How are buyers financing their home purchases

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Bad News Good News About Getting a Mortgage

Lots of confusion

A lot of wrong assumptions and just not knowing according to recent survey of consumers:

Here are the real typical down payments:

And even more dramatic the average down payment by loan type

The credit score required isn't ridiculous either. Remember these are averages not minimums.

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Why Leasing Your Car Could Keep You From Buying a Home?

Getting a mortgage can be difficult. Sometimes, to increase the odds of being approved or to qualify for a larger loan, prospective borrowers will pay down debts or eliminate existing loan obligations. Often, the process for doing so is simple, but there’s one type of financing that could trip up your efforts: a car lease.

Here’s a breakdown of why—and what you can do to avoid any snags.

What’s your debt-to-income ratio?

When you apply for a mortgage, a broker is going to tally up all of the monthly payments you make on existing obligations, including credit cards, student loans, personal loans, car debts, and other mortgages. That number gets measured against your income. This debt-to-income ratio helps determine your monthly mortgage payment. (So does yourcredit score. You can see where yours currently stands by getting your free credit scores, updated each month, on Credit.com.) Sounds easy and simple enough, right?

Well, the concept is, but if more than 25% of your income is already going toward debts, you may not be able to buy as much home as you think. When you have other existing obligations, your ability to borrow can be reduced tremendously. That $300 per month car lease, for example, can be severely hampering your buying power.

Mortgage tip: Remember, lenders will use only what you’re obligated to pay on existing loans in calculating your debt-to-income ratio. Choosing to pay more onyour debts can be a good financial move, but mortgage lenders generally don’t give you any benefit for choosing to do so.

Why a car lease can trip you up

Unlike an auto loan, a car lease can be trickier to work around if you’re trying to pay off debt to qualify for a mortgage. Let’s say your credit report shows a car lease payment of $300 per month. There is a balance on the credit report of $6,000 due, which is the remainder of the lease. If you had a car loan with these exact terms, you could write a check to pay off the $6,000 obligation. Case closed.

Unfortunately, that option doesn’t apply to a car lease. You can give the car back and pay the $6,000 balance that is due. However, to qualify for a bigger mortgage, the lender will need to verify there is no obligation due for car. If you give the car back, the mortgage company may ask what you’re going to drive instead—especially if there is a commute time from where you work to where you plan on residing.

Should you find yourself in this predicament, here are some options to consider.

• Call your car dealer. You can ask if it has any specific options for getting out of the lease. You’ll need to make it crystal clear that you must be out of the lease obligation completely.
• Transfer the lease to someone else. Your mortgage company should be OK with this option as long as you can show and verify the obligation is completely out of your name and that there is no obligation associated with it. You can search online for options if your car dealer doesn’t have any transfer suggestions.
• Pay out. Give the car back, pay the balance due, and either buy a new vehicle in cash, removing any debt-to-income ratio predicament, or finance a car that has a lower monthly payment. The key here is that the payments need to be reduced or totally removed if you want to maximize your buying power.
• Consider your priorities. A great deal on your car lease may not matter if you are serious about buying a home, plain and simple. Ask yourself: Is the car more important than the house?

Paying off debt for a mortgage

Paying off debt to qualify for a mortgage usually needs to be documented in the following ways.

• Money used to pay off the obligation cannot come from the reserve requirement your lender almost certainly has. Lenders usually want you to have at least three to four mortgage payments in the bank, called reserves, as a cushion when granting your loan request.
• You’ll need to produce a paper trail showing money leaving your bank account and going to the creditor to pay off debt or provide a copy of the canceled check to show you no longer owe the obligation.

All of these steps may seem unnecessary and overly repetitive, but they are a byproduct of the current mortgage lending world. Remember, stringent underwriting requirements help to ensure lenders are making good loans and, more importantly, that you can actually afford the house you are looking to buy.

———

This article was written by Scott Sheldon and originally published on Credit.com.

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One thing not to worry about when selling your home

Don't believe the rumors.  It's not overly difficult for you or for the potential buyer of your home to get a mortgage

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Why so much mortgage paperwork?

Applying For A Mortgage: Why So Much Paperwork?

 Tuesday October 20th, 2015  First Time Home Buyers, For Buyers, Interest Rates

We are often asked why there is so much paperwork mandated by the bank for a mortgage loan application when buying a home today. It seems that the bank needs to know everything about usand requires three separate sources to validate each and every entry on the application form.

Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.

There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

1. The government has set new guidelines that now demand that the bank prove beyond any doubt that you are indeed capable of affording the mortgage. During the run-up in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again
2. The banks don’t want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.

However, there is some good news in the situation. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate probably at or below 4%.

The friends and family who bought homes ten or twenty ago experienced a simpler mortgage application process but also paid a higher interest rate (the average 30 year fixed rate mortgage was 8.12% in the 1990’s and 6.29% in the 2000’s). If you went to the bank and offered to pay 7% instead of <4 backwards="" bend="" easier.="" make="" much="" over="" p="" probably="" process="" the="" they="" to="" would="">

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.

What have been your experiences with lender paperwork?

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Qualifying for a mortgage continues to get easier

Is Qualifying for a Mortgage Getting Easier?

 Wednesday September 23rd, 2015  First Time Home Buyers, For Buyers, Interest Rates, Move-Up Buyers

There has been a lot of talk about how difficult it is to get a home mortgage in today’s lending environment. However, three recent reports have revealed that lending standards are beginning to ease. This is great news for both first time buyers and current homeowners looking to move or buy a second vacation/retirement home. Let’s look at the three reports:

The MBA’s Mortgage Credit Availability Index

This index, issued by the Mortgage Bankers’ Association, measures the availability of credit available in the home mortgage market. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. We can see that the index has been increasing nicely this year:

Fannie Mae’s latest Mortgage Lender Sentiment Survey

This survey revealed that more lenders report that mortgage lending standards across all loan types are easing. The survey asked senior mortgage executives whether their company’s credit standards have eased, tightened, or remained essentially unchanged during the prior three months. The gap between lenders reporting easing as opposed to tightening over the prior three months jumped to approximately 20%. This represented a new survey high of "net easing." In addition, the share of lenders who expect their organizations to ease credit standards over the next three months also ticked up this quarter.

Doug Duncan, senior vice president and chief economist at Fannie Mae, addressed this easing of standards:

"For the first time in seven quarters, we see a pronounced increase in the share of lenders, particularly medium- and larger-sized lenders, reporting on net an easing of credit standards … This is a significant result in light of public discourse on credit availability and standards … Overall, we expect that lenders' tendency toward easing credit standards, together with relatively low mortgage rates and a strengthening labor market, will continue to support the housing market expansion."

Ellie Mae’s latest Origination Insights Report

The easing of credit standards is also confirmed in this report which showed that the average FICO score on a closed loan fell to its lowest point in well over a year. Here is a chart of average FICO scores on closed loans so far in 2015:

Just keep an eye on interest rates…

Although this is all great news, there was one challenge in the recently released data. Ellie Maereported that the average interest rate on closed loans is beginning to inch upward:

What this means to you…

If you are a first-time buyer or a current homeowner thinking of moving up to a bigger home or buying a vacation home, now may be the time to act. Mortgage lending standards are beginning to ease and interest rates are beginning to inch up.

Getting a mortgage continues to get easier

Some Highlights:

• The average 30-year rate for all loans closed in August eclipsed 4.3% for the first time since October 2014.
• The average FICO score for all closed loans in August reached a new yearly low at 724 (the lowest since February 2014!)
• The average down payment of FHA loans closed was just 4%!

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Trying to stop the confusion over what it takes to buy a home

What Do You Really Need to Qualify for a Mortgage?

 Thursday September 3rd, 2015  Down Payments, Millennials

A recent survey by Ipsos found that the American public is still somewhat confused about what is actually necessary to qualify for a home mortgage loan in today’s housing market. The study pointed out two major misconceptions that we want to address today.

1. Down Payment

The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 36% think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less.

Here are the results from a Digital Risk survey done on Millennials:

2. FICO Scores

The Ipsos survey also reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780. In actuality, the average FICO scores of approved conventional and FHA mortgages are much lower.

Here are the numbers from a recent Ellie Mae report:

Bottom Line

If you are a prospective purchaser who is ‘ready’ and ‘willing’ to buy but not sure if you are also ‘able’, let's get together to discuss your true options.

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Mortgages are available but not ridiculous

Mortgage Lending is NOT Out of Control!!

 August 12, 2015  Down Payments, For Buyers

This year, both Freddie Mac & Fannie Mae have introduced new programs that only require a 3% down payment on a mortgage in order to purchase a home. Earlier this month, the Mortgage Bankers’ Association reported that adjustable-rate mortgages (ARMs) may be making a slow comeback as the share of ARMs increased to 7.4 percent of total mortgage applications. Some see this loosening of lending standards as a point of concern.

We know that the ridiculously low lending standards of the early 2000’s were part of the reason a housing bubble formed and burst last decade. Some are worried that we are headed down the same road that caused that housing crisis.

However, a recent survey of a distinguished panel of over 100 economists, investment strategists, and housing market analysts conducted by Pulsenomics showed the vast majority disagree. The survey revealed that only 4% of the experts felt that over the next twelve months lending standards would “ease too much, become too lax”.

Here are the results of that survey:

Bottom Line

There is no question that lending standards are easing; thereby giving more families the opportunity of accomplishing the American Dream of homeownership. However, we are not going back to the ridiculousness of the last decade.

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What Millennials are actually putting down on their homes

The survey results are in and despite the media talk of requirements for large down payments, it turns out that 36% of millennials are putting down 5% or less.

Don't be scared out of home ownership by media hype. Get the FACTS.

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What You Need to Know About the Mortgage Process

 August 7, 2015  Down Payments, Infographics

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