Weekly Rate & Market Update 5-20-16
Question of the week: Can my mom payoff my car so I qualify for a mortgage?
Answer: Yes. But…..
It is not uncommon for us to have a client pay down or off a debt in order to qualify for the loan to purchase their new home. For installment loans, like auto loans, the entire debt does not always need to be paid off in full. For most loan programs if the debt is paid down to less than ten remaining payments the payment is not counted for qualifying. I.e. if you owe $10,000 on your car and the payment is $500 per month if you pay the loan down to $5000 then we will not count the $500 per month when qualifying.
Can you mom pay down this obligation for you?
Yes she can. If she does there are several steps that will have to be followed in order to ensure we get loan approval and the transaction does not go sideways.
When mom either pays your auto lender or gives you the funds to pay down/off the loan we will consider that a gift and the underwriting policies for gift funds will have to be followed.
Steps for gift funds are as follows:
• Prove mom has the money to make the gift with a copy of her statement from the account she will use to make the gift.
• Prove the money has left mom’s account, either with copy of cancelled check or transaction statement from bank.
• Prove the money was deposited in your account, or if she makes check directly to auto lender that the balance has decreased the same amount as verified leaving her account.
That takes care of the gift, now we need to verify the balance on the auto loan is below the ten month payment threshold. To do this we will have our credit company contact the lender to verify the balance and the credit company will issue us a supplemental report showing the reduced balance.
If this is possible scenario for you my suggestion is the old-fashioned KISS process (Keep It Simple Simon):
• You get gift from your mother while we are processing the loan and we use steps above to have gift verified before we submit the loan.
• You do not send the funds to the auto lender to pay down/off the account.
• We submit the loan without the auto loan being paid down/off and indicate we will do so in escrow.
• Your closing costs for your new home purchase will include the funds needed to pay down/off the loan, so you send those funds to escrow along with the balance of funds needed to close for down payment and closing costs.
Once we run your credit report and have it in the file then we cannot omit a payment due to an account being paid down/off unless we verify the source of the funds for the balance reduction. So if mom wants to be helpful make sure she knows not only how grateful you are but also that there are guidelines we have to follow so the loan approval process does not get fouled up due to her generosity.
If this is a possibility please have mom call me and I will happily go through the process and the reasons for the process to ensure her gift goes as intended: to help you buy your new home.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Consumer prices climbed in April with CPI posting a 0.4% gain from March, but strip out a 10% bump in gasoline prices and food costs and consumers spent only 0.2% more in the month. The “core” inflation number is up only 2.1% from April 2015, pretty much at the Fed’s target line of 2% price increases. The news is somewhat mortgage rate friendly and should cool off the Fed rate hawks a little bit.
Yakety-yak. I couldn’t help but think of the old Coasters song when I read the Fed minutes from their April meeting. While sounding mostly biased towards hiking rates in June at their April meeting, the voting members of the Federal Open Market Committee don’t seem to have a lot of economic data domestically or globally to support a rate hike next month. Despite the data the refrain of yakety-yak from the board members gave a sharp bump to rates when the minutes were released on Wednesday.
Rates for Friday May 20, 2016: With the big move on the Fed news we saw rates bounce off the lows of last week. There is some upward pressure on rates as investors maneuver ahead of a possible hike next month from the Fed. We may see rates climb another 0.125% over the next few weeks. Or not if the Fed and investors look at the economic data. It is always a good idea to lock through your escrow period, those who took that advice last Friday are a bit better off than those who take it this Friday.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.50% Up 0.125%
30 year high-balance conforming 3.625% Up 0.125%
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits
It used to be a technological problem was when your fax machine was out of that thermal paper that turned yellow after a month in a file, now we get issues like I have been battling where you computer turns on but won’t do anything….arghhh! That was how yesterday started and thankfully I use a desktop and laptop so have been able to continue to work, but how frustrating to learn from the IT Brainiac that whatever is messing the computer up can only be cured by wiping the disk drive and reloading everything. Another arghhh! Thankfully I have a great back up system for my files and most of our programs are cloud based so little interruption to my work flow. But still, arghhh!
Here’s hoping you have a technologically glitch free weekend, week, month, year, decade…
Have a great week,
Dennis
