Feb
10
File under small victory: Colorado cracks down on mortgage brokers
File under mortgage + home equity loan + checking account : Aussie ARM can pay off
File under conforming loan limits: It’s still $417,000 in Denver and Colorado. California is a different story.
File under money from the Feds: Rebates, What you need to know
File under 16th & Court makeover: Adam’s Mark sale done
File under not a lopsided trade after all: Manning for Rivers
File under an interesting experiment: Due to Top Five Fridays I rank well for Mailman Newman
Jan
1
Super Jumbo Loan
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Editors Note: Due to the mortgage and credit crunch, Super Jumbo loans are more difficult to obtain. If you’re in need of a super jumbo mortgage in Denver, CO contact us to discuss your mortgage options.
Super jumbo loans are conventional home loans that exceed $1,000,000 (one million dollars)
The majority of super jumbo loans over 2 million dollars require at least two appraisals of the property being financed or refinanced.
The rate on a super jumbo mortgage is higher because the investor is taking on more risk. The risk of default on a super jumbo loan can more greatly affect the lender’s overall portfolio.
Lenders can require up to 2 separate appraisals for these types of loans.
Sometimes you can split the loan up into two separate loans making a first and a second mortgage on the property to accommodate lender requirements.
Many programs exist for borrowers looking for loans over one million dollars. A few of the options are 100% loans, stated income and no ratio options.
Because Super Jumbo Loans are not eligible to be delivered to FNMA or FHLMC, and can only be sold to other investors or held as portfolio loans, they always carry higher interest rates than Conforming loans.
A super jumbo mortgage is a mortgage request exceeding $650,000. A super jumbo mortgage typically has a rate 1/4% higher than your average jumbo mortgage.
Super jumbo loans will always be a little more restrictive on what they require, however funding is always available for any size loan. What sets the lending limits apart for these loans are the higher the amount you wish to borrow, the more restrictive the lending conditions are.
With the rising costs of homes, lenders have expanded their programs to meet the demand. Even with the low start rate Option Arm, you can finance up to 8 million dollars on some programs.
Although some lenders may define these loans as only those above $1,000,000 most lenders use the $650,000 breakpoint for pricing, marketing and underwriting. Remember, the term Super Jumbo Mortgage is used to describe mortgage loans exceeding $650,000 whereas a Jumbo Mortgage refers to loans which simply surpass Fannie Mae’s limits for conforming loans. Finding the right loan officer who understands what lenders concentrate on this market is key to finding the right program.
Jan
1
Qualifying ratios
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Ratios used to determine whether a borrower can qualify for a mortgage. They are based on a borrowers housing expense as a percentage of income and his total debt as a percentage of income.
Debt to Income Ratio or DTI can be improved by paying down liabilities with high monthly payments compared to the balance on the account. In some cases some of your debts can be excluded from the calculation of your DTI. For example if you have an auto loan and you have less than 10 payments left you can exclude this monthly payment from the calculation thus reducing your DTI.
There are several loan types that can help you if you have a high debt ratio with good credit. One is called a No Ratio loan: The Borrower’s source of income is verified, but the income amount is neither disclosed nor verified. The second type of loan is called No Income No Asset: The Borrower’s employment, income, or assets are not disclosed or verified. A third type of loan usually associated with FHA is the Streamline loan: No income documentation or disclosure is required.
When evaluating your Debt-to-Income ratio, the Back DTI plays a more important role than the Front DTI. The Front DTI is calculated by dividing the proposed housing expenses, also referred to as PITI, by the borrowers’ total gross income. Housing expenses or PITI is defined as the inevitable expenses incurred as a direct result of owning the subject property, such as mortgage payment, property tax, hazard insurance, (hence the acronym for Principal, Interest, Taxes, and Insurance), homeowner association dues, private mortgage insurance, etc. The Back DTI is calculated by dividing the borrowers’ total monthly obligations by the total gross monthly income. Total monthly obligations includes not only the housing expenses, but also all installment debt payments such as leased/financed vehicle and credit card payments. Most lender banks would allow a borrower’s Front DTI ratio to go above 45% if the borrower has no other obligations.
Qualifying ratios also called your debit to income ratios or debt load consist of your total verifiable gross monthly income divided by your new proposed payment, all your other monthly debits such as minimum payments on charge cards, auto loan or lease payments, student loans, consumer loans, child support and alimony.
A debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met. Qualifying ratios are guidelines, an excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit. Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA loan will allow for a higher debt load, reflected in a higher (29/41) qualifying ratio. The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner’s association dues). The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
Not all monthly debts/liabilities have to be taken into consideration when determining the amount of a borrower’s recurring monthly debt obligations. Such liabilities are known as contingent liabilities. Some of the most common that may be exempt under certain circumstances are co-signed loans, court-ordered assignment of debt, and loans secured by financial assets
Many mortgage lenders have thrown those old ratios out the window, approving household debt ratios in excess of 50% of income. If over 50% of your income is going to debt service you will be forced to either live a very shallow life with little or no funds for saving, investment or enjoyment, or, worse, are headed for a financial disaster.
Qualifying ratios are only a rough guidelines and underwriters consider many variables in their analysis. Many times, borrowers fall outside the guidelines, but have strong compensating factors that reflect low credit risk. Some compensating factors are history of savings, long-term job stability, a substantial down payment or excellent credit history will influence the decision to approve or deny a particular loan.
There are loan programs such as No Ratio and No Doc, that will basically avoid the debt ratio calculation for you. The only one that can make this decision, is the borrower. They are the person that will have to make the payments, with or without the calculation.
Automated underwriting can also bypass the typical qualifying ratios. Automated underwriting takes into consideration credit and assets and can give approvals for debt ratios or 50,60,or 70% or more.
The front-end ratio, or front ratio, compares your monthly pre-tax income with your house payment. The other ratio that lenders look at is the back-end ratio, or back ratio. This calculates how much of your pre-tax income will payments— such as auto loans, credit cards, go toward your house payment, plus all of your other monthly debt etc. It can be useful to figure out these numbers yourself and see if the house payment you have in mind may actually cause you undue financial risk.
Many times on a refinance loan the way to lower your ratios is to pay off debt at the time of the refinance, this reduces your monthly payments and in turn, your ratios.
Some lenders are stricter about qualifying ratios than others. Just being within the lender’s debt to income ratio limits is only one aspect of qualifying for a home loan. Most lenders will consider the overall financial picture. If everything looks good, a lender may allow you to carry more debt. When shopping for a new home, it is always wise to be pre-approved, so that you’ll know specifically what price range and loan payment fits your budget. Remember to be Pre-Approved, Pre-Qualified is just not enough.
How much house can you afford? That’s what lenders want to know when making their decisions about your mortgage. If you are having trouble qualifying for a loan program because of your ratios, contact us and ask about extending the term or discussing a temporary buy down to help you qualify.
Qualifying ratios can prevent purchasers from obtaining a home however there is an opportunity to use a 40 year mortgage to reduce the payment by extending the term and therefore create a more favorable qualifying ratio calculation.
Many lenders allow debt to income ratios to go as high as 55%. Meaning the new mortgage payments plus all existing monthly liabilities can be as high as 55% of the borrowers total gross income.
On conforming loans, you can still usually get an approval even if your debt ratios are higher than the set standards. Low loan to value ratios and lots of reserves can offset higher debt to income ratios.
Although your ratios may be high you can still qualify for alternative programs with higher ratios. For the most part a lender will look at what’s reported on your credit report to determine your ratios. The best thing for you to do is consult a Professional Mortgage Broker and have them look at your credit to see where your ratios are and what you qualify for. And remember that safe secure online forms from a Mortgage Website is the fastest way to achieve this.
Jan
1
Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Nonconforming loans usually incur a rate and origination fee premium.
With the emergence of new lenders and programs to the mortgage market on a weekly basis there is a loan program for just about anyone whether conforming or non-conforming. Just check with you online Mortgage Professional to see what you qualify for.
Conforming loan limits will adjust to $400,000 in most states in December.
A Non-conforming loan simply means a loan that is outside of the standard guidelines set by Fannie Mae and Freddie Mac (the two government-sponsored enterprises that insure loans on the secondary mortgage market). Non-conforming loans have no set guidelines and vary widely from lender to lender. But most often non-conforming loans are mortgages that have larger loan balances, require less documentation, and have flexible credit score requirements. These loans carry an additional risk to the lender and as such the rates are higher.
Non-conforming loans have less stringent rules on fees that can apply to your loan, so review the details carefully.
The demand for nonconforming loans is gaining strength at just about the right time. Its growing presence is throwing lifelines to a record number of perplexed homeowners facing higher sales prices or stiff documentation requirements.
Non conforming loans has strict loan-to-value guidelines.
Conforming loans are available now with Stated Income, Stated Assets or “SIVA”
A Non Conforming Loan is a loan with an unpaid principal balance or an unexpired term that exceeds lending limitations established by the principal purchasers and guarantors of the secondary mortgage market; the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association.
Jumbo loans are one type of non-conforming loans, due to the loan amounts exceeding the maximum limits adopted by FNMA and FHLMC. Besides exceeding the loan amount limits, loans can be non-conforming for other reasons, such as the borrower’s credit profile, income/employment situations, cash reserves, property type, etc.
Non-conforming loans typically have a higher rate and different requirements for your down payment.
Jan
1
Jumbo Loans
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Jumbo loans exceed the maximum conventional loan amount established by Fannie Mae and Freddie Mac. They are available as fixed rate mortgages, adjustable rate mortgages, or negative amortization mortgages.
These type of loans facilitate the high-end purchase of expensive homes, vacation homes, investment property and upscale luxury homes. They are very attractive for primary occupants or investors who want to leverage their assets.
For 2006 jumbo loans are home loans that exceed $400,000 for single family homes (amounts are higher in Hawaii and Alaska).
For duplex, the conforming loan limit for 2006 is $533,850, $645,300 for three-family residence, and $801,950 for four-family homes.
Jumbo loans that are sold to investors on the secondary market are not created by the quasi-government agencies Fannie Mae and Freddie Mac. Because of this, the investors perceive these loans as a little more risky and demand a slightly high rate of return. This is why the interest rates on Jumbo loans are normally .25% to 1% higher than their conforming counterparts.
2006 Jumbo loans will start at $418,000
The Jumbo loan limits can change at any time. To know what the limit is at currently, call your mortgage broker.
Jan
1
How much can I afford
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How much house can I afford is a very popular question among homebuyers. The main factor to determine this is your debt to income ratio, or DTI. Different lenders have different requirements and guidelines for what the maximum debt ratio they will allow. Most non-conforming, or subprime, lenders have maximum debt to income ratio limits around 50-55%. Some lenders have lower limits and some lenders have higher limits and through the use of some automated underwriting engines you may even be able to get approved with a DTI of 65%. How high your LTV is, the amount of money your borrowing compared to the purchase price or value of the home, can also affect DTI guidelines. The less money you put down usually the lower DTI that is allowed.
Getting approved beforehand is of the utmost importance so that you can find out how much home you can afford. There are many different variables that will affect how much home you can afford such as how much the property taxes are of the property that you find, whether the house you purchase has an association with and association fee, and how much you end up needing to pay for homeowners insurance. All of these charges will affect your debt to income ratios.
Depending on which loan program you choose will change the amount you will be approved for. Loans that have interest only periods will reduce your monthly payment, therefore allowing you the option of purchasing a more expensive home.
There are other loan programs that do not calculate ratios, called “no ratio” loans. These are very popular for those that may not be able to document all their income. Stated and no ratio loans are very popular programs. Some people although on paper can’t afford x amount, in reality they can truly afford it.
Other sites: Loan Officer | MIP | Investor Loans | Stated Income Loan| Pay Option Arm Calculator
Jan
1
Fannie Mae Explained
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Fannie Mae and Freddie Mac reduce the costs of borrowers, who meet the underwriting requirements of the agencies, and who need loans no larger than the largest mortgage the agencies are allowed by law to purchase. For 2006 the maximum is $417,000. It is raised every year in line with increases in home prices.
There is no company in America, taking bigger strides or that is more committed to providing lending for the purpose of expanding minority homeownership.
The Conforming Loan limits set by FNMA (Federal National Mortgage Association) for 2006 is $417,000 for single family residence, $533,850 for duplex, $645,300 for triplex, and $801,950 for quads. Hawaii and Alaska have Conforming loan limits 1.5 times higher than the continental U. S. Mortgages with loan amounts higher than the conforming limits set by Fannie Mae are referred to as “Jumbo Loans”.
These loans offer the best rates for borrowers. You do not need perfect credit to qualify and they also will take very high debt to income ratios, sometimes as high as 65%.
Jan
1
Collections
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Frequently asked questions on collections:
Q: Can I still get a home mortgage loan with open collections showing on my credit?
A: Yes you can
Q: How do I get these collections removed from my credit?
A: Accurate negative items reported on your credit can be reported on your credit for 7 years.
Q: How come only some collections report to my credit record?
A: Each creditor, collection agent, lender, etc… can choose to report items to your credit report or not. Some will report not report to any credit repositories, some to only 1 credit repository, some will report to 2 repositories, and some will report to all 3.
Q: Do medical collections negatively affect my credit score?
A: All collections can negatively impact your credit score.
Q: I have heard paying off collections is worse than letting them be so is it better to pay off the collections or should I just leave them alone?
A: This is a very tricky situation and should be approached on a case by case situation. While you should always pay off true debts that you owe money for, sometimes it may be better to wait until after you have obtained financing for a home and sometimes you may need to pay collections off beforehand. Please consult a mortgage professional to find out what will help you most right now and to map out a financial plan.
Q: I cant afford to pay the collections off, what can I do?
A: You can call your collection companies and see if you can get them to lower the amount owed. This is very common and is highly recommended before paying off any collection. Many collection agents will bargain with you and some may even go down to 50% of the original balance. These questions are just a small sampling of some of the questions that are asked everyday by homeowners and people looking to buy their first home. Please contact your personal mortgage advisor today to find out more information about credit, collections and financial planning.
It is important to note that when you contact a collection agency and barter down a payoff amount that it will show on your credit report as “settled less than amount owed”. If an account has just gone into collections, try contacting the original creditor and paying them directly. You may be able to negotiate fees and finance charges being “removed” and then paying the debt in its entirety. Make sure you get a letter from the creditor stating the debt has been paid in full.
Not only will your mortgage advisor have answers and resources available to answer any questions, they will also have trusted relationships to recommend for your home purchase, your credit issues and your over-all financial goals.
Not all collection accounts need to be paid off. In many cases when buying a home or refinancing, the only items that need to be paid off or addressed are those items that appear on title. This is not a conforming guideline, but nonetheless is a loop-hole around having to pay them off at the time of buying or refinancing your home.
Repairing your credit, or restoring as some like to put it, is best done by a professional company. Your mortgage broker will refer you to a reputable company that can remove items like collections from your credit file. As a general rule, if it can go on your credit, it can come off too. The 7 year rule is only the maximum amount of time a derogatory can stay on your credit file.
Most subprime and Alt-A lenders will ignore open medical collections completely. Also most of these aggressive lenders will over look a certain dollar amount of collections that were opened in the last 12 months. And most collections older then 24 months will be ignored by most subprime and Alt-A lenders.
Some lenders allow all collections, judgments etc to stay open, as long as your score meets the criteria. If you have re-established credit and have a score in the upper 500’s, you can still qualify for 100% financing while having open, old collections. Contact us now to have a broker analyze your situation .
The new allowable limits for collections on your credit report is $5000. If your credit report show $5000 or less you may not have to pay them off. If it is over the $5000 then all of the collections will need to be paid. If you are receiving a non conforming/subprime loan the guidelines vary greatly and you may not have to pay any off.
It is also important to keep in mind that updating credit reports can take some time. Even if you paid all your collections today, it could still take 30-45 days before this reflected on your credit report. The most important thing is to get every interaction with your creditors in writing. If your arrangements are not in writing, they may not mean anything.
Jan
1
Cash-Out Refinance
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Editors Note: Due to the mortgage and credit crunch, Cash-Out Refinances may be harder to obtain. If you’re in need of a Denver Refinance contact us to discuss your mortgage options.
With a Cash out-Refinance the money you get at closing can be used for many purposes such as future investments, College, or debt consolidation. Money can be used to pay off current monthly debt which could lower your personal Debt to Income ratio. Consult a Mortgage Professional in regards to how much you should extract from the equity built into your home.
You can get cash out through a first mortgage, a second mortgage or a home equity line of credit (helot). Some lenders will require that you stay within certain loan to value (LTV guidelines) for cash out. Conforming limits are 90% LTV and FHA cash out is limited to 85% LTV. Many subprime lenders will go to 100% cash out with good credit.
Whenever you take a decent amount of cash out from your home, your LTV (loan to value ratio) will probably exceed 80%. To avoid paying mortgage insurance on these loans, many borrowers split the amount borrowed into two loans, a first and a second. Typically, the first mortgage has a LTV of 80%, but there are loan programs where having the first mortgage at 70% LTV offers more favorable terms to the borrower. The lower the LTV ratio, the less risk the lender will have in offering you a loan.
FHA update on October 31, 2005 allowing for a cash out refinance to go as high as 95% LTV. Previously the guidelines only allowed for a maximum of 85% LTV. These changes will allow many borrowers to take advantage of the equity in there homes and still obtain low rate financing.
Taking cash out on a home refinance is one of the many factors a lender takes into account when evaluating the risk of the loan. In certain situations, taking cash out may cause the lender to perceive the loan to be of higher risk. This could result in a slightly higher interest rate or additional restrictions on qualifying for the loan.
Since payment on cash out refinances can be spread across over up to 40 years, it is often advisable to use the proceeds for investing in something enduring. Using cash out from home equity for Value adding home improvements or for financing a new business are excellent options whose benefits you will continue to reap long after the last payment is made.
Besides setting the maximum LTV limit with Cash-Out Refinances, some prime lenders also limit the maximum cash-out dollar amounts.
Some non-conforming lenders will allow cash-out up to 125% of the value of your home.
Cash out Refinances can help many people better their financial situations by improving their monthly cash flow. However, many of these borrowers after paying off high interest rate debts often find themselves in the same situation down the road because of a failure to control their use of credit. These people wind up being in a worse situation because now they have no equity in their home plus high interest rate debts to pay.
If you’re looking to take out unlimited cash out when refinancing consider a rate and term refinance of your first mortgage and a home equity loan second mortgage option. Taking cash out proceeds from your second mortgage allows you to get a better rate on your first mortgage.