Archive for Mortgage Guidelines
Bank Mortgage Lending Policies Appear To be Easing
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The tightening in mortgage-lending policies that characterized the last 3 years appears to be slowing.
According to the Federal Reserve’s quarterly survey of senior bank loan officers, roughly 1 in 10 lenders added mortgage qualification hurdles between April and June. It’s a huge departure from just 2 years ago when the mortgage industry was facing its first wave of challenges.
During that period, eight in 10 lenders added hurdles.
For mortgage applicants in San Antonio , this quarter’s Fed survey results signals that mortgage lending may have reached its limits of restriction.
Since 2007, mortgage guidelines have become increasingly restrictive. There’s extra scrutiny on assets and tax returns; employment history is given more weight; loan purpose matters. There’s a bevy of traits that can stand between you and an approval that didn’t exist a few years ago.
That said, lots of homeowners are still getting loans.
Verifiable income, good credit scores and equity are the “magic formula” and banks want to lend to good credit risks. And the best news for those that qualify is that mortgage rates are fantastic right now.
According to Freddie Mac, mortgage rates are as low as they’ve been in history.
So, if you’re among the many wondering if now is the right time to buy a home — or refinance one — remember that, although mortgage guidelines likely won’t get worse, mortgage rates probably will.
Yes, You Can Still Get A Mortgage If You’re Pregnant
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The New York Times ran an important story this week concerning pregnancy and mortgage approvals. Titled “Need a Mortgage? Don’t Get Pregnant“, the article discussed the difficulties that expecting and recently-expanded families are having with their mortgage financing.
NBC’s The Today Show picked up the story as well, as shown in the 3-minute clip above.
The crux of the issue is that maternity/paternity leave often leads to a change in household income and mortgage lenders will no longer assume one or both parents will go back to work full-time. The loss of income can raise a household’s debt-to-income ratio to unlendable levels.
Now, your loan officer cannot ask you about a pregnancy; such questions would be in violation of Equal Credit Opportunity Act. But he can ask if whether you expect your future employment and income situation to change. This would be a perfect time to broach the topic. And you should. If you’re found to have withheld employment and income information from your lender at a later date, it could result in an immediate loan denial plus a loss of earnest monies paid.
Across both pieces, though, the prevailing message is this: Families concurrently planning to (1) have a baby and (2) buy a home should be up-front and forthcoming with their loan officers. Financing is often still available for families expecting an addition — there’s just some extra paperwork though which to work.
Be prepared for that paperwork and you’re more likely to get your loan.
Loan Application Alert : Conforming, Interest Only Mortgages Guidelines Change Next Week
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If you plan to finance your San Antonio home with a conforming interest only mortgage, get your loan application submitted no later than this Friday, June 18.
Starting next week, Fannie Mae is clamping down on the popular loan product.
An “interest only” mortgage is exactly what its name implies — a mortgage for which the monthly payments consist entirely of interest with no principal reduction. Because there’s no amortization, payments are less costly on a month-to-month basis.
For example, assuming principal + interest payments at 5 percent, a $250,000 mortgage carries a monthly payment of $1,342. The payment on a comparable interest only mortgage, however, drops to $1,042.
That’s a payment difference of $300 and the size of the cost savings, not surprisingly, is the biggest reason why Fannie Mae is making its changes.
In its official announcement, Fannie Mae says it wants the give the interest only option to “borrowers who are in a position to choose it as a financial management tool” rather than allowing homeowners use it as an affordability tool for their budgets.
Going forward, there are new minimum standards for interest only home loans.
- Applicants must have a 720 credit score or better
- Applicants must have at least 24 months of reserves
- The property type may not be a 2-unit, 3-unit or 4-unit
- The property must be a primary residence, or vacation home
Furthermore, only purchase and rate-and-term refinances are eligible. Cash out refinances are prohibited.
Interest only home loans aren’t for everyone, but if you plan to finance with a Fannie Mae mortgage and interest only is your preference, get your loan application submitted as soon as possible. Starting Monday, approvals will be tougher to come by.
Fannie Mae’s Loan Quality Initiative : Repulling Your Credit Just Before Closing
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A new loan quality initiative from Fannie Mae is making it harder for San Antonio home buyers and refinancing homeowners everywhere to close on a mortgage.
Beginning June 1, 2010, with all new applications, Fannie Mae wants lenders to verify that borrowers have not taken on new debt during the underwriting phase of the mortgage.
If new debts are found, the mortgage is subject to a re-underwrite and a possible turndown.
For Fannie Mae, the goal is to reduce the number of loans that go bad because of new, non-disclosed debt. Lenders have the freedom to verify in whatever manner they wish, but in most cases, the verification process will amount to a credit re-pull made just prior to closing.
The underwriters will be looking for 3 things in particular — even after your loan is approved.
First, your updated credit report will show your current credit card bills and minimum monthly payments. Those numbers will replace your original numbers made at the time of application. If the debts exceed a certain threshold, your loan will be denied.
Second, underwriters will be looking at your updated credit score. If your FICO has dropped below minimum lending standards, your loan will be denied. Or, you may be subject to a new loan-level pricing adjustment.
Loan level pricing adjustments are mandatory loan fee based on your credit score.
And, lastly, underwriters will be looking at your credit report’s Credit Inquiry section. The goal is to see if you’ve been applying for credit elsewhere. Underwriters can use this information at their discretion.
Fannie Mae’s Loan Quality Initiative is just one more way that the government-backed group is trying to improve its loan pools. Unfortunately, it’ll mean more turndowns for mortgage applicants.
Therefore, take extra care of your credit between the time of application and the time of closing. Don’t buy new cars, don’t buy new appliances, and — most definitely — don’t open new credit cards. Be extra safe with your credit because a mortgage application that’s supposedly cleared-to-close can be revoked at the eleventh hour.
When in doubt, talk to your loan officer about what may or may not trigger the Loan Quality Initiative. Your loan approval is at stake.
The Right Way To Take A Cash Gift For Downpayment
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As lenders tighten mortgage guidelines for San Antonio home buyers, minimum downpayment requirements are increasing. Several years ago, you could finance a home with nothing down. Today, most conventional mortgages require at least 10 percent.
Anecdotally, guideline changes have led to an increase in the number of home buyers accepting cash gifts from family.
Gifts are allowed in most cases but the problem is, if you don’t accept the gift in a “lender-friendly” way, the mortgage underwriter could reject it, and negate it.
You can’t just deposit a cash gift into your bank account. You have to follow a series of steps and keep records.
- Provide an acceptable gift letter signed by all parties
- Provide documentation of the gifter’s withdrawal of funds via teller receipts
- Provide documentation of the giftee’s deposit of funds via teller receipts
Lenders require these 3 steps for two basic reasons. First, they want to make sure that the cash gift is “clean” (i.e. not laundered). Second, they want to make sure the gift is really a gift and not a loan-in-disguise.
It’s why lenders typically require that the loan application be accompanied by a signed, dated letter.
For example:
I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].
This is a gift — not a loan — and there is no expectation of repayment.
Signed,
[Signature of gifter]
As an additional step, home buyers receiving cash gifts should make sure that gifted funds are not commingled at the time of deposit. If the cash gift is for $10,000, therefore, the bank’s deposit slip should indicate that a $10,000 deposit was made — nothing more, nothing less. Don’t add a random $100 deposit to the transaction, in other words. The $100 deposit should be a separate transaction.
It’s also worth noting that gifting funds between family members can create both legal and tax liabilities. If you’re unsure about how donating or receiving a gift may impact you, call or email me directly. If I can’t help you with your questions, I can refer you to somebody that can.
Your Mortgage Approval Isn’t Final Until It’s Funded
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A mortgage approval is never final until it’s funded.
A host of things can “go wrong” while your home loan is underway. Some are in your control, many more are not. And just being aware of some potential pitfalls could help save your loan down the road, and your peace of mind today.
MSN Money ran a summary piece on the topic titled “10 Things That Can Kill A Home Loan“.
It’s an excellent article because, unlike most “get approved” articles that advise against things like buying a car before closing, or opening a bunch of new credit cards, the MSN Money piece addresses more uncommon factors that can lead to a similar loan turndown.
For example, a home may be unfundable if it’s unsuitable for human habitation — a condition you may not discover until after a thorough home inspection’s been made. Broken windows, lack of plumbing, and/or major foundation damage are all deal-breakers with a lender.
Either fix the home prior to closing, or don’t close at all.
Homes in “declining markets” have danger spots, too. Especially for conforming mortgage applicants with less than 20% equity.
Because of how private mortgage insurers operate, some homes carry tougher, ZIP code-based PMI eligibility requirements. As a mortgage applicant, it’s important to understand this because you may be PMI-eligible in one neighborhood, but not in another.
There’s others ways in which a mortgage approval can go bad, too:
- You’re self-employed and your income was lower last year versus the year prior
- Your tax return shows large amounts of unreimbursed employee expenses
- You failed to return required paperwork to the lender within a reasonable time frame
Mortgage approvals are delicate and, despite an improving economy, lenders still operate with caution. Talk with your real estate agent and your loan officer and put together a game plan.
The best way to beat the mortgage system is to know the rules before you start to play.
