Fannie Mae announced this month that they are modifying the guidelines to obtaining a Conventional loan significant derogatory credit event, such as a foreclosure, preforeclosure sale (commonly known as a short sale), or deed-in-lieu (DIL) of foreclosure.
The new policy is for loan applications taken after August 16, 2014.
Previously, two (2) years after a preforeclosure sale, deed-in-lieu of foreclosure or the charge-off a mortgage account a borrower would be eligible for up to 80% financing. After four (4) years 90%. After seven (7) years 95%. With extenuating circumstances (such as a loss of job) a borrower would be eligible for 90% financing after just two years.
The new guidelines state that a borrower is eligible for 95% financing after four (4) years and two (2) years with extenuating circumstances. So they restore full loan-to-value eligibility after 4 years instead of 7.
This should help a lot of hopeful home buyers as we continue to come-out of the recession.
Freddie Mac’s December U.S. Economic & Housing Market Outlook reported in June on how rising rates would affect home affordability throughout the U.S. Freddie Mac determined that the answer is “it depends”. Mostly it depends on what area of the country you live in and how quickly the home prices are rising in that area.
Freddie Mac determined that in most markets rates would have to rise to 7% before home became unaffordable to the typical family. What we do see though is rising rates affects how much home a buyer qualifies for, and as home prices and rates increase, the quality of home the typical buyer can afford will decrease.
Right now at least 50% of Utah households would qualify for mortgage loan of $248,000, which with 5% down on a Conventional loan would equate to roughly a $261,000 purchase price.
If interest rates rise 0.5% the purchase price drops to $247,000. If they rise a full percent above the current level home purchase power drops to $236,0000.
The good news is that right now this still puts most homes in Salt Lake County within the budget of 50% of Utah households. I think what we are going to see if rates continue to rise is a stabilizing of home prices, or at least not the double-digit gains of the past couple of years. With affordability going down, offering prices will be lower and thus home values in general will not continue to increase at their current rate.
Many people earn part or all of their income from commissions. Commission income is permissible for mortgage loan qualification if a few requirements are met.
Generally, Conventional, FHA and VA loans require that the applicant have received the commission income for at least two years. The amount of income used to qualify will be based on an average of the past two years of commissions. Commission income should for the most part also show increases from year to year.
There are some borrowers that will qualify with less than the two years of commission income. These would be people that work for a company on a regular basis, but get paid piece work; such as auto mechanics, auto body repair technicians, medical billing transcribers and others that work a steady job for a company, but that company has chosen to treat their employees as private contractors. In such cases less than two years of commission income is permissible, however there must be at least twelve (12) months of commission income and a year of tax returns filed with commission income.
It is by no means a deal-killer if you’ve recently gone from being W-2’d to 1099’d, but you do have to have received 1099 income for at least twelve (12) months and filed tax returns with such before it can be counted as qualifying income for a mortgage loan, and must be documentable as continuing in the future.
As always, don’t hesitate to contact me with any questions you may have.