Non-Qualified Loan

Does a Garage Add Home Value?

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You may not think of your garage as adding value to your home since it’s not living space, but it can help. Adding a garage adds storage space, which is of high value to many buyers. Where your home is located and the type of garage you add will determine how much value it adds to your home, but know that you’ll see some type of return on your investment.

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Why Garages Matter

You still may be wondering why a garage would add value. Let’s look at it from the buyer’s point of view. Garages can:

  • Provide storage space for your vehicle
  • Provide storage space for items you don’t need on a regular basis
  • Great place to conduct hobbies, like woodworking or mechanics
  • Serve as a ‘man cave’

The uses for the garage are literally endless. There isn’t a specific use you must use it for in order for it to affect your home’s value. Just having a garage will help increase it.

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The Type of Garage Matters

There are two types of garages you can choose – attached or detached. Typically, attached garages provide the most value. This is mostly for convenience purposes. Detached garages are harder to access, especially in areas of bad weather, but that’s not to say that they won’t add any value to your home, because they do.

Believe it or not, attached garages cost less to construct. If your property isn’t set up to accept an attached garage, however, a detached garage can add value. This is especially true if detached garages are the ‘norm’ for the area.

The Style Matters

Even though it may be tempting to construct a garage that looks nothing like your own, but suits your personal preference, you may not see the increase in value that you desire. Homebuyers love a uniform look. Choosing to make the garage look just like the rest of the home will keep your neighbors happy and your home value up.

How Much Do Garages Increase a Home’s Value?

How much of a return on your investment you’ll see when adding a garage depends on the area. Do you live in an area where parking is a hot commodity? Maybe it’s hard to find street parking in your neighborhood. If that’s the case, a garage will add incredible value. If you live in an area where garages aren’t the ‘norm,’ though, you may not see as large of an improvement in the home’s value.

If you already have a garage, but it’s in less than optimal condition, renovating it can greatly increase your home’s value. A large part of your home’s value has to do with its curb appeal. Since the garage is one of the first things people see on your home, an ill-fitting garage could really hamper your home’s value.

On average, homeowners see between a 75% and 80% return on their investment when adding or renovating a garage. Before you decide to do so, talk with a local appraiser to see how a garage will affect your home’s value. If you won’t see that much of an improvement, you may want to find other ways to fix up your home to improve its value.

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Here Are Tips To Change Your Credit Score For The Better

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Adults

Keeping a good credit score has a lot of benefits other than raising your chances of getting your home loan application approved. Some of its benefits could be that it helps you create a good impression toward future employers and it’s safe to say that it does more good for you than you think.

In the case of conventional home loan applications, there are specific credit score qualifications that need to be met in order to get a mortgage. And there are still a lot of applicants that get denied because of their not-so-satisfactory scores. Some would look for other loans with flexible requirements just like FHA loans and non-QM loans.

But if you want to reap its benefits other than loan approval, there are ways to boost your credit scores. Here are some of them:

Reports can have errors and you can definitely do something to correct them.

Getting credit reports regularly keeps you on track on with your score. But mistakes can happen. According to a report from the Federal Trade Commission, 20% of consumers have to dispute and fix the errors they spot on their reports.

As a result, they see a rise in their scores. So it’s good to be very particular about these reports. If you overlook on it, there might be errors you’d miss to correct.

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It’s okay to have one or two credit card accounts.

You would probably ask how something that could potentially add up to your debt would help you improve your credit score. But contrary to that belief, having a credit card line could actually give your score a boost.

This would show that you could be trusted in carrying out debts and paying them on time. Also, sometimes having no credit card could put your score at risk to some degree. Just remember that having one is a responsibility that needs to be fulfilled at all times.

But then there’s a catch.

Yes, getting a credit card is okay. But it doesn’t mean that you just go ahead and swipe your card like it weaves magic. Remember that your ability to pay your debt is what would keep your credit score in good condition.

So don’t overuse your credit card. Make sure you only use them when you need them and make sure that you are being responsible by paying your dues.

Always pay on time.

Payment history plays a big role in your FICO score. If you have a late payment or if you have skipped a payment, that would definitely be reflected in your score.

Nothing spells out “responsible” more than showing your ability to pay your dues on time. Therefore this rule bears repeating as needed. So here it is once more: Always pay your debt on time.

Seek counsel if needed.

Credit counseling doesn’t really do much on your score but if you’re having a difficult time making ends meet, counseling would definitely help your management skill when dealing with your debt.

From there, applying what you have learned from counseling can make wonders towards improving your FICO score.

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A Closer Look Into Non-Qualified Loan Qualifications

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Perhaps Non-Qualified Mortgage (non-QM) Loans sound a bit new for some but for unique situations, a non-QM loan is a perfect fit. Since it gives an opportunity for borrowers that did not qualify for the conventional guidelines of a Qualified Mortgage, there is a sense of risk that comes with it. But it’s not something to worry about.

On what circumstances does a Non-Qualified loan apply?

Going into specifics, non-QM loans typically answer to individuals that are self-employed for under two years and are not showing a good amount of income on tax returns. Those who have high debt ratio but have a lot of reserves that can make it up can also qualify.

It bears repeating that non-qualified loans don’t necessarily mean that great of a risk thanks to the Ability to Repay (ATR) Rule by the Dodd-Frank Act. Even for non-QM borrowers, lenders will have to ensure that they can take on the responsibilities of paying off the loan.

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How would lenders determine if I qualify?

Lenders would still verify your credentials to see that you can afford to pay the loan in compliance with the ATR rule. Among the factors that lenders would look into are:

Income and assets
Bank statements could prove your funds and make sure you are good for non-QM loans.

Employment
For employed individuals, proof or documentation of your employment status is looked into by lenders to also prove your credentials. Usually, lenders would be able to verify this through W2 forms or pay stubs. For self-employed, income tax returns and a certification from the CPA are required.

Credit Score
This is a very crucial factor for borrowers. To make sure you build a good credit reputation, try not to open a lot of credit accounts, consolidate your debt around and also make sure to keep creditors updated with your personal info whenever you need to.

Debt to income ratio
Non-QM lenders typically allow those who have DTI ratios that are higher than 43% as long as you have a credit score or history that is satisfactory and you meet other non-QM mortgage qualifications.

In the end, it pays to seek advice for non-QM lenders. Shop for different loans and choose what is best fit for your situation.

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CFPB Assesses Effectiveness of ATR/QM Rule, Seeks Public Input

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The Consumer Financial Protection Bureau is assessing the effectiveness and impact of the ability-to-repay/qualified mortgage rule. It is currently seeking public input to help with its assessment on the ATR/QM rule, which will be made public by January 2019.

CFPB Director Richard Cordray in his agency’s request for information said, “The Bureau anticipates that the assessment will primarily focus on the ATR/QM rule’s requirements in achieving the goal of preserving consumer access to responsible, affordable credit.”

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ATR/QM Rule: The Creation

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was enacted following the financial crisis of 2008. Enshrined in the Dodd-Frank Act are:

  • A set of new standards requiring mortgage lenders to assess a consumer’s ability to repay a mortgage.
  • A class of qualified mortgage loans that don’t contain risky features, e.g. negative amortization, balloon payments, etc., and must comply with the ATR.

To make these rules effective and clear, the CFPB is authorized by Congress to issue implementing regulations. The CFPB consequently issued the Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z) in January 2013, as further amended and became effective in January 2014.

ATR/QM Rule: The Assessment

To fulfill its mandate, the CFPB is conducting an assessment of the effectiveness of the ATR/QM rule. The assessment involves a review of the rule’s major provisions, as outlined:

  • The ATR requirements, including the eight underwriting factors a creditor must consider;
  • The QM provisions, with a focus on the DTI threshold, the points and fees threshold, the small creditor threshold and the Appendix Q requirements, and
  • The applicable verification and third-party documentation requirements.

It will look at how these major provisions influence consumer outcomes, i.e. mortgage cost, origination volumes, approval rates, and subsequent loan performance.

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Of special interest to the CFPB is the effect of the rule on certain groups borrowers who:

  1. Are generating income from self-employment
  2. Are anticipated to rely on income from assets to repay the loan
  3. Rely on income from assets to repay the loan
  4. Rely on intermittent, supplemental, part-time, seasonal, bonus, or overtime income
  5. Are seeking smaller-than-average loan amounts
  6. Have a DTI ratio exceeding 43%
  7. Are in the low and moderate income bracket
  8. Are minority borrowers
  9. Are rural borrowers

The agency will also examine the impact of the Temporary GSE QM category, a set of QM loans eligible for purchase or guarantee by Fannie Mae or Freddie Mac with the earlier termination or expiration of the category included in the review. This set of QM loans will expire on January 10, 2021, or when the conservatorship of the GSEs ends.

Interested parties can submit comments electronically, via email, mail or hand delivery.

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Can Foreigners Buy US Real Estate?

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Yes, it is possible to own a property in the United States even if you’re a non-citizen. You can even get a mortgage to finance a property. Although it may be a bit complicated – and expensive, purchasing a property in the Land of the Free is actually more possible compared to doing so in other countries.

If buying a US property is within your future investment plans, here is a quick guide to the basics of purchasing US real estate as a non-citizen.

Almost equal

You might be surprised how little hassle it takes to procure a condo or a housing unit in the United States. Save for some limitations such as when a unit is under strict rules of certain community associations barring foreign ownership, foreign buyers are treated similarly as any domestic, citizen buyer.

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What requirements are necessary for a non-citizen, alien, or non-national to buy a US property?

You will be asked for more or less the same requirements as a citizen when you initiate property purchase. Many foreign buyers usually pay cash for their purchases but if you opt to get a loan to pay for the home, your lenders will require you to forward additional documentation, typically the following:

  1. your green card with your social security number; or
  2. your temporary residence status, work permit, and social security number

In order to secure their interests, lenders will want to make sure that you will be able to pay for the money you owe. Most would want to know the details of your employment arrangement and your credit history. Some also prefer that you have stayed in the country for a couple of years first before the application date.

When it comes to financing, foreign buyers are usually faced with higher interest rates, and are required to put down more for down payment (usually 40 percent) than a citizen (20 percent). More security makes sense, since should the foreign buyer default, it would be harder to serve them with a legal process and their legal assets will be more complicated to tap.

The case of closings

It would be extra hassle for a foreign buyer to fly in and out of the country just to settle his or her financing process. So the law allows for the foreign buyer to provide a “Power of Attorney” to an agent who can represent him or her in the US and make the necessary engagements to conclude the purchase.

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What about taxes?

Taxes are a given. And if you’re a foreigner buying a property in the US, you may be subject to differing tax laws both in your country and those in the US. You’re more likely to end up paying taxes in the two countries, depending on how the laws are structured regarding property transactions.

If, however, you are able to make the 40 to 50 percent loan down payment, you can avoid paying income taxes on any rental income gained from the property for the first 10 to 15 years.

When selling, a foreign seller will take 10 percent of the gross purchase price withheld by the IRS. This amount will be dependent on many factors such as the items in the foreigner’s tax return. Possible additional payments or a refund may be due if they file their tax returns in the US for that year.

The above-mentioned are only the basics but are fundamental in helping you get started with your plans. For further guidance, consult a legal professional who can help you make arrangements on the procurement of the property.

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The Auto Lending Industry is Tightening Credit, How About Mortgages?

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Slowing demand in cars is causing automakers to cut down production to balance the rise in available inventory. April is the fourth month in a row where automakers report poor sales. Apparently, fewer Americans are buying cars now. But what caused this?

The possibility for disaster

You might be familiar of the subprime auto loan crisis that has recently grabbed headlines. A quarter of the American auto loan debt of $1.2 trillion is lent to high-risk borrowers or those who have not-so-stellar credit scores. As the panic sinks in among lenders, many tried to mitigate disaster by setting stricter guidelines and qualifications on their loan services and products. Now, a third of new auto loan originations are given to borrowers with FICO scores 720 and up.

The tightening of credit, along with the rise in interest rates is making it harder for many potential borrowers to get financing for their vehicle-buying intent. Many are reconsidering their intention to buy new cars, with others just settling for used ones.

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But the question right now is: is the mortgage sector following the auto loan sector’s example?

A new report from the Federal Reserve’s Senior Loan Officer Survey has shown that commercial real estate lending standards tightened in the second half of 2016 following a warning by the Office of the Comptroller of the Currency regarding the easing of loan standards for mortgage originations. An analysis of a sample of fusion commercial mortgage-backed securities spanning the period of 2012 through the first quarter of 2017 also showed a significant drop in LTV (loan-to-value) ratio this year which indicates that commercial mortgage-backed securities lenders are tightening credit as well.

Not again

Remember that the boom of subprime mortgages caused the collapse of the housing market and paved the way for the Great Recession back in 2008. Of course, nobody would want to take that disastrous dive once more. Still, this does not prevent many other private players from taking advantage of the lack in competition. Those who choose to do so are racking up $20.4 billion last year alone, a significant rise compared to $12.2 billion the previous year.

Not plunging into crisis is a collective effort. But in this game of risk and rewards, the intent is always individually-motivated. Are we mature enough as a collective to never make the same mistake twice?

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A Mortgage’s Downpayment: Should It Go Higher or Lower?

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Bank of America CEO Brian Moynihan recently talked about lowering the standard downpayment on homes to 10% from 20%. If applied, it could certainly boost homebuying by millennials whose homeownership rate is the lowest among the five age groups.

Pending the mortgage industry’s action on Mr. Moynihan’s suggestion, let’s discuss the role the size of downpayment plays in today’s mortgages.

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The 20-Percent Downpayment Standard

Mr. Moynihan in an interview with CNBC believes that the move to lower the standard downpayment would not introduce much risk to lenders but would help more consumers get mortgages.

While lenders and mortgage programs as discussed below require varying downpayment sizes, 20 percent of the home’s purchase price is considered a gold standard in the industry. This rule is based on the guidelines set by government-sponsored entities, Fannie Mae and Freddie Mac.

So that lenders can sell their mortgages to either GSE, they must conform to their underwriting standards, downpayment and all. Fannie and Freddie are the biggest purchasers of mortgages in the U.S., selling to either entity will enable lenders to recoup funds they can lend to other borrowers.

Putting 20% of the home’s purchase price is beneficial to homeowners, too.

  1. There’s no private mortgage insurance. An insurance meant to protect the lenders in the event of default, PMI is separate from the compulsory homeowner’s insurance. The PMI may be added to your monthly mortgage premium, paid upfront or both as required by the lender.
  2. There’s a higher chance of getting approved. A higher downpayment lowers the risk for the lender to make the loan. A big plus, so to speak, to your loan application.
  3. There’s a smaller loan to take out. With you contributing 20% of the home’s price tag, you’ll only be borrowing the remaining 80%. This lessens your monthly payment. Say you take out a 30-year loan on a home worth $200,000 and then put down 20% ($40,000) at 4.02%, you’ll get a monthly payment of $766. With a 0% down, your monthly payment will be $957.
  4. There’s a lower interest rate to pay for borrowing. Because of the lower loan amount, thus the lower risk for the lender, a mortgage with a 20-percent down has a lower interest rate.
  5. There’s equity already stored in the home. Equity is pretty handy when you refinance your existing mortgage and do a cash-out refi. Having a 20% equity early on in the home can help mitigate the ill effects of declining home values.

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Less Than 20%?

For all its benefits, the 20-percent standard can be too high a hurdle for homebuyers to overcome. Partly to encourage more first-time homebuyers, there are mortgage programs that ask a downpayment below that threshold.

First off our list are low-downpayment mortgages from FHA. Its mortgages can require as little as 3.5% of the purchase price. FHA loans are also lenient to first-time homebuyers with not-so-high scores and high debt-to-income ratios. An FHA loan has mortgage insurance premiums, which are paid upfront and on a monthly basis.

Then there are conforming loans specially made for first-time homebuyers from Fannie Mae’s HomeReady™ with 3% down and Freddie Mac’s Home Possible™ with 3% to 5% downpayments.

Conventional loans, which don’t conform to GSE standards and not part of government programs, can also be taken out with less than 20% down. You’ll need a PMI though.

Who would forget 100-percent mortgage financing for veterans and families in rural areas? The VA and USDA loans require little to no downpayments to better serve their targeted demographics. Each loan program does not require a mortgage insurance but a funding fee for VA loans and a guarantee fee for USDA loans, respectively to cover losses in the event of default.

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Home Matters: How Much Mortgage Can You Afford?

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Home Matters- How Much Mortgage Can You Afford?

The reason why some homeowners struggle with their mortgages is because they qualified for more than they can afford. When you borrow more, you’ll have to pay more. So if you are confident in buying a home, take time to go over your financial situation and ability at this point. Your goal is to come up with a realistic answer to the question, “How much mortgage or house can I afford?”

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How Much Is Your Mortgage?

These factors can help you determine how much mortgage debt you can comfortably take on.

1. Income and debt. If you were to borrow for a home, would you be able to pay it along with your existing monthly obligations given your current income?

Add your income before taxes from your basic salary, part-time work, investments, bonuses, and commissions. In mortgages, there is the debt-to-income ratio to help determine how much of your gross monthly income goes to your debt payments, including a mortgage.

For example, if you gross $10,000 a month and have monthly debt obligations totaling $3,000, your DTI is 30%. Mortgage lenders in general would like your monthly mortgage payment to not exceed 28% of your total monthly income. This is called the front-end ratio that is dedicated to housing expense.

Then there is the back-end ratio where all your other debt obligations are taken into account. Mortgage lenders usually want a back-end ratio of 36% or lower.

Use the DTI as your guide in finding the right loan size and the right home price.

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2. Downpayment. The size of your downpayment will weigh in your mortgage affordability.

While there are mortgage programs like USDA and VA that can offer up to 100% financing, most mortgages require you to cover a percentage of the purchase price.

Downpayments, if they are large, allow you to take out a smaller mortgage loan and thus lower monthly payments.

3. Monthly payment. Other than the loan amount and the interest rate, your loan length will determine how high or low your monthly payment will be.

If you take out a 30-year fixed-rate mortgage, expect your monthly payments (principal and interest) to be really low as the loan gets stretched for 30 years.

But if you borrow with a 15-year fixed-rate loan, the monthly payment will be higher because of the expedited repayment period. This will mean more savings in interest costs.

Your goal in your mortgage endeavor is to identify the mortgage that you can responsibly pay for, something that you can afford in the long run.

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Why Do I Need to Keep Good Credit?

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Why Do I Need to Keep Good Credit?

It’s become a practical necessity for many Americans to own a credit record and a corresponding credit score. Not only do you use credit for making your purchases, a credit record is also fundamental in helping you get access to various financing resources such as a mortgage or a car loan.

But how deeply could a three-digit number really affect your everyday, economic life? Why is keeping a healthy credit score so important? Let us count the ways.

Determines your housing budget

Majority of Americans don’t have the cash to pay for a house. That is why we go through the hassle of finding a lender, sorting out all the needed paperwork, and applying for a mortgage. Or, we look for a rental property that is affordable and within our budget.

But a big part of actually getting a home to settle into is your credit score. Both the lender and the landlord would want a reliable piece of assurance that you will not default on your housing payments. And the most fundamental, universally-accepted way to prove that is via your credit record.

If you have a good score, you are more likely to get approved. But if you don’t, you better find another option – that is, if you cannot find another alternative to prove your creditability. Your score sometimes also affects the loan amount you can borrow, and the interest that will be carried into your monthly mortgage payments.

So basically, a good score equals more affordable payments. The same goes with the rent.

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Dictates what you drive

What is true for housing is also true for your car loan. If you don’t have the cash to pay it upfront, you need to find a lender who will let you borrow the money to buy the car. The lender looks at your score and if it is satisfactory, they will then dispense the money with a relatively manageable interest rate. If not, such as in the case of individuals with credit scores 620 and below, you might get denied, or be forced into the subprime market with soaring interest rates. If you have good credit, you get access to larger car loans, with better loan terms and options.

A vital consideration when starting a business

Most of the time, it’s not easy to get your ideas out there. You need money to transform your brilliance into a revenue-producing effort. That is why many entrepreneurs seek business funding via small business loans to get their own projects started. But then again, getting approved for such requires having good credit. Business loans usually have stricter requirements so when it comes to having a score below what’s considered prime, you are most likely to pass through a needle point to get the money needed.

Bills, bills, bills!

Most utility services now entail showing your provider a good credit score. That includes all your basic daily necessities that won’t be provided unless you can prove to the providers that you are a responsible payor.

A career requirement

Although not universal, many employers hesitate to hire candidates or applicants without an established credit score. Your score could also be the basis for salary offers and promotions.

As you see, having a credit score – and a good one at that – is an integral part of the American way of life today. Establish good credit habits, pay your bills and dues on time, and regularly check your record for errors. Being proactive in your credit info will help you ensure you’re ready for when you need it the most.

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Alternative Housing Options

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Alternative Housing Options

It’s almost automatic for many people to think that decent living is all about buying your own home or at least living in an apartment or flat. Forget the 30-year mortgage. But what most of them miss are the possibilities of still fulfilling a career or any creative pursuit while cuddled in nontraditional living arrangements.

Here, we have compiled some of the cheapest alternative housing options you can explore so you can live your life to the fullest without being harnessed by the shackles of convention.

Purchase abandoned properties

It’s very nontraditional but there is a rapidly popularizing trend nowadays about buying old buildings and renovating them into custom-built work or living spaces. They’re usually relatively cheap compared to listed properties and may make for an interesting abode once successfully rehabilitated.

Become a college dorm’s resident director

Dorm overseers and directors get to have a place of their own within the dorms. Aside from getting work, you also get a space for yourself. A strange living setup for those who are used to the comforts of traditional housing, but definitely an interesting one for those who want to experience the unique living situation. Worth exploring for individuals who miss their old college days and those who have looked everywhere but can’t find a cheaper housing option.

Live in a boat

Just like a house, but cheaper, and floating. Also mobile. If you love the sea, want some challenge, or tired of the old living setup, you can invest in a boathouse and practically live on the sea. Of course, you may have to consider some fees for boat repair, fuel, and mooring, among others. Check your finances first if you will be able to afford the cost of maintenance.

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Work in a university

Some professionals are offered living spaces within the universities they work for. This is great if you don’t want to commute to work, or want to be near the university while doing your tenure.

Rent a hotel room

If you don’t want to hassle yourself with maintenance, find rent prices too high, or most definitely cannot afford a mortgage, rent a hotel room! No, not all hotels are created equal and some are definitely cheaper than others, decent utilities and all. There are hotel rooms with rates that sum up to less than the average rent (fluctuates by area) per month. If you can find one, you have found your place!

Live the #vanlife

You have seen those Instagram photos and swooned over those sunset shots. It’s a lifestyle as much as it is a trend. If you want to get on the road, follow your wanderlust, and live the hashtag, buy an RV, and get yourself rolling. The average cost of campervans nowadays is about a quarter of the average home price in the US. No mortgage, more freedom. But of course, before you leave, make sure the life is for you.

Get creative with shipping containers

You can buy a shipping container straight from Amazon. Yes, I’m not kidding. And then you can work out your creative powers and transform this gargantuan of a shipping load into your custom home. It’s a thing, you can look it up. The unusual living space is durable and can decently house you and your pets. Plus, it costs way less than traditional housing.

Take advantage of your career perks

Jobs that require frequent transfer may offer their employees free accommodations to compensate for the risk and hassle of the work. Although it can get tiring, for some, it is like hitting two birds with one stone: travel and a home!

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