Use your real estate commission as your down payment

 Loan Guidelines, Residential Mortgage  Comments Off on Use your real estate commission as your down payment
Jun 022016
 

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

by G. Steven Bray

Today’s news spool is going to cover a couple loan guideline changes that may help you in your business.

As I reported several weeks ago, FHA is changing its treatment of deferred student loans to be consistent with other loan programs. If a student loan appears on a homebuyer’s credit report without a corresponding payment, we can use 1% of the loan balance as the effective payment for qualifying the buyer. Previously, we had to use 2% of the balance. FHA originally said the effective date for the change was 6/30, but it recently clarified to say that lenders MUST start using the lower percentage on 6/30. We can (and we will) start using the lower amount immediately.

If you’re buying a home, and you’re representing yourself in the transaction, Fannie Mae and Freddie Mac will allow you to use your commission on the transaction for a conventional loan.

Fannie is a bit more restrictive. While you can use the commission to cover closing costs, you have to demonstrate sufficient funds to close not counting the commission, and your commission counts towards the limit on interested-party contributions. This is the percentage (like 6%) we quote you when you ask, “How much can the seller contribute towards closing costs.”

With Freddie, the commission can count towards your funds to close. Additionally, you can use your commission to cover closing costs and down payment, and it does not count towards the contribution limit. Thus, you can get the seller to contribute the max towards your closing costs and use your commission to cover the rest.

FHA changes may hurt your first-time homebuyers

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on FHA changes may hurt your first-time homebuyers
Oct 072015
 

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

by G. Steven Bray

The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

That said, probably the biggest change is a mostly positive one. The old handbook allowed for a lot of underwriter discretion. With FHA suing lenders to buy back defaulted loans, many lenders had instructed their underwriters to adopt conservative interpretations of the guidelines. In contrast, in the new handbook the guidelines are more black and white. Very little is left to underwriter discretion.

Unfortunately, some of those black and white rules are even more conservative than what underwriters were applying before the new handbook and are likely to prevent some marginal homebuyers from qualifying.

A change likely to impact many first-time homebuyers concerns student loans. With the previous rules, FHA would allow us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered in a borrower’s debt ratio.

Student loan servicers often don’t report a monthly payment for a deferred loan, and the new rules say we must use 2% of the loan balance if the servicer won’t report a payment. Fortunately, loan servicers typically will provide a payment based on the loan’s current balance if the borrower asks, and this payment typically is closer to 1%.

The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the loan balance if the servicer won’t report a monthly payment.

FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

Next week we’ll look at several other significant changes.

Will Millennials save spring home buying?

 Real Estate Market, Residential Mortgage  Comments Off on Will Millennials save spring home buying?
Apr 222015
 

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

by G. Steven Bray

As we enter the spring home buying season, could the millennial generation finally move out of their parents’ basements and become the home buying generation? Recent data are conflicting, but there is reason for hope.

Millennial homebuyers have several factors working against them. Wages have stagnated since the financial crisis while home prices have recovered in many markets favored by young adults. The result is reduced affordability. Student debt also is a problem for many Millennials. Recent surveys corroborate the anecdotes – Millennials are worried about their debt loads. Even if they could afford a home, they’re more interested in reducing debt than taking on a mortgage. Finally, those debt payments make it harder for Millennials to save for a down payment. As a result, homeownership among young adults has dropped more than 6 points to 36.8% as more Millennials are doubling up with friends or just living with parents to save on expenses.

But they’re also choosing to rent, and that may be an impetus for some to consider home buying. Home ownership is at a 20+ year low, whereas rental occupancy is at a 20+ year high. The result: Rents are rising quickly in many of the same areas Millennials prefer. So, while rising home prices make a buying home less affordable, in most areas, home buying is still a better financial decision than renting.

Two other recent trends suggest we could see home buying pick up. First, wages finally may be growing. While the data trend is only a few months old, recent announcements by several major employers that they’re raising their minimum wage suggest the trend may continue. Second, recent census data shows that household formation finally is gaining steam. While most of those new households are renters, those rising rent payments could encourage more to consider a home purchase.

Encourage fence sitters to try our Rent vs. Buy calculator on our Web site. It’s eye-opening how much more expensive renting can be.

Tapping the Bank of Mom and Dad

 Owner-occupied, Residential Mortgage  Comments Off on Tapping the Bank of Mom and Dad
Apr 152015
 

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?

Qualifying for mortgage easier with new student loan guidelines

 Loan Guidelines, Residential Mortgage  Comments Off on Qualifying for mortgage easier with new student loan guidelines
Feb 022015
 

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

by G. Steven Bray

Given all the media coverage about student loan debt keeping millennials out of the home purchase market, I thought it would be good to review some updated loan guidelines from Fannie Mae and USDA concerning this type of debt.

One important point to remember is that both loan programs treat deferred student loans the same as loans in active repayment, meaning we have to include the loans in our debt calculations.

Also, the guidelines recognize that income-based and graduated repayment plans, which have become popular, may not provide an accurate estimate of the loan’s impact on the borrower’s finances because the payment may rise. As a result, the guidelines require that we use a fixed percentage of the loan balance in our debt calculations.

On a very positive note, the updated guidelines cut that fixed percentage from 2% to 1% of the loan balance. This is a big deal because it reduces the impact of student loan debt by 50%. Further, if the actual payment is less than the 1% calculation, the guidelines state that we can use that payment, but only if it fully amortizes the loan. If the actual payment is greater than 1%, we must use the actual payment.

While USDA already has implemented the new guidelines, the changes won’t apply to Fannie loans until 4/1.

Changes for the USDA mortgage program

 Loan Guidelines, Loan Programs, Owner-occupied, Residential Mortgage  Comments Off on Changes for the USDA mortgage program
Aug 252014
 

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.