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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2017

Prepare for the Unexpected

Niche loan products help originators deal with unusual circumstances

Prepare for the Unexpected

For every unique lending situation, there is a unique loan solution. In today’s ever-changing economy, it is critical for mortgage originators to have access to a vast product portfolio with an array of loan solutions for even the most improbable situations. Like butterflies flitting around a succulent flower, no two borrowers’ financial situations or goals ever follow the same path.

Mortgage lenders continually add loan products to their portfolios to keep up with market fluctuations. Savvy originators not only keep up with the innovative offerings their lenders create, but understand how to use those products to benefit borrowers who come to them with unique problems. Ironically, today’s thriving economy is the catalyst for many of these unique financing situations.

Changing jobs or locales

A new job and moving are frequently listed as two of the biggest stressors in life. More times than not, these two life events go hand in hand. Fortunately, there are loan solutions on the market to lessen the stress of starting new employment after buying a new home.

Originators may be able to find lenders that will arrange mortgages with a variance allowing the loan to close before the borrower starts new employment. A job offer or contract for future employment often is satisfactory as proof of income for qualifying purposes.

If a job offer takes someone across the country, that potential borrower may face higher home prices on the other side. With the recent recovery of the housing market, home prices have soared in many areas of the United States. Unfortunately, for many borrowers, their savings accounts have not increased as rapidly.

Jumbo loan programs can help here. Jumbo loans are no longer just for the wealthy. They are bringing out-of-reach homes within reach for thousands of upper middle-class families. Jumbo loans have downpayments as low as 10 percent — or even 5 percent in areas of the United States with notably higher housing prices. In fact, loan limits were recently increased to as high as $636,150 for single-family homes in areas designated as “high cost” by the Federal Housing Finance Agency. 

Managing financial issues

While the economy may have recovered from the Great Recession in most areas of the country, some Americans are still down on their luck. Many hardworking people lost their homes or were forced into bankruptcy due to layoffs or reductions in income over the past few years.

Jumbo loans are no longer just for the wealthy. They are bringing out-of-reach homes within reach for thousands of upper middle-class families.

Loan products exist that have been designed to help borrowers who have experienced a short sale, bankruptcy, foreclosure, or a deed in lieu of foreclosure to get back into a home. These programs typically have no seasoning requirement, or waiting period, for these derogatory events. Even multiple credit events in the past four years are allowed with such loan programs. Products like these can help qualified borrowers access financing not readily available to them previously so they can re-establish homeownership.

Other potential borrowers are just now getting back on their feet financially after the recession, and need help controlling mortgage-related costs. It is one thing to scrape together a downpayment, but it is yet another to fit that mortgage payment into a monthly budget. And then there are all of the extra costs for maintaining homeownership — property taxes, homeowner’s insurance, association fees, and mortgage insurance — which can add up and be difficult to manage.

Controlling the costs for mortgage insurance is one area where originators with access to the right loan programs can help borrowers. Loan solutions like a lender-paid mortgage insurance (LPMI) conventional loan can lower a borrower’s mortgage insurance (MI) costs when compared to the MI costs on a Federal Housing Administration (FHA) Loan.

An LPMI conventional loan may have a higher interest rate than an FHA Loan, but will likely have a lower monthly mortgage payment. This can result in substantial savings over the life of the loan. The amount saved will vary depending on the amount of the loan, the borrower’s loan-to-value (LTV) ratio, FICO credit score, and the amount of MI coverage needed.

In addition, an LPMI conventional loan factors the cost for the MI into the interest portion of the monthly mortgage payment, so borrowers can effectively deduct their MI payment on their taxes because it is part of their deductible mortgage interest.

Borrowers with no FICO credit score can now get conventional financing with nontraditional credit sources.

Originators also can help borrowers save money when they refinance. Many people took advantage of the lowest interest rates in history this past year by refinancing their mortgages, but some borrowers were likely deterred from capitalizing on this opportunity due to concerns over closing costs and the hassle of a going through a property inspection.

Although rates are beginning to rise again, these borrowers still have time to refinance and, as of Dec. 10, 2016, originators can offer an enhanced property inspection waiver through Fannie Mae’s Desktop Underwriter system for certain refinance transactions. This will save eligible borrowers time and money. Purchase transactions and many refinance situations are not eligible for a waiver, however, so it is important for originators to understand how the program works.

Helping a variety of homebuyers

More and more millennials are entering the housing market as they age and start families. For some, however, a home is their first major purchase — and their first purchase with credit. This can present a problem if they have not spent any time building up their credit rating.

Borrowers with no FICO credit score can now get conventional financing with nontraditional credit sources. One possible source is consistent payment of rent or other housing-related expenses over a 12-month period. Another source may be consistent payment of utilities, insurance or car loans, again over a 12-month period. Not having a FICO credit score is no longer a barrier to getting a conventional home mortgage, which is good news for millennials and the originators working with these young borrowers.

On the other side of the spectrum, baby boomers nearing retirement may be hoping to downsize and finally purchase that condominium in Florida. Lending options for non-warrantable condominiums are hot in the market. These products provide financing for condominiums that do not meet the requirements of Fannie Mae. Typically these are condominium homes in high-rise towers, mixed-use spaces and second homes, or investment properties. Originators with aging clients may want to learn more about these programs before reaching out to prospects.

Finally, although many Americans have joked in recent months about making a move out of the country, living in the land of the free — if only part time — is still a dream for many people around the world. A foreign-nationals loan program can help make buying a second home or an investment property in the U.S. easier for qualified non-U.S. citizens. Such programs offer fewer restrictions and greater flexibility than other loan programs for international homebuyers. Domestic credit is typically not required.

•  •  •

Mortgage solutions like those listed here allow originators to help as many people as possible attain the dream of sustainable homeownership. Lenders create these loan products to give originators the flexibility to handle exceptional circumstances while at the same time providing prudent, responsible underwriting.

It is important for originators to evaluate a lender’s culture and product availability when deciding if the company is a good fit for their business and their clients’ needs. At the end of the day, all lenders buy and sell to the same investors. It is a company’s sales philosophy — such as a focus on sustainability or a willingness to offer niche products and educate originators on their potential uses and benefits — that sets it apart.


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