Even for loans already originated for funding after January 1st, 2018!
The Federal Housing Finance Agency (FHFA) has issued the maximum loan limits that will apply to conventional loans to be acquired by Fannie Mae in 2018. The first mortgage loan limits are defined in terms of general loan limits and high-cost area loan limits. The limits are increasing in 2018. First Mortgage Loan Limits The following chart contains the general loan limits for 2018: Units General Loan Limits Contiguous States, District of Columbia, and Puerto Rico Alaska, Guam, Hawaii, and U.S. Virgin Islands One $453,100 $679,650 Two $580,150 $870,225 Three $701,250 $1,051,875 Four $871,450 $1,307,175 The high-cost area loan limits are established for each county (or equivalent) and are published on Fannie Mae’s website and on FHFA’s website. The maximum limits for 2018 are: Units High-Cost Area Loan Limits Contiguous States, District of Columbia, and Puerto Rico* Alaska, Guam, Hawaii, and U.S. Virgin Islands One $679,650 $1,019,475 Two $870,225 $1,305,325 Three $1,051,875 $1,577,800 Four $1,307,175 $1,960,750 * A number of states and Puerto Rico do not have any high-cost areas in 2018. High-cost area loan limits are derived from median home prices estimated by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD). FHA will permit a 30-day appeals period during which requests for individual area median home price increases will be evaluated. FHFA will issue a subsequent announcement if any individual high-cost area loan limit is increased as a result of the appeals process. Updates resulting from subsequent FHFA announcements will be posted on Fannie Mae’s website. Loans subject to the high-cost area limits are referred to as high-balance loans and must comply with the high-balance loan requirements described in the Selling Guide. © 2017 Fannie Mae. Trademarks of Fannie Mae. 11/28/2017 2 of 2 Second Mortgage Loan Limits The loan limit for second mortgage loans for 2018 is $226,550 (or $339,825 in Alaska, Guam, Hawaii, and the Virgin Islands). As stated in the Selling Guide, lenders must obtain approval from Fannie Mae to sell or service second mortgages. Fannie Mae is not currently acquiring second mortgages. Application of the Limits Based on Original Loan Amount All of the loan limits apply to the original loan amount of the mortgage loan, not to its balance at the time of purchase by Fannie Mae. Lenders are responsible for ensuring that the original loan amount of each mortgage loan does not exceed the applicable maximum loan limit for the specific area in which the property is located.
Effective Date The new limits are effective for whole loans delivered, and mortgage loans delivered into MBS with pool issue dates, on or after January 1, 2018. Whole loans delivered up through December 31, 2017, must comply with the 2017 limits. MBS pools with December 1, 2017 pool issue dates must comply with the 2017 limits, and MBS pools with January 1, 2018 pool issue dates must comply with the 2018 limits (even if delivered in December). Lenders must ensure the appropriate identification of highbalance loans at delivery using Special Feature Code 808. Desktop Underwriter® Implementation The 2018 loan limits will be applied to Desktop Underwriter (DU®) Version 10.0 and Version 10.1 loan casefiles submitted (or resubmitted) on or after the weekend of December 9, 2017. Also note that loan casefiles underwritten through DU prior to December 9 that receive an Ineligible recommendation due only to exceeding the 2017 loan limit may be delivered after January 1, 2018 (or in January 1, 2018 MBS pools). The loan casefile does not have to be resubmitted to DU if the loan amount complies with the applicable 2018 loan limit. Reference Materials To assist lenders in determining the applicable limits, we post reference material on the Fannie Mae website, including the Loan Limit GeoCoder™, which lenders can use to look up loan limits based on a specific address (or batch of addresses).
Non-Prime Lending today is fundamentally the same product I grew up with in the late 80’s and early 90’s and that was primarily offered by Finance Companies and Savings and Loans prior to that. These loans formally called Subprime, B&C Lending, Hard Money, and now mostly referred to as Non-Prime or Non-Dodd-Frank lending, Non-QM, Or even Alt-QM. The high fees usually associated with these products has been greatly reduced due to regulations, but there are still profits in the higher than market rates and still on average higher fees and costs than traditional FNMA or FHLMC Financing. “Back in the day” the typical double-digit start rate would also include 10%+ in points and over $2000 in junk fees and a very pricey prepayment penalty. Non-prime lending today more typically is priced from 1.5% to 4.00% higher than conforming mortgage rates and priced between 1-5% points with about the same in junk charges.
These loans are typically 30 years fixed or adjustable with 3-10 year fixed periods. Lenders sometimes offer Interest Only or 40 year amortization options. To determine a non-prime loans pricing, we need to determine the RISK. Below is a diagram of a lenders grid. You can easily see how the combination of Credit Score, Loan To Value, Mortgage History and Significant Credit Events and Transaction Type can affect your interest rate.
You can document your income with traditional pay-stubs, W-2’s or 1040’s or you can use Bank Statements. You can even use bank assets in a way that determines monthly income based on those those assets. Stated Income is an option once again, as is Stated Investor Income, where as residential investment property is qualified based on the Debt Service Coverage Ratio in an appraisal.
This loan was always primarily associated with equity lending. However prior to the great recession (depression for me) the product’s LTV’s started to elevate. With the introduction of Wall Street securitization, credit depth and makes sense lending went out the window. And so after Gramma on fixed income could buy a dream home with stated income on an 80/20 loan combo with a foreclosure the week prior. A true low in the lending industry. This time the product has re-emerged in its earlier more conservative form.
These loans can be used to do all of the following types of transactions. Purchase a home, Refinance a Home, Cash-Out your equity in a primary residence or an investment property. You can fix and flip a property. You can use these as home improvement loans. You can use these as swing loans as their are many times no prepayment penalties. You can use these loans to buy unique properties like non-warranted condos, or high rise condos. You can use these loans to borrower a down payment for another property. You can use these loans to close BK 13’s or cure a foreclosure. That’s a lot of uses and I am sure I’ve missed a couple.
It makes sense that the higher leverage or Loan To Value (LTV) you need, the higher the rate should be, and as you add risk, you can see that the available LTV does drop even as the rates rise. So a 700+ credit score with 0x30 and LTV of 50% is a much LESS risky loan than the 550+ 1×90, previous BK on a cash-out refinance.
The key to these loans is to have a direct conduit. Some companies layer on many fees and added expenses. These loan fees can be negotiated in some cases. Don’t be afraid to ask for exceptions to make a deal fit. This isn’t the conventional lock desk. And make sure to work with a competent seasoned licensed Loan Originator
It’s important to be honest with yourself when pricing these loans. You MUST have a complete application and understand all the pitfalls of your borrower and the property. It’s a big difference lending on a Single Family Residence rather than a Mobile Home. In fact, its a decline versus an approval in many cases.
Let’s take a look at pricing adjustments. Once you’ve determined your base rate and LTV. You need to check your adjustments. These are typically additional risk layers a lender is making adjustments for to maintain their own profitability on a loan. It makes sense, that if you want Interest Only that loan is inherently more risky as the balance of the loan doesn’t drop for years. And again, it makes sense that a property that is NOT your primary residence is a more risky loan and at greater risk for default if you have a life event. These adjustments typically are added to rate and sometimes rate and cost.
Non prime lending is filling needs for borrowers who have good cash flow but come tax time tend to show lower results due to deductions and a variety of reasons. Or for people who have had significant credit events. These financing options are great for people trying to get to the next level in their investments by risking a little more in interest rate to have easy to obtain financing. People trying to get out of BK and have equity in today’s environment. People trying to get current on their mortgages after years of modified mortgages and foreclosure fees. These are great options for those that finally were able to get rid of their homes but were ready to buy years ago, only to be stalled with that active zombie foreclosure.
Debt to Income Ratios are higher, right around 50%, Income Doc requirements are fluid and there are many different ways to document your income. Again the less income documentation you can provide the higher the rate and cost. Stated Income being the most expensive, but available.
Loan Amounts vary greatly. You can get small loans under $100,000 to well over $5 million with some lenders.
This financing is heavily dependent on the property as collateral. This is after all equity lending in reality. The underlying protection in all these loans is that if you or your client defaults, the lender will take the property. And it won’t be some zombie foreclosure. These lenders will act.
These loans are available in most states. Many state and federal limitations apply. These loans are risky and after the collapse in 2008, the market for this product has only recently begun to spike. Lenders are still gun shy from the risky lending days of the past. Although memories are very short.
And these loans are still risky. They should not be taken out without a good plan for repayment. These rates are higher and terms are more onerous than conventional conforming financing. You should ALWAYS make sure you don’t qualify for conforming financing before you consider these non-prime products.
This article was not an advertisement or an offer to lend.
We primarily work with Realtors and Borrowers. During transactions in a ‘hot market’ like right now it is not uncommon to experience an “appraisal cut”. It’s really not a cut but we industry peeps call it that when the appraisal value comes in lower than the sales price. Here’s why this happens and why an Appraisal Cut is actually an opportunity for the buyer.
The Appraisal Protects you and the Lender
An Appraisal Report is almost always required in a purchase transaction when financing is being used. This appraisal is required by a Lender. The purpose of the appraisal is to establish the Fair Market Value. To make sure a lender isn’t apart of a scheme or lending on an over inflated purchase price. They also want to verify what their equity position so they can determine Loan To Value and to make the loan salable on the open market. Among may other things these are the main items a lender is looking for.
Whew… But the appraisal also protects the buyer. Just because a Realtor and a Seller and a Buyer agree to a sales price it doesn’t necessarily mean that purchase price is the fair market value. What IF the buyer agent wasn’t all that good? Maybe he doesn’t realize the property is WAY over priced? Or worse, maybe he doesn’t care and just wants his commission. Rare, but unfortunately possible. The appraisal done by an IMPARTIAL certified appraiser make sure Buyers don’t fall prey to these mistakes, or intentional acts.
Is the Appraised Value Low or is the Sales Price Too High?
When a value comes in low, or notes required repairs, or has a “subject to value”. All parties should review the appraisal. And here is where your opportunity comes in. IF you have an Appraisal Contingency, you can back out of the transaction. Now most people don’t want to do this. If you like the house, its renegotiation time! Realtors hate it, but its a fact sometimes. You can ask the seller to reduce the price. They may not of course, especially if there are other qualified buyers in the wings; or you can also pay the difference in cash if you like the house. You can also renegotiate, maybe have the seller cover some closing costs, or make some repairs, or include some fixtures.
No one wants to drop out of escrow when an appraisal comes in. And if you are asked to make an offer without an appraisal contingency, be warned. You may still have to complete a purchase or be liable for damages if you don’t close even if the appraisal comes in short. If this happens in your transaction, work with your Realtor and take their advice. Sometimes, you have to pay more than an appraised value. But be open to compromise if you really want the property.
Sometimes it is what it is.
In hot market purchase appraisers have to use closed comparable sales. The listings may make it seem like values are higher. And in fact, people are probably paying more for homes already. But closed sale values lag hot market condition values.
But remember the appraisal is your friend and so are Appraisal Contingency’s
Michael A. Foote, CMB. Certified Mortgage Banker, Licensed Real Estate Broker 01149645 and runs a California Based Boutique Mortgage Brokerage and Contract Mortgage Processing Company. www.michaelfoote.com
Many will tell you to pay down your debt, dispute a late payment, payoff that collection account. And while all those may be great ways to improve your score. Here is one way you can get a huge jump in scores, maybe as much as 60+ points!
When a borrower has an account that is noted as a authorized user the account and its details, including balances are included in the RISK assessment. Really its all about the FICO or Credit Score algorithm used to determine your score.
So it makes sense that if you can remove yourself as the authorized user from an account your balances and obligations are lower and most likely contributing to a false representation of your liabilities. Even if you are the authorized user of you spouses account. There still will be benefit according to the credit scoring models today.
Your local mortgage broker can help you with this solution.
Michael Foote is a licensed Loan Originator and California Real Estate Broker. Experienced 30 years of mortgage finance, a Certified Mortgage Banker from the MBAA and Billion Dollar Lifetime Producer.
The short answer is yes, eventually. But this hike was SO telegraphed, we think rates will rise very nominally if at all from this hike. Of course some will seek to hike rates and take advantage of the media attention. As always trust your financial provider and do your research.
Here is a video on CNBC about the Fed Rate Hike yesterday and its impact on mortgage rates.
There is no better teacher than experience. In the mortgage world, knowledge is very much power. We learn from our mistakes. It’s important to be as prepared and educated as possible to avoid any unpleasantness related to delayed closings or worse last minute loan denials. Yes it really happens.
When preparing for any refinance or purchase loan you must gather ALL you documents related to employment, income, assets, and even credit report items. Here’s why it matters. When underwriting your loan we will review really anything related to Capacity, Credit, Collateral, Character
One of the biggest flubs we can make when applying for a purchase mortgage or even a refinance mortgage are related to assets, and even more specifically moving assets. Money used for closing a purchase with a mortgage needs to be sourced, seasoned, and verified. That usually means all bank statements for the last 60 days with documentation of all deposits not clearly defined. If a deposit is not from a verified source, like an employer, we have to document those deposits with receipts, copies of checks, bank letters, showing the source of those monies.
Be SPECIFIC with your Loan Officer in regards to your income. If you are hourly but state you earned salary $89,000 be sure to spell out what you really make in base salary, overtime and other compensation. Just because you earned overtime, this year, doesn’t necessarily mean you can use that income to qualify. There needs to be a consistent. Are you talking losses on your taxes, then we need to see them and documents any small businesses, or tax losses in addition to income claimed. Did you have a GAP in employment? Make sure to be clear with your start dates and termination dates for all employers.
Whether refinancing or purchasing the property is every bit as important as the items above and below. Is the property in good repair, is there Carbon Monoxide detectors installed, is the water heather double braced, are the smoke detectors installed. If the property is a condominium? Is the project involved in a lawsuit? Are there a large number of units that are rented? If the property is a single family, there shouldn’t be any broken windows, second floor doors that are missing decks or stairs? Is there mold ANYWHERE? There should never be exposed wiring drywall not finished. There should always be flooring in the home. And utilities should always be on. Basically no health or safety issues present. The appraisers and inspectors on purchase loans, will also note these items.
4. Credit Reports
In addition to credit score, we actually read credit reports too. If you have disputed any item on your credit report, we will most likely have to remove the dispute. large balances on credit cards tend to drop scores dramatically. Make sure to maintain a small to moderate amount of credit use. Having at lest 75% of your revolving credit available is a pretty good target. Any lates or negative credit items need to be addressed and explained. Bankruptcies and Foreclosures require a substantial amount of documentation too, so be prepared. And NEVER EVER apply for additional credit during the mortgage application process. Don’t go buying the new fridge or stove just yet. And that new car may have to wait until you are done with your home loan process. And yes, we see you applied with someone else too. So please be ready to tell me why you don’t trust your Loan Officer. (OK that one is personal, and usually not a big deal to shop with one or two lenders)
5. The Loan Application Interview
If there is ANYTHING you think your Loan Officer needs to know that he didn’t ask you or bring up in an interview. DO SO YOURSELF. You know what’s happening, or happened, in your life better than we do. If you have a second car loan on your credit and your daughter pays for it, please note that. If there is an issue with qualifying and we don’t know that you don’t pay that car payment we could decline your loan. If you are in a lawsuit, its going to come out. Better to be clear earlier. If you are in a divorce tell your Loan Officer. Were you a veteran? You may be able to get a better VA Mortgage. Were you turned down already. It would really help to identify the problem area so we can identify a lender that doesn’t have issue with the item.
6. Be ready
It is NORMAL in today’s environment for the Loan Officer to come back for additional conditions. Sometimes it happens often as we try to meet the underwriters concerns or satisfy a condition. For example, you submit your two months bank statements to show you have your money to close. Well we need to source, season and document deposits. So if you deposited $5000 becuase you sold a car. We will most likely have to document you owned the car (car registration), sold the car (bill of sale), received money for the car (money from the buyer going into your bank). And that is for one deposit!
7. Be patient and be understanding
Things take time to review. When you send a condition to your loan officer, he will review it, forward it to the processor who will review it, and then if acceptable submit it to the underwriter for sign-off. This cane take several days. So don’t be surprised if they come back days later for a clarifying condition. In our business we run into very emotional people and when deals have problems, which is more likely in a tight credit market such as ours, things get tense. Try your best to maintain composure. A borrower that is willing to roll with the punches and work together with their loan officer has the best chance of being successful. That doesn’t mean it always works out. Sometimes after a lot of work by a lot of people time and money for reports and inspections and the deal falls apart. It’s unfortunate, but it is not the end of the world and you will probably be very knowledgeable about what needs to be fixed before you apply again. Don’t give up.
The toughest part of my job is saying, “No”.
I’ve had to say it a little more than normal, and a little later than normal on a few deals recently. And I think it is important that we as an industry take a look at the fall-out from last minute loan declines.
The scenario we have here is a FHA purchase for a married borrower. The wife’s credit score was too low to qualify so we removed her from the loan and used the husband only. However with FHA, guidelines require non-borrowing spouse’s debt to be considered for underwriting, even judgments must be considered. For FHA, judgments must be satisfied/paid off or on a payment plan at closing with three consecutive recent payments.
In my scenario, the borrower stated that had made payments on the judgments previously, but stopped after losing her job. She was asked to get a new payment plan in place bu our underwriter, and show proof of her past payments to the collection agency.
The spouse did just that and showed the new current payment plan with the first installment ready to go, and the proof of past payments. The past payments were however garnishments, albeit voluntary. The previous payments were also of a different amount.
The underwriter determined FHA would not insure the loan due to the fact the borrower failed to maintain consistent and timely payments. And did not have 3 current consecutive payments on the new payment plan and cannot pay those payments in advance. The borrower has simply not shown a willingness to repay. This is both a Credit and Character issues for underwriters.
The issue this creates is two fold. One the borrower supplied all these items over the course of a three week period. We are in escrow obviously and the back and forth between underwriter, LO and borrower to clarify the judgment issue pushes against contract contingencies.
In this case, the borrowers spouse, whose medical bills and subsequent judgment all happened before the marriage was the determining factor for the loan declination. I think FHA should reconsider the means by which it requires borrower to document and satisfy judgment payment plans. As well as examine the likelihood of the judgment impacting the purchase of a property where the borrowers spouse is not on title. The are many assumptions we can make about the risk inherent in these files. There are other factors that certainly make an underwriter decline a deal. No reserves, other poor credit items, etc. etc.
The only way for an Originator to fully prepare for any issues during contract, is to completely process the file prior to submission. That in itself is a costly endeavor but may be required to prevent last minute declines.
Are you a Realtor? Do you have an Open House this weekend? Need some pretty color flyers for your welcome table?
Hopefully, you’ve heard about all the new first time home buyer programs. FNMA raising the loan to value allowances for purchase loans to 97% and FHA loans getting closed with 500 credit scores.. Stay informed. Linked here, is our First Time Homebuyers Flyers. Gain your buyers confidence with our experience and dedication to mortgage lending and getting the best program available.
Your FHA Buyers should be aware of the 97% Conventional loan (linked here) we are now offering. A fantastic option for some FHA approved customers. Save your clients money by making sure ALL options are presented.
Have a lot of cash closings?
Have your buyers access their cash from the previous close with a new cash-out loan — the proceeds can be used for a new purchase! Give your all cash clients this flyer – There is no waiting period.
Freddie Mac has released a survey on mortgage rates. The agency’s weekly survey showed that the average rate on a 30-year, fixed-rate mortgage was 3.66 percent, down from 3.73 percent last week and 4.41 percent a year ago. But what does that really mean? Well for every $1,000 you borrow the price goes from $5.01 per thousand to $4.62 per thousand. Well, for a $450,000 loan amount you are now going to ay $2078.92 per month versus $2256.08 based on last years rates. Almost a couple hundred dollars of savings. And that is just a vanilla loan.
Rates are continuing to adjust both ways we had two price increases yesterday, and then got a little better today. The point being, to trust your loan advisor and make sure the savings make sense for you today. Many lenders focus on, “Hey, we can close this in 5 minutes!”. Obviously that is an exaggeration, but the point is sometimes, taking a time-out and playing the market may hold some advantage. Sometimes however, waiting can cost you to lose a lower rates. Don’t be greedy. Sometimes you just need to lock and enjoy the improvement in rate, rather than waiting for the floor. Even the stick picker will tell you that you can never call a bottom. Nor can you call a top. Be wise and lock em’ if you got em’