1. Walk-Out Basements, for example, how a walk-out basement is valued in an appraisal including square footage and bedroom/bathroom count.
Friday
Appraisal Seminar for MI Realtors Demystifies Appraisal Process
I was excited about the success of my first, quarterly SW Michigan Realtor seminar with guest speaker, MI and IN appraiser, Dennis Black. Dennis and I spoke about the ways in which lender's appraisal requirements have changed since 2010 and how to minimize the effects of the new appraisal rules on purchase transactions. The top five topics included:
1. Walk-Out Basements, for example, how a walk-out basement is valued in an appraisal including square footage and bedroom/bathroom count.
2. Geographical distance of comps including max distance and justifying comps outside maximum distance parameters.
3. Timing of comps including max allowable time and how exceptions are handled.
4. Distressed sales comps and if these are used in normal sale appraisals.
5. Single family properties with acreage exceeding 10 acres and how this is handled in appraisals and accepted by conforming lenders.
I will be offering seminars on a wide variety of real estate topics on a quarterly basis. If you would like to participate in these seminars to gain insights in support of your business, please email me at dianep@anmtg.com.
1. Walk-Out Basements, for example, how a walk-out basement is valued in an appraisal including square footage and bedroom/bathroom count.
Monday
How Will New Mortgage Regulations Affect You?
Starting in January of 2014, the mortgage market could be in for some major changes. In an effort to protect consumers, the Consumer Financial Protection Bureau (CFPB) has issued final rules for a “Qualified Mortgage” (QM), providing safe harbor for lenders who issue such mortgages. Mortgages that don’t qualify could expose lenders to lawsuits from borrowers. These changes may not please all borrowers.
Highlights:
• New mortgage rules are designed to ensure that borrowers can repay
• Jumbo loans will be harder to qualify for; interest-only & balloon loans no longer offered
• Homeowners will get renewed protections when they fall behind on payments
Features of the QM loan are:
1. No Excessive Upfront Points and Fees. QM places a limit on additional charges of 3% of the total amount borrowed.
2. No toxic loan features including: no interest only loans, no negative amortization loans, no terms beyond 30 years, no balloon loans.
3. Limits on Debt-to-Income Ratios. Debt-to-income ratios will be limited to 43% as compared to 45% currently allowed. A temporary exception will be granted for loans that are eligible to be sold or insured by Freddie Mac, Fannie Mae, FHA or VA. Consequently, the only loans subject to the 43% DTI limit would be jumbo loans (exceeding $417,000 loan amount). About 9% of jumbo loans issued in 2012 went to borrowers with DTI ratios higher than 43%, CoreLogic data show.
As reported by Bankrate.com, “The new mortgage rules won’t affect the majority of people seeking to buy a home or refinance their home loans because lenders have already tightened their lending standards since the financial crisis in 2008. But, analysts say that certain groups of borrowers will notice a difference. This is especially true for jumbo mortgage borrowers and self-employed borrowers who may need to jump through even more hoops to get a home loan.”
Attorney Robert Ledig reports, “It is possible that when the rule becomes effective in January 2014, lenders may be reluctant to make loans that do not qualify for the QM safe harbor. Non-QM loans will carry significantly higher litigation risks and may be more difficult to securitize. According to the bureau, non-QM loans would have amounted to about 22% of the market. Over time, it is possible that the new rule will result in a substantial reduction in the availability of mortgage credit.
Summary
The end result could be far fewer customized “portfolio loans.” Portfolio loans are those loans closed and serviced by commercial banks that are not sold in the secondary market. What does this mean for over 20% of current borrowers? You will need to work closely with your mortgage banker who will help find ways to fit unusual situations into the plain vanilla requirements imposed by the agencies. “We’ll just have to work even smarter and harder to get our borrowers the financing they need,” says Diane Pyshos, Senior Mortgage Consultant.
Photo Courtesy Of: Haydn Blackey
Highlights:
• New mortgage rules are designed to ensure that borrowers can repay
• Jumbo loans will be harder to qualify for; interest-only & balloon loans no longer offered
• Homeowners will get renewed protections when they fall behind on payments
Features of the QM loan are:
1. No Excessive Upfront Points and Fees. QM places a limit on additional charges of 3% of the total amount borrowed.
2. No toxic loan features including: no interest only loans, no negative amortization loans, no terms beyond 30 years, no balloon loans.
3. Limits on Debt-to-Income Ratios. Debt-to-income ratios will be limited to 43% as compared to 45% currently allowed. A temporary exception will be granted for loans that are eligible to be sold or insured by Freddie Mac, Fannie Mae, FHA or VA. Consequently, the only loans subject to the 43% DTI limit would be jumbo loans (exceeding $417,000 loan amount). About 9% of jumbo loans issued in 2012 went to borrowers with DTI ratios higher than 43%, CoreLogic data show.
As reported by Bankrate.com, “The new mortgage rules won’t affect the majority of people seeking to buy a home or refinance their home loans because lenders have already tightened their lending standards since the financial crisis in 2008. But, analysts say that certain groups of borrowers will notice a difference. This is especially true for jumbo mortgage borrowers and self-employed borrowers who may need to jump through even more hoops to get a home loan.”
Attorney Robert Ledig reports, “It is possible that when the rule becomes effective in January 2014, lenders may be reluctant to make loans that do not qualify for the QM safe harbor. Non-QM loans will carry significantly higher litigation risks and may be more difficult to securitize. According to the bureau, non-QM loans would have amounted to about 22% of the market. Over time, it is possible that the new rule will result in a substantial reduction in the availability of mortgage credit.
Summary
The end result could be far fewer customized “portfolio loans.” Portfolio loans are those loans closed and serviced by commercial banks that are not sold in the secondary market. What does this mean for over 20% of current borrowers? You will need to work closely with your mortgage banker who will help find ways to fit unusual situations into the plain vanilla requirements imposed by the agencies. “We’ll just have to work even smarter and harder to get our borrowers the financing they need,” says Diane Pyshos, Senior Mortgage Consultant.
Photo Courtesy Of: Haydn Blackey
Self Employed and Seeking a Mortgage? Don’t Despair!
A self-employed borrower is defined as someone who owns more
than 25% of a business and/or who receives a 1099. If the borrower falls into the “self-employed”
category, don’t despair! Diane Pyshos,
Sr. Mortgage Consultant, A&N Mortgage Services, recommends contacting your
mortgage professional to prequalify your income at least 6 to 12 months prior
to your need for a mortgage.
1. How can
you optimize self-employment income? Your
mortgage professional can perform three evaluations for you: (a) calculate income needed to pre-approve
your desired loan amount; and (2) evaluate your tax returns to determine your
actual income, based on underwriting guidelines; and (3) report the net income
shortfall to you and your accountant so that changes can be made to the next
year’s tax return. In many cases, small
changes with expense deductions can make the difference between qualifying for
the loan or not. “The IRS will never
mind reduced expense deductions resulting in a slightly higher income!” Diane
says.
2. What if
net income looks really low? “I know
this is hard to believe, but underwriters actually “add” back certain expenses
when calculating allowable income for underwriting purposes. Expenses such as “business use of home” and
“depreciation” can be added back to the adjusted gross income. Your mortgage professional should be able to
evaluate your tax returns before it
is sent through a formal application process thereby notifying you if there is
any income shortfall to meet your loan amount goals.
3. What
documents are required?
* Two
years personal tax returns with all schedules
* A
professionally prepared balance sheet and profit and loss statements for YTD
income since your last tax return was filed
* If
the personal tax return includes other income on Schedule E, two years corporate, SubS, Partnership, LLC,
sole proprietorship, SubS and K-1’s will be required for any entity in which
borrower owns 25% or more and K-1’s for any entity owned receiving K-1 income.
* Internal
Revenue Service Form 4506-T (which is usually prepared by your mortgage
professional). This allows lenders to
request tax transcripts
4. What if
the tax return shows lower net income in the most recent tax return vs. the
prior year? The lender will use the
lower income number. If your recent tax
return shows higher income than the previous tax return, the lender will
calculate a two year income average.
5. What if
the down payment will be coming from the business bank account? In order to use business funds for a down
payment, the borrower must own at least 51 percent of the business and a CPA
must state that taking money out will not negatively impact the business. Plus, the property must be
owned-occupied. Business funds cannot be
used to purchase rental properties.
6. Do
lenders require self-employed borrowers to have a higher credit score than W-2
borrowers? For conforming loans
(=/<$417,000), there is no difference in credit score requirements for
self-employed borrowers. However, for
jumbo loans (<$417,000), higher credit scores are required for self-employed
borrowers.
Luxury Homes Now More Affordable Than Ever
Jumbo
mortgage rates are inching closer to conforming mortgage rates -- what does this
mean for buyers of luxury homes?
With
lenders’ renewed confidence in luxury home values, “jumbo” rates have come down
dramatically and are nearly the same as “conforming” rate loans.
During
2008 and 2009, when lenders were nervous about the luxury home market, the
interest rate spread between a jumbo loan (>$417,000) and a conforming loan
(=/< $417,000) was 1.5%. The higher
jumbo rate, coupled with stricter down payment and underwriting guidelines,
paralyzed the luxury home market.
During
2012, the differential was .5%. Today, we
are seeing only a 1/8% rate difference in 30 year fixed rates between jumbo and
conforming loan amounts.
The
reasons for the shrinking interest rate spread are:
- Higher fees charged by
Fannie Mae and Freddie Mac are increasing the rates of conforming loans
- Demand for luxury homes
are on the rise resulting in more stable luxury home prices; lenders are more
comfortable with luxury home collateral
- Lenders are seeking to
build a customer base or cement established relationships with high net worth
clients
Although
the jumbo market we have now is very conservatively underwritten, it is the
best it has been in the past years. Some
lenders allow up to 85% loan to value with most offering up to 80%.
The
lenders are looking at the client in the jumbo loan sector and they see clients
with liquidity, strong earnings, and ability to withstand financial shock. Lenders are trying to find ways to cater to
these clients.
And,
that’s a good thing for jumbo borrowers right now.
Wednesday
Interest Rates Increase: Homebuyers need to act fast!
As of Wednesday, May 15, 2013, the 30 year fixed rate increased by .25% in less than one
week, responding to better than expected economic news. Weekly jobless claims showed a decline to
323K, the lowest level since January, 2008.
Weekly jobless claims measure the number of new claims for unemployment
benefits.
Also, April Retail Sales rose 0.1% from March, above the
consensus for a decline of 0.3%. If
consumer spending continues to remain healthy, it will reduce investor concerns
about a spring slump in the economy.
Will the Federal Reserve take the “training wheels” off the
economy? Economists are assuring
investors that the Fed will probably gradually withdraw their bond-buying
stimulus into 2014 and be ready to reverse this strategy if the economy starts
looking shaky again. Hopefully, we won’t
see a sudden, aggressive move in the Fed’s current plans.
If you are thinking about purchasing a home, it’s a great
idea to call me now to evaluate your purchasing power so that you can secure
the lowest rates possible!
I am happy to offer free consulting and evaluations anytime. Please call me at 312-909-9718 or email to
dianep@anmtg.com.
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