In order to get a mortgage, the property condition must be move-in ready; it must be habitable and safe. I often get asked if there is a list of items the house must have in order to meet the habitability standard, but there is not, as it is on a case-by-case basis. Here is a list of some of the items that may be required before the lender will approve the loan: ● Leaking roof must be fixed ● Pool must be filled ● Upper level decking with no railing, railing must be installed ● Exterior peeling pre-1978 paint where...
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DODD-FRANK ACT
The Dodd-Frank Act includes a provision that a borrower must show an ability-to-repay a mortgage to qualify. It seems silly that a law had to be passed with this provision in it as you would think someone would not make a loan unless they knew it was going to be paid back. Nevertheless, this law arose due to the absurdity of the types of loans that were being made during the mortgage crisis. Lenders initially interpreted this rule that the borrower needed to be employed, or have a steady income to qualify; this is one of the reasons why it...
October 14, 2019October 14, 2019
WHAT ARE FANNIE MAE AND FREDDIE MAC?
You may have heard of Fannie Mae and Freddie Mac. What are they, and how do they affect mortgages? Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are Government Sponsored Enterprises (GSE). They are quasi-governmental entities that were established to enhance the flow of credit in the housing industry. They purchase mortgages from lenders in the secondary mortgage market and purchase the majority of the conforming loans (i.e. loan amounts $453,100 and less). As such, mortgages are underwritten to their guidelines. The guidelines between the two entities can differ. Fannie Mae could approve some...
October 11, 2019October 11, 2019
PROMISSORY NOTE
You may hear your lender ask about the Note, or if you reviewed the Note. The Note, in this sense, is not a musical score, or something written on a post-it; it is the Promissory Note entered into between the lender and the borrower. It provides that the lender will lend a certain sum to the borrower in exchange for the borrower’s promise to pay the lender over time at a certain amount of interest. Example: A lender may lend $200,000 to the borrower to be paid on the first of every month over 30 years at an interest rate...
October 8, 2019October 8, 2019
FINANCE A SECOND OR VACATION HOME
If you are looking to finance a second or vacation home, here are some things to keep in mind: You need a minimum of 10% down payment, it is better if you can put 20% down as you can avoid mortgage insurance. Geographically, it has to make sense. There is not a rule that says the home has to be a certain amount of miles from your primary residence, but, it has to make sense that it is a second, or vacation, home. Example: In Arizona, if you own a home in Phoenix, you can have a second home in...
October 4, 2019October 4, 2019
WHY AN INVERTED YIELD CURVE IS GOOD FOR FINANCING CRE
The black economic cloud that is typically associated with an inverted yield curve does indeed have a silver lining. The correlating chart shows the U.S. Treasury rates for Jan. 2, 2018, the blue normal curve, and Aug. 13, 2019, the red inverted curve. The inverted portion of the curve doesn’t turn positive vs. the 20-day bill until about year 25. As an investor, going out a full 30 years would only get you only a few bps (basis points) more than buying a 30-day T-Bill. But we’re not considering the investment side of this; we’re looking at this as borrowers....
October 2, 2019October 2, 2019
PREFERRED LENDERS
Many real estate companies have preferred lenders to whom they encourage their agents to refer. This preferential status can be misleading. In many instances, these lenders are “preferred” because they pay a fee to the real estate company, or the real estate company enters into a joint venture with the lender. These “pay to play” lenders may not offer the best rates or costs. If your real estate agent is referring a lender to you, check to see if it is their company’s preferred lender. Then, check if it is a bank, mortgage bank, or mortgage broker. If it is...
October 1, 2019October 1, 2019
COMMODITIZATION OF MORTGAGES
All you have to do is push a button and get a mortgage? If so, what kind of mortgage are you getting? Is it the right mortgage for you? Does it matter? There is a definite trend in the media to commoditize mortgages. That is, to try to influence you that you don’t need to speak to anyone, just click a few buttons and you will get a mortgage. But, what mortgage are you getting? Are you getting a 30-year fixed? If so, what is the rate and the lender’s costs? Are you willing to pay more for a loan...
September 27, 2019September 27, 2019
LOAN AMORTIZATION: WHAT DOES THIS MEAN?
Mortgage loans are typically amortized over 30 years. What does this mean? A borrower will pay a combination of principal and interest payments over a 30 year term. The interest is front loaded, so for approximately the first ½ of the loan term, the borrower is paying more interest than principal. Loans typically do not last the full 30 years, as homes are sold or loans are refinanced. By front-loading the interest, lenders are assured profit prior to the loan being paid off. Example: assume a borrower obtains a $300,000 loan at 4.5% on a 30-year fixed mortgage. The monthly...
September 22, 2019September 22, 2019
“LE” LOAN ESTIMATE
The Loan Estimate (“LE”) is the document provided to you by the lender within 3 days of the application date. The application date is the date the lender is provided the following: • Property address • Property value • Name of borrower • Social security number to pull credit • Income • Loan amount Once the lender receives these six pieces of information, they have three days to issue an LE to you. The LE is the initial estimate of the costs, it contains the interest rate, monthly payment, and the estimated amount due (or to be paid to you)...
September 18, 2019September 18, 2019