Mortgage News

Higher Rates Could Derail The Plans Of Many Buyers

February 13, 2018 by admin

Many Pundits Predict 5% Rates By Year’s End

Mortgage rates ended last week at a 4 year high, and are poised to move even higher. The timing could not be worse, as the usually busy spring housing market kicked into gear early this year amid higher home prices and strong competition for a record low supply of homes for sale.

The average rate on the popular 30-year fixed is now right around 4.5% , still low when looking historically, but buyers over the past six years become accustomed to rates in the sub 4% range. Mortgage rates last hit 5% back in 2011.

A 5% rate would cause more than a quarter of today’s home buyers to slow their plans, according to a Redfin survey of 4,000 consumers at the end of last year. Just 6% said they would drop their plans to buy altogether. About one-fifth of consumers said 5% rates would cause them to move with more urgency to purchase a home, fearing rates would rise even further. Another fifth said they would consider more affordable areas or just buy a smaller home.

Unlike during the last housing bubble in the mid 2000s, mortgage lenders today are required by new regulations to examine potential borrowers with greater scrutiny. Higher mortgage rates may mean some borrowers on the margins will not qualify for the size of the loan they need or want.

Wallingford PA Real Estate – Wallingford, PA 19086

Mortgage Insurance – What Do PMI And MIP Stand For?

November 15, 2017 by admin

Mortgage insurance is required for borrowers that do not have at least a 20% down payment for conventional loans and for all FHA loans. It is bought and paid for by borrower, but it exists to protect the investor should the loan go into default.

Depending on what kind of loan you get, you will pay for mortgage insurance in different ways:

Conventional Loans:

If you are obtaining a conventional loan your lender will arrange for mortgage insurance with a private company, hence the name Private Mortgage Insurance (PMI).

PMI rates vary and range between 0.3% and 1.2% of the loan amount on an annual basis. PMI rates depend on several factors:

PMI will cost less if you have a larger down payment, and vice versa
The higher your credit score, the lower your PMI premium.
If you live in a market with declining property values, your PMI premium might be higher.
The riskier the loan is to the lender, the higher your PMI.
If the financed property will be owner-occupied your PMI premium will be lower than if it is an investment property

FHA Loans:

When you obtain a Federal Housing Administration (FHA) insured loan the mortgage insurance premiums are referred to as Mortgage Insurance Premium (MIP). Premiums are paid to the Federal Housing Administration and mortgage insurance is required for all FHA loans regardless of the down payment.

When you obtain a FHA mortgage you must pay an upfront premium of 1.75% of the loan amount. That premium can be paid at closing or it can be rolled it into your loan amount, which increases principal and interest payments up by $8 to $10 a month for every $100,000 being borrowed.

In addition to this upfront premium you will also pay an annual premium that is added to your monthly mortgage payments. Depending on your loan’s size and term, this expense ranges from 0.80% to 1.05% of the loan amount for loans with a term greater than 15 years.

For example a borrower who is purchasing a $100,000 home and is putting down the minimum down payment of 3.5% would pay $1,688.75 as an upfront premium – 1.75% of the $96,500 loan amount. On an ongoing basis a borrower would pay $84.44 monthly which amounts to $1013.25 annually at the highest premium level.

How Long Does A Borrower Pay Mortgage Insurance?

Conventional Loan With PMI:

To remove PMI you must have at least 20% equity in the home. You can request the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home’s original appraised value. When the balance drops to 78%, the mortgage servicer is required to eliminate PMI as required by Homeowners Protection Act of 1998.

An independent appraisal must be conducted before a lender will cancel any mortgage insurance policy.

FHA Loan With MIP:

Not any good news here. Borrowers must pay annual insurance premiums for the life of the loan, regardless of your loan to value ratio. Refinancing into a conventional loan is the only way to eliminate MIP.

Wallingford PA Real Estate – Wallingford, PA 19086

When To Consider A FHA Loan

November 14, 2017 by admin

FHA loans present a viable borrowing alternative to conventional loans for potential home buyers. Congress established the FHA in 1934 during the Great Depression as a way for lower income borrowers to purchase a home. The FHA became part of the Department Of Housing And Urban Development in 1965. FHA loans are mortgages insured by the Federal Housing Administration (FHA). The FHA is not a lender, but an insurer. Because of their relaxed restrictions, they can sometimes offer borrowers a path to home ownership that a conventional loan may not.

When looking at loans, you may want to consider an FHA loan to avoid the more stringent requirements that often come with conventional mortgages. Since the FHA insures the loan lenders are able to loosen the qualification requirements since they are no taking on the risks associated with a borrower defaulting. A conventional lender will demand a higher credit score, larger cash down payment, and a lower debt to income ratio.

You should consider a FHA loan if:

You Have Less Than A 5% Down Payment
FHA loans require as little as 3.5% down.

Your Credit Score Is Less Than Perfect
If your credit score is less that 620 an FHA loan may be the most viable option for you. In some cases lenders will consider a credit score as low as 580. If your credit score is below 580 a 10% down payment is required.

You Are Funding Your Down Payment Entirely Via Gifted Funds
FHA guidelines allow for 100% of your down payment to be gifted. Conventional loans cap the amount of gift money that can be used as a down payment.

Your Debt To Income Ratio Is High
Your debt to income ratio (DTI) is a major determining factor in how much you can borrow. DTI is the sum of all of of your monthly debt payments divided by your monthly income. The FHA is much more lenient on maximum DTI ratios. The DTI for an FHA loan is typically 45%, but can be as high as 50% in some cases. Conventional DTI ratios carry a DTI maximum of 43%.

You Have Had A Foreclosure Or Short Sale In Your History
FHA guidelines are much more lenient than conventional loans with respect to the waiting time prior to applying for a loan following a foreclosure, short sale, or deed in lieu of foreclosure by a potential borrower. The period following the discharge of a foreclosure and a new FHA application can be as little as 3 years as opposed to 7 years for a conventional loan.

Wallingford PA Real Estate – Wallingford, PA 19086

Mortgage Lenders Will Want To Know Where That Cash Came From

January 27, 2016 by admin

All Funds Musr Be Sourced Properly During The Mortgage Process

Mattress Money Can Cause Problems If Not Sourced Properly

Many people keep “mattress money” at home on hand for various purposes – according an American Express survey 53% of us keep some cash in a secret location at home. When you are applying for a mortgage that is where that money will most likely have to stay. Unexpected cash deposits that are inconsistent with your banking history will be under an underwriter’s magnifying glass during the approval process. Cash deposits are one of the biggest problems borrowers face when trying to secure a mortgages today. They can derail your mortgage application very quickly.

Why is that?

The lack of the a borrower’s ability to verify the source of unexpected cash deposit raises red flags with all lenders. All money must be properly “sourced” and verified in order to be used for the purchase of a home. The lender may question whether the money has been borrowed or if even it has been obtained from illegal sources. Lenders must adhere to strict government regulations aimed at preventing money laundering via real estate purchases.

If you are lucky enough to have cash on hand that is stashed away under your mattress there is a simple solution to make it eligible to be used when purchasing a home. Deposit that money far in advance of the start of your home search – 60 days to 90 days out. This is know a “seasoning”. The depositing of money that may or may not have a viable explanation of it’s source will not be questioned if it has been in your account for that length of time.

Mortgage underwriters leave no financial stones unturned these days, but as long as they are turned over properly by making sure all monies are documented properly you can make sure the process goes as smoothly as possible.

Wallingford PA Real Estate – Wallingford, PA 19086

New Mortgage Disclosure Rules Now In Effect

October 6, 2015 by admin

Wallingford PA Real Estate - Wallingford PA - HUD-1

The Familiar HUD-1 Settlement Statement Is Being Replaced

New mortgage disclosure rules are now in effect that are destined to have a major impact on the closing process. The new rules that went into effect October 3 known as the TILA-RESPA Integrated Disclosure (TRID), merges the old HUD-1 Settlement Statement, the Good Faith Estimate, and the Truth-in-Lending disclosure form into two new closing forms: a Loan Estimate and a Closing Disclosure.

The goal of the new rules is to provide consumers with more time to review the total costs of their mortgage prior to closing.

Under the old rules the HUD-1 settlement form could be revised and delivered up to the day of settlement. Under the new TRID rules the new mortgage forms must be finalized and in the borrower’s possession three days prior to closing. If that deadline is not met, borrowers will receive another re-issuance of the closing disclosure and wait another three days.

The new regulations stem from the “know before you owe” initiative of the Consumer Financial Protection Bureau (CFPB) which was created in 2011 after Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. The CFPB consolidates Federal consumer financial protection authority under one agency with the stated goal of serving as the watchdog over the markets for consumer financial products and services.

It is predicted that these changes could initially cause delays in closings as mortgage lenders and title companies familiarize themselves with the new regulations. Thirty-day waits are now common in some markets, 45 to 60 day waits may become more common as the industry navigates the changes.

Under the new rules, borrowers will receive a loan estimate, including information like the interest rate and monthly payment, within three business days of applying for a loan. If they apply to several lenders, the offers will be displayed in a similar format so the borrowers can compare terms like fees and interest rates.

The Loan Estimate and the Closing Disclosure replace four existing forms: the Good Faith Estimate and the initial Truth-in-Lending disclosure provided when you apply for a loan, and the HUD-1 Settlement Statement and the final Truth-in-Lending form issued just before closing.

The Loan Estimate form includes the interest rate, the fees for both lender and third-party services such as appraisals and title insurance, estimated closing costs and whether the borrower has the right to shop for services like title insurance. It also lists any prepayment penalties or future expected changes in interest rates. Lenders will be required to provide this form within three days of a loan application.

The Closing Disclosure includes the final figures for closing costs, prepaid taxes and insurance, payments, fees and mortgage terms, plus what costs are being paid by buyer and seller and, for the first time, how much is paid to each real estate company involved in the transaction.

Wallingford PA Real Estate – Wallingford, PA 19086

Conventional Loans:

FHA Loans:

How Long Does A Borrower Pay Mortgage Insurance?

S. Clark Kendus