Renting Your Home Might Be Best Option

Homeowners have a few options open to them if they are underwater. That means homeowners have a higher mortgage on their home than the appraised value. Two options combined may be your best solution.

Recently, 2.5 million Americans returned to a profitable status leaving only 4.5 million that remain underwater on their home, according to CoreLogic September 2013. Great news unless you are still underwater. The DU Refi-Plus for Fannie Mae-backed loans and the Freddie Mac open access programs are the programs available from lenders like me to lower the mortgage rate even if you owe more than the appraisal value of the property. Even if you have been told you don’t qualify, recent changes to the program may have changed your status.

Homeowners who are underwater but have to move for some reason might be unsure of what they can do. For example, homeowners might have to find a bigger space or have a new job in another location. Homeowners in this situation might believe that the only option to them is to put the home up for a short sale. The problem is that after the short sale the homeowner will need to wait one to four years before they can qualify to purchase a home.

It may be possible to find a reputable tenant and rent the home. This option may lower or even eliminate the debt of the current mortgage payment. The money acquired in rent will change the debt-to-income ratio, probably allowing a new purchase. As a loan officer, I can work with real estate agents or property management companies to assure everything is done to recognized underwriting standards.

The new lower mortgage payment combined with the income of the tenant will make it easier to purchase a new home. While this idea is not new, the way I approach the problem is uncommon. I believe in helping my customers as much as possible. I want to help them move on with their life and possibly create a source of income for them.

FHA Changes Reverse Mortgage Program

The Federal Housing Administration is reducing the risks associated with reverse mortgages, and I am staying abreast of the changes.

In recent years, FHA's Home Equity Conversion Mortgage portfolio has changed in demographics and borrower preferences that added significant risks to the Mutual Mortgage Insurance Fund. These changes included borrowers shifting from selecting adjustable rate mortgages with access to a line of credit or modified tenure/term payment options to selecting fixed-rate mortgages where the borrower draws down all available funds at the time of closing. Younger borrowers with more debt and stagnant home prices also have contributed to the risks.

FHA published two mortgagee letters that note policy changes. They are intended to support financial soundness of HECM program. The agency outlines changes to initial mortgage insurance premiums and principal limit factors, restrictions on the amount of funds senior borrowers may draw down at closing and during the first year following closing, requirements for a financial assessment for all HECM borrowers to ensure they have the capacity and willingness to meet their financial obligations and the terms of their reverse mortgages, and requirements that borrowers set aside a portion of the loan proceeds at closing for the payment of property taxes and insurance.

I am happy to answer questions regarding the FHA changes to the reverse mortgage program. The lender has thoroughly researched the changes and is ready to help its customers understand the HECM program. I will provide customers with expertise on which mortgage product is right for each person.

According to the FHA, an increasing number of tax and hazard insurance defaults by those holding mortgages have heightened the need for a financial assessment of a potential customer’s financial capacity and willingness to comply with mortgage provisions.

Effective Jan. 13, 2014, lenders must complete a financial assessment of all prospective customers prior to approval and closing. The financial assessment also is used to determine under what conditions the prospective borrower meets FHA eligibility criteria.

Visit www.fha.gov for information about reverse mortgages and changes to the program.

Underwater Homeowners Have Options

Homeowners who are underwater on their house can get help. Underwater means that owners owe more on their home than its worth. Currently, 10.8 million Americans remain underwater on their home, according to CoreLogic, a company that provides analyses and statistics for the housing industry. But, they have hope.

Fannie Mae extended its DU Refi Plus Program and Freddie Mac renewed its Freddie Relief program for 2013. Although homeowners might have heard of loan modification programs, these are not that type of help. Loan modification allows homeowners to change their mortgage to reduce their payments while extending the length of their loans. These programs do not extend the length of the loan, but they help homeowners to refinance their loans at the current lower interest rates. Both of these programs fall under the Home Affordability and Stability/Making Home Affordable Plan, which has been successful. Recent upgrades to the program have made it easier to refinance mortgages even those underwater to the historically low interest rates.

Qualified homeowners can refinance a conventional first mortgage, which is backed by Fannie Mae or Freddie Mac no matter how underwater they are. As long as the current Fannie or Freddie loan was acquired prior to May 2009, there should be no loan-to-value limits. Previously, those families who were paying mortgage insurance were not eligible to participate. However, the government has changed that rule. Borrowers with PMI can take part in the program. Homeowners with a second mortgage can participate as long as the second mortgage remains where it is while refinancing the first mortgage.

While some lenders only allow the borrower to refinance up to 105 percent to 115 percent of the property value, my company allows up to 150 percent of the property value. That means if the home’s value has dropped to $300,000 but the mortgage is $445,000, the company still can refinance the home and roll the closing costs into the loan.

My company can offer a Property Inspection Waiver to the borrower on Fannie Mae-backed loans. The company's direct underwriting system acknowledges the property value so the homeowner does not need to pay for the appraisal. I am refinancing many homeowners that are underwater using these programs.

The question for homeowners is whether their mortgage is backed by Fannie Mae or Freddie Mac so they might participate. More than 95 percent of all mortgages are backed by Fannie Mae or Freddie Mac Securities, which means that most homeowners who are underwater would probably be able to participate. It does not matter that the loan was processed through a major financial institution, such as Well Fargo, the security backing is provided by Fannie Mae or Freddie Mac. Also, if homeowners determine their loan is not backed by either institution, that might change if the homeowners check back after a certain amount of time. One of my clients was ineligible for the program in the beginning, but after a few months, the client found out she was eligible.

Homeowners can visit http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx for more information on the programs.

Purchasing a home is possibly one the most important investment decisions of your life. Planning is important. Saving for the down payment and reviewing your credit are essential but there are other things you need to know before you buy a house:

A. PRE-APPROVAL: Take control. Get a pre-approval letter and Select the Mortgage

 

1) CHECK YOUR CREDIT; It is essential that you have a good credit unless you intend to pay cash for the home.  And by good we mean a credit score over 700. A mortgage company will use the middle of your three scores.  Limiting the number of credit pulls to one a year will help increase your score. However, checking your own credit doesn’t affect your score. Pulling your credit report to check for inaccuracies is always a good idea. Your lender should be able to assist you with getting it corrected if you begin before the home buying process.

2) CHECK YOUR FINANCIAL STABILITY;  Have you saved enough for the down payment, escrows and any closing cost not covered by the seller?  A home loan is typically for 30 years, make sure that you will be able to manage the mortgage payment long term. Having a financial reserve of two months payment in liquid assets after the closing is essential. Although nothing is set in stone, job security is of paramount importance.

3) PICK THE RIGHT LENDER; Most buyers don’t realize that the trust and relationship with a knowledgeable lender is paramount to the purchase. The lender will help you to get prequalified.  Advise you and the Realtor, when making the offer, how much seller credit you will need to cover closing cost.  After your contract is accepted, the lender will continue working to ensure your loan is approved and you have the funds to go to the closing table. In today’s marketplace where 50% of all loan applications are denied, going to a big bank where the loan officer has less control may not be your best option.

B. SEARCH FOR A HOME: Work with your real estate agent to search for a home

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4) PICK THE RIGHT REALTOR; Does the Realtor understand your taste and preferences. Are they experts in the areas you want to purchase. Is the Realtor available to show you properties when you aren’t working, on weekends or in the evening? In addition, an experienced agent can provide you with valuable information such as: Pricing trends, Neighborhood conditions, Community services, Schools,  Property tax rates As a buyer, you don’t pay for a real estate sales professional’s services. Instead, the seller of the house typically pays your agent a commission for bringing a buyer to their home. If you’re not already working with a real estate agent, be sure to ask your lender for recommendations. We work with many real estate professionals and can find someone to suit your needs.

C MAKE AN OFFER: Choose the home that’s right for you and make an offer!

 

5) MAKING THE OFFER; A knowledgeable Realtor and the trust you have in them is of paramount importance. In this market we are turning from a buyer’s market to a seller’s market.  There may be multiple offers on the property and even second rounds of offers.  Your Realtor will be able to advise you about increasing the offer or when to walk away so you don’t over pay.  

6) CHECK THE HOME: Most loans need an appraisal but if you are buying a home that doesn’t require it, get an appraisal anyway. A third party unbiased appraisal should protect you from over paying.  Get a home inspection, although most home inspections tend to go overboard and make mountains out of molehills. It doesn’t hurt to know all the minor flaws and it can assist in getting a seller to credit you for the repairs.