Did you know that in the last five years over 600,000 people purchased homes for the exclusive purpose of earning short term rental income using apps like Airbnb and VRBO? If that is you or maybe you converted a property into a short term rental, have you discussed with your CPA the best way to file your taxes to maximize your rental income and minimize your tax liability? Each year we assist new and existing investors with a full portfolio analysis and people are often surprised by the results. We know the ins and outs short term rentals and we offer a wide variety of solutions. No hassles, no gimmicks, and we never sell your information.
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We love helping people build new construction homes. Unfortunately, most with a good game-plan never get started on their projects and it isn’t due to lack of financing. Over the years we have witnessed the breakdown revolves around finding 1) what they are willing and able to build – (i.e. design, size, options), 2) who is the right person to build it, and 3) at what this means for a budget. So what can you do to prevent this?
Traditional site-built construction (think where the work takes place) is a highly localized process so what one builder is willing and able to do is consistently different from one area to the next. Also a building site (i.e. your lot/land) is rarely the same as the next person's. People have different wants and needs so this is a perfect storm of just too many variables. The good news is there are equal alternatives to site-built construction that can streamline a large this part of the equation. While we have neglected addressing the topic in prior posts, today's subject is all about modular homes or what some call prefabricated homes. Note: If you pictured a double wide, stay with me, that isn't the topic.
After researching and financing these for others over several years I have discovered modular homes are the most underused, underrated, and misunderstood option in the southeast. This is not true in the western and northeastern US. The clearest path to understanding why you might consider modular starts with learning the modern capabilities/options they provide and what the product is (or is not). It would seem there is popular belief that modular forces you to pick only a limited sized home, specific floor plan(s), or a very basic/boring design that looks out of place. This is actually true for a few manufacturers that I would not recommend using but more capable modern modular home manufacturers offer a host of pre-existing plans of varying sizes from 900 sq ft+, fully customized routes and everything in between. So if you don’t know your budget, you can start with simple plans based on your family size, basic options and add to your design or one of theirs. Do you want 9’ or 10’ ceilings on a preexisting plan? No problem. Do you want tile in all the bathrooms and granite countertops? Check.
Regardless of design, size and options a modular product is best understood if you examine the materials and the overall process compared to traditional construction. Modular manufacturers use the exact same materials as those used in traditional construction and home is affixed to a permanent foundation. So when the house is completed there is no way to tell it was modular or “stick built” (or sometimes called "site built"). Since this is the largest investment people make in their lives this matters because when an appraiser gives his valuation of the home when new or anytime in the future, modular homes appreciate no differently than traditional construction. This is true because they differ in where they were built NOT how. On the financing side Fannie, Freddie Mac, HUD, and the VA all acknowledge modular builds without distinguishing either so you or a future buyer should not be concerned. These are some of the exact reasons I convince people to reconsider not looking to mobile homes as a solution.
Choosing the right contractor will make or break your building experience and I tell people that almost daily In traditional builds, a contractor or builder manages the project and his subcontractors (framers, roofers, plumbers, electricians, etc) build the house. With modular the manufacturer designs and builds the home to 80-90% complete in modules (some use panels) in an indoor facility and they ship it to your site where a contractor or builder manages the site preparation, foundation, setting/securing the home to its foundation, completing power, water, and sewer connections and overall finishing of the house. This process of pre-building the home in modules allows the manufacturer to focus on efficiency and quality control while giving a much more streamlined role to the builder or contractor (yes you still need one). The best manufacturers know this and have a vested interest in who they allow (or will not allow) to install and finish the home properly. In traditional construction you choose your builder and vetting them is your responsibility completely. This is very risky and should not be understated.
In certain areas it is possible to design a modular home and get contractors to give you pricing on the finish work as described above. You could in essence take those a set of home plans to a traditional builder as well as modular builder and quickly shop the cost and decide what option you think is best for you and your family. You can use a construction to permanent product to build with modular which includes financing the land if needed.
Have questions about modular homes?
Want to learn how to qualify for modular new construction?
We’d love to hear about your scenario.
For nearly 17 years now I have originated somewhere over $450,000,000 in mortgages on everything from $75,000 starter homes to over $1 million estates from California to Miami. While every day is a new day I believe I have seen the best and worst situations imaginable. Over the years I have taken all of these experiences and use that to inform each customer that calls me even if I never close their loan. I have been blessed with so many incredible relationships and opportunities I feel that it is only right to share that same information with you and maybe help make your transaction the best it can possibly be. I could do a Top 50 but here is my opinion of the Top 10 that come to mind.
How a to find a good realtor
Custom Rate Lock
Lock and Shop Mortgage Pricing
Mortgage Loan Approvals on a To Be Determined property
Maximum seller concessions
Maximum seller paid closing costs and pre-paid items
maximum third-party contributions
In previous posts we have discussed low and no down payment loan programs like VA and USDA but we have not discussed what assistance is available to help first time buyers with down payment and in some cases closing costs who are getting FHA or Conventional loans. Our industry calls this form of assistance Down Payment Assistance or DPAs.
Rather try to forge experts out of everyone, below is a set of steps you can take before getting a second education. There is a great deal of variability and these are complicated but the proposed is based on real inquiries from multiple states, closed loans, and individuals and families who succeeded in becoming owners using DPAs.
Step 1: Preapproval First - The overwhelming majority of DPAs are classified as grants or loans that is closed behind/in conjunction with a Conventional, FHA, USDA, or VA first mortgage. For that reason, it is best to get preapproved for one of these programs first to determine your options and capability since it is the first and majority of the funding you will need. The key is get your income and credit qualified with the upfront understanding with the loan originator that the asset portion is not ready.
Step 2: Define Your Total Asset Needs – With the preapproval as your main parameter the focus is on getting enough assets 1) for the down payment will be AND 2) closing costs and prepaids. This line is combined as cash to close on disclosures but know most DPAs, as their name indicates, allow funds to go towards down payment first and closing costs/prepaids second. Some grants sole purpose is closing costs and prepaids. Sellers and lenders can contribute to closing costs and prepaids but the primary focus is down payment.
You might have to go back and revisit some calculations with your LO and ask about acceptable sources of funds for closing. Gift funds are one example. In some states there are forms of assistance you can get BEFORE you buy where your federal tax liability is reduced and you can save prior to buying. There are too many exceptions and examples to list here.
Step 3: Geographic Flexibility – One of the most ignored topics for all buyers is having a firm understanding of your geographic preferences and flexibility. What areas are you willing to buy in? Going from big to small is there another county, city, or neighborhood? Use the internet and bookmark specific example listings in your price range in those other cities and counties. These are simply examples at this point. This can take up an hour or two rather than going to hunt for properties with a realtor or driving around.
Step 4: DPA amounts – DPA can be combined with other forms assistance, gifts, seller contributions, etc but let’s assume you use only one kind and it is just for the down payment. To that end know that in 2021 the average cap on a DPA funds per family in Alabama was $7,500 and in Florida the average is $10,000 with a few as high as $15,000. Exceptions exist yes but it would be smart to compare these assistance caps and see if these are enough to cover it? This is not a reason stop if a gap exists.
Step 5: Credit requirements – While not exclusive, across 134 counties in AL and FL a 640 credit score is a very common requirement for DPAs. In some instances, a 680 may be required if a conventional loan is being used. By comparison you can qualify for an FHA loan with a 600 score, conventional 620. If you are below 640 across the board it might be necessary to find out how you can get to that mark with your mortgage originator. improving your score does not always take a great deal of time and money as we mentioned previously.
Step 6: Income limits – Yes by definition DPA programs are designed to help “low to moderate income” first time buyers. The numbers varies significantly but what does “low to moderate” even mean?
These numbers fluctuate up and down. Family size does increase income limits for certain DPA programs just as it does for USDA but not always. Also if you think Florida would be more forgiving in this interpretation compared to Alabama think again. A one person household AMI in Miami-Dade County is lower than some figures I mentioned below in Alabama.
Step 7: Price Caps – Keeping in mind that the FHA loan limit in our lending area for a single family residence is $356,262 for 2022 and the conventional limit is $647,200. This matters because in addition to income limits, purchase price caps exist that are below these limits depending on the property location. While we won’t dive into target and non-target areas as one example in Alabama closing recently a property in a non-target area was capped on FHA approximately $301,000 which is about $56,000 beneath the limit.
Step 8: Time – It is no secret that many first time buyers without a large down payment were heavily marginalized earlier this year. Many sources have cited they were outcompeted due to higher offers and people bringing 20%+ down which might be the prevailing reason. When that slows down as it already has, inherently time related to being approved for a some DPAs is a real problem.
Step 9: Which DPA for you? Understanding the parameters, we recommend discussing these steps and DPAs with a skilled originator and deciding what path is best for you. Know that brokers have access to many lender’s products and most often are excluded from “approved lenders” listed. So we recommend you talk to a reputable mortgage broker in your state.
if you are in Florida or Alabama, tell us about your scenario or give us a call at 888-269-8335
We’d love to help answer your questions to help you plan and become a homeowner soon!!!!
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Coming in just second to the increase seen in 2006, the 2022 conforming loan limits are out and available for use nearly 2.5 months earlier than expected. That really is AWESOME news!! While limitations do apply, this can translate with approved credit the ability to buy an owner occupied single family home for $657,890 with 5% down, $694,440 with 10% down on a second home, and $781,250 for investment purchases with 20% down. This applies to all counties in Alabama and Florida, if you are outside this area it may be different.
The advantage isn't just for those buying but for those buying to renovate, owners who want to renovate their existing home, or anyone building new construction using construction to permanent financing this is big news.
Announcements on USDA and FHA limits are expected to be on time in the final weeks of this year so check back with us on those.
If you want to know what this looked like in 2021 click here.
To learn more about renovation mortgages versus cashout-refinancing click here.
For ins and outs of residential construction financing click here.
Do you have questions, email Questions
Please note purchase prices listed above are rounded down to the nearest $10 based on standard program maximum loan to values. Exceptions apply. Nothing here constitutes an offer for financing and any information is based on approved credit. For additional rate and cost information email email@example.com NMLS # 835698. Equal Housing Lender.
Little more than a year ago in April 2020 we saw conventional and government mortgage rates slide to the lowest levels in history. It has been epic yes for the homeowner and homebuyer as long as you maintained a 660 or better credit score. At the same time in the blink of an eye lenders raised the bar on credit scores for all government loans from a 600-660, jumbo loans were impossible to find, and non-QM lenders (literally all of them) just stopped funding loans. Like most absurd acts acceptable in 2020 our industry has come to its senses and this situation has mostly smoothed itself out with some subtle but important differences.
As of April 6th, 2021 most non-QM lenders (who we could call out of the box lenders) who survived 2020 have ramped back up their product offerings and are once again funding jumbo loans, bank statement loans and non-warrantable condos. With prices skyrocketing nationwide jumbo mortgage loans aren't just a tool for the wealthy. Bank statement loans (jumbo and non-jumbo) are an excellent resource for the self employed borrowers with 680 credit and above and not enough can be said about that topic. In early 2021 Fannie Mae has cracked down and has started labeling condos as non-warrantable even when by all senses they sometimes are 100% warrantable so non QM-condo loans for non-warrantable condos are HUGE right now. Right now that means you can buy a non-warrantable condo and borrow 90% on primary residences, 80% on second homes, and 75% on investment properties with acceptable credit and assets (condotels excluded).
If you are a veteran be comforted to know that the industry in general is once again accepting 620 and 600 range scores on VA purchases and VA refinances. The great news is that VA rates are insanely good and are trending toward to mid and upper twos back toward the lower two range especially if you have a 660 score. Some lenders are advertising a 580 benchmark is being offered (which we do not) but we have not seen anything below this mark for VA loans so far in 2021 regardless of down payment.
For those using FHA the benchmark for credit score across the marketplace seems to be 620. If you are below this mark you can get purchase or refinance yes but it might be worthwhile to figure out if something minor is keeping your score down that can be fixed. That last statement isn't new to 2020 or 2021.
Today if your scores are 720+ conventional purchase and conventional refinance mortgage rates are still below 3% after a nice market correction in the last three weeks but most notable is the15 year is trending back in the low 2% range and the 10 year is hovering near and below 2%. We highly encourage EVERY conventional borrower, buying or refinancing to consider the 20 year. For many years prior to 2020 the 20 year pricing most mimicked the 30 year but that is always the case. In most market conditions and scenarios, rates are typically lower and the payment can be more affordable that the 15 year term creates.
There is more to say here and likely something that could help in your scenario. This is why finding a mortgage broker, not just a bank, who understands the entire marketplace is key. If you to buy, build, or refinance in Florida or Alabama we would love to give you information 100% risk free and point you in the right direction.
You can reach us by emailing us, applying online or calling us today at 888-269-8335.
November 19th, 2020
Projected Loan Limit Size: - According to a detailed analysis this week posted by Matthew Graham COO of Mortgage News Daily just a few days ago the nationwide Conventional loan limit is projected to increase roughly $40,000 to around $550,000 for single family dwellings. While the formal announcement is set to be released next Tuesday November 24th, for Florida and Alabama this means an increase from $510,400 in 2020 to an estimated projection of $550,000 in 2021. Any increase is always a positive for the general housing market even if you don't have a loan at all but given that many of us are spending more time at home and have increased needs for our families this impacts many people who have or plan to get a conventional loan in a good way that maybe it hadn't prior to 2021 especially since rates are where they are. We will be posting some more breaking news regarding rates and products since the volatility that has been 2020.
While we don't have time to explain the many was this increase is a big deal, the impact directly impacts VA and jumbo loans as well. Since VA entitlement is based on this limit, veterans get that additional affordability on refinances and purchases. For some who were we stuck buying or refinancing with only a jumbo option any years prior to 2020, this will certainly translate to more availability of options, better rates, and possibly higher LTVs which is never bad.
If you want to know how this change might help you, please email us or submit an online application on our secure website. Exciting times!!!!
Quick note: We have been very busy in 2020 and haven't had much time to post to this blog but we have hired more staff and will ramp up the flow of information to the public starting today November 19th, 2020.
So I was getting a haircut at noon the other day and my stylist brought-up the cost of lumber in conversation. She is extremely sharp, but it took me back because I know she is not buying, selling, or building and this was the second time in about 4 weeks she mentioned this. A few weeks earlier I was at a family gathering where this came-up. I overheard a couple discussing it while I was eating lunch in a downtown café a few weeks back. It would seem that lumber prices (and maybe a shortage of chips for auto manufacturers) is the talk of the town everywhere I go. Since I finance residential properties and pay attention to economic data, I felt compelled to contribute some factual and maybe useful information to the ongoing discussion.
After reading-up it appears the shutdowns in 2020 impacted the processing of lumber in the US at the mill level which eventually decreased supply while demand seemed relatively steady. To heavily oversimplify the discussion anyone can track the price of lumber because it is a commodity and lumber futures (aka futures contracts) are traded on the NASDAQ exchange using symbol LBS. In the real-world cash lumber prices we experience at the local store versus lumber futures are not exactly the same but let’s assume they are and skip the explanation of how and why they are different for now.
At quick glance at LBS you can see it did began a meteoric rise in early March 2021, reached a peak price of around $1,700 in early May but as of the third week of June prices have already corrected back to $900 early March levels. For all of 2020 we saw an average in the $400-500 range (excluding when COVID immediately hit) and in the last five years the mean was somewhere around $350-400. So is the cost of wood going to remain in the current territory of basically double and triple what we have seen in the last five years? Economics say prices we have seen in the last 90 days aren’t sustainable and we have watched the sharp decline they predicted will continue. But what does this actually mean for the hair stylist, my family members and the few dozen others who have mentioned it?
I never mentioned this to anyone but when prices were in the $1,600 range I ran into my contractor on the baseball field and yet again he brought it up. When I asked this same question he smiled at me and said, “Let me put it to you this way, a lumber package for an average 2000 square foot house is about $25,000 higher than this exact time last year”. Really I thought? “Seriously, that’s it?” I said aloud.
Given the price of lumber futures being down 40%+ since I had this conversation that would mean the cost difference for that same 2000 square foot home is now on $15,000. To put that in to perspective that is about the cost of 75 additional square feet or a forced downgrade of flooring or cabinetry in most homes. Coupled with the cost of what the full $25,000 was before March 2020, most people would never feel a significant impact of this at all.
In essence the cost of money plummeting in the last 15 months NOT lumber cost should still overshadow the hottest topic around town. Fact is if you are buying, selling, building or remodeling this is a fair warning to get moving as quickly as possible as 30 year rates seem to be rising above the 3% mark yes even in a seller's market. For anyone else not in this category, I would also encourage you to learn about why the cost of money is so different in 2021 especially those who are mortgage free.
We are licensed in Florida and Alabama with more states coming soon. If you want a quote or other information regarding mortgages you can plug-in your information securely on our site 24 hours a day, call us at 888-269-8335, or send us an email Make it a great day!
Last week we received a call from a young professional who is gearing up to make his first home purchase. He had good credit, steady annual income, and enough money saved for a small down payment on a new home for the family. During the call, he voiced concern about the pre-approval amount he qualified for because of his student loans. He had basically no debt other than a little over $130k in student loans all in deferment for the next 11 months and was of the mindset that this debt would not count against him as a result. His credit report showed a $0/mo payment and he was a little confused as to why when he spoke to different lenders local, regional, and national each offered very different opinions on the purchase amount he could qualify for.
In the universe of mortgage financing student loans are analyzed by credit underwriters according to three main data points that normally appear on your credit report in order of importance: Repayment status, monthly payment, and current balance.
While monthly payment and balance don’t need further elaboration, knowing your repayment status and how it impacts how your payment is viewed by creditors is a little confusing. For anyone seeking a mortgage your student loan is considered to be in a Regular Repayment status if the monthly payment is fixed and is fully amortized over full term (i.e. 5,10, 15 or 20 years) of the loan. The best case scenario here is when the fully amortized monthly payment amount(s) appear on the credit report along with your balance(s). In some cases you can be at the start (or restart) of regular repayment status, but the payment amount does not show on the credit report and you can clear this up with documentation from your student loan servicer showing what the payment should be.
If your student loan is not in a regular repayment status you are most likely in Deferment, Forbearance, Graduated Payment plan, or an Income Drive Repayment (IDR) plan. No matter what your scenario, having one of these status means you are paying an amount less than the fully amortized payment or you aren't paying anything at all. When applying for a mortgage your credit report will show one of the following: no monthly payment (as in no number appears in the payment field), a $0/month payment is listed, or a payment significantly smaller monthly payment with respect to the balance of the student loan(s). None of this disqualifies you from getting a loan but the debt will most likely be counted toward your debt ratio using several different methods which will impact what you can and cannot finance.
FHA: FHA underwriting is the most inflexible next to USDA with respect to student loans. If you are not in regular repayment status, FHA will use the greater of 1% of the outstanding principal balance or the monthly payment on the credit report. While highly unlikely, if documenting the fully amortized payment over the life of the loan proves to be less than the 1% or payment showing on the credit the fully amortized payment can be used.
USDA (Rural): USDA underwriting always defaults to 1% of student loan balance monthly payment calculation method or the payment that appears on the credit report, whichever is more, no exceptions. Combined with the most conservative debt ratio across the board the USDA loan can be very difficult for any borrower(s) with student loans. Other restrictions like family household income limits and property eligibility also apply to USDA loans. Just as with FHA, USDA loans have great offerings too.
Conventional: If you are talking to a lender, regardless if you have student loans, ask if they offer both conventional loans underwritten by both Fannie and Freddie Mac. If they don’t and you are buying/refinancing in Alabama or Florida call us at 888-269-8335. We say this because not all conventional loans are the same and this advice will be true even if you have no student loan debt.
So for our example above using a conventional loan underwritten by Freddie Mac versus Fannie Mae, Freddie is twice as flexible with the student loan debt in that it would calculate our borrower’s projected student loan payments at $650/mo versus $1,300/mo.
VA: For eligible veterans it is no surprise that the VA is likely the most flexible with student loans. VA underwriters will use the greater of the student loan payment listed on credit report or 0.42% of the balance (that is 5% divided by 12 months). If the 0.42% is greater the actual payments can be used with a letter from the servicer. IDR plans resulting in a monthly payment greater than $0/mo can be used, and IDR plans resulting in a $0/mo payment can be used if they continue 12 months beyond the loan funding date. Also loans deferred loans beyond 12 months of the loan funding date can be calculated at $0.
If our borrower would have been eligible for a VA loan, the payment calculated by underwriting would be $546/mo versus $650 (Freddie) or $1,300 (Fannie Mae).
Jumbo: Other than to state our own, there is no industry-wide standard for student loan requirements on jumbo loans (amounts over $484,500 as of Oct 2019 in AL and FL (exclude Monroe Co)). Loans in repayment can use the payment on the credit report or documentation of actual. Any loans showing a $0 payment will use the 1% of balance monthly payment calculation. We have other info available on this blog for Jumbo Loans and Jumbo Construction Loans.
If the numerical differences between how these student loans are calculated from program to program doesn’t seem important, know that for this buyer it meant being able to afford the $325,000 home in a much better neighborhood with better schools over a $210,000 property. For some it might mean the ability to buy versus not being able to buy at all. For others it might mean being unable to refinance their existing loan.
Other than Google (j/k Google) there is no evil company preventing people from getting the most truthful information. With loan guidelines that are updated several times a year and lenders enacting their own overlays on top of those rules will only result in growing public confusion on this and many other topics related to mortgages. Missing just a little information about how debt impacts you can lead to all kinds of financial decisions that can impact you and your family today and for many years to come. We believe that empowering yourself with solid information and picking a lender with the highest level of expertise in the marketplace are your keys to success with home buying and refinancing.
If you have student loans and are buying, refinancing, or building a home in Alabama or Florida we urge you to seek out information like this and contact us with questions. No two scenarios are ever the same and we’d love the chance to get to know you and help you plan your future.
If you want to find out how much you can qualify for today, complete our online application 24 hours a day, 7 days a week.
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Does student loan forgiveness in the future allow me to buy a house now?
A few months back we received a call from a nice family from Fort Deposit, Alabama asking about building a new home after having outgrown their current home. We had given them several options and a plan for building on land they already owned with an FHA construction-to-permanent loan. Ultimately after researching and planning for several weeks they decided nine to ten months to have their new home built was just too long for their needs.
After a quick re-evaluation, we pre-approved them for a several other loan products including a USDA loan with the disclaimer that any property they found would first need to be eligible for USDA financing. A few days later they contacted an agent and found a great home on 14 acres with a similar floor plan that was built in the last ten years for under $260,000. The property was loaded with amenities like granite counter tops, hardwood floors, custom tile bathrooms, and an outdoor kitchen as well as energy saving options like spray foam insulation in the attic and tank-less hot water heater/circulation system. Not to mention to surrounding land was loaded with mature pines and provided the privacy they were hoping for (see more pictures below).
Within a few short days the home was under contract and we had USDA loan approval. The contract was written for 45 days and we had their loan ready and clear to close in 41 days. The sellers and agents were all very pleased and closing went very smoothly as planned. Most importantly the hard-working family who thought they would build found using a USDA loan and buying an existing home ended giving them an attractive home in a short amount of time, with little to no money out of pocket (seller’s concessions applied), and very affordable payments.
As it was with this family, the home buying process doesn’t always end up exactly where you start and that is why it is important you choose a lender that is an expert in closing loans custom fit for you in your market in Alabama or Florida. Many lenders pretend, we deliver.
There is never any fee or obligation to learn more about the buying process, research your different loan options, get a quote, or get pre-approved. You can visit us online for quotes and pre-approvals 24 hours a day or for more information give us a call at 888-269-8335 during normal business hours 8-5pm M-F.