• What about qualifying for 2 homes?

    Sometimes, either by choice or for reasons out of your control, you find yourself trying to buy a new house before you sell the one you are living in. This poses two potential challenges 1) Can you qualify for both home loans? and 2) What is the source of the down payment for the new home loan?

    Let’s take them one at a time.

    Qualifying for two mortgage payments can be a challenge but in recent years has become more commonplace. If you have decent credit, your debt to income ratio can be pushed much higher than was previously possible; see criteria for qualifying for a loan. Another popular way of qualifying is by doing a stated income loan. This may or may not work for your situation. Call Family Mortgage for a consultation to see if this strategy makes sense for you.

    The second challenge is the down payment. Let’s start with an example. Let’s assume that Jack and Sue are selling their home for $250,000 but it is not on the market yet. They just found a home that they desperately want but they need to move quickly or they will lose it. It is on the market for $325,000. The house in which they currently live has a loan balance of $195,000, so let’s assume that after the costs of selling the home that they “net” $35,000. They have no money set aside in cash for a down payment outside of the money they will get after selling their existing home. This is where a “bridge loan” comes into play.

    A bridge loan is one in which the lender will loan you up to 80% of the value of your existing home (combination of your existing first mortgage plus the new bridge loan divided by the appraised value of your home does not exceed 80%) and will only count the new home loan payment towards your debt ratio when qualifying for the new mortgage.

    In Jack and Sue’s case, they do not have that much equity in their new home so, what are their options? We recommend the following: apply immediately for a no closing cost home equity line of credit on your existing home to get enough money to make a 10% down payment on the new house. This must be done prior to listing your home for sale.

    In Jack and Sue’s case, they could get the required $32,500 necessary (10% of $325,000) from their existing home. We then try to qualify them for a new loan as a 80/10/10 to avoid paying mortgage insurance, which would be secured by the new home. Once the house in which they live sells, the home equity line gets paid off.
    It seems like a lot to endure, but it is a viable strategy and it is by far the most cost effective way of structuring the scenario to keep your upfront costs to a minimum and to get the best possible interest rate on your new home loan.

  • Financing considerations when negotiating your contract

    WHO PAYS FOR THE CLOSING COSTS

    As you begin your house hunting adventure, we want to give you a tip that will allow you to minimize your out of pocket cost. We’re talking about seller paid closing costs. You will be provided a Good Faith Estimate which lays out what your closing costs will be, based on the price of the home you are pre-approved to purchase.

    Our suggestion is that as you negotiate the purchase price of the home that you get the seller to pay for all of your closing costs as part of the deal. You might ask, why would the seller agree to do that? In a “buyer’s market” they may have to agree to make it attractive enough for you, i.e. you have leverage in a down market. But what if it is a “seller’s market”? The seller may not have to come off his price at all and certainly will not have much motivation to pay any of your cost of obtaining the loan. In either market, the contract you negotiate can be structured with the seller paying the cost and have it be a win-win scenario.

    If you decide to utilize this tip, don’t forget to pass this information along to your realtor! Or if you don’t have a realtor, call us at 678-483-3300 and we would be happy to assist you in structuring this into your transaction.


    SELLER CONTRIBUTION LIMITATIONS

    The seller can contribute towards the buyers’ closing costs and/or tax and insurance escrow account set up. The amount that is allowable by most lenders varies depending on your credit, program selected etc. But the vast majority of normal borrowers fall in one of the following categories:

    • 0 – 9.99% down payment: Seller can contribute up to 3% of the sales price
    • 10% or greater: Seller can contribute up to 6% of the sales price If you are doing 2 mortgages such as an 80/10/10, an 80/15/5 or an 80/20, the seller can usually contribute the full 6% because the lender is concerned with the first mortgage and not the 2nd

     WHO SELECTS THE CLOSING ATTORNEY

    In Georgia, the closing attorney is negotiated as part of the Purchase and Sales Agreement. In the standard form used by the Georgia Association of Realtors, paragraph 3 on page 1 of the agreement provides for a blank to make this election. Most people are not aware that they can choose the attorney they work with, nor do they understand the vast difference there can be in the fees that various attorneys charge.

    For example, the closing attorney will typically issue the title insurance policies for both the lender and the owner. These fees are negotiable and can vary dramatically from attorney to attorney. In addition, the fees they charge for their services and the various junk fees can add up to large differences as well.

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    We have negotiated special fees with our preferred attorney that will most likely save you hundreds, if not thousands of dollars. Remind your Realtor to consult with you prior to submitting any offer so you do not fall into the trap of going with just anyone.


    EARNEST MONEY DEPOSITS

    Home sellers will generally require some type of Good Faith deposit when you submit your offer to purchase. In the industry, this is called an earnest money deposit. If it is an existing home, the deposit will most often run between $500 and $5,000, however larger homes may require a more sizable amount.

    In new home construction, builders will generally require larger deposits, particularly when the buyer is adding upgrades or has the flexibility of picking colors etc. The earnest money deposit protects the seller/builder in the event that the buyer backs out of the purchase contract after all contract contingencies have been waived.

    Since the seller has lost valuable time in marketing the property, the deposit acts to reimburse them for some of this expense.

    NEGOTIATING WITH THE  SELLER TO REPAIR DEFECTS

    Often times, the buyer opts to perform a property inspection and then will negotiate with the seller on how to handle any repair issues that arise out of this inspection report. Handling this in accordance with lender guidelines saves everyone time by not having to re-execute documents! We find there are typically two scenarios that generally arise:

    The seller agrees to a certain dollar amount to be credited to you in lieu of repairs. This is allowable as long as it is treated as a contribution towards your closing costs and/or tax and insurance escrows. The total seller contribution towards these items cannot exceed a certain percentage of the purchase price (between 3 – 6%) so it is best to ask your mortgage lender prior to finalizing your amendment.

    The seller agrees to certain repairs and you request checks be written directly to the Vendor of your choosing at closing. This practice is acceptable to the majority of lenders but not to everyone. Please check with your mortgage lender if this is the direction the negotiation is heading and we can provide a quick answer. Virtually no lender will agree to establish and maintain an escrow for improvements to be completed after closing. There are a few exceptions, so if escrow for improvements is the only option, please let us know and we will work to accommodate the need. However, loan terms may be affected by a change in investor!

  • How do we choose a closing attorney?

    In Georgia, the closing attorney is negotiated as part of the Purchase and Sales Agreement. In the standard form used by the Georgia Association of Realtors, paragraph 3 on page 1 of the agreement provides for a blank to make this election. Most people are not aware that they can choose the attorney they work with, nor do they understand the vast difference there can be in the fees that various attorneys charge.

    For example, the closing attorney will typically issue the title insurance policies for both the lender and the owner. These fees are negotiable and can vary dramatically from attorney to attorney. In addition, the fees they charge for their services and the various junk fees can add up to large differences as well.

    We have negotiated special fees with our preferred attorney that will most likely save you hundreds, if not thousands of dollars. Remind your Realtor to consult with you prior to submitting any offer so you do not fall into the trap of going with just anyone.


  • How does an interest rate lock work?

    We will lock your interest rate as soon as we have received your appraisal and completed your home inspection. Many lenders require the file to be completely underwritten and approved which leaves you open to rate deterioration.

    Be wary of companies that won’t protect you upfront.

    Interest rates change daily and can increase rapidly depending on market circumstances. There are various periods of time during which you can lock your interest rate to ensure it will not increase prior to your closing date — generally offered in 15 day increments.

    The longer the period of time for which you need the protection, the higher the rate will be. If unforeseen circumstances prevent you from closing prior to your rate lock expiration date, you can generally extend the lock period for a fee. Lenders have a different extension policies depending on the length of time required. If possible, it is nice to have a small cushion of time.

    This is particularly true if you are purchasing a home that is under construction. Delays are extremely common and it often it is better to lock for a longer period than you believe necessary, than risk having to extend the lock.

    To lock or not to lock…That is the question

    The answer to this question is very important and can only be made by you. The problem is that deciding when to “LOCK” your interest rate for your loan can be a very confusing decision.

    We understand you want to catch the rate at its lowest point during the time that you’re in the loan process. However, that is “easier said than done”. Even professional economists are not able to project the market accurately. At best, 50% are right and 50% are wrong about future mortgage rates. We try to help a little with some information and try to help you understand which economic events may affect rates.

    The mainstream mortgage market is no longer run or controlled by the banks. Wall Street has replaced the traditional bank and now pulls purse strings of this vast mortgage market via “mortgage backed securities.” A mortgage backed security (MBS) is simply a bond instrument in which anyone can invest. MBS’s are trading in the free and open market everyday just like stocks and bonds. The collateral for this investment is a group or “pool” of home mortgages just like the one you will use to finance your home.

    The movement of interest rates in the mortgage market is directly related to the buying and selling the MBS’s on Wall Street. Why do some investors buy and why do some sell at any given point in time? Well, institutions, money managers, and individuals buy and sill these securities based on their opinion as to whether rates will rise or fall and whether they believe the interest rate paid on the security will give a good return for a long period of time. From an investors viewpoint, a falling rate may indicate to some a “sell” signal and to others a “buy” signal.

    The buying and selling of MBS’s is greatly affected by the investors’ return on the security as they view inflation—now and in the future. Some investors are more attracted to the MBS market than to the U.S. bond market because the return (yield) on MBS’s is in general higher and the risk is considered no greater. The mortgage backed security investment is seen as low risk because it is secured by home loans such as yours.

    All investment markets (stocks, bonds, and MBS’s) can realize a period of stability as well as volatility base on the “perception” of these investors and the traders who make the actual transaction in the market place.

    An important fact to remember about your decision to “lock or not to lock” is that both your commitment and ours are made on the “good faith” of the participants involved. We feel that a promise made is a promise kept, regardless of which way the market moves after the transaction is made. Residential lenders in today’s sophisticated market do not take interest rate risks because the cost is too great.

    When you apply for a mortgage loan in order to be guaranteed a rate prior to closing, lenders must first go to the market place and “buy” a commitment or promise to deliver your loan to a mortgage backed securities pool. To you, our customer, this promise is in response to your wishes to “lock” your interest rate rather than “float”, and our willingness to “buy” your protection. Of course, all of us consumers would like to be guaranteed the very best rate in an escalating market and also have a low rate offered in a declining market. Unfortunately, the market cannot provide this assurance in the normal course of business.

    If you choose to “float” your rate, you are at the mercy of the market and your interest could improve from the time your application was taken or rise as the market conditions deteriorate.

    Please remember that loan officers are professionals in their field and not money managers or financial advisors. If you choose to lock, we will keep our side of the agreement and deliver the agreed upon rate so you will not have to second-guess your decision. If you choose to float, please ask other counsel or be your own best market advisor.

    You can lock at any time up to but no later than six business days before your closing date.

    We hope this brief explanation of a very sophisticated, yet sometimes fickle, free, and open market system and how it affects your mortgage rate will help you in your decision. Perhaps an old and sage expression will bring more clarity to what we face together. “The man who lives by the crystal ball must learn to eat glass.”

    For more information on current market conditions please feel free to call us at any time. We monitor the mortgage back securities market in “real time” through a subscription service and are able to assist you in making intelligent decisions Learn about factors that affect interest rates.

  • How does loan qualification work?

    For normal conventional loans (loan sizes from $50,000 – $1,000,000) for borrowers with average to above average credit that can document their income, qualification is generally an automated process. We take a standard loan application over the phone or via the internet, pull your credit and the file is then uploaded to one of two agencies: Fannie Mae or Freddie Mac (Fannie and Freddie as they are known in the industry).

    Fannie and Freddie set the guidelines for what constitutes a “saleable loan”. In other words, if it meets their guidelines, the lenders who originate the loans can sell the loan to virtually anyone on the secondary mortgage market. They have automated approval systems that give us the ability to give the customer instant approvals. These systems are looking at your overall profile (debt to income ratio, job history, assets, credit, how much of a down payment you’re making etc…) to predict the statistical probability that you will default on the mortgage. If you pass the test, it renders an instant approval. Just remember that it is a “garbage in, garbage out” proposition.

    For example, let’s assume that you have worked for your employer for 5 years and were always paid on a base salary. Six months ago they gave you a “promotion” that restructures your pay to a much smaller base plus commission with “promises” of a lot better pay ultimately. Fannie and Freddie guidelines want to see a 2 year track record of commission income. So if you tell us you make $50,000 and that you are paid on commission and we mistakenly “assume” that you were always paid on commission then we might have a problem. That is why we recommend going through the process of becoming a Certified Homebuyer upfront. If you have less than perfect credit or you are not able to get an approval through Fannie or Freddie, then there are plenty of other options.

    These approvals range from automated systems that are proprietary to individual lenders to having to prepare an entire application package to be presented to the lenders’ underwriters for approval. This generally can take anywhere from 3- 5 days and is advisable if this is your only alternative. Do this upfront so you don’t waste your time looking for a home that either you can’t qualify for or worse you qualify for but are not comfortable with what will be required to pay for a mortgage payment on a monthly basis.

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