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Coming up with a down payment for a home can seem overwhelming, especially to a first-time home buyer.  However, for veterans, service members, and their families there is a program designed to help them overcome this hurdle.  With a VA loan, you can put no money down and mortgage insurance is not required.

Other mortgage programs such as FHA and conventional require primary mortgage insurance if you put less than 20% down on a home.  There are other fees you need to be sure you are aware of and understand.

VA loans are not just for buying a home either.  It is possible to refinance to do renovations, pay for home improvements, or do debt consolidation.

What is a VA loan?

A VA loan is backed by the US Department of Veterans Affairs.  VA loans are not issued by the federal government.  It is a guarantee that the VA will pay the lender up to 25% of the loan amount if the loan should go into default.

It is possible in most cases to finance 100% of the home and finance the closing costs as part of the loan.

Who Qualifies?

The main requirement is to get a Certificate of Eligibility (COE) from the Department of Veterans Affairs.  Qualifying spouses of service members may also be eligible to receive a certificate of eligibility.  A Certificate of Eligibility is a document from the Department of Veterans Affairs that confirms your eligibility for the VA program.  The document details your VA loan entitlement and if you are required to pay a VA funding fee.  The following link will walk you through to get a Certificate of Eligibility: https://www.va.gov/housing-assistance/home-loans/how-to-request-coe/

Lenders will have their own credit requirements, so it is always good to check with the lender for any additional qualifying requirements.  It is always a good idea to get pre-approved so you know what you can qualify for and be sure the new obligation will fit into your budget.

What are the different types of VA Loans?

When deciding what type of loan is right for you, it is important to understand how each program works and how they match up with your situation.  We offer free consultations and would appreciate the opportunity to go over your options to see what is best for your situation.

Home Possible Mortgage by Freddie Mac

The primary goal is to make home ownership more affordable for eligible borrowers.  This program helps to remove some of the barriers to home ownership and is geared towards individuals and families with lower income who are looking to purchase a primary residence.

For many, one of the main obstacles to home ownership is the misguided belief that a down payment of 20% or more is required to purchase a home.  The Home Possible Program from Freddie Mac requires a down payment of only 3% of the purchase price.  Many potential homeowners believe that they need to have a down payment equal to 20% of the purchase price.  This simply is not true.

Other benefits of the Home Possible Mortgage by Freddie Mac are:

Contact us to learn more about this program and how it can help people become

INVESTMENT OPPORTUNITIES

A non-QM loan, or a non-qualified mortgage, is a type of mortgage that allows a borrower to qualify for a mortgage based on alternative methods, instead of traditional income verification required for Conventional Mortgages or other types of government guaranteed mortgages such as FHA and VA. These mortgages offer more flexible qualification requirements and open up real estate opportunities to a broader group of individuals.

One of the most popular newer programs is geared toward investors. Qualification is based on the rental income that a property will generate and is not based on the employment of the borrowers. This program offers the following:

·         Up to $3 million loan amounts
·         First time investors allowed
·         For borrowers who are experienced real estate investors looking to purchase investments properties or Airbnb/VRBO rentals
·         Income used to qualify based on cash-flows from property owned
·         Unlimited financed properties allowed
·         No tax returns or tax transcripts required
·         No debt ratio calculation required
·         30-year fixed rate and 30-year interest only fixed rate terms available
·         5/6, 7/6, 10/6 ARMS with interest only options

Another popular program is geared to self-employed borrowers who may not have been in business for the required two years or those where the tax returns do not accurately reflect the business income of the borrower. This program allows self-employed individuals to use 12 or 24 months’ personal or business bank statements to support their income in qualifying for a mortgage. Key Features and Benefits:

In the general the programs are geared toward borrowers who would prefer not to do a conventional mortgage or those who cannot meet the traditional qualification or documentation requirements. The type of borrower who might benefit from a non-QM loan include the following:

 

For more information on these programs or other mortgage programs we may be able to offer call Wayne, Kim, or Elizabeth at 303-468-1985.

Increasingly adult children are helping their parents with housing needs because they want to or are forced to.  There are many emotional, family, and lifestyle aspects to these issues.  However, in most cases the number one issue to be dealt with is financial.  The questions that come up are numerous:

  1. Should the house be sold, and parents rent?
  2. Can the house be sold, and parents buy more suitable housing?
  3. If parents’ income is insufficient or the parents are on a fixed income, how can the purchase of a new home, or necessary improvements to an existing home, be financed to allow the parent to remain in the home if the required funds are not readily available?
  4. Can parents afford monthly mortgage payments on their own?
  5. Is a Reverse mortgage appropriate?
  6. What will happen to the house when the parents no longer can or want to live there?

The list above is not all-inclusive but highlights many of the issues and questions that arise.

We are going to specifically talk about item number three above, and a unique program offered by both Fannie Mae and Freddie Mac that can allow an adult child to assist their parents, make a good investment and provide peace of mind.

The program allows for an adult child to purchase a home or refinance a home (and possibly get cash out) for their parents, who will live in the house, and have the transaction be treated as a primary residence even though the adult child will not live in the house.  The benefits are numerous:

  1. A lot of times the parents cannot qualify for a mortgage because they are retired, or their income is otherwise insufficient.
  2. As a primary residence the down payment required is much less than what is required on a house that is not occupied by the borrower. 5% down payment for a primary residence versus 20% down payment for an investment property.
  3. The interest rates will be lower as a primary residence.
  4. There are significant advantages if buying a condo for a house to be considered a primary residence versus an investment property.

Under this program the parents may be on the loan and the title to the property, but they are not required to be.  Not being on the loan or the title can provide significant estate planning benefits and save time and money later.  At that same time, the opportunity for the adult child to make a sound investment while also assisting their parents is very compelling.

Also, it is noteworthy that the same program is available for a parent who wants to purchase or refinance a home that will be occupied by a physically handicapped or disabled child.

For more information on this great program please contact us.

Increasingly adult children are helping their parents with housing needs because they want to or are forced to.  There are many emotional, family, and lifestyle aspects to these issues.  However, in most cases the number one issue to be dealt with is financial.  The questions that come up are numerous:

  1. Should the house be sold, and parents rent?
  2. Can the house be sold, and parents buy more suitable housing?
  3. If parents’ income is insufficient or the parents are on a fixed income, how can the purchase of a new home or necessary improvements to an existing home be financed to allow the parent to remain in the home if the required funds are not readily available?
  4. Can parents afford monthly mortgage payments on their own?
  5. Is a Reverse mortgage appropriate?
  6. What will happen to the house when the parents no longer can or want to live there?

The list above is not all-inclusive but highlights many of the issues and questions that arise.

We are going to specifically talk about item three above, and a unique program offered by both Fannie Mae and Freddie Mac that can allow an adult child to assist their parents, make a good investment and provide peace of mind.

The program allows for an adult child to purchase a home or refinance a home (and possibly get cash out) for their parents, who will live in the house, and have the transaction be treated as a primary residence even though the adult child will not live in the house.  The benefits are numerous:

  1. A lot of times the parents cannot qualify for a mortgage because they are retired, or their income is otherwise insufficient;
  2. As a primary residence the down payment required is much less than what is required on a house that is not occupied by the borrower. 5% down payment for a primary residence versus 20% down payment for an investment property;
  3. The interest rates will be lower as a primary residence;
  4. There are significant advantages if buying a condo for a house to be considered a primary residence versus an investment property.

Under this program the parents may be on the loan and the title to the property, but they are not required to be.  Not being on the loan or the title can provide significant estate planning benefits and save time and money later.  At that same time the opportunity for the adult child to make a sound investment while also assisting their parents is very compelling.

Also, it is noteworthy that the same program is available for a parent who wants to purchase or refinance a home that will be occupied by a physically handicapped or disabled child.

This program is available to anyone who meets the qualification criteria.  If further information is desired, please contact us.

 

A Non-QM mortgage is a Non-Qualified Mortgage loan. A conventional mortgage, FHA, or VA loan are all considered qualified mortgage loans. In 2014, the Consumer Finance Protection Bureau (CFPB) adopted new rules that defined qualified mortgages (QM). This gave mortgage lenders protection on loans that met standards set by the federal government. This reduced the risk with fewer mortgages ending up being delinquent or in foreclosure. Also, the CFPB began the Ability to Repay minimum standards. After the new CFPB rules were adopted, loans that did not stick to QM standards were found to be non-QM loans.

A loan that is non-QM is not necessarily a higher risk loan. It just means that loan does not follow the QM definition. Generally, non-QM loans are designed today to offset some of the risks of the past.

The following are good examples of non-QM loans today:

Why Non-QM Loans and Non-Traditional Mortgages Are Coming Back

Non-QM loans are becoming easier to get as the fiscal crisis recedes in the rear-view mirror. They are a good financial tool because they help people who cannot otherwise qualify for a conventional, FHA, or VA loan to get a mortgage. These programs allow for alternate documentation for income, allow for lower credit scores, and can be more forgiving of negative credit events. Because these loans carry more risk, they tend to have higher interest rates. You will see rates range 1% to 4% above conventional interest rates depending on specific circumstances. But for some, this will not be a hinderance because it allows them to accomplish their goals.

For more information on the mortgage options that are currently available, contact us and we can work with you to evaluate all your options and identify the mortgage that fits your situation.

Fixed rate mortgages have been coming down in recent weeks, but more borrowers are starting to look to adjustable rate mortgages. ARMs posted the highest number of originations in December since Ellie Mae began tracking them in 2011, according to the National Association of Realtors.

With Adjustable Rate Mortgages, the interest rate is locked for a set period, such as five or seven years, and then will change based on market conditions. ARMs can provide consumers with some additional flexibility when purchasing a home because the rates and payments are lower early in the term of the loan.  ARMs also allow borrowers to take advantage of falling interest rates without having to refinance.    This can also be a more affordable way for borrowers to purchase a home who do not plan on living in the home for 20 to 30 years, which most people do not.  The dream for homeownership is still alive and well and is still a possibility for borrowers in many types of situations.

Reverse Mortgages are not well understood by many homeowners, financial planners, investment advisors, accountants or attorneys. As a result, they do not understand that Reverse Mortgages can provide the following benefits:

  1. Supplement and manage retirement income and increase monthly/annual cash flow;
  2. Maintain and build wealth in retirement;
  3. Free up capital when purchasing a new home in retirement;
  4. Manage tax liabilities more efficiently and at a lower overall cost;
  5. Ability for people to remain in their home without financial fear of being forced to move;
  6. Provide significant benefits for surviving spouses;
  7. Offering a source of capital and liquidity for needs such as home improvements, healthcare costs and possibly long-term care.

The frame of reference most people have for a Reverse mortgage is from 10 to 15 years ago. Beginning in 2012 and continuing through 2018, Reverse mortgages have transformed from a product of last resort to a key component of an individual retirement income strategy. People attempt to compare a Reverse mortgage to other mortgage products when in fact they are more akin to insurance or a financial product that can provide capital and liquidity in retirement. Lastly, a Reverse mortgage can provide the peace of mind that a homeowner can remain in their current home for as long as they want.

The following are examples of how people use Reverse Mortgages as a financial planning and long-term care tool and some of the benefits they derive:

  1. Pay off an existing mortgage thereby eliminating the monthly principal and interest payments. This results in a monthly and annual increase in cash flow;
  2. Ability of surviving spouse to remain in the home indefinitely without the financial burden caused by losing half of the household income (in many cases more);
  3. Create a tenure or term payment to supplement income;
  4. Use a Reverse Mortgage to delay receiving Social Security to age 67-70 thereby increasing the monthly Social Security benefit going forward;
  5. Maintain a line of credit that grows for emergencies (such as medical expenses);
  6. Avoid capital gain tax consequences of having to sell other assets to fund retirement;
  7. Create and maintain financial flexibility by not being forced to liquidate investments in a market downturn;
  8. Ability to cover expenses so that other assets can remain invested and grow;
  9. Fill in gaps in retirement planning caused by lower than expected returns;
  10. Eliminate other debts;
  11. Purchase a new home without having to tie up cash that could otherwise be invested and grow over time;
  12. Fund health insurance and/or long-term care needs;
  13. Fund health/medical related needs which can enable people to live in their home longer;
  14. Pay for in-home care or physical therapy following an accident or other medical event;
  15. Re-model a home to accommodate aging limitations in order to remain in the home;
  16. Convert a room or basement to a living facility for an in-home caregiver;
  17. Assist children or other relatives through family emergencies;
  18. Use to fund a child’s or grandchild’s education; and
  19. Assist a child or grandchild with a home purchase.

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If you are interested in finding out about some of the common myths and inaccuracies that circulate regarding Reverse mortgages, click on this link for another article that outlines the Myths vs. Facts of Reverse mortgages. If you have an interest in discussing Reverse mortgages, contact Wayne Tucker at 303-468-1985 or at wtucker@spectramortgage.com.

As housing prices continue to rise in Colorado many home buyers are looking at mortgage products outside of traditional conventional mortgage and the FHA or VA program.  Each of these traditional programs have caps on the maximum mortgage amount and borrowers need higher loan limits.

In the Denver Metro area, the maximum mortgage amount for a conventional mortgage is $529,000.  If a home buyer is seeking a mortgage that is more than this amount there are multiple strategies that we look at depending on their profile, their goals and the down payment they have.

Now there is an additional option.  A new jumbo mortgage program has been introduced that makes it easier for people to obtain a high balance mortgage in excess of the conforming loan limits.  Additionally, jumbo mortgages historically have been harder to qualify for and have required a 20% down payment whereas this program relaxes both of those requirements.  The primary features of this new jumbo mortgage program are:

  1. Purchase or refinance loan amount up to $2 million;
  2. A down payment as low as 5% with no mortgage insurance required;
  3. Interest only payment options;
  4. Higher debt ratios than most Jumbo programs;
  5. A relaxation of other underwriting criteria that most Jumbo mortgage programs have.

This jumbo program provides financial flexibility to home buyers who would rather not tie up all their capital in a new home and can allow them to deploy that capital to other investments if desired.

If you or someone you know is interested in finding out about this program or some of the other new mortgage products that have come out in the last couple of years give us a call.  We would be happy to discuss all of your options and alternatives.

MORTGAGE PROGRAM SPOTLIGHT

Starting with this newsletter, we are going to highlight a mortgage product that we believe offers unique value or benefits. What better place to start than with a Veterans Administration (VA) mortgage.

What is it?

The Veterans Administration guarantees mortgages for those who have served or are presently serving in the U.S. military. The VA does not lend money for VA loans, instead it guarantees the repayment of mortgages made by private lenders (banks, savings and loans, or mortgage companies) to veterans, active military personnel, and military spouses who qualify.

Who is Eligible for a VA mortgage?

VA mortgages are for active military personnel, veterans, and military families who wish to purchase or refinance their primary residence. The list of those who are eligible include:

In order to be eligible, a valid Certificate of Eligibility (COE) must be obtained from the VA, and you must use the home for your own personal occupancy.

What makes the VA program a good mortgage program?

The VA program offers some of the most attractive and flexible loans available. The two primary benefits are: 1) there is no down payment required (i.e. $0 down payment); and 2) monthly mortgage insurance is not required to be paid.

In addition to these benefits following are other benefits that are unique to VA loans:

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For more information on VA mortgages you can go to the site below or call and speak with a loan officer. It is a great mortgage program.

https://benefits.va.gov/HOMELOANS/purchaseco_eligibility.asp

MAJOR ANNOUNCEMENT

As of March 2018, Spectra Mortgage can now offer Reverse Mortgages to its clients. More importantly, we are now positioned to provide our clients the information they will need to evaluate all their mortgage and financial options when it comes to managing their largest asset.

Wayne is looking forward to using his financial background as a Certified Public Accountant with over 25 years of experience providing tax and financial advice and over 13 years in the mortgage industry providing mortgage and real estate finance advice.

Like a lot of financial products, Reverse Mortgages have their place as a financial planning tool. As the population ages, more people will want to understand and evaluate whether a Reverse Mortgage is right for their situation.  Of course, getting an honest and fair evaluation without sales pressure from a trusted advisor can be an obstacle, since many people who are interested in finding out their options don’t feel comfortable calling a call center 800 number.

Starting now, if you, your friends, or your family are interested in getting educated about Reverse Mortgages and finding out what the pros and cons are, Spectra Mortgage will be a great resource to obtain the information needed. We can talk to you about your mortgage options from your first mortgages to your last mortgage and every option in between.  We can also work with your other advisors including family, accountants, financial planners and attorneys where necessary to help you manage your largest asset.

Our approach will be the same as you have experienced in the past. We provide our clients the information they need to make sound financial decisions.

If you have any mortgage needs or questions about Forward or Reverse Mortgages contact Kim Renquest or Wayne Tucker today.

If you are self-employed and have ever applied for a mortgage, you know it can be extremely difficult to explain your income and provide all the required documents. From a mortgage perspective, the main difference between someone that is self-employed versus someone who is an employee is how income is determined.

Most self-employed people do not receive a W-2. As a result, lenders need to rely on tax returns to verify the income of the self-employed applicant. This is a challenge for lenders for a number of different reasons.

  1. Most people want to report the least amount of taxable income that is possible, which will result in the least amount of tax owed;
  2. Determining what adjustments are allowed to be added back to income for mortgage qualification purposes;
  3. Most mortgage companies (broker and underwriters) are not tax professionals and rarely completely understand the tax laws and how they impact an individual’s tax situation and income being reported; and
  4. Many people who are self-employed, have a complex tax situation that often includes multiple tax returns – a personal return and business returns such as Schedule C’s, partnership returns, and various types of corporate returns.

Often self-employed people struggle with qualifying for a mortgage because they do not report enough income to qualify for the mortgage even though all the other characteristics of their credit profile are perfect. Self-employed business owners often claim take tax write-offs, such as depreciation and automobile expenses.  These amounts are deducted from their business income, even though they are noncash transaction. Personal expenses, such as car leases or travel and entertainment costs, are frequently covered by the business as well, so the net income reported on the tax return may not accurately reflect the true earnings of the business.

As a CPA who understands tax law, tax returns and mortgage underwriting guidelines, we can work with our self-employed clients and provide more help than most mortgage companies. Additionally, we can communicate and work directly with our client’s accountants, tax people, and financial advisors to streamline the process for our self-employed clients.  If you are self-employed and need help getting your mortgage approved, contact us.  We can help.

There are significant financial and lifestyle benefits that can occur when a homeowner obtains a mortgage that is shorter than 30 years or pays off a mortgage faster than 30 years.

HISTORY

A typical mortgage before 1930 typically had a 3 to 5-year term and did not have an amortization period. Instead, mortgages involved paying a series of interest-only payments with one large balloon payment at the end of the term, which was the entire principal of the loan.  Unless the homeowner was able to convince the lender to renew the mortgage, they typically defaulted on the loan.  This made mortgage lending risky.

The Federal Housing Administration (FHA) was created in 1934 and was built to protect lenders and reduce lending risk. FHA created a number of valuable mortgage services. They created the 30-year mortgage, created Amortization which involves paying off both interest and principal amounts with each payment and reduced the down payment required on new home sales. The FHA began offering 15 to 30-year loans, stretching out payments and making it more affordable for medium-income individuals to buy a home.

THE NUMBERS

The benefit of a mortgage with a shorter than 30-year amortization, is that less money that goes to interest and more money is applied to principal. As a result, the balance is paid down faster, and the mortgage is paid off in less time.  For example (Assume a mortgage with an original balance of $250,000).

 

Total Interest Paid                                                        After 5 Years                      After 10 Years

30 Year Mortgage                                                         53,900                                 102,200

20 Year Mortgage                                                         48,700                                 86,900

15 Year Mortgage                                                         43,600                                 72,300

As can be seen, the interest saved is significant. However, what is more noteworthy is what happens to the mortgage balance with mortgage shorter than 30 years.

Mortgage Balance                                                        After 5 Years                      After 10 Years

30 Year Mortgage                                                         227,900                              200,200

20 Year Mortgage                                                         205,800                              151,100

15 Year Mortgage                                                         182,700                              100,500

The equity build-up is much faster with a shorter mortgage term. The payments for a mortgage with a term shorter than 30 years, will be more than what is required for a 30-year mortgage.  However, the payments go to building equity in the property.

PRIMARY FINANCIAL AND LIFESTYLE BENEFITS OF PAYING OFF A MORTGAGE

  1. Paying off your mortgage can give a strong sense of financial stability;
  2. Flexibility in your monthly budget
  3. Protection against an unstable housing market and/or a loss of income
  4. Peace of mind of knowing and feeling that you are in charge of your family’s finances.
  5. The freedom to pursue other life choices

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If you want to understand the benefits of obtaining a shorter term mortgage give us a call and we can run the numbers for you to see if it fits your financial life and your long term goals.