Fannie Mae’s change to Cash out!

To date, Fannie Mae required a minimum of six (6) months to elapse between the time a borrower purchases a home and subsequently applies for a cash-out refinance. Fannie Mae now allows a cash-out refinance within six (6) months of a purchase transaction when no financing was obtained for the purchase transaction under the following parameters:                 

(1.) The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV, CLTV, and HCLTV ratios for the transaction). 

(2.) The purchase transaction was an arms-length transaction. 

(3.) The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property. The preliminary title search or report must also confirm no liens on the subject property.

 (4.) The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property). Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1. 

(5.) All other cash-out refinance eligibility requirements are met.

 This can be great news for someone that recently purchased a new home using all cash to close instead of financing the original purchase with a mortgage. There are many reasons why someone may have purchased using all cash as opposed to mortgage financing.

One reason may have been to quickly secure a property that had multiple offers. The “all-cash” purchase transaction is a stronger transaction than one that requires mortgage financing. The buyer may not have wanted to risk losing a great property to a buyer that wanted to purchase the same home utilizing a mortgage and decided to pay cash in order to close quickly.

Now that Fannie Mae has changed the cash out refinance requirements, this allows the cash buyer to recover their funds sooner than later, if they so choose.

If you choose to purchase using all cash and later decide that you need your liquidity returned by utilizing a cash out refinance, be sure to check with your CPA regarding the tax implications.

The rules around mortgage interest deductions are complex. There is a difference between acquisition indebtedness and home equity indebtedness. Acquistion indebtedness offers the most favorable tax advantage. As always, if you have any questions about how you should handle your specific tax situation as it relates to your purchase and what is best, get professional tax advice.

For additional mortgage advice in the ever changing world of mortgage financing, please call the offices of Fairway Independent Mortgage (Houston) for all your purchase and refinance mortgage needs at (713) 528-0333.

Home Affordability

Well informed home buyers in Houston and throughout the State of Texas understand that the time to buy is now! Houston home buyers are more informed than ever before as a result of their Trusted Advisors (Preferred Lender and Realtor®) sharing great information and content to educate and assist them in making the best overall decision for their home purchase.

On June 30, 2011, The National Association of Realtors Housing Affordability Index (HAI) was released. The NATIONAL ASSOCIATION OF REALTORS® (NAR®) affordability index measures whether or not a typical family could qualify for a mortgage loan on a typical home. A typical home is defined as the national median-priced, existing single-family home as calculated by NAR®.

The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. The prevailing mortgage interest rate is the effective rate on loans closed on existing homes from the Federal Housing Finance Board and HSH Associates, Butler, N.J. These components are used to determine if the median income family can qualify for a mortgage on a typical home.

According to the recent NAR® numbers and comparing 1981 (the lowest the affordability index has ever been at 68.9) through May 2011 (the highest the affordability index has ever been at 182.7), it is greater than 2.5 times more affordable today to own a home than it was in 1981 when interest rates were hovering around 15%. Today, interest rates are below 5%! Just 6 years ago in 2005, the affordability index was at 107 with interest rates close to 6%.

The Study looks at Median Sale Price, Interest Rate, Payment and Qualifying Income. The data indicates that this is the highest the index has been in 30 years! What does this mean? The higher the index, the more affordable it is to own a home; however, as interest rates change – it affects the affordability.

With this said – If you want to buy a home, now would be a great time to do it as home prices are down and interest rates are low – but for how long? Look back 6 years (to 2005) to see where interest rates were then and this will help answer the question. Rates will go up – it is just a matter of how soon and as rates change – it affects the affordability.

We are not saying that buying a home is for everyone. We believe that buying a home must be a “fit” to your overall “short” and “long” term financial goals and that your financial house should be in order. Your purchase should fit your needs for a long time to include convenience and proximity to work, school, shopping, etc.

To help interpret the indices: a value of 100 means that a family with the median income has enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.

For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the HAI, then, shows that this family is more able to afford the median priced home.

The calculation assumes a down payment of 20 percent of the home price and it assumes a qualifying ratio of 25 percent. That means the monthly P&I payment cannot exceed 25 percent of the median family monthly income.

Well informed Houston Texas home buyers have been “empowered” to know that now is the time to buy. Get out there!

“Wait vs Rate” – The Great Debate!

Have you noticed your clients “sitting on a pole” waiting for the tide to go out?  Sure – the correct statement would be “sitting on the fence” waiting for prices to continue to fall? Houston area Realtors representing buyers in the Houston Texas market are well aware of the effects that waiting to purchase will have on the housing recovery throughout Texas.

But – the real question is whether home buyers understand the “true cost” of money and how waiting to purchase a home will negatively impact their overall “wealth position” in the long run as interest rates increase?  

It is true that a 1% increase in interest rates negates a 10% decrease in the price of the home as the payment will be the same each month today versus waiting for home prices to fall (“click” on Chart below and view highlight in yellow).

 

Even if prices decrease 10% and interest rates increase by as little as ¼%, you lose!  Why miss out? The cost to wait will end up costing so much more in the end – thus negatively impacting your family’s “wealth position” as you amortize your mortgage over a 15, 20 or 30 year period!

The point is clear – Now is the time to buy!  Rates are expected to go up and prices are at or almost at their bottom.  Rental prices are increasing.  In 78% of the Country is it cheaper to own than rent.  It’s a buyers’ market but deals won’t last.

If you don’t believe the numbers above, check out the following publications (print date) that have recently published articles to substantiate the above:

Well informed Realtors understand the great impact on “Wait vs Rate” and have shared this information with their buyers. Now is the time to buy!

Are your sellers or buyers in need of “free” mortgage consulting prior to selling or buying? Be sure to call our office at (713) 528-0333. Get out there!

Go for No!

Are the words NO and NEXT a part of your life in sales?

I recently had the opportunity to read the book Go for No by Richard Fenton and Andrea Waltz. It is a must read for everyone. The book was sent as a gift to everyone at Fairway Independent Mortgage Corp by our CEO and Founder Steve Jacobson who believes in the powerful principle of “givingback”!

My “take aways” –

Go for No is a quick and easy read (only 74 pages) on taking you to your success level in life and in business.  This (sales, motivation, empowerment, etc.) book is unlike any other you have ever read and will “shift” your mind to a new way of thinking and understanding.

Most people operate in the wrong model of success and failure. Most think that they are in the middle with success on one end and failure on the other. 

FAILURE ———– YOU ————- SUCCESS

The thought and mission is to do everything within your power to move toward success…and to move away from failure. But the correct model is to move from where you are at today…past failure…to success.

YOU ———– FAILURE ————- SUCCESS

Failure is the halfway mark on the road to success, not a destination to be avoided but rather a stepping stone to get what you really want in life.

In Go for No, you will discover that the sooner you add the words NO and NEXT to your weekly and monthly Sales Goals, your epiphany will be that NO doesn’t mean never!

YES will be your Destination (Destiny)…NO is how you will get there!

Go for No!

Win Friends – Influence People

It is said that he who has the most friends wins! It is also said that when you “win” friends you influence people!

The Power of Social Networking is undeniable and a “force” that is to be reckoned with. Are you still fighting the social media way of communication or have you embraced it? There are many platforms of social media and the biggest of course is Facebook.

 

How influential are you with Social Networking? Who are your “friends”? Who are you “friends” with? Who are you “linked-in” to? Who’s “linked-in” to you? Who are you “tweeting”? Who are you following? Who’s following you? Who are you listening to?  Who’s listening to you?  Welcome to the craze of social media.

NBC Today Show – June 7, 2011

Recently a girl in Germany posted a Public Event on Facebook regarding her 16th birthday. She thought she had posted this to her “friends” only and did not realize that it was posted to an open account.

An unbelievable 15,000 people responded on Facebook and 1,600 came out to her home town to celebrate her 16th birthday. What was supposed to be a birthday party turned into a “block” party.

Wow – talk about success with Social Networking! How many of you would like to have a 10% conversion on your social networking posts as leads in your pipeline? The answer of course is everyone.

If you have yet to enter the world of Social Networking, it’s never too late to win friends to influence people!