By Mike Easton
Mortgage and Lending with Movement Bank NMLS 1683075
30 year fixed rate mortgage
The 30-year fixed-rate mortgage has just hit another three-year low. Many experts believe that rates will continue to go down however late last year many experts believe that rates would continue to go up and in fact the FED confirm that but now we know that simply did not happen.
With 30-year fixed and 15-year fixed rates hitting record lows and I'm seeing people close loans with rates in the mid 2% range what should you do?
What should I do now?
The first thing you should do is evaluate your options with a licensed mortgage professional and a local real estate agent. An agent can tell you what your home is worth and they can pull comparable home values and you can take a look at many of the fixtures and upgrades in the home and arrive at a fair market value price which would be their opinion but would probably be pretty close to what an appraiser would indicate the value of the home to be as well. depending on when you bought your home you may wish to do a rate term refinance or pull out some of the equity and do a Cash out refinance while you're still living in the home so it's owner occupied for the purpose of the loan. Owner-occupancy will give you the prime interest rate for the home and of course you currently live there so you literally could not refinance it as an investment property even if you wanted to because that would be considered occupancy fraud. One tip that is widely unavailable in the marketplace unless you use a mortgage broker is that you can actually do a custom loan term so if you only have 17 years left on your mortgage then you don't have to commit to a 15 year fixed and you could simply do a custom loan term refinance so that your mortgage is amortized across that same period and you don't have to take the term up or down either way. Not sure what your credit score is but you know it needs work before your next financial decision? Head on over to one of my most popular posts about credit scoring and try out a few of these quick credit hacks that can boost your score 100 points overnight.
Once you know what your current home is worth and you can decide if you want to sell it refinance it or Cash out refinance it or maybe just keep the loan that you have and find some tenants that would be willing to rent your house as it stands and you can use that rental income from your current home to actually positively impact your debt to income ratio overall to help you qualify for more home on your next purchase as you upgrade your family and lifestyle. if you purchased your home recently with an FHA loan of course you're obligated to owner occupy the home for 12 months before you move on to another home. Additionally, be sure to double-check the loan terms that you agreed to when you signed for your mortgage originally and make sure that you are in complete compliance if you are choosing to rent your home out however if you used to conventional loan and brought your own down payment then you probably have very little to worry about here. Most of mortgage professionals including myself could probably answer this question fairly easily if you give us a few pieces of information about your scenario. If you have a lot on your plate and you are looking for an easy solution NOW but you think you will be ready to buy soon then consider using an iBuyer that can buy your dream home now and you rent it straight from the iBuyer until you're ready to purchase it.
Where do you stand now?
What is your current monthly housing expense? If you bought your home in 2018 there is nearly a 100% chance that you should refinance NOW while rates are low. The reasoning behind this is that I'm seeing many folks that could lower their 30 year fixed rate by over 1% and some as much as 2% or more! Pair that with the equity appreciation that your home has probably gained (3-5% increase in most cases) and you could be looking at refinancing at a more favorable loan to value (LTV) and likely at a higher FICO score. Those factors alone will likely qualify you for a reduced PMI calculation as well as qualifying at 95% LTV versus 90% LTV will command a cheaper monthly PMI and mortgage brokers can shop PMI for you. Cheaper interest rates and lower PMI can save you hundreds of dollars per month and likely thousands of dollars per year. Would renting out your current home for cashflow allow you to buy a substantially bigger and better home? Chances are YES and you can do this while renters build up your equity in your first home. This is commonly referred to as 'house hacking' and it is a great way to start building wealth through real estate.
Don't think you can qualify for a mortgage at all right now?
Consider something you've probably never heard of: Bank statement mortgage loans (2019 lending details). This is a special type of loan designed for self-employed business owners specifically, however, I do have a variety of mortgage options for loans that do not require any 'qualifying income' at all. Those would be strictly business purpose loans for cash flowing investment properties and can be commercial or residential.
Have you ever lost a deal because you or your client took too many tax deductions and couldn't show enough qualifying income to buy a home? Perhaps their Bank statements showed way more than enough to make a solid down payment but they chose to have a smaller tax bill in lieu of claiming sufficient income to qualify for a standard jumbo or conventional mortgage… Do you just wait until they file their next return or is there another option?
QM vs Non QM lending
Surely by now you're relatively familiar with The most common loan programs like FHA, USDA, VA and conventional. These are considered to be QM loans or qualified mortgages. What these programs all have in common is the method in which "qualifying income" is calculated. Most of the time we're just looking at how they earn income from all sources including but not limited to W2 wages, 1099 wages or business income profit and loss well as schedule C and any other deductions taken. We will simply cross reference that data and account for certain tax deductions which subtract from overall qualifying income and then confirm the amount with underwriting during the pre-approval process.
Non QM loans are originated through private lenders so the typical government lending guidelines as well as the GSE's ( Fannie Mae and Freddie Mac) don't make the rules here. Private lenders and Banks that fund these non QM loans will let their own lending guidelines and risk based underwriting standards. Consequently- they are able to offer a more common sense approach to lending that focuses more on credit history and net income overall. Some would say that these loans carry a higher risk level, however studies have shown that foreclosure rates decrease substantially when higher down payments and lower LTV's are present. Their collateralized approach to lending allows them to calculate income from business related deposits (into a business bank account or personal) over a 12 or 24 month period. Once the average is calculated they then evaluate a borrower or CPA prepared profit and loss statement to ensure profitability and a borrowers overall "ability to repay" or ATR. This approach results in being about to qualify the borrower based on a more accurate representation of their true net income so we can effectively generate a more realistic acceptable debt to income (DTI) ratio. Once that is established then in most cases the maximum purchase price will
The main conundrum here is that most business owners don't want to pay a huge tax bill at the end of the year but if you're trying to buy a house then you do want to show enough income claimed to be able to qualify. Well what ends up happening most times is that too much income is shaved away during the tax filing. the business owner that really makes 150k/yr can maybe only show qualifying income of around 50k and their dti ratios are too high to buy the home they want.
So what do we do? The answer is simple give Mortgage Broker Mike a call and run it by me and I can help point you in the right direction.
Leave a comment below and let me know what your goals are for real estate and investing- I'd love to hear from you.
