Cool Tools News Spool

Category: Owner-occupied

  • RealtyTrac says more investors and less cash

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    RealtyTrac released an interesting report recently that showed the share of homes purchased by owner occupants dropped to 63.2% in the first quarter, the lowest level since 2011 when they started tracking the data. This is down from 65.8% last quarter and 68.6% a year ago.

    RealtyTrac considers anyone who has the property tax bill mailed somewhere other than the property address to be a non-owner occupant, so it could include vacation home buyers in addition to investors.

    Among non-owner occupants, a much smaller 44.7% were cash buyers, down from 61% a year ago. Institutional investors represented 3.4% of all buyers, down from 6.1% last year and the lowest share in 4 years.

    This suggests that smaller, more traditional real estate investors are becoming more active in the market. It also suggests that buyers are taking advantage of relatively easier credit requirements to use mortgage money to complete their purchases.

    Three of the top 5 metro areas for investor activity were in FL, and no TX cities made that list, which makes sense given that FL cities led the nation in REO sales. More interesting, I think, is the shifting focus of institutional investors. Memphis and Charlotte topped the list of markets having the most institutional investor activity.

    Click here for the full report.

  • Tapping the Bank of Mom and Dad

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    With studies showing millennials earning less than earlier generations of potential homebuyers, it’s reasonable to worry that they won’t be able to afford the down payment to purchase a home. With lower earnings, higher student debt, and higher rents, it seems unlikely they’ll have much left to save.

    A new study by loanDepot suggests another source may be available: the Bank of Mom and Dad. The study shows that 17% of parents of millennial-aged children expect to help them purchase a home in the next 5 years. Half of those say they’ll contribute towards the down payment. Interestingly, this number is lower than in past years. However, a larger share of parents says they’ll help their kids pay student loans or other expenses.

    Being an empty-nester, it surprised me that 22% said they would let their kids move back home to save money. Amd 20% said they’re likely to co-sign a loan for their children.

    One of the more interesting results of the survey concerned attitudes about parental assistance. While more than two-thirds of parents viewed their financial support as a gift, less than a third of the kids agreed. Does requiring naming rights for the grandchildren really negate the generosity of the gift?

  • New USDA maps effective Feb 2nd

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The long delayed new USDA maps go into effect on Feb 2. We talked about these news maps in my Sep 8th blog, which you can find in the archives. The main changes are around the Austin and DFW metros and amount the removal of some exurbs from eligibility. Remember that USDA bases eligibility on the date it receives a complete loan file. For most lenders, this will be a couple weeks after loan application. So, homebuyers need to act soon to beat the changes.

    USDA also implemented other significant changes to its rural development program at the end of last year. Some of the highlights are:

    – USDA increased the program’s monthly mortgage insurance rate, called the annual fee, from 0.4% to 0.5% of the loan’s balance. Even with the increase, the RD loan program still compares very favorably to FHA. Both should have roughly the same interest rate, but USDA requires no down payment and has lower monthly MI.

    – If a homebuyer can document that his current home no longer meets his family’s needs, he doesn’t have to sell his existing home as long as it isn’t financed with a USDA loan. Unfortunately, the homebuyer has to qualify with both house payments as USDA will not allow rental-income credit.

    – USDA will allow lenders to escrow at closing for minor repairs. This could increase the number of homes eligible for USDA financing. Check with the lender before you execute a contract as USDA doesn’t define “minor repairs” and some lenders may not be set up to handle escrowed funds.

    – Finally, the RD program now can be used to purchase homes with pools. However, the appraiser will be instructed not to attribute any value to the pool. Thus, unless the homebuyer has the funds to pay the difference between the appraised value and the contract price, it still may be difficult to use an USDA loan in these situations.

  • Fannie/Freddie bringing back 3% down mortgage

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    I guess FHFA Director Mel Watt was serious about allowing lower down payments. Fannie Mae announced today it immediately will start buying mortgage loans with down payments as low as 3%. I haven’t heard all the details yet, but let me tell you what I have seen.

    First, I don’t know of any lenders yet that are offering the loan program. That may take a couple weeks. And I wouldn’t be surprised to see significant credit overlays to make qualifying a little harder that what I’m going to summarize below. Lenders still are skittish of buy backs and figure homebuyers with little skin in the game are more likely to default.

    But let’s assume lenders step up. Fannie says it will accept credit scores as low as 620, but the program is only available to first-time homebuyers, being those who haven’t owned a primary residence in the past 3 years. I understand the program has income limits, but I don’t have details at this time. And, of course, the program requires mortgage insurance, but that shouldn’t be a problem as several PMI companies say they’re willing to insure the loans.

    Freddie also has announced it will resurrect a 3% down program, but it won’t start until 3/23. Freddie’s program will be more restrictive. It will limit the program to those who never have owned a home and will require homebuyer counseling. It also may require higher credit scores.

    Follow my videos for further details on the programs and for information about lender adoption.

  • New USDA mortgage maps could take effect in Dec

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    We talked a while back about the new USDA guaranteed housing maps and how the changes could impact suburban areas in Texas. Implementation of the new maps was delayed when Congress funded the government using a continuing resolution back in Sep. The continuing resolution expires Dec 11th, and the expiration ends the delay for the new maps.

    Or does it? Some folks in the real estate industry have suggested given the results of the mid-term elections that Congress will pass another short term continuing resolution and leave funding the government to the next Congress when Republicans will control both chambers. If that happens, these folks expect Congress to extend the current maps yet again.

    However, I think that’s far from certain. Recent media reports indicate Republican leaders are considering agreeing to fund the government for the remainder of the fiscal year rather than risk a game of fiscal chicken with the president that could result in a government shutdown.

    This issue is particularly urgent given that any USDA applications that haven’t been approved by the end of the month will have to start the application process again. If your customer is using a USDA loan and expects to close in the next month, pay attention to the loan status. If Congress doesn’t extend the maps, you could find USDA pulling the eligibility map out from under your contract.

    I’ve included a link to the USDA eligibility Web site at the end of my blog. From it, you can view both the existing and new property eligibility maps.

    USDA Eligibility Web site

  • FHA doing away with pre-payment penalty

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    For those with an FHA mortgage, an unpleasant surprise may await when they sell their homes. FHA charges interest one month at a time. That means even if the sale closes on the 15th of the month, FHA calculates the mortgage payoff through the end of the month. For a $200,000 loan balance, Uncle Sam is going to dip his hand into your seller’s pocket for another $400.

    FHA enacted this rule to protect investors who buy mortgage-backed securities, who currently have the right to demand full-month payments of interest even when a loan pays off at the beginning of a month.

    But this runs contrary to other government loan products and Fannie and Freddie mortgages. When the CFPB released its Qualified Mortgage rule, it labeled this practice a pre-payment penalty and instructed FHA to do away with it by Jan of next year for FHA loans to remain qualified mortgages.

    Well, not wanting to seem overeager, FHA will wait until the last minute to enact the change. Any FHA loan that closes after Jan 21, 2015 will prohibit this practice. When a borrower pays off the mortgage, the payoff will include only interest through the funding date.

    All I can say is finally. The industry has asking for this for years. The funny thing is that in its announcement concerning the change, HUD suggested it was only lender greed that caused these extra interest charges and that the change would “prohibit mortgagees from charging borrowers interest” after payoff. What a bunch of bull. You and I both know that this had nothing to do with lenders. It’s what FHA required. I wonder if our government ever will take responsibility for anything.

  • FHA says it won’t lower MI

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    A big issue of late for all real estate industry professionals has been the dearth of first-time homebuyers. Analysts have suggested a number of possible reasons for this from excess student loan debt to millennials’ unwillingness to make a commitment. Today, we’re going to discuss another possible reason: higher FHA mortgage insurance rates.

    In Apr, 2013, FHA raised its mortgage insurance rate for the 5th time since 2010. As we’ve discussed in the past, the changes have priced some homebuyers out of the market. NAR claims the higher rates prevented 125,000 and 375,000 renters from qualifying to purchase a home last year.

    The reason for the changes was simple. Due to lax loan standards during the last decade, the FHA Mutual Mortgage Insurance Fund was going broke. To shore it up, FHA figured it would raise prices. For homebuyers with good credit, the FHA MI rate is now more than double the rate offered by private MI companies. So, homebuyers who can cobble together a 5% down payment have moved over to conventional loans. Those who can’t are paying the higher FHA rate or sitting on the sidelines.

    Unfortunately, first-time homebuyers are those least likely to have down payment money, and recent analysis shows that the vast majority of FHA borrowers are first-time homebuyers. Thus, a logical conclusion would be that higher FHA MI rates are reducing the number of first-time homebuyers.

    FHA has indicated it has no intention of reducing its MI rates any time soon. The only relief we may see in the near term is a reduction for first-time homebuyers who receive homebuyer counseling. Longer term, industry pundits think FHA may finally reduce the rates once its insurance fund recovers to its Congressionally-mandated level. Watch for the FHA actuarial report later this year for FHA’s projection of when that will occur.

  • USDA RD changes coming Oct 1st

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    USDA is making some significant changes to its rural development (RD) mortgage program starting Oct 1st. If you don’t know the RD program, it’s worth learning more. The program requires no down payment and has much lower monthly mortgage insurance than FHA.

    The first change concerns that mortgage insurance. For all loan commitments after 9/30, USDA is increasing its monthly rate from 0.4% to 0.5%. That still makes it a bargain compared to FHA. For a $150k loan, the difference in total housing payment between USDA and FHA is more than $100. In fact, a homebuyer could get a $170k home, $20k more home, for the about same housing payment.

    But before you load your customer in the car to look at USDA-eligible properties, know that for homebuyers with good credit, FHA allows higher debt ratios than USDA. I’m hearing USDA will not accept a debt ratio above 48% whereas I’ve seen FHA approvals as high as 56%. On net, your customer may be able to qualify for more home with an FHA mortgage, but that comes with a higher housing payment.

    USDA bases the MI rate on the date it commits to the loan, not the date the homebuyer applies. If you have customers considering a USDA loan, they need to apply soon to beat the deadline.

    The second change concerns USDA property eligibility. The RD program targets “rural” areas, but rural includes many of exurbs of the major TX cities. The new maps carve off a few of those exurbs. The USDA eligibility Web site, which I linked at the end of my blog, lets you compare the new and old maps. The main changes I noticed were the expansion of ineligible areas in Pflugerville, Round Rock, and San Marcos in the Austin area and Denton and McKinney in the DFW areas. In addition, the ineligible area on the west side of Ft. Worth expanded significantly. San Antonio and Houston escaped mostly unscathed.

    USDA bases property eligibility on the date it receives the loan file. For most lenders, this will be a couple weeks after loan application. So, again, homebuyers need to act soon to beat the changes.

    USDA property eligibility maps.

  • Changes for the USDA mortgage program

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The USDA RD loan is a great option for homebuyers in more rural locations. The loan requires no down payment and has much lower monthly mortgage insurance than an FHA loan.

    USDA is implementing some changes this fall that may affect your homebuyers’ ability to use the program. The changes take effect Dec 1st.

    – First, USDA will change some of its property guidelines.
    — The 30% limit on the ratio of land to total property value will be removed as will the restriction against in-ground pools. I’ve seen no guidance yet on how USDA intends to handle rural properties with high land values.
    — Guidelines concerning outbuildings have been clarified. Outbuildings that could be used to produce agricultural income, such as a barn, cannot be included in the property value used to determine the loan amount. This guideline will apply whether or not the property actually is producing income.
    — Private wells and water systems generally will be considered acceptable, but they may require inspection or documentation that they meet health standards.

    – Second, USDA will change some of its credit standards.
    — At least one applicant must have a valid credit score, and the credit report must show at least 3 trade lines with at least 12 months of history. There is no indication at this time that USDA will allow alternative credit scoring, such as through the use of rent and utility account payments.
    — Additionally, USDA has it indicated that for student loans, it will use 1% of the outstanding balance if the loan doesn’t have a fixed monthly payment. This could affect homebuyers that have used graduated or income-based payment plans to lower their student loan payments.

    – Finally, USDA will limit seller contributions to 6% of the purchase price.

    USDA is also changing its guarantee fee and property eligibility maps. We’ll cover those changes next time.

  • Baby boomers seem slow to downsize

    Click here for a link to the Fannie Mae report.

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.