Mortgage Q & A HERE!!

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hi tiedyed1.. question hope you can help, bought a home here in new york 12/2009 through bethpage fcu. they sold my mortgage to another bank/lender and i never received a letter notifying me of the sale of my loan. the only reason i was aware they sold my loan is i went to them on 5/2011 to refinance at a better rate and the loan officer told me it would cost about 3k in fees! i was a little upset.. in my loan agreement it says i would be notified before and after the sale of my loan. in your professional opinion should i pursue this further? hire an attorney? i am desperately wanting to take advantage of the lower rates!

autowizz,
I am not sure why them selling your loan preventS you from refinancing at currently lower rates.

Also, there is a difference between who owns your mortgage and who services it.
The loan servicer is the company you are making the payments to.
The owner of the mortgage is not necessarily the owner.
For example, most conventional loans are owned by Fannie Mae or Freddie Mac. But Fannie and Freddie do not service the loans.
FHA loans are owned by HUD, however those payments get made to a loan servicer.
Many times the servicing for a loan is sold through the course of the loan, and that is when you receive a notice alerting you as to the new servicer and where the payment goes to.

In your case are you referring to where you were not aware that the monthly payment needed to go to a new servicer and then the loan was late getting to the new servicer?
Or are you referring to the possibility of doing a Consolidation Extension Modification Agreement (CEMA) for NY where you can get the current loan assigned to a new lender to alleviate paying NY State Mortgage Tax on the existing money? (Is Bethpage saying they will not do a CEMA?)

Feel free to PM me any specifics and I will try my best to answer promptly.

Thanks; -Adam
Old Hippy & Mortgage Pro

Appraisal came in lower than our offer. Lenders rate/costs originally was at 75% LTV. Short of negotiating with seller (we waived appraisal contingency), what choice is best?

Keep the loan amount at $625,500 and pay .25% (1/4 point = $1,563.75) origination fee to keep rate the same.
Keep the loan amount at $625,500 and raise the rate by .125% to avoid the .25% fee
Lower the loan amount to $618,750 and keep the rate the same, with no origination fee.

fobber888 said:   Appraisal came in lower than our offer. Lenders rate/costs originally was at 75% LTV. Short of negotiating with seller (we waived appraisal contingency), what choice is best?

Keep the loan amount at $625,500 and pay .25% (1/4 point = $1,563.75) origination fee to keep rate the same.
Keep the loan amount at $625,500 and raise the rate by .125% to avoid the .25% fee
Lower the loan amount to $618,750 and keep the rate the same, with no origination fee.


Raising the rate .125% for only a .25 point in pricing does not make sense to me. (Customarily you would want to see at least .50 point better pricing for every .125% in rate.)
Plus every .125% in rate equates to approx. $44/month in payment. While it is Tax deductible it is still significant due to the size of the loan amount. IF the lender credit was more than .25 point I would consider this, but as the break even point is 3 years that to me is not long enough.

Between paying a .25 point ($1563) for the LTV >75% and putting down an additional $6750 to maintain 75% LTV is a tough question and really would depend on my liquidity. If my liquidity was very strong where I would not feel it I would personally opt for putting down another $6750 and increase my equity position that much more. While on a purchase this size that extra $5187 should not make a huge difference, to some it may if your liquidity is being stressed.

No definitive answer, but hopefully this one opinion helps you make the best choice to suit your individual scenario;

-Adam
Old Hippy & Mortgage Pro

Adam,

Thank you for your thoughts! I will go for the lower loan amount.

Buying my first home. Ho to get best rates with less hassle?
I live in NJ.
is it safe to go with online lenders?
Is shopping local banks a good option?

Thanks.

dealbuys said:   Buying my first home. Ho to get best rates with less hassle?
I live in NJ.
is it safe to go with online lenders?
Is shopping local banks a good option?

Thanks.


Dealbuys, I am admittedly biased, but utilizing a mortgage broker can prove very beneficial to the borrower.

A broker has many wholesale relationships with dozens of lenders and it is our job to find the best home to place your loan. Not only does a knowledgeable and experienced broker streamline the process by packaging a complete loan file for underwriting, we are also directly connected with Fannie Mae and Freddie Mac to obtain automated underwriting approvals within minutes. We follow the findings and the lenders specific guidelines to compile a complete loan package which will be signed off on by the lender's underwriter very fast. We are compensated by the lender and wholesale conduits customarily have faster turn times than retail.

Most will find regional or National banks to be unable to provide the personal service and turn times that an experienced broker can. Also, each lender has their own 'overlays' which can make it very frustrating for a borrower to try and find the best lender (one who offers competitive pricing and can efficiently close your loan) on their own. There is no passing off your documentation to a separate processing enter and the broker will truly be your direct contact throughout the process.

For a first time home buyer who will have lots of important questions, the broker will be your easy access answer person too. The experienced broker alleviates the frustrations accompanied by lenders too busy to get right back to you and will get the job done right, take the guesswork out of the process, be there for you to answer all questions, and get your financing closed for you smoothly; and usually with better pricing than the most big banks.

-Adam
Old Hippy & Mortgage Pro

dealbuys said:   Buying my first home.
1. Ho to get best rates with less hassle?
2. I live in NJ.
3. is it safe to go with online lenders?
4. Is shopping local banks a good option?

Thanks.

1. I've never met a 'ho' with best rates with less hassle.
2. Ok
3. Yes
4. Depends on your credit score. I prefer online lenders or ones who participate here at FW, (Tiedyed, AMBL, MMNJ)

07pilot4me said:   current fannie mae guidelines state that one can get a loan 2 years after a short sale provided you put 20%down payment.

these are guidelines, anyone actually know first hand if this is happening (getting FNM loan 2 years post short sale)


there looks to be a new code being developed to classify short sales as short sales and not as foreclosures, this would prevent the problem of buyers being declined for new loans because their short sales are being classified as foreclosures. hopefully this "new code" will be implemented soon. I wonder if there is any way to pressure the powers that be?

link to article

Credit bureaus working to help lenders tell the difference

Here’s some good news for the large numbers of short sellers whose transactions have been classified as “foreclosures” by the credit reporting system: There is a new code on the launch pad that could bring more accuracy to the process, separating out short sales from foreclosures rather than having them lumped together. That, in turn, could help short sellers requalify for new mortgages much sooner than the four to seven years sometimes required after a foreclosure today.

Executives at the Consumer Data Industry Association, the trade group that represents the three national credit bureaus (Equifax, Experian and TransUnion) along with several dozen other credit and consumer information companies, tell me that a new code has been developed to specifically designate short sales, so there’s no confusion with foreclosures. The new code is expected to undergo an “operational testing” period, and then become available to lenders, servicers and others who report information about consumer credit behavior to the big three bureaus.

Why is a coding change potentially so significant? Because until now, there has been no widely recognized, uniform way for creditors to indicate to the big three credit bureaus that a homeowner engaged in a short sale.

According to the CDIA, there have been ways for lenders to report a credit obligation was “settled for less than the full amount,” but when a mortgage was involved, that was often interpreted to mean there was a foreclosure.

Part of the problem, industry officials say, is that widespread use of short sales is a relatively recent phenomenon; the CDIA’s “Metro 2” reporting system was never tweaked to handle such large numbers of transactions where the lender agreed to accept less than the full mortgage balance as part of a negotiated settlement involving a new purchaser for the house at an agreed-upon price rather than a foreclosure sale.

The issue was made even more complicated by the fact that the major automated underwriting systems run by Fannie Mae and Freddie Mac had no built-in capability to recognize short sales on credit reports. As a result, according to Pam Marron, a Florida mortgage broker who has made fixing the short-sale reporting system a personal crusade, “millions of people who are otherwise qualified for a new mortgage are being turned down” because their credit reports show a foreclosure as the end result of their most recent home loan transaction.

Under Fannie’s and Freddie’s rules, applicants who have a foreclosure on their credit records may not be eligible for a new loan for as long as seven years. By contrast, people who have completed short sales may be eligible for a new conventional loan within several years if they have been diligent on payments of credit cards, student loans and other obligations, and have the necessary down payment and reserves.

Marron, who says she has had dozens of applicants turned down because their credit reports indicate foreclosure when they actually did a short sale, says the lack of precision in the current system “is a scandal. It’s absolutely hurting people who want to start again and are qualified for a new mortgage.”

U.S. Sen. Bill Nelson, D-Fla., recently asked the Consumer Financial Protection Bureau and the Federal Trade Commission to investigate why creditors and the credit bureaus continue to misreport short sales, thereby blocking people from “re-entry into the housing market” and “stifling economic recovery” by discouraging home purchases.

Terry Clemans, executive director of the National Consumer Reporting Association, another credit industry group, says that large numbers of people who completed short sales in 2010 and 2011 have now rebuilt their credit scores to the point where they qualify for a new loan but are running into roadblocks with automated underwriting systems and loan officers who insist they are ineligible because of the “foreclosures” on their records.

Clemans and members of his association are in Washington, D.C., this week lobbying for as quick a solution to the problem as can be arranged with Fannie, Freddie and the credit reporting bureaus.

How soon could all this happen? The CDIA says its code likely will be available soon, once the beta testing period is over. After that, it will depend on how fast mortgage industry players are willing to make the necessary changes in their systems and train personnel. If no one is pushing the process, it could take a year or more for the major lenders, Fannie and Freddie to get up to speed.

But if the CFPB and the FTC get involved and follow Sen. Nelson’s request — he called for financial penalties for lending industry players who do not made the needed changes — who knows? It could happen quicker than expected.

Ken Harney writes an award-winning, nationally syndicated column, “The Nation’s Housing,” and is the author of two books on real estate and mortgage finance.

Are there any other MI programs that have rate sheeets listed online like the on below.

http://mortgageinsurance.genworth.com/RatesAndGuidelines/RateCards.aspx 

The three primary MI providers utilized by most lenders are Radian, Genworth and MGIC.
All have rate calculators online:

Radian: http://www.radian.biz/page?name=MIRateFinder 
Genworth: http://mortgageinsurance.genworth.com/ratesandguidelines/ratefin... 
MGIC: http://www.mgic.com/is/html/ratefinder.html 

In some isolated cases an MI Company may have their own overlays which will prevent them from approving a specific scenario, (i.e. Genworth has lower DTI limits than others for certain FL underwriting), however, these are currently the three largest providers that lenders utilize.

-Adam
Old Hippy & Mortgage Pro

In an effort to keep this great thread going I wanted to provide a few bits of information that some may find helpful:

The Consumer Financial Protection Bureau (CFPB) has issued final rules that implement changes under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which was signed into law in July 2010.

One major component of the rules is the Ability-to-Repay/Qualified Mortgage (ATR/QM), effective January 10, 2014, which creates general requirements for a Qualified Mortgage (QM) that addresses product standards, minimum underwriting and documentation requirements.

To many, Debt-To-Income (DTI) Ratios are a critical figure that can make or break a borrower's loan approval.
Standard Fannie Mae guidelines cap DTI at 45%. (Freddie Mac under certain criteria has gone to 50% dti).
However, under the new rules this cap will be lowered to 43% dti.

In short, it looks like conventional financing parameters will become more stringent in 2014.

Please post questions to this thread as the information is usually helpful to many FW readers.

-Adam
Old Hippy & Mortgage Pro

Helpful thread, thank you.

So I'm reading all these posts about DTI and I'm trying to understand why the DTI ratios are so high. I'm a first time home buyer current looking for a home and from what everyone has told me the DTI should be around 28% to be safe. Do you agree with such a thinking? If people are being approved for loans with DTI of over 40% isn't this once again setting the housing industry up for disaster as it may be harder to afford?

To make sure I'm not being too conservative (or too aggressive), please let me know if the price of the home I'm looking at is reasonable given my current situation (purchasing in Northern NJ):

Age 26, married, no kids (but plan on in future so I would like to consider this as a future expense in determining the amount of house I can afford, i.e. daycare, etc.)
$170,000 combined income (married). "Stable" jobs with annual salary increases. 
No debt outside of a car loan of about $380/mo, with about 2 yrs left
Putting 5% money away into a 401k
Savings of about $220,000 so I figured I'd put a down payment of about $160,000

I'm looking at purchasing a house for about $600,000, with property taxes in bergen county nj for such price home being around $12,000-15,000. 

I would appreciate your input as to whether my expectations are reasonable or if I can afford even more (or less).




 

tisucka; great post.

The old rule of thumb for Underwriting was 28/36. 28% housing ratio and 36% overall ratio.
Then, after some analysis, 33/38 became prevalent as the underwriting limits.

Where things got off the tracks is hard to pinpoint, but, even today, FHA can go up to 55% total dti and lenders are placing 'overlays' on those guidelines capping FHA at 50% dti.

How did dti's get so high is due to an overzealous housing market where nothing could go wrong thinking was obviously faulty.
This is the reason for Dodd-Frank and the changes including lowering the dti on conventional financing to 43%.

Personally, I feel the front ratio (housing) is most important and more stress should be placed on front ratio ceilings; however, they are relatively lenient still.
I commend you for your budgeting of up to 28% for your housing ratio; as that has always been the goal for most.

Can you afford more? This I would say is based on your income projections and what your comfort levels are.
You are 26 and will be starting a family, so i would not recommend shooting for the stars at this time in your life.
At your age and where you are at you appear in great shape.
On a 600k purchase, a 150k down payment (75% LTV) is a good place to be. Pricing adjustments are made in 5% Loan To Value increments so the extra 10k I would hold for some nice furnishings and rainy day fund.

Feel free to post questions (or PM me anytime).
-Adam
Old Hippy & Mortgage Pro

I've strained the DTI limits for some lenders for a couple of mortgages. But I think I'm fairly conservative. So to some extent, maybe the high numbers are to help accommodate folks like me. I've had some income streams that some lenders don't want to count (steady W2 bonuses, rental property) and some expenses that I think were unreasonably counted ('one time' rental expenses).

In general, I agree that committing anything like 50% of your gross income to debt payments is bananas, but there can be subjective differences on accounting for both the Debt and Income.

SlimTim said:   I've strained the DTI limits for some lenders for a couple of mortgages. But I think I'm fairly conservative. So to some extent, maybe the high numbers are to help accommodate folks like me. I've had some income streams that some lenders don't want to count (steady W2 bonuses, rental property) and some expenses that I think were unreasonably counted ('one time' rental expenses).

In general, I agree that committing anything like 50% of your gross income to debt payments is bananas, but there can be subjective differences on accounting for both the Debt and Income.

  
Excellent point Tim.   We used to cite 'Compensating Factors' to add weight to an Underwriting decision when a loan may pushed guideline thresholds.  Unfortunately the modern age Underwriter is a whole other breed which for the most part relies on Automated Underwriting findings, which will exclude some qualified borrowers.  However, the thrashing the industry received was warranted and now we are subject to rules that, at times, will limit our capabilities to obtain some approvals.

Every scenario is truly unique and while automated underwriting has its merits the impersonal analysis in some cases is truly unfortunate.  There is still some wiggle room in some scenarios, especially when it comes to more complex scenarios.  While I am admittedly biased, working with an experienced mortgage broker can be extremely helpful, as a good broker will have relationships with dozens of wholesale conduits and know that lenders Underwriting strengths, where they can then process and submit the loan to the most suited lender.

-Adam
Old Hippy & Mortgage Pro

tiedyed1 said:   tisucka; great post.

The old rule of thumb for Underwriting was 28/36. 28% housing ratio and 36% overall ratio.
Then, after some analysis, 33/38 became prevalent as the underwriting limits.

Where things got off the tracks is hard to pinpoint, but, even today, FHA can go up to 55% total dti and lenders are placing 'overlays' on those guidelines capping FHA at 50% dti.

How did dti's get so high is due to an overzealous housing market where nothing could go wrong thinking was obviously faulty.
This is the reason for Dodd-Frank and the changes including lowering the dti on conventional financing to 43%.

Personally, I feel the front ratio (housing) is most important and more stress should be placed on front ratio ceilings; however, they are relatively lenient still.
I commend you for your budgeting of up to 28% for your housing ratio; as that has always been the goal for most.

Can you afford more? This I would say is based on your income projections and what your comfort levels are.
You are 26 and will be starting a family, so i would not recommend shooting for the stars at this time in your life.
At your age and where you are at you appear in great shape.
On a 600k purchase, a 150k down payment (75% LTV) is a good place to be. Pricing adjustments are made in 5% Loan To Value increments so the extra 10k I would hold for some nice furnishings and rainy day fund.

Feel free to post questions (or PM me anytime).
-Adam
Old Hippy & Mortgage Pro

  I just bought a home, my ration was at 45%, had an auto loan with few months left at $300/month.
The regulations are getting more and more crazy, I would suggest you to purchase before 2014.
For your scenario, I don't see any reason why they would reject, assuming you have good credit score
and stable income. I think from what I heard 48% was the upper bound that my loan officer told me.
All this can change pretty quickly.
good luck

Underwriting guidelines stipulate that installment loans with less than 10 payments left are not counted in your ratios.

For example, an auto loan (not a lease, as with a lease it is assumed you will need another car) with a few months left will be reflected on the application but not be counted when calculating Debt To Income (DTI) percentages.

(In some cases this comes in handy as a borrower can pay down a balance prior to application where there are less than 10 payments left.)

Each scenario is truly unique so post your questions (or if not comfortable posting publicly, PM me) with questions!

-Adam
Old Hippy & Mortgage Pro

FHA has published Mortgagee Letters 2013-24 and 25 announcing revised underwriting requirements for 
borrowers and, in some cases, non-borrowing spouses, having collections, judgments and/or disputed trade lines.

The following changes are effective for all FHA loans having case numbers assigned on or after October 15, 2013:


• If borrowers have outstanding unpaid collections that total $2,000 or more, credit capacity analysis as 
described in the matrix below is required. For properties and/or borrowers located in community 
property states, this policy also applies to the collections of non-borrowing spouses.

• If a borrower’s judgment will not be paid prior to or at close, the borrower must make three payments 
according to the written payment agreement prior to credit approval. For properties and/or borrowers 
located in community property states, this policy also applies to the judgments of non-borrowing spouses.

• If borrowers have disputed accounts that total $1,000 or more, underwriters must downgrade the loan’s 
TOTAL Scorecard approval to a refer response and manually underwrite the loan.  

There is a separate matrix that describes the credit capacity, underwriting and manual downgrade 
requirements for collections, judgments and disputed accounts. In addition, the matrix indicates trade lines 
excluded from the collection and disputed account analysis and provides FHA’s credit explanation, payoff, and 
non-borrowing spouse requirements.   (If you want me to e-mail you the detailed Matrix, just send me a PM.)  

For the most part you do not want to have your loan Manually Underwritten as more stringent guidelines apply (vs automated approval findings).

Many borrowers turn to FHA when they have open Collections as they did not need to be paid off (as most need to on Conventional financing).
Judgments have always been more stringent and this updated guideline issued by HUD does make Collection matter more stringent and better define the overall credit requirements.

There are Underwriting Guideline changes occurring with both Conventional and FHA loan products and I will continue to try and post the changes that may prove important.

Keep the questions coming in the Mortgage Q & A thread.  
Your posts here may help many other FW readers too!

-Adam
Old Hippy & Mortgage Pro


 



 

I just want to ask you a question on mortgage. Should I get pre-approved for a mortgage before I look for a home? Will it help me study local property market better? Is it free? What all things I will get to know about my proposed home?

First of all thanks so much for this thread! Now on to my questions...

How do lenders view the extra overtime pay when it comes to calculating DTI?

My annual base salary is roughly $50,000, no bonus. I have been consistently working a lot of overtime starting the middle of 2012 and I expect it to last for the rest of the year but eventually end next year. My gross total pay for 2012 was about $61K and I expect it to be between $70-75K for this year. Would lenders still view my salary as $50K for the DTI ratio or would they take the overtime income into consideration?

In a somewhat related question, if I started a new job in a new field and my salary was a hypothetical $70K. I have seen that most lenders want to see you at the same company or at least the same field for at least 2 years. So would I still be shut out of getting a mortgage until I am at the new job for 2 years even if my salary is higher?

charlieeisaac said:   I just want to ask you a question on mortgage. Should I get pre-approved for a mortgage before I look for a home? Will it help me study local property market better? Is it free? What all things I will get to know about my proposed home?
  
Yes, it is always recommended to get prequalified prior to house hunting.  This way you not only know what you are qualified for but you also come in much more prepared and secure about what to anticipate your proposed monthly mortgage payment will be.
In addition, most Realtors will want to see you have had your documentation evaluated so they can focus on the appropriate properties you will qualify for.
NEVER pay for this.  It is a part of doing business and an experienced mortgage professional can prove one of your most valuable resources.
Good luck with your home search!
-Adam
Old Hippy & Mortgage Pro

jkk4life said:   First of all thanks so much for this thread! Now on to my questions...

How do lenders view the extra overtime pay when it comes to calculating DTI?

My annual base salary is roughly $50,000, no bonus. I have been consistently working a lot of overtime starting the middle of 2012 and I expect it to last for the rest of the year but eventually end next year. My gross total pay for 2012 was about $61K and I expect it to be between $70-75K for this year. Would lenders still view my salary as $50K for the DTI ratio or would they take the overtime income into consideration?

In a somewhat related question, if I started a new job in a new field and my salary was a hypothetical $70K. I have seen that most lenders want to see you at the same company or at least the same field for at least 2 years. So would I still be shut out of getting a mortgage until I am at the new job for 2 years even if my salary is higher?

  
If you have a history of overtime with the same employer and the employer verifies that the continuance of overtime is likely, a two year average of that o/t is utilized.  Each scenario is unique and in some cases a full 2 years of overtime is not required; but this must be analyzed on a case by case basis.  (Simply put, it need to make perfect sense.)

In respect to the scenario as to if you took a new job with a 70k base salary, no, you do not need 2 years working for 70k.  While o/t would not be able to be utilized (as it is a new employer with no history of o/t) your 70k base salary is utilized upon seeing a verification from the employer and minimally 30 days of paystubs reflecting receipt of the new salary.  Again, each scenario is unique and in some cases there are exceptions to this guideline (i.e. corporate relocation packages, teacher contracts, etc.)

-Adam
Old Hippy & Mortgage Pro
 

It's always a good idea to get preapproved before you start looking. That way you know what you can/can't afford and whether or not you qualify to begin with (I've seen many borrowers who though they had a clean record only to find that a Verizon bill from 2008 was never paid, went to collections, and negatively affected their credit). Also, if you DO find the perfect home, chances are you won't be able to submit an offer without a preapproval from a lender (at least here in San Diego). You should be able to get one in 24 hours as long as you have access to your asset & income documentation (paystubs, bank statements, W2s etc). The lender will need to run a credit report to see your scores, history of BK/foreclosure/shortsale etc, and populate your monthly liabilities and determine your DTI ratio.
This should all be free of charge. Some lenders will make you pay for the credit report ($11-$15) but I have no charged for one in years. If you close a loan, the fee will be found on the final HUD1 form, but not charged up front.

I'm considering buying a vacation home. The area has an active summer rental market, but I'm not trying to justify this as an "investment".
I already own a primary residence with a 15 year mortgage and an investment property with a 30 year mortgage. Both are below 75% LTV.

Questions --
1. Are vacation home mortgages viewed by banks any differently from investment property or primary residence mortgages, in terms of requirements, etc?
2. My investment property is leased out - can I consider its rental income as my income?
3. Up to what percentage of my monthly income can my total mortgage payments be?

Kanosh said:   I'm considering buying a vacation home. The area has an active summer rental market, but I'm not trying to justify this as an "investment".
I already own a primary residence with a 15 year mortgage and an investment property with a 30 year mortgage. Both are below 75% LTV.

Questions --
1. Are vacation home mortgages viewed by banks any differently from investment property or primary residence mortgages, in terms of requirements, etc?
Yes vacation homes (2nd homes) are viewed closer to owner occupied than flat out investment properties.
2. My investment property is leased out - can I consider its rental income as my income?
Yes as long as you have a documented history (think cancelled checks + lease agreement) and it has been claimed on your sched E  The formula for calculating how much rental income can be used is: 75% rent - taxes & mortgage.  (the 75% is there vs 100% in case of vacancy)
3. Up to what percentage of my monthly income can my total mortgage payments be?
That depends on a lot of factors in fannie mae's calculations.  Reserves, FICO, etc have an effect on max allowable DTI (debt to income ratio).  I say anything under 45% total DTI should be fine.



 

  

SanDiegoDude said:   
Kanosh said:   I'm considering buying a vacation home. The area has an active summer rental market, but I'm not trying to justify this as an "investment".
I already own a primary residence with a 15 year mortgage and an investment property with a 30 year mortgage. Both are below 75% LTV.

Questions --
1. Are vacation home mortgages viewed by banks any differently from investment property or primary residence mortgages, in terms of requirements, etc?
Yes vacation homes (2nd homes) are viewed closer to owner occupied than flat out investment properties.
2. My investment property is leased out - can I consider its rental income as my income?
Yes as long as you have a documented history (think cancelled checks + lease agreement) and it has been claimed on your sched E  The formula for calculating how much rental income can be used is: 75% rent - taxes & mortgage.  (the 75% is there vs 100% in case of vacancy)
3. Up to what percentage of my monthly income can my total mortgage payments be?
That depends on a lot of factors in fannie mae's calculations.  Reserves, FICO, etc have an effect on max allowable DTI (debt to income ratio).  I say anything under 45% total DTI should be fine.



 

  


If I may add my .02

Re #1:  as mentioned, Second Homes are underwritten very similar to Primary Residences, however, maximum Loan To Value is slightly lower than the maximum LTV when purchasing a Primary.  (Try and put down 20% to avoid MI if possible, but, if necessary, you can go up to 90% LTV with Fannie Mae, or 85% LTV with Freddie Mac)

Re #2 and your investment property:

Conventional Underwriters will first look to analyze your Sched E and utilize what is called the Schedule method.   Simple explanation is utilize the bottom line of taxable income and add back depreciation to come up with an income or loss figure for the rental.
Now, in many cases this comes out close to the alternative method SD Dude states as long as you are declaring the rental income.
If you are not declaring the rental income this can become problematic, unless there is a very good explanation (i.e. purchased end of last year and was fixing it up prior to renting, used to be your primary and you relocated so new lease started in 2013, etc.)  Under those circumstances the vacancy factor is utilized.

Each scenario is unique and should be evaluated by an educated mortgage broker; especially scenarios like this one.

-Adam
Old Hippy & Mortgage Pro
 

Note: I have posted this information in the HARP Refinance thread but also felt it was pertinent to those who may not know of the HARP thread and the more exposure of this information can possibly help more mortgage borrowers.

HARP UPDATE

Both Fannie Mae and Freddie Mac have issued updated guidance on HARP eligibility.

• Freddie Mac (LP Open Access): Effective October 27, 2013, we will use the Note Date of the mortgage being refinanced, instead of the Freddie Mac settlement date; Loan Prospector® and the Freddie Mac Loan Look-Up Tool will be updated by October 27, 2013, to support this change.

• Fannie Mae (DU Refi Plus): Currently, to be eligible for DU Refi Plus the original loan had to have been acquired by Fannie Mae on or before May 31, 2009. The May 31, 2009 eligibility date will now be based on the Note Date of the original loan. The DU Refi Plus database will be updated the weekend of November 16, 2013 to include the additional mortgage loans that are now eligible for DU Refi Plus.

While the June 2009 cutoff has not changed, this is a help to those that closed prior to June 2009 while their loans were not purchased by Freddie or Fannie until after May 31, 2009.

-Adam
Old Hippy & Mortgqage Pro

In an effort to keep this Q&A Forum going, I just want to post a short message and wish all FW members a very Happy New Year and looking forward to a prosperous 2014.

-Adam
Old Hippy & Mortgage Pro



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