Are Conforming Loan Limits Higher for Multi-Family Properties?

Any discussion regarding “conforming loan limits” should include an explanation as to what they are. Conforming loan limits are the guidelines that were established to determine the reasonable and allowable size of a loan. Those loan limits apply directly to the average prices for residential properties within a given geographic area. Currently, the majority of U.S. counties have a conforming loan limit of $417,000 for a one-unit property. In locations where real estate prices tend to be quite a bit higher than the U.S. average, such as in larger metros and coastal areas, loan limits can reach up to $721,050.

Along with the cost of real estate, conforming loans include evaluations to decide if a borrower is a good risk. Other considerations are the prospective borrower’s loan-to-value ratio or LTV, debt-to-income ratio, credit score and history, and other documentation requirements such as employment verification and tax information. As the entity that oversees Freddie Mac and Fannie Mae, the Federal Housing Finance Agency, or FHFA is the one that sets the conforming loan limits.

In the case of multi-family properties, the conforming loan limits are generally higher. It stands to reason that such properties will be more expensive due to their size alone. The limit tends to increase based on the number of units in the building. Of course, like with any financing program, a number of factors are taken into account, including the prospective borrower’s LTV, outstanding debt, employment history and credit score.

Other Resources You Might Find Helpful

What is a 203(k) Streamlined Loan?

Hammer and ToolsSometimes all a house needs is some simple TLC to make it a home – but it’s not always easy for buyers to come up with the extra cash for repairs, even if it’s a fairly minor project.  That’s where an FHA 203(k) Streamline Loan can help.  This program differs from a regular 203(k) in that it simplifies borrowing for minor improvements without the extra cost or details, and doesn’t require a write up of plans from consultants, engineers or architects.   The following information is provided by the Department of Housing and Urban Development and the HUD guys.

203(k) Streamlined Limited Repair Program Basics

  • No minimum repair costs
  • Allows for renovations of up to $35,000
  • One loans covers purchase and repairs

A 203(k) Streamlined Loan does have one important similarity to a traditional 203(k) rehabilitation loan in that it covers a vast range of improvements.  These include:

The repair or replacement of:

  • Roofs, gutters and downspouts
  • HVAC systems
  • Flooring
  • Exterior decks, patios and porches
  • Windows, doors and exterior siding
  • Septic systems

Other eligible improvements include:

  • Basement waterproofing
  • Painting
  • Weatherization
  • Remodeling projects that don’t involve structural changes
  • Appliance purchase and installation
  • Disability accessibility

Choosing a Lender

There are many options when it comes home renovation lending. Here are some some popular providers:

Who is eligible for a 203(k) Streamlined Loan?

The Department of Housing and Urban Development makes the FHA Streamline Loan available to certain lenders to help borrowers of all income levels make repairs on a home they wish to buy or that they already live in.  The owner must plan to occupy the dwelling, which can consist of up to 4 units. Eligible properties include single-family dwellings, condos, townhouses, and mixed use structures.  Nonprofit organizations may also qualify for a 203(k) Streamline, but investors are not eligible. Other terms and conditions may apply.

There are certain circumstances where a streamlined is not appropriate.  These may include:

  • Work that takes more than 6 months to complete
  • Renovations that require plans or architectural exhibits
  • Work that causes the homeowner to be displaced for more than 30 days
  • Improvements that are considered amenities or luxuries, like landscaping, pools and gazebos

Deciding Whether or Not to Pay Points on a Mortgage

When a homebuyer pays for “points”, he or she is paying a portion of the loan’s interest up front. Points are paid for in a lump sum that will reduce the interest rate on a fixed mortgage. Each mortgage loan point costs the buyer 1 percent of the total mortgage amount. So, for a home with a price tag of $100,000, one mortgage point would cost $1000. The interest rate on a 30-year fixed mortgage is generally reduced by 0.125 percent for each discount point. The more points the buyer purchases, the lower their final mortgage rate will be. Most lenders offer up to three points.

In choosing whether or not buying mortgage points in beneficial, it is necessary to ask yourself a few questions:

Can you afford to pay for the points up front? Would it be better to save any extra cash for other expenses that a home purchase will undoubtedly necessitate?

How long do you plan to keep the home and this mortgage? Those in it for the long term could stand to gain more from lowering their interest rate.

calculationsOne helpful tool to use when making this choice is a mortgage calculator. It will help you determine the amount of the monthly house payment at the interest rate you will lock into without buying points. Then, calculate the price with points. To see how much buying the points would save you, subtract the lower payment from the higher payment. Finally, divide the cost of the points by the monthly about that could be saved. That answer is also the number of months that you would need to keep the loan in order to reach the “break even” level on paying for points.

Here is an example:

  • For a 30-year fixed rate loan of $100,000 with a 6 percent interest rate, the monthly payment for the principal and interest would be $599.55.
  • Buying 3 mortgage points for a total cost of $3000, would trim the interest rate down to 5.25 percent. That would lower the monthly payment to $552.20 and save $47.35 a month.
  • The cost of the points ($3,000) divided by the monthly savings ($47.35) determines the length of the loan. So for this example: 3,000 divided by 47.35=63

So the break-even point would be 63 months or just over 5 years. If you plan to remain in the house for at least that long, then purchasing points might make sense.

Other things to consider when deciding if buying mortgage points is a smart move are:

  • In some cases, the seller agrees to pay for the discount points. Discuss this with your lender to find out if the guidelines for your loan allow this. Typically, the seller would negotiate a higher price in return, however, you would have a little extra cash at closing.
  • Another matter to take into account are that points for residential real estate may be tax deductible. Talk to a tax professional to see how this could affect your situation.

Portfolio Mortgage Loans

couple in front of house Soon after closing many loans are packaged together with others with similar characteristics and sold on the secondary market. The lender that made the loan may still handle the day to day management or “servicing” of the loan, but they transfer the ownership of the loan to investors who hope to make a profit as the mortgage is repaid with interest, over time. This frees up funds for the lender to make new loans.

In order to be saleable mortgage loans have to follow specific guidelines which make them attractive to investors on the secondary market. In some cases lenders choose to offer loans with different characteristics knowing they won’t be able to sell them, and instead retain ownership of these “portfolio loans.”

Why do investors offer portfolio loans?

It might be because they believe they can make a profit on a specific type of niche financing. They might also want to attract a certain type of valuable client who they hope will continue to do business with them for many years to come.

We spoke with Brent Eckhardt of SunTrust Mortgage in Wilmington, NC who specializes in doctor loans for new physicians. “Doctors come out of school with a lot of debt and often can’t come up with a large down payment. Because of their job stability and high earning potential we’re able to offer a portfolio loan program that allows 100% financing or very low money down options even for jumbo loan amounts,” said Eckhardt.

Some of the highlights of this program include:

  • No private mortgage insurance required
  • 100% financing for loan amounts up to $650K, 95% up to $1 million, and 89.99% up to $1.5 million
  • For medical residents, interns, fellows, DOs, and licensed medical physicians within 10 years of completing residency (maximum loan amount of $417K for residents, interns, & fellows.)

What types of portfolio loans are available?

In addition to the doctor loan program from SunTrust mentioned above, here are a few other loans available in the marketplace as of the writing of this post that are likely portfolio products:

1st Portfolio Lending Jumbo and Super Jumbo Loans
Program Highlights:

  • Borrow up to $10 Million
  • Interest Only Option
  • Amortized over 40 year loan term
  • Use pledgedstreet with homes asset to satisfy down payment and assets for income requirements
  • Financing available for primary residence, vacation homes, and investment properties

Learn More

Economic Opportunity Mortgage from Union Bank
Program Highlights:

  • Low Fees
  • As little as 5% down payment (80% financing for cash out refinances)
  • Approval possible even with limited credit history
  • No private mortgage insurance
  • Available in Colorado, Oregon, & Washington State

More Info

Why would a borrower want a portfolio loan?

Portfolio loans make up a small percentage of the mortgages originated across the country, but they can open up the possibility of a home purchase or refinance that might not otherwise happen in certain scenarios. If there are characteristics about your situation that mean you might not qualify, or might not be able to obtain good pricing, from typical loan programs, you might want to investigate portfolio loans to see if one might be a good fit for you.

Is An Adjustable Rate Mortgage Right for You?

As prospective homebuyers weigh their financial pros and cons, the subject of adjustable rate mortgages will likely come up. Known as ARMs, they have interest rates that vary, unlike traditional fixed-rate mortgages.

With an ARM, the interest rate begins with a fixed rate for a set time period. It is usually lower than the interest rate for a typical fixed-rate loan, which is a major enticement. These adjustable rate mortgages are referred to by their fixed periods. For example, there are 3, 5, 7, and 10-year ARMs. When the fixed period is up, the interest rate increases.

Even though the rate changes after the introductory period, many borrowers find these loans a good choice because of the lower starting rates. ARMs also come with rate caps that protect the borrower just in case interest rates rise dramatically.

In deciding if an ARM is right for you, there are definite considerations:

  • If your employment situation is less that secure, an ARM could be risky. Could you handle an increase to your monthly mortgage payment should you experience a pay cut or lose your job?
  • An ARM may be ideal for couples or young families just starting out. They can take advantage of a lower interest rate in the short term, reap the rewards of home ownership, and have moved on to the next home long before the rate adjusts. In addition, with the smaller loan amounts typical of “starter homes” a slightly higher payment down the road might still be affordable. Of course it is crucial to be prepared for that scenario.
  • For investors, purchasing a “fixer-upper” property with an ARM could make a lot of sense. They can own the home during the renovation with fewer out of pocket expenses, and potentially sell it before the rates change.
  • Individuals with careers that keep them on a relocation cycle also may favor ARMs. It is a more affordable way to own a home, possibly build a little equity, and still save money during the fixed rate period. If moving for a new position every two to three years the home would most likely be sold before it adjusts if a five year or seven year ARM was selected.

Young couple in their backyard.If selling the property before the end of the introductory period is over is part of your plan be sure to think through what would happen should the home lose value rather than appreciate? Could you afford to sell at a loss if needed, either because you have considerable equity in the home or because you have other assets available?

To decide if securing an ARM is a logical approach to your next home purchase, it is best to review your situation with a qualified experienced lender. That way, you will be able to make an informed decision!

Adjustable Rate Mortgage Lenders

Here are a few National mortgage banks and lenders to consider in your search for adjustable rate financing:

American Bank
National Lending Center
150 E. Campus View Blvd
Suite 200
Columbus, OH 43235
(866) 804-4645

LenderFi
27240 Turnberry Lane
Ste 220
Valencia, California 91355
(888) 342-0000

Roundpoint Mortgage Company
5032 Parkway Plaza Blvd
Charlotte, NC 28217
(866) 559-9846

Are There Downsides to Reverse Mortgages?

Couple in front of their home. Exploring some of the potential downsides to reverse mortgages.

Reverse mortgages can be an awesome financial tool for many homeowners. Yet, there are some potential downsides.

A reverse mortgage is far from a one size fits all solution for every senior homeowner. While it is a wonderful tool that can be used by many to provide lifelong security and greatly extend their years of independence, it is not appropriate in every scenario. Listed here are some of the cons or potential negatives of reverse mortgages. These items can be reviewed during the required session with a HUD approved counselor to ensure they are understood and accounted for in the financial planning phase of the reverse mortgage process.

Heirs may not be able to repay the mortgage without selling the home.

An aging parent may hope to take out a reverse mortgage but still have the family home remain in their children’s possession after they pass away or can no longer live in the home. In some cases this will be possible, but in others the heirs may need to sell the property in order to repay the mortgage.

There is no guarantee that the senior can stay in the home for the rest of his or her life.

The goal of a reverse mortgage is to allow aging homeowners to tap into the equity in the property and use those funds for other purposes, while still remaining in the home. This is a great alternative for many over selling the home in order to access that equity. Still, there are scenarios where it might not be possible for the homeowner to remain in the property. Some of these include:

  • Due to illness, injury, or other factors the homeowner can no longer safely live independently and must move in with a family member or to a nursing home or assisted living facility.
  • A line of credit (one of the payment options) is selected, and the homeowner exhausts these funds and can no longer afford to remain in the home.
  • Term payments (one of the payment options) are selected, and at the end of the term (fixed period of months over which equal monthly payments are received) the homeowner can no longer afford to live in the home.
  • Changes in expenses or other income result in the homeowner no longer being able to afford to stay in the home.
    [Read more…]

Homeowners less likely to default on mortgage payments if they have pre-purchase counseling, study reveals

Home in Vegas.A recent study found that homeowners who received pre-purchase counseling were one-third less likely to become 90+ days delinquent on their home mortgages.

Neil S. Mayer and Kenneth Temkin of Neil S. Mayer and Associations in conjunction with Experian, a credit reporting agency, conducted a study of the effectiveness of NeighborWorks, a homeownership counseling program. Using information on about 75,000 loans originated between October 2007 and September 2009, the study analyzes the impact of NeighborWorks-network-provided pre-purchase counseling on the performance of counseled borrowers’ mortgages within two years after they are originated, compared to mortgage performance of borrowers who receive no such services.

The data used in this study consist of information on 18,258 clients who received pre-purchase counseling from NeighborWorks organizations at some point between October 2007 and September 2009 and who also purchased a home within this 24-month period. Experian selected a comparison group of 56,298 borrowers with similar observable characteristics to those of NeighborWorks pre-purchase clients. The results of the study indicate that pre-purchase counseling and education from NeighborWorks has a positive impact on a borrower’s likelihood to stay current on their mortgage payments. Specifically, borrowers who received pre-purchase counseling from NeighborWorks programs were one-third less likely to be 90+ days behind on their home loans.

Interestingly, the findings were consistent across years of loan origin, even during the period of financial crisis and through mortgage market changes. The findings also showed that the impact was equal among first time buyers and repeat buyers.

Here are a few more highlights from the study:

  • For loans originated in 2007, the share of first time buyers who were 90+ days delinquent on their homes loans within the first 24 months and did NOT have pre-purchase counseling from NeighborWorks was 6.9 percent. [Read more…]

What’s the Difference Between a Short Sale and a Foreclosure?

House with sold sign in the front yard.

Foreclosure, REO or short sale … What’s the difference?

As a potential home buyer, you’ve probably already come across the terms “short sale,” “foreclosure,” and “REO property.” Although it can be confusing, it’s important to understand the details and differences in these types of properties, especially if you are considering purchasing one. What is a Short Sale?

A short sale is when the lender is willing to take less than the full loan payoff amount for an owner’s property. Generally, short sales are done to avoid foreclosure. Neither the owner nor the lender wants foreclosure, as it can be a very costly and unpleasant process. A home owner who has not been able to make their mortgage payments can apply for a short sale, but lenders are not obligated to accept it. Lenders take each short sale application on a case-by-case basis. Sometimes the loss a bank would take on a short sale is less than the loss they would take if the property went into foreclosure. In a short sale situation, the home owner’s name is still on the title and they are still considered the seller. The bank is simply entering into an agreement to accept less than what is owed on the property.

The term “short sale” can be misleading. The word “short” refers to the amount of money received by the lender, not the amount of time to complete the transaction. It can be a long process with many individuals and departments within the financial institution involved. If you put in an offer to buy a short sale property, it can take months to hear whether or not your offer is accepted. Also, because the lender is already taking a loss, negotiating on things like price, appliances or repairs is generally not an option.

What is Foreclosure?

Foreclosure is when a bank takes full possession of a property and the owner is no longer a party in the sale of the home. Foreclosed properties can be put up for auction at a trustee sale at a county court house. It’s recommended that only seasoned investors should participate in this highly risky purchasing process. When buying a foreclosed home from a trustee sale, you risk encountering serious problems that are ordinarily handled by a real estate agent or other professional. These problems can include title issues, IRS liens, or the property still being occupied. [Read more…]

Ways To Save Money On Your Mortgage

Pile of coins

See if you can save some coin on your next home loan!

For many home owners, mortgage payments are their largest monthly expense. Fortunately, there are ways to decrease your monthly payment and pay off your loan faster. Keep in mind, these are merely suggestions and may not work for every homeowner. Talk to your mortgage consultant or financial adviser before committing to any of these practices.

For illustrative purposes, let’s use this imaginary 30 year fixed rate mortgage as an example:

Mortgage amount: $200,000
Term: 30 years
Rate: Fixed, 5%
Estimated monthly P & I payment: $1,073.64

Make one extra payment a year

If you are able, make one additional, full mortgage payment a year. Be sure this extra payment is going toward your principal  balance, not your interest. Depending on your loan terms, you may need to request that the money be put toward principal. [Read more…]

PITI: The 4 Components of a Mortgage Payment

North Carolina Beach Houses

Learn about what your mortgage professional is talking about when he or she mentions PITI

As you may know, when you make a mortgage payment, you aren’t just paying one big chunk toward one balance. In a typical mortgage arrangement, your payment will be divided into four parts that will go toward four different debts. Principal, Interest, Taxes and Insurance are the four main components of a mortgage payment. Whenever you make a monthly payment, your money is divided among these four balances.

Here’s a simple look at how your monthly payment is divided among the four components.

  • Principal: The original amount of the loan. If you buy a house for $150,000 and you put $15,000 down, then the principal of your loan would be $135,000. Very little of your early payments will go toward paying off the principal.
  • Interest: The total amount of interest that will be applied to the principal. Using the same example above, say you take out a loan for $135,000 at a 4 percent interest rate. Four percent of $135,000 comes to $54,00, which will be added to your overall mortgage balance. Most of your early payments will go toward interest.
  • Taxes: Your obligatory payments for city, county or property taxes. Many homeowners pay their property tax obligations as part of their monthly mortgage payments and their mortgage servicer puts the amounts into an escrow account until the bills are due. This is simpler for home owners who pay the same amount each month rather than having to come up with enough money to cover a large tax bill once a year. Mortgage lenders also prefer it because they can be certain the money is there to pay the taxes due. If the homeowner failed to pay his or her taxes a lien could be put on the home jeopardizing the mortgage lender’s interest.
  • Insurance: Payment for homeowner’s insurance to cover damage to your home or property. Most insurance policies are not all-inclusive, so be sure you understand exactly what is covered in your policy. Homeowners insurance (and any other applicable policies such as flood insurance) is often paid for as part of the payment and put into an escrow account just like the property tax payment. If you purchased a home with less than 20% down, you may be required to pay private mortgage insurance (PMI). This protects the lender if you should default on your loan.
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