When buying a condo, you may find yourself in a competitive bidding situation and your realtor may ask you about waiving some or all the contingencies in your contract. These contingencies are usually things like a home inspection contingency, appraisal contingency, and financing contingency. But waiving contract contingencies on a condo can be risky.
When you move into a new home there are numerous tasks to track. It is almost impossible to keep everything organized, unless you keep track through a task list or use some sort of technology tool.
Although the closing will seem like a long time off once you get under contract for a new home, it will all happen quickly. And a lot of tasks related to moving into your new home require a lot of advance notice! It is time to start planning things ASAP, do not procrastinate. The below will help.
Property taxes are a part of the cost of owning a home. When you buy a home you not only have to consider the cost of the monthly mortgage payment, but you also need to consider property taxes, homeowners insurance, any HOA dues, maintenance, and utilities.
Many people wrongly assume property taxes are a fixed cost, and that whatever amount is billed when you first buy the house, is what the amount will be for the life of owning the home. However, property taxes can change quickly after buying a home. Most counties assess property value annually, and adjust the amount due annually.
There are times that I have used a mortgage borrower’s retirement account balance/s as income, even if the borrower is not currently taking required withdrawals from the account/s. But how can an asset be used as income? It can, and the guidelines allow it. However, there are many rules to consider.
- The mortgage must be for a 1-unit or 2-unit Primary Residence or a second home; no investment properties are allowed, and no 3-4 unit properties are allowed.
- The mortgage must be a purchase loan or a no cash-out refinance, not a cash out refinance.
- The maximum loan-to-value is 80%.
- At least one borrower on the account must be 62 years old.
- We take the account balance and divide by 240 to get the monthly income. For example: $800,000 401(k) account balance / 240 = $3,333.33/month in income to help qualify for a mortgage
All the Freddie Mac rules related to this can be seen by clicking here.
For retirement accounts that are already being used to take distributions as income, the Fannie Mae rules to document that as acceptable income are found here under the area marked “Retirement, Government Annuity, and Pension Income.” The main points are:
- If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application.
- Eligible retirement account balances (from a 401(k), IRA, or Keogh) may be combined for the purpose of determining whether the three-year continuance requirement is met.
- The borrower must have unrestricted access to the accounts without penalty.
If you are getting near retirement age or you are already retirement age, consider using your retirement accounts as income to help you qualify for a mortgage, even if you are not currently taking withdrawals from the account.
Potential homebuyers who contact me for a mortgage are now frequently asking if they should wait to buy a home. The implication is that people are now worried that housing values are going to fall, so why buy now? Isn’t it smarter to wait? Maybe, maybe not. It is understandable why everybody is asking the question, “are housing values dropping now?”
Jumbo loans, also called Non-Conforming loans, are loans that do not conform to the Conforming loan limits. Conforming loan limits can be found by clicking here. If you have a loan amount that is higher than the Conforming loan limits, then you have a Jumbo loan. Jumbo loans require that a mortgage borrower has cash reserves. The Jumbo loan cash reserves requirement is different from Conforming loans, in that Conforming loans many times do not require cash reserves at all.
Cash reserves is a certain amount that a lender may require that the borrower has left over after they pay their down payment and closing costs at closing, in reserve.
Different lenders have different requirements for cash reserves for their Jumbo loans. There are requirements for the amount of cash reserves, and there are requirements for the types of cash reserves.
Amount of cash reserves (the below is illustrative as it may vary from lender to lender):
6 months of the PITI (principal, interest, taxes, and insurance) are required in general.
4 months PITI if you are retaining your current primary residence
4 months PITI for each rental property you own
4 months PITI for a second home/vacation home that you own
Cash reserves are based on all recurring housing expenses for the subject property and in some cases for other property owned by the borrower. Cash reserves are also cumulative, so if you are buying a new home and have a rental property, per the above, you may need 10 months of cash reserves. Housing expenses, also known as principal, interest, taxes, insurance, and assessments (PITIA), include but are not limited to:
- Principal and Interest (as used in the qualifying payment amount)
- Insurances (hazard, flood, and/or mortgage)
- Real Estate Taxes
- Ground rent/leasehold
- Special Assessments
- Homeowners’ association fees
- Monthly co-op fees
- Any home equity loan or HELOC payment, if applicable
Types of cash reserves:
- Cash accounts (checking account, savings account, money market accounts, CD’s)
- Mutual Funds
- Gift money is usually not allowed to count towards cash reserves
- Retirement accounts may or may not be allowed to count towards cash reserves
I have seen lenders go back and forth over the years on allowing retirement accounts, such as 401(k), 403(b), IRA, and TSP; to be used as cash reserves.
When a mortgage lender is considering retirement accounts as cash reserves, they are not suggesting that you must liquidate or borrow against the retirement account to generate cash. Lenders are only considering the balance of the retirement account without having to liquidate any of it or borrow against any of it.
Retirement accounts are not very liquid, and hence they shouldn’t be considered cash, which is why at some points in time I’ve seen lenders not allow retirement accounts to count towards cash reserves requirements.
But currently, as of the date of this blog, we have many lenders we work with that allow retirement accounts to be used as cash reserves. This is an important development because it now allows borrowers to only need to have their down payment and closing costs liquid, but not the cash reserves.
There has been a lot of talk about e-closings recently, which allows someone to close on a mortgage remotely from the comfort of their own home or office, without physically going to a title company office. However, knowing the details is important. You need to determine if this is an option that is available to you, and if it is a good idea for you.
As of the writing of this blog, e-closings are not available in all 50 states. You need to determine if your state has passed legislation to allow them. Then you need to find a mortgage lender and a title company that have the knowledge and technology needed to participate in e-closings.
You may also hear an e-closing referred to as a digital closing, electronic closing, remote closing, and other variations.
Lenders are sometimes asked by a mortgage borrower to allow an escrow account to be created for some items to be completed. Repairs cannot be addressed by putting money in escrow. Repairs are usually required to be completed prior to closing. However, lenders may allow an escrow account to be created for items unable to be completed due to weather. Weather related delays are most common in new construction homes.
In my 3.5 decades in the mortgage business, I don’t recall a lender I have worked for ever allowing repair escrows. That is because they are typically messy, and many times end up not being resolved in a timely fashion. There are contractor problems and other situations where the cost exceeds the escrow account reserve. Weather related escrows are a different story, but repair related escrows may be impossible to get approved by a lender.
I often have conversations with potential homebuyers in speaking with them about their mortgage financing, where they ask me about whether I think Real Estate is due for a correction. Let’s face it, Real Estate has been going up in value at a striking pace in the last few years. It’s a realistic question to ask if some of that increase is due for a correction to some degree.