Mortgage Programs Available Without a Credit Score

September 11, 2012 by · Leave a Comment 

In the mortgage world, having a credit score is important and obtaining a credit score may be easier than you think.  In order for a FICO score to be calculated on a credit report, an individual must have at least one account that has been open for six months or longer, and at least one account that has been reported to the credit reporting agency within the last six months.  For someone who does not have any traditional credit, this is good news and opening a credit account should be a top priority.  Although most Conforming loans require that a borrower have at least three accounts open for at least 12 months, at Fairfield Mortgage, we do have two alternatives that can help someone without a credit score obtain a mortgage now.

1. FHA Alternative: this program allows a borrower with no credit score to be on a mortgage as long as there is another borrower on the mortgage who does have a satisfactory credit score.  There is a 1 discount point fee to include the borrower without a credit score.

2. Non-Conforming Alternative:  this portfolio loan program allows a borrower without a credit score to obtain a mortgage with a 25% down payment.  The borrower can not have any bad credit and the rate is about 2% higher than market rate with a max amortization period of 20 years.

HARP 2.0 Rolling Out on March 19th

March 6, 2012 by · 2 Comments 

For those upside down on their mortgage, good news may be on the way.  The government-sponsored HARP program has been around for years but with limited success.  Several key changes have been made to the program and a new improved HARP 2.0 is being unveiled on March 19th.

The biggest change is that moving forward a home owner will be able to refinance despite the value of the owner’s home.  Thus, unlimited loan-to-values will be allowed, meaning someone could owe twice as much as the value of their home and still be able to refinance it.  The other big change is that if someone has private mortgage insurance (PMI) now, they will be able to refinance maintaining the same level of PMI.  It took years of work to get PMI companies on board with this plan but systems are now in place which will enable this to happen.  Although current levels of PMI can now be maintained, please be aware that 2nd mortgage balances cannot be rolled into the new loan.

These are two fabulous upgrades to the HARP program and make it a much more viable option for many.  To be eligible for HARP 2.0, the current loan must be owned by Fannie Mae or Freddie Mac and originated prior to May 31, 2009.  If you pass both of these tests, we would love to hear from you to give you more details about HARP 2.0!

ARM’s – Are They Still Worth Talking About?

October 25, 2011 by · Leave a Comment 

With mortgage interest rates at an all-time low, most borrowers are flocking to fixed-rate loans.  About 95% of borrowers over the first half of 2011 have chosen a fixed-rate loan.  And, with rates this low, why wouldn’t they?  There is stability and security in knowing the monthly payment will never change.

So what about adjustable rate mortgages (ARM’s)?  I am not talking here about the true 1 Year ARM where the rate changes every year, but a more conservative 5 or 7 year ARM where the rate is fixed for 5 or 7 years before the rate can change.  Are these still valid options that should be considered?  Would someone be crazy to even consider one?

In some recent markets, the answer would rightfully have been “yes, they would be crazy” and the main reason was that the rate was not low enough to justify the risk associated with the rate being able to adjust at some point.  But, in the current market, the answer is an emphatic “no, they would not be crazy” because the spread between fixed and ARM rates is so great.  Check out the rates below and notice that the rate is approximately 1% lower for a 5 year ARM than a 30 year fixed-rate.  On a $250,000 loan, this is a savings of approximately $125 per month!  The truth is that in both up and down housing markets, there’s a place for ARM’s in specific situations. Here are some examples:

  • The borrower expects to move from their home within 5-7 years or less.  The ARM would always be the best choice in this case.
  • The borrower plans to pay down the balance of the mortgage significantly within next 5-7 years.  Even if the rate rises a lot after the fixed-rate period is up, the fact that the borrower has paid down their balance significantly will prevent the payment from going up much, if at all.
  • The borrower’s income is expected to rise substantially in the future and a lower payment over the next 5-7 years will help the borrower’s budget greatly.
  • The borrower is savvy and although he/she can afford a higher payment, the preference is to minimize the payment and to invest the savings in other areas with the expectation that more money will be earned as a result.

For many borrowers, an ARM may be the best mortgage choice they can make.  It may even make the difference in being able to qualify for the home they wish to buy.  So, what is the best way to figure out if an ARM is a good fit?  The answer is by asking a lot of key questions such as:

  • Does the borrower fully understand the jargon and mechanisms of an ARM?  An understanding of the index, margin, and caps is critical.
  • Can they afford both the introductory payment (fixed for 5 or 7 years) and the higher payment if rate was maxed out? 
  • Is the borrower comfortable with the associated interest rate risk of an ARM?  This might not be the best choice for a worrier.

Keeping an open-mind to an ARM and understanding the value and benefits of considering this option is a wise thing to do because, in the end, an ARM just may be the best loan option for you or your customer!

VA Funding Fee Dropping

September 19, 2011 by · Leave a Comment 

 

Some good VA news to report.  VA Funding Fees are actually scheduled to decrease significantly for VA transactions closed on or after October 1st.  For the typical Veteran seeking 100% financing, the Funding Fee will drop from 2.15% to 1.4%.  On a $200,000 home, this equates to a $1500 lower fee saving the buyer $8 per month. I know this is not a huge monthly savings but the significant savings is that the loan amount is $1500 less, which means more money in the buyer’s pocket when they sell their home down the road.  With this said, be aware that there is further pending legislation that will almost certainly bring additional change to the fee structure again in the years ahead.  Thus, the fee structure will need to be revisted again next year.

 

7 Year ARM – A good alternative

August 5, 2011 by · Leave a Comment 

Homebuyers are looking for stability, yet they want to find a great deal.  Some want the assurance of a steady, fixed rate mortgage that’s locked in for good, yet others want the lowest rate they can find, often found in an adjustable rate mortgage (ARM).  Our new 7/1 ARM gives your buyers the best of both, a rate that’s fixed for seven years yet approximately 1% lower than the 30 year fixed rate.

In addition, our 7/1 ARM product is part of our portfolio program, meaning that we keep the loan as an in-house investment and we can offer your customers more flexibility with underwriting.

All of the following are good candidates to benefit from our 7/1 ARM:

  • Buyers who plan to move or refinance within 7 years.
  • Those who want a lower starting payment now, and anticipate increased income in the future.
  • Buyers who recently had their house on the market but now want to remain in the home and refinance into a lower rate or receive cash out.
  • Those with nontraditional credit.
  • Buyers who want to deal with a local bank instead of multiple servicers.

Hybrid ARMs continue to be a wise financial choice for many buyers.  Stability, lower rates, flexible underwriting, local servicing.  These are just a few of the reasons the 7/1 ARM may be a good fit for your customers.  Please call for more details…

$1200 Selling Agent Incentive on HomePath Loans

July 11, 2011 by · Leave a Comment 

Fannie Mae has come out with a fantastic incentive program for both buyers and realtors intended to help Fannie Mae unload their stock of foreclosures.  For all contracts written on owner occupied properties after June 14 and that close by Oct 31, Fannie will pay 3.5% of buyer’s closing costs as well as a $1200 selling bonus to the selling agent.  To obtain these incentives, however, you must request them as part of your initial offer.

 The HomePath program is a great financing alternative available for Fannie Mae foreclosures.  Although rate is higher, there is no PMI and no appraisal is required.  Only 3% down payment is required down to a 660 credit score (620 credit score allowed with 20% down).  Also worth noting, although the incentive specials above do not apply, HomePath is also available for investor purchases with as little as 10% down with 660+ credit score.  For more info, go to www.homepath.com.

Portfolio Lending – Common Sense Solutions That Help You Get to Closing

May 19, 2011 by · Leave a Comment 

In today’s world, very little in the mortgage industry is open to interpretation.  When it comes to originating and underwriting mortgages, there are specific rules and guidelines for everything.  This creates a very rigid, inflexible system.  The only relief available in the mortgage industry today is when a mortgage lender can make a loan out of their own portfolio.  This enables the lender to use common sense decision-making as they make up and play by their own set of rules.  A portfolio lender has this flexibility because they plan to keep the loan in their own portfolio of loans serviced and not sell the loan in the secondary market.  Most lenders do not have this sort of flexibility but we are proud that our parent company gives us the flexibility to originate portfolio loans when needed.

Portfolio loans are ideal for:

  • Homebuyers with unique situations pertaining to their income or assets.
  • Unique properties that don’t fit the Fannie Mae / Freddie Mac or FHA mold (such as a non-warrantable condo).
  • Properties in need of repairs or improvements that need to close before the repairs or improvements are made (common with Foreclosure / Short Sales). 

 Although our portfolio program does not have extensive, rigid rules, here are a few of the program requirements:

  • Minimum 20% down payment
  • Good to great credit required
  • Programs offered are 3/1 and 5/1 ARM’s fixed for 3 or 5 years and then rate can change annually
  • Both Conforming and Jumbo loan amounts

 Our portfolio loan product offers common-sense underwriting that may be just the difference you need to help you close your next sale!

5 Year ARM – A Hot Alternative!

January 11, 2011 by · Leave a Comment 

As we all endure this week’s wintery weathery mix, it seems appropriate to mention a sizzling hot mortgage alternative.  Fixed mortgage rates have pushed up over the last few months creating an unusually large gap between the 30 year fixed rate and the 5 Year Adjustable Rate Mortgage (ARM) rate.

A 5 Year ARM is a unique hybrid program which combines the best features of both the adjustable and fixed rate products.  It delivers a very low interest rate and, therefore, a lower monthly payment typical of ARM’s.  However, it also gives home buyers the stability and predictability of fixed payments that will not increase in the near future as the rate is fixed for the first five years and then can change annually.

As the 30 year fixed rate has surged from 4% to 4.75% over the last few months, the 5 year ARM rate has stayed remarkably low creating an unusually large gap and one heck of an opportunity for certain home buyers.  Contrast this week’s Conforming 30 year fixed rate of 4.75% with only a 3.625% Conforming 5 Year ARM rate.  This 1.125% savings amounts to a monthly payment savings of $131.19 on a $200,000 loan!

We are excited to offer 5 Year ARM’s on both FHA and Jumbo products as well and the savings are equally impressive!  On a $175,000 FHA loan, the 5 Year ARM generates a savings of $102 per month!  On a $500,000 Jumbo loan, the 5 Year ARM generates a savings of $379 per month! 

In addition, the borrower is able to qualify for the loan at the lower note rate and payment!  This can be instrumental in getting a tight loan through!

With the potential of the rate varying after five years, the 5 Year ARM product does have interest rate risk.  However, there are limits on how much the rate can increase each year and an overall cap which limits the most the rate can ever increase.  The annual cap is 1% for the FHA product and 2% for the Conforming/Jumbo option.  After five years the rate is determined each year by adding a margin of 2.25% to the One Year LIBOR Index.  The most the rate can ever increase is 5% over the initial rate.

Although not for everybody, for the right borrower a 5 Year ARM can be a prudent choice.  For anyone planning to move over the next five years, the 5 Year ARM would be the way to go and lead to significant savings.  In our Conforming example above, the $131 monthly savings adds up to $7871 over five years!  Obviously, the rate never even has an opportunity to adjust if the home is sold within five years.  Another good time to use the 5 Year ARM is for a buyer anticipating a salary increase.  This buyer can enjoy the low payment for the first five years and then be able to afford the larger payment later.  It is also a good alternative for someone looking to pay their loan balance down significantly over the first five years because after the fifth year, the loan is recast each year based on the new interest rate and loan balance.  Thus, if the balance has been paid down significantly, the new mortgage payment will also be significantly lower (even if the rate has risen).  Finally, as already mentioned, the 5 Year ARM can be an excellent tool to help reduce a buyer’s debt ratio and enable them to qualify for a larger loan amount and sales price.  There are certainly some good examples of where the 5 Year ARM has saved the day!

With such a wide rate gap, the 5 Year ARM simply can’t be ignored in the present market.  The time has come to understand how it works and to consider it at the appropriate time!