Mortgage 411 Center

I often get questions from readers and clients about the President’s new mortgage plan and how they can qualify.   Although I have read and have written about the plan and I can answer any specific questions to aid homeowners in reducing their mortgage payments,  I also refer people to the source of information ,www.FinancialStability.gov.  This site went live on March 4, 2009 and I didn’t say anything then  but since its inception there has been and STILL is a message which states “This site is coming soon”.   

Come on now , isn’t anyone in the White House doing their job?  Or is the treasury department, who is having a hard time filling other positions, in need of a webmaster as well?  Isn’t there an intern or someone to check things like this?   I’m wondering if we should trust that the rest of the information is accurate when there is one glaringly obvious mistake right there on the front page?

Now really, can we be expected to  take the government’s initiative to help homeowners avoid foreclosure  seriously when the website looks like it was created by somebody’s little brother?

It’s official:  effective April 1, 2009 the maximum loan to value ratio (LTV) on all cash-out refinances to be insured by FHA may not exceed 85% of the home’s value.  Currently the maximum LTV is 95%.  What does this mean in plain English?  Quite simply if you are a homeowner who does not have a lot of equity in your home and you also do not have cash to pay other debts in order to qualify for the mortgage AND you would like to refinance to take advantage of the lower interest rates , you are running out of options.

Why is this important?

• In today’s declining real estate market there are many people who either bought while prices were high, put little or no money down, or both and currently do not have a lot of equity in their homes.  Changing the loan to value ratio from 95% to 85% is going to severely limit the number of people who are able to refinance.  To put it in terms of numbers, say you own a home worth $220,000.  Currently you would be able to refinance as long as the new loan amount doesn’t exceed $209,000 ,  under the new rules that changes  to $187,000.  Even if the value of your home has not declined, if you bought it with only a 5% downpayment you would not be able to refinance with an FHA cash-out loan since you would not meet the new LTV requirements.

• Cash-out does not necessarily mean that the borrower is getting a check  (cash) at closing.  It simply means that more than the balance of the mortgage and closing costs are included in the new loan amount.  While you may not think that you need to or may not want to do a cash-out refinance, you may have to do a cash-out refinance if you have other liens against the property which need to be paid or you have other outstanding loans, credit card bills etc which will need to be paid in order to qualify for the loan.

• FHA loans have less strict credit standards than conventional loans, and the terms are generally more favorable.  This new rule is going to hurt those who probably could use the help the most.

Please note, you may have also heard about the President’s new mortgage plan that will allow homeowners to refinance up to 105% of the value of your home.   This may be an option for homeowners with little to no equity BUT this option does not allow for cash-out at all no matter what the loan-to-value.   What I am seeing is that many people who are unable to afford their mortgage payment also have other debts that they have incurred which is making it difficult for them to qualify for a new loan.  Since this program prohibits cash-outs which could otherwise be used to pay down the debts, the pool of borrowers who can qualify for this program is limited.

Bottom line.  If you are thinking about refinancing to lower your mortgage payment and have been putting it off and know that you do not have perfect credit, 20% equity in your home, or have other outstanding bills that need to be paid you better act now!

If you are in the market to buy your first home you may be able to take advantage of a new federal tax credit for first time homebuyers.  Here are some facts about the tax credit:

• The tax credit is for first-time home buyers only, a first-time buyer is defined as someone who has not owned a home in the past three years .
• The tax credit does not have to be repaid. This is a change from last year’s tax credit which was basically an interest-free loan, repaid over 15 years.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.   So someone purchasing a $60,000 home would only receive a $6,000 credit, while someone purchasing a $300,000 home would only receive the $8,000 maximum.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with modified adjusted gross incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.  Those with incomes over that amount may still qualify for a partial tax credit.

As you can see this is a great incentive for those who are considering purchasing a home this year, but are unsure if now is the right time to take the path to homeownership.  For more reasons why 2009 may be a great time to buy,  please read:

Why 2009 is the Time to Buy

Why 2009 is the Time to Buy - Part 2

Remember, before you even begin to look at houses you should contact a mortgage professional to get pre-approved for a loan,  so that you will be sure you qualify and so you will know exactly how much home you can afford. 

Please contact us with any questions or to get started today.

Many homeowners today are finding themselves in a situation where they can no longer afford to pay their mortgage.  Perhaps they lost their job or because of the economy their income has been greatly reduced.  Perhaps they had an adjustable rate mortgage and could no longer afford to make the payments once their interest rate increased.  Or perhaps they simply bought more home than they could have been realistically able to afford.   If you are a homeowner in this situation, where should you turn? 

The  Homeowner Affordability and Stability Plan

The government’s new plan, which was unveiled last week, is supposed to help 7-9 million homeowners stay in their homes.  However, many, including supporters of the President , have criticized the plan, stating that it is not designed to help home owners who need it the most.  Their are two components to the plan - the refinance portion and the loan modification portion.  The refinance portion is only available for homeowners who owe up to 5% more than their home is currently worth , have a loan guaranteed by Fannie Mae or Freddy Mac , and are not currently behind or their mortgage.    The modification portion is available to homeowners who are behind on their mortgage, regardless of whether the loan is guaranteed Fannie or Freddie.  Please note, that while the government is offering incentives for lenders to participate in this program, it is completely voluntary.  Furthermore, it is anticipated that there is going to be a backlog at most lenders, as homeowners are rushing to try to take advantage of the program, so if you are in danger of losing your home, you may not get immediately relief.  This program is also only available to borrowers with conventional mortgages, therefore it will not help the many homeowners with FHA or VA loans.

Refinance your Loan

If you do not owe more than your home is currently worth and are not behind on your payments but are still feeling the pinch, it is possible to refinance you loan, either through your current lender or a different lender.   Please note that not all lenders offer the same types of loan products so it is possible that you may be turned down by one lender yet approved for a loan with another.  Ideally you want to shop with a lender that has access to a full range of products, including government sponsored loans like FHA.  

Loan Modifications

There are many companies out there that are offering loan modifications.  Many charge a hefty fee and promise results that they are not able to attain.   Yet there are also  companies out there that are legitimate and can help you save your home.   The problem is that it is difficult to ascertain the good from the bad. 

There are also those who are of the opinion that homeowners should contact the lender and attempt to get a loan modification themselves.  However, unless you are able to get a hold of the correct department or speak to the right person you may not get very far.  Besides, most banks are not staffed to handle the current flow of customers who are seeking loan modifications, if you search the interent you will read countless accounts of files being lost, agreed upon terms being changed, and general frustration with the overall process.

I’m Still Confused.  Which is the Right Option for Me?

Please note, the options listed above were made assuming that you wish to stay in your current home.  However, you may wish to sell and in that case you should contact a Realtor, preferrably one with experience in shortsales in the event that you owe more than your home is currently worth.  Other options include deed in lieu of foreclosure (basically giving the home back to the bank - contact your lender).  This option will have a negative effect or your credit although it is not looked at as bad as a foreclosure. 

If you can no longer afford to pay your mortgage, your best bet as a first step is to contact your current lender and try to work something out with them.  They will best be able to tell you if you are able to take advantage of any of the three options listed above, either the govenment’s new plan, a loan modification, or a loan refinance.   If you current lender is unable or unwillling to help, or perhaps is just too busy to be able to help you, then the next step is to contact us.  As mentioned before, not all lenders offer the same types of loan programs,  therefore it pays to get a second opinon.  You may still be able to refinance you loan, even if your current lender turns you down.  If you do not qualify to refinance, we can refer you to legitimate companies that can help you modify your loan, so that your payments are more affordable.

If you have any questions on how you can make your mortgage loan more affordable and keep your home,  feel free to contact us.

The following information is courtesy of Fred Chamberlin’s No Money Down website.  Fred is a government loan expert, lending in Oregon, Washington and California as well as a proud Veteran.   We are able to assist you with obtaining a VA loan in most other states or can refer you to another trusted partner who can assist you in states we are not currently licensed.

VA’s Home Loan Program is for veterans and active duty military personnel and certain members of the reserves and National Guard. VA’s program provides an excellent product and benefit for those individuals who have served or are serving to protect our families and our nation, as well as giving them a form of financing that will allow real estate professionals to sell more homes. To be eligible, a veteran must only have served 90 days of more of active duty.

If you are unfamiliar with the program, there are several advantages to using VA’s Home Loan Program not the least is that it allows a veteran who qualifies income and credit-wise to purchase a primary residence without putting money down towards the sales price, as long as the sales price does not exceed the appraised value. Veterans do, however, need money towards closing costs and the earnest money deposit. Closing costs may be paid by the seller however, making it possible to get into a home with no money out of pocket as the earnest money can be refunded at closing.

Here are some special items of interest about VA Loans:

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  • VA does not have a maximum loan amount. However, lenders do sell loans on the secondary mortgage market, so they will generally limit loans to $417,000 ($625,500 in Hawaii, Guam, Alaska and U.S. Virgin Islands) with no down payment. With a down payment, loans may exceed these amounts.
  • The veteran does have to qualify income and credit wise. (* see note below)
  • The veteran does have to occupy the home as their primary residence.
  • The veteran does not have to be a first time home buyer and may reuse his/her benefit. (subsequent usage could mean higher funding fee)
  • The lender, not VA, sets the interest rate and discount points, so they may vary from lender to lender.
  • There is no private mortgage insurance, but VA does charge an up front VA funding fee, which may be financed. The exception to this is that if a veteran is in receipt of VA service connect disability payments each month, he or she does not have to pay a VA funding fee.
  • The seller can pay for closing costs. There is a requirement that seller concessions do not exceed 4%, but only certain items are considered as part of the concession; i.e., payment of pre-paids, VA funding fee, payoff of credit balances or judgments on behalf of the veteran, funds for temporary buydowns (not discount points).
  • The veteran is not allowed to pay for the wood destroying insect (termite) report; it is generally paid by the seller. The veteran is also not allowed to pay the processing, underwriting or tax service fees, nor are they allowed to pay part of the escrow closing fee. These are normally paid for by the seller.
  • VA does not approve the majority of loans. The majority of transactions are handled directly by the lender with little VA intervention.

VA also required the following on any purchase agreement: “It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise of be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs.”

* Please note that VA uses two methods for qualification purposes. The primary method of evaluating a veteran’s income is the residual income method. Under this method, the underwriter determines that a veteran has sufficient income to cover day-to-day living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments. This is very important, a loan can be approved by the automated underwriting system but if the residual income is insufficient, it could later be denied. VA also uses a debt-to-income ratio method like many programs. However, VA uses only one ratio which is the ratio of total debt (both housing and other debt) to income.

VA loans are one of the best ways to get into a home with no money down. The rates are comparable with conventional rates and overall is often the best way for a veteran to purchase a home. Call me today to find out what we can do for you for a no money down Federal VA Mortgage Loan.