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Assuming another’s VA loan is an intriguing benefit with VA loans. Here we take a look at what an assumption is, the process and who can assume a VA loan.
Assuming a VA loan is a lending process where a borrower takes over or “assumes” a Veteran’s current home loan. VA loan assumptions transfer the existing loan’s balance, the interest rate and the monthly mortgage payments. The assuming party does not have to be a Veteran.
The federal regulator of Fannie Mae and Freddie Mac unveiled a new program Wednesday aimed at helping more households lock in historically low interest rates, targeting lower-income borrowers who have missed out on the refinancing boom of the past year.
The Federal Housing Finance Agency, which oversees the two government-controlled mortgage giants, announced plans to ease credit requirements, simplify documentation and waive certain fees for borrowers seeking to refinance their loans. The program is expected to get off the ground by the summer.
“Last year saw a spike in refinances, but more than 2 million low-income families did not take advantage of the record low mortgage rates by refinancing,” FHFA Director Mark Calabria said.
To benefit from the changes, borrowers would need to make 80% or less of their area’s median income and not have missed more than one mortgage payment in the past 12 months. The program only applies to borrowers with existing loans backed by the mortgage giants and it will be up to lenders to participate in it.
Mr. Calabria said in an interview that the program might help borrowers who suffered a decline in income during the pandemic and who wouldn’t have otherwise qualified for refinancing due to the companies’ underwriting requirements. FHFA estimates that borrowers who take advantage of the new refinance program could save an average of between $100 and $250 a month.
Fannie and Freddie don’t make home loans. Instead, they buy mortgages and package them into securities, which they sell to investors. Their promise to make investors whole in case of default underpins the popular 30-year fixed-rate mortgage.
Despite the pandemic, 2020 brought good news for the mortgage market. The 30-year fixed mortgage rate fell below 3% in July and stayed there for months.
Low rates spurred about 8.8 million homeowners to refinance in 2020, according to Black Knight Inc., a mortgage-technology and data company. Of those, 6.1 million refinanced into loans backed by Fannie and Freddie.
Yet borrowers with less-than-pristine credit—who tend to be lower income—have had trouble refinancing. Mortgage credit availability, a measure of lenders’ willingness to issue mortgages, is near its lowest level since 2014, according to the Mortgage Bankers Association.
The tight lending environment illustrates a growing cleavage in the market: Business is booming for mortgage lenders, but their loans are almost exclusively for borrowers with excellent credit histories, especially for those backed by Fannie and Freddie.
In January 2019, 29.3% of Fannie Mae refinancings were for borrowers with credit scores below 700, according to the Urban Institute. That share dropped to 14.8% in January 2020 and to 9.4% in January 2021. The best rates for loans backed by the companies are generally for borrowers with credit scores above 740.
“Tight credit is a major barrier for many borrowers who want to refinance their mortgages, even though they already have a loan and the rate reduction would make borrowing less risky,” the Urban Institute’s Laurie Goodman and Edward Golding wrote this month.
Democratic lawmakers, consumer advocates and industry officials have pressed FHFA officials in recent months to help lower-income borrowers.
“As rates have fallen, lower income and lower credit score borrowers who may disproportionately benefit from savings on their mortgage seem to be the least likely to receive low-rate refinance loans,” Ohio Sen. Sherrod Brown and a group of Senate Democrats wrote in a November letter to Mr. Calabria.
Among other benefits in the new program, borrowers with loan balances at or below $300,000 wouldn’t have to pay a modest refinancing surcharge imposed by Fannie and Freddie in December. They would also receive an appraisal credit of as much as $500.
Consumer advocates and housing experts welcomed the relief but said it was an open question how many borrowers it would benefit. Some questioned why borrowers would need credit approval for a refinancing, since Fannie and Freddie already own the risk of their loan. Others said that borrowers in a forbearance plan—which allows them to skip monthly payments and make them up later—probably wouldn’t qualify for the new program, though they may still be eligible for a conventional refinancing.
“This is a good start,” said Ms. Goodman. “It seems that the streamline refinance program could have been more expansive and encompass more borrowers.”
Article source: https://www.realtor.com/news/real-estate-news/mortgage-refinancing-initiative-to-help-lower-income-borrowers/.
Getting a mortgage, paying your mortgage, refinancing your mortgage: These are all major undertakings, but during a pandemic, all of it becomes more complicated. Sometimes a lot more complicated.
But make no mistake, home buyers are still taking out and paying down mortgages during the current global health crisis. There have, in fact, been some silver linings amid the economic uncertainty—hello, record-low interest rates—but also plenty of changes to keep up with. Mortgage lending looks much different now than at the start of the year.
Whether you’re applying for a new mortgage, struggling to pay your current mortgage, or curious about refinancing, here’s what mortgage lenders from around the country want you to know.
First, the good news about mortgage interest rates: “Rates have been very low in recent weeks, and have come back down to their absolute lowest levels in a long time,” says Yuri Umanski, senior mortgage consultant at Premia Relocation Mortgage in Troy, MI.
That means this could be a great time to take out a mortgage and lock in a low rate. But getting a mortgage is more difficult during a pandemic.
“Across the industry, underwriting a mortgage has become an even more complex process,” says Steve Kaminski, head of U.S. residential lending at TD Bank. “Many of the third-party partners that lenders rely on—county offices, appraisal firms, and title companies—have closed or taken steps to mitigate their exposure to COVID-19.”
Even if you can file your mortgage application online, Kaminski says many steps in the process traditionally happen in person, like getting notarization, conducting a home appraisal, and signing closing documents.
As social distancing makes these steps more difficult, you might have to settle for a “drive-by appraisal” instead of a thorough, more traditional appraisal inside the home.
“And curbside closings with masks and gloves started to pop up all over the country,” Umanski adds.
If you’ve lost your job or been furloughed, you might not be able to buy your dream house (or any house) right now.
“Whether you are buying a home or refinancing your current mortgage, you must be employed and on the job,” says Tim Ross, CEO of Ross Mortgage Corp. in Troy, MI. “If someone has a loan in process and becomes unemployed, their mortgage closing would have to wait until they have returned to work and received their first paycheck.”
Lenders are also taking extra steps to verify each borrower’s employment status, which means more red tape before you can get a loan.
Normally, lenders run two or three employment verifications before approving a new loan or refinancing, but “I am now seeing employment verification needed seven to 10 times—sometimes even every three days,” says Tiffany Wolf, regional director and senior loan officer at Cabrillo Mortgage in Palm Springs, CA. “Today’s borrowers need to be patient and readily available with additional documents during this difficult and uncharted time in history.”
Economic uncertainty means lenders are just as nervous as borrowers, and some lenders are raising their requirements for borrowers’ credit scores.
“Many lenders who were previously able to approve FHA loans with credit scores as low as 580 are now requiring at least a 620 score to qualify,” says Randall Yates, founder and CEO of The Lenders Network.
Even if you aren’t in the market for a new home today, now is a good time to work on improving your credit score if you plan to buy in the future.
“These changes are temporary, but I would expect them to stay in place until the entire country is opened back up and the unemployment numbers drop considerably,” Yates says.
The CARES (Coronavirus Aid, Relief, and Economic Security) Act requires loan servicers to provide forbearance (aka deferment) to homeowners with federally backed mortgages. That means if you’ve lost your job and are struggling to make your mortgage payments, you could go months without owing a payment. But forbearance isn’t a given, and it isn’t always all it’s cracked up to be.
“The CARES Act is not designed to create a freedom from the obligation, and the forbearance is not forgiveness,” Ross says. “Missed payments will have to be made up.”
You’ll still be on the hook for the payments you missed after your forbearance period ends, so if you can afford to keep paying your mortgage now, you should.
To determine if you’re eligible for forbearance, call your loan servicer—don’t just stop making payments.
If your deferment period is ending and you’re still unable to make payments, you can request delaying payments for additional months, says Mark O’ Donovan, CEO of Chase Home Lending at JPMorgan Chase.
After you resume making your payments, you may be able to defer your missed payments to the end of your mortgage, O’Donovan says. Check with your loan servicer to be sure.
Current homeowners might be eager to refinance and score a lower interest rate. It’s not a bad idea, but it’s not the best move for everyone.
“Homeowners should consider how long they expect to reside in their home,” Kaminski says. “They should also account for closing costs such as appraisal and title insurance policy fees, which vary by lender and market.”
If you plan to stay in your house for only the next two years, for example, refinancing might not be worth it—hefty closing costs could offset the savings you would gain from a lower interest rate.
“It’s also important to remember that refinancing is essentially underwriting a brand-new mortgage, so lenders will conduct income verification and may require the similar documentation as the first time around,” Kaminski adds.
Right now, homeowners can also score low rates on a home equity line of credit, or HELOC, to finance major home improvements like a new roof or addition.
“This may be a great time to take out a home equity line to consolidate debt,” Umanski says. “This process will help reduce the total obligations on a monthly basis and allow for the balance to be refinanced into a much lower rate.”
Just be careful not to overimprove your home at a time when the economy and the housing market are both in flux.
For more smart financial news and advice, head over to MarketWatch.
Article originally published at https://www.realtor.com/advice/finance/what-mortgage-lenders-wish-you-knew-about-home-loan-during-covid/
