Category Archive: ‘Mortgage Qualifying’

Exotic Financing, 2019

Everyone who is financing a home purchase should strongly consider the standard 30-year fixed-rate mortgage.

Though I recommend you move every 6 to 12 months (it’s good for business) these days most people are in it for the long-term.  Even if you knew it wasn’t going to be a lifetime house, consider keeping it as a rental when you move.

But for those who have very strong income, or know they have an inheritance coming, a business or property to sell, or know their lucky Lottery numbers are going to pay off sooner or later, you may want to consider today’s version of exotic financing.

You should only take an alternative to the 30-year fixed rate if you had a solid plan to pay it off early.  Don’t get an ARM thinking you’ll refinance someday, because it’s likely you’ll never get around to it – the fixed rate loan will have a higher payment, and you’ll shrug it off.

Here’s a choice today for mortgages up to $1,500,000:

3.875% fixed rate at 1.25 points, or

4.375% interest-only for ten years, no points.

Let’s say you want to finance $1,500,000:

The 30-year fixed option is $7,054 per month, and will cost $18,750 up front.

The ten-year ARM is $5,469 per month for ten years, with no points.

A benefit of the regular 30-year fixed-rate mortgage is the principal reduction every month – it’s a forced savings plan.  After ten years, you will only owe $1,137,917, instead of the full $1,500,000 with the interest-only loan.

The ARM will feel like a fixed-rate loan with no payment change for ten years – which could lull you to sleep, and come back to haunt you 8-9 years from now.

Don’t take the 10-year deal just to get a lower payment. Take it because you know you have the ability to pay it off in the next ten years.

Landlord Loans

Higher prices, higher rates, slowing sales, and now easing loan guidelines? On non-owner-occupied properties?  Buying a rental property with 5% down is unheard of, and even with higher rents they are likely to negative cash flow:

Freddie Mac is consolidating its Home Possible program with its Home Possible Advantage Mortgages program. These programs offer greater flexibility and higher loan-to-value ratios (LTVs) than traditional mortgage programs.

The combined product will be called Home Possible Mortgages, and will closely align with the purpose and requirements of the previously-named Home Possible Advantage program, with some changes.

Beginning October 29, 2018, lenders will be able to offer Home Possible Mortgages to buyers with limited down payment funds. Under the consolidated program, eligible homebuyers will include:

• non-occupant buyers for mortgages secured by one-unit properties with LTVs no higher than:
  • 95% for Loan Product Advisor Mortgages; or
  • 90% for manually underwritten mortgages (non-occupant buyers were previously excluded from the programs);
• those who own other properties (buyers who own other properties were previously limited);
• buyers with super conforming mortgages (mortgages with high maximum mortgage limits for homes located in high-cost areas) when the mortgage:
  • is submitted and receives an “Accept Risk” classification through the Loan Product Advisor; and
  • has an LTV no higher than 95% (super conforming mortgages were previously not permitted);
• buyers with secondary financing, including home equity lines of credit (HELOCs), for most cases when the mortgage’s LTV is no higher than 97% (secondary financing was previously limited to 95% LTV);
• buyers using adjustable rate mortgages (ARMs), when the LTV is no higher than 75% (ARMs were previously not permitted); and
• buyers with a maximum 45% DTI for manually underwritten mortgages.

These changes are meant to both widen the pool of qualified homebuyers, and streamline programs for lenders’ ease of use.

Housing market risks broaden

By loosening the requirements for its Home Possible Mortgage programs, Freddie Mac’s hope is to encourage lenders to qualify more applicants, thereby increasing homeownership opportunities nationwide.

However, loosening requirements by allowing high LTVs, DTIs and ARMs makes lending — and by extension the housing market — riskier. For veteran real estate professionals, a growing presence of dangerous mortgage products and loose lending restrictions will sound familiar, as they all increased during the Millennium Boom and ultimately played a big part in the cause of the housing crash and 2008 recession.

Bridge Loans

Are you turned off by the e-buyer who wants to lowball your home’s value, and then knock off another 7% to 9%?  But you like the idea of having your equity available for the next purchase?

How about an old-fashioned bridge loan?

Joel arranged financing for a recent buyer of ours who changed jobs during the week of escrow closing – Joel re-verified employment and still closed on time. This was on 97% financing of a converted-apartment condo built in 1979.

Thanks Joel!

Freddie Mac To Compete With FHA

Freddie Mac’s underwriting also allows self-employed buyers to submit tax returns for one year only, instead of the customary two years’ tax returns.  I’m not sure if they will do that on this new program?

It’s been more than three years since Freddie Mac rolled out a conventional mortgage that only required a 3% down payment for certain borrowers.

But now, Freddie Mac is about to supercharge its 3% down program and launch a widespread expansion of the offering.

Freddie Mac announced Thursday that it is rolling out a new conventional 3% down payment option for qualified first-time homebuyers. What makes this program different is that there are no geographic or income restrictions.

The new program, which is called HomeOne, puts Freddie Mac in direct competition for mortgage business with the Federal Housing Administration, which also only requires 3% down on some mortgages.

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