All Forum Posts by: Zach Wain

@Jason Howell - correct.  80% loan to value on a new first mortgage.  Assuming the value is $367,000 means a new loan size of $293,600.  This new loan will pay off the existing mortgage of $218,000, so $75,600 cash back to you minus any closing costs.

@Ibrahim Yamini - Use $70k-$75k as the cash out number but the rest of your plans are accurate. I would also consider going with a low closing cost loan and taking a higher rate rather than paying high closing costs for a very low rate because it sounds like its 50/50 if you will stay in your home for a long time. If you save your VA loan benefits for a future primary home purchase that is great, but if you dont move for a very long time you may consider refinancing into this mortgage again in the future. Low closing costs is better for the vast majority of borrowers.

@Ibrahim Yamini - Thank you for serving our Country!

If you are active military I assume you will have a VA funding Fee on any cash out refinance or new VA purchase (this is waived for Veterans with a service connected disability). This is important because this fee is financed, but it is a major closing cost that needs to be accounted for.

On all cash out refinances (VA), the funding fee is 3.6% of the loan size. For your cash out refi scenario, $330,300 loan size will have $11,890 financed on top for the VA funding fee. Expensive!!!

On a new VA purchase, the VA funding fee is 3.6% with 0% down (it is cheaper when its your very 1st time using VA). But, if you put 5% down, the VA funding fee drops to 1.65% which is much more tolerable.

My 2 cents, since you have equity in your primary right now, consider a cash out conventional loan to 75%-80% loan to value and that may net you $70k-$80k. Live in the home for a year, and then rent it out and buy a new primary home using a VA loan with 0%-5% down (to reduce the VA funding fee). That leaves you funds to continue to invest and buy other homes down the road, make repairs and upgrades, rinse/repeat.

DM me if you want to gameplan and come up with some more options.

Someone posted in mortgage forum that Chase added a 1.25% price hit to 2nd homes today (for any consumers - price hit  means 1.25% added discount points for the same interest rate).  They are not one of our lending partners so I can not confirm that.  

I have not heard news that is quite as dire as "Very soon you won't be able to get any second home loans because the lenders will have their portfolios full".  Some lenders may need to put a pause on rentals/2nd homes, but not every lender is at 7% right now.  If it is truly percentage based, as the lender does more primary home loans that leaves more room for 2nd homes and rentals.  Lenders like doing loans, I think we need to see how it plays out before we know what the consequences will be.  

Smaller direct lenders may be cut off from rentals/2nd homes if their numbers are off, but it pays to have options with your lender selection when these crazy curveballs come.

@Michael LemMon - Each lender will have their own overlays and different interpretation of the Fannie Mae/Freddie Mac guidelines (for conventional loans).  But the majority of our lenders only require that a vacation/2nd home must have some personal use, they do not define the amount of days.  You are allowed to have short term rentals in your 2nd home, as long as you use the property for personal use as well.  It is a hazy definition, but it works quite well for most scenarios.

On the Occupancy certificate that everyone signs at closing, it states your intended occupancy is for 1 year.  After 1 year of the appropriate use, you can convert the home to a rental property, primary home, whatever you want at that time.  Nice and easy!

2nd homes require a min downpayment of 10% down, they are eligible for appraisal waivers, and they get almost the same exact rate as a primary home does.  There might be some changes coming down the road to 2nd home rates/pricing, but we need to see how some of the new Fannie Mae/lender rules play out before we know if there is any impact to pricing.

Good luck!

@Evan Polaski - I do not think there will be a large increase in conventional primary loans that are lower quality. There are more FNMA/FHMLC updates coming and rumor is they will more stringent on high DTI loans. Maybe 1%-2% increase in loan denials and/or AUS denials. Less of the 50% DTI loans, etc.

FHA volume may increase especially if Biden cuts the PMI factor by 0.25% which would be nice for that group of borrowers

@Joe Splitrock - This is a popular assumption, and it makes sense to me "Maybe the goal is to slow investors to encourage owner occupied instead?"  I think so...

The info I received from MBS live, which is the same editor as mortgagenewsdaily, was that the current loan percentage of rentals/2nd homes is roughly 7%, I did not hear the avg is above 7%.  The chart in that article goes as far as 8/2020 so the current numbers are likely different.

The metrics for what a high risk loan are "A high risk loan has at least two of the following characteristics: a loan-to-value (LTV) ratio higher than 90 percent, a borrower debt-to-income (DTI) ratio above 45 percent, and a borrower credit score below 680."

Since the min downpayment for a 2nd home is 10% and rentals are 20%, that eliminates 1 of the metric already for all 2nd homes/NOO's. If 1 out of the 3 metrics are automatically gone, than it makes sense (by this formula) that most non primary homes are less risk. If there is a downturn in home values, people tend to foreclose on a rental home much quicker than their primary home, so I think there should be other considerations besides that "high risk" metric. But that is just my 2 cents.

mortgagenewsdaily is a great site, awesome content!  Matt Graham also runs MBS Live which is where I get my live MBS trading information so we know what the mortgage rate market is doing.  I highly recommend for any mortgage professionals

Last night we were notified that Fannie Mae is making some changes to their Rental property and Second home purchases.  This morning we are getting more clarity.  There is not going to a standard LLPA (price hit) in addition to the ones already in place, but rather, Fannie Mae will not purchase rental property/second home loans from an individual lender when it makes up over 7% of their delivered loans to Fannie Mae.

Translation: Fannie Mae will warn lenders that excessive loans (more than 7% NOO/2nd) cannot be purchased. The net effect is that lenders who are anywhere close to 7% currently (and especially those over 7%) will be implementing substantial hits for NOO/2nd so as to keep their total delivery proportion to the agencies under 7%. This is brand new, so we are still figuring out which lenders will be impacted, or if this will be a non event and back to business as usual.

The current proportion of mortgage deliveries across all lenders is roughly in line with 7%. That means there may not be a huge impact on pricing by the time all is said and done, but in order to achieve that, there WOULD need to be quite a bit of reallocation from lenders with more NOO/2nds to those with less. Lender-specific pricing adjustments will be elevated in the meantime. Also, we should assume many lenders will want to avoid getting too close to 7%, so we should also expect the end-of-day net effect to be elevated NOO/2nd home LLPAs on average.

@Paul Welden - I have agreed with this statement until recently

"With none of the subprime loans like there were available back in the foreclosure mess 10+ years ago, and lenders having more strict qualifying guidelines, it's very doubtful we will see a repeat of the most recent foreclosure housing mess that we had 10+ years ago."

While todays lending market is nothing like it was back in 2006-2008, some credit unions have recently came out with 0% down conventional loans, and I have had more and more requests from clients with less than A+ profiles to buy with as little down as possible.  There are Non QM loans with bank statements only, and some versions of stated income; and more and more people are asking for those type of loans.  So it has me a little concerned from the consumer aspect because many people have already forgot what happened.  Lending/consumer mentality is not back to its old subprime ways, but its starting to push in that direction.  

However, Fannie Mae is coming out with some updates to its DU loan approval software, version 11.0 on March 13th and Fannie Mae is getting more strict on higher DTI, lower credit score loans and there should be about 1%-2% less approvals than before. So nothing major, but that is a good thing for the overall market.

I am wary of the 0% down consumers because they are the first to foreclose

@Lance V.

The majority of the buyers I see actively pursuing 2-4 units are buy and hold scenarios.  I have a client that bought a 4 unit 2 years ago with the intention to fix it up and flip it, but he liked the cash flow so much he kept the home.  He did a cash out refi to recoup some of his funds, but it cash flows like a monster