Let the Welcome Home Program Welcome You Home!

While this time of year may have you pumped for chocolate hearts and shamrocks, it’s got me pumped for an entirely different reason (despite my love of chocolate) — one of my favorite programs, the Welcome Home Program of the Federal Home Loan Bank of Cincinnati, is officially back as of March 1st! And thanks to F&M Mortgage’s relationship with the FHLB, I get to help homebuyers take advantage of this truly one-of-a-kind program for yet another year!

The Welcome Home Program, a down payment assistance program that assists homebuyers in getting the funds they need prior to the closing of their new home, offers grants to fund reasonable down payments and closing costs incurred in conjunction with the acquisition or construction of owner-occupied housing by low and moderate income homebuyers. In layman’s terms, it provides free money to homebuyers who meet certain requirements. And who doesn’t love free money?

Sounds great, right? Well, there is one caveat:  This exceptional program is only available for a limited time, i.e., until the funds run out. But there’s no need to worry; in my experience, Welcome Home funds have, within the past couple years, been available through early to mid-April. But we’ve got to act fast!

Here are the details:

1. Up to $5,000.00 is available as down payment and closing cost assistance. Please note that the grant is forgivable if the buyer lives in home for 5 years. If sold before, pay back is prorated over 60 months. 
2. The funds are provided as a grant and therefore, no repayment is required.
3. The borrower must have a home under contract (primary residence only) to place a reservation for the funds.
4. The borrower must put at least $500.00 of their own money into the deal (60% of the $500.00 may be gifted).
5. This program is available in conjunction with certain low interest rate programs such as FHA, as well as THDA, USDA and that of conventional loans – but it is not available in conjunction with repair programs such as 203K.
6. While the borrower does not have to be a first time homebuyer, all first time homebuyers must complete a homebuyer education course as part of the requirements to receive said funding.
7. Income limits most definitely apply (it’s basically 80% median).
8. The income limit in Davidson County, TN, is $65,760 for 1-2 person household and $76,720 for 3+ person households.
9. This program may take a little longer to process due to the file having to be underwritten by the FHLB in Cincinnati, resulting in an up to 45 day processing time (but it’s certainly worth it).
10. While it may be used for new construction, the home in question must be completed by December 1, 2018.

Remember, Welcome Home funds will be available for reservation on a first-come, first-served basis beginning at 7:00 AM CT on March 1, 2018, and will remain available until all funds have been reserved.

If your client will be going into a home contract anytime within the next month or so, then it only make sense to have them take a look at the Welcome Home Program. And I can help. Let the Welcome Home Program help welcome your clients into the home they’ve always dreamed of!

Industry Updates

As you have probably heard by now, the conventional loan limit will be increasing effective January 1st, 2018 (for any closing taking place after that date).  The former limit has been $424,100 and will now be $453,100.  The expanded limit for both Fannie and FHA will now be $494,500 versus the old figure of $466,900.  So borrowers will now be able to go up to $453,100 on both conventional and FHA loans at standard pricing and will be able to go up to $494,500 with a small pricing bump (typically .25% - which is pretty standard for typical jumbo pricing).  So a nice feature now will be that someone could go to $550,000 in price and basically do a 90% conventional loan versus having to go jumbo and put 20% down.  And basically all borrowers can now go up ~$30,000 in price/loan amount to stay at equivalent conforming rates.

There is still LIFT money available.  This program is pretty narrow, but you may have a client that could take advantage of it.  Property has to be in Davidson, Wilson, Sumner or Rutherford and unless the borrower is a first responder, military or teacher, the income limit is basically $55,000 per year.  But if eligible, there is a $15,000 down payment assistance fund available.  FHA still requires a 3.5% down payment from borrower, but the conventional 97% Home Ready will allow the assistance funds to go towards down payment.  It is somewhat of a niche program and funds will run out (was estimated to have been out already).  To read more about the program, go to http://www.ahrhousing.org/neighborhoodlift-program/.

THDA has lowered its rate from 4.625% to 4.25% on the Great Choice program (the one most buyers use).  That helps make this program a little more advisable.

Not really industry news, but I would like to introduce a new member to my team.  Emily Keller started working with me on December 4th and will be in charge of all things related to how my team markets and communicates with our clients and industry partners.  I’ve had a vision for this position for a couple of years and am thrilled to have her on my team!  Emily.keller@myfmbank.com

Rent or Buy? The Answer is in the RATE!

Mortgage rates are at the heartbeat of my business, offering the greatest insight into whether homeownership is affordable.  So it’s no surprise that when headlines scream that rates are on the rise while others declare that rates are historically low, borrowers have questions and concerns.  Historic context is key to understanding how rates behave – and the key to understanding where we are today. The downward trend of rates the last 20 years will prove that buying a home truly is a better option than renting.  Sure prices have been on the rise, and that makes buyers freak out.  But that’s just part of the equation.  We’ve talked about the Home Affordability Index before, so not going to beat that drum today (basically, the HAI considers price, rate and income to determine how affordable buying a home is).  And while price certainly plays a role, rate is what is the driving factor in payment – which is what matters when considering affordability and comparing to rent.

Let’s consider a couple of things:

1) Rates have been falling for years

We’ll use the 30-year fixed-rate mortgage as a benchmark since they’re the most popular home loan option in the U.S. and often used as a basis for news and research findings. Take a look at this chart showing the 20 year trend line for the 30 year fixed rate mortgage.

As you can see, rates on 30-year mortgages peaked at just over 8 percent in 2000 (they were as high as 18 percent in the early 1980’s). Rates have been on a steady decline over the last 20 years. Sure, there have been ups and downs — the most dramatic of which was the credit crisis that drove rates to historical lows. But even today we find ourselves in close proximity to where we were then.

2) Buying a home was a bargain back then. It still is today.  What about renting?

In June 2000, the median price of a home was $140,000 and the rate on a 30-year mortgage was 8 percent. If a borrower financed this at a 90 percent , the principal and interest payment was approximately $925 a month. Compare that to 2017 when the median  price of a home is $245,000 and the 30-year mortgage rate is 3.8 percent. If a borrower finances this at a 90 percent, the P&I payment would be approximately $1,025 a month. This shows that in the span of 17 years, the average mortgage payment has increased by just $100 for P&I (an 11% increase).

Rental rates, meanwhile, continue to rise with no sign of slowing down. In 2000, the median rent in the US was $602.  By 2015 that number had grown to $959 (a 60% increase in just 15 years).

The bottom line: Homeownership over time is a better investment and more affordable than renting – and even more so in today’s low rate environment.

Thanks to my friends at Movement Mortgage for this data!

Bonds have trended up a tad over the past week and a half, but still well below our lowest rate point of the year back in late August.  30 year fixed conventional still hanging below 4% and FHA under 3.5% for good credit buyers.

Student Loans – from a qualifying standpoint

We have talked in the past about student loans and how it is my opinion that this will be the next financial crisis faced by the American public.  Americans owe over $1.4 trillion in student loan debt, spread out among about 44 million borrowers. That’s about $620 billion more than the total U.S. credit card debt. The average Class of 2016 graduate has $37,172 in student loan debt, which is up six percent from 2015.  This is not something that is going away any time soon and it has a significant effect on first time home buyers and the age that they are able to buy their first home.  But what I want us to look at today is how we (mortgage lenders) consider student loan debt from a qualifying standpoint based on the most common types of mortgage loans they are eligible to obtain.

·        Conventional (which includes the 97% Home Ready program) – we use whatever the credit report reflects as the monthly payment for qualifying purposes.  If there is no payment listed, the loan is in deferment for example, then we have to use a 1% of the total balance as the monthly payment unless the borrower can provide paperwork showing what the exact payment will be when repayment begins.  So if the student loan debt is $50,000, the borrower has no payment and no documentation reflecting what the payment will be, then we have to count a $500 monthly payment when calculating the debt ratio.  But if there is a payment listed on the credit report, we go with that payment.

·        FHA – we use the greater of the payment that is listed on the credit report OR 1% of the balance when calculating debt ratios.  As an example, if the borrower has $50,000 in student loan debt with a $250 monthly payment (typical for someone in an income based repayment plan) or no payment because the loan is in deferment, we would have to count a $500 payment when calculating the debt ratio even though the required payment is much less.

·        THDA – same as FHA

·        USDA – same as FHA

The requirement that FHA, THDA and USDA have of counting a minimum of 1% for student loan debt can play a significant role in qualifying a first-time home buyer for a mortgage.  It is important that we (everyone involved in a real estate transaction) understand the implications of this and make sure both we and our buyers understand it.  The price a buyer can qualify for is limited by what debt ratios allow and our requirement to potentially count a higher payment for student loans in that ratio, than what the borrower is actually paying, can certainly lower the price he/she can afford.

Welcome Home

It’s that time of year again – one of my favorite programs is back (and as usual, it is for a limited time).  We once again get to take advantage of F&M’s relationship with the Federal Home Loan Bank of Cincinnati to provide this special grant that is truly one of a kind.  The Welcome Home fund is taking reservations now (started March 1st) and will be available until funds run out.  The funds have run out by mid-early April in both of the last two years.  Why?  Because it’s free money!  Details are listed below and you are welcome to call me if you have any questions.  Let’s help as many people as we can with this program!

·         Amount available - $5,000 per transaction

·         The funds are provided as a grant and no repayment is required

·         Borrower must have a home under contract (primary residence only) to place a reservation for funds

·         Funds may be used for down payment and associated closing costs

·         Borrower must put at least $500 of his/her own money into the deal (60% of the $500 can be gifted)

·         Most loan programs are available (FHA, THDA, USDA and conventional – but no repair programs like 203K)

·         Doesn’t have to be a first time homebuyer, but all first time homebuyers must complete homebuyer education course

·         Income limits apply (it’s basically 80% median)

o   for Davidson county, the limit is $65,760 for 1-2 person household and $76,720 for 3+ persons

·         These programs take a little longer to process due to the file needing to be underwritten by FHLB in Cincinnati, so please allow 45 days to process)

·         It may be used for new construction, but home must be completed by December 1, 2017

If you have a client that is going under contract any time in the next month to month and a half, it would make sense to at least have him/her look into this if you think there is even a possibility of qualifying for this grant.  It is awesome!

THDA Has A Great New Program

In essence, THDA will now allow a buyer, who is buying in a designated zip code, a second mortgage of $15,000 that is completely forgivable if the buyer lives in the home for 10 years.  Here are the highlights for the program:

·         Available March 1st, but applications may be taken now.

·         Must qualify for the THDA Great Choice (the normal program – standard guidelines, 45% max debt ratio for example)

·         Must meet standard income limits and house acquisition price limits and meet IRS requirement for first-time homebuyer

·         Must be in a designated zip code (see flyer below)

·         New construction is NOT eligible

·         Pre and Post purchase homebuyer education is a requirement

·         Rate and fees for first mortgage are same as normal Great Choice program (nothing added for this program)

·         $15,000 second mortgage available for down payment, closing costs and prepaid items

o   $15,000 second must be taken in full – if more than needed, the first mortgage is reduced accordingly

o   No payments made on second mortgage during repayment terms of the first mortgage

o   If home sold in first 5 years, the full second mortgage must be repaid

o   Starting in year 6, the second mortgage is forgiven at a 20% per year rate through year 10

o   If home is owned longer than 10 years, there is no repayment due for the second mortgage

For additional information on THDA qualifying, go to www.thda.org; the updated guidelines for this new program will be available next week. 

If there are other available options like USDA, VA or our internal bank product, I’m not normally a big THDA fan due to the higher rate and added fees (compared to the traditional FHA program).  However, for a first time buyer who is buying in one of the zip codes listed on the attached document, this is a really good option.  You are welcome to call me if you have any questions.

Check out the flyer from THDA below for more specifics and eligible zip codes:

Loan Limits - Movin' On Up!

Welcome to the New Year!  For the first time in over a decade, Fannie Mae is increasing its loan limits for conventional loans.  It is nothing drastic, but certainly a move in the right direction.  For quite some time, the maximum loan amount for a conventional loan in the Nashville MSA has been $417,000 – anything over that amount went into the “jumbo” category.  The new number for Fannie is now $424,100.  But maybe what is the better news from Fannie is that they moved their loan limit for their expanded program (High Balance Agency product) up to $466,900.  The expanded program has a slight rate bump (typically .125% for 30 year fixed with no more than .25%), but also allows up to 95% loan to value.  So in essence, someone could put 5% down on a home priced at $491,450 with only a slight bump to the rate.  Remember that jumbo loans require 20% down and typically have a rate bump of .25-.375% above the Fannie rates.  So this is a nice option.

Also, and probably even better news than the Fannie loan limit increase, is that FHA is also increasing their loan limits.  The new limit for the Nashville MSA (which now includes Maury County) is $466,900.  So with a 3.5% down payment, someone could buy a property at $484,000 and still do a maximum FHA loan.  This becomes an even bigger benefit for a buyer with a sub-720 credit score (and dramatically for a sub-700 score).  So keep that in mind when you have a client with minimal down payment but who qualifies for close to $500,000 in price.  These options could come in handy – and we always have the combo option available (where we keep the first mortgage at the Fannie limit and do a second mortgage up to 90% so that a buyer can buy a more expensive home and only put 10% down (versus taking a jumbo loan and putting 20% down).  You are welcome to call me if further explanation is needed.

Lastly, I want to touch on rates very quickly.  Hopefully the jump in rates post-election wasn’t a shock to anyone – we’ve been discussing it for several months.  The 30 year conventional fixed rate jumped about .75% in the 2 weeks after the election.  The big question now is whether or not we are done with the rate jumps.  My personal opinion, and this is based solely on instinct and how the charts read from a technical standpoint, is that we will see rates hanging between 4% - 5% throughout 2017.  I think we’ll push 5% by summer and then drop back down into the mid 4’s by year end.  But I definitely believe that the sub 4% rates on conventional loans are likely a thing of the past.  Not to worry – sub 5% rates should not slow down our market at all.  It will be another very good year for real estate in Middle Tennessee!

The New Fannie Mae Home Ready Program is Awesome!

Fannie Mae has a new program out and it is a homerun!  Granted, it may not fit everyone, as there are potential income limits depending on where the property is located. But for those folks that fit within the income limit and are looking to put minimal down (program goes up to 97% loan to value), it could be perfect for them.
Here are the highlights:

• Pricing – when the credit score is 680+, there are no pricing bumps (so someone borrowing 97% with a 680 credit score could in effect get the same rate as someone with a 760 score putting 20% or more down).  Today the rate would be 3.625% for a 30 year fixed with no points, as an example.
• Mortgage insurance – the coverage for this product is 30 basis points lower than a typical 97% loan to value (for those with a 680+ credit score, the MI is cheaper than FHA on a monthly basis and has no up-front MI like FHA does).  The monthly mortgage insurance is cancelable when the proper loan to value has been reached after paying it for two years (so just like any other conventional loan) – unlike the MI for an FHA loan that is permanent.
• Down Payment – Only 3% is required and it can be a gift.  There is no minimum investment from the borrower required.
• Seller contributions are allowed for closing costs and prepaids.
• Income limits – depending on the location of the property, there will likely be income limits.  It is completely driven by the census tract of the property being purchased, so each property has to be looked up individually.  For properties falling within a designated census tract, there is no income limit (you’d be surprised – there are more in Nashville than you think, particularly in areas like the Nations that are up and coming). If the property is not in a designated census tract, the income limit is 80% AMI (average median income) which for most of our area will be $53,520 annually.
• Property must be a single family residence for the buyer to be eligible for 97% financing.
• The buyer does NOT have to be a first time homebuyer.  But they can’t own any other property at the time of closing.
• Condominiums follow standard Fannie guidelines for approval (so doesn’t have to be on FHA list for qualification).

Here is a good comparison for someone with a 720 credit score buying a home priced at $200,000 comparing FHA to Home Ready:

Down payment:  FHA - $7,000Home Ready - $6,000
Payment (P&I and MI):  FHA - $993.75Home Ready - $997.91
The loan amount is less on Home Ready versus FHA ($194,000 versus $196,377 due to FHA’s up-front MI premium) thus less to pay off when time to sell.  And if the buyer keeps the property long term, he/she has the opportunity to get out of the monthly MI and lower the payment (in this case by $113 per month).
Granted, FHA is still a great program and is a super option for our buyers – particularly with credit scores between 620 and 680 or when income exceeds the Home Ready limit.  But for those that fit the income limit (or house in designated census tract), have good credit and want an option with minimal down, Home Ready is definitely worth a look.

First Time Homebuyers - Are We Asking the BEST Questions?

 was asked this week by a national publication to help answer the question “What are the best loan programs for a first time homebuyer?”  I gave them my opinion, but came to the conclusion that this really isn’t the best question that needs to be asked. Most first time homebuyers get so wrapped up in trying to maximize their purchase that they lose sight of how that affects their day to day and financial future. The 2 best questions to ask are these- How is this purchase going to affect my budget? And what is my exit strategy?

Most people in general don’t seem to have a budget. Money simply comes and goes with the hope that there is more coming in than going out. First time homebuyers therefore, are more interested in where the home is located, how big it is, what the amenities are and its curb appeal. These are all very important things, but how the payment will fit their budget is the thing that is going to be most life impacting.

I’ve written on this topic before, but as a brief recap, I personally believe it is critical to establish a monthly budget where ALL monthly expenses total an amount that is no more than 80% of the monthly net figure. This allows for a comfortable cushion that permits any individual to give or save up to 20% of their bring home pay every single month. What kind of value could we as real estate and finance professionals add to our clients if we had this in mind throughout our work? Can we accept the challenge of finding the house that meets their wants within the proper boundaries of what’s best for their budget? That is real care and concern for the success of the people we serve.

The next step is to have an exit strategy for any purchase. Both the home specifics as well as the financing are critical to this part of the equation. It is just as important to consider the home’s desirability by the general population as it is determining how well it fits the immediate needs of the current buyer. For a first time homebuyer, the likelihood of them staying in the home until retirement is unfathomable. Most don’t stay in the home more than 5-7 years. So considering the ability to sell in the future needs to be of utmost consideration in the purchase now.

I’m encouraged to be working with individuals as great as you all reading this blog. Together we have the opportunity to help our clients succeed financially. And as you know, the right home purchase, especially for a first time buyer, is a huge part of that equation.

Why TRID is Really a Good Thing

Let me say first that I get the challenges that we are going to face once the new rules go into place.  Getting the HUD (or I guess to use updated terminology, the Closing Disclosure) into the buyer’s hands three days before closing is going to require all of us to really step up our games.  But why is that a bad thing?  Shouldn’t we always be looking for ways to get better – particularly in the way we serve our customers?  And isn’t giving a buyer more time to review the numbers to the biggest financial investment that he or she is going to make, a good thing?  Personally, I probably would have set the number at 1 or maybe even 2 days that the closing disclosure should be delivered prior to closing, as 3 days is probably a bit excessive.  But in principal, I agree with this direction and think it is a good thing for our borrowing clients.
And speaking of what is good for the customer, I personally believe that the CFPB really got this one right from a disclosure creation standpoint.  We all know that when the government gets involved, specifically when their intent is to make things easier for the borrowing public, it normally goes in the opposite direction.  We need to look no farther than their first attempt at making a mortgage lender’s Good Faith Estimate better for the borrowers.  It even confused me when it was originally rolled out.  But this time, I think the powers that be have hit a home run.  The Loan Estimate (which now replaces the Good Faith Estimate and Truth in Lending disclosures) is much easier to follow and better explains to a buyer what their costs will be and does so in a format that is much easier to understand.  And the new closing disclosure is equally impressive from an ease of understanding standpoint.  And best of all, it mirrors the Loan Estimate.  So now instead of having a HUD-1, which clearly spells out the costs, but is in a completely different format than anything the buyer has seen to that point, the new Closing Disclosure follows the same format as the Loan Estimate.  So the client is not seeing something for the first time at the closing table, and trying to figure out how it matches what they’ve been provided.  Below are examples so you can see exactly what I'm talking about.

Personally, I’m on board with these new changes.  I think it is great for our customers and that it will make us better at what we do.  Those that can’t step up to the challenge just won’t get the business.

TRID Closing Disclosure (1)

TRID Loan Estimate (1)

A Loan Program You Need in Your Arsenal

I’m talking about USDA.  This is a phenomenal program and if you are not familiar with it, it’s time that you get well acquainted.  It may be somewhat of a niche program, but for the right buyers, it is a game changer.  I have four of these loans in process right now and every customer that is getting this program is thrilled. For example, I locked one in last week at 3.25% on a 30 year fixed with a $232,000 sales price in Mt Juliet, paid a 1% lender credit to help with closing costs, and got the seller to contribute $3,500 plus title.  The buyer is getting this home for no money out of pocket and a payment based on a 3.25% rate.  I’m still a little giddy thinking about what a great deal it is.  Below are the main highlights and drawbacks (although I should probably just call them parameters versus drawbacks).

Benefits:

• Requires no money down
• Seller can pay closing costs and prepaid items
• Credit qualifying is very reasonable
• Rates are phenomenal
• Monthly mortgage insurance (called a guarantee fee) is cheaper than FHA by 35 basis points

Parameters:

• Must be in a designated area (rural property)
• Household income limit (most of our MSA is $75,650 per year)
• Can’t own another home (don’t have to be a first time buyer, just can’t own another home at closing)

To find if a specific property is available, simply go to http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do, click “single family housing” under the Property Eligibility tab and type in the address.  You can also zoom out from this spot and see the areas that are eligible (anything that is not in the shaded area is eligible).  With properties so difficult to find in the city limits, it might be worthwhile for your buyer to look a little further out (Spring Hill, Mt Juliet, Thompsons Station, parts of Nolensville, Fairview and Pegram are just a few that might surprise you).  You might just find a diamond in the rough – and get them a great loan program at the same time!

What You Can Do To Help The Mortgage Process

This month, we’ve had two different clients that didn’t get their closing package until the day before closing and the HUD wasn’t ready until a few hours before the closing. Starting in August, these loans wouldn’t even have been allowed to close (new rules we addressed in our update a few weeks ago where we explained that lenders will be required to provide the final HUD to buyers three days in advance of closing). It is my team’s responsibility to get loans processed timely and make sure closings happen efficiently and I own that responsibility. There is nothing more displeasing, and stressful for all involved, than when there are last minute issues that have to be addressed the week of closing. But we are all on the same team (mortgage loan officer, borrower, seller, agents and attorney) and everyone wants the same thing – an efficient on-time closing.

For the mortgage process to work, accomplishing the end goal, there has to be cooperation from all involved. In both of these scenarios where issues were still being addressed at the last minute, we did not get timely help from our borrowers, following instructions and getting documents provided to us – and one of those deals was a three week turnaround from application date to closing date.

We have an incredibly efficient process and we communicate very clearly from start to finish. We encourage timeliness in every facet.  But if we don’t have full cooperation from our borrowers when it comes to providing documents and returning disclosures, we are limited in how quickly we can make progress. What can you do to help? Here are a couple of suggestions:

• Let your clients know how important it is to provide all documents requested and the importance of providing them quickly.
• Encourage them to respond quickly to any follow up requests and to sign and return disclosures immediately.
• Remind them that they are responsible for obtaining homeowner’s insurance and to go ahead and get that set up the week their contract is accepted.
• Provide the final contract as soon as all signatures are obtained.
• Order a timely home inspection. We typically hold up the appraisal until the inspection is complete and acceptable. So the sooner the inspection is done, the sooner the appraisal can be done.
• Make sure the closing attorney is either on the contract or identified soon after contract acceptance.
• Go ahead and schedule closings (time and date with the attorney) well in advance of the week of closing.

These are just my thoughts on a couple of things that I believe will assist the mortgage process. I’m open to any suggestions you may have as well – and this goes for my end too. It’s our job to get to closing on time and as efficiently as possible. When we work together to this end, it is a win-win for all. An encouraging word from you requesting a timely response from your buyer regarding all things mortgage related, can go a long way to making the mortgage process much smoother.

Welcome Home!

One of the cool things about working for F&M is that they participate in the FHLB (Federal Home Loan Bank) of Cincinnati’s Welcome Home program. This may be one of the coolest programs out there for low to moderate income buyers.

Welcome Home grants are used to fund reasonable down payments and closing costs incurred in conjunction with the acquisition or construction of owner-occupied housing. The grants are limited to $5,000 per homebuyer. All funds are reserved for specific homebuyers purchasing specific homes and cannot be transferred to other homebuyers or to other homes, and the funds are on a first come, first served basis.

Welcome Home funds will be available for reservation beginning at 8AM ET on March 2, 2015, and will remain available until all funds have been reserved. The funds are typically completely reserved (thus exhausted) by early April, so there is a narrow timeframe to take advantage of this. Once the funds are exhausted, FHLB will no longer accept requests for funds. Here are the basic eligibility requirements:

• Applicants do not have to be first-time homebuyers. However, all first-time homebuyers must complete a homebuyer counseling program.
• Income limits are based on 80% median income for the appropriate county.
  • For Davidson and surrounding counties, 1-2 person families must have household income of less than $61,440
  • For Davidson and surrounding counties, 3+ person families must have household income of less than $71,680
• Homebuyers must contribute at least $500 of their own funds toward down payment and closing costs (60% of these funds may be received as a gift).
• Must be used for primary residence and one to four unit properties are eligible
• Funds are to be used for reasonable down payment and closing costs
• Funds must be used in conjunctionwith a government loan (like FHA, THDA, VA or USDA; but not 203K)
• There is no repayment required of the funds if the property is retained for at least five years.  If property soldinside of the five year retention period, the loan must be paid back.  However, 20% of the initial loan balance is forgiven each year.  So if the property is sold in year three, for example, 60% of the initial grant must be repaid.
• If earnest money is paid and reflected on the HUD, the buyer may not receive that back through the use of these funds.
• The review period for the grant can take a couple of weeks, so quick-turn contracts will not work with this program.

Click HERE to view the 2015 guidelines for the program if you are interested.  Feel free to call with any questions.

It's Back!

For several years I’ve been recommending to anyone with a decent credit score that they do whatever they can to come up with a 5% down payment to avoid FHA financing. As the mortgage insurance charged by FHA continued to become more and more expensive, that type of financing became somewhat of the “new sub-prime” loan for those with minimal down payment and poor credit scores. However, with the introduction of the new monthly fee for mortgage insurance being charged at 85 basis points versus 135 basis points (see my update from two weeks ago – it goes into effect January 26th), FHA is back in business!

FHA has once again moved to the forefront of viable loan options for first time buyers and move up buyers with minimal proceeds coming from selling their current home. If FHA continues to price their loans competitively from a rate perspective, an argument can be made for anyone with a smaller down payment to consider this option over a conventional loan. For the past several years, the 30 year fixed rate for an FHA loan has been around .5% better than a conventional 30 year fixed. So right now, someone with good credit can get a conventional loan at 3.75% or an FHA at 3.25%. If the loan amount were $150,000 for each, the P&I would be $42 cheaper on the FHA due to the lower rate. For the very best credit scores, the MI factor is still around 30 basis points higher on FHA versus a 95% conventional loan, so for the same loan amount, the borrower would pay $37 more for the FHA loan. FHA still wins by $5 – and this is for borrowers with the best credit scores. As the credit score gets lower, the impact to both the rate and the MI for conventional is significantly greater than FHA. FHA only requires 3.5% down and for the most part, offers more lenient underwriting guidelines than conventional loans.

Fannie and Freddie made big announcements back in the fall that they’d be rolling out new 97% loan options this year. I can assure you that the rates and MI costs for those higher loan to value loans will be greater than what they are at 95%. With the new change FHA has made, it may render Fannie and Freddie’s 97% loans pretty insignificant.The one major argument that is still in favor of a conventional loan is that the monthly mortgage insurance can be removed at some point in the future (minimum of two years), whereas the FHA monthly mortgage insurance payment is permanent. But in most cases, it is at least 4-5 years down the road before that is possible on the conventional loan, and the average first time buyer isn’t in a home much longer than that anyway.

And don’t forget that FHA loans are assumable (on a qualifying basis). If rates go up in the next few years, even if only to the 5.5 - 6% range, how attractive might a house be to a buyer if he/she can assume the existing loan at 3.25%? Something else to think about...

Oh, one more thing – you might suggest to anyone that purchased a home in 2013 or 2014 using an FHA loan, to consider refinancing that loan to take advantage of the lower MI.

Who Would You Lend Money To?

Today we are going to look at why down payment and credit don't really matter. To drive home the point, who would you rather lend money to?

A) First time home buyer, getting a gift for the down payment (because she has no savings), who has a 650 credit score with a debt ratio of 45% based off of the income she receives from the job she has been on for 3 months since graduating from school... OR

B) Someone, who after being in the same line of work for 20 years, decided to started a business of her own, who has 50% to put down, an 800 credit score and cash reserves available to pay the loan off 5 times over...

I can promise you that if it is my personal money that is being lent out in this situation, I’m loaning my money to Ms. B! But guess what – if Ms. B tries to get a loan through the usual suspects (Fannie, Freddie, FHA, VA, etc...), she is getting declined while Ms. A is getting approved.

In the effort to continue easing credit restrictions on mortgages, everyone who matters (Fannie, mortgage insurance companies and even Congress) seem bent on re-establishing the 97% conventional loans. I’m not opposed to this and believe that when underwritten properly, good loans can be made to buyers who only have 3% to put down. But what I continue to be amazed at is the lack of effort to help those who have great credit and good down payment (20% or more), but lack the appropriate “documentable income”, qualify for financing.

I realize the pundits will say that it was all the stated income “no doc” loans that got us in trouble. But I’d argue that it was really a combination of giving those types of loans to borrowers with shaky credit and/or minimal down payment. When someone has great credit, there is a significant statistical improbability that he/she is going to walk from their loan. Combine that with a sizable down payment of 20% or more and the chances of default are almost negligible. When the downturn comes and real estate values decline a little, it’s the borrowers who only put 3% down that are going to be under water – not likely the ones that put 20% or more down.

I’m glad to see that there is an effort being made to soften credit standards. It is the natural pendulum swing from the extreme back to the norm. I’m just curious when our law makers will realize that the combination of great credit and good down payment count for something – even when the income doesn’t fit into the qualifying box.

Best Deal in Town

We just closed a deal this week where the buyer bought a $200,000 priced home with only $300 out of pocket and got a 30 year fixed rate at 3.25%. How in the world was that possible???

He got a USDA loan. I mentioned in an update a couple of weeks ago how USDA has expanded their lending territory from a geographical standpoint – including all of Wilson county and now even including small sections of Davidson county that boarder outlying counties. While I realize that this program only applies to people wanting to buy in these areas, and having income that fits within the household limit (which for most of the counties around middle TN is $77,200 per year), it is a program that you should definitely be familiar with.

In the case referenced above, my buyer’s agent was able to negotiate a contract where the seller paid the buyer’s closing costs. USDA allows the buyer to obtain 100% financing, so that combination created the ability to get our client into the property for virtually no money out of pocket. The monthly fee that USDA charges for “mortgage insurance” (they call it a guarantee fee) is less than 40% of what FHA charges and the rates are fantastic.

Click the link below to learn more about income eligibility and property eligibility. There might be an opportunity here for a client that could surprise you.

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Credit Alert! - Deposit Accounts

Last month we had a dilemma arise, but learned a great lesson that we want to pass along. We had a client that we were working with to help him get his credit score improved. We ran an analysis and determined that if he paid a credit card down, we could get the improvement we needed in the score. When he actually paid the card down and we re-ran the credit, the score did not improve as much as we had anticipated. The issue was that the week before, he had opened a deposit account with a local credit union and they pulled his credit when they opened the account. He had no clue they were going to do this so he had not told us about it either. The additional inquiry on his report resulted in the new score being 10 points lower than what our analysis reflected it would be. We wound up having to pay more down to get his score where it needed to be.

When you tell your clients not to do anything credit related when they are in the purchase process (we have talked before about the need to counsel them on not opening any new debts and not even having credit checked during the mortgage process), you may also want to let them know that even opening a deposit account, where all they are doing is putting money in the account, could result in a credit inquiry. Fortunately in our case, we had time and the client had the extra money needed to pay another debt down and get his credit score where it needed to be. But that might not always be the case.

Always remind your borrowing clients that they need to intentionally avoid anything that would result in a new credit item or a new inquiry during their mortgage process. It can cause delays, additional documents needed, and in some cases could negatively impact the score and affect the ability to obtain financing.

My Client Loves the House, Except...

Have you ever had a client almost love a house, but would really want to buy if it just had that one thing that’s missing? Have I got great news for you.

With our new Cornerstone Renovation loan program, your clients can buy a home and renovate it at the same time! It doesn’t matter if the renovation job is big or small. You can add a bedroom or just replace the kitchen counter-tops. Your client can get that repair done that the seller is unwilling to make, or just improve the house in conjunction with the purchase. Either way, this program works.

Another great feature- this is a conventional loan. No mortgage insurance is required if the loan to value is 80% or less. If a larger loan to value is needed (up to 95%), conventional mortgage insurance applies versus FHA. For borrowers with excellent credit, this is a huge advantage. This program works like a 203K, but is a Fannie Mae program – so conventional guidelines apply versus FHA. The loan to value is based on the acquisition cost (sales price plus renovation costs) or appraised value – whichever is less.

Highlights:

• One loan and only one closing
• Loan to value up to 95% on owner occupant properties
• Second homes and investment properties allowed
• Up to 6 months of housing payments can be financed if house is not habitable during construction (if supported by appraisal)
• Good for room additions, foundation work, in-ground pools, decks, and any permanently-affixed interior or exterior renovations that add value to the property

Call me if you have any questions!

If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor

The Week Ahead
This week, the focus will remain on the Middle East and Ukraine. Increased tensions in either region likely would cause a larger flight to safety. In the US, the Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Tuesday. CPI looks at the price change for finished goods which are sold to consumers. Existing Home Sales also will come out on Tuesday. New Home Sales will be released on Thursday. Durable Orders, an important indicator of economic growth, will come out on Friday.

The Week That Was
Geopolitical events were the primary influence on mortgage rates again last week, while the economic data had little impact. After a quiet weekend, investors were willing to take on a little more risk early in the week. Shocking news on two fronts caused an abrupt reversal on Thursday, however, and mortgage rates ended the week just slightly higher.

When a conflict breaks out which could affect global markets, investors generally respond with a "flight to safety". Uncertainty created by the threat of escalation causes investors to reduce the level of risk in their portfolios. This typically involves shifting from stocks to relatively safer assets such as gold and bonds, including mortgage-backed securities (MBS).

Heading into the previous weekend, investors were concerned about the possibility of an escalation in the conflict between Israel and Gaza, so they shifted to safer assets. When there was little change in the situation early last week, investors unwound these positions, pushing rates higher. Then on Thursday, Israel announced a ground offensive in Gaza and a Malaysian passenger plane was shot down in Ukraine. These events caused investors to quickly return to safer assets, offsetting much of the earlier rise in rates.

In the US, there was mixed news from the housing sector. The National Association of Home Builders (NAHB) Housing Market Index revealed that builder confidence jumped sharply in July to the highest level since January. Less positive, the Housing Starts data released last week, which covers the month of June, showed a decline of 9% from May. This data can be quite volatile from month to month, though.

Navigating Mortgage Insurance

I'm finding that more and more customers are opting for financed mortgage insurance on conventional loans. When a borrower has a very good credit score, there's only about a .25% addition to the interest-rate, even on a 95% loan, to forgo the monthly MI payment. So, for example, someone borrowing $200,000 on a 95% conventional loan would pay $1,013 for principal and interest at 4.5% and another $90 for mortgage insurance, for a total of $1,103 not counting taxes and homeowner's insurance. The same person could take a rate that is .25% higher and have a payment with no monthly MI payment. The principal and interest would increase to $1,043 per month, but with no mortgage insurance payment, the total is $60 less per month.

Obviously, the main advantage of financing the MI is a lower monthly payment. The other significant advantage is a little more interest to deduct from a tax perspective. The main disadvantage is that the borrower now has a permanent rate that is .25% higher than it would have been had they taken the lower rate and paid the monthly MI. Most mortgage insurance payments are only required to be made for two years and then only until the loan is paid down to 80% of the home's current value. So at some point the mortgage insurance can be dropped which would leave the borrower with a payment that is a little less long-term, taking the monthly mortgage insurance payment option.

The key is finding the break-even point of how long someone would need to stay in the home, paying on that loan, to determine which option works best. That is where we come in - to advise clients on how to structure this part of their loan so that they receive the most benefit. But it is important for you to understand that there are options.

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
This week, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for finished goods which are sold to consumers. Housing Starts will be released on Friday. Industrial Production, Philly Fed, and Consumer Sentiment will round out the schedule.

The Week That Was
Last week was a light week for economic data, and investors mainly focused on the central banks of the US and Europe. Comments from Fed and ECB officials remained favorable for bonds, and mortgage rates moved down a little during the week, to the lowest levels of the year.

At the beginning of the year, the consensus outlook was for a moderate pace of economic growth in the US and for mortgage rates to slowly climb higher. Despite a weather-related slowdown over the winter, the growth outlook appears to be on target, yet mortgage rates have moved lower this year.

There are several factors which have contributed to the decline in mortgage rates this year. One reason is that inflation has remained low. The major indicators, such as the Consumer Price Index (CPI) and the PCE index, show that core inflation is well below the Fed's target level of 2.0%, and it is expected to remain low in coming months. Expectations for future inflation are a major factor in setting mortgage rates.

The conflict in Ukraine is also favorable for mortgage rates. During periods of uncertainty, investors typically shift to relatively safer assets, increasing the demand for mortgage-backed securities (MBS). Another influence has been the expectation that the European Central Bank (ECB) will begin a bond purchase program similar to the one used by the Fed over the last few years. The expected added demand for bonds from the ECB has pushed down rates around the world.