Quicken Loan’s 1% Down Mortgage Program

It seems just about everyone is lowering mortgage down payment requirements to deal with rising home prices, this despite the near-record low mortgage rates still widely available.

You see, down payment is still the biggest hurdle to homeownership, and I suppose it was during the previous boom as well. That would explain why zero down mortgages were the norm back in 2006.

The major problem then was that you could also state your income, your assets, and not disclose your job, so long as you had a decent credit score. No skin in the game and no disclosure equals no good.

We’ve learned from those mistakes, I hope, and now underwriting is a lot more sound. Still, people want to buy homes, whether they’ve saved up a large down payment or not. And that would explain why Fannie and Freddie began offering 97% LTV mortgages.


Building off those programs are mortgages with grants that still give the homeowner a 3% down payment, but without the borrower actually having to come up with the three percent in funds.

Instead, many lenders are providing a 2% grant to homeowners and asking that they come up with the remaining one percent, which seems pretty fair.

The use of a grant is allowed under both Fannie’s HomeReady program and Freddie’s Home Possible Advantage, and some banks dole outs funds in accordance with the Community Reinvestment Act.


Quicken Loans 1% Down Payment Option

Interestingly, the largest non-bank mortgage lender in the country, Quicken Loans, quietly rolled out their 1% down payment option back in March, but there wasn’t a press release or any fanfare. There certainly wasn’t a Super Bowl commercial.

I don’t know why that is; I’m just here to tell you about the loan program in case you lack a down payment and are interested. If I had to guess, I’d say that it’s limited to certain types of buyers and thus a national rollout or major ad campaign might be misleading and/or a waste of money.

Anyway, let’s talk about Quicken’s 1% down loan program to see if you might qualify based on what I know about it.

First off, this program can only be used for the purchase of a home, no refinances are permitted. Quicken Loans provides a 2% grant and the borrower brings in the remaining 1% to make it a 97% LTV loan.

I’m not sure if the grant has to be paid back if the borrower sells or refis before a certain period of times passes. Inquire with Quicken about that.

Secondly, the property must be a one-unit owner-occupied property, which includes single-family homes and condos (and townhomes), but not co-ops.

When it comes to credit, the minimum FICO score required is 680, which is considered average (or perhaps a bit below average). So it’s pretty flexible in terms of creditworthiness.

Perhaps more importantly, you must make less than or equal to the median income for the county in which you’re purchasing the home. If the income limit is $75,000, you must earn that or less to qualify for the 1% down payment program.

Speaking of income, the maximum DTI ratio is 45%, which is standard.


Quicken’s 1% Down Might Not Require Any Funds from the Borrower

If there aren’t any additional overlays on this program versus the ones offered by Fannie and Freddie, no minimum borrower contribution is required, meaning the down payment funds and any reserves can be gifted.

The Quicken program also comes with a free “introduction to homeownership” course that is required for first-time home buyers, but available to everyone at no cost.

When it comes to loan types, you’re likely going to be limited to fixed products with a 30-year amortization. Put simply, probably the 30-year fixed unless you can afford and desire a 15-year fixed. That wouldn’t really make sense for someone lacking a down payment.

There will be mortgage insurance, seeing that the loan is well north of 80% LTV, but it might be at a reduced rate as it is via the Fannie/Freddie 97 programs.

I have no idea what the mortgage rates are like, but I assume higher than what you see advertised to account for the higher risk of putting just one percent down. But seeing that rates are so low at the moment, they’ll probably still look pretty favorable.

For the record, Quicken is just one of many lenders out there offering grants to home buyers to push the down payment requirement down to just 1%, so you can always shop around to compare different interest rates and program requirements by lender.

Recently, Guaranteed Rate launched a similar program, as did United Wholesale Mortgage (if you’re using a mortgage broker).

Other regional lenders, such as Fifth Third and BancorpSouth, have introduced zero down offerings.

The mortgage market is changing rapidly to account for higher home prices. So take the time to compare all options, including FHA loans, to see what the best fit is for your situation.

source:  thetruthaboutmortgage.com

Will a Change in FICO Make it Easier to Get a Mortgage?

Somehow it doesn’t seem fair that so much can depend on a single number. Your credit score, whether from TransUnion, Experian or Fair Isaacson Corporation (FICO), can make the difference between owning your own home and renting. It can also cost (or save) you tens of thousands of dollars on interest, since lenders set your rate to reflect the quality of your credit score.

When it comes to mortgages, FICO is the score that matters most. Fannie Mae and Freddie Mac set standards like credit requirements, and since they prefer FICO, lenders comply. It also helps that these two government-chartered companies have programmed credit score requirements into the automated underwriting programs they provide to lenders.

What many borrowers don’t realize, though, is that the algorithms behind their credit scores are not static. They are updated from time to time, and those updates can impact your mortgage.

The Process of Modernizing Credit Reporting

In recent years, as credit reporting companies have improved and updated their models to reflect how consumers use their credit, Fannie and Freddie have been slow to comply, in part because of the difficulty and cost of changing their automated underwriting programs.

Fannie balked at using the newest model, FICO Score 9, which was introduced 2014 and provides fairer treatment for those consumers whose scores have been lowered by medical bill collection accounts in their credit files or who have files with scant information because they make little or no use of the traditional banking system. According to Fair Isaacson, which owns FICO, applicants whose only major negatives are medical collections stand to see their FICO scores improve by a median 25 points.

Pressure is mounting on the two companies to modernize their credit standards, both from Congress and a directive from the federal agency that oversees Fannie and Freddie. Look for these changes in the near future.

How Trended Credit Data Will Save the Day

By mid-year 2016, Fannie Mae will begin incorporating trended credit data into its automated underwriting platform. No longer will lenders be limited to making an approval decision on the basis of a single score.

Trended credit data will enhance the static snapshot of a consumer’s credit balances with 24 months of historical data, such as payment and balance. It will help lenders examine and consider how consumers are managing their credit accounts over time. Today, lenders can see consumers’ existing balances on accounts and whether they have paid their bills on time; however, they cannot tell if consumers are consistently carrying debt loads on revolving accounts such as credit cards, or whether they pay their balances in full every month.

For example, a consumer with a large credit card balance who pays it off in full every month could be a better credit risk than a consumer with a large credit card balance who makes only the minimum payment each month. And for consumers who don’t have a large amount of available credit, but pay their balances every month, trended credit data may help originators determine if they are a good credit risk and better their ability to obtain a mortgage loan.

“For some consumers who don’t have a large amount of available credit, but pay their balances every month, trended data may potentially improve their ability to obtain a mortgage by providing lenders with a more complete picture of their credit behavior over time,” Crabtree said.” said Craig Crabtree, General Manager of Equifax Mortgage Services, which will provide the trended data.[1]

Alternative Credit Scores May Be an Option

Legislation was introduced late last year by two powerful members of the House Banking Committee that would require federal regulators and the GSEs to adopt alternatives to FICO that are more inclusive and updated models that incorporate non-banking forms of credit, such as rent, utilities, and cellphone payments to supplement a standard credit file.

If passed, the legislation would allow lenders to use scores from FICO’s competitor, VantageScore, which claims it can provide scores on as many as 35 million consumers, many of whom didn’t have enough credit history to have a score. Many are young, just starting out in their careers. Disproportionately, they are minorities.

Even if the legislation doesn’t pass, it will put serious pressure on the GSEs to modernize their credit reporting policies in the near future.

source: totalmortgage.com

Getting a Mortgage in 2016? Here’s What You Need to Know

As recently as two years ago, only 17 percent of all applications for a mortgage to buy a home were approved.[1]  Approval rates have improved greatly since then for two reasons.

First, borrowers are doing a much better job of getting their credit, debt, and documentation in order before they apply.  Second, lenders have slowly relaxed some of the standards they use to approve applications.

As you gear up to buy a house in 2016, here are a few things you should know about the mortgage industry.



More Easing of Credit Standards

Mortgage lenders expect to continue easing their standards in 2016, according to a fourth quarter survey of major lenders by Fannie Mae.[2]  The findings show that during the first quarter of the year, 16% of lenders expect to ease credit requirements for loans that conform to Fannie Mae’s and Freddie Mac’s underwriting standards and for government-backed loans like FHA and VA.

Meanwhile, the percentage expecting to tighten standards dropped to 2%.  However, for other loan types, such as conventional loans, fewer lenders said they would ease loans over the first quarter.

FHA and VA loans are already significantly easier to qualify for than conventional loans.  For example, the median FICO scores for purchase loans approved in December were 688 for FHA, 706 for VA and 754 for conventional—a huge difference.[3]  Based on the Fannie Mae survey, look for that difference to increase in the months ahead.

Rising interest rates

While standards slowly improve, interest rates are expected to slowly worsen for home buyers.  Most forecasts have rates ending the year between 4 and 5 percent on a 30-year fixed rate mortgage.

Ironically rates have actually fallen when most experts expected them to rise in the wake of the Federal Reserve’s decision in December to rates for the first time in nine years.  Though they will probably be higher a year from now than they are today, they will still be very low compared to historic rates.

Down Payments 

While easier lending standards and slowly rising rates don’t greatly increase the cost of buying a home, down payment requirements aren’t going to change much either.

The average down payment in the first quarter of last year was 14.8 percent of the purchase price, down from 15.5 percent a year ago to the lowest level since Q1 2012. However, the average down payment in dollars for 3.5 percent FHA purchase loans originated in the first quarter last year was $7,609 while the average down payment for conventional loans backed by Fannie Mae and Freddie Mac was $72,590.[4]

One of the reasons the average down payment declined last year was the popularity of low down payment loans.  Loans with 3 percent or lower down payments accounted for 27 percent of all purchase loans in the first quarter last year, up from 26 percent in the fourth quarter and also 26 percent a year ago to the highest share since Q2 2013. Low down payment loans accounted for 83 percent of FHA purchase loans originated in the first quarter, while 11 percent of conventional loans were low down payment loans.[5]

First-time buyers should check out the thousands of low or no down payment programs sponsored by state and local housing authorities.  Check out Down Payment Resource for more information.

Mortgage insurance in 2016

Fannie Mae and Freddie Mac both launched 3 percent down payment programs a year ago and these have been extended through 2016.  However, like FHA, they both require mortgage insurance, which adds to the monthly cost of homeownership.

To encourage first-time buyers, last year FHA announced a 50 percent reduction in the monthly mortgage insurance premium.  All three of these initiatives are being continued this year.  More good news: in the waning hours of 2015 Congress extended the deductibility of mortgage insurance payments; at least for 2016, you will be able to deduct your mortgage insurance premiums from your federal taxes, just like you mortgage interest.

This tax provision only has a one-year lifespan, but Congress has extended it for the past few years though there no guarantee it will continue in the future.


[1] Ellie Mae Origination Insights Report, January 2014

[2] http://fanniemae.com/portal/research-and-analysis/mortgage-lender-survey.html

[3] Ellie Mae Origination Insights Report, December 2015

[4] http://www.realtytrac.com/news/home-prices-and-sales/q1-2015-u-s-home-purchase-down-payment-report/

[5] Ibid

source: totalmortgage.com

Raise Your Credit Score with These Tips

When it comes to getting a good deal on a mortgage, your credit score may be even more important to you than you realize.

It’s one of the three most important metrics lenders use to decide whether or not to approve your mortgage application; the higher your score, the more confident they are that you will make your monthly payments on time. Most home buyers don’t know how much their credit scores impact the mortgage rates they will pay.

Let’s play with some numbers.* A $250,000, 30-year fixed mortgage will require monthly payment of principal and interest of $1,527, for a borrower with a 620 score. That’s a total of $299,821 of total interest paid over thirty years.

If you have a better credit score of 700, you are considered a less risky borrower. You can expect to pay $1,313 monthly for a total of $222,689. If you have an extremely favorable credit score of 780, you fall into the top-tier range of borrowers, and lenders will likely offer you a lower mortgage rate along with more loan choices. Your monthly payment will be $1,280 for a total of $210,681.

Here are some tips to help you get your credit under control and turn it into an asset if it is a liability today.

Start now. Credit scores don’t change overnight. If you plan to buy a home a year from now, you need to get to work immediately in order to get your credit in shape by the time you apply.

Do a reality check. Order your credit histories from the three primary credit bureaus: Experian, Equifax and Transunion. Review them for accuracy. You’ll see immediately how detrimental making a payment that is late by only a few days can be to your credit.

If you see errors that you can document, ask for them to he removed. Take note of any really serious marks against you like foreclosure, bankruptcy, tax liens and collections actions. If you have any of these, they will remain on your record for five to seven years and you will have to work extra hard to improve every other aspect of your credit to qualify. Sign up for a service that will notify you of changes in your credit.

Pay your bills on time. If you have missed payments, get current and stay current. Sign up for a “wallet” program through your bank or online service. Pay your bills through your bank so that there is no delay.

With today’s technology, there is no excuse for ever making a late payment to a regular monthly creditor. The longer you pay your bills on time after being late, the more your FICO Scores should increase. Older credit problems count for less, so poor credit performance won’t haunt you forever. The impact of past credit problems on your FICO Scores fades as time passes and as recent good payment patterns show up on your credit report

Reduce your use of credit. Most people use their credit too much. Create a budget and learn to live on a cash basis. Use your credit cards only for purchases you can pay off quickly or for emergencies. Keep balances low on credit cards and other “revolving credit”; high outstanding debt can affect a credit score.

Don’t close unused credit cards as a short-term strategy to raise your scores, but don’t open new credit cards just to increase your available credit. Reducing your balances is important, but taking the next step and closing cards won’t really improve your case; lenders like to see that you have credit available. A closed account remains on your credit report.

Especially, do not close your oldest credit card account. A long history of using and making monthly payments will improve your score. However, this is certainly not the time to open new credit cards. New accounts will lower your average account age, which will have a larger effect on your scores if you don’t have a lot of other credit information. Rapid account buildup can look risky if you are a new credit user.

Keep balances low on credit cards and other “revolving credit”. This is also not the time to make large purchases. Rather reduce your outstanding debt by increasing your monthly payments. If making minimum payments has been your practice, stop now and pay more.

Have credit cards – but manage them responsibly.
In general, having credit cards and installment loans (and paying timely payments) will rebuild your credit scores. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

Don’t relax until you have closed on your new home. Mortgage lenders often pull the credit history of a customer the day before they close. If there is a significant change in their FICO or a new purchase that raises their debt, they are within their rights to raise the interest rate or cancel the mortgage altogether. Don’t relax until they hand you the keys to your new house.



*These are for demonstration purposes only. Your numbers may differ.

source: totalmortgage.com

Seven Ways to Lower Your DTI

Your debt-to-income (DTI) ratio is one of the three most important factors that lenders look at when deciding whether or not to approve you for a mortgage (the other two? Your FICO score and the loan-to-value ratio, which varies with the price of the house you plan to buy).

DTI is considered especially important in determining your ability to repay the mortgage.

It is computed with your total monthly debt payments and gross monthly income (before taxes are taken out). It is expressed one of two ways, either including your estimated monthly mortgage payments (”back end”) or your debt obligations before you take out the mortgage (“front end”).

In 2014, an important new rule promulgated by the Treasury Department had a major impact on DTIs. Known as the QM Rule and designed to toughen ability-to-repay requirements, it had the effect of limiting DTIs to 43 percent. That means borrowers with DTI’s above 43 won’t get loans.

In practice, lenders are actually even more conservative; the median back-end DTI is about 37 percent for approved mortgages. That means most monthly debt payments including mortgage payments total no more than 37 percent of total monthly gross income.

DTI can be a killer for young adults making sizable student loan payments or for consumers who have run up debt. However, even those with long-term debt payments like student loans, auto loans, or back taxes can get a mortgage if they improve their DTI.

Here are five steps anyone can take to lower their DTI.

1. Pay off your smallest debts first.

Even a hundred dollars on a credit card requires a minimum monthly payment, which will increase your DTI. Pay these off in full. Dollar for dollar, you will get more debt reduction with this tactic than any other.

2. Refinance high APR credit card debts with a low APR card.

APR means annualized percentage rate—the actual interest you pay over a year. It’s a way to look at the interest you are paying without focusing on special introductory rates, which can be misleading. Many lenders offer cards with very attractive APRs to customers who have good credit ratings.

If you have cards that are past their introductory period, though, you may be paying a higher APR than you need to. Contact one of the major credit card lenders to see what they will offer in the way of a lower APR card. When you find one, consolidate your high APR debts under your new low APR card. You will reduce your monthly debt load and pay at a lower rate of interest. In a year, review where you stand. If the marketing rate that made your new card attractive has expired, consider finding a new one and consolidating again.

3. If you thought you outfoxed the dealer and got a great deal on a new or used car, check again.
You might be paying interest at a rate much higher than you need to. The median APR for car loans today is 4.38% for a 60-month loan (five years) on a new car and 5.2% on a 36-month loan a (three years) for a used car. Refinance your car with the most competitive rate you can find from an online lender.

When you refinance, you can increase the length of time of the loan if you have had your car for a reasonable length of time. Lowering the interest and stretching out the principal over a longer period of time could significantly reduce your monthly payments.

4. Refinance long-term debt to lower your monthly debt payments by stretching out the term of your loan and take advantage of lower rates.
If you graduated more than three years ago, chances are good you can find a better interest rate today, depending on your credit rating. Remember, if the interest rate is the same, when you refinance a loan to lengthen its term, you will be paying more in interest over the long term than you would have if you had not refinanced.

5. Borrow from your 401K retirement plan at no interest to pay off smaller debts or pay down larger ones.
As you make future monthly contributions to your plan, a portion will go towards paying off the amount you withdrew. You will also have to pay taxes on your withdrawal. Repay the withdrawal as soon as you can to keep your retirement savings on track.

6. Get Government help.

In an effort to encourage new renters to convert to buyers, several government programs exist to help. Federal Housing Administration (FHA) loans allow borrowers to get into a home with a high debt to income ratio, allowing for a slightly higher mortgage payment amount than the buyer might normally qualify to pay. Veterans may be able to get assistance through a Veterans Administration (VA) loan, which allows the total amount of housing expense plus recurring debt to be as much as 41 percent.

For homeowners interested in refinancing, the government offers help through the Home Affordable Refinance Program (HARP). Before seeking this type of loan, borrowers should gather as much information as possible to help prove they’re working hard to pay down all debts. You’ll also need to have been on time for all of your payments for at least the past year and have credit in good standing. HARP primarily targets homeowners who have a small amount of equity in their existing homes or who currently owe more than their home is worth. Borrowers may have to check with several lenders to find one who offers HARP as a refinancing option.

For those with high debt-to-income ratios, landing a home loan may be challenging, but it’s far from impossible. By lowering debt and working directly with lenders to learn about all the options available, borrowers can get into a home and begin to work on paying off all of those debts to make the next purchase easier.

7. Increase your down payment.
While this may not be a viable option for someone with a high amount of debt, you can boost your chances by putting up a large down payment. The less you have to borrow, the less strict the requirements, increasing your chances of success. A large down payment shows the lender that you’ve invested in the property, as well, reducing the risk that you’ll abandon the property before the mortgage is paid in full.

The bottom line

Take a hard look at your debt situation before you start applying for a loan. Compute your DTI. Count only income you can document with pay stubs or tax returns.  If you find yourself close to the 37 percent threshold, take steps now to reduce your monthly debt payments.

source: totalmortgage.com

6 Ways to Fight Rising Interest Rates

Mortgage interest rates have been hovering between 3.5 and 4 percent for the past 18 months, refusing to rise as quickly as many forecasters had predicted. That means many have been able to lock down favorable rates without the threat of a drastic increase hanging over their heads.

However, later this year, the Federal Reserve is expected to raise its benchmark rate, which has held near zero since December 2008. This can happen as soon as its next policy meeting in mid-September or, more likely, in December.

The long awaited increase is a good sign for the economy as a whole; it’s continuing to expand at a moderate pace, driving solid job gains and declining unemployment. For real estate markets, though, the news isn’t so great.


Likely, the rate hike will be enough to drive rates on 30-year fixed mortgages to well over 4 percent and perhaps closer to 5. With this hike looming, now is a good time for buyers and refinancers to consider their options. These include:

1. Adjustable Rate Mortgages (ARMs). ARMs are a great way to keep rising rates from busting your budget, at least for the first five years of the loan, when you pay little or no interest. When it resets, you can take sell or take your chances on a refi if you have enough equity. ARMs are a good idea if you don’t plan to own the house a long time.

2. Fix up Your FICO. When they get loan terms from their lender, many buyers wonder what happed to the super low teaser rates their lender promised in its advertisements. Those “bait” rates are real, but they’re just not available to everyone—just those with fantastic FICOs and moderate-sized loans.

Lower FICO scores translate into higher risk for lenders and their investors, so they raise rates to compensate for the risk. By working hard to improve your credit score—reviewing your history, paying bills on time, avoiding taking too much credit, keeping credit card balances down—you can raise your FICO and lower the interest rate on your mortgage.

3. Increase Your Down Payment. By increasing your down payment, you fight rising rates two ways. First, you reduce the amount you will have to borrow and, in turn, the amount of interest you will have to pay. With a smaller loan you may also get a lower interest rate; smaller loans reduce lenders’ risk and a lower rate can result.

4. Lock Your Best Rate. Rates change every day and they vary slightly by location. You can improve your chances of getting the best possible rate during the time that passes between your loan approval and closing by asking your lender for the right lock your rate, usually within a 30 day period. Follow mortgage rates as closely as you can and time your lock to coincide with a low point.

5. Buy a Cheaper House. If the house costs less, your loan is going to be smaller. With a less expensive house, you may also be able to put more down, reducing your principal even more. With a smaller loan, you should also realize a lower rate.

6. Shop for Rates. Lenders compete aggressively by the rates they offer. Like any business, some will offer more favorable rates than others to bring in more business. Also, lenders with access to capital at lower cost can afford to charge lower rates. Shop around for the best rates by sharing your FICO score with the lender so that they don’t quote you a “bait” rate you will never see.

source: totalmortgage.com

You Can Get Interest-Only Mortgages from Mortgage Brokers Again

Party like it’s 2006! Mortgage brokers are now able to peddle interest-only mortgages to qualified borrowers nationwide.

Oh wait, that last part about being qualified isn’t really reminiscent of 2006, but I’ll get to that in a moment.

This week, United Wholesale Mortgage announced a new offering, interest-only mortgages, those which happen to fall outside the ever-important Qualified Mortgage (QM) rule.

That means they’re pretty hard to come by these days, especially via a smaller bank that isn’t dealing in jumbo loans to wealthy clientele.


UWM also happens to be a wholesale mortgage lender, meaning they work with mortgage brokers who connect with homeowners.

 Here We Go Again?


Both mortgage brokers and exotic loans types like interest-only mortgages were blamed for the most recent housing crisis, but this time things seem to be a little different, at least for now.

The lender, which claims to be “one of the nation’s largest and fastest-growing wholesale lenders,” has some pretty tough requirements attached to the loans.

For one, you need a minimum FICO score of 720, so there certainly won’t be any subprime interest-only stuff floating around.

And perhaps more significantly, you need to bring at least 20% for a down payment, as the max LTV is 80% on this new program.

That’s certainly important, given the fact that an interest-only loan only pays off interest, no principal. So if home prices are flat, or worse, fall, the borrower could wind up with little to no equity to serve as a buffer for the lender in the case of default.

The program also calls for a max DTI ratio of 42%, strangely one percentage point lower than the max DTI on QM loans.

So one might say it’s quite a bit different this time around, even if it’s still an interest-only mortgage.


Not Your Uncle’s Interest-Only Mortgage


During the lead up to the crisis, it was common to see IO loans with no money down that only required subprime credit scores. Obviously lending like that when home prices were peaking was a recipe for disaster.

Today, UWM sees the offering as a way for “savvy” homeowners “to save additional discretionary income.”

In other words, they can afford a fully amortizing mortgage, but they want to pay interest-only so they can put their money elsewhere.

There’s no problem with that, so long as the borrower is actually savvy and knows what they’re getting into. And also has a way to get out of it if things don’t pan out.

Brokers should get a competitive boost as well by gaining access to a wider product range to offer borrowers.

For the record, their IO product is just like the stuff that came before it – a 10-year IO period followed by a fully amortizing 20-year payback period.

That means monthly mortgage payments will jump once the initial 10 years are up, though if these borrowers are truly qualified, they should be able to handle it. Or simply refinance or sell before that time is up.

In any case, it’s definitely interesting to see lenders dipping their toes back into the interest-only pool, especially seeing that the Consumer Finance Protection Bureau refers to IO loans as “toxic.”

source: thetruthaboutmortgage.com

Five Reasons to Buy a House Right Now

You might go back and forth on whether to buy a house. However, if you’ve been on the fence for years, now might be the right time to purchase.

Buying a home is a huge investment that can pay off in the long run. You can build equity and add to your personal net worth, plus you can enjoy predictable monthly payments and the possibility of living house-payment free in the future.

Since buying a home has become much harder in recent years, some people don’t apply for financing for fear a lender will reject their application. However, given present conditions with the housing and mortgage market, there are five good reasons to buy a house right now.

1. Mortgage Rates are on the Move

About three years ago, mortgage rates hit a new all-time low. They have increased over the past two years, yet still remain relatively low. And since the interest rate plays a role in how much you pay monthly, getting a low-rate mortgage results in a cheaper house payment and increases purchasing power. However, rates won’t remain low forever.

Some money experts predict mortgage rates will continue to increase throughout 2015. There’s no way to know exactly how much they will increase, but some experts believe rates will rise to 5.5 percent by the end of 2016.

2. Greater Inventory of Houses for Sale

The demand for housing has calmed down in several housing markets, causing prices to stabilize. And since there’s a greater pool of houses to choose from, it’ll be easier to get what you’re looking for at an affordable price.

“Inventories are at their highest level in over a year,” said Lawrence Yun, Chief Economist at the National Association of Realtors.

Additionally, some markets maintain a steady supply of foreclosures and short sales. These properties often sell below market value, so it’s an opportunity to purchase more house for your money. Just know that it takes longer to close on a foreclosed or short sale property. And in most cases, you’re buying these houses as-is, so be prepared to spend money on improvements or repairs.

3. Home Prices are Starting to Increase

Home price gains have been steady over the past couple of years, but prices are beginning to inch upwards in some areas as the housing market improves. If you’re looking to get in a property while prices are stable and affordable, now’s the time to submit your application. The longer you postpone ownership, the greater the chance homes will appreciate in value, driving up sale prices.

4. Renting Isn’t Getting Any Cheaper

Renting offers flexibility and you’re not responsible for major repairs. However, rent prices aren’t stable. In some areas, renting is more expensive than buying. Take San Francisco for example. According to Realtor.com, the average renter spends approximately 42 percent of their monthly income on rent. And nationwide, rents are rising at about four percent a year.

At this rate, an affordable apartment today might not be so affordable in just a few years. Buying, on the other hand, is the chance to lock in a fixed rate and enjoy predictable payments for the life of the mortgage.

5. Lenders are Softening their Requirements

After 2008, lenders imposed stricter credit requirements for mortgages. Some banks only approved applicants with minimum credit scores of 680 or 700. And unfortunately, this excluded many would-be homebuyers. More recently, some lenders have started relaxing their credit requirements, providing a borrower has sufficient income, a down payment and a cash reserve.

Additionally, a survey conducted by the Federal Reserve in the third quarter of 2014 says, “14 percent of banks reported an easing of mortgage loan standards.” According to the report, “banks are reducing FICO requirements, lowering qualification hurdles and helping more loans get to closing.”

Bottom Line

If buying a home is your goal, don’t give up. It’s not as easy to get your foot in the door nowadays, but it’s possible. The key is education and knowing what to expect from the lending process.

source: totalmortgage.com

Mortgage Closing Rate Surpasses 60% in June

While mortgage volume might not be what it once was, it seems more of those loan applications are actually funding these days.

The latest Ellie Mae Origination Insight Report released today revealed that the “pull-through” rate topped 60% for the first since such tracking began back in August 2011.

The closing rate is the percentage of loan applications initiated in the previous 90-day cycle that have closed.

In other words, 60.7% of all loans initiated in March closed successfully, up significantly from 57.8% in May and well above 54.3% in June 2013.

So despite there being a lot less business out there, as evidenced by recent second quarter earnings reports from the likes of Chase and Wells, it seems more of it is reaching the finish line.

That’s certainly good news as banks struggle to reap profits from mortgage lending.

 The Closing Rate Has Been Steadily Rising

 

Since the beginning of 2014, the closing rate has increased fairly steadily from 54.9% in January to nearly 61% last month.

The improvement has been seen in both purchase applications and refinances, with the former hitting 63.6% in June and the latter climbing to 55.8%.

Broken down by loan type, the FHA loan pull-through rate was 57% in June, up from 53.6% in May and 51.9% a year earlier.

For conventional loans, 61.6% of loans closed in June, up from 58.7% in May and 59.2% in June 2013.

The VA loan closing rate was 58% last month, up from 56.2% in May, the first month tracking began.

Overall, closed loans had an average FICO score of 728, which was up slightly from previous months, but well below the 738 average seen in 2013.

The average loan-to-value ratio was 82%, the same as it has been all year long, though up marginally from 81% in 2013.

Closed loans also exhibited faintly higher DTI ratios, with 24/37 the average, up from 24/36 in 2013.


What Denied Applications Look Like

 

Wondering what happened to the other 40% of loans? Well, the ones that were flat out denied had an average FICO score of 686, which was lower than the 689 average in May and the 699 average for all of 2013.

So clearly lenders have become a little looser in terms of credit-related underwriting standards.

At the same time, the average LTV ratio of a denied loan was 82%, which is lower than the 84% average seen last year, though that could have more to do with fewer high-LTV HARP refinances being submitted these days.

Despite FHA loans allowing for FICO scores as low as 500, the average FICO for a closed FHA app was 672 last month, whereas a denied loan was just 640.

LTV ratios were pretty similar among closed and denied apps, but DTI ratios were markedly lower on closed FHA loans.

So keeping debt low going into a mortgage app is especially important if your income isn’t too hot.

For conventional loans, the average FICO for a closed loan was 733 in June, compared to a 695 score for denied applications.

High DTI ratios were again an issue on denied apps, whereas LTVs were pretty similar for both those approved and denied.

For the record, applications not reported as denied or closed may still be active, withdrawn, or closed due to incompleteness.

source: thetruthaboutmortgage.com

Get a better mortgage deal with these six steps

For most would-be homebuyers, making a run at homeownership is going to mean getting approved for a home loan.

It's a process that, at best, can be stressful and confusing. Borrowers can be better prepared by taking steps to study their options and learn what to expect from a lender.

"It's surprising to me that people tend to spend more time in pre-purchase research for a car than they do for a home mortgage," says Chris George, president of home mortgage lender CMG Financial.




Keeping up to date on changes in the mortgage market is necessary, because the government, which essentially backs 90 percent of new home mortgages, keeps tweaking the guidelines for the loans it will guarantee.

In early April, for example, the Federal Housing Administration put into effect several new mortgage rules, including one that raises the cost of mortgage insurance for borrowers who take on FHA-backed loans, among other changes.

Here are six tips for improving the chances that the mortgage math will add up in your favor:

1. BUILD A STRONG CREDIT SCORE

One of the main factors that lenders look at to determine a borrower's creditworthiness is, aptly, their credit score.

Bad borrower behavior like late credit card or other loan payments, having a foreclosure or bankruptcy in one's credit report and carrying high balances will weigh down your credit score.

Most banks sell the home loans that they make to government-owned mortgage companies such as Fannie Mae and Freddie Mac. To do that, those lenders must adhere to certain lending criteria.

Loans backed by the Federal Housing Administration will accept FICO scores below 600, but expect to pay a significantly higher interest rate the lower your score. A stellar score ranges from 760 to 850 and can give you greater negotiating power over the terms of the mortgage and ultimately, the total cost of the loan.

One way to mitigate the impact of a low score: Make a higher down payment, George says.

If your credit is less-than-stellar shape, make sure you give yourself time to rack up good credit history well before you attempt to apply for a home loan. This starts by checking your credit.

Consumers are entitled to a free credit report every 12 months from each of the credit bureaus: Experian, TransUnion and Equifax. You can get copies at www.annualcreditreport.com .

2. KNOW YOUR LOAN OPTIONS

Apart from increasing the chances of qualifying for a loan, making a down payment of at least 20 percent of the sales price or appraised value of the home will spare you from having to pay private mortgage insurance.

If you can't afford that, you might qualify for financing on an FHA-backed loan. Those loans allow borrowers to make a down payment of as little as 3.5 percent of the purchase price. That's great if you're a first-time buyer and haven't saved up for a bigger down payment. But to protect itself from potential loan defaults, the FHA requires lenders to charge extra fees to cover monthly mortgage insurance payments.

Until this week, the FHA had dropped the mortgage insurance requirement for homeowners with 30-year loans who made payments for five years and managed to bring their loan-to-value ratio to 78 percent. Now, borrowers with a loan-to-value ratio between 78 and 90 percent will be able to stop making mortgage insurance payments after 11 years. But those borrowers who still have a loan-to-value ratio greater than 90 percent will be required to pay mortgage insurance for the life of the loan.

"No matter how much of your loan you pay down, you'll always have to pay that insurance premium, and that's pretty significant change," says Rick Sharga, senior vice president at mortgage lender and servicer Carrington Mortgage Holdings.

Another change that went into effect: The FHA is requiring that borrowers put down at least 5 percent on home loans of $625,000 or more. That's up from 3.5 percent, but actually less than the 10 percent down that most lenders require.

3. CONSIDER MAKING A LARGER DOWN PAYMENT

Given the prospect of not being able to get out of paying private mortgage insurance, some experts say borrowers who can afford to put down more than 3.5 percent on a home should consider getting a loan that's not backed by the FHA, sometimes known as a conforming loan.

Such a loan typically only requires that the borrower make a 5 percent down payment. Although that means you still would have to pay private mortgage insurance, at least you're not locked in, notes Jack Guttentag, Wharton School professor of finance emeritus and founder of www.mtgprofessor.com , which offers advice and online calculators for weighing different mortgage scenarios.

That mortgage insurance can be cancelled automatically when the loan-to-value hits 78 percent. "You're generally better off getting a conforming loan," Guttentag says.

4. KEEP AN EYE ON FEES

In addition to a down payment, you'll also have to set money aside for closing costs, which can run into the hundreds or sometimes thousands of dollars.

Lenders charge all manner of fees, some of which are negotiable, while others are not. They are required to itemize all fees required to close the deal, so review them carefully.

Your bank could charge you to cover items such as credit reports, appraisals, documentation and administrative costs. The total expense will vary depending on where you live and your particular situation.

Also, if you end up with mortgage insurance, that could cost $100 or more a month, depending on the type of loan.

5. WAIT FOR A GOOD DEAL

Rising home prices and warnings, usually trumpeted by lenders, that interest rates will soon rise can create a sense of urgency to purchase a home. But if your finances and credit score are not solid enough to enable you to qualify for a loan at an affordable rate, it's best to not rush into buying.

To boost your chances of getting a good deal on a home loan, Guttentag recommends having a credit score of 740 or better, making a down payment of 20 percent.

6. COMPARISON SHOP

It's prudent to get a feel for what different mortgage lenders will offer. After all, getting a home loan is not unlike getting financing for a car. There is some room for negotiation, says George.

He suggests borrowers approach lenders and state what kind of loan term and interest rate they want, and how much of a down payment they're willing to make. Borrowers also should ask what can be done to accomplish this with the least amount of points, or fees that can be charged based on a percent of the loan amount.

As leverage, it's best to have quotes from competing lenders, which can be obtained on several websites. They may be enough to sway the lender to match more favorable terms offered by the competition.

In addition to Guttentag's site, you can find mortgage calculators and pricing quotes at www.bankrate.com and www.zillow.com/mortgage-rates .

source: newsday.com