Interest Rates as of July 17, 2014
Rates based on a 200k Primary Residence Purchase, 740+ Credit, assuming 0% loan origination fee and 0% in buydown "points"
Conventional and FHA Refi's are also available for underwater homeowners
The Facts about VA Loans
Happy Veterans Day! Today seems like a good day to provide some interesting facts on VA loans. VA loans have great interest rates and carry no monthly Private Mortgage Insurance even at 100% Many veterans do not realize that VA loans can go up to $1.5M but they do require a down payment if the loan is above $417k. For example, a 700k purchase price would require a 10% down payment (but the loan would have no MI and the rate would be 3.875%!). Another seldom known fact about VA loans is that a veteran can get a 2nd VA loan without selling their current property in many cases. VA loans are only allowed on primary residences and require a 620 fico score. There are certain closing costs that a VA borrower is not allowed to pay which need to be addressed on line 79 of the AAR purchase contract. The amount of these "VA non-allowables" varies depending on the title company and the purchase price but they usually amount to less than $1000. It is possible to have a lender credit cover these VA non-allowables so that the VA buyer does not have to ask the seller to pay them.
Disqualification Period After a Short Sale is Lengthened
The waiting period for borrowers trying to obtain a Conventional loan with a previous short sale on their credit will be longer starting on August 16, 2014. Currently, borrowers with a previous short sale could obtain a Conventional loan with 20% down after a 2 year wait and 10% down after a 4 year wait. Starting on Aug. 16, their only option for a conventional loan will be waiting 4 years at which point they can do 5% down. Fannie Mae gave no reason for this change. If a borrower has an accepted purchase contract submitted to their lender by August 15, then they will be able to close using the current short sale waiting period rules. FHA loans will stay the same with a 3.5% down payment after a 3 year waiting period after a short sale.
10% Down Jumbo Loans
Jumbo loans typically require a minimum 20% down payment. There are two loan programs that allow a jumbo borrower to buy with just a 10% down payment.
Contact Liz for more information
Impact of Dodd Frank Act
On January 10, 2014 the latest phase of the 3000 page Dodd Frank Act for mortgage reform was put into law. Contrary to many reports, qualifying borrowers is not any more difficult today than it was prior to January 10. The Dodd Frank Act gave an exemption to all Conventional, FHA, and VA loans for the next 7 years. These 3 loan types make up 98% of the loans being done today by the mortgage industry. Moral to story, in nearly all cases the borrower will qualify for the exact same loan amount today as he did prior to January 10. There are however, big changes for the rules governing seller carrybacks due to the January 10 Dodd Frank Act changes. Agents will want to consult their broker prior to writing a contract that includes a seller carryback. There are also new AAR seller carryback addendums due to the new rules.
USDA Loan Map Boundaries Remain Unchanged
The USDA/Rural loan program announced that there would be no change to its map of areas that are eligible for this financing program (January 15 was the date that the current map was set to expire). Under this loan program, borrowers can obtain 100% financing in areas that are classified as "rural." Areas in the Valley that are currently classified as rural under this program are Queen Creek, Buckeye, Maricopa (the city), and parts of Anthem. The current rural classification was established based on census data from 2000. 2010 census numbers are now calculated and would have eliminated many of the currently eligible areas. Qualifications for a USDA loan are similar to FHA but the borrower cannot own any other real estate currently and there are income limits ($75k/year for a family of 4). USDA rates can be seen below and you can access a complete map of eligible areas by clicking "single family housing" at the USDA Income and Property Eligibility Site
Fed Tapering Will Lead to Higher Rates in 2014
The Fed announced on Wednesday that beginning in January it will taper down its Mortgage Backed Security and Treasury Bond purchase program from $85B/month down to $75B/month. This monthly purchase program helps keep interest rates artificially low in an effort to stimulate the economy. The Fed had been warning of their plans for tapering for the past 6 months but this was the first time that they actually followed through with a defined start date. The goal for tapering is to try to get the economy to start standing on its two feet without the support of the Fed. Fannie Mae and Freddie Mac also announced that in March 2014 that they will increase their Conventional loan "g-fee" (basically a government tax on a mortgage interest rate that gets passed on to the borrower) by an additional 10 basis points. The g-fee is simply a mechanism that the government uses to make money every time a borrower gets a new Conventional loan. These two moves obviously increase the likelihood of higher mortgage interest rates in 2014. I wish you a happy holiday season and best of luck in 2014!
Maximum Loan Limits for 2014
Loan amount limits for FHA, VA and Conventional are all staying the same for 2014 in Maricopa County. Conventional loans will remain at $417,000. FHA will remain at $346,250. VA loans have a limit of $417,000 when using it as a 100% loan. VA loans are allowed to go above $417k but the borrower has to do a down payment equal to 25% of every dollar that the loan exceeds $417k (which is still a great loan option for a Jumbo buyer). The only areas in the US that will have loan limit changes are the super high cost areas such as Southern California. Those high cost areas will see their FHA loan maximum drop from $729,750 to $625,500.
Rules for Cancelling Mortgage Insurance
When a borrower has mortgage insurance on their loan, the rules for cancelling the mortgage insurance varies by loan program. Cancelling mortgage insurance is always based on the percentage of current principal amount vs. original purchase price. Current appraised value does not factor into mortgage insurance cancellation. Borrowers with conventional loans can request to have their mortgage insurance cancelled once their principal amount reaches 80% of the original purchase price. FHA mortgage insurance cancellation varies based on when the borrower originated their loan. For FHA loans originated prior to June 1, 2013, borrowers can cancel their mortgage insurance once they have had their loan for at least 5 years along with paying principal down to 78% of the original purchase price. For FHA loans originated after June 1, 2013, the borrower will have to pay mortgage insurance for life. FHA and Conventional loans do not have prepayment penalties so borrowers are always allowed to refinance utilizing current appraised to determine whether they need mortgage insurance on their loan.
FHA Allows 1 Year Waiting Period in Some Cases
Mortgage lenders are now able to approve borrowers using FHA's "Back to Work" exception that allows borrowers to buy 1 year after a Short Sale/Foreclosure/Bankruptcy that was caused by an "Economic Event" outside the control of the borrower. FHA came out with a 15 page announcement on the topic that can be viewed in full at at this link. Here is a summary of the rules for this program:
Impact of Government Shutdown on Lending
There are several impacts on lending due to the government shutdown. For the most part, lenders will keep operating with business as usual on Conventional, FHA, and VA loans. The biggest impact is that lenders will be unable to order IRS transcripts during the shutdown. These IRS transcripts are required on every single FHA/VA/Conventional/Jumbo loan (it "proves" that the borrowers tax returns and w2's are legitimate). Most good lenders (including VIP) order these transcripts at the beginning of loan processing so it should not affect any loans currently in process. If the shutdown lasts only a week or even two, this will not be an issue but if the shutdown goes to 3 or 4 weeks it could start to delay closings since a lender will not fund a loan without IRS transcripts. Borrowers with USDA/Rural loans in process have more to worry about. USDA does their own approval after the lender's underwriter approves the loan. During the shutdown, USDA will not be issuing these approvals. Prior to the shutdown, USDA was running 2 weeks on their approvals. Once the shutdown ends, it will likely take them 2 weeks plus the amount of time that the government was shutdown. One other potential issue (for all loan types) will be completing a final verification of employment for government employees. Lenders are required to do a final verification of employment for all borrowers within 10 days of closing. During the shutdown, it does not seem likely that lenders will be able complete this verification of employment if the borrower is a government employee.
Buying Homes for Children and Elderly Parents
Did you know that you can do a Conventional loan as a Primary Residence when a borrower buys a home for a child or elderly parent that does not have sufficient income to qualify for a loan on their own? FHA has always allowed co-signers and "kiddie condo" loans but with recent FHA mortgage insurance increases, many buyers do not find that type of loan appealing. The benefit to using this program with a Conventional loan is that the borrower will have no mortgage insurance with 20% down or with 5% down they get the much lower Conventional mortgage insurance rates. The best part is that this program also gives primary residence interest rates. Putting the elderly parent or child on the loan and/or title is optional.
FHA Decreases Wait Time to Qualify after Short Sale/Bankruptcy/Foreclosure
FHA announced that borrowers with foreclosure/short sale/bankruptcy "might" be eligible for FHA loans 12 months after the negative event. They require the borrower to document (with w2's and/or tax returns) that the negative event was caused by at least a 20% loss in household income for at least a 6 month period. They want to see 12 months of most recent on time rent payments, and a full recovery on credit for at least 12 months after the negative event (meaning no collections, late payments, etc.). Further, they want to see that previous negative credit appearing on the credit report was due to the loss in income rather than a history of late payments, collections and financial mismanagement. As with any major rule change, the lenders of the world (including VIP Mortgage) want further clarification from FHA on exactly what they will and will not accept on these files before qualifying borrowers for loans using these new rules. I will provide another update once we get more specifics from FHA. The full FHA announcement is here.
Using Realtor Commission for Down Payment and Closing Costs
When a realtor represents themself as the buyer agent, VIP Mortgage allows the realtor to use their realtor commission on the transaction as a down payment or for closing costs on an FHA loan. The same is true if an agent represents a relative. They are allowed to give their commission as a gift that can be used for the down payment or closing costs. Conventional loans allow this in some cases and in other cases, do not allow this (it depends on several factors within the transaction). When a realtor is not related to the buyer, they are only allowed to contribute to the buyers closing costs and prepaids (but not the borrower's down payment).
Interest Rates Seem to Stabilize
It's been roughly 2 months since the Fed announced that they would scale back Mortgage Backed Security (MBS) purchases later this year and then try to end their MBS purchases in 2014. That announcement caused interest rates to quickly rise by more than 1%. For now, rates have seemingly stabilized in the mid 4's on a 30 Year Fixed (although rates obviously vary based on loan program, fico, etc.). The next big question is "what will happen next with rates?" No one has that magical crystal ball but most experts agree that the lowest rates are likely behind us. It seems that the only way that rates would drop back to their previous lows is if the Fed decides to reverse their plans and continue purchasing $85 Billion per month in MBS for longer into the future. On the flip side, many experts think that we will see another bump upward in rates once the Fed scales back on their MBS purchases later this year and then likely another bump upward once they end their MBS purchases in 2014. All of that being said, the Fed's plans are always subject to change based on economic conditions so any prediction for the future is just based on the information available today.
FHA Will Charge MI for Life of Loan
FHA will be extending the length of time that borrowers have to pay their monthly MI with case #'s assigned after June 1, 2013. FHA borrowers that make less than a 10% down payment (which is 99% of borrowers that do FHA loans) will have to pay monthly MI for the life of the loan. FHA borrowers that make more than a 10% down payment will pay monthly MI for 11 years. The monthly MI payment will stay the same at 1.35% of the loan amount. 1.35% MI is equivalent to $112/month per 100k borrowed. The upfront mortgage insurance that FHA adds to the loan amount at closing also remains unchanged at 1.75% of the loan amount. This change is tied to projections for FHA's financial stability going forward. The important part of this change to keep in mind right now is that the date is tied to the FHA case # date. Lenders can establish an FHA case # for the borrower once there is a fully executed contract. There is no prepayment penalty on an FHA loan so a borrower can still refinance into a Conventional loan once they have 20% equity.
10% Down Jumbo Loans
Jumbo loans typically require a minimum 20% down payment. VIP mortgage now has access to loan programs that allow a jumbo borrower with a 720 fico score to buy with just a 10% down payment. VIP is able to do a $417,000 1st mortgage in combination with a Home Equity Line of Credit 2nd mortgage for the remainder of the loan funds. By setting up the loan this way, the jumbo buyer would also have no mortgage insurance on the loan even though they only made a 10% down payment. This type of setup is allowed as long as the combined 1st/2nd loan amount stays at $750,000 or less.
The Facts about VA Loans
VA loans have great interest rates and carry no monthly Private Mortgage Insurance even at 100% Many veterans do not realize that VA loans can go up to $1.5M but they do require a down payment if the loan is above 417k. For example, a 700k purchase price would require a 10% down payment (the loan would have no MI and the rate would 3.75%). Another seldom known fact about VA loans is that a veteran can get a 2nd VA loan without selling their current property in some cases. VA loans are only allowed on primary residences and require a 620 fico score. There are certain closing costs that a VA borrower is not allowed to pay which need to be addressed on line 79 of the AAR purchase contract. The amount of these "VA non-allowables" varies depending on the title company and the purchase price but they usually amount to less than $1000. It is possible to have a lender credit cover these VA non-allowables so that the VA buyer does not have to ask the seller to pay them. An experienced lender (such as VIP Mortgage) should not have a problem closing a VA purchase in 30 days or less.
Most New FHA Loans will have MI on Loan for Life
FHA will be extending the length of time that borrowers have to pay their monthly MI. FHA borrowers that make less than a 10% down payment will have to pay monthly MI for the life of the loan. FHA borrowers that make more than a 10% down payment will pay monthly MI for 11 years. These changes will be effective for case numbers assigned after June 3, 2013. The monthly MI payment percentage will also be increasing slightly for case numbers assigned after April 1, 2013. A 96.5% 30 Yr Fixed FHA loan will have monthly MI equal to 1.35% of the loan amount (1.25% is the current rate). 1.35% MI is equivalent to $112/month per 100k borrowed. The upfront mortgage insurance that FHA adds to the loan amount at closing remains unchanged at 1.75% of the loan amount. These increases are all tied to projections for FHA's financial stability going forward. For comparison sake, a 95% Conventional loan has no upfront MI and the monthly MI is roughly $55/month per 100k borrowed. Borrowers can also cancel the monthly MI once the principal balance reaches 80% on a Conventional loan.
Mortgage Debt Forgiveness Act is Extended
As part of the fiscal cliff agreement, the Mortgage Debt Forgiveness Act has been extended until the end of 2013. Under this bill, homeowners that complete a short sale, foreclosure, or have debt forgiven in a loan modification will have their federal income tax hit waived on this debt forgiveness. This applies to primary residence and investment property transactions.
2nd/Vacation Homes with 10% Down
'Tis the season for snow birds coming to Arizona and buying vacation homes. VIP Mortgage is able to do loans for 2nd/vacation home buyers with as little as 10% down. Interest rates on 2nd/vacation homes are the same as a primary residence which is currently mid 3's on a 30 year fixed! 2nd/vacation home buyers need to qualify with their primary housing payment plus the new mortgage payment in order to qualify. If the borrower plans to rent the property then the transaction is classified as an investment property purchase which requires 20% down minimum.
Use a Reverse Mortgage for Purchase
VIP Mortgage is able to close reverse mortgages on a purchase transaction. Borrowers must be at least 62 years old and have roughly 50% down payment (the older you are, the less down that is required). Reverse mortgages require no monthly mortgage payment regardless of how old the borrower lives to be (although they are required to pay property tax and homeowners insurance). The monthly interest due on the loan simply goes onto the principal balance every month. The borrower retains ownership of the property for their entire life - no matter how old they live to be (the bank does not own the property, they just have a lien on the property just like any other mortgage). Once the borrower passes away, the heirs can sell the property and keep the remaining equity or they can also decline to inherit the property if it's underwater. There are no minimum requirements for credit scores or income. VIP Mortgage has reverse mortgage specialists that can meet with agents and borrowers that are interested in learning more about reverse mortgages.
USDA Postpones Eligibility Changes
The USDA/Rural loan program has postponed changes to the areas eligible for financing until at least 3/27/13. Under this loan program, borrowers can obtain 100% financing in areas that are classified as "rural." Areas in the Valley that are currently classified as rural under this program are Queen Creek, Buckeye, Maricopa (the city), and parts of Anthem. The current rural classification was establish based on census data from 2000. 2010 census numbers are now calculated and would have eliminated many of the currently eligible areas. Qualifications for a USDA loan are similar to FHA but the borrower cannot own any other real estate currently. USDA rates can be seen below and you can access a complete map of eligible areas at http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
"G-fee" Increase Means Higher Rates
The FHFA (the government agency that runs Fannie Mae and Freddie Mac) is raising their "g-fee" by 10 basis points beginning November 1. The g-fee is the fee that Fannie/Freddie charges a lender on every loan that Fannie/Freddie guarantees. This fee will get passed directly on to the consumer with the net effect being higher interest rates (roughly .125%). The FHFA issued a similar increase in January 2012 as well. The government currently backs 95% of all mortgage loans via Fannie/Freddie/VA/FHA/USDA. The government has stated that it wants private capital to fund more of the mortgage market going forward and higher rates would make it more appealing for private investors to jump in. This g-fee increase will only effect conventional loans and will have no effect on FHA/VA rates at this point.