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Stated-Income

Reserves and Mortgages: How Much Do You Need to Qualify for a Loan?

February 8, 2018 By Justin

What happens after closing? You start making your mortgage payments, pay your property charges, and so on. Do you have enough funds to cover these expenses in case something unexpected happens? These “leftover funds” are called financial reserves.

Lenders will look into these funds to determine if you have enough set aside before they approve your mortgage. As to the minimum level of reserves required, that will depend primarily on your loan type, property, and borrower profile.

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What Are Reserves?

Reserves are assets that are available to you post-mortgage closing. By available, these assets must be readily convertible to cash for your use, per Fannie Mae, who together with Freddie Mac, is the largest purchaser of mortgages in the secondary market.

To make them more relatable, think of these funds as x months’ worth of your total housing expenses as represented by PITI or PITIA:

  • Principal
  • Interest
  • Taxes
  • Insurance (homeowners insurance, mortgage insurance)
  • Homeowners association dues, other assessments

While they are not as popularly discussed as down payment and closing costs, reserves are an important aspect of your mortgage that you should prepare for, save up if you must.

Eligible or Not Eligible Assets for Reserves

Not all assets are eligible to be considered as reserves. Aside from being liquid assets, they must be redeemed/vested, taken from personal bank accounts, or derived from the sale of an asset.

Aside from cash, these are acceptable sources of reserve funds:

(i) savings/checking accounts, (ii) stocks, bonds, certificates of deposits, trust accounts, or any investments, (iii) the portion of the retirement savings account that has vested, and (iv) the cash value of a vested life insurance policy.

As to retirement accounts, not all of the whole vested amount will be considered, e.g. 70% of 401(k), IRA and other related accounts’ vested value.

Stock units become unacceptable if they are from a company or corporation not listed with the SEC. This applies to stock options and restricted stock units that have not vested.

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You can’t also use personal unsecured loans or proceeds from cash-out refinance for your reserve funds.

This is why lenders verify assets for reserve requirements (although this asset verification applies to down payment and closing costs) to ensure that the borrower has funds safely tucked in and that these funds are not illegally sourced or additionally burdensome to the borrower.

How Much Do You Need for Your Reserves?

Your minimum reserve requirement rests on a combination of various factors. But a good starting point would be the property type, i.e. its occupancy status and the number of units.

From there, you can look up what each loan type’s reserve requirement is:

  • FHA loans: This loan program does not have a reserve requirement on one-to-two properties. But for borrowers with non-traditional credit or those requiring manual underwriting, one month of reserves is required. On three-to-four unit properties, reserves worth three months of PITI are required.
  • VA loans: Just like FHA loans, these loans for military personnel require (i) no reserves on one-to-two unit properties and (ii) six months’ reserves on three-to-four unit properties. The borrower also pays additional three months of reserves for every rental property he or she owns.
  • USDA loans: Although these government-guaranteed loans don’t really require cash reserves after closing, having two months of reserves can be a compensating factor.
  • Conforming Loans: The reserve requirements for Fannie Mae take into account the transaction type, the property’s number of units, the borrower’s credit score and LTV, and debt-to-income ratio, the type of underwriting (DU or manual). This is an example of Freddie Mac’s reserve requirements matrix.
  • Jumbo Loans: Reserves on those loans can be equal to three months, although they can go higher depending on the size of the loan.

Indeed, buying a home goes beyond closing. There’s your house to take care of after the transaction closes. Despite reserves being a requirement, it’s wise to have funds set aside for your home.

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Mortgage Rates Could Enter Period of Volatility Per Experts

December 28, 2017 By Chris Hamler

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Market projections point to rising interest rates. According to recent data and expert predictions, it could reach the 5 percent tier by the end of next year. Housing inventory is also expected to ease up by 2018. So should you lock now or wait for home prices to relax?

Just this week, mortgage interest rates inched forward as the senate passed its version of the tax bill. Per the recent Primary Mortgage Market Survey® data released by mortgage giant Freddie Mac, the 30-year fixed-rate increased by an average of 0.5 basis point to 3.94 percent. A week ago, 30-year fixed-rate was at 3.90 percent, still lower from 4.13 percent during the same time in 2016.

Meanwhile, the 15-year fixed-rate median percentage rose from 3.30 percent a week prior to 3.36 percent. An increase of 0.5 basis point. This is the same average a year ago.

The five-year adjustable rate also increased by 0.3 basis point from 3.32 percent last week to 3.35 percent – slightly higher compared to 3.17 percent last year.

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Period of volatility

The possibility of an increasing federal borrowing trend was spurred by the Senate’s vote on tax legislation. This in turn is predicted to take mortgage benchmark rates higher.

Possible impediments to this potential increase are global market factors that have significant influence on Fed rates.

“It seemed at the time that mortgage rates were poised to continue rising,” says Sierra Pacific Mortgage branch manager Michael Becher.

“But this week markets have turned their attention elsewhere. Concern about China’s economy, continuing tensions with North Korea, turmoil in the Middle East as a result of Trump declaring Jerusalem the capital of Israel, and a possible U.S. government shutdown have all contributed to a flight to safety trade that has seen Treasury yields and mortgage rates drop,” he adds.

The possibility of the government shutting down and the tax reform bill legislation are elements in the game that will determine how rates will behave in the near future.

Any positive aftermath from these events will most likely cause rates to increase. When the Fed shifts gear next week, mortgage rates could very well enter a period of volatility.

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What does this mean for the home buyer?

There’s a rising trend in interest rates. If you want to play it safe and there are no other reasons holding you back, it might be wise to lock now. However, if your need to move is not urgent and you want to see how the events play out – with the above data projections on inventory in mind, then you could wait a bit more to find properties that will potentially be more affordable in the future. Or, you can choose to get an adjustable-rate mortgage with low initial interest rate and refinance to a fixed-rate later.

The Survey

The Primary Mortgage Market Survey® was established in April 1971 as the foremost source of mortgage trends in the regional and national level. Its data is utilized by both the public and the mortgage industry at large to gauge market conditions and evaluate mortgage loan options.

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Jumbo Loans Get Redefined as Conforming Loan Limits Increase in 2018

December 12, 2017 By Justin

Jumbo loans just got bigger. Beginning 2018, the conforming loan limit on a one-unit home in most parts of the U.S. will increase to $453,100 from $424,100. In high-cost counties, the standard loan limit will also increase to $679,650.

Those borrowing money higher than the standard conforming loan limits belong to the jumbo loan club. Qualifying for jumbo loans is tougher than on traditional loans because of inherent market risks and individual lender standards.

Do you qualify for a jumbo loan? Ask a lender today.

Conforming Loan Limits Boost Jumbo Loans

The Federal Housing Finance Agency who regulates Fannie Mae and Freddie Mac has raised the conforming loan limits to reflect a 6.8% increase of home prices in the U.S. based on the seasonally-adjusted expanded-data House Price Index (HPI).

Consequently, the 2018 conforming loan limit is $453,100 and it can reach $679,650 at most to account for one-unit homes in expensive counties in the U.S.

A list of 2018 conforming loan limits is accessible here.

Fannie Mae and Freddie Mac purchase loans within those loan limits, thereby known as conforming loans. The GSE loan limits also affect other government loan programs.

For example, VA loans match GSE loan limits to calculate the amount of VA guaranty. FHA loan limits in high-cost areas are based on Fannie/Freddie loan limits.

Because jumbo loans fall outside of standards set by the GSEs and relevant government agencies, they are underwritten by individual lenders.

Qualifying for Jumbo Loans

The territory of jumbo loans is vast. These loans for bigger homes for property flippers, investors and more are offered at varying terms and conditions.

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In terms of process, applying for a jumbo loan is no different from the usual standard loan because lenders will still weigh these qualifications:

  • Credit scores on jumbo loans may be higher or at par with conforming loans. There might be some wiggle room for borrowers with less-than-perfect scores but they’ll get higher rates than those with excellent credit.
  • Debt-to-income ratio is ideally 43% and below. But ample cash reserves of at least six to 12 months can possibly make up for an above 43% DTI or a low credit score for that matter.
  • Down payments are usually higher on jumbo loans. They can be at least 10% up to 30% of the purchase price, depending on the lender.

Documenting income is tricky for self-employed borrowers taking out traditional loans. For jumbo loans, lenders might require just one year of tax returns filed with the IRS to document income from a stable or growing business.

To be fair, Fannie Mae has eased its guidelines in documenting self-employment income, requiring only one year of filed tax returns to qualify for a conforming loan.

Rates on jumbo loans are higher than on conforming loans because they carry the risk of not being eligible for purchase by Fannie Mae or Freddie Mac.

If you’re buying a home in a high-cost area, your loan might still be within conforming standards. Ask lenders about this and other loan matters.

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How Latest Tools, Eased Rules in Appraisals Benefit Mortgage Borrowers

October 24, 2017 By Justin

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In October, at least three new tools that would improve how appraisals are being done were introduced to the market. Add to that the more relaxed guidelines like property inspection waivers by Fannie Mae and Freddie Mac, relying less on human appraisers.

The easing of rules and more automation could mean a less costly and better mortgage experience for borrowers. Valuations or appraisals on homes remain a key ingredient in making loans. They ensure that homes are not overvalued or undervalued – a scenario risky for both borrowers and lenders.

Learn more about these recent developments. Let’s help you find a lender, too.

More Tools to Improve the Appraisal Process

These companies that provide real estate insights and analytics and dabble into mortgage finance unveiled their respective products that aim to enhance the way appraisals are made.

  1. CoreLogic’s Appraisal Xcelerator – a digital tool that streamlines the process of scheduling appraisals among the lender, borrower, real estate agent, and appraiser. This technology, according to one company executive, will shorten the scheduling interaction among the parties above, thus reducing turnaround times and enhance overall customer experience.
  2. First American’s Smart Valuations – an offering that banks on reducing turnaround times by 16% to 20%, improve quality and cost-efficiency of appraisals as well. In propping up the product, the company points to larger housing markets where appraisals could take months to finish.
  3. HouseCanary’s Agile Appraisal™ – a product for residential appraisers, it mainly cuts the time needed to make standardized and reliable appraisals to five days. Through its regression technology, appraisers can address issues, e.g. property, location, time characteristics for a faster and more accurate appraisal.

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No Appraisals From Fannie and Freddie

Fannie Mae and Freddie Mac have gradually introduced changes to their mortgage guidelines. One significant enhancement is waiving property appraisals on certain loan transactions.

Under Desktop Underwriter® 10.1, Fannie Mae is offering property inspection waivers, as expanded, on purchase (primary and second homes up to 80% LTV) and refinance (limited cash-out, cash-out) transactions.

Particularly, an appraisal may be waived on such transactions if the subject property has a prior appraisal that can be pulled from Fannie Mae’s property database. In case of refinance loans, the prior appraisal must be associated with at least one borrower of the loan to be refinanced.

Freddie Mac did follow Fannie Mae’s appraisal waivers. On its version, a loan can be considered without an appraisal if it’s a purchase or no cash-out refinance.

The loan must secure a single-family one-unit property that is either owner-occupied or second home with a total LTV of less than or equal to 80%.

The decision of Fannie and Freddie to veer away from appraisals is a welcome development for borrowers of conventional loans conforming to their standards.

While the appraisal waivers don’t apply to all loans, at least, some mortgage borrowers get relief from paying related fees and waiting for property valuations to finish for their loans to close.

As new technologies are unfolding and guidelines are loosening, it’s only a matter of time before lenders become creative with mortgage products that cater to all sorts of borrowers, stated income loans included.

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IMPORTANT MORTGAGE DISCLOSURES:

When inquiring about a mortgage on this site, this is not a mortgage application. Upon the completion of your inquiry, we will work hard to match you with a lender who may assist you with a mortgage application and provide mortgage product eligibility requirements for your individual situation.

Any mortgage product that a lender may offer you will carry fees or costs including closing costs, origination points, and/or refinancing fees. In many instances, fees or costs can amount to several thousand dollars and can be due upon the origination of the mortgage credit product.

When applying for a mortgage credit product, lenders will commonly require you to provide a valid social security number and submit to a credit check . Consumers who do not have the minimum acceptable credit required by the lender are unlikely to be approved for mortgage refinancing.

Minimum credit ratings may vary according to lender and mortgage product. In the event that you do not qualify for a credit rating based on the required minimum credit rating, a lender may or may not introduce you to a credit counseling service or credit improvement company who may or may not be able to assist you with improving your credit for a fee.

Copyright © Mortgage.info is not a government agency or a lender. Not affiliated with HUD, FHA, VA, FNMA or GNMA. We work hard to match you with local lenders for the mortgage you inquire about. This is not an offer to lend and we are not affiliated with your current mortgage servicer.

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