FHA Mortgage Insurance Reduction & Loan Limits 2015

Welcome to 2015!  I hope you had a wonderful and relaxing holiday season.  Now it’s time for us all to get back to work!  The housing market is on solid ground and interest rates are ridiculously low, so, if you or someone you know is thinking about buying a house, right now may turn out to be the best time in 2015 to be a home buyer!

I want to touch on two items of interest today – 1) An upcoming change to the mortgage insurance premiums FHA charges and 2) Mortgage loan limits for 2015.

FHA Mortgage Insurance Premium Reduction

This week FHA announced a reduction to the mortgage insurance premium (MMIP) it collects monthly on new FHA loans written after January 25, 2015.  You’ll recall, in early 2013 FHA steeply increased the MMIP on FHA loans in response to the high level of FHA loans that had gone into default.  FHA needed the additional MMIP premiums to cover the money being lost on FHA loans that had gone into foreclosure during the housing downturn.  The new premium is set at .85% annually and that is reduction from the 1.35% that it’s been over the past 2 years.  This will save FHA a borrowers a considerable sum!  On a $200,000 loan amount it adds up to a monthly payment savings of $83!  This will really help the FHA loan compete better against Conventional mortgage programs.

Mortgage Loan Limits 2015

Every year loan limits are adjusted based on changes in median sales prices of homes.  The adjustments come from Fannie Mae and Freddie Mac for Conventional loans,  from Dept of HUD for FHA loans and from the Veterans Administration for VA loans.  The loan limit is the maximum loan size that you can borrow within that loan type.   When a loan exceeds the conventional loan limit it is a Jumbo Mortgage and may have different interest rates and qualifying guidelines.  Here are the loan limits for 2015:

CONVENTIONAL LOANS                                          $417,000

FHA LOANS (Oakland, Macomb, Wayne)                            $271,050

VA LOANS                                                                 $417,000

Basically, there is no change in loan limits for 2014 to 2015!  As always, if you have home loan questions, are thinking of buying or refinancing a home, or know someone who is, please give me a call as I am here to help.

Here’s to a happy, healthy and prosperous New Year!

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GREAT NEW 5% DOWN JUMBO MORTGAGE IN MICHIGAN!

Ever since the financial crisis of 2008 the mortgage industry has turned very very conservative. Not surprising really in light of the number of loans that went into foreclosure as real estate values tumbled around the country. Well, that of course, is old news. The last 2 years have seen a complete turn around in home values. One of the things that I have been waiting for, and counting on, is a return to a more normal lending environment - where we make loans that are maybe a touch riskier, but make sense, for high quality borrowers. We are finally starting to see that. A slight easing of credit standards. It's about time!

Jumbo loans were practically non-existent in 2008 and 2009 and had been slow to return to the marketplace until 2 years ago and then rates were high and so were required down payments. Last year we saw some loosening in down payment requirements and vastly improved rates. This year it is getting even better for borrowers with excellent credit!

I can now do a Jumbo Mortgage with just 5% down up to $650,000! A 10% down payment will get you a loan amount up to $1,000,000! Here are the specifics:

• Single Family Home or condominium
• 5% down payment up to $650,000 loan amount or 10% down up to $1,000,000
• Minimum credit score of 740 for max financing (700 with 5% more down)
• Rates as low as 3.5% with a 7 Year ARM or 3.875% with a 10 Year ARM
• Private mortgage insurance (PMI) is required for LTV's over 80%

So, if you are a homebuyer who has the income to qualify to buy their dream home but doesn't want to wait years trying to save a big downpayment, now there is a great new option that will allow them to buy the perfect house now, while rates are still ridiculously low and before home prices go up further!

Ken Mascia, Licensed Loan Officer NMLS 135323
(248) 644-1200, ext 15
kmascia@primecapitalmortgage.com

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Mortgage Rate Market Update

This year has been an interesting one, so far, for mortgage rates. At the beginning of the year all signs pointed towards rising mortgage rates over the course of the 2014. At the end of 2013 mortgage rates had been trending higher and ended the year at 4.75% on the 30 Year Fixed. Over the first 6 months of this year the market has defied all logic and actually pushed rates lower and they've been running around 4.25% lately.

There are a number of factors that have led to lower rates. The primary one being that the US economy has not performed as well as people were predicting. The economy was projected to grow at a 2.5 to 3% pace in the first quarter but actual growth in Gross Domestic Product (GDP) was actually just .1%! The severely long and cold winter has been blamed for this poor performance so everybody is going to really be looking closely at GDP data for the second quarter which will be out next month.

The second main factor in rates falling this year has been global unrest. First the Soviet Union invasion of Ukraine and now the problems that are going on in Iraq. This type of geopolitical unrest causes a "flight to safety" move to US financial assets by global investors and these dollars flowing to the US financial markets can cause interest rates here to fall.

The one single most important thing that influences interest rates - inflation - has not yet reared it's head and that has also allowed rates to drift lower this year. Last week, however, the Consumer Price Index (CPI) was released for May and that showed a .4% rise and that was on top of the .3% rise in April. Although this doesn't seem like much, if you annualize these monthly rates you'd have annual inflation running at a 4 to 5% pace! This is way higher than the 2% rate that the Federal Reserve targets as ideal. These CPI figures are going to be watched closely.  Also, the most recent jobs report was a lot stronger than expected with 288,000 new jobs created and that can also put upward pressure on rates.

The Bottom line is that if the economy accelerates further and inflationary pressures continue then we are going to see mortgage rates rising as we go through the second half of 2014. I believe rates are going to trend upwards towards the high 4% to low 5% range later this year. Should not be a big enough move to have any real impact on the housing market.

Ken Mascia, Licensed Loan Officer NMLS 135323
(248) 644-1200, ext 15

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Flexible Mortgage Financing - How to Use Your Bank Account to Get a Loan

I'm always searching the universe of wholesale mortgage lending to uncover ways to make it easier for my clients to be approved and to approve people who other lenders are denying. Today I'm going to tell you about a new program I have available that could help put more qualified people into homes.

Sometimes I come across borrowers who's tax return income is not enough to support approval for the loan amount they are requesting. All mortgage lenders use a debt to income (DTI) calculation to determine if a borrower has the ability to repay the loan. In today's world a DTI of 43% is about as high as can be approved. This means that a borrowers total monthly debt payments (house, car, credit cards, student loans, etc) should be no more than 43% of their gross monthly income (income prior to taxes). Some borrowers have more ability to make payments than their tax returns may reflect. Many self-employed borrowers may write off a lot of expenses thereby reducing their taxable income. I have a loan solution for some of these folks.

That solution is augmenting income by using assets. Here's an example; If a person's tax return shows a total income of just $24,000 ($2000 per month) and they are trying to buy a $300,000 house (total monthly payment of approx $1,700) they are never going to be approved because the house payment is 85% of their monthly income. Let's say this person also has $200,000 in a non-retirement investment account. What my nifty little loan program will do is take 70% of the value of that investment account and divide that over the next 5 years and consider it income. That would add $2,333 a month to income! ($200,000 x .70 = $140,000 / 60 = $2,333) Now our DTI is only 39% - loan approved!!

This is something you are not going to find being done anywhere but here! If you know of someone who's low income is keeping them from getting loan approval but that person has significant money in a bank or investment account then I may be able to help them. My goal is to make loans that make sense and I am always looking for new ways to do just that. So, when you are looking for creative and flexible solutions, I'm you're guy!

Happy Summer one and all!

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How the Qualified Mortgage Rule Affects You

Ever since the financial crisis of 2008 and the subsequent meltdown of the US housing market, the federal government has been on a tear creating rules to prevent a recurrence of the problems that led to the crisis.

The fact is that lenders will never make the types of loans that were being done at that time, ever again. The primary culprits of the lending problems were Sub-Prime Credit Loans, No Income / No Asset loans, negative amortization loans and mortgages with zero down payment or negative equity. All of those programs went bye bye 6 years ago and Lenders have universally created much tougher lending standards on their own that are already making it difficult for some credit worthy borrowers to get financing.

This new rule, issued by the Consumer Financial Protection Bureau (CFPB), known as the Qualified Mortgage Rule (QM) sets a new standard that is making it even harder for some borrowers to obtain home financing. Basically, the rule states that if a mortgage lender makes a loan that does not meet certain standards then that lender is not protected from the borrower claiming the loan should never have been made. This could leave the lender vulnerable in the event that the borrower stops making their house payments and goes into foreclosure.

The requirements for a loan to be considered a Qualified Mortgage include the following:
1. Certain "harmful features" are not permitted - Balloon Payments, terms longer than 30 years, an
"interest only" payment feature, and negative amortization.
2. No excess upfront points and fees - for most mortgage loans there is a limit set that loan fees should
not exceed 3 percent of the loan balance (can be more for smaller loans)
3. A limit as to how much of your income can go towards your debt - known as your debt to income ratio.

The CFPB has set that limit at 43% (total monthly payments shall not exceed 43% of gross income). If the loan meets these requirements then it is believed the lender has made a good faith effort to ensure the borrower has the ability to repay the loan and therefor made a qualified mortgage. The only problem with this rule relates to drawing a line in the sand on debt to income (DTI). In the past, sometimes a high DTI ratio could be found acceptable if there were "compensating factors". This could mean the borrower had a lot of money in the bank, some income that was not being factored in or a history of being able to make similar payments. For example, if my DTI was 55% but I had $1,000,000 in the bank my loan would likely be approved because I had significant assets to support my ability to make payments. Under the QM rule lenders lose the discretion to make loans like this that would otherwise be approved.

Loan approval standards are already very strict and loan programs that created problems in the past have all been eliminated. I understand the good intentions of the CFPB but the bottom line is that lenders need to make loan decisions on the merits of an individual loan and not based on dictates from the federal government.

Ken Mascia, Licensed Loan Officer, NMLS 135323
(248) 644-1200, ext 15

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FHA 203(k) Home Rehabilitation Loan

I want to take a couple minutes of your time to tell you about a loan program that may be misunderstood by many people but it's really not that complicated - FHA 203(k). I know, I know, in the past this program didn't have the best reputation, but, it does do stuff that no other mortgage loan program will do in today's world!

What, you ask, are these miraculous qualities? Well, a person can buy a home that needs updates or repairs and be able to finance the cost of those things right into the mortgage at the time they buy the house! Plus, it isn't nearly as difficult as people may think.  It's like a home purchase mortgage and construction loan all in one.

The FHA 203(k) streamlined program will allow a home buyer to finance approximately $30,000 of repairs or improvements right into the initial mortgage. They are actually borrowing more than they are paying for the house. The extra money can be used for a number of different things including roof, plumbing/electrical, flooring, painting, windows, basement finishing, appliances, and bathroom or kitchen remodeling, but cannot include any structural changes or structural repairs. This means no additions or moving of walls, etc. Also, the home owner is not allowed to do the work themselves. All work must be performed by licensed contractors and there is a 180 day time limit in which the work must be completed.

As with all FHA loans, the 203(k) loan is subject to the FHA loan limit and in Southeast Michigan that limit is $271,050. The borrower is only required to make the minimum down payment of 3.5% (seller concession for closing costs is OK too) . Basically, as long as the purchase price plus cost of repairs do not exceed $280,000 then buyer down payment will be only $9,800!

The process of purchasing a home with a 203(k) loan is a bit more complex than a standard mortgage. After the offer is accepted by the property seller then the home buyer will need to determine the extent of work they would like to accomplish and get bids from contractors and choose those they would like to work with. Once all of the bids are in and acceptable, the appraisal can be ordered. The house should appraise for an amount equal to the sales price plus the cost of the improvements. There is some margin for error in this as FHA uses up to 110% of the "after-improved appraised value" as the basis for the loan.

So, if you are looking at homes and would like to be able to "make it your own" by updating things the way you want, then the 203(k) loan may be the right option. Contact me with questions. As always, thanks for taking the time to read this and have a great day!

Ken Mascia, (248) 644-1200, NMLS 135323

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Mortgage Loan Limits 2014

It's hard to believe another year is coming to a close. The year 2013 turned out to be a pretty excellent year for real estate in Michigan!

Every year Fannie Mae (FNMA), Freddie Mac (FHLMC), FHA and VA all adjust their loan limits. These limits are the maximum loan amount for a specific loan program. FNMA and FHLMC control the Conventional Loan limit. Conventional loans are your standard plain vanilla mortgage loan and include fixed and adjustable rate loans with loan terms between 10 and 30 years. The Fannie / Freddie loan limit has been set at $417,000 for the past several years. Loans over $417,000 are Jumbo Loans and generally involve a higher interest rate, larger down payment and more strict underwriting guidelines. For 2014 the Conventional Loan limit will remain unchanged at $417,000.

VA loans have long held to the standard of limiting loan amounts to the Conventional Loan Limit (except in certain high cost areas where the limit may be higher). The VA loan limit will remain unchanged in Michigan and is set at $417,000.

The FHA loan limits vary all over the country and are based on average home values in a specific area. FHA increases or decreases the loan limit based on changes to home values over the past year. When home values rise so do loan limits. Conversely, if home values fall then loan limits would go down as well. FHA, in an effort to help support the housing recovery, has allowed loan limits to remain constant over the past 5 years even in the face of falling values. This year that is coming to an end. For Oakland, Macomb and Wayne County, Michigan the FHA loan limit will fall to $271,050 for 2014. Previously the FHA loan could go as high as $297,500 so this is a significant drop and will impact an FHA borrower's purchasing power. Please note that if a home buyer has an accepted offer, makes a loan application and the lender gets the FHA case number prior to December 31st then the loan amount can be up to the 2013 loan limit and will not be subject to the reduction.

So, if you are an FHA buyer and want to purchase a home around $300,000 then get out there and try to find a house to buy before Christmas!

Ken Mascia, Licensed Loan Officer NMLS 135323
(248) 644-1200, ext 15

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