Current Mortgage Rates: Richmond, VA
3.875% (3.915% APR) 30yrs
3.250% (3.282% APR) 15yrs
as of 06/24/19
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Mortgage Blog

May 8

Mortgage Qualification Rules Are Not Always Black and White

Some of the more interesting questions I receive from readers are about unusual
situations that may affect their ability to qualify for a mortgage. The rules
are not always crystal clear, which is why lenders continue to rely on
underwriters whose stock in trade is good judgment. Here
are a few illustrations.

Will the Spouse's Unprofitable Business Derail the Application?

"I have W-2 income with the same employer for over 10 years that
is sufficient to carry the mortgage amount we are requesting. My spouse is
self-employed and has had business losses for the past 3 years. These losses
are deducted from the adjusted gross income reported in our joint tax returns.
We will own the house jointly. Question: Should I leave my self-employed spouse off the mortgage application?"

I would submit the application in your name with your income,
indicating that title will be held jointly. This is common and what most
couples do when only one is working but both will own the house. You proceed
just as you would if your spouse was not employed. If
the underwriter is satisfied with the transaction, which is very likely because
of your high credit score and down payment of 20%, that will be the end of it.

There is the possibility, however, that the underwriter will request your tax return.
Before the financial crisis, this seldom happened when an applicant could
document income with W-2s. Now it happens occasionally. If
it happens in your case, the underwriter will see the losses, and in the worst
case, will decide to deduct the losses from the income used to qualify. The
more likely possibility , however, is that the underwriter will elect to ignore
the business losses because you can document that the losses have been funded
out of savings and not out of your income. Another possible reason for ignoring
the losses would be that they have come to an end because the business has
turned the corner, or it has been shut down.

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Mar 27

Buying a New House Before Selling the Old One

Home owners buy their second or third homes for a variety of
reasons. They may be trading up to get more space and amenities; they may be
downsizing, because they don't need as much space and want to cut expenses;
they may want to relocate to get closer to their place of employment or their
children, or to enjoy a more attractive climate.

Whatever the reasons for the move, many face the same
challenge: how to use the equity in their existing house to purchase the
new one before completing the sale of the old one. Selling the old one first
avoids this problem but requires two moves, which is a major expense and a
hassle.

This article considers 4 ways to change houses with only a
single move.

*Borrow against your 401K account.

*Take an unsecured bridge loan from your bank.

*Take a HELOC.

* Take a secured bridge loan from the lender financing your
new purchase.

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Dec 12

Can Bad Financial Habits Be Unlearned?

I felt this would be a timely blog heading into the new year.

Some readers of a previous column recognized themselves in my description of a "NOHO":  someone
not cut out to be a homeowner. NOHOs live paycheck to paycheck, price
substantial purchases in terms of the monthly financing charge, and typically
have no reserve for meeting unexpected contingencies. Some readers asked me how
to change this pattern, and I decided to take a stab at it in this blog. While
I have no professional credentials as a psychologist, I have had some
experience in converting bad habits into good ones.

My bad habit of many years standing was eating late at night before I went to bed. It was bad for my
weight, my digestive system, and ultimately my health and life span. I knew all
that, yet the prospect of a slimmer body, better health and longer life span
did not motivate me to change my eating habits. The benefits of those desirable
goals were just too far away.

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Nov 7

Why Many Good Mortgage Loans Are Not Being Made

The housing sector today is not providing the economic stimulus we had come to
expect during periods of economic recovery. A major reason is that the
underwriting rules and practices that determine whether or not an applicant
qualifies for a home mortgage are much stricter today than they were before the
financial crisis.

In part, the tightening reflects changes in the market environment that make
mortgage loans generally more risky than they were before the crisis. The major
factor was the nationwide decline in house prices between 2006 and 2009, the
first such decline since the 1930s. The very liberal terms that prevailed prior
to the crisis were based on a widespread belief that such declines were a thing
of the past. When price changes are always positive, it is very difficult to make
a bad mortgage loan. Now that the market understands that house prices can
decline, mortgages are considered riskier.

A second factor has been the post-crisis practice of Fannie Mae and Freddie Mac
to require lenders originating loans for sale to the agencies to buy them back
if they default too quickly. This has caused many lenders to impose
underwriting rules (referred to as "overlays") that are more restrictive than
required by law and regulation.

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Oct 10

Conventional Versus FHA: Which Do You Choose?

It is not an academic question. My calculations show that the wrong choice can cost as much as $33,000 over 15 years on a $200,000 loan, and as much as $66,000 on a
$400,000 loan.

Don't jump to the conclusion that the better choice is the mortgage with the lower interest rate. FHAs carry a lower interest rate but largely because of their high
insurance premiums, they usually (but not always) cost the borrower more.

Do You Qualify For Both?

You have a choice between FHA and conventional mortgages only if you qualify for both. Then you can select the one that will cost you the least over the period you hold it, provided you correctly identify which one that is. Borrowers who cannot qualify for a conventional loan have no choice, they must use an FHA, which means that step 1 is to determine whether or not you qualify for both. If you can only put 3.5% down, for example, you can only qualify for an FHA, and the same is true if you can only put 5% down and your credit score is less than 660.

Because qualification requirements can vary with the purpose of the loan and type of property, there are a number of other situations where borrowers can only qualify for an FHA. If the borrower is looking to purchase a 4-family house, for example, qualification may be possible only with an FHA because the down payment requirement is much smaller
than it is on a conventional loan.

While FHA qualification requirements are generally less restrictive than conventional requirements, there is one important exception. Loans used to purchase a property for investment purposes, as opposed to occupancy, are not allowed by FHA under any circumstances.

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