Real Estate Information Archive

Homeowners who are interested in improving the efficiency of their homes can consider taking out an energy-efficient mortgages. Energy-efficient mortgages are loans that can be taken out to finance upgrades on a Home that will benefit both the homeowner and the community by working to reduce the carbon footprint of the property. Typically, expenses involved with making the upgrades are added to the overall mortgage loan so that additional loans do not need to be taken out by the homeowner to make the upgrades.

An important aspect of an energy-efficient mortgage (or an EEM) is that they can feature exceptions to debt-to-income rules that restrict homeowners from taking out additional financing. Therefore, a homeowner who takes at an EEM can borrow more money to put toward his or her home than would be possible through a traditional mortgage. These exceptions are justified due to the fact that- despite the fact that initial expenses will be higher- the EEM should reduce the cost of living in the home and maintaining the home over time. However, taking out an EEM requires an energy audit carried out by a recognized expert to prove the benefits of the proposed energy-efficient upgrades.

There are three types of EEMs: the conventional EEM, the Federal Housing Administration (FHA) EEM, and the Veterans Administration (VA) EEMs. Below is an explanation of each type.

• Conventional EEMs- This is the most common of all of the different EEMs. When a lender is determining whether or not a given energy-efficiency update can be financed, that lender can factor the future energy savings that will be brought about by the update into the borrower's income when determining the borrower's debt-to-income ratio. In this way, the homeowner can borrow more money and still be within applicable debt-to-income rules.
• FHA EEMs- There are a variety of different underwriting conditions that need to be met for a homeowner to take out a FHA EEM. Through this type of EEM, the homeowner can borrow whichever amount is less: the overall expenses involved with the improvements/inspections, or the lesser amount of either 5 percent of the property's value, 115 percent of the median price on a single family home in the area, or 150 percent of the loan limit specified by Freddie Mac.
• VA EEMs- This type of EEM is available to qualifying veterans, and it can consist of a loan of anywhere between $3,000 and $6,000.

To follow up from my previous post about FHA mortgage limit changes this year, there are some additional mortgage changes to know in 2014. Buyers who are looking to purchase a new Home need to be aware of current changes in mortgage rules in order to choose the loan that is best for them.

One of the biggest changes involves FHA loan limits. The maximum amount of an FHA loan decreased from $729,750 to $625,000 beginning January 1, 2014. A number of counties across the country saw significant decreases, as the loan limits are based upon median home prices in a given area. The expiration of credits given by the Housing and Economic Reform Act of 2008 has resulted in the agency now approving 115% of the median Home Price in a given area as opposed to 125% previously.

The Consumer Financial Protection Bureau (CFPB) now requires lenders to follow an “ability to repay” mandate when approving loans. This new regulation requires that lenders follow a precise set of guidelines when it comes to calculating income, debt and assets. In doing so, they are granting what the government deems to be a “qualified mortgage” in an effort to reduce the number of foreclosures that take place in the future.

Self-employed workers face even more difficulty when it comes to obtaining a “qualified mortgage” than others will. That’s because the new rules make it more difficult for people without a W-2 form to prove their debt-to-income ratio than it is for others. This is true even for those who have extremely high credit scores and a high net worth. It seems that the government is concerned that tax write-offs will reduce the amount of taxable income a person earns, thereby making income statements less accurate than W2 forms.

Some positive mortgage changes stem with new caps placed on loan origination fees. Those who obtain a qualified mortgage are limited to no more than three percent of the loan amount for points and fees charged by the lenders. Unfortunately, there is no cap on origination fees for consumers who do not obtain a qualified mortgage.

As always, buyers should check with their lender to find out about specific changes that are mandatory by a particular institution.

The rules governing mortgages are continuously changing, and it is important for anyone who is considering a new Home purchase to be aware of them. This year, FHA mortgage limit changes in 2014 top the list of new rules, and an overview of the changes are listed below.

Overview

The Federal Housing Administration sets loan limits based upon county. Beginning January 1, 2014, the maximum amount of a loan decreased in 652 counties nationwide, while subsequently increasing in 89 others. There are no FHA mortgage limit changes in 2014 in the remaining 2,493 counties across the country, and loans insured by either Fannie Mae or Freddie Mac will also not be affected.

Nationwide, the maximum FHA loan amount is now $625,500, as compared with $729,750 that the agency allowed in 2013. The amount allowed will depend on the cost of living in a given area. Previously, the FHA allowed loans that were up to 125% of the local area median Home Price, but the decrease now means that lenders can grant only 115% of that amount instead.

Unequally Affected

The decrease is affecting some counties across the country harder than others. The National Association of Realtors® reports that 146 counties have experienced a 20% or greater reduction in loan amounts. U.S. Finance Post states that buyers in cities such as San Francisco, Los Angeles or New York City are more likely to see FHA rates remain higher than those who live in rural areas.

HAMP or Home Affordable Mortgage Program Information

For several years now we have been waiting for a government assist program that would allow homeowners who are upside down (owe more on home than the market value) on their mortgage to at Lease refinance to lower current rates.  Unfortunately, the banker lobbyists would not allow the administration to mandate this type of relief if the amount of the mortgage exceeded 110% of of the market value.  Frankly, they would make more money getting TARP contributions if they foreclosed, so not much incentive to take a long term rate hit.  

With the Occupy Wall Street movement, the coming elections etc, talk has gotten serious again about creating a program that would allow homeowners who do pay make timely payments to refi their higher rate mortgage.  Keep in touch with this governement web site To Get Information on HAMP or Home Affordable Mortgage Program for the latest developments.  

On a related side note, check out this video about a passive way to protest and support the Occupy Wall Street Movement

When it comes to private mortgage insurance (PMI), there are several myths that exist that make buyers reluctant to consider a conventional loan with PMI as an option when purchasing a Home. One of the more common misconceptions is that cancelling PMI is a difficult—not to mention time-consuming—process.

The irony is that the majority of buyers don’t harbor those same beliefs or reservations about an FHA insured loan when, in reality, FHA coverage may be less easily cancelled, or take longer to cancel, than PMI.

HPA Makes Cancellation Clearer
When it went into effect as a new federal law, the Homeowners Protection Act (HPA) of 1998—which applies to both FHA and PMI insured loans—required lenders and servicers to provide disclosures regarding MI for residential loans obtained on or after July 29, 1999. Prior to this, consumers were responsible for requesting PMI cancellation if they met two factors: one, their loan balance was paid down to 80 percent of the property; and two, they had a good payment history.

While many lenders obliged consumer requests to drop PMI coverage, consumers had sole responsibility for keeping track of their loan balance.

The HPA established three different times when a lender or servicer must notify consumers of their rights.

At loan closing, lenders must disclose:
• The right to request PMI cancellation and the date on which the request can be made
• The requirement that PMI be automatically terminated and the date on which this will occur
• Any exemptions to the right to cancellation or automatic termination
• A written initial amortization schedule for fixed-rate loans only

Each year, loan servicers must send borrowers a written statement that discloses:
• The right to cancel or terminate PMI
• An address and telephone number to contact the loan servicer for determining when PMI may be cancelled

When MI coverage is cancelled or terminated, lenders must send a notification to borrowers stating:
• PMI has been terminated, and the borrower no longer has PMI coverage
• No further PMI premiums are due

Termination of Coverage
Under the terms of the HPA, mortgage lenders or servicers must automatically cancel borrower-paid MI coverage when the mortgage has amortized to 78 percent of the original property value, with all unearned premiums returned to the borrower within 45 days of the cancellation or termination date. This provision also requires that the borrower be current on mortgage payments required by the terms of the loan, and if the loan is delinquent on the date of automatic termination, a lender must terminate the coverage as soon as the loan becomes current.

Cancellation of Coverage
Also under the HPA, a homeowner has the right to request PMI cancellation when the mortgage balance reaches 80 percent of the original property value. All payments must be current, meaning a homeowner must not be 30 days late on a mortgage payment within one year of their request, or 60 days late within two years.

However, a borrower can only initiate a cancellation request for FHA based on their prepayment of the loan, and even then, it can only be requested beginning five years after the loan origination date.

With PMI, homeowners can request cancellation based on prepayment of the loan, as well as an appraisal. Despite falling property values, it’s possible for homeowners to gain enough equity in their home to request cancellation in less than five years based on a home appraisal.

In a mortgage market that changes as quickly as this one, today’s fact is tomorrow’s fiction.  For buyers, misinformation can be the difference between qualifying for a Home loan or not. Sellers and owners, knowledge is foreclosure-preventing, smart decision-making power! Without further ado, let’s correct some common mortgage misconceptions.

1.       Myth: Buyers with bad credit can’t qualify for home loans. Obviously, mortgage guidelines have tightened up, big time, since the housing bubble burst, and they seem likely to tighten even further over the long-term. But just this moment, they have relaxed a bit.  In the last couple of weeks, two of the nation’s largest lenders of FHA loans announced that they’ve dropped the minimum FICO score guideline from 620 (which allows for some credit imperfections) to 580, which is actually a fairly low score. 

At a FICO score of 620, buyers can qualify for FHA loans at many lenders with only 3.5 percent down. With a score of 580, the lenders are looking for more like 5 to 10 percent down – they want to see you put more of your own skin in the game, and the higher down payment lowers the risk that you’ll default.  However, if your credit has taken a recessionary hit, like that of so many Americans, this might create a glimmer of hope that you’ll be able to take advantage of low prices and interest rates without needing years of credit repair.

2.     Myth: The Mortgage Interest Deduction isn’t long for this world.  Homeowners saved over $85 billion in 2008 by deducting their mortgage interest on their income tax returns. A few months ago, the National Commission on Fiscal Responsibility and Reform caused a massive wave of fear to ripple throughout the world of real estate consumers and professionals when they recommended Mortgage Interest Deduction (MID) reform, which would dramatically reduce the size of the deduction.

Fact is, the Commission made a sweeping set of deficit-busting recommendations to Congress, a few of which are likely to be adopted.  Fortunately for buyers and sellers, MID reform is not one of them.  Very powerful industry groups and economists have been working with Congress to plead the case that MID reform any time in the near future would only handicap the housing recovery.  Congress-folk aren’t interested in stopping the stabilization of the real estate market.  As such, the MID is nearly universally thought of as safe – even by those who disagree that it should be.

3.       Myth:  It’s just a matter of time before loan guidelines loosen up.  The US Treasury Department recently recommended the elimination of mortgage industry giants Fannie Mae and Freddie Mac. I won’t get into the eye-glazing details of it here, but the long and the short is that (a) this is highly likely to happen, and (b) it will make mortgage loans much harder and costlier to get, for both buyers and homeowners.   It’s possible that loans are as easy to get as they’re going to get.  So don’t expect that if you hold out, zero-down mortgages will come back into vogue anytime soon. Fortunately, Fannie and Freddie aren't likely to disappear for another 5-7 years, so you have a little time to pull your down payment and credit together. If you want to get into the market, the time to get yourself ready is now!

4.       Myth: If you don’t have equity, you can’t refi. Much ado is being made about how stuck so many people are in their bad loans, because they don’t have the equity to refinance their way out of them.  If you’re severely upside down (meaning you own much, much more than your home is worth), stuck may be the situation. But there are actually a couple of ways homeowners can refi their underwater home loans.  If your loan is held by Fannie or Freddie (which you can find out, here), they will actually refinance it up to 125% of its current value, assuming you otherwise qualify for the loan.  That means, if your home is worth $100,000, you could refinance a loan up to $125,000, despite the fact that your home can’t secure the full amount of the loan.

If your loan is not owned by Fannie or Freddie, you might be a candidate for the FHA “Short Refi” program. While most mortgage workout plans are only available to people who are behind on their loans, the Short Refi program is only available to homeowners who are current on their mortgages and need to refinance up to 115 percent of their homes’ value.  So, if you owe $250,000 on your home, you can refinance via an FHA Short Refi even if your home’s value is as low as $217,000. If you think you’re a good candidate for a short refi, contact your mortgage broker, stat – there are some in Congress who think that this program is so underutilized (only 245 applications have been submitted since it rolled out in September – no typo!) that its funding should be diverted to other needy programs.

5.       Myth:  If you’ve lost your job and can’t make your mortgage payment, you might as well mail your keys in.  Until recently, this was essentially true – virtually every loan modification and refinancing opportunity required that your economic hardship be over before you could qualify. And documenting income has always been high on the requirements checklist. But there are some new funds available in the states with the hardest hit housing and job markets, which have been designated specifically for out-of-work homeowners.

The US Treasury Department’s Hardest Hit Fund allocated $7.6 billion to the states listed below – all of which are now using some portion of these funds to offer up to $3,000 per month for up to 36 months in mortgage payment assistance to help unemployed homeowners avoid foreclosure.  Contact the state agency listed below if you need this sort of help:

• Alabama: http://www.hardesthitalabama.com/
• Arizona: https://www.savemyhomeaz.gov/
• California: https://www.keepyourhomecalifornia.org/
• Florida: https://www.flhardesthithelp.org/
• Georgia: http://www.dca.state.ga.us/housing/homeownership/programs/hardesthitfund.asp
• Illinois:http://www.ihda.org/
• Indiana: http://www.877gethope.org/
• Kentucky: http://www.kyhousing.org/
• Michigan: http://www.michigan.gov/mshda/buyers/save_the_dream/helping+hardest+hit+homeowners+-+contact+your+mortgage+servicer+for+assistance
• Mississippi: http://www.mshomecorp.com/firstpage.htm
• Nevada: http://www.nahac.org/
• New Jersey: http://www.state.nj.us/dca/hmfa/home/foreclosure/homekeepers.html
• North Carolina: http://www.ncforeclosureprevention.gov/
• Ohio: http://www.savethedream.ohio.gov/
• Oregon: http://www.oregonhomeownerhelp.org/
• Rhode Island: http://www.hhfri.org/
• South Carolina: http://www.scmortgagehelp.com/
• Tennessee: http://www.thda.org/
• Washington D.C.: http://www.dchfa.org/

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Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®). The survey results showed lower mortgage rates for both long- and short-term rates, with the 30-year reaching a four-week low.

30-year fixed-rate mortgage (FRM) averaged 4.71 percent with an average 0.8 point for the week ending January 13, 2011, down from last week when it averaged 4.77 percent. Last year at this time, the 30-year FRM averaged 5.06 percent.

15-year FRM this week averaged 4.08 percent with an average 0.7 point, down from last week when it averaged 4.13 percent. A year ago at this time, the 15-year FRM averaged 4.45 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.72 percent this week, with an average 0.7 point, down from last week when it averaged 3.75 percent. A year ago, the 5-year ARM averaged 4.32 percent.

1-year Treasury-indexed ARM averaged 3.23 percent this week with an average 0.6 point, down from last week when it averaged 3.24 percent. At this time last year, the 1-year ARM averaged 4.39 percent.

Frank Nothaft, vice president and chief economist of Freddie Mac, reports, “Bond yields drifted lower following the release of the December employment report , which was weaker than the market consensus forecast and implied that the labor market is still in a sluggish recovery. Fixed mortgage rates followed bond yields lower for a second consecutive week, bringing them to a four-week low.”

Welcome to 2011, it is going to be a great year and I'm excited to see where it takes us!

Changing Short Sale Rules - The HAFA program has been a mixed bag, but last week the Treasury Department changed the rules to make short sales easier. 

Here are the primary changes to HAFA: 

- Those seeking a short sale must get an answer within 30 days
- Lender Servicers are no longer required to verify a borrower's financial information
- Lender Servicers are no longer required to determine if the debt-to-income exceeds 31%
- Though Second lien holders no longer must accept 6% of the unpaid balance - 

Overall, these changes should help expedite short sales, which is good news for Home owners, realtors, investors and ultimately the banks.

If you are looking for a way to sell you home that you feel is worth less than you owe on it, we can help.  Please contact us on this link or try the chat button at the bottom of the page.  You can also stop by this helpful short sale information site as we by clicking here.  

Here is to a healthy, wealthy, and exciting 2011!