The Hidden (But Very High) Cost of Waiting to Buy Your Home  

It seems almost impossible to open a newspaper or listen to a news broadcast without being reminded that mortgage loan rates are on the rise. I asked Jaxzann Riggs, owner of The Mortgage Network, for her thoughts on how rising rates will affect our market. Here is what she told me.

Borrowers are being impacted on two levels right now. In the Denver metro area, the median price for a single-family home has increased by 19.3% in the past 12 months, according to the Denver Post. That means a home that you could have bought for $502,775 in January 2021, would cost $599,900 now.

Let’s assume that you agreed to purchase that home in January 2021 for $502,775. At that time, interest rates were hovering around 2.75%. If you made a 20% down payment, your expected monthly principal and interest payment would be approximately $1,642. If, on the other hand, you waited until January 2022 to buy that same home, your purchase price would be $599,810 and your interest rate would have risen to 4.087% and you would be paying $2,315 per month in principal and interest. That’s an increase of $673 per month.

Underwriters qualify borrowers for a maximum monthly payment based upon their income and other monthly liabilities. Underwriters refer to this as the borrower’s “debt to income” ratio, or DTI ratio, a term that you may have heard before. The maximum allowable monthly payment is then translated to a loan amount based upon current interest rates.

Rising rates make the maximum loan amount that a borrower can afford a moving target. By most accounts, The Federal Reserve is likely to increase the federal funds discount rates 3 to 5 times this year, with an increase certain to occur on March 16th. There is no direct correlation between the fed funds discount rate and long-term mortgage rates, but the trend for both is up. Jaxzann believes that the March 16th increase has already been factored into the cost of 30-year mortgage money by Fannie Mae and Freddie Mac, but expects rates as high as 4.75% by the year’s end. The mortgage market is resilient, changing daily, and we are beginning to see a variety of loan products (for example, adjustable-rate mortgages and interest-only loans) being offered by conventional lenders that will offset some of the damage done by increasing rates.

 While prospective purchasers can’t control real estate prices or mortgage rates, they do have some small measure of control when it comes to the price they pay for a loan while they are actively shopping for a home. Many of our lending partners have begun to offer a feature that allows the borrower to obtain a preliminary loan approval (without finding a property) and to “lock in” an interest rate, while shopping for a new home. Some lenders will lock in an interest rate for up to 120 days while their clients shop, but the most common term is 90 days. The lender charges a small premium to hold the consumers’ rate for a set timeframe and typically will also offer the borrower the ability to “roll down” the rate if interest rates drop by a preset amount during the lock period. Borrowers wishing to execute the roll down feature will pay a small fee, but it ensures that they will still be able to qualify for a specific loan amount, when they finally go under contract.

What does this mean for future homeowners? The cost of waiting is just too high. Don’t allow rising home prices and mortgage rates to price you out of the market. If you are currently house hunting and would like to learn more about locking in an interest rate, call Jaxzann at (303) 990-2992.

Do You Have an Adjustable Rate Mortgage? Here Are Some Important Changes

I recently received a call from a reader asking what is likely to happen with his adjustable rate mortgage (ARM) that is tied to the LIBOR Index. LIBOR may be just another acronym that you’ve skipped over in the sea of real estate acronyms, but if you have an ARM read on, because the “index” (LIBOR) that is used to set your interest rate is being phased out after 2021. I asked Jaxzann Riggs, owner of The Mortgage Network what borrowers should expect.

LIBOR, or the London Interbank Offered Rate, was a benchmark interest rate index used for decades by lenders all around the world, as a predictor of future loan costs. To break it down, LIBOR was calculated based on estimates of the average interest rate a group of leading global banks would charge each other for short-term loans. Lenders then used that information (referred to as the “index”) to calculate the rate you would pay for your mortgage as the interest rate on your ARM was “adjusted.”

During higher-priced housing markets, many homeowners chose an adjustable rate mortgage because they preferred the lower monthly payments that an ARM offered. Most ARMs created in the past 20 years were tied to the LIBOR benchmark, which is why this index has played an important role in how much interest you pay on your mortgage if you have an ARM.

The LIBOR index, as I said, is being phased out. Introduced in 1986 by the British Bankers’ Association, the LIBOR index quickly became the default standard interest rate used by both local and international lenders. Despite wide acceptance, LIBOR was based on self-reporting and good faith estimations, which made it very susceptible to manipulation and fraud. Scheming and collusion within the LIBOR index were brought to light in 2012, causing distrust, tighter regulations, and the beginnings of a plan to create a new system. 

Introducing… SOFR, the Secured Overnight Financing Rate (pronounced “so-far”).

Effective January 3, 2022, the mortgage industry began to adopt SOFR. SOFR is a benchmark rate that uses the rates banks are charged for their overnight transactions. This system helps deter manipulation and subjectivity, as it is based on transactions secured by U.S. Treasuries.

What does this mean for you?

Absolutely nothing if you have a fixed-rate mortgage. However, if you have an adjustable rate mortgage, you might see changes in your upcoming bills. ARMs typically adjust annually and as LIBOR-based ARMs hit reset, the new SOFR index is likely to be used to calculate your new rate. When SOFR ARMs reset, they will be adjusted every six months, the reason being that the 1-year LIBOR looks forward, while SOFR looks backward. LIBOR reflects where interest rates are expected to go in the next 12 months, while SOFR reflects an average of short-term rates during a recent 30-day period. 

Jaxzann told me that LIBOR and SOFR rates should be close to each other. “It won’t be identical but within the margin of a homeowner’s perspective, it should be a minimally different.” 

I agree that the switch from LIBOR to SOFR is going to have a relatively limited effect on most borrowers, but as with all things, knowl-edge is power and consumers who have an ARM should contact their loan servicers to discuss the changes that they can expect.

So, take a deep breath and remember, you are not alone in this! Reach out to Jaxzann Riggs  at 303-990-2992 to discuss the implications that SOFR will have on your existing ARM or the future benefits that you might enjoy by having an ARM.

Interest-Only Loans Make a Comeback. Is One Right for You?  

Interest-only mortgages are making a comeback. Having a full appreciation of how interest-only loans work is key to determining whether this type of loan is the best fit for you. I spoke to Jaxzann Riggs of The Mortgage Network to break down these loans for me.

Well, let’s first answer the question: What is an interest-only mortgage? 

An interest-only mortgage allows you to pay only the interest due on the loan during the first 10 years of the loan – making your monthly payments lower when you first start making mortgage payments.

How do interest-only mortgages work?

A fully amortizing loan requires you pay an amount toward the interest and the loan balance (called the principal) for a set term, usually 15, 20, or 30 years. Lenders often refer to this as the P&I payment (principal and interest).

Interest-only mortgages, however, allow you to make monthly payments that equal only the interest due on the loan, for the first 10 years of the loan. At the beginning of the 11th year, you will begin paying both, the interest due on the loan and a portion of the loan balance.

For example, if you take out a $500,000 interest-only fixed rate mortgage at 4%, with an interest only period of 10 years and a fully amortizing period of 20 years, you’d have to pay about $1666 per month for the first 10 years. When the interest-only period ends, you will still owe the entire $500,000 and your monthly payment amount will almost double to about $3,029 with the inclusion of both principal and interest payments. 

What are the Pros and Cons of an interest-only mortgage?

According to Business Insider, there are many pros and cons to think about. 

Pros:

The initial monthly payments are usually lower: Since you’re only making payments towards interest the first several years, your monthly payments are lower compared to some other loans. 

May help you afford a pricier home: You may be able to borrow a larger sum of money because of the lower interest-only payments during the introductory period. 

Increase to your cash flow: Lower monthly payments can leave you with extra dollars in your budget. You can use that money to put towards other investments, home improvements, or you can start paying down the principal early.

Cons:

You won’t build equity in the home: With an interest-only loan, you aren’t building equity until you begin making payments towards the principal.

You can lose existing equity gained from your payment: If the value of your home declines, this may cancel out any equity you had from your down payment, making it difficult to refinance or sell.

Low payments are temporary: Your low monthly payment won’t last forever — when the interest-only period ends, your payments will increase significantly.

Interest rates can go up: Interest-only loans usually come with variable interest rates. If rates rise, so will the amount of interest you pay on your mortgage.

There are many homebuyers that may benefit from an interest-only mortgage. People who aren’t planning to stay in their home long term can take advantage of the lower monthly payments for several years, and then sell their house before the higher monthly payments kick in. Buyers who are just starting in their careers may appreciate the lower payments while they are making an entry level salary. If your finances are strong and you’re not worried about building equity, this may be a great option for you.

As with any large financial commitment, it’s important for all prospective buyers to seek expert advice. Reach out to Jaxzann Riggs at 303-990-2992 with any questions.

It is important to note, however, that once the initial interest-only term ends, you’d continue making payments toward the loan with both principal and interest included.

It Takes Many ‘Players’ on a Mortgage Lending Team to Get You to the Closing Table  

By JIM SMITH, Realtor®

The government’s supervision of lenders has changed the way that home loans are made. Once you select your lender, you will be interacting with multiple people. Understanding who the “players” are is important.

I asked Jaxzann Riggs, owner of The Mortgage Network to describe those players..

The Loan Originator/Loan Officer

Sometimes called a “loan originator” or “loan officer” (LO) this is your team manager. Your LO will typically be your first contact with the lender. The LO decides if your income, assets, and credit will allow you to obtain the financing you need. The LO will be an educator and your advocate. He/she will manage the overall progress of the application, making sure that deadlines agreed upon by you and the seller are honored.

The Processor

The processor is the player tending to your loan application as it winds its way from application to closing. Your processor will request documentation from you that supports the information that you and the LO have put into the application for the loan. Their job is to organize your documents so that they paint a clear picture of your ability to repay the loan. The loan processor is the go-between between the borrower and underwriter.

The Appraiser 

The appraiser will create a report that assesses the home’s market value to ensure that the amount of money requested for the loan will be acceptable to FNMA or FHLMC. The appraiser confirms the home’s dimensions, examines amenities, and evaluates the overall condition. He/she examines the records of comparable properties, ideally ones in the same neighborhood that have sold recently. Based on this information, the appraiser arrives at an opinion of how much your property would sell for if you put it on the market. This opinion assists the underwriter, along with your income, assets, and credit history in deciding how much it will lend you and on what terms.

The Underwriter

Think of the underwriter as the final word. FNMA and FHLMC are quasi-governmental agencies that set underwriting standards which lenders must follow. After reviewing your credit history, assets, the size of the loan, and the appraisal of the home, it is the underwriter who will decide whether your application meets government standards and either approve or decline the application. If they decide that your credit profile or application does not meet FNMA/FHLMC standards, they may deny your mortgage or require a larger down payment. Underwriters have discretion in the approval decision and, while they are the “gatekeeper” for the lender, they typically will look for ways to approve the loan.

The Closer

While not obvious, there are two “closers” working on your loan team. The title company’s closer must coordinate with the lender’s closer to reconcile the numbers associated with the loan and real estate transaction. The title closer will be presenting the lender’s final documents for your signature on the day of closing. The closing package includes the final loan application, loan estimate and closing disclosure, title insurance documents, deed of trust, bill of sale, affidavit of title, tax documents, etc. While they start their work at the beginning of the transaction, their work is not finished until all the documents that you sign at closing have been recorded with the county.

The Most Valuable Player (MVP)

The most important player is YOU. Your LO and Loan Processor will not ask you for documentation unless they know that it will be required by the underwriter. The more responsive you are to their requests, the faster the loan will be approved and the lower your stress level will be during the process.

Do you have other questions about the mortgage process? I recommend calling Jaxzann at 303-990-2992.

Pressure is Building for Potential Home Buyers: Why Now May Be the Best Time to Buy  

Roughly 6.5 million homebuyers have taken advantage of ridiculously low interest rates since the beginning of 2021. Low interest rates have allowed them to become first-time homebuyers, to move up to their dream home or to downsize.

Many would-be home purchasers have watched this ‘boom’ from the sidelines and decided that now may not be the best time to buy. Bidding wars and the need to make split second buying decisions over the last few months have reduced their appetite for home buying. It might be time to reconsider that decision.

I asked Jaxzann Riggs about the wisdom of “waiting” to make a move, and the following is based on our conversation.

Rental rates fell in 2020, but nothing could be further from the truth in 2021. While accounts vary, some leasing agents (according to ApartmentList.com) report that rental rates could increase as much as 32.4% in the next 12 months and stats indicate that they are up a shocking 16.5% in the first eight months of 2021.

As rental prices spike, potential homeowners should do a little mortgage math.

A potential homeowner who is paying $2,600 per month for rent, would be able to own a home valued at around $475,000. With a 3% down payment of around $14,279, this renter could turn into a homeowner, allowing them to enjoy the associated tax benefits and the opportunity for appreciation on their new property

Housing inventory is increasing and with the threat posed by rising rental rates, and rising interest rates, there is no better time than today to explore home buying options.

During the Covid-19 pandemic, the Federal Reserve supported lending to households, consumers, and small businesses to stimulate the economy. The Federal Reserve recently signaled that it plans to begin reducing the support it has been providing to the U.S. economy. Long term fixed mortgage rates are driven by the overall economy and inflation, but they are directly influenced by Fed policy.

Once the Federal Reserve starts to slow the pace of bond purchases, mortgage rates will move up. Fed officials indicated that they would begin “tapering” the asset-buying activities that it began last year as early as November. After the announcement, mortgage rates did in fact, show a rising trend. For someone with a $500,000 home loan, a 4-basis point jump will cost them $115 more per month and $41,400.44 more over the life of the loan on a 30-year, fixed-rate mortgage.

Mortgage rates are hovering near 3% and demand remains strong but higher rates are clearly on the horizon. Remember our potential renter? As rates rise, a monthly rent of $2,600 would instead result in a $410,000 house (vs. $475,000), if interest rates move from 3% to 4.5%

Even more incentive to potential homeowners is housing inventory. The inventory of active listings on the market rose by a record monthly amount (according to Denver Metro Association of Realtors). Some potential homebuyers that I am working with report they are waiting for prices to cool off to make offers, but even if that does occur, they are unlikely to see lower monthly house payments because any potential savings in purchase price will be lost to rising interest rates.

Future home buyers are not the only ones affected by higher interest rates. For homeowners who have been procrastinating with their refinance application, now is the time to call a lender. Jaxzann Riggs and I are standing by to make the process as simple as possible.”

If you have lending questions, you can reach Jaxzann, who is the owner of The Mortgage Network, at (303) 990-2992.

It’s Suddenly Much Easier to Qualify for a Refinance of Your Home Mortgage

Refinancing has been all the buzz this year. Many homeowners have taken advantage of record-low rates to refinance their homes. Unfortunately, lower-income borrowers, especially those who lost income streams due to Covid-19, were unable to refinance because of income requirements. According to the Federal Housing Finance Agency (FHFA), over two million families could not refinance in 2020 when they might have benefited from it. As of June 5, 2021, this is no longer the case. Lower-income homeowners may now potentially save hundreds of dollars per month on their mortgage under a government initiative called “RefiNow.”

I spoke with Jaxzann Riggs of The Mortgage Network to learn about this program.

We have all heard the term “refinancing,” but you may not know why someone might consider refinancing. Homeowners choose to refinance their mortgage for different reasons. Refinancing your home could allow you to secure a lower interest rate, which lowers monthly payments, to shorten the duration of your mortgage, to switch to a fixed-rate mortgage, or to access equity.

While refinancing may sound ideal for your situation, the process and guidelines post-COVID have been quite strict and restrictive. One important factor in qualifying for refinancing is your debt-to-income (DTI) ratio. Your DTI is the percentage of your gross monthly income that you pay each month towards your debt and other obligations, including mortgage, minimum credit card payments, car loans, and student loans. Traditional loans require DTI to be under a certain threshold to refinance — typically under a maximum of 44%. Many people, especially service industry workers and small business owners, lost their jobs and sources of income during the pandemic, and the regulation regarding DTI was an obstacle to refinancing. RefiNow may be able to change that.

RefiNow, Fannie Mae’s new refinance option, makes it easier for homeowners earning at or below 80% of their area median income (AMI) to refinance at a lower interest rate to reduce their monthly payment. This new program is designed to lower the barriers that keep low-income borrowers from refinancing, which have historically resulted in those borrowers refinancing at a slower pace than higher-income borrowers. With RefiNow, you are allowed to have a DTI of up to 65% (instead of 44%) and you will be given an appraisal credit of up to $500. The new program does not just benefit homeowners, it helps lenders because it improves the probability that homeowners who may have been struggling to make their current payments will be able to make future payments, resulting in fewer pandemic related foreclosures. Don’t despair if your loan is owned by Freddie Mac (FHLMC). Freddie is slated to offer a similar loan program in the next few weeks.

To qualify for RefiNow, you must have:

> A Fannie Mae-backed mortgage secured by a one-unit, principal residence. Unsure? Go to https://www.KnowYourOptions.com/loanlookup

> A current income at or below 80% of the Area Median Income (AMI) This varies by census tract, but your lender can look this up for you.

> Not have missed a mortgage payment in the past six months, and no more than one missed mortgage payment in the past 12 months.

> A debt-to-income ratio of 65% or less, and a minimum 620 FICO score (minimum 660 FICO score for manufactured homes).

> A reduction of at least $50 per month on the new loan and you may not access any of your equity.

If you are not sure if a RefiNow loan is right for you, reach out to Jaxzann Riggs at (303) 990-2992 with any questions and to discuss your best options.

What Are Your Options When Approaching the End of Mortgage Forbearance?

As unemployment surged during the early months of the pandemic, many homeowners found themselves taking advantage of forbearance programs offered by their mortgage servicer. At the end of February, roughly 2.5 million homeowners in the U.S. were still in forbearance plans. I sat down with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn about what options are available for those who are approaching the deadline for exiting forbearance.

For homeowners who may still be experiencing financial difficulties, extending their forbearance plan may be a possibility. However, an extension will not happen automatically. If you are in a forbearance plan that is close to expiring, you should reach out to the company that services your mortgage to see if you are eligible to extend forbearance.

Whether you qualify for a forbearance extension depends largely on your loan type and when you originally entered forbearance. If your loan is backed by Fannie Mae (FNMA) or Freddie Mac (FHLMC), you must have entered into your forbearance plan by February 28, 2021. If your loan is backed by the FHA, you must have entered forbearance by June 30, 2020. Once forbearance ends, the best course of action depends largely on your personal circumstance and loan type.

Borrowers with a FNMA or FHLMC loan can opt to pay the “past-due” amount in a lump sum and have their loan reinstated if they are in a financial position to do so. For those who have loans through Fannie and Freddie but are not able to pay off their forbearance amount immediately, there are several options. If you can afford a few hundred dollars on top of your typically monthly payment amount, you should speak with your servicer about entering a repayment plan for a specified time frame.

For borrowers who have found themselves in a different financial position than they were prior to the pandemic, putting several hundred additional dollars a month towards a mortgage may not be possible. In that case, you may be able to enter payment deferral, in which you resume your typical monthly payments and the past due amount is added on to the end of the loan. You can also talk to your loan servicer about a loan modification, in which the servicer agrees to lower the interest rate, forgive a portion of the principal, or otherwise adjust the loan. Note, however, that a loan modification will negatively impact your credit history.

Borrowers with an FHA loan have several options, the most straightforward being to simply resume monthly payments. The FHA considers the past due forbearance amount as an interest free second loan, meaning that the payments are essentially deferred until the end of your loan term. If you are not in a position to resume your full monthly payments, you should speak with your servicer about a loan modification in which your interest rate will be lowered and loan term extended.

For those with a VA loan, a repayment plan or loan modification may be the best course of action. Although the VA does allow deferment as an option, it does not require that its loan servicers provide it.  For borrowers with a nonconforming loan (jumbo) there are no specific guidelines regarding forbearance. Some loan servicers may have chosen to offer forbearance, but they are not held to the same guidelines as other loan types.

Navigating your options as forbearance comes to an end can be tricky, but you do not have to face it alone. You may find it helpful to speak with a housing counselor before calling your loan servicer. The U.S. Department of Housing and Urban Development, or HUD, offers a list of approved counselors by state on their website.

And for any mortgage scenarios you may have, as always, I recommend calling Jaxzann Riggs of The Mortgage Network at 303-990-2992.

Here Are Some Strategies for Assembling Your Down Payment Funds

Last week I wrote about how  first-time home buyers can buy a home with as little as $1,000 out of pocket, but the rest of us may be challenged to come up with down payment money when we buy a home.

Many buyers assume that lenders require a 20% down payment, but that’s not necessarily true. There are loans available from many lenders with as little as 3% down payment. FHA requires 3.5%down, and qualified veterans can get a 0% down VA loan. On conventional loans the interest rate charged will probably be higher, but with rates for conventional loans so low, what’s an additional quarter percentage point or so anyway?

And don’t assume that every loan with less than 20% down payment requires mortgage insurance, which can be expensive. Often mortgage insurance is waived in exchange for a slightly higher interest rate.

So, first determine how much money you will need for your down payment, and shop around with different lenders, since this requirement can vary greatly. Generally, I recommend mortgage brokers instead of banks, because banks only sell their own loan products, but mortgage brokers can sell multiple products from multiple lenders, including special products for first responders, teachers, medical personnel, and others.

Once you know the amount you need to raise, how can you raise it when you don’t have that much cash in the bank?

Start your quest by asking advice from your loan officer. A good loan officer, like Jaxzann Riggs of The Mortgage Network, will be able to make suggestions once she (or he) has a full picture of your financial situation and assets.

Strategies I’ve seen employed include the following.

1) If you own a home currently and have substantial equity in it, you can borrow against that equity with a Home Equity Line of Credit or HELOC. Credit unions are good at issuing these loans to its members, but if you’re planning on selling, you need to apply for a HELOC before you put your home on the market. Since these loans have little or no closing costs and you don’t pay interest until you actually draw on that line of credit, there’s no reason not to have a HELOC in place right now and certainly ahead of needing the money. It’s like having money in the bank — literally.

2) If you have a high-balance IRA or other retirement fund, you may be able to withdraw money from it without penalty if you return that money within a couple months, so this is a good strategy if you need the money from selling your current home but don’t want to make an offer on your replacement home that is contingent on selling your current home. A loan against your 401K carries no penalty, I’m told.

3) If you own stocks and bonds but don’t want to sell them, consider using them as collateral for a loan.

4) Relatives or friends can gift you with money, but speak to your loan officer about documentation requirements. As you may know, anyone can give up to $15,000 per year to anyone else without paying gift tax.

5) Another option is a bridge loan. This option carries a higher interest rate, but it could be your answer.  Ask your loan officer.

6) Get creative! If you’re engaged, how about a bridal registry for down payment funds? A GoFundMe campaign might work for you, too. If you have no loan on your car and it’s worth a lot, credit unions will lend you money against it. (I did that once.) You may own jewelry or other valuables to which you are not so terribly attached that you might be willing to sell them. (Rita and I have done that, too.)

The Good, the Bad, and the Ugly About Mortgage Loan Forbearance

A record number of homeowners entered into a forbearance plan for their mortgage over the past year amidst the Covid-19 pandemic. Forbearance — an option that allows borrowers to pause payments on their mortgage for a limited amount of time due to an unforeseen hardship — served as a veritable lifeline for many people who found themselves unexpectedly out of work and unable to pay their mortgage as COVID restrictions tightened.

As more time passes, however, it is apparent that issues stemming from forbearance are starting to surface. While this is not an immediate cause for panic if your own mortgage has been in forbearance, being aware of issues that others are facing will help to keep you prepared for any trouble that arises.

For that reason, I had a Zoom meeting this week with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn more about complications that forbearance may bring about.

When the CARES Act was initially passed back in March 2020, it included a provision for mortgage forbearance, making it relatively easy for millions of borrowers with government backed mortgages to enter into such a program. Fannie Mae and Freddie Mac, the two largest servicers of government backed loans, subsequently issued an extensive list of guidelines for lenders in response to Covid-specific forbearance.

One of the most crucial guidelines involved credit score reporting. An account in for-bearance must continue to be reported as current, provided it was current prior to the forbearance plan. Due to the vast number of people who entered into forbearance in such a short time period, it is especially important to monitor your credit score — but that is not necessarily the end of the story.

Some borrowers who were previously in forbearance that are now applying for new loans are discovering that their issue does not lie with the credit reporting bureaus themselves but with the underwriting on their new loan. Underwriters, who are primarily responsible for qualifying a borrower for a loan from a specific lender, have a significant amount of discretion when it comes to approving an application. The consequence of this is that borrowers who would otherwise be well qualified to purchase — with high credit scores, steady employment, and a significant down payment — may find themselves struggling to obtain the loan they are seeking if they previously had a loan in forbearance. Although Fannie’s and Freddie’s guidelines include specifics for underwriting, the sometimes unfortunate reality is that these guidelines can be interpreted differently by different underwriters.

If you had a loan in forbearance sometime this past year and are now considering a new purchase or refinance, you should not immediately despair. Maintaining meticulous records that indicate when you initially applied for forbearance and being able to produce all communications with your current lender to the new lender are essential. If you have entered the repayment phase of the loan it is critical that the repayment agreement is followed exactly as written.

Because forbearance was originally intended to help those that had a loss of income or employment due to COVID, underwriters are scrutinizing employment history and the likelihood of it continuing for all borrowers. Borrowers that did not have any change in employment status during the pandemic but who entered into a forbearance agreement should be prepared to outline for the new lender their motivations for entering forbearance and to additionally explain how they will be able to avoid forbearance in the future. This is a bit ironic, in that lenders strongly encouraged many to utilize the options afforded them under the CARES Act. If you have questions about how forbearance may impact your future lending, I recommend, as always, that you consult Jaxzann Riggs of The Mortgage Network. You can reach her anytime on her cell phone, 303-990-2992.

Higher Loan Limits and Lower Rates Improve Affordability for Homebuyers

By JIM SMITH, Realtor

Both the Federal Housing Authority (FHA) and the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, have been in the headlines in the past couple weeks with their respective announcements that they will be raising mortgage loan limits for 2021. I exchanged emails with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn more about loan limits and what their implications are for potential purchasers. Here’s what I learned from her.

Jaxzann Riggs

Although loan limits have been around for many years for both conventional loans (loans that conform to Fannie Mae and Freddie Mac’s loan standards) and FHA loans, (loans insured against default by the Federal government) the Housing and Economic Recovery Act (HERA) of 2008 has largely shaped how we know them today. The 2008 act established a base loan limit of $417,000 for conventional loans and, due to the declining price trend in the real estate market at the time, also included a mandate that this baseline limit would not increase until prices rose to previous levels. In 2016, FHFA increased loan limits for the first time in ten years, and they have increased every year since. HERA also mandated that FHA set loan limits at 115% of area median house prices, with a floor and ceiling on both limits.

2021 will see conventional loan limits for single-unit properties increase from $510,400 to $548,250 as a baseline. High-cost areas (which always included places like Aspen and Boulder, but now also includes the metro area) have a maximum loan limit that is a multiple of the area’s median home value, up to 150% of the baseline. Denver, Jefferson, Adams, Arapahoe, Broomfield, and Douglas counties will all be seeing an increase from $575,000 to $596,850. Boulder county increases to $654,350. The increase in these limits means that more borrowers will be able to qualify for a conventional loan versus having to obtain a high-balance or jumbo loan, which typically come with higher interest rates.

It’s important to remember that purchase price does not necessarily correlate with loan limits. If a borrower plans, for example, to purchase a $750,000 property but puts a significant amount of money down, thus bringing their loan amount under the conforming limit, they can still qualify for a conventional loan.

The FHA has also increased loan limits for 2021, with a national conforming limit of $548,250. In the majority of the Denver metro area the loan limit has increased to $596,850, up from $575,000 in 2020. The FHA’s loan limit increases are tied closely to the FHFA’s conventional loan limit increases.

Although loan limits are most frequently mentioned in terms of single-family homes or one-unit properties, both conventional and FHA loans also impose limits on duplexes, triplexes and fourplexes. These increase at the same time and at the same frequency as single-unit loan limits. In the case of the FHA, which also insures Home Equity Conversion Mortgages —  also known as HECMs or Reverse mortgages — there will be a 2021 limit increase to $822,375. Unlike traditional loan limits, this increase applies across the board, regardless of what market the home is located in.

2021 is sure to be a year of changes, and mortgage loan limits are no exception. The increase in limits for both FHA and conventional loans matched with historically low rates and 3-3.5% down payment options just might be the ticket to purchasing your dream home.

Regardless of what loan type you are seeking, I recommend giving Jaxzann Riggs with The Mortgage Network a call today at (303) 990-2992.