their parents for the down payment and the real estate company they are working with rebates part of the commission which will cover their closing costs (including a 1% discount towards their interest rate).   The couple will not have to dip too deep into their savings or 401(k).   The current interest rate for the 30 year fixed rate is in the low 6%s with a loan to value of 97%.   They will pretty much be getting into their first  home with the earnest money investment of approx. $2,500 (special thanks to Mom and Dad).

Here's a quick re-cap of the Fannie Mae Flex program:

  • Low down payment
  • Higher debt to income ratios allowed
  • Forgiving of credit scores

Remember, always check with your Mortgage Planner to see which strategy for your home financing best suites your personal needs.

Filed Under: Adjustable Rate Mortgage (ARM), Mortgage, Refinance, Residential Purchase

My Encounter with The Seattle Bubble Blog

March 24, 2007 by Leave a Comment

Mpj040113000001 My husband teases at me when I talk about the Bubble Bloggers…not because they’re funny (they can be), it’s simply the phonetics.   Our local bubble bloggers are a very serious and determined group of individuals.  In a nut shell, they believe that Seattle’s home values will plummet or burst like a popped bubble and when this happens, it will reek havoc for current home owners.   Many of them feel it is much better to rent than to own a home for financial purposes.     The Seattle Bubble is probably the most well known local blogs on this topic.   

Recently, an article I posted on Rain City Guide, The Great Rent vs. Own Debate, was featured (or should I say, "flogged") on the Seattle Bubble and Priced Out Forever (these blogs share writers).    Eleua, one of the "bubble bloggers" asked me if they could do this and I must tell you, I was a bit nervous about how this would all shake down.  For starters, where ever there are numbers and stats, there is opportunity for debate.  Numbers can be twisted and recalculated to prove anyone’s theory.   I must say they were very fair and kind in their "flogging" of my post.

Here are some points they make on why it’s better to rent than to own a home (I’m not going to debate these points in this post):

  • Renters are not responsible for repairing or maintenance of the building.   (I do spend many weekends at Home Depot with my husband to work on our house…and I love it).
  • Freedom to pick up and move when your lease is up without the cost of selling a home (approx. 8-10% of the sales price including commissions, 1.78% excise tax for King County and closing costs).
  • You can invest the funds you would use for down payment and earn interest on it (your home equity does not earn interest).
  • You may be able to rent a nicer home than what you can afford to buy for the same payment.
  • The standard tax deduction may be better than the deductions you’re allowed as a home owner itemizing your mortgage interest and taxes.  (As always, check with your CPA regarding any tax matters).
  • And of course, home values are going to tank once the Seattle bubble bursts.

I wrote The Great Rent vs. Own Debate over an exchange of comments on one of Rain City Guide’s post where I stated something along the lines of "owning a home is an automatic savings plan for some borrowers".    I still believe this to be true based on what I’ve seen in my past seven years as a Mortgage Consultant.   

Many people are not putting away money into savings accounts, retirement, planning for college…you name it.   When you make a mortgage payment (assuming it’s not interest only), you are applying a small portion of that mortgage payment towards reducing the principle balance.   For Americans who do not put 10% of their gross income (or anything) into an investment vehicle (no…not a new car!), this is their only source of savings.   They are at least putting some money away where they do not have immediate access to it (unless they treat their home equity like an ATM).   

I will be the first to admit that a big reason why I have bought homes is emotional.  I have "a need" to own a home.  I grew up renting and moving around quite a bit as a kid. I feel grounded and I have control over the home…it’s mine!   With that said, owning a home has proven to be the best investment for me.  I would not have realized the appreciation and profits from renting that I have as a home owner over the past 18 years.   

Home ownership is not for everyone.   Especially people who are careless with their credit and spending.   You need to be responsible, plan for repairs and improvements and make your mortgage payments on time.  Buy a home because you want to live in it and you want to be your own "home sweet home".

Filed Under: Financial Planning, Mortgage, Residential Purchase, Seattle, Weblogs

That New Car Will Cost You

March 15, 2007 by 3 Comments

Mpj043319200001If you’re considering buying a home anytime in the near future, please think twice before purchasing your next car. I’ve had a couple different scenarios lately where the car payment has really impacted the home buyers.  Don’t get me wrong, I love cars.  Old and new alike.   Here’s how it impacts your home purchasing power (based on a 6% mortgage interest rate amortized for 30 years):

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Filed Under: Credit Scores and Reporting, Debt Restructuring, Financial Planning, Mortgage, Residential Purchase Tagged With: ,

The Times…They ARE a Changing

March 8, 2007 by 3 Comments

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For the first time ever in my career, I had to contact a client to tell them that the Good Faith Estimate that I had provided him earlier today is no longer valid.   This is a person who was getting ready to buy a condo utilizing an 80/20 and stated income.  His mid credit score is above 750.

I received an email just after 7:00 p.m. tonight from Greenpoint Mortgage (more of an “alt-a” than a subprime lender) stating that all 80/20 mortgages must be funded by the end of this month.    Regardless of how high the credit score is or even if the loan is “full doc”, Greenpoint, along with many lenders, is pulling in the reigns tight.   

Just another warning to double check your preapprovals if you’re planning on buying zero down, stated income, interest only…even if you’re not considered subprime.

Filed Under: Current Affairs, Mortgage, Refinance, Residential Purchase, Subprime Lending

My First Subprime Client

March 7, 2007 by 2 Comments

Mpj042856200001_2It happened quite on accident back in 2002.  When I began my mortgage practice seven years ago, I was pretty much an "A Paper" lender.  Conventional, FHA and VA loans were my bread and butter.  The thought of doing a subprime loan made me shudder.  I knew they were out there, but I was perfectly happy sticking to my 680 and higher credit score clientele and not diving into the subprime pool.

Then one day, a Realtor, Ima Agent, asked me if I would review her brother and sister-in-law’s good faith estimate since she felt the rate and fees were a bit high.  Ima Agent told me that they had challenging credit in the past and were looking to buy "zero down".   What could I say?  I would at the very least talk with them to see if I could help.   I reviewed their good faith estimate and was surprised at the cost of doing the mortgage.   Most of our loans (to this day) are Correspondent and the closing costs are fairly low.   Brokering to a subprime lender often has Broker Fees around $795 in addition to the regular closing costs.  Of course the rates are higher too since the risk to the lender is greater.

Mr. and Mrs. Buyer are a very nice couple who were recently married and wanted to stop paying rent.   She admitted that he had a troubled past with his credit and that they had been working on improving his (and their) finances.   Their mid credit scores at the time were around 610.   Back then, I would not have known where to go for an 80/20  with a credit score below 700…except the other loan originator they had met with previously had the name of the mortgage lender he was brokering to…BINGO!    I called the lender and priced out their loan.   I was able to provide my clients a much better rate so they elected to leave the other loan originator. 

Here is what the basic guidelines were back in 2002:

  • 600 minimum mid-credit score
  • 100% total loan to value using an 80/20
  • 50% Total Debt to Income Ratio
  • First mortgage is a fixed for 2 years and amortized for 30. 
  • First mortgage has a 2 year prepayment penalty of 6 months interest.
  • Second Mortgage is amortized for 30 years and due in 15.
  • Reserves (taxes and insurance) were OPTIONAL.
  • Funds for closing were not seasoned (no bank statements provided) or sourced.
  • Seller can pay up to 6% of closing costs and prepaids (taxes and escrow).   

I reviewed their credit history with them and we developed a plan on which debts they should focus on eliminating.   They had all ready established a budget since they were working on reducing their credit card debt.  I began to feel more comfortable with helping Mr. and Mrs. Buyer with their subprime financing since I could tell they understood the responsibility of having a mortgage and being a home owner.   Ima Agent found Mr. and Mrs. Buyer their next home and we financed it with the subprime lender.    They were extremely happy in their new home they purchased in March of 2002 in Seattle for $239,500.

Shortly before their prepayment penalty was over, Mr. and Mrs. Buyer contacted me to restructure their mortgage.   They were excellent borrowers; they paid their mortgages on time as well as their other obligations and did not over extend themselves with credit.    Mr. and Mrs. Buyer with having a mortgage (which helps improve credit score) their credit scores were now in the low 700s.   I was able to provide them a long term mortgage (30 year fixed) for 5.75% and their home had appreciated to $310,000.   

I’m thankful that I took the subprime plunge.   I’ve since been able to help many home buyers who would not have qualified for an FHA or VA mortgage.   Many first time home buyers lack the 3% down or are better off leaving the 3% down in their savings account as a cushion.   

Since my first subprime loan 5 years ago, the guidelines have gone through dramatic changes.   Soon Subprime lenders were promoting 80/20 programs with interest only payments, stated income and credit scores down to 580…yikes!  With these loose guidelines, lenders are now facing record foreclosures and are now tightening their requirements for a subprime loan.    Every day I’m receiving updates from various stating that the minimum credit score for 80/20 financing is now 620 and stated income is disappearing.

I have just added a new category to Mortgage Porter:  the market toughening up, these home owners really need to minding their credit and budget so they don’t wind up in the deep end with no way out of their subprime mortgage after the rate adjust.

Filed Under: Credit Scores and Reporting, Financial Planning, Mortgage, Refinance, Residential Purchase, Subprime Lending

Your ARM May Not Be Broken

February 26, 2007 by Leave a Comment

Mpj040739600001_1You may have noticed on the evening news and the local papers all the bad press about mortgages lately.   Specifically sub-prime, negative amortized ARMs a.k.a. payment option plans (which I am opposed to for 99% of the population), 100% financing and interest-only ARMs…to name a few.  Many sub prime lenders are restating their earnings and are suffering losses.  Some are closing their doors and the remaining are changing their underwriting guidelines.   It use to be very easy to obtain 100% financing with a credit score of 600…some lenders would even consider 580.   Now, the benchmark is 620.   Throughout history, lenders change underwriting guidelines based on market conditions.

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Filed Under: Adjustable Rate Mortgage (ARM), Credit Scores and Reporting, Financial Planning, Mortgage, Refinance, Residential Purchase, Subprime Lending Tagged With: ,

How Strong Are Your Legs?

February 25, 2007 by 1 Comment

J0384828A borrower in a mortgage transaction is kind of viewed like a chair with four legs.   The legs on the chair provide strength to the base or seat of the chair.   If one leg is shorter than the others, the chair is still strong, but may wobble a bit.   Shorten two legs and the chair becomes less stable.    Three week legs and the chair is just waiting to tip over on you.

So how strong are the legs of your chair?

Consider each of these items as one leg in your chair.

  • Employment.  Having a minimum 2 year history in your line of work (this can include education).  Employment gaps that don’t make sense to an underwriter, may cause issues with getting your mortgage approved.   A lender wants to know that you are going to be able to keep your job and therefore, make your mortgage payments on time.
  • Income.  If paid salary and regular hours, this can be pretty easy to compute.  When your hours vary, the income needs to be averaged.   Also, if you’re paid bonuses or commission and going for the best interest rate (not stated income or no income verified), then your bonuses and commissions are typically averaged for the past two years.   Debt-to-income ratios are crucial for qualifying for mortgages.   A $500 car payment equals $50,000 less home that you can purchase.
  • Savings and assets.   There are many zero down loans, even if you are considering that route, it is in your best interest to have at least three months of your future mortgage payments in savings after all closing costs are paid.  The more money you can put down towards a home, the better your interest rate will be.
  • Credit Scores.   Having scores above 680 are a worthy goal.  A score 700 or more is even better!   Pay your accounts on time.   Keep your balances below 30% of the credit limit for the best scores.   Take care of your credit and it will take care of you.   Credit is reflective.  If your credit score is on the low end, meet with a Mortgage Planner to help you develop a plan to improve your score. 

All of these factors impact how a borrower qualifies for a mortgage.    The more strong legs you have reduces the risk to the lender, which in turn means a better interest rate for you!

Filed Under: Credit Scores and Reporting, Financial Planning, Interest Rates, Mortgage, Refinance, Residential Purchase Tagged With: , , , , ,
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