The Mortgage Porter

Financing a "Kiddie Condo" for your College Student

A few weeks ago, I helped a Kent couple purchase a condominium located in Seattle for their daughter to live in while she attends college at Seattle University. They were prequalifed with their credit union, however the credit union was treating the transaction as if it were an investment property even though the couple (we'll call them Mr. and Mrs. Kent) were not going to rent the property.

You see most lenders require that a home be located at least 50 miles away before it can qualify as a second home.  The city of Kent is just over 20 miles away from Seattle. Some lenders may even require that a second home meet conditions that one would consider a "vacation" property. It can really boil down to the underwriters interpretation of the actual scenario.  If a home does not qualify to be treated as a second home, then it's likely to be considered an investment property which has higher interest rates, closing costs and tougher underwriting criteria.  

The Family Opportunity Mortgage is a special Fannie Mae/Freddie Mac program that we have available at Mortgage Master Service Corporation. It allows for this type of scenario to be treated as a second home as long as:

• the property is a reasonable distance from the parent's home
• the parents may not own a second (or vacation) home near the subject property
• the child is enrolled in a nearby college
• the property may not be rented or used as an investment property
• the child occupies the property for a minimum of one year

We were able to provide Mr. and Mrs. Kent with an "owner occupied" rate for the condo they purchased for their daughter where the credit union could only offer a non-owner occupied rate.

Here's what the difference would look like based on today's pricing for a condo* based on a sales price of $435,000 with an 80%* loan to value (down payment of $87,000) and 740 or higher mid-credit scores:

Family Opportunity Mortgage:

30 Year Fixed: 4.625% (apr 4.790).  Principal and interest payment (P&I) = $1789.

15 Year Fixed: 3.750% (apr 3.962).  P&I = $2531.

Non-Owner Occupied/Investment Property: 

30 Year Fixed:  5.125% (apr 5.311).  P&I = $1895.

15 Year Fixed: 4.250% (apr 4.489).  P&I = $2618.

*NOTE: Condo's have a "hit to fee" of 0.75% with conventional pricing if the loan to value is over 75% or the mortgage term is over 15 years.  An additional 5% down also helps with pricing when you are financing an investment property.

Here is the same scenario as above except with 25% down payment ($108,750):

Family Opportunity Mortgage:

30 Year Fixed: 4.375% (apr 4.544).  Principal and interest payment (P&I) = $1738.

15 Year Fixed: 3.750% (apr 3.970).  P&I = $2373.

Non-Owner Occupied/Investment Property: 

30 Year Fixed:  4.750% (apr 4.900).  P&I = $1815.

15 Year Fixed: 4.125% (apr 4.426).  P&I = $2434.

Mortgage rates quoted are effective as of 8:00 a.m. June 2, 2011.  Rates can and do change often.  For your personal rate quote on a home located anywhere in Washington, please contact me.

"Live" Interest Rate Quotes and other Mortgage Miscellany for Wednesday

Typically I post mortgage rates based on a set criteria on Mondays...however sometimes holidays or the unexpected happen, like jury duty, and I'm not able to stick to my regular routine.  This gives me the opportunity to share rates quotes that I'm actually providing to people who are considering refinancing or buying a home located in Washington state.  If you like this, you may want to follow me on Twitter where I provide "live rate quotes" frequently along with other mortgage tidbits.

8:30 a.m. quoting scenarios for a rate-term refinance using adjustable rate mortgages.  The loan to value is estimated at less than 75% and we won't know for certain until the appraisal is complete.  These rates are based on a 740 or higher mid-credit scores and owner occupied home in the greater Seattle area.  Loan amount is $368,000.  The borrower's goal is to their current monthly mortgage payment and therefore, an adjustable rate mortgage may be worth considering.

3.375% for a 5/1 ARM priced with 0 points (apr 3.396).  With CAPS of 5/2/5, the highest this rate can adjust to in 60 months is 8.375% and the lowest it can adjust to is 2.25% (the margin).  Principal and interest is $1627.

3.75% for a 7/1 ARM priced with 0 points (apr 3.543).  With CAPS of 5/2/5, the highest the rate can adjust to in 84 month is 8.75% and the lowest it can adjust to is 2.25%.  Principal and interest is $1704.

4.375% for a 10/1 ARM priced with 0 points (apr 4.014).  With CAPS of 5/2/5, the highest the rate can adjust in 120 months is 9.375% and the lowest is 2.25%.  Principal and interest payment is $1837.

If the home appraises high enough to produce a loan to value of 70% or lower, it may qualify for an interest only 30 year fixed mortgage.  For that scenario, I'm quoting 5.375% priced with 0 points (apr 5.440).  Interest only payments in the amount of $1648 are allowed for the first 120 months.  Home owner can pay towards principal...after 10 years, the mortgage is amortized for 20 years at 5.375% which would provide a principal and interest payment of $2,506.

9:14 a.m. DOW at 12005 (down about 13) and MBS are slightly negative from this morning.

Q:  What is the minimum down payment allowed for a $200,000 sales price with an FHA insured loan?

A:  $7,000.  Currently FHA allows 3.5% of the sales price as a minimum down payment and the seller can pay closing costs and prepaids.  The 3.5% down payment may be gifted from a family member.

9:30 a.m. quoting 4.750% with zero points for FHA 30 year fixedrate using 3.5% down payment for a $200,000 sales price and a mid-credit score of 650 (apr 5.534).   With this scenario, there is approx. $10,800 due at closing including down payment, closing cost, reserves and prepaids so the most the seller can contribute is $3,800 since the buyer must invest a minimum of 3.5%.  Currently the maximum a seller can contribute is 6% of the sales price which is expected to be reduced anytime to 3% - as of the time of writing this post, a mortgagee letter from HUD has not been issued reducing allowed seller closing cost contributions.

NOTE: annual FHA mortgage insurance premiums are set to increase 0.25% basis points next month.

10:12 a.m. DOW up about 13 and I'm receiving an intraday rate sheet from one of the lenders I work with featuring pricing for the worse.  The good news is that since I don't work for a bank, I work with several lenders and their rates have not adjusted.  MBS haven't budged much since my last MBS update...some lenders just react quicker than others or may have started lower this morning with their initial rate sheet than what they wanted.   Bottom line, it's nice to have options as a Correspondent Lender!

11:20 quoting 4.75% for 30 year fixed FHA (apr 5.563) $150k sales price w/3.5% down payment and seller paid closing costs for home buyer in Kent.  Main goal is to have a total mortgage payment around $1,000 - $1200 per month with $6,000 available funds for down payment.

12:00 quoting 4.875% priced w/0.75 points (apr 5.017) or 5.000% with zero points (apr 5.130) for a condo in Seattle priced at $250,000 with a 20% down payment based on 740+ credit scores.   Condos have a 0.75% hit to fee if the loan term is longer than 15 years or the down payment is less than 25%.

25% down payment with the condo purchase will provide 4.875% with 0 points (apr 5.012) for 30 year fixed closing by April 29, 2011.

12:25 DOW is up about 86 and MBS (mortgage backed securities) continue to slide down from this morning.

12:40 p.m. quoting 4.750% 30 year fixed priced w/0.5pts (apr 4.867) $416k loan amount with an 80% loan to value for home buyers in Bellevue area with 780 mid-credit scores.

12:45 p.m. quoting 4.875% 30 year fixed conforming high balance priced w/0.5pts (apr 4.985) $480k loan amount with an 80% loan to value for a home buyer in Samammish with 740+credit.

1:00 p.m. DOW closes up 67.

3:00 p.m. quoting 4.625% for a 30 year fixed FHA priced w/0.5 points (apr 5.380) for a condo priced at $250,000 with 5% down payment.  The home buyer may put 20% down towards the condo however it makes no difference in interest rate nor the rate of mortgage insurance.  FHA loans have mortgage insurance for a minimum of 60 months AND the loan balance reaching 78% loan to value. 

Reader Question: Converting Current Home to Rental

I enjoy receiving email like this from my readers:

I currently own a condo as my primary residence and am getting married soon.  The mortgage and title is in my name only.  We will soon like to look at moving to a bigger place and would apply for a mortgage on our new primary residence together while still keeping the condo to rent out.  How will this situation affect getting approved for the new loan?  Are there any changes that will need to be made to my current condo mortgage since it will no longer be my primary residence?  Thanks in advance for your help! 

Unless you're planning on refinancing your existing condo, there shouldn't be any changes that you need to make that mortgage because you are renting it out.  If you are currently refinancing or planning to refinance the condo, you should let your mortgage originator know of your intentions to use the property as an investment property.  On a side note, you may also want to check with your Home Owners Association or condominium bylaws to make sure that investment properties are allowed.

Qualifying for the new home will be impacted by the type of financing you select and the amount of home equity you have currently in the condo.  If you have less than 30% home equity, you'll need 6 months reserves for all of your mortgages (your current residence/future rental and the new home) if you're considering conventional financing or you must qualify with both mortgage payments.  FHA does not have this guideline at this time. 

In addition, if you do not have a documented current two year history as a landlord, you may find that the entire mortgage payment (including the home owners association fees) may be factored into your debt with no credit for any rental income you receive on the new home.

Lenders are looking for extra reserves and making sure that people who are leaving their current homes have enough "skin in the game" (equity) so that they're less likely to walk away from their former residence once they've closed on their new home.

By the way, if the home you're buying with your future bride is located in Washington state, I'm happy to help you with your mortgage!

 

Buying a Condo or Townhome?

Condos come in many forms including high-rises, converted apartment buildings and even some town-homes may be condominiums depending on how they are legally described.  If you're planning on buying a condo and not paying cash for your purchase, here are a few things to look out for where lenders may have an issue with.

• Owner occupancy ratio lower than 51%.  Some lenders do not consider listed units and/or second homes as owner occupied which can make reaching the 51% owner occupied a little challenging.
• Someone owning more than 10% of the units.
• Delinquent home owner association dues.
• Inadequate reserves.
• Retail space in the condominium building.
• Pending litigation with the Home Owners Association.
• Amount of FHA loans in a condominium building (if you're using FHA financing).   

If you would like a mortgage rate quote for a condo or townhome located anywhere in Washington, click here.

HUD recommends that before you sign a purchase agreement, make sure your receive and read a copy of the Declarations, Bylaws, Operating Budget, Management Agreement and other important information.

Currently, conventional financing of a condo has a 0.75% price hit if someone is using less than a 25% down payment or is using a mortgage term amortized longer than 15 years.   FHA currently does not have a price adjustment that impacts mortgage rates for condos but condos must be on their approved list.  If a condo is not on HUD's approved list and if it meets criteria, it may qualify to be added to the list. There are portfolio lenders who will provide financing for condos, however their mortgage rates tend to be higher since they're carrying the mortgage.

Here is HUD's Consumer Fact Sheet for Condominium Projects that I highly recommend you review if you are considering a condo for your next home or investment property.

Something else to keep in mind is that these potential issues may impact you should you decide to refinance your condo or sell your condo in the future.   If your Home Owners Association fails to properly manage your building, or events happen that are out of their control, you may find it challenging to find financing in the future.

Here are a few Seattle area condo blogs to check out:

The Seattle Condo Blog

urbnlivn

Seattle Condo Review

Seattle Condo and Homeowners Association Attorney

Live Mortgage Rate Quotes

Yesterday, I was not able to post my regularly scheduled "Monday Rate" post since I was on the road taking the day off to celebrate my husband's birthday.  The evening before, I treated him to the Van Morrison concert at the Gorge in George, Washington.  If you ever have the opportunity to see Van live, he's amazing.

Back to work.

As I quote rates today for homes located within Washington state, I'll update this post.  Remember, rate quotes can be like snowflakes, each one unique as different factors, including the time it's quoted, may impact the rate.   Every day, I quote rates live via Twitter.

This afternoon (around 11:15 pst), we have the FOMC meeting may move rates.  As I prepare this post (7:30 am PST), the DOW is down 108 (off it's lows).  Stay tuned.

8:30 am: Quoting 4.875% for a 30 year fixed Freddie Mac HARP refinance with a loan amount of $247,000 subordinating a second mortgage priced with 0.25% points (apr 4.999) mid-credit score is 660-679 in the Seattle area.  Loan to values are 103% for the first mortgage and 115% including the second mortgage (estimated value of the home at $240,000).   If the home appraises higher than estimated, we may be able to improve the rate...but we won't know until we have the appraisal.

8:43 am:  DOW down 85.

9:45 am:  Quoting 3.375% for a 5/1 rate-term "cash-in" refinance based on a loan amount of $301,500 and an appraised value of $335,000 (90% loan to value).  Should the home appraise higher, we can adjust the loan amount higher to reduce the cash needed to close.  Priced with 0 points and $640 in closing costs (APR 6.446%).   5/1 LIBOR ARM: 2.25% Margin with 5/2/5 caps - highest possible rate is 8.375% at 60 months.  

10:07 am:  DOW down 92

10:17 am: Quoting a 5/1 FHA rate-term "cash-in" refinance for the same Snohomish County home owner from 9:45 am:  3.500% with 0 points with 1/1/5 CAPS (APR 4.040) and an 95% loan to value (less cash at closing).  FHA can go up to 97% loan to value with a slightly increased annual mortgage insurance rate (0.55% vs 0.50%/12).  The most the rate can adjust at 60 months is 1% and the the most the FHA rate can adjust annual on the anniversary of the adjustment date is 1% with a lifetime maximum rate of 8.5%.  If the rate adjust at the highest possible every year, after the 5 year fixed period, it would take 5 years to reach 8.5% (2011 = 4.5%; 2012 = 5.5%; 2013 = 6.5%; 2014 = 7.5%; 2015 = 8.5%).   FHA insured loans may be assumable to qualified buyers.  

NOTE:  this borrower could consider waiting until HUD begins the FHA "short refinance" program...the risk is where mortgage rates may be next month, when the program starts, and IF their mortgage servicer will reduce their principal balance by at least 10%.

10:30 am:  DOW down 114 ...results of the FOMC meeting are about 45 minutes away.

11:20 am:  FOMC Statement has been released leaving the Fed Funds rate unchanged for an "extended period" of time.  DOW was down 38 and now (11:27) down 60.

11:30 am:  preparing a rate quote for a returning client from Edgewood who would like to refinance their existing 30 year fixed mortgage and are interested in possibly reducing their term.   They have excellent credit and we're assuming they have an 80% loan to value with a base loan amount of $207,000.

30 year fixed priced with 0 points @ 4.375% (apr 4.480) with a principal and interest payment of $1033.52.  Reducing monthly mortgage payment by $200.   It will take 17 months to return to their current existing principal balance of $202k.   If these home owners perfer, they can opt to not finance the closing costs (bring cash in to close).

20 year fixed priced w/0.5 points @ 4.250% (apr 4.452) with p&i of $1,281.82.  Increasing the borrowers payment by $40 per month returning to their existing principal balance in about 9 months.

15 year fixed priced with 0 points @ 3.875% (apr 4.054) with p&i of $1,518.22 increasing the borrowers payment by $280 per month returning to their existing principal balance in 6 months.

NOTE:  I'm personally "typically" in favor of home owners opting for the lower payment/longer term...depending on how much additional income and/or assets are available.   With a 30 year fixed rate, you can always pay additional towards the principal to reduce your term and interest paid over the life of the loan.  However, if something should happen (health, employment, etc) where you do not have enough income to meet your increased payment of your shorter term mortgage (like a 15 year), you do not have the option of making a "30 year payment".  Opting for a 30 year fixed rate provides more flexibility than a 15 year. 

12:12 pm: DOW down 30

1:00 pm: Quoting 4.375% for 30 year fixed rate-term refinance $399,000 loan amount 80% loan to value condo in Seattle priced with 0 points with $3,000 in closing costs (apr 4.441) does not include prepaids/reserves.  P&I = $1,992.15.  

Same scenario with a 20 year mortgage provides a rate of 4.250% (apr 4.339) with a principal and interest payment of $2,470.75.

NOTE: condo's have a price hit of 0.75% with loan to values over 75% and terms amortized over 15 years with conventional mortgages.  

DOW closes down 52.

2:40 pm: Quoting 4.375% priced with 0 points for a rate-term conforming high-balance refinance $504,000 loan amount for a West Seattle home appraising for $750,000 or higher (apr 4.427).  My returning client will save $200 per month and break even on the closing cost in 16 months.

Next Monday...I should be back to my regular scheduled rate post!   For your personal rate quote for a home located in Washington, please contact me!

Condo's Getting Spanked by Fannie

Fannie Mae's latest hits to rate will be implemented by lenders any day.  Condominiums are really getting spanked with a 0.75% add to fee if there is less than 25% home equity in the property.  This will apply to both purchases and refinances for any mortgage except those amortized 15 years or less.

Here's an example of a rate I just quoted based on a value of $330,000 and a loan amount of $264,000 (80% LTV) for a rate term refi 30 year fixed:

Current:  4.875% priced with 1 point (apr 5.013)

Here's what the 0.75% fee would look like if implemented right now (based on current pricing):

• 4.875% priced with 1 point plus 0.75% fee.  $1980 more in fee for a loan amount of $264,000.
• 5.250% priced with 1 point (0.75% fee priced into the rate).  $60 higher in mortgage payment for a loan amount of $264,000.

If you are considering refinancing your condo, contact your local mortgage professional right away (I can help you if you're located in Washington state)...if you're in the process of buying a condo and are "floating" your interest rate, I highly recommend considering locking.

PS:  Cash-out refinances are also getting whammo'd by Fannie.  Don't wait!