This week’s Highlights:
- Financing vacation homes
- Upsizing for a growing family
Fannie Mae and Freddie Mac chance vacation home financing rules
Fannie Mae and Freddie Mac are reducing the number of mortgages secured by vacation homes and rental properties. Fannie and Freddie are essentially insurance companies. Long story short, they basically ran out of money back in 2008 because the claim that they pay is very high. They guarantee the timely payment of interest and the eventual return of all principal on any mortgage that they guarantee.
According to the Mortgage Bankers Association of America, the pipelines of loans in process right now are 10.2% backed up by vacation homes and investment properties. A lot of investors will likely announce they’re over their limit of home lending. Up until now, the financing terms that you’d get on a vacation home were identical to what you get if it was a primary residence.
Fannie and Freddie only buy loans up to $548,250, which is why you need a jumbo loan for anything greater than that. They’re essentially just trying to protect themselves from running out of money.
Learn how to get the best rate for you with Accunet Mortgage and our team of refinance experts—click here to get started.
Buying a Second home in Florida
Real Client Experience: Update
Reminder: We have a client looking to downsize in Wisconsin, and purchase a second home in Florida with the intent to retire there eventually. They recently contacted us to let us know they got an accepted offer for a place they really like, and are ready for the pre-approval process. All of a sudden, we learn the husband isn’t retiring eventually… he’s retiring this summer. That’s very soon!
So what does this mean? Well, keep in mind in order to be approved for a loan, you need to use the income you’ll be using for the monthly payments. That means if he’s retiring in June, we are unable to use his current salary for the approval process.
We have a couple of options:
- Refinance their current property with a bridge loan and pay it off. Then we’re converting a high mortgage payment to a very low one because the bridge loan payment is interest only.
- Pay off the $6k left on the husband’s existing car loan, which will lower the amount of monthly debt they have as a couple.
- Remove the husband from the loan application entirely.
We didn’t love the idea of having them burn 6 grand on a car loan payment, and neither did the wife. The best decision for this particular scenario is to remove the husband from the loan application, which is what we decided to do. Long story short, there’s more to mortgage pre-approval than just how low your rate is. There are different “best options” for everyone’s financial situation.
Buying a new home? Start here so you know what to expect from the process!
Growing family needs a bigger home
We have a Wauwatosa family that’s looking for a larger home in Brookfield for their growing family. We all know their Tosa home is going to sell very quickly because of the hot market, but they can’t write an offer until they sell their current home.
We can do a bridge loan up to 80%, but the wild card there is I’m being conservative in saying that might net us $25,000 more. That extra $25,000 will be at interest only, which means the lowest possible payment. They also have about $10,000 in savings. Their budget for a new home is $450,000, which means having a total of $35,000 is only 5% down. Not super attractive to a seller.
Mortgage lenders measure your total debt obligations. This client has debt payments on their existing home, car loans, and student loans. Typically you want to keep all debt payments under 45% of your monthly income.
In this case though, because they have excellent credit, I just got a scenario approved at 49.9% of purchase price.
One thing to consider: Real life is different from mortgage life. In a perfect world, they could just write an offer saying they’ll definitely sell their Wauwatosa home, because we all know they will. And their debt to income ratio is going to come down from the two high 49% of their income to maybe 25% of their income. Unfortunately, trusting the home will sell won’t fly with Fannie and Freddie.
Solution: We have the option of looking into post-closing occupancy. That means you can live in the home you just sold for up to 60 days. Then we can exclude that payment because you no longer own the home. Buyers will most likely say yes to that for a reasonably priced home in Tosa.
Lock in your rock-solid pre-approval before rates continue to rise—click here to get started.
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