About Government Refinance and Home Purchase Programs

People often come to us wondering “how much house” they can afford. This is a somewhat complicated question because there are many variables that contribute to that answer. In this post we’ll try to break those variables down and give some rule-of-thumb ballpark numbers.

Variables that go into equation:

Debt-to-income ratios: Normally borrowers should have all of their monthly debt payments be less than 50% of their gross monthly income. So if a family makes $4000/mo gross, all of their monthly debt payments should be less than $2000/mo. Therefore, in this example if the non-housing bills (car payments, credit card minimum payments, student loan payments, etc) add up to $800/mo then the total mortgage payment (including property taxes, homeowners insurance, PMI, and HOA fees) should be under $1200/mo.

Principal and interest payment: This is the easiest and least variable part of the equation. Any calculator that has time value of money (TVM) function can help you figure this out. For instance, a 30 year fixed $150,000 mortgage at 4.5% will always have a monthly principal and interest payment of $760.03/mo.

Escrow payment: Here’s where costs can vary widely between locations. The things that can be included in the escrow payment (and debt-to-income ratio requirements) are:

Property (and other) taxes: In many states this is a single annual tax divided by 12 for the escrow. However in some states and counties property taxes are divided into sections including things like “school taxes” etc. Whatever the annual total is on all taxes on the property is divided by 12 and added to the debt-to-income ratio calculation.

Homeowners (and flood) insurance: Again the cost of homeowners insurance can vary widely by region. For instance, in areas prone to hurricanes or tornadoes, homeowners insurance can be significantly higher than average. Also if the home is in a flood zone expect higher annual premiums. Again, divide the monthly insurance costs by 12 when calculating debt to income ratios.

Mortgage insurance (also known as PMI or MI): In most cases when you have less than a 20% down payment you will have to include mortgage insurance in your monthly payment. Mortgage insurance insures the lender against default on the loan. It is sometimes called “private mortgage insurance”, thus the popular PMI acronym. The amount of MI required depends on the loan type and on the size of the down payment. VA loans require no MI. USDA loans have something similar to MI rolled into the payments that is 0.35% of the loan amount spread out over 12 payments per year. FHA loans have MI that 0.85% of the loan amount spread over 12 payments per year. Conventional Fannie/Freddie loans have varying mortgage insurance amounts based on down payment amount and on credit scores.

Homeowners association (HOA) fees: These are not usually included in the actual mortgage payment but they are included in the debt-to-income ratio calculation. Most condos and townhouses will have HOA fees and some single family homes have them too, depending on the neighborhood.

 
Rough ballpark numbers to expect

Because there is so much variability in the escrow items it is impossible to nail down costs nationwide. But here are some rule-of-thumb ballparks that can help triangulate a number to expect up front:

Again, it is very important to look at all of the variables when determining how much you can qualify for when it comes to a house payment. The other thing to consider is how much you can comfortably afford to pay every month — just because you can make the ratios work on a larger loan on paper doesn’t mean you are comfortable with the higher monthly payments in practice.

 
Contact us for detailed analysis of your situation

Contact us today at our home purchase page and we can connect you with a lender that is authorized to administer government-backed mortgages. They can run all your numbers for you and help you figure out how much you can qualify for and what your best bet is in terms of available programs.
 
 

The global pandemic that has gripped the world for the last year has not only been a health emergency, but has also massively impacted financial markets. One of the side effects of widespread fear in the markets has been an uptick in intervention by the US federal reserve, in addition to a flight to safety by many investors. These factors drove mortgage interest rates to drop to unprecedented lows in 2020, and the good new is rates are still hovering near all time lows.

If you have considered refinancing to a lower rate and payment or perhaps to get cash out, there may never be a better time than now to look into a refinance. And if you’ve been considering buying a home, these historically low rates are allowing borrowers to qualify for more than ever before. Contact us in the sidebar to learn more about refinance options or if you are considering buying a home, contact us at our home purchase page. There is no telling how long these record low rates will be available so it would be prudent to take advantage of these rates before they bounce higher again.

Market forces have converged in recent months to push mortgage interest rates to lows no seen since the fall of 2016. In addition, values of homes have been steadily rising all across the U.S. for the last several years. These lower rates and increased home values have made it an excellent time for many families to refinance a mortgage for several reasons: To lower rate and monthly payment, to remove mortgage insurance (PMI), to get cash out, or possibly to go to a 15 year fixed mortgage.

In addition, the low mortgage rates make monthly payments on home purchases somewhat more affordable.

If you are interested in getting an estimate for a refinance please fill in the refinance contact form in the sidebar here. Or to research pre-qualifying to purchase a home see our home purchase page here.

On occasion consumers will ask us “what is the optimal down payment amount for a home purchase?” The answer to that question depends on the circumstances of the borrower, but the following are some rules of thumb to follow:

25% down or more:

In some cases, such as when a borrower is selling a current home and buying a new home, borrowers will have more than 25% down. There are several advantages to having a larger down payment like this:

– Lower loan amount means a lower monthly payment
– Putting more than 20% down means no private mortgage insurance (PMI) required
– At 25%+ down the interest rates tend to be the lower than with smaller down payments

20% down:

The benefits of 20% down mostly match the 25% down but rates tend to be a little higher with the 20% down option

10% down:

With 10% down borrowers normally are required to include PMI in the monthly payment (except with VA loans). The rates tend to be pretty similar or even sometimes slightly better than the 20% down option because the PMI reduces the risk to the loan investors. The other advantage of 10% down is buyers are allowed to get up to 6% seller concessions with Fannie Mae and Freddie Mac conventional loans. With less than 10% down the maximum seller concession amount for Fannie/Freddie loans is 3%.

5% down:

With 5% down all of the government-backed loan programs are still available (assuming a primary residence purchase). PMI is required and the lower the down payment on Fannie/Freddie loans, the higher PMI rate. But this is a good option for many families

3.5% down:

The FHA requires a 3.5% down payment. The FHA program remains the most popular loan program for first time home buyers due in part to its lower down payment requirement, and in part due to its leniency with credit issue. FHA tends to have marginally lower rates than conventional loans too. The primary drawbacks of the FHA programs (compared to a 5% down Fannie/Freddie loan) are that the FHA requires a non-trivial up front fee that is rolled into the loan and the monthly PMI on an FHA loan lasts all 30 years rather than dropping off when you get to 20% equity as with Fannie/Freddie loans.

0% down:

For borrowers who want to do zero down payment the options become more limited and more costly. The USDA and VA programs allow for no money down but both come with restrictions and caveats that exclude a large portion of borrowers (see here for more on that). You’ll often see advertisements from lenders for no money down programs but these “down payment assistance programs” programs are usually just FHA loans with assistance with the 3.5% down and they invariably come at a cost — usually in the form of much higher interest rates and higher fees. The problem with that is they can cost you much more in the long term.

What’s the best bet for those struggling with a down payment?

For borrowers struggling to come up with a down payment, and who are not good candidates for the USDA or VA mortgage programs, the best bet is normally to figure out a way to come up with at least 3.5% down on their own — either through their own savings or from family member help. By coming up with 3.5% to 5% down on your own you get the benefits of an FHA or Fannie/Freddie loan without having the burdensome extra costs and significantly higher interest rates that are associated with these so-called “grant programs” or other down payment assistance.

For more information contact us today on our home purchase page.

The Federal Housing Finance Agency (FHFA) recently announced that the maximum loan limits on Fannie Mae, Freddie Mac, and FHA mortgages are increasing in 2018. Starting this month the loan limits on Fannie and Freddie loans increased to $453,100 for single family homes in every county in America, and in counties designated as “high cost” the loan limit is $679,650. This increase helps adjust for inflation and the rising costs of homes throughout the country. See the Fannie Mae announcement here.

The FHA also announced an increase in loan limits across the country. Whereas the previous loan limit in non “higher cost” counties was close to $271,000 before, the new limit in those counties is $294,515. And in many counties the loan limits are higher based on cost of living. See here to check current FHA and Fannie/Freddie loan limits by county.

This all means it will be easier to get government-backed loans in counties where housing prices have risen. Contact us to learn more about qualifying.

Several weeks ago the Federal Housing Finance Agency (FHFA) announced that the HARP program would be extended through the end of 2018. In addition, a new program designed to allow borrowers to refinance even if they have little to no equity in their home was announced. This new program looks as if it will function as a successor to the HARP program in the years to come. See more details below and contact us today for more information or an estimate on a government-backed mortgage.

The Federal Housing Finance Agency (FHFA) has announced that the Home Affordable Refinance Program® (HARP®) will be extended to Dec. 31, 2018, continuing to provide liquidity to support eligible borrowers.

In addition, Fannie Mae and Freddie Mac will introduce new high loan-to-value (LTV) ratio same-investor refinance options for loans with note dates on or after Oct. 1, 2017, with a 15-month seasoning requirement. The high LTV refinance option will provide refinance opportunities to borrowers with existing Fannie Mae or Freddie Mac mortgages who are making their mortgage payments on time but whose LTV ratio for a new mortgage exceeds the maximum allowed for standard refinance products.

Under the new option, as with HARP, the refinance must provide a borrower benefit, such as a lower interest rate. Unlike HARP, the new option will not have an expiration date.

After the general election in November of 2016 mortgage interest rates spiked significantly higher than they had been the weeks and months prior to the election. Since then rates have not returned back to the low levels we saw in the summer of 2016 but they have eased back a bit from the peaks we got in December of 2016. While rates are not currently at all time lows, mortgage interest rates remain at least near 50 year lows compared to long term averages. And with housing values rising steadily in most parts of the country, buying a home is looking like a wise financial decision for more and more American families. The summer housing rush is coming to an end soon but there are often excellent housing deals to be had in the fall months. Contact us today to see about getting pre-qualified for a government-backed mortgage.

In January of 2017 the FHA announced that it would be reducing its ongoing mortgage insurance fees for 85 basis points per year to 60 basis points per year. While not an earth-shattering change, it would have been a nice reduction in the pmi rates for new FHA borrowers. The change was scheduled to go take effect on January 28. Upon entering office, the Trump administration put a hold on all pending changes. As a result, the reduction of FHA pmi is currently, and possibly permanently on hold. Time will tell how the new administration will deal with government-backed mortgage programs over the next four years. So far, no major changes — just this one minor change in plans.

For many years the maximum loan amount for a conforming (Fannie/Freddie) mortgage has been set at $417,000 except in counties designated at “high-cost” counties. Starting in January of 2017 that limit has finally been increased to at least $424,100 in every county in America. The limits are higher than that in high-cost counties still too. Likewise, the maximum loan amount for FHA loans in non high-cost counties has been increase nationwide from $271,050 to $275,665. The loan limit changes aren’t earth-shattering, but they will be helpful to borrowers who are getting loans right near the limits. See here for the loan limits in every county in America.

Contact us today to learn more about available government-backed home purchase and refinance programs.

As we reported last spring, the USDA Rural Housing program will be significantly improving its terms starting in October of 2016. Here is an excerpt of the announcement from the USDA:

Upfront Guarantee Fee and Annual Fee Reduction for Fiscal Year (FY) 2017

This message provides advance notice of the upfront guarantee fee and annual fee structure that will be effective for Single Family Housing Guaranteed Loan Program (SFHGLP) loans in fiscal year (FY) 2017, which begins October 1, 2016 and ends at the close of business on September 30, 2017. The upfront guarantee fee will change from 2.75% to 1.0% of the loan amount. The annual fee will change from 0.50% to 0.35% of the average scheduled unpaid principal balance for the life of the loan.

Please refer to the unnumbered letter (UL), “Upfront Guarantee Fee and Annual Fee for Fiscal Year 2017,” for additional details.

In short, the fee to get started on a USDA loan will be cut by more than 60% and the only ongoing monthly USDA fees will be cut but 30%. All of that makes the USDA Rural Housing program even more useful. The USDA Rural Housing program is great for folks willing to buy a home away from urban areas and who don’t make more than about $80-90k per year as a household. The rates are low on USDA loans and USDA home purchase loans require $0 down. For a map of eligible areas see here.

Contact us today for more info on the USDA Rural Housing mortgage program.

The world financial markets did not take last week’s British vote to leave the European Union well. Stock markets all over the world tumbled Friday and Monday as the shock waves of the so-called Brexit vote reverberated around the world. The immediate result was investors fleeing stocks and racing to the relative safety of bonds. That rush to buy bonds pushed the yield on the 10 year T-Note lower, and as usual, mortgage interest rates mirrored that move lower. Mortgage interest rates dropped between 1/8 and 1/4 percent between Thursday and Monday. Rates have remained lower so far this week but with a rebound in the US stock markets on Wednesday we’ll see where rates end up for the rest of the month.

The takeaway from this is that now is an excellent time to research a mortgage refinance or a home purchase. Rates are near historic lows and there are several government-backed mortgage programs available. Contact in the sidebar for guidance regarding refinances or on our home purchase page for assistance qualifying for a home purchase loan.

In the wake of the 2007 housing bubble bursting, adjustable rate mortgages (ARMs) got somewhat of a bad rap. The problem in the early 2000’s was too many borrowers were purchasing homes with ARMs without understanding how they work. The result was their ARMs began adjusting higher years down the road and unprepared borrowers found themselves unable to make their payments. But ARMs can be very useful loans when understood and utilized properly.

Paying a premium for 30 years mortgages

While 30 year mortgages are currently the most popular form of mortgage, they come at a cost. There is a premium, in the form of a higher interest rate, to be paid for the guarantee of keeping a rate fixed for 30 years. For homeowners who keep their mortgage a over the course of decades, that premium is well worth the security of a long term fixed rate. But the reality is that most people sell their home or refinance within 5 years of getting their mortgage. So most folks get a higher rate for the right to have a fixed rate for 30 years but then end up selling or refinancing a couple of years later anyway.

Who should get an ARM?

Folks who feel fairly confident they will sell their home in the next 5-10 years are excellent candidates for ARM mortgages. Rates on ARMs are significantly lower than rates on 30 year mortgages so refinancing to an ARM (or purchasing a home with an ARM) can lead to huge interest savings.

Contact us to get a quote on a government-backed ARM loan

If you think there is a good chance you’ll sell your home in the next 10 years contact us today to get an estimate on a refinance to an ARM. Rates on ARM lows are surprisingly low and a refi to an ARM could save you a ton of money over the next few years before you sell your home.