Ability to Repay

What is the Ability to Repay all about?  

The Consumer Finance Protection Bureau (CFPB) -  www.consumerfinance.gov - wants to make sure that lenders are lending to borrowers who can afford the homes they are buying.  As a result new rules regarding “Qualified Mortgages" and the “Ability to Repay” went into effect in January 2014.   These rules are meant to protect homebuyers and effectively will also protect lenders by giving additional guidance on mortgage loan fees and costs and underwriting.

How does 'Ability to Repay' effect a home buyer?     Well in very general terms, the new rules may cause underwriting to be more strict than it had been.  But in many cases the underwriting has not changed at all. 

One underwriting standard getting alot of attention is the maximum total debt ratio of 43%.  The translation of this formula is simple math:  borrowers’ gross monthly income X 43% is the maximum they can get for housing & other debt (car loans, student loans, other loans, minimum payments on credit cards, monthly child support & alimony payments).   This rule does not apply broadly across the board and in some cases, loans can still be approved with total debt ratios as high as 55%.    ATR (ability to repay) rules are mostly basic underwriting standards that many mortgage lenders having been using all along.  So what do  home buyers need to know about ATR?  If you are considering a home purchase, contact a mortgage lender and prequalify or preapprove for the mortgage before you make an offer to purchase a home. Make sure you have the ability to repay!

If you are considering a home purchase, we would be happy to assist you in determining what you qualify for and what your best options are.  Pick up the phone and call 225-LOAN or find more interesting info at www.nhmortgages.com 

Author: Renee Duval – A Certified Mortgage Professional (CMP) with the NH Mortgage Bankers & Brokers Association.  NMLS# 97937.  Merrimack Mortgage Company is an Equal Housing Lender, Licensed by Massachusetts and the New Hampshire Banking Department . Mass Lender MC2561-119

The Home Financing Process Step by Step

So you are thinking of buying a house.  This is a big decision.  You want to get it right.  Lets break it down step by step into digestible pieces. 

Here are the main topics we will go over:
1) understanding and comparing the basic loan types and which is best for you.
2) understanding the costs involved in financing a home and the options to reduce those costs
3) understanding how credit has a large influence on the terms available to you and techniques you can employ now to get your credit as mortgage ready as possible
4) understanding the difference between prequalified and preapproved
5) tools to help you figure this out all on your own
6) the opportunity to work with a professional to determine your own qualifications.

There's so much to know!  www.nhmortgages.com is a good resource for basic info.
Please feel free to email me with specific questions; I love to chat about mortgages!
email: Blog@NHmortgages.com

Author: Renee Duval – A Certified Mortgage Professional (CMP) with the NH Mortgage Bankers & Brokers Association.  NMLS# 97937.  Merrimack Mortgage Company is an Equal Housing Lender, Licensed by Massachusetts and the NH Banking Department . Mass Lender MC2561-119

Am I eligible for a mortgage tax credit?

If you are purchasing in NH an you are a first time buyer (haven't owned in the past 3 years) or are buying in a targeted area (those in bold font below) and you meet the income requirements, you may qualify for up to $2000/year for the next four years (up to $8000) in tax credits.   Ask your lender about this.  The MCC (mortgage credit certificate) program is the best kept secret.   If you have not been informed about this, then ask!  

Home Start Homebuyer Tax Credit

INCOME LIMITS

Belknap County
Laconia $96,600 income for a 1-2 person household;  $112,700 for 3+ person household
All other communities $80,500 for a 1-2 person household  $ 92,500 for 3+ person household

Carroll County
All Communities $80,500income for a 1-2 person household; $ 92,500 for 3+ person household

Cheshire
All Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ person household

Coos
Berlin, Lancaster, Whitefield $96,600 income for a 1-2 person household; $112,700 for 3+ persons
All other Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ persons

Grafton
Littleton $96,600 income for a 1-2 person household; $112,700 for 3+ person household
All other Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ persons

Hillsborough
Goffstown, Manchester $96,600 income for a 1-2 person household; $112,700 for 3+ persons
All other Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ persons

Merrimack
Concord, Pittsfield $96,600 income for a 1-2 person household; $112,700 for 3+ person household
All other Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ persons

Rockingham
Newmarket, Portsmouth $96,600 income for a 1-2 person household; $112,700 for 3+ persons
All other Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ persons

Strafford
Dover, Rochester, Somersworth $96,600 income for a 1-2 persons; $112,700 for 3+ persons
All other Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ persons

Sullivan
Claremont $96,600 $112,700 income for a 1-2 person household; for 3+ person household
All other Communities $80,500 income for a 1-2 person household; $ 92,500 for 3+ persons

PLEASE NOTE:
Targeted Communities are in bold: first-time home buyer requirement does not apply.

For more info on this and other mortgage types visit: www.NHmortgages.com

Author: Renee Duval – A Certified Mortgage Professional (CMP) with the NH Mortgage Bankers & Brokers Association.  NMLS# 97937.  Merrimack Mortgage Company is an Equal Housing Lender, Licensed by Massachusetts and the NH Banking Department . Mass Lender MC2561-119

What if the house needs repair?

Thinking of  purchasing a distressed property in need of repair?  Do you already own a home that needs repair and you don't have the cash?  You may be able to use a rehab loan to get cash to fix it up after closing.   These options include FHA 203K and FHA 203Ks programs.   For purchases in eligible areas (more rural areas) RD/USDA also has provisions for a minor amount of rehab money (under $10K).  State housing agencies like NH Housing, also often have rehab programs (in NH it is possible to get up to $40K in rehab funds thru NH Housing Finance Authority).
Generally the buyer or owner of the home must have contractors look at the project and give a written proposal to do the work.  The contractor must be appropriately licensed (or use licensed subcontractors) and insured. Much paperwork does apply!
The rehab loan process is more complex than obtaining a regular loan but it doesn't have to be too difficult if your lender has the knowledge and experience to guide you through it.   I prefer not to accept an application for a rehab loan from the buyer or owner until they have the contractor's bid(s) in hand.   It is imperative to get the contractors out to the property as soon as possible to get those bids.   Sometimes they will determine the cost is less or more than you thought and this can really influence your decision on financing (and/or your ability to qualify).  It is normally recommended that you have 3 contractors bid on any project.  Doing so will really help you to see the project more clearly.  As you meet with each contractor, each will have ideas which will enlighten you.   So you need to be prepared to spend many hours within the first ten days of your offer being accepted, meeting with contractors and making important decisions on what you want to include in your rehab.   Carpeting allowances, appliance allowances, etc are really important.  If your contractor gives you $500 for flooring and the flooring you want is $1500 then you may end up having a problem down the road.   So if you are considering a rehab loan, consider the upfront time necessary to do it right and surround yourself with good people who know what they are doing!
Author: Renee Duval -- a top ten loan officer for NH Housing loans and a Certified Mortgage Professional (CMP) with the NH Mortgage Bankers & Brokers Association.  NMLS# 97937.  Merrimack Mortgage Company is an Equal Housing Lender, Licensed by Massachusetts and the NH Banking Department . Mass Lender MC2561-119

3% grant available thru NH Housing

NH Housing will provide a cash assistance grant equal to a maximum of 3% of the loan amount to help borrowers defray the cost of down payment, closing costs, and prepaid escrow expenses associated with purchasing a home. Borrowers must contribute a minimum of 1% (based on purchase price) using their own funds (excluding gifts). Seller can help with closing costs (as long as the borrower has their required 1% into the transaction). No cash back is allowed at closing. 
Income limits and all other NH Housing guidelines apply. Borrowers do not need to be first time homebuyers but you cannot own other real estate (ok to sell and buy on the same day). 
There is no monthly payment on the cash assistance grant portion. If the homeowner stays in the house then after 48 months, the full amount of the grant is forgiven.
For more information, go to www.nhmortgages.com   I am happy to provide you with an estimate of what financing would look like using this program if you have a particular home or price range in mind!  
NH Housing loans can be used in combination with FHA or RD (aka Rural Development or USDA), FHA 203Ks, RD rehab or VA.   
Author:   Renee Duval -- I am a top ten loan officer for NH Housing loans and I am a Certified Mortgage Professional (CMP) with the NH Mortgage Bankers & Brokers Association.  I am licensed to originate loans in both NH and Massachusetts.  NMLS# 97937

Mortgage Loan Types & Terms

If you are thinking of purchasing a home or refinancing, I have described mortgage options in terms of terms and types in this article. For more interesting mortgage info, please check out my website at www.NHmortgages.com or feel free to email me at Renee@NHmortgages.com

TERMS  – the term of a mortgage is the number of years to repay the loan 

30 Year Fixed Rate Mortgage 

 This loan program is fixed for 30 years; your interest rate will not change during the term of the loan. This is ideal for people who plan to stay at their present property for a long period of time or just simply want the lower payment or need the lower payment to qualify for the mortgage.

20 Year Fixed Rate Mortgage

 Fixed for 20 years. Your payment will be higher than 30 year fixed loan because your loan term is only for 20 years. The interest rate will not change during the term of the loan.

15 Year Fixed Rate Mortgage

 15 year fixed loan has a loan term of 15 years and will not change during this period. Your monthly payment on this loan program will be much higher than 20 years fixed or 30 years fixed but you will pay your loan balance down much more quickly. The interest rate will not change during the term of this loan. If you can afford the higher payment and you plan to sell your home in 5-8 years, this may be a great option for you. The interest rate will not change during the term of the loan.

Comparison of different terms

 For a $100,000 loan, at a rate of 4%: P&I Payment on 30 yr term = $518.83;   P&I Payment on 20 yr term = $658.55;  P&I Payment on 15 yr term = $803.86
 P&I = principal & interest (the amount required to repay the loan over the given term)

 LOAN TYPES

The type of mortgage you get will probably be based on what is best for you and your situation in terms of down payment, qualifying criteria, etc

 Conventional 

A conventional loan is also known as a conforming loan and is generally a loan underwritten to the guidelines of Fannie Mae or Freddie Mac. Conventional loans do not have income limits and are generally available through all mortgage companies, brokers and banks who give mortgages. Conventional loans are used for the purchase of primary residences, second homes and investment properties. Conventional loans are available on single family homes and 2-4 unit properties and condos. The required down payment ranges from 3% to 25% depending the purpose of the loan and the type of property being financed. Generally a minimum credit score of 620 is required but conventional loan rates, generally, will be higher for people with lower credit scores and a little lower for people with higher scores (740 or above). The loan limits for conventional loans start at $417,000 for a One-Family (single family homes) $417,000; Two-Family $533,850; Three-Family $645,300 and Four-Family $801,950.

 FHA

 Federal Housing Administration - an FHA loan is not limited to first time home buyers and can be obtained by people who already own another property. There are no income limits but loan limits apply (county by county). Check out the loan limits. FHA loans are readily available through mortgage companies, brokers and banks who give mortgages. FHA loans are available for owner occupied properties only and for single family homes, 2-4 unit properties and condos that are prior approved by FHA. One of the features that makes FHA loans so attractive is that they require only a 3.5% down payment for all property types. Generally a 640 credit score is required but the loan rate will be higher for people with scores below 680. FHA does allow non-occupying co-signers allowed for purchases of single family properties. FHA 203K and 203Ks – FHA has provisions to allow a borrower to purchase a home and receive funds to complete repairs after closing. The amount and type of renovation needed will dictate if the loan is a full 203K rehab loan or a streamlined rehab loan (203Ks). Basically the streamlined product is for repairs needed under $35,000 that don’t involve structural work. For renovations exceeding $35,000 or that include structural repairs then the full 203K loan is applicable.

 RD - Rural Development

These loans have both income limits and geographical limits. As the name implies they are not available in cities but are for more rural areas. Check RD’s property eligibility website to see if any particular town you are interested in is eligible for RD financing. RD financing is available for owner occupied single family properties and approved condos only. RD cannot be used to finance 2-4 family homes or homes with in-law apartments. Although buyers using an RD loan do not have to be first time buyers, they cannot own other real estate at the time of closing. It is ok to sell a house and buy another using an RD loan as long as the closing for the sale of the first home happens before the closing on the new home (can be same day). The beauty of RD is that it allows for no money down and the seller can pay the borrower’s reasonable closing costs! This is an excellent way to finance a home located in an eligible area.

 VA – Veteran’s Administration

If you have served in the armed forces then you may be eligible for a VA loan. This type of loan allows the Veteran to purchase a home with no down payment and the seller can pay all the closing costs. There are no income limits but there are some loan limitations. For a no down payment VA loan the max loan is $417,000 but higher loan limits may be available with a down payment.

 ARM (Adjustable Rate Mortgage) 

 ARM Loans are fixed for a certain period of time, then become an adjustable loan. The most common ARM products are 1/1, 3/1, 5/1, 7/1 and 10/1 ARMS. 1/1 means the interest rate is only fixed for the first year then the loan will adjust every year thereafter. 10/1 means the interest rate is fixed for 10 years then the loan will adjust every year thereafter. Theoretically, the lowest starting rate should be found with a 1/1 ARM. Typically the rates on ARMS are lower than the current fixed rates. However, ARMS are often used to finance borrowers and/or properties that do fit into the guidelines of conventional loans. In these scenarios, the ARM rates may be higher than the going fixed rate. Each ARM Loan Program has these features 1) Index: this is an agreed upon starting point to base future changes on. Common indexes used in ARM products are the 1-yr constant-maturity treasury security(CMT), the cost of fund index (COFI) or the London Interbank Offered Rate (LIBOR) 2) Margin: a fixed amount that will be added to the index to determine the new rate when the ARM adjusts. 3) Caps: the loan will usually have two caps; the amount the rate can change (up or down) at any given change and the amount the loan can change during the life of the loan. When it is time for an ARM to adjust, the margin will be added to the applicable index to determine the new rate. If that rate is higher than the cap then the rate will be adjusted only to the cap. ARMs are available in conventional loans, FHA, VA and nonconforming loans. For more info on ARMs check out this website: http://files.consumerfinance.gov/f/201204_CFPB_ARMs-brochure.pdf

 Author 

The author of this article is Renee Duval from Merrimack Mortgage Company, NMLS # 97958. Renee has been a mortgage originator since 1987. She is licensed in New Hampshire and Massachusetts. She is a Certified Mortgage Professional – a designation given by the NH Bankers & Brokers Association. She is a top 10 originator for NH Housing. She is a top producer with Merrimack Mortgage Company and branch manager of their Concord, NH branch. Merrimack Mortgage Company is an equal opportunity lender.   Find me at www.NHmortgages.com 

Getting Your Credit Ready to Qualify for a Mortgage

Basic Steps to Being Credit Ready to Buy or Refinance a House Summary: Article details the things you should do several months before you get a mortgage loan. By being informed and proactive, a consumer will qualify for the best rates and terms for their mortgage. Article Body: Some people who are buying their first home or who wish to refinance their existing mortgage are so well qualified that any bank or mortgage company would give them a loan. These people tend to have excellent credit and high credit scores, job stability and more than adequate income to support the proposed mortgage payment. A quick conversation with a loan officer will let them know they are in this category. Other would-be borrowers may have a more marginal situation. This article is geared toward those people who may not be totally confident and/or who want to prepare for the future so they will be considered well qualified when it is time to purchase or refinance. There are important things a consumer can do before applying for a loan, in order to get their credit profile acceptable to mortgage lenders. It can take time to get it all done, so start now and you'll be ready for the future. Check your credit reports. Under the Fair and Accurate Credit Transactions Act, consumers can request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian, and TransUnion). You can go to www.annualcreditreport.com to request a free copy of your credit reports. This is the only site authorized by the three major credit bureaus for the purpose of obtaining a free copy of your credit report. Each of the three reports will need to be requested separately (3 different requests). The free reports received from the site will not provide you with a credit score but it will give you a complete copy of your credit history and that's a good place to start. As you go through the process of requesting your credit reports, you may be asked if you want to get the credit scores (for a fee). While this is an option, please note that the consumer score they give you is usually different (usually higher) than the score you get when a mortgage lender obtains your credit report. This is because the model for a mortgage credit score is different than the model for a consumer credit score. The model for a mortgage credit score is designed to predict the likeliness that you will be successful in making mortgage payments. Note: if you know a mortgage loan officer, you can usually prequalify and have them obtain a 3-bureau report with credit scores. Most mortgage programs do have a minimum credit score requirement. Also, the interest rate you will be charged is often affected by your credit score (higher credit scores may get better rates). Also, for people with lower credit scores, the underwriting criteria may be stricter. Now that you have the credit report, take some time to review each entry. Do you have any late payments in the past 12 months? If so, then you must start making all payments on time. There is a very low tolerance for recent late payments. Are there any current delinquencies with past due balances or collection accounts? If you are currently delinquent on an open/active account, you must bring that account current immediately and then you need to keep paying it on time. Generally you need to have all accounts paid on time for a minimum of 12 months. If you have unpaid balances on collection accounts, medical collections, judgments or accounts that were charged to P&L or an unpaid balance from a car repossession, etc, then this can be an issue if the outstanding balances total $1000 or more. Most lenders will require these accounts to be paid in full prior to closing or you will need to prove that you have a written payment agreement and have been making payments per the terms of that agreement for a minimum of 3 months. If you do have outstanding balances on older accounts, please try and determine the actual date the account went into a collection status. These accounts are supposed to come off your credit report after seven year but often they do not because the way they are reported makes them appear to be more recent than they are. You may need to do some digging and some research to get the date(s) the account(s) went delinquent. If the creditor is not able to provide this information, you may have a case to dispute the account and get it off your report! Are there any errors? If so you will want to dispute this information too. Each credit bureau has procedures in place for making disputes. Is there any unfavorable public record information such as bankruptcy? Lenders and mortgage programs have specific guidelines on dealing with these types of issues and may require anywhere from 2 years to 7 years from the date of discharge of a bankruptcy or foreclosure before they will give another mortgage loan. Decide whether to resolve or dispute every negative item on your credit report. Even small items such as a past due account with a utility company can show up and adversely affect your credit so take care of it now. There may be some merit to using a professional credit repair company to assist you in disputing negative items on your report. Lenders are generally looking for 3 open lines of credit that have been paid on time for a minimum of 12 months. If you do not have 3 open lines of credit, then you probably should obtain additional credit. It is hard to achieve a maximum credit score with an insufficient credit profile. Next, look at the balances on your credit cards. To get the ideal credit score, the balance on a credit card should be around 30% of the credit limit. As the balance on a credit card starts to approach the credit limit, your credit score goes down. If the balance on the credit card exceeds the credit limit, then you are probably losing a lot of points! If you are unable to pay down the balances on your credit cards, consider requesting a credit limit increase. This can help separate your balance from the credit limit. If you are thinking of buying a home or refinancing in the future, then watching the balances on your credit cards is a very important step. Aim to get the balances down to at least 50% of the credit limit (or lower if you can). If you cannot get the balances that low then do the best you can; keep in mind that the balance of the cards compared to the credit limit is a big credit score driver. Other rules of thumb are do not open any new accounts and do not close any accounts. One exception, of course, is that if you do not have at least 3 open accounts then you should open new accounts so that you do have 3 accounts reporting on your credit bureau. Also, if you have more than five accounts, then closing one or more of your newer accounts is ok (leave at least five open). If you are going to close an account, it is better to close newer accounts and leave older ones open, when feasible. If you have student loans then understand that the lender will qualify you based on the minimum payment due – even if the loan is deferred. So check the student loans listed on your credit report and make sure that the information is accurate and that each loan reports a payment. If deferred loans are not showing a minimum payment due (this is the norm) then you will need to request something in writing from the student loan companies stating what the minimum due will be. This can get interesting because, for deferred student loans, the student loan company will give a statement showing what the payment will be for a regular repayment schedule. In other cases the student loan company will show a choice of different payments but there is a notation that the loan is scheduled for regular payments (which means the lender will not choose to accept the lower payments available). For some borrowers, the student loan payment(s) will affect the amount they can be qualified for and sometimes causes them to qualify for less than they want. One way that some borrowers have resolved this problem is to literally take their loan(s) out of deferment and choose the payment plan with the lowest payment then put it back in deferment. By taking these steps, the payment used by the lender to qualify you will be the lowest possible payment. Also, if your credit history is marginal, it is quite common for mortgage lenders to ask you to provide 12 months’ cancelled rent checks. If you do not pay by check, start! If you do not always pay on time, start paying on time. If you are asked to provide 12 months’ cancelled rent checks, this documentation could be the difference between your loan being approved and not being approved. Not only is the lender looking at your payment history for housing but they are looking at what you have been paying versus what your new payment will be. If you cannot document a history of paying rent, it could adversely affect your ability to get approved. While these steps may not be all inclusive – it is hard to cover every possible scenario in a short article - they will put you on the right track to qualifying for the best mortgage possible. The months before buying a home are an important time to be frugal, avoid any negative impacts on your credit report, and make efforts to improve your credit score and history. If you are purchasing or refinancing in New Hampshire or Massachusetts, contact Renee Duval at (603) 225-5626 or visit our blog at www.NHmortgages.com