What Exactly IS a Streamline Refinance

While qualifying for a mortgage refinance is generally a lot harder than it has been in the past, there are some options available. One such option is the Streamline Refinance…

While guidelines and rules vary by lender, here’s a basic list of features:

  • Your current mortgage must be current on all payments
  • You must be receiving a clear benefit from the refinance
  • You may not take cash-out on the loan
  • Often there are minimal credit requirements and less paperwork meaning the process is faster and less expensive

Current mortgage – up to date and current is the number one requirement, meaning this path is not one for anyone who’s behind or in any danger of foreclosure. Clear benefit means your rate has to drop enough to cover all related fees, or convert from an adjustable to a fixed-rate loan.

What type of mortgages can be streamlined?

FHA – makes it easy to refinance your current FHA mortgage in good standing to a lower rate. FHA has permitted streamline refinances on insured mortgages since the early 1980s. What makes this process streamlined? There is no appraisal, so you can be underwater in your home by a little or a lot, and still be able to refinance your home. Keep in mind that you have to be either lowering your monthly payment or converting from an ARM to fixed rate loan, and you cannot take any cash out on the loan when you do an FHA streamline-refinance. Record low mortgage rates make this option very attractive to borrowers.

VA – also has streamline refinance option for current VA borrowers called the Interest Rate Reduction Refinancing Loan or IRRRL. With the VA’s options, as with the FHA loan, you must be paying less each month or going from an adjustable to fixed rate loan, and again, don’t expect cash back. The VA streamline refinance doesn’t require an appraisal or much credit work and with this loan, you can refinance at no cost as the option to roll the costs of the new loan into the new mortgage. Since VA borrowers have already taken care of their Certificate of Eligibility, the process is much easier and faster than an initial VA mortgage loan.

HARP – is a new mortgage program for homeowners who owe more on their home than the home is worth (also known as underwater). HARP (Home Affordable Refinance Program) and HARP 2.0 offer refinance options for Fannie Mae and Freddie Mac loans older than June 1, 2009, with the loan to value ratio of 80% or more. You must be current on payments of your existing loan. This loan carries limited fees and closing costs. It is possible to have a loan servicer (the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan) to be different than the owner of your mortgage.  To see if your loan is owned by Fannie Mae or Freddie Mac, visit their websites – Fannie Mae   Freddie Mac

Easy = Best?

While a streamline refinance may be the easiest option, it may not be the best option for you and you should shop different options other than your current lender or loan type to find the best rate/cost of the loan especially if you’re not underwater, not in a credit situation, and working at the same job for 2 or more years. Savings on a lower rate may offset the additional time and paperwork required for a more conventional approach to refinancing your home. Call The Mortgage Guys to discuss your options for refinancing your Atlanta home!

 


George Beylouny is a licensed loan originator and the Branch Manager for Silverton Mortgage Vinings.  He can be reached at 678-428-6514, George@mgatl.com or  www.mortgageguysatlanta.com

Ten Credit Do's and Don'ts To Bear In Mind Prior To Getting Your Mortgage Loan

How can a fully approved loan get denied for funding after the borrower has signed loan docs?

Simple, the underwriter pulls an updated credit report to verify that there hasn’t been any new activity since original approval was issued, and the new findings kill the loan.

This generally won’t happen in a 30 day time-frame, but borrowers should anticipate a new credit report being pulled if the time from an original credit report to funding is more than 60 days.

Purchase transactions involving short sales or foreclosures tend to drag on for several months, so this approval / denial scenario is common.

It’s An Ugly Cycle:

  1. First-Time Home Buyer receives an approval
  2. Thinks everything is OK
  3. Makes a credit impacting decision (new car, furniture, run up credit card balance)
  4. Funder pulls new credit report and denies the loan

In the hopes of stemming the senseless slaughter of perfectly acceptable approvals, we’ve developed a “Ten credit do’s and don’ts” list to help ensure a smoother loan process.

These tips don’t encompass everything a borrower can do prior to and after the Pre-Approval process, however they’re a good representation of the things most likely to help and hurt an approval.

Ten Credit Do’s and Don’ts:

DO continue making your mortgage or rent payments

Remember, you’re trying to buy or refinance your home – one of the first things a lender looks for is responsible payment patterns on your current housing situation.

Even if you plan on closing in the middle of the month, or if you’ve already given notice, continue paying that rent until you’ve signed your final loan documents.

It’s always better to be safe than sorry.

DO stay current on all accounts

Much like the first item, the same goes for your other types of accounts (student loans, credit cards, etc).

Nothing can derail a loan approval faster than a late payment coming in the middle of the loan process.

DON’T make a major purchase (car, boat, big-screen TV, etc…)

This one gets borrowers in trouble more than any other item.

A simple tip: wait until the loan is closed before buying that new car, boat, or TV.

DON’T buy any furniture

This is similar to the previous, but deserves it’s own category as it gets many borrowers in trouble (especially First-Time Home Buyers).

Remember, you’ll have plenty of time to decorate your new home (or spend on your line of credit) AFTER the loan closes.

DON’T open a new credit card

Opening a new credit card dings your credit by adding an additional inquiry to your score, and it may change the mix of credit types within your report (i.e. credit cards, student loans, etc).

Both of these can have a negative impact on your score, and could result in a denial if things are already tight.

DON’T close any credit card accounts

The reverse of the previous item is also true. Closing accounts can have a negative impact on your score (for one – it decreases your capacity which accounts for 30% of your score).

DON’T open a new cell phone account

Cell phone companies pull your credit when you open a new account. If you’re on the border credit-wise, that inquiry could drop your score enough to impact your rate or cause a denial.

DON’T consolidate your debt onto 1 or 2 cards

We’ve already established that additional credit inquiries will hurt your score, but consolidating your credit will also diminish your capacity (the amount of credit you have available), resulting in another hit to your credit.

DON’T pay off collections

Sometimes a lender will require you to pay of a collection prior to closing your loan; other times they will not.

The best rule of thumb is to only pay off collections if absolutely necessary to ensure a loan approval. Otherwise, needlessly paying off collections could have a negative impact on your score.

Consult your loan professional prior to paying off any accounts.

DON’T take out a new loan

This goes for car loans, student loans, additional credit cards, lines of credit, and any other type of loan.

Taking out a new loan can have a negative impact on your credit, but also looks bad to underwriters and investors alike.

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Follow these Do’s and Don’ts for a smoother mortgage approval and funding process.

Just remember the simple tip: wait until AFTER the loan closes for any major purchases, loans, consolidations, and new accounts.

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Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Although every situation is unique, it is not uncommon for homebuyers to qualify for a mortgage on a new home while still living in their primary residence.

Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer?  Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:

So, Do I Have To Sell?

Yes. No. Maybe. It depends.

Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.

If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is Yes!

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What If I Rent My Current Property?

This scenario presents the “maybe” and the “it depends” answers to the question.

If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.

In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.

So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.

Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.

Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.

Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.

Keep in mind, this reserve requirement is incremental to your down payment on the new property.

What If I Can’t Qualify Based On Both Mortgage Payments?

This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.

If you are in this situation, then you will have to sell your current home before buying a new one.

If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in your neighborhood.

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As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.

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How Much Can I Afford?

How much mortgage money can I qualify to borrow?

This is typically the number one question mortgage professionals are asked by new clients.

Of critical importance when considering mortgage financing: There is sometimes a difference between what a client ***can*** borrow and what they ***should*** borrow.

In other words, what makes for a comfortable long-term mortgage payment?

The Quick Answer:

If we’re simply considering the financial math, lenders will calculate your Debt-to-Income Ratio and generally allow for 28-31% of your gross income to be used for the new house payment with up to 43% of your gross income to be used for all consumer related debts combined.

Sample Mortgage Scenario:

Let’s use a gross monthly income of $3000 and a qualifying factor of 30% Debt-to-Income Ratio:

$3000 multiplied by .3 (30%) = $900 max monthly mortgage payment

This means that your mortgage payment (Principal, Interest, Taxes, Hazard Insurance) cannot exceed $900 a month.

“Ballparking” a Qualifying Loan Amount:

Simple step:  We use a safe average of $7 per month in payment for every $1000 in purchase price so…

Step 1)  $900 a month divided by $7 = $128.50

Step 2) $128.50 multiplied by 1000 = $128,500 loan amount.

Remember, these are average ratios and guidelines set by most lenders for common mortgage programs.

Keep in mind, while most consumer debts are listed on a credit report, there are some additional monthly liabilities that may contribute to the overall qualifying percentages as well.

Regardless of how your personal income and credit scenarios factor in, it is important to consider your overall budget when trying to determine how much of a mortgage you should qualify for.

Other items to consider in your monthly budget:

1. Confirm all debts are taken into account
2. Any private notes or family loans
3. Short-term expenses – medical, auto repairs, travel, emergencies
4. Plan on additional expenses for the home such as water, electric, maintenance, etc…
5. Keep a cushion for savings and financial planning

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Ten Things You Can Do To Protect Your Identity

Facts About Identity Theft:

It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen.

The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).

And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.

What Is Identity Theft?

According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.

Victims of identity theft can spend months trying to restore their good name. And most victims do not realize it has happened until they get denied for a mortgage or a credit card.

Ten Ways to Protect Your Identity:

1.  Dumpster Diving –

Avoid “dumpster diving” by shredding all papers that contain any personal information.

Criminals sift through trash looking for the following:

-Bank Statements
-ATM Receipts
-Canceled Checks
-Credit Card Statements
-Credit Card Purchase Receipts
-Credit Card Solicitations (unopened “pre-approval” solicitations)
-Pay Stubs
-Tax Documents
-Utility Bills
-Expired Identification Cards (Drivers License, Passports…)
-Expired Credit Cards
-Medical Statements
-Insurance Documents

2. Personal Info / Phone Calls –

Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.

If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.

You should then call the company using the customer service number the company provides with your account statement. Do NOT call the number you were given by the caller.

To reduce the number of solicitations you receive, you can sign up at the do not call registry:

web: http://www.donotcall.gov
call: (888) 382-1222

3. Look Over Your Shoulder –

Avoid “Skimming and shoulder surfing” (Never let your credit card out of your sight).

Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.

According to Wikipedia:

“Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.”

Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card. They may also be listening for your credit card number.

4. Secure Your Mail –

Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.

Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.

-Get a P.O. Box.
-Lock Your Mail Box

Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.

5. Read Credit Card Statements –

Review account statements to make sure you recognize the purchases listed before paying the bill.

If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.

The quicker you spot any unauthorized activity, the sooner you can notify the creditor.

6. Monitor Credit Report –

Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately.

7. Email Links –

Never click on a link provided in an email if you believe it to be fraudulent.

Keep in mind, no financial institution will ask you to verify your information via email.

Criminals may link you to phony “official-looking” web site to confirm your personal information. This is known as “phishing”.

According to Wikipedia:

“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.

8. Opt Out –

Opt out of credit card solicitations. (Take your name off marketers’ hit lists)

You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.

You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:

Experian
Equifax
Trans Union

9. Safeguard Your Social Security Number –

Protect your Social Security number.

Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.

Do not put your Social Security number or driver’s license number on any checks you may write.

Only give out your Social Security number when absolutely necessary.

10. Read Privacy Policies –

Find out what company privacy policies are (know who you are dealing with).

When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy is.

Inquire as to why it is being asked for.

Ask who has access to your number.

Ask if you can arrange for them not to share your information with anyone else.

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Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?

While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.

Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.

However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.

A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.

Credit Trade Line / Approval Bullets:

  • Banks usually won’t count a trade line that is less than 12 months old.
  • The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
  • Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.

Exceptions to Trade Line Rules:

Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:

Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’

Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.

Another exception to this rule is if you have no FICO score, and no negative trade lines.

In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.

Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors.  A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.

*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof.  Lenders will need canceled checks and / or copies of bank statements to start out with.

Since not all companies report to credit bureaus, it’s possible to get a free credit report at AnnualCreditReport.com to verify your total reported trade lines.

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Alternate Sources For Establishing Credit

While the basic Rule-of-Thumb for acceptable credit history is a minimum of four trade lines documented on a credit report, there are alternative methods of building a credit picture that an underwriter can use to make a decision for a loan approval.

For potential home buyers with little or no credit history, keeping records for 12 months of paying bills on time is essential for mortgage loan approval. In fact, loan officers will appreciate receiving proof that you have paid a variety of accounts regularly and on time. Even if you do not have a credit history, or your credit report isn’t as good as it could be, this may enable you to get a mortgage.

The industry term for this is “thin credit.”

Some loan types, namely FHA and USDA, will accept alternative credit sources in order to establish proof of financial responsibility.

Alternative credit is unreported to the bureaus, but will still be verified and can be instrumental in a home loan approval.

Those with thin credit don’t usually have bad credit, but have just not had an opportunity to build enough traditional credit, such as bank/store credit cards, auto loans, etc.

Alternative Sources for Building Credit:

  • Rental History – Canceled checks and letter from property management company
  • Medical Bills – 12 months of statements from medical billing company showing paid as agreed
  • Utilities – power, gas, water, cable, cell phone
  • Auto Insurance
  • Health / Life Insurance – as long as it’s not auto-deducted from pay check

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What's The Difference Between A Single Family, Second Home and Investment Property?


When applying for a mortgage, a borrower’s “Occupancy Type” is a major factor in the amount of down payment required, loan program available and mortgage interest rate.

Whether you are purchasing, doing a rate/term refinance or taking equity out of your property through a cash out refinance, occupancy type is always considered by the underwriter.

Three Types of Occupancy:

Owner Occupied / Primary Residence –

According to HUD, a principal residence is a property that will be occupied by the borrower for the majority of the calendar year.

At least one borrower must occupy the property and sign the security instrument and the mortgage note for the property to be considered owner-occupied.

Second Home –

To qualify as a second home, the property typically must be at least 50 miles from the primary residence, and it cannot appear that the real estate is being purchased for rental investment purposes.

Investment Property –

A property that is not occupied by the owner and is typically utilized for rental income purposes.

Down Payment Requirements:

Owner Occupied / Primary Residence –

Purchases for VA and USDA can go up to 100% financing, while FHA requires 3.5% of the purchase price as a down payment.  Conventional financing may require anywhere from 5% – 25% depending on the credit score, county, property type and loan amount.

Second Home –

Average 10% down for a purchase, and 25% equity for a refinance.

Investment Property –

Down payment requirements will range from 20-25% depending on the number of units.  When doing a cash-out refinance on an investment property with 2-4 units, the required loan to value will need to be 70% or lower to qualify.

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*It should be noted that on any high balance loan amount the above mentioned Loan-to-Value (LTV) requirements will change. Credit score requirements also apply.

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What's My Debt-to-Income (DTI) Ratio?

Debt-to-Income (DTI) is one of the many new mortgage related terms many First-Time Home Buyers will get used to hearing.

DTI is a component of the mortgage approval process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities.

Debt-to-Income Ratios are designed to give guidance on acceptable levels of debt allowed by particular lenders or programs.

There are actually two different Debt-to-Income Ratios that underwriters will review in order to determine if a borrower’s monthly income is sufficient to cover the responsibility of a mortgage according to the particular lender / mortgage program guidelines.

Most loan programs allow for a Total DTI of 43% and a Housing DTI of 31%.

Two Types of DTI Ratios:

a) Front End or Housing Ratio:

  • Should be 28-31% of your gross income
  • Divide the estimated monthly mortgage payment by the gross monthly income

b)  Back End or Total Debt Ratio:

  • Should be less than 43% of your gross monthly income
  • Divide the estimated house payment plus all consumer debt by the gross monthly income

Remember, the DTI Ratios are based on gross income before taxes.  Lenders also prefer to use W2’s or tax returns to verify income and employment.

However, the adjusted gross income is used to calculate DTI for self-employed borrowers on most loan programs.  Since there is room for interpretation on these guidelines, it’s important to review your personal income / employment scenario in detail with your trusted mortgage professional to make sure everything fits within the guidelines.

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Calculating Loan-to-Value (LTV)

Understanding the definition of Loan-to-Value (LTV), and how it impacts a mortgage approval, will help you determine what type of loan amount and program you may qualify for.

Since the LTV Ratio is a major component of getting approved for a new mortgage, it’s a good idea to learn the simple math of calculating the amount of equity you may need, or down payment to budget for in order to qualify for a particular loan program.

The LTV Ratio is calculated as follows:

Mortgage Amount divided by Appraised Value of Property = Loan-to-Value Ratio

*On a purchase transaction for a residential property, the LTV is calculated using the lesser of either the purchase price or appraised value.

For Example:

Sally qualifies for a 96.5% Loan-to-Value FHA program, which means she’ll have to bring in 3.5% as a down payment.

If the purchase price is $100,000, then a 96.5% LTV would = $96,500 loan amount. And, the 3.5% down payment would be $3,500.

$96,500 (Mortgage Amount) / $100,000 (Purchase Price) = .965 or 96.5%

In addition to determining what mortgage programs are available, LTV also is a key factor in the amount of mortgage insurance required to protect the lender from default.

On a conventional loan, mortgage insurance is usually required if you have an LTV over 80% (one loan is more than 80% of the home’s appraised value). On that point, if you are currently paying mortgage insurance and think that your LTV is less than 80%, then it may be time to refinance, or call your lender to restructure the payment.

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Frequently Asked LTV Questions:

Q:  Why do the lenders care about Loan to Value?

Lenders care about the LTV because it helps determine the exposure and risk they have in lending on a certain property. Statistics show that borrowers with a lower LTV are less likely to default on their mortgage.  Also, with a lower LTV the lender will lose less money in case of a foreclosure.

Q:  Can I drop my mortgage insurance on an FHA loan?

The mortgage insurance on an FHA loan is structured differently than a conventional loan. On a 30 year fixed FHA loan, the monthly mortgage insurance can be removed after five years, as well as when the borrower’s loan is 78% LTV.

Q:  What does CLTV stand for?

CLTV stands for Combined Loan To Value. The CLTV calculation is as follows:
(1st Mortgage Amount + 2nd mortgage amount) / Appraised Value of Property = CLTV

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