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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

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.

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.

As 2018 begins there are a number of significant changes in the mortgage world that are noteworthy.

MAXIMUM MORTGAGE AMOUNTS

The maximum loan amount has been increased for Conventional mortgages, FHA mortgage, and VA mortgages. This is beneficial as prices have increased in the Metro Denver area.  This will ensure that these mortgage programs continue to be widely available and not force borrowers into Jumbo mortgages, which are generally harder to qualify for.

The maximum mortgage amounts in Colorado for Conventional mortgages are as follows:

  1. $529,000 in Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park counties.
  2. $578,450 in Boulder County;
  3. $625,500 in Lake, Routt, San Miguel and Summit counties;
  4. $636,150 in Eagle County;
  5. $679,650 in Garfield and Pitkin County; and
  6. $453,100 in every other county in Colorado.

The maximum FHA mortgage amounts in 2018 are

  1.  $529,000 in Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park counties
  1. $578,450 in Boulder County
  2. $634,800 in Routt County
  3. $679,650 in Eagle, Garfield, Pitkin, San Miguel and Summit
  4. In other counties the limits range from $294,515 to $425,000

The maximum VA mortgage amount in 2018 is that same as for conventional mortgages. However, with a sufficient down payment it is possible to exceed the VA maximum mortgage amount.

STUDENT LOANS

There have been several changes to the way student loans are treated. One of the biggest changes is to allow income based payments to be used in underwriting even if they are nominal. Formerly it was required that the payments used in underwriting had to equal 1% of the loan balance. This is a positive change for borrowers.

DEBTS PAID BY A THIRD PARTY

Previously if the monthly payment on a debt was paid by someone other than the borrower it was still required that the payment be counted against the borrower unless it was for a mortgage or a car loan. This rule has been changed so that beginning in 2018 if documentation is provided to show that a person other than the borrower has been making payments for the previous 12 months then the payment does not have to be counted against the borrower. This is a positive change as well.

APPRAISAL WAIVERS

AS 2017 progressed appraisal waivers became more common on certain types of transactions. When granted these waivers save the borrower the cost of the appraisal ($500 to $700) in Colorado and the save time.  The processing time for a mortgage is shorter when an appraisal waiver has been granted.

The situations where appraisal waivers are more common are situations where the borrower has a down payment of 20% or more on a purchase or the borrower is doing a rate and term refinance (no cash back) and they have a current conventional mortgage. The other factor that is hard to quantify is how much date Freddie Mac and Fannie Mae have on the property being financed.

The determination of whether a property is eligible for an appraisal waiver is determined at the beginning of the underwriting process.