The Mortgage Porter

Your write-offs may impact qualifying for a mortgage

From my email bag:

My husband and I are in the process of looking for a lender we are negotiating an offer at this time. We are both paid with W2-s and fear that we will be asked for our tax returns since we have plenty of write-offs as we are in sales. In this case, will the lender look at our adjusted income on our tax forms instead of the yearly salary?  

The lender will most likely have to use a net-income when you have significant write-offs on your tax returns. Since you're in sales, depending on how you are paid (for example, if you're paid commission) the lender may request your income tax returns due to this very example.  

Even if you're paid an annual salary, the 4506T that lenders use on transactions to obtain tax transcripts from the IRS will reveal your write-offs and the lender will most likely require your tax returns and make the appropriate adjustments to your income. This is also true when qualifying for a refinance.

When you're completing your tax returns, you may want to keep in mind that what you report to Uncle Sam is also what the lender will be viewing when you're obtaining a mortgage.  Self-employed borrowers who appear to make little income on their tax returns may also find themselves being impacted with how large of a mortgage they will or will not qualify for.

If you're considering obtaining a mortgage anywhere in Washington state, I'm happy to help you!

Buying a $500,000 Seattle Home with 10% Down

I was recently contacted by a home buyer in Seattle who wanted to know what mortgage programs we have available for a sales price of $500,000 with a 10% down payment. With less than 20% down, the loan will probably have mortgage insurance unless they can find a Fannie Mae Homepath property.

Let's review some scenarios assuming the home buyers have excellent credit (scores over 740) and a 30 day closing with a loan amount of $450,000.  With a 10% down payment, the seller can pay up to 3% (Freddie Mac) or 6% (Fannie Mae) with a conforming high balance mortgage. Rates quotes are effective as of 5:00 pm on January 24, 2012.

Conventional 30 Year Fixed with Private Mortgage Insurance.

4.375% with a PIMI (principal, interest and private mortgage insurance) payment of $2543.03 and with closing cost of $3074 (apr 4.858).

4.125% has a PIMI of $2477.17 and will cost more in discount points with closing cost of $7988 (apr 4.686).

4.500% has a PIMI of $2422.58. The payment is lower due to the lower pmi rate since a portion of it is paid for "up front' as a "split premium" similar to FHA except at a much reduced cost. Net closing cost, after lender credit applied with rebate pricing is estimated at $5063, including the upfront pmi (apr 4.856).

For the above scenarios, it will take about 7 years for the private mortgage insurance to drop off of the mortgage payments, at which time, the home owner will benefit from having a reduced payment. When considering a second mortgage piggy back scenario, you may want to estimate how long you will have the second mortgage and what the cost will be over the life of the loan compared to private mortgage insurance.

Fannie Mae Homepath will require the buyers find a Fannie Mae REO property that is eligible for financing utilizing a Homepath mortgage. I just checked Homepath.com and found the most expensive home currently listed in Seattle is $449,000 (which you can actually purchase with as little as 3% down payment). Homepath Mortgages do not require an appraisal nor do they have private mortgage insurance. For the comparison purposes, the following quote is based on a $500,000 sales price with 10% down payment using Fannie Mae Homepath:

5.125% for a 30 year fixed with a principal and interest payment of $2450.19 and closing cost estimated at $2762 (apr 5.187).

FHA is an option for these buyers however I would only recommend it IF:

• buyers are considering allowing their mortgage to be assumed in the future;
• buyers are converting existing home into a rental since FHA requires less reserves than conventional financing;
• credit scores are lower

Here is how an FHA high balance loan would compare based on today's pricing:

3.750% for a 30 year fixed with a PIMI of $2513.91 with $2782.50 for closing cost assuming the upfront MIP is financed (apr 4.397).  

I am seeing sellers very open to paying for closing cost. I'm also hearing from my clients in the Seattle area that homes that are new on the market and not short sales have been moving fairly quickly.

If I can provide you with a rate quote or help you prepare for buying a home anywhere in Washington, please contact me.

Private Mortgage Insurance Options

Private mortgage insurance is what lenders may require when a borrower has less than 20% equity in a property. Private mortgage insurance (pmi) protects the lender against default, it does not protect the property owner. 

Private mortgage insurance (pmi) is often something that borrowers do their best to avoid because of the additional cost. However if the 20% down payment (or 15% down payment with a "piggy back" second mortgage) is not possible, a home buyers or home owner who is refinance may opt for pmi or an FHA insured mortgage. Over the past couple years, FHA insured mortgages have become more costly to the point where if a borrower can qualify with pmi, it is probably a more cost effective option. Private mortgage insurance is not only for home purchases, refinances may benefit from pmi considering how low mortgage rates are at the moment.

Many are aware of private mortgage insurance premiums being paid as part of their monthly mortgage payment, however I find that Seattle area home buyers often do not know about the "split premium" option which dramatically reduces the amount paid in a monthly premium.

Let's compare scenarios based on a sales price of $444,500 with 10% down payment with excellent credit scores of 740 or higher and debt-to-income ratios under 45%.

• The traditional pmi with the borrower paying monthly in their mortgage payment would be approximately $160 per month (0.48% of the loan amount/12). 
• A borrower could also opt to pay for the mortgage insurance premium in one lump sum (single premium) and not have it included in their mortgage payment.  Based on this scenario, the cost would be $4,680 (1.17% of the loan amount). A seller can pay for this closing cost or a lender can use rebate pricing to help pay this cost.
• Another option is the split premium borrower paid mortgage insurance. Similar to an FHA loan, there is an upfront mortgage insurance premium and a reduced monthly mortgage insurance premium. The amount of the upfront premium can vary and the lower it is, the higher the monthly premium will be (and vice versa). For this scenario, if we assume an upfront premium of 1% or $4000, the monthly premium would only be $43.33 (0.13% of the loan amount/12). Just as with the single premium option, the upfront premium may be paid for by the seller as a closing cost or with rebate pricing. 

Private mortgage insurance has risk based pricing that factoring various charactors of the borrowers such as:

• credit score
• loan to value
• program type and term of mortgage
• occupancy
• self employed
• previous bankruptcy
• location of property

If you have less than 20% down payment saved up to buy your next home or are considering refinancing anywhere in Washington, I'm happy to help.  I've been originating mortgages at Mortgage Master Service Corporation for the past 12 years and have been licensed since 2007. If you would you like a FREE rate quote for a home located in Seattle, Redmond, Bellingham or beyond, click here.

Explaining the "Letter of Explanation"

It's not unusual these days to have a lender request a "letter of explanation" from a home buyer or someone who is refinancing their current property.  I letter of explanation (or LOE) is often used to help provide more information to the underwriter or lender based on information that is disclosed on an application or credit report. LOE's may address anything from gaps in employment to inquires on a credit report and is intended to help explain or add support to the transaction. If a borrower has had an extenuating circumstance and is trying to have an exception made to an underwriting guideline, they may be asked to write a LOE.

When a borrower is asked to write a letter of explanation, they need to address what the situation was, why it happened and possibly, what has been done to improve the situation.  For example, if someone was unemployed for a while or had their income reduced. If you've had your credit checked in the last 120 days, be prepared to provide an LOE addressing each inquiry. The lender needs to know what the inquiry was for and if a new debt was incurred from each inquiry.

Sometimes lenders will require a letter to explain one's motivation for buying. This may sound silly to you, this is because of past cases of fraud, typically those involving occupancy. This request may be triggered when someone buys a smaller home than what they currently own as owner occupied or buying another home that is nearby (within 50 miles) of their current residence that they own. These circumstances can raise a red flag to an underwriter and if the property and transaction appear to be more fitting as an investment property than a primary residence, the underwriter may still want to treat the transaction as an investment regardless of how strong the letter is.

When you write a letter of explanation, consider that you are essentially writing this to the underwriter and your goal is to present a good case of why you should be approved for a mortgage. Be truthful, thoughtful, keep to the point and if you have any documents that may support your scenario, you may want to include it.  Letters of explanation are not an uncommon request in today's mortgage climate. 

First Seattle Snow of 2012

Here are a few photos from my garden in West Seattle. I ran out to take these photos moments ago when the snow was beginning to look like it was mixed with rain. As I write this post, we're back to big fluffly snow flakes.

 

 

 

 

 

This photo was taken by my son moments ago, as my husband is driving him back to Seattle U, on northbound I-5.

 

Stay warm and safe everyone!

LOCK IN SOON!! Mortgages will Cost More thanks to Temporary Payroll Tax Cut

UPDATE: Since publishing this post this morning, another major bank announced a significant increase in their extension fees as noted below.

If you obtain a new mortgage next year for a refinance or purchase (for any purpose) and it is securitized by Fannie Mae or Freddie Mac or insured by FHA, you're helping to pay for the recently passed payroll tax cut bill.

From the FHFA:

“On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011.  Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac( the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities. This requirement is effective immediately, meaning that the average guarantee fees charged in 2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011 and that this increase be remitted to the U.S. Treasury, rather than retained as reserves by the Enterprises.... FHFA will announce plans for further guarantee fee increases or other fee adjustments that will then be implemented gradually over the two-year implementation window, taking into consideration risk levels and conditions in financial markets..."

What I'm seeing from some of the various banks and lenders we work with ranges from announcements they're increasing their extension fees 0.25% 0.40% across the board and other lenders announcing fee increases to up to 0.5% to take effect in the next couple weeks. 

On a $400,000 loan, a 0.5% fee to interest rate increase means you'll be paying $2000 more for the same rate once the fee increases go into place!  

With a rate lock extension, currently the charge from one bank who has announced the price increase, 7 days cost 0.125% and now with the 0.4% add, the 7 day extension cost 0.525%.  Where an extension before would have cost $500 on a $400,000 loan, now it will cost $2,100 for the same seven days! This will force many borrowers to consider longer rate locks in order to avoid such a hefty penalty.

What can you do? 

If you are considering refinancing your mortgage, contact your local mortgage professional to discuss current rates and securing your lower (pre-fee) rate today. If your home is located anywhere in Washington state, I can help you.  

If you are buying a home and are in contract, but not yet locked, you may want to investigate locking.  

Whether you are buying or refinancing your home, make sure that the lock is for a long enough period to avoid possibly higher extension fees.

Different lenders have different guidelines and ways they're implementing their fee structures. One of the benefits of working with a correspondent lender, like Mortgage Master Service Corporation, is that I work with several different banks and lenders and can filter out who is offering the most competitive price for your program at the moment you are ready to lock.

If you would like a rate quote for your home located in Washington, click here or contact me.

Fannie Mae's Home Affordable Refi HARP 2.0 (DU Plus) Update on LTVs and Appraisal Waivers

You won't need the luck of the Irish to refinance you underwater home in the Seattle (also known as the Emerald City) or anywhere in Washington after Saint Patrick's Day. The weekend of March 17, 2012 is when the next phase of HARP 2.0 will be officially released. And you may not need to wait until March for your HARP refinance; many are taking advantage of lower rates and refinancing now!

Per Fannie Mae's Release Notes issued yesterday for DU Refi Plus - HARP 2.0, we'll have the following enhancements:

• No maximum loan to value ratio for fixed rate mortgages with terms up to 30 years
• 105% maximum loan to value ratio for fixed rate mortgages with terms greater than 30 years and for adjustable rate mortgages 

Even though Fannie Mae states the loan to value caps will be removed, it's also noted the appraisal waiver will be "updated to further increase the number of loan casefiles that are considered for the...waiver".   

This update states the following transactions will be "eligible for consideration" to have the appraisal waived:

• one-to-four unit properties;
• primary residence (owner occupied), second or vacation homes and investment properties;
• loans with a loan to value or combined loan to value (second mortgages) over 125%;
• attached (condos, townhomes) and detached properties.

You may not have to wait until March to refinance depending on how underwater your home is. I'm currently working with clients from Des Moines, Kent and Seattle who had their appraisal waived and will be closing well BEFORE March as long as Fannie Mae estimates your loan to value is 105% or lower. It's unknown what value Fannie Mae's system will accept for your home until it is submitted to their automated underwriting program (DU).

Another reason NOT to wait until March to start your HARP application is to make sure your credit and debt-to-income ratios are in line.  Beginning your application today will allow us to review your current credit scenario to help assure you're in the best position to proceed with your refi, even if you have to wait until March for loan-to-value reasons.

From reading today's release notes, it looks like not all loans will qualify to have their appraisals waived...however you won't know unless you try!  It's also important to keep in mind that that banks and lenders may have their own underwriting overlays in addition to what Fannie Mae or Freddie Mac offers with this (or any) program.

I am encouraging Washington home owners to contact me for a rate quote. If it looks like we should wait until closer to March to proceed, we can keep your information and try again at that time.

If you have any questions about HARP 2.0 or any mortgage for homes located anywhere in Washington, please contact me!  If you want to stay informed, subscribe to my blog!

I am required to have the language below if I am soliciting your Home Affordable Refi for your home in Washington...and yes, I would love to help you with your HARP (or any) refinance:

Freddie Mac and Fannie Mae have adopted changes to the Home Affordable Refinance program (HARP) and you may be eligible to take advantages of these changes.  

If your mortgage is owned or guaranteed by either Freddie Mac or Fannie Mae, you may be eligible to refinance your mortgage under the enhanced and expanded provisions of HARP.

You can determine whether your mortgage is owned by either Freddie Mac or Fannie Mae by checking the following websites:www.freddiemac.com/mymortgage orhttp://www.fanniemae.com/loanlookup/

Mortgage Update for the first week of 2012

Even though this week is another short one from yesterday's holiday, it's packed full of economic indicators that may impact mortgage rates:

Tuesday, January 3: ISM Index and FOMC Minutes released.  

Thursday, January 5: Initial Jobless Claims and ISM Services Index

Friday, January 6: THE JOBS REPORT 

Positive economic data tends to cause mortgage rates to trend higher.  This is because investors will pull money from the safety of bonds (like mortgage backed securities) for a possibly better return with stocks. The reverse is also true.  Also remember that mortgage rates can and do change often, sometimes several times a day.

As I write this post, the ISM Index has already been released this morning revealing stronger manufacturing data than anticipated. The DOW is up around 240 and MBS (mortgage backed securities) are "in the red".

For your personal mortgage rate quote for your home located in greater Seattle, Bellevue, Walla Walla or anywhere in Washington State, please contact me.

Happy New Year! 

Happy New Year!

Thank you so much for reading Mortgage Porter this past year and expecially to those who selected me to help them with their mortgages for their Washington area homes. Many of my clients actually find me from reading this blog. 

My NMLS license to originate mortgages in 2012 was renewed weeks ago so I'm ready to help you this new year too!  As much as I love to write and share information with you on this blog, it's helping people refinance and buy homes anywhere in Washington that help keep our lights on and food on the table.

May you and yours have a healthy, happy and prosperous new year.

Mortgage Master Service Corporation will be closed on January 2, 2012 to observe the holiday.

 

HUD extends Waiver for "Anti-Flipping" Rule through 2012

HUD recently announced they will extend their anti-flipping waiver through December 2012.  From HUD:

In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity...[HUD] will extend FHA’s temporary waiver of the anti-flipping regulations. 

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days... The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA.  All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.  The Waiver continues to be limited to sales meeting the following conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. 
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.
• The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. [Reverse Mortgages]

In addition to what HUD covered in their email on Friday, the waiver also specifies that:

• the sale must be by the owner of record
• the property may not have been a repeatedly "flipped" over the past year
• the property was marketed openly and fairly

When a home is being resold 20% or higher than what the seller purchased the property for in less than 90 days, often times a second appraisal will be required and the seller will need to show documentation to support the increased value in the home, such as receipts for the improvements made. A property inspection reportwill also be required by the lender to assure the quality of the improvements made to the property. Any health or safety issues disclosed by the property inspection will need to be corrected.

If a home has been re-sold withing 91-180 days at more at 100% or more than the seller's acquisition cost, the same conditions will apply. If a second appraisal is required, the home buyer is not allowed to pay for it per HUD. Thanks to LO Comp, which the Fed passed in April, your friendly mortgage originator cannot use their commission to pay for this cost either.

Investors who are reselling in a short period of time for a much higher amount than their acquisition cost should be prepared for the cost of the second appraisal when the buyer is using FHA for financing. Folks should also retain detailed records of improvements (including all receipts) when they're planning to quickly resale a home. The seller's acquisition cost is the sales price of the home, plus the seller's closing cost, including real estate commissions. It does not include any repairs.  

If you are considering buying a home located anywhere in Washington State, I'm happy to help you! I've been originating home loans at Mortgage Master Service Corporation since April 2000, including FHA insured loans.