St. Louis Mortgage Help

Are you about to start the home buying process? Are you currently in the process and you feel overwhelmed with the process of home buying? You’re not alone. Homebuyer surveys find that more people today want to buy a home, but challenges such as saving for a down payment and student loans are keeping them sidelined.

We know the vast majority of buyers (92 percent) use online search at some point in their home buying process. Maybe that’s how you found me at www.bobrutledge.com!

But, before you start picking out your dream house online, take a minute to make sure you grasp these 7 key facts about homeownership.

1. Go back to school (for a day). We know you probably just Goggled “how to buy a home,” but did you know there are homeownership education courses that can really help you prepare? Homebuyer counseling is occasionally required when using a down payment assistance program, but any buyer can benefit. You’ll learn about the home buying process, improving your credit, mortgage terms, planning a budget and more. Plus, a new study finds that by simply participating in these in person or online courses, you’ll reduce your risk of foreclosure by 42 percent.

2. Get an agent. If you aren’t yet a homebuyer, there’s no reason not to have a real estate agent. Your agent’s commission will come from the home you purchase, not your pocketbook. Everybody wins! Even if you don’t think you’ll need help with lots of showings, a real estate agent will help you navigate contracts between you and the seller and set up important things like the home inspection. As a new buyer, you’ll benefit from the expert help.

3. Find the right lender. (PICK ME) Your mortgage lender will help you secure your home financing—and, there are many types of banks and lenders who can help. Unfortunately, according to the Consumer Financial Protection Bureau (CFPB), nearly half of homebuyers don’t shop around for a mortgage lender. Like you, your finances and home buying goals are unique. So, it makes sense to shop around and interview your lender for the job. Find a lender that can work within your parameters and not their own, too many lenders will make YOU

4. Your credit score matters. The type of loan you get, including interest rates and points paid, is primarily determined by your credit score. The better your credit score, the more affordable loan you can get, often with more options for a low down payment. For low down payment loans, your MIDDLE credit score needs to be a minimum of 620. Review your credit report, make adjustments and get prepared so you can enjoy the lowest interest rate possible and save cash over the life of your loan.

5. You don’t need 20 percent down. You may have heard or read that you need 20 percent down. It’s not necessarily a bad thing, but that’s just not the case. And, if using a low down payment can get you in a home now (instead of 3 years from now), you’ll enjoy low rates and get out of a rising rent situation. Low down payment options have been around for a long time. In fact, data shows that low down payment loans with sound underwriting (loan is fully documented, income verified) are just as successful as loan with large down payments.

6. Down payment programs offer savings. Did you know the average down payment assistance benefit is more than $8,000? Many homebuyers don’t know about homeownership programs that can help them get in a home much more quickly and provide a valuable cash cushion for other home buying expenses. You could save on save on your down payment and closing costs, or even get ongoing tax credits. If you would like to see how a low down payment mortgage and down payment programs can help to get you into a new home with zero out of pocket expense follow this link to my ZERO PROGRAM.

7. Don’t forget to budget closing costs. Most buyers focus on saving for a down payment, but your closing costs can run you another 3 to 5 percent of the sales price. It’s important to factor in those costs so you are prepared for the closing table. Ask your agent about negotiating those costs with the seller. In addition, some homeownership programs can help you cover your closing costs.

Posted by Bob Rutledge on May 9th, 2018 3:05 PM

(1) Shopping for a house before a mortgage

It is so much more fun to look at homes than it is to talk about your finances with a lender. So that’s what a lot of first-time home buyers do: They visit properties before finding out how much they are able to borrow. Then, they are disappointed when they discover they were looking in the wrong price range (either too high or too low) or when they find that right home they scramble to get financing, and the mortgage is not something you want to rush or put too little of time in to. In today’s housing market you want to show home sellers you are a serious buyer and able to make a serious offer when you find that right home.

How to avoid this mistake: Talk to a mortgage professional about getting pre-qualified or even preapproved for a home loan before you start to seriously shop for a place. The pre-qualification or preapproval process involves a review of your credit, income and expenses. Having a per-qualification/pre-approval letter in hand will make your offer more competitive, and most offers today must have this letter.

 

(2) Not looking for first-time home buyer programs

 

As a first-time home buyer, you probably don’t have a ton of money saved up for the down payment and closing costs. But don’t make the error of assuming that you have to delay homeownership while saving for a huge down payment. There are plenty of low-down-payment loan programs out there.

Besides low down payment mortgage programs there is a lot of down payment assistance programs available to first time home buyers. Many times the funds that are available to you from DPA (down payment assistance) Programs will cover your entire down payment.

Even if you have saved enough for a low down payment mortgage program keeping your savings in your pocket will allow you to pay with cash for the items you need for your new home. I see too many home buyers use credit to purchase new home items, increasing your monthly credit obligations just after purchasing a new home.

Visit my website at http://www.bobrutledge.com/MODPA to learn more about what is available in the State of Missouri!

How to avoid this mistake: Ask a mortgage lender about your options. You might qualify for a Veterans Administration or U.S. Department of Agriculture loan that doesn’t require a down payment. Federal Housing Administration loans have a minimum down payment of 3.5%, and some conventional loan programs allow down payments as low as 3%. Ask about down payment assistance programs as well. Do your own homework too, search for DPA programs in your area.

 

(3) Not hiring a buyer’s agent

 

Too many home buyers make this mistake! Do not make the mistake of working directly with the seller’s real estate agent, who was first hired and obligated to secure the best price and terms for the seller. Do not be persuaded that a Real Estate Agent can negotiate in all fairness to both sides, it is impossible. As a novice home buyer, you could be overmatched when negotiating with an experienced agent who’s working on the seller’s behalf.

How to avoid this mistake: Work with an exclusive buyer’s agent, who has a duty to work in your best interests. If you do not know a real estate agent, seek out referrals from your friends and family. But, if you are working with a Mortgage Lender they will know many qualified real estate agents in the area and especially an agent who will fit your needs.

 

(4) Using up all of your savings

 

If you buy a previously owned home, it almost inevitably will need an unexpected repair not long after. Maybe you’ll need to replace a water heater, repair a crack in the chimney or get rid of hidden mold.

Having money in your account after you close is one of the best situations for any home buyer. Besides the home repairs that will come, what about the small items that will be needed for your new home the moment you move in.

Using your own funds and not your credit cards will keep you from increasing your debt loan. You have a new house payment, normally at or higher than your previous rent, try not to add to your monthly debt with additional credit card purchases if you don’t have to.

Read about my ZERO PROGRAM at http://www.bobrutledge.com/zero-down-payment-closing-costs and how easy it is for new home buyers keep their savings in their pockets.

How to avoid this mistake: Save enough money to make a down payment, pay for closing costs and moving expenses, and take care of unexpected expenses. This is easier said than done. But you can buy a home with a down payment of much less than 20%, allowing you to conserve your savings.

 

(5) Ignoring a home’s flaws and drawbacks

 

A lot of first-time home buyers fall in love with one of the first properties they look at. They ignore the negatives of the house and its neighborhood.

But you can’t disregard the downsides forever. For example, you might think you’ll be OK with a long commute, but after a few months of spending too many hours stuck in traffic, you’ll wish you had bought a house closer to work.

How to avoid this mistake: Do two things. First, resolve to visit many of houses  before making an offer, you’ll be less likely to fall in love with the first or second or third home you look at.

 

Second, write a list of the attractive and the unattractive qualities of each house, and pay attention to each home’s downsides.

(6) Being indecisive

 

The flip side of choosing a place too quickly is acting too slowly when you find the right home. In a market with more buyers than sellers, you have to move fast.

I see this a lot when I first pre-approve a home buyer, they needed some time to think about it and made an offer two or three days after viewing a house, only to discover that another buyer had swooped in and made a successful offer. This will only happen to you after the first couple times, but by then you will know what you want in a home. If this happens to you know that it is normal and simply a part of the learning process of being a first time home buyer…..all things happen for a reason.

How to avoid this mistake: Once you look at multiple houses, and you get a feel of the market and you know what the market is like and where the prices are at, and you see something you like, don’t hesitate to make an offer, because you and 10 other people will be interested in that same property, this is today’s housing market.

 

(7) Overpaying for a house

 

First-time home buyers tend to pay more than experienced buyers would pay for the same house, according to research conducted by two economists with the Federal Housing Finance Agency. In their analysis of appraisal data from more than 1.7 million home sales, FHFA economists Jessica Shui and Shriya Murthy concluded that first-timers overpay by an average of 0.79%, which was nearly $2,200 per house, according to the data set they examined.

Shui and Murthy pointed to the inexperience of first-time home buyers. Real estate agents say newbie buyers let their emotions take over, too. First Time Home Buyers tend to overlook potential negatives and only look at the positives of a particular house. I tell me home buyers to act with their heads and not with their heart, but I know I am asking for the impossible so just use as much of one as the other.

How to avoid this mistake: Ask your agent for a competitive market analysis, a report that looks at the prices of comparable nearby homes that have been sold recently. And it helps to fully understand the real estate process, so seek out as much information as possible. If you have friend that recently went through the process or are currently seek out their advice.

 

(8) Skipping the home inspection

 

In some markets, a lot of buyers compete for a small number of properties for sale. In these strong seller’s markets, buyers are tempted to waive a home inspection. It gives them a competitive edge over smarter buyers who wouldn’t dream of forgoing an inspection before plunking down hundreds of thousands of dollars for a home.

It’s a HUGE mistake to buy a previously owned home without an inspection because there could be expensive, hidden damage that you wouldn’t spot but an inspector would.

How to avoid this mistake: Simple: NEVER EVER ALLOW THIS TO HAPPEN. Hire a licensed home inspector. Your real estate agent will gladly make a recommendation, but it’s better to hire an inspector of your own choosing who doesn’t depend on your agent for referrals. Plus, require that a home inspection contingency is included in your sales contract, your BUYER AGENT who represent you will help you get this negotiated in the sale contract.

 

(9) Underestimating the costs of ownership

 

After you buy a home, the monthly bills keep stacking up. This can come as a surprise if you’re not ready.

Keep in mind it’s not just your mortgage payment, you’re going to have the utilities bills that you did not or may not have been paying when you rented.

Renters may have been paying these kinds of bills, too. But the new home could very possibly have higher costs simply because your new home is bigger. Your house may come with entirely new bills, such as homeowner association fees.

How to avoid this mistake: Work with a real estate agent who can tell you how much the neighborhood’s property taxes and insurance typically cost. Ask to see the seller’s utility bills for the last 12 months the home was occupied so you have an idea how much they will cost after you move in. Ask for a seller disclosure for every house you are interested in, many times this will help you.

 

(10) Miscalculating repair and renovation costs

First-time home buyers are frequently surprised by high repair and renovation costs. Buyers can make two mistakes: First, they get a repair estimate from just one contractor, and the estimate is unrealistically low. Second, their perspective is distorted by reality TV shows that make renovations look faster, cheaper and easier than they are in the real world.

 

How to avoid this mistake: Assume that all repair estimates are low.

Seek more than one estimate for expensive repairs, such as roof replacements. A good real estate agent should be able to give you referrals to contractors who can give you estimates. But also seek independent referrals from friends, family and co-workers so you can compare those estimates against ones you receive from contractors your agent refers.

Consider purchasing a home in need of repairs with a renovation mortgage program that will allow you to use your mortgage to purchase your home as well as fund the repair/renovation costs all in one new home loan. Want to learn more about renovation mortgages visit my website to Learn More About Renovation Mortgages at http://www.bobrutledge.com/HomeStyle-Renovation-Mortgage

Posted by Bob Rutledge on April 17th, 2018 11:55 AM

2018 Guide to Qualifying for a Mortgage with IBR Student Loans

 

When you have student loans, qualifying for a mortgage can get tricky.

Student loan guidelines have changed yet again.  This is your ultimate guide to understanding how these changes will affect you in 2018.

Understanding IBR

When you begin to make payments on your student loans, you may have several options.

You may be making payments on your student loan based on your income.  This is called an Income Based Repayment (IBR) plan.

IBR plans typically will not cover the principal and interest due, and the loan balance may increase even though you are making payments.

If your payment is based on a calculation that pays off your loan in full at the end of a loan term, this is an amortized payment.

All underwriting guidelines with all lenders will allow you to use an amortized payment when calculating your debt to income ratio.

IBR plans could also leave you with a $0.00 payment, even though your loan is in repayment status.  Your income is reviewed every year to determine your new payment over the next year.

Student Loan Payment Change History

More and more students are straddled with student loan debt for years after leaving school.

Being chained to student loan debt requires an experienced locksmith to unlock the correct guidelines to get you approved for a home loan.

It’s almost a full time job keeping up with the updates to the underwriting guidelines, and IBR payments seem to send many loan officers into a tail spin of misinformation.

Student Loan Guideline Changes Since 2015

  • 2 times for Fannie Mae Conventional Loans

  • 2 times for Freddie Mac Conventional Loans

  • 1 time for FHA Insured Loans

  • 2 times for VA Guaranteed Loans

  • 1 time for USDA Guaranteed Loans

    The first major change to the underwriting guidelines happened when lenders were no longer allowed to ignore deferred payments or loans in forbearance.

    The second major change was that you had to apply a payment to any student loan balance.  If the payment reporting on your credit report will not pay off the loan at the end of a fixed term, your payments are not amortized.

    Non-amortized payments became public enemy #1 by Fannie Mae, FHA, and USDA.  In 2015, Freddie Mac guidelines did not allow for deferred payments or loans in forbearance, and would allow IBR payments, even if the reported payment is $0.00.

    Calculating Your Debt to Income Ratio (DTI)

    The entire student loan debacle is being caused by confusion around how your debt to income ratios are calculated.

    Your debt to income ratio is calculated as your proposed housing payment (when buying a home) plus your monthly liabilities from your credit report, as a percentage of your gross income.

    When using a Fannie Mae or Freddie Mac Conventional loan, the total housing payment plus monthly liabilities cannot exceed 50% of your gross income, or a 50% DTI.

    Borrowers using a FHA mortgage have 2 DTI ratios.  A front-end debt to income ratio is your housing payment as a percentage of your income.  A back-end debt to income ratio includes your monthly liabilities from your credit report.

    FHA will allow your housing payment to be as high as 46.99% front-end DTI, and a maximum 56.99% back-end DTI including your debts.

    Student loans become confusing when no payment is reported on your credit report, or when your payment is an Income Based Repayment (IBR) payment.

    2018 Student Loan Guidelines Snapshot

    Fannie Mae Conventional

  • Non-amortized Payment – IBR Ok, even with $0.00 payment – Updated April, 2017

  • Amortized Payment – Ok with all lenders

  • Deferred or forbearance use 1% of loan balance.

    Freddie Mac Conventional

  • Non-amortized Payment – Must use .5% of loan balance – Updated February, 2018

  • Amortized Payment – Ok with all lenders

  • Deferred or forbearance use 1% of loan balance.

    FHA Government Insured

  • Non-amortized Payment – Not Allowed | Must use 1% of loan balance

  • Amortized Payment – Ok with all lenders

  • Deferred or forbearance use 1% of loan balance.

    VA Guaranteed Loan

  • Non-amortized Payment – Not Allowed | Must use 5% of loan balance divided by 12

  • Amortized Payment – Ok with all lenders

  • Deferred or forbearance use 1% of loan balance.

    USDA Guaranteed Loan

  • Non-amortized Payment -Not Allowed | Must use 1% of loan balance

  • Amortized Payment – Ok with all lenders

  • Deferred or forbearance use 1% of loan balance.

    Freddie and Fannie Swap Guidelines

    Interestingly enough, Fannie Mae and Freddie Mac have since swapped positions on IBR payments as of the most recent update by Freddie Mac in February 2018.

    Freddie Mac no longer allows for IBR payments, while Fannie Mae does since April 2017.  Fannie Mae will even allow an IBR payment with a $0.00 payment.

    If you have an IBR payment that is equal to less than .5% of the balance of your student loan, Fannie Mae is your option for being able to use the payment as reported on your credit report.

    Creative Solutions to Solve Student Loan Problems

    If you are trying to buy a home, and the pieces just aren’t fitting together, here are some creative solutions that past clients have successfully done.

    Payments Deferred or Loan in Forbearance

    If you have loans with deferred payments, or if your loan is in forbearance, we have had homebuyers go into an income based repayment plan, and qualify using a Fannie Mae Conventional

    Parents Co-Sign and Pay Student Loan Payment

    Fannie Mae recently updated their “Contingent liability” guideline to allow student loan payments to be ignored, if you can show that a co-signer has made the payments for the past 12 months.

    Debt to Income Ratio too High for Conventional

    This home buyer is consolidating over a dozen loans into a 30 year amortized payment.  We needed an amortized payment to take advantage of more flexible DTI requirements over Conventional.

    Payment Not Showing Up on Credit Report

    If you loan is in repayment, your lender can get a credit supplement (if needed) from the credit bureau by providing them with a copy of your statement from your student loan lender.

    Have Less than 5% Down Payment and IBR Payment

    It is a common misunderstanding that FHA offers the lowest down payment.  VA & USDA offer 100% financing, but additional qualifying is required.

    Both Fannie Mae and Freddie Mac have programs that allow for as little as a 3% down payment.  Eligibility can be determined by income limits, or the area you are buying in.

    There are no income limits for homes being purchased in “targeted” low to moderate income.  These special programs also include discounted mortgage insurance and discounted closing costs.

    Why Lenders Get it Wrong

    If you’re calling from a TV, radio, or internet advertisement, you are most likely being connected to a call center, where the “Loan Officer” has little to no actual mortgage experience. You can look up the experience of your Loan Officer at http://nmlsconsumeraccess.org/ and see when they got their mortgage license and what they were doing before they became a mortgage loan officer. (YOU WILL BE SURPRISED!)

    I call these “big box” lenders.  These lenders are amazing at processing a certain type of loan file that does not require anything too far outside the box. They only want and really can only do the vanilla stuff.

    If you are working through a big box lender, here is what is really happening, your application is not getting in front of a professional until it reaches the underwriter.

    Many times, your file is not in front of the underwriter until after you’ve already accepted your purchase offer and paid for the appraisal.

    Hopefully, there’s enough time, and the underwriter is experienced enough to look up the guidelines, and can figure out how to save your new home by getting you approved for the right loan.

    I wouldn’t believe this happens as much as it does if I didn’t see it professional so often!  So many of these horror stories we hear could have been avoided if a professional loan officer was used, and not a call center lender.

    Work with an Expert

     

Posted by Bob Rutledge on March 29th, 2018 9:24 AM

Pros and Cons of a Low Down Payment

 

When it comes to a down payment on your home, are you aiming high or low? The down payment is the number one reason most buyers wait longer than they’d like to buy a home. In fact, many sidelined buyers have the income and qualifications to make the monthly mortgage payment, but lack the down payment.

But, there’s also a misperception about 20 percent down. In a NerdWallet study, 44 percent of Americans believe you need 20 percent or more to buy a home. The reality is that about 60 percent of homebuyers financed their purchase with a 6% or less down payment, according to the National Association of REALTORS®.

But, how low is too low for your down payment?

The fact is there are no cookie cutter mortgages — your home financing will be as unique as you. FHA is known for their low down payments for first-time homebuyers, but many conventional fixed rate loans offer lower than FHA’s 3.5% down.

What about zero down? VA loans for armed service members and qualified veterans provide a great value, including no down payment, relaxed credit requirements and no mortgage insurance. (Plus, down payment programs may help with closing costs and even an equity boost.)

In certain areas there is the USDA Mortgage that also provides a zero down payment option, low interest rates, relaxed credit guidelines, but with income restrictions depending on where and number of people to live in the new home.

Some lenders offer grants to buyers to overcome the down payment hurdle. But, according to guidelines from Fannie Mae and Freddie Mac, lenders can make contributions to a borrower’s down payment or closing costs only after the borrower has contributed a minimum 3% down payment.

“To meet that 3% threshold, the borrower can still come with funds from a relative, a government agency — such as grants from a housing finance agency — or from an employer housing program. That has not changed,” says Lisa Tibbitts, a spokeswoman for Freddie Mac.

Let’s take a look at the pros and cons of a smaller down payment.

The Pros:

You can buy a home sooner. With a lower down payment, you’re putting less down and not saving as long before you get in a home. It can help you secure a loan at today’s low rates and avoid any rent increases that may be on the horizon.

You’ll have more reserve funds on hand. When you buy a home, there are many other related costs, including home repairs and improvements. With a smaller down payment, you’ll avoid being “house poor” as soon as you leave the closing table and can enjoy using some of your hard earned dollars to make the home your own.

Down payment programs can help. Don’t overlook down payment programs as part of your home financing. These programs can help boost your down payment savings or even provide a tax credit for the life of the loan. Some programs provide affordable first mortgages with a very low down payment.

 

The Cons:

Your monthly payment will be larger. When you put less down, your home loan — and monthly payment — will be larger. Work with your lender to ensure you are comfortable with the monthly payment.

You may be required to pay mortgage insurance premiums. Some down payment programs may waive mortgage insurance (MI), but in most cases if your down payment is below 20 percent, you’ll be required to get MI — it helps manage risk for your lender and protect them if you fail to repay the mortgage. It’s important to note that with a conventional, fixed rate loan and borrower paid MI, you can cancel your mortgage insurance when you reach 20% equity in your home. With an FHA loan, you must continue to pay MI for the life of the loan.

Could hurt in a competitive market. Unfortunately, some sellers see smaller down payments as a negative, although it’s not necessarily true. In fact, the seller may actually earn less on the home from an all cash buyer with a lower offer. Plus, some down payment programs will fund your closing costs — something you won’t have to negotiate with the seller. Put the seller at ease by getting your financing set up early and documenting it in a letter accompanying your offer.

The bottom line? The right down payment for you depends on your situation. Weigh the overall pros and cons of a low down payment and talk with your lender, Bob Rutledge, about what is the best fit for you.

Visit www.bobrutledge.com to learn about low down payment options, VA and USDA zero down payment programs, and down payment assistance.


Posted by Bob Rutledge on March 5th, 2018 3:09 PM

With significant changes to the tax code taking effect this year, homeowners and prospective buyers are revising their plans to take advantage of its sweeping changes. Here’s an analysis based on information from the National Association of Realtors and NerdWalllet.

Tax Rate Reductions. Joint filers with incomes of $77,400 to $400,000, which will include most first-time buyers, will see their tax rates decline from two to four percent when they file their 2018 taxes next year.

Mortgage Interest Rate. Changes in the mortgage interest rate—lowering the cap to mortgages worth o $750,000 from 1 million and excluding interest paid on home equity loans— would affect only the wealthiest first-time buyers directly. The changes will make second homes and equity loans more expensive for first-time buyers in the future.

State and Local Taxes. The new law limits the amount of property taxes and other state and local taxes to $10,000 a year. First-time owners, as well as current owners, will lose the ability to deduct thousands of dollars that they can deduct in 2018, increasing the cost of homeownership, especially in high tax states like New York and California. In the State of Missouri most First Time Home Buyers homes will not have an annual property tax anyway near $10,000.

Student Loan Interest Deduction. Potential first-time buyers and their parents who have been burdened with student loan debt will lose the ability to deduct the interest they pay on their loans. As a result, it will cost them more to pay off their debts to reach a DTI that would qualify them for a mortgage. 

Personal Exemptions. Personal exemptions for filers and their dependents, worth $4,150 each in 2017, was eliminated in the new tax law.

Moving Expenses. Taxpayers have been able to deduct some moving expenses related to their employment, but this deduction is eliminated in the new act.

Standard Deduction. Taxpayers must decide whether to take the standard deduction or itemize their deductions. In the past, most homeowners have itemized to take advantage of the mortgage interest deduction and the deduction for state taxes, including property taxes. The new law doubles the size of the standard deduction from $6,000 to $12,000, or $24,000 on a joint return. According to Zillow’s Alexander Casey, under the current setup, roughly 44 percent of U.S. homes are worth enough for it to make sense for a homeowner to itemize their deductions and take advantage of the mortgage interest deduction. Under the new law, that proportion of homes drops to 14.4 percent. 

Impact on First-time Buyers: NAR’s research department modeled examples of homeowners as different income levels, mortgage sizes, and family sizes.  

A single first-time buyer who purchases a home costing $205,000 and takes out a 30-year fixed rate mortgage at 4% interest. She puts down 3.5 percent. Assuming she buys early in 2018, her first-year mortgage interest would total $7,856, and she would pay real property taxes of $2,050. Under the old law, her taxes for 2018 would fall by $2,098; Under the new law, her taxes would rise by $30. Moreover, the difference between renting and owning was $2,098 under the prior law but shrinks to $637 ($6,060 - $5,423), or $53 per month.

A family of five with an income of $120,000 that buys a $425,000 home with a 10 percent down payment on a 30-year fixed mortgage at a 4 percent. Under the old law, they would save $3,219 by buying. Under the new law their taxes would decline only $100, but if they had remained renters, they would receive a tax cut of almost $2,400. Under the prior law, the tax benefit of buying a home was $3,219. Under the new law, they will get a tax cut $948 ($8,999 - $8,051), a much weaker incentive to buy.

 

Posted by Bob Rutledge on February 14th, 2018 4:23 PM

The 3% Down Alternative to FHA

It seems that a lot of people think that Conventional financing requires a minimum down payment of 20% or more.

I am shocked at how many folks I speak to every day that think that a conventional loan is not an option for buying a home with a low down payment.

Both Fannie Mae and Freddie Mac, the conventional mortgages, have special loan programs available that, based on your income, and/or the geographic region you are buying in, allows you to buy with as little as 3% down payment.

Normally Better Credit is Best

With normal conventional loan programs they tend to favor better credit scores, through their risk based pricing they punish borrowers with lower credit scores with costs to the lender that increase interest rates if you are not perfect in the eyes of Fannie or Freddie.

If you’re one of those homebuyers, or homeowners that has excellent credit to decent credit, but not a lot of equity or money for a down payment, you may be surprised at conventional loan options offer.

Fannie Mae HomeReady

Fannie Mae’s HomeReady program is designed to meet the diverse needs of today’s buyers using flexible underwriting guidelines for credit worthy low-to-moderate income borrowers trying to finance a home.

HomeReady Better Features

  • Income from non-borrowing household members can be considered as a compensating factor to allow debt to income ratio greater than 45%, up to 50%.

  • Can use income from rental unit and boarder income for qualifying.

  • Allows non-occupying borrowers, like a parent, to help meet debt to income requirements.

  • Financing up to 97% loan to value for the purchase of a one-unit principal residence.

  • Financing up to 95% loan to value for limited cash out refinances, or 97% loan to value if mortgage being refinanced is owned or guaranteed by Fannie Mae.

  • You are NOT required to be a first time home buyer to qualify for this program

  • Private mortgage insurance is discounted, in many cases below that of FHA and a regular conventional mortgage.

  • Gifts, grants, community seconds, and cash-on-hand can be used as a source of funds for down payment and closing costs.

  • Nontraditional credit is allowed.  An example is rental history, or utility and insurance payments.

    Qualifying Requirements for HomeReady

    Borrowers using HomeReady are required to meet certain criteria that are not necessarily required if you’re using a traditional conventional loan with a maximum loan to value of 95% (5% down payment for purchase).

    Homeownership Education Requirement – A homeownership education course may be required unless you have previously taken a course required by a community seconds program, or if you’ve completed a course from a recent attempt to purchase another home.

    Income Eligibility – HomeReady is available to any homebuyer or homeowner that meets the income limits of the property location.  The income limits may be waived if the property is located in a “targeted” low-to-moderate income Census Tract.

    You can look up the income and property eligibility by entering the address of the home you’re interested in into Fannie Mae’s Eligibility Search Tool Here

    Freddie Mac Home Possible Mortgages

    Freddie Mac’s Home Possible mortgage offer low down payments for low-to-moderate income homebuyers, or buyers in high-cost or underserved communities.

    Freddie Mac offers two different low down payment options, Home Possible 95% Loan to Value, and Home Possible Advantage 97% Loan to Value. I will only address the 97% or 3% down payment option.

    Home Possible 97% Features

  • Maximum loan to value 97%.  Minimum 3% down payment for purchase.

  • 1-unit single family unit homes, condominiums, and planned unit developments are eligible.

  • Flexible sources of down payment.  Down payment can come from a variety of sources, including friends and family, employer-assistance programs and secondary financing.

  • No cash-out refinancing is available up to 97% loan to value for borrowers who occupy the property.

  • Income flexibility.  Borrowers with income above the area median income (AMI) may be eligible in high-cost areas.  No income limits in underserved areas.

  • You can check eligibility by using Freddie Mac’s Home Possible Income & Property Eligibility Tool Here.

  • Private mortgage insurance is discounted, in many cases the monthly mortgage insurance is well below that of a regular conventional mortgage and below that of FHA

  • All borrowers must live in the property.  Non-occupying borrowers not allowed at 97% loan to value.

    How Do I Choose The Best Option?

    There is very little to no difference between the costs and interest rates of these two programs, so it comes down to your financial situation that may determine which option is best for you.  In a sense, the best option chooses you.

    FHA, HomeReady, or Home Possible should all be considered for many home buyers that in the past were placed only in a FHA mortgage. What use to be has changed, if yesterday you were a FHA mortgage today you may have a better option

    A common example is if you have student loans with Income Based Repayment (IBR) payments. FHA, Freddie Mac, and Fannie Mae all handle this situation differently.

    Another example is that the targeted income and property lookup tools offer different results.  If you look up a property using Fannie Mae’s HomeReady lookup tool, you may make too much income to qualify, whereas if you look up the same property using Freddie Mac’s Home Possible lookup tool, you may qualify. FHA does not have a maximum income limitation.

    If you are considering a new home purchase and want a low down payment option you need to consider a mortgage lender that has experience with FHA, Home Possible, and HomeReady, and is willing to consider all possible options for you.

    If you want to talk with me about what options are available to you please contact me, Bob Rutledge, at 314-628-2218 or email me at brutledge@usa-mortgage.com

Posted by Bob Rutledge on January 24th, 2018 10:08 AM

The VA mortgage program does not have a required minimum down payment, it is a 100% mortgage. But, there are closing costs involved in the VA mortgage as there is in all mortgage. WHO pays for closing costs is much different with the VA mortgage than it is with any other mortgage program, another benefit to the veteran borrower.

A common way to remember which costs a veteran is allowed to pay for is to remember the acronym ACTORS. That stands for:

  • A  Appraisal
  • C  Credit Report
  • T  Title Insurance
  • Origination Fee
  • R  Recording Fee
  • S  Survey

These are common charges found on most every VA mortgage and while they can vary a bit by amount; these fees are the ones that can be paid for by the veteran. But what about these charges?

  • Attorney
  • Underwriting
  • Escrow
  • Processing
  • Document
  • Tax Service

These fees, and others, are example of charges that the veteran is not allowed to pay. Even though the VA lender requires a processing and an underwriting fee in order to approve the VA loan, the veteran may not pay for these charges and any other fee deemed "non-allowable." So if the veteran can't pay them, who does?

The Seller Can

Non-allowed closing costs can be paid by the seller of the property and is typically the initial method of dealing with such charges. As part of a sales contract, the buyer can say, "We'll pay you $200,000 for this home as long as you pay for $3,000 in closing costs."

Paying for a buyer's closing costs is considered a seller concession, and is limited to four percent of the sales price of the home. If a home sells for $200,000, then the seller can only pay $8,000 of the buyer's costs.

Such concessions can be used to pay for the buyer's VA funding fee, loan costs, property taxes and insurance among others.

The Agent Might

A real estate agent representing the buyer can contribute toward closing costs in the form of a credit at the closing table. Real estate agent commissions are paid for by the seller of the property and typically represented as a percentage of the sales price.

When a real estate agent brings a buyer to a seller and there are two agents, the listing agent and the selling agent, the commission is typically split between both agents. If the sales commission is six percent, each agent gets three percent each for their services. Some states don't allow the practice of an agent contributing toward a buyer's closing costs so check to see if it's okay in your area.

The Lender Can

The lender can offset part or all closing costs with a lender credit. Lenders can offer a credit to a borrower by adjusting the borrower's interest rate. It's like paying a point to get a lower interest rate but in reverse.

For example, a VA borrower applies for a 30 year fixed rate VA mortgage and is offered a 3.75 percent rate. The lender offers the buyer a lower rate if the buyer pays one point, or one percent of the loan amount. The choice is 3.75 with no points or 3.50 with one point.

In the other direction, the lender can offer 3.75 percent with no points and 4.00 percent with one point credit to the borrower. On a $200,000 loan, the lender can increase an interest rate by about one-quarter of one percent and the borrower gets a $2,000 credit toward closing fees.

The Borrower Can

The seller can pay, an agent can pay, the lender can pay but the borrower also has one more way to pay non-allowable closing costs. Recall that an origination fee is an allowable charge.

In lieu of charging the borrower non-allowed fees, the lender can charge a one percent origination fee instead of itemized non-allowable charges for things such as attorney or underwriting charges.

Closing costs on VA loans are indeed a different breed compared to FHA or conventional loans, especially with regard to who is responsible for any particular fee. If there are any questions about who pays for what, those questions should be asked directly to your loan officer. VA costs can be confusing, there's no need for them to be.

If you have questions go to www.bobrutledge.com and learn more or call Bob Rutledge with USA Mortgage directly at 314-628-2218.

Posted by Bob Rutledge on January 8th, 2018 10:31 AM

At the start of many mortgage application I hear my borrowers tell me that they had started the process of 'fixing' their credit BEFORE they spoke with me or any other mortgage lender. This is a mistake that has hurt so many potential home buyers. This is especially true when it comes to collections on your credit report.

Collection companies have done a great job over the years of convincing consumers that paying off collections will raise their credit scores. Many are actually surprised to learn that paying off collections will actually LOWER their credit scores.

Collections are usually reported on the credit as a “9” status or collection account. This means the account has already been "written off" and assigned to collections by the creditor. Once an account is reported this way on the credit report, the damage to the credit score is irreversible, unless that item is removed completely from the report.

If the account is paid off, the collection company reports that the account now has a $0 balance, but they do not usually delete the item off the report. The account has already become a collection, and the risk of the consumer defaulting on another account is already very high, due to that collection.

So their credit score will not go any higher if it is paid off, because paying off a collection after the fact, doesn't lower the risk of defaulting in the future.

However, the DATE OF LAST ACTIVITY is updated to the date the account was paid off. So if that account was sent to collections 3 years ago, the date of last activity is 3 years old and the impact to the credit score is not as much. But if the consumer pays off that collection today, they just update the date of last activity to today's date, many times causing the scores to go DOWN as a result.

Crazy isn't it? 

Also, if you have medical collections most mortgage programs will not require you to remedy medical collections, in essence....we ignore them. Yes, they may be hurting your credit scores, but there are usually other methods available to you to increase your scores.

Before you start doing your homework to purchase a new home please contact me or another mortgage professional. Allow us to pull your credit report for you and to discuss what is the best course of action to take, you may be surprised how easy it really is to get your credit scores higher.

Posted by Bob Rutledge on January 2nd, 2018 11:51 AM
"Can I refinance my home if I have no equity in my house?" "I am underwater on my home can I refinance?" "How can I get cash out of my home if I have no equity?" These are just a few of the questions I get asked as a Mortgage Loan Officer.

The answer is YES, you can refinance just about any mortgage to just about any mortgage program with little to zero equity in your house!

FHA Mortgages; this is one of my favorites because there are all sorts of way to make FHA work for you. If you already have a FHA Mortgage utilizing the FHA Streamline refinance works well for those with little to no equity in your house because it doesn't matter. The FHA Streamline does not require an appraisal in most situations, they will actually use the last appraisal of your home. There is no cash out at closing with a Streamline refinance only rate and term changes.

If you do not have an FHA Mortgage or can't do a Streamline Refinance FHA allows for a rate and term refinance up to 97.75% of the appraised value. If you need cash out of your home the loan to value for an FHA cash out refinance is 85% of the appraised value. In both of these situations the lender will require a new appraisal. If you would like to learn more about the FHA Mortgage click the link.

FHA has a special loan program called the FHA 203k Renovation Mortgage, if you are looking to use the equity in your home to make improvements or remodel your home this may be your solution if you have little to zero equity. The FHA 203k will allow you to borrower 110% of the appraised value of your home. The appraisal value for a FHA 203k is based on what your home will be worth once your home improvements are completed, basically giving you a valuation on your home on the future work to be done. You will have refinanced your current mortgage plus received the money needed to make the improvements to your home. I am a Certified FHA 203k Removation Mortgage Specialist and can help. If you would like to know more about the FHA 203k Renovation Mortgage follow the link.

VA Mortgages, 100% of the value of your home! No matter the type of refinance of your current VA mortgage you can borrow up to 100% of the appraised value, this includes cash out refinances. Yes, you can get cash out of your home up to 100% of the new appraised value.

Are you someone that served in the United States Armed Forces and you don't current have a VA mortgage. First, thank you for your service to the country, it is appreciated. Second, you need to consider refinancing to a VA Mortgage, follow the link to learn more.

Conventional Mortgage, Fannie Mae or Freddie Mac, 95% is the maximum rate and term refinance you can do with a conventional mortgage. If you want to do a cash out refinance you are very limited in your loan to value to 80% of the new appraised value. Nothing really special about conventional mortgages. 

Fannie Mae has a renovation type mortgage very similar to the FHA 203k Renovation Mortgage, the Fannie Mae Program is called the HomeStyle Renovation Mortgage. If you want or need a conventional mortgage AND you are want cash out for improvements to your home the Homestyle renovation mortgage will allow you to borrow up to 95% of the new appraised value. Now you have refinanced your current mortgage plus received the funds to improve your home. I close many renovation mortgages every year, if you have questions please feel free to contact me.

USDA Mortgage, no cash out refinancing with a USDA mortgage, but you can refinance to lower your interest rate and/or shorten your term with little to zero equity.

HARP, the Home Affordable Refinance Program, this program was developed my our Federal Government for the sole purpose of allowing home owners to refinance their home when they have little to zero equity. The HARP refinance will allow for you to refinance your home even when you are underwater. If you would like to learn more about HARP please click on the link. 

If you would like to talk about refinancing your home, especially if you have little to no equity in your home please feel free to contact me. 
Bob Rutledge Mortgage Loan Officer

St. Louis MO, St. Charles MO, Kansas City MO, Springfield MO, Columbia MO, Cape Giradeau MO, Branson MO, Jefferson City MO
Posted by Bob Rutledge on March 24th, 2017 3:11 PM

Loans For Remodeling, Mortgages for Renovation or Fixing Up, Home Loans for Rehabbing, Home Improvement Loans. There are a lot of different options available to you to borrow the funds necessary to complete the project you have in mind for your home or soon to be home.

You currently own your home and want to make improvements or upgrades? You are looking at purchasing a new home and are considering a fixer upper? There are home loans and mortgages available to you!

The FHA 203k Renovation Mortgage is the best known mortgage option to help a home owner or home buyer with home remodeling and renovation funding. The FHA 203k is a first mortgage that combines the sales price and the renovation costs as a combined new first mortgage when you are purchasing a new home. If you already own your home the FHA 203k would be used as a refinancing or replacement of your current mortgage.

The FHA 203k can be used to make just about any home improvement you can consider or think of. Want to add a second story to your ranch? Looking to upgrade all your appliances? Add a new room? Expand your garage? Landscaping? If you would like to learn more about the FHA 203k visit my webpage; http://www.bobrutledge.com/fha203krenovationloan

One of the great advantages of the FHA 203k is that you don't always need to have equity in your home. The FHA 203k will allow you to borrower 10% over the after completion appraised value. So if you are short on equity to start use this program to make equity building improvements and build new equity in your home.

The Fannie Mae HomeStyle Renovation Mortgage, this is the near FHA 203k equal but a conventional renovation mortgage option. All the improvements that you can make with the FHA 203k you can do with the HomeStyle Renovation Mortgage. If you are considering getting a swimming pool you cannot go with the FHA 203k but you can get it done with the Fannie Mae Home Style Mortgage.

The HomeStyle mortgage can be used as a refinance or replacement of your current mortgage or it can be used as a new purchase mortgage for those homes that need some extra work to make them your home. The minimum down payment or equity position is 5% or the appraised value or sales price.

The big advantage the HomeStyle Renovation Mortgage has over the FHA 203k is mortgage insurance. If you have 20% equity in your home or a 20% down payment you will not have a monthly mortgage insurance payment. If your loan to value ends up being more than 80% but less than 95% there is a possibility of not having a monthly mortgage insurance payment, mention it if you are interested in this option.

Cash Out Refinance, no matter what type of mortgage you have on your home you can refinance to get cash out of the equity you have in your home. Each mortgage, except USDA, has their loan to value limitations based on a new appraisal, FHA is 85%, VA is 100%, and Conventional is 80% loan to value based on a new appraisal in many instances.

Home Equity Second Mortgages and Loans, many times these are referred to as Home Equity Lines of Credit or Home Equity Second Mortgages. Professionally, I do not have the ability to provide any of these mortgage programs but I do have resources to help you with finding the right HELOC for you.

Many times these types of loans are shorter in term, require much more equity in the home, have higher interest rates, and are harder to qualify for. But, the times are changing and I am starting to see these programs loosen up. Talk with your bank to start, then a credit union or two, and then ask me if I can help. There are positives and negatives associated with these loans but they have a very useful purpose.

Did You Know? In many instances the FHA 203k, HomeStyle, and Cash Out Refinances have tax advantages that Home Equity Loans do not. This is especially true if you utilize the mortgage interest deductions on your Federal tax returns. Consult your tax preparer before making this decision.

There are a few more options available to you when it comes to financing your home improvements and remodeling projects. Consider asking your Contractor to finance the costs, many bigger companies can do this or provide you with a private lending company. But, look at the terms and conditions and compare with some of the options above. Ask you contractor if you can make payments during the work phase, many will take a percentage upfront, during, and at the end.

I am a Mortgage Lender with USA Mortgage and I am a Certified FHA 203k Specialist, I close either one or more FHA 203k and/or HomeStyle mortgages nearly every month. I closed my first renovation mortgage nearly 20 years ago. You need and want a mortgage loan officer like me if your are wanting a home loan for fixing up you house, remodeling, renovating, improving, or rehabbing.

USA Mortgage has offices in the St. Louis MO area, plus Kansas City MO, Columbia MO, Springfield MO, Jefferson City MO, Branson MO, and Cape Girardeau MO. I am located in the St. Louis and St. Charles MO area but help borrowers throughout the State of Missouri, if you have questions or want help please feel free to contact me.

Posted by Bob Rutledge on March 14th, 2017 2:43 PM

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