Diana Mulhall

Borrow Bigger in 2021 With Increased Conforming Loan Limits

Here’s some good news for the nation’s homebuyers facing increased home prices. The Federal Housing Finance Agency (FHFA) has announced a 7.5% increase to the baseline conforming loan limit for Fannie Mae and Freddie Mac home loans financed in 2021 for nearly every county in the U.S.

As of 1 January 2021, the base conforming loan limit will increase to $548,250 for one-unit properties.

The increased loan limits may make it easier for both first-time buyers and established homeowners to buy a home. Homeowners can also refinance their current home loan up to this new loan limit.

The new ceiling loan limit for one-unit properties in most high-cost areas will be $822,375 — or 150% of $548,250. The 2021 high-cost loan limit also applies to one-unit properties purchase in Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

Click here to see the new conforming loan limits for your county.

How is the conforming loan limit determined?

The conforming loan limits for Fannie Mae and Freddie Mac are determined by the Housing and Economic Recovery Act of 2008, which established the baseline loan limit at $417,000. The Act mandated that, after a period of price declines, the baseline loan limit cannot rise again until home prices return to pre-decline levels. Today’s announcement marks the fifth consecutive year of increases from the FHFA.

For high-cost areas, where 115% of the local median home value exceeds the baseline conforming loan limit, the maximum loan limit is higher than the baseline loan limit. The Housing and Economic Recovery Act of 2008 established a maximum loan limit in those areas as a multiple of the area median home value while setting a “ceiling” on that limit of 150% of the baseline loan limit.

6 Tips To Protect Your Data During Financial Transactions

When applying for a mortgage or auto loan, a lot of personal and financial information is transmitted between the borrower and lender.

As November 30 is Computer Security Day and Cyber Monday this year, and many people are shopping Holiday sales online, we thought it was an appropriate time to remind you of the steps you can take to help ensure that your online activities and financial transactions are conducted securely.

  1. Create a new, unique username and complex password specifically for each financial account, rather than one currently using to access other accounts. Avoid using words that can easily be found online in your social media posts, such as a pet’s name.
  2. Look for the signs of a secure browsing session if you’re applying online for a mortgage or auto loan or conducting any financial transaction online. A secure website URL should display a closed padlock icon and begin with https.
  3. Avoid using public Wi-Fi hotspots or networks to access financial documents or share personal information. They are generally not as secure as your home or office network.
  4. Subscribe to a VPN service to encrypt your connection and deter cyber-snoopers if you must use a public Wi-Fi service or have concerns about overall online security.
  5. Financial institutions that use consumer-permissioned data provide the most security and reduce fraud when transferring personal and financial data for a loan application. Rather than copying your bank statements, W-2s, and other documents, then emailing, faxing, or mailing the lender documents, a borrower will enter their username, password, or other authentication credentials directly into the lender’s online application or processing portal themselves. The lender is then able to securely transfer the encrypted online banking data required for the loan application. Consumer-permissioned data puts the consumer in control of what information is shared with insurers, lenders, and other financial institutions.
  6. Read the business’ privacy policy to ensure their standards meet your own. The link to the statement is usually found in the website footer at the bottom of the page. Here is the FinLocker Privacy Policy.

Learn Mortgage Lingo

While nearly all industries have lingo and jargon, not all industries are as likely to impact your life as is the mortgage industry. Basically, if you want to buy a house, you will likely need a mortgage. Knowing a bit about the common acronyms and jargon of the mortgage industry will be helpful during the home buying process.

This list is not in alphabetical order, but rather in the order you are likely to hear to terms.

Consumer: This word refers to you–a person looking to buy a house and needs a mortgage to do so.

Mortgage: A mortgage is a type loan that is secured against real estate, such as a house or a condo. Most consumers obtain one to help to purchase their home.  The term ‘mortgage’ is also sometimes used to describe the consumer’s financial documents used to determine if the consumer has the ability to repay the loan.

Pre-qualified: This is a conversation with a loan officer who requests basic information about your income, assets and credit profile. A credit report is often run at this stage, but not always.

Loan Officer: A member of the Lender’s staff whose job it is to help you figure out the best mortgage program for your situation and help you through obtaining a mortgage.  All loan officers are registered with the NMLS and a have a unique number that they will provide to you.

NMLS: NMLS refers to the Nationwide Multistate Licensing S  All Lenders and Loan Officers will have their own unique NMLS number that you can look up at:  www.nmlsconsumeraccess.org and see if there have been any adverse actions noted against them.

Pre-approval: In addition to your credit report, a pre-approval is a much more detailed evaluation of your financial situation. You will be asked to provide pay stubs, bank statements, W-2s, tax returns.  All of your documentation (your file) is then given to an underwriter for evaluation and a decision. If a pre-approval is done, the only remaining requirements after it is issued are related to the property you eventually decide to purchase. A pre-approval is rarely done.

Underwriter: A member of the Lender’s staff whose job it is to evaluate consumer’s credit profile, financial situation, and the acceptability of the property, to determine if all items meet the applicable mortgage guidelines and any and all overlays.

Guidelines: These are the basic rules that are in place to determine if a consumer qualifies for a mortgage loan. These are usually established by the Agencies.

Agencies: This term refers to the major entities involved in purchasing and insuring mortgage loans. These agencies are: Fannie, Freddie, FHA/HUD, VA and USDA. These entities establish the basic guidelines or rules to qualify for a mortgage.

Fannie or Fannie Mae: This is not the candy story Fannie May, but the pronunciation of the acronym FNMA. It is short for the Federal National Mortgage Association, a well-known institution in the secondary mortgage market, buys mortgages from banks and other lending institutions to sell to investors. Only those mortgages that adhere to a very strict set of mortgage regulations are purchased, and the FNMA also guarantees repayment of these mortgages in principal and interest with a federal government guarantee.

Freddie or Freddie Mac: This is the pronunciation of the acronym for the Federal Home Loan Mortgage Corporation (FHLMC). It shares a lot in common with Fannie Mae. It is also a government-backed institution in the secondary mortgage market that buys mortgages from banks and other lenders and gives opportunities to individuals with lower incomes to finance home purchases.

FHA/HUD: FHA is the acronym for the Federal Housing Administration, which is a part of HUD, the acronym for the US Department of Housing and Urban Development. FHA provides mortgage insurance on mortgage loans made originated to FHA guidelines by FHA-approved lenders throughout the United States and its territories. It is the largest insurer of mortgages in the world, insuring over 47.5 million properties since its inception in 1934.

VA: The US Department of Veterans Affairs has jurisdiction over all aspects of Veteran benefits and services, including a their mortgage loan program for consumers who are serving or who have served in the US military. It allows for no down payment; or put another way, for 100% of the purchase price to be borrowed.

USDA or Rural Housing: United States Department of Agriculture offer a home loan program for to properties in designated rural areas for families with low to moderate income.

Overlays: This phrase refers to the rules that are above or on top of the guidelines. These are additional rules that a particular Aggregator or Investor has established that must be met before it will purchase a mortgage.

Aggregators: These are the big Lenders, such as Wells Fargo, Chase, BB&T or PennyMac. They are also referred to as Investors. They purchase mortgage loans from smaller banks and brokers, aggregate the loans together, and sell large pools of loans to the Agencies.

Brokers: A mortgage broker acts as an intermediary between banks or other lending institutions and consumers looking to borrow money. The broker helps you to evaluate your financial standing and determine which loan program from lending agencies are best suited your situation.

 

 

HELOC: When To Use A Home Equity Line of Credit

A Home Equity Line of Credit is a loan that establishes a line of credit (amount you can borrow) based on the equity in your home. You borrow the amount you choose for the purposes you choose when you choose to, with no impact on your current first mortgage.

Many homeowners are looking to take advantage of recent appreciation in the value of their homes. In the recent past, most homeowners elected to do this with a cash-out refinance. This was especially true as mortgage rates have remained low. However, as mortgage rates begin to rise, homeowners are not going to want to give up their low fixed-rate first mortgage. Are you one of those people?

Here are some common reasons homeowners apply for a home equity line of credit:

Home Improvements

The money could be used to finance a major renovation project, such as a new bathroom or addition, or to repair the roof or HVAC system.

Debt Consolidation

Essentially, homeowners can pay off other high-interest rate debt like credit cards with interest rates often in the 20% range and enjoy a much lower rate on the HELOC.

College Expenses

Despite all the discussions on how to make college more affordable, it is still the single largest expense for most families just behind the purchase of their home.  The equity in their home could be used to help pay for college.

Refinance an Existing HELOC

This is another very common reason to take out a HELOC.  Simply to refinance an existing HELOC. Just like regular first mortgages, you can refinance a HELOC, either by rolling it into a new first mortgage or by taking out a new HELOC altogether.

Emergency Funds

As a HELOC is a line of credit, many homeowners establish the line of credit to cover unexpected emergencies–before they happen.

Reason To Refinance Your Mortgage

There are many reasons to refinance your mortgage, some obvious and some a bit obscure. Some of the situations are complete opposites of one another and will depend on your unique financial goals and/or risk appetite. Here are the most common reasons homeowners refinance their mortgage:

To get a Lower Interest Rate

If mortgage rates are lower now than when you took out your mortgage, then this one is the no-brainer. A typical rate-term refinance allows homeowners to reduce their interest rate, so you can enjoy a lower monthly payment. Beware the potential downside of resetting the clock (term) on your mortgage. The term of your mortgage refers to the amount of time it takes to repay the mortgage. You would need to specify that you want to go with your current remaining term.

To change the Term of your Mortgage

Or perhaps, you want to change the term of your mortgage. Most mortgages are done over a 30-year repayment period or term. Shortening the repay back term is another common reason to refinance. Some folks want to pay down their mortgages asap, or at least not pay them down at a snail’s pace. If this is you, there is a huge benefit to refinancing from a 30-year fixed into a shorter-term loan such as the 15-year fixed. Sometimes a 15-year term also comes with a significantly lower interest rate, which helps you to pay your mortgage off a lot faster without necessarily breaking the bank. Of course, that is dependent on the rate you had to begin with and where rates are today.

The exact opposite situation may apply too. You might refinance to extend the loan term, to lower your monthly payments. Not everyone wants to pay down their mortgage in under 10-years, instead preferring the annual tax break. Perhaps a change in your financial situation has made it difficult to make the larger monthly payment with a 15-year loan term. Refinancing to a 30-year term can provide a more manageable payment moving forward.

To change Loan Products

There are a wide variety of mortgage products out there–broad categories, such as, FHA or Conventional or Adjustable rate or Fixed rate or Fully amortizing to Interest-Only—and various combination of these groups. Just because one product was perfect when you were got your mortgage does not mean it is the perfect product for you today. Product changes are another common reason to refinance. Your personal circumstances dictate what product make sense now.

To take Cash-Out

The age-old cash-out refinance is a great way to free up your home equity and put it to work. Perhaps you want to make some home improvements or buy a second home or make another investment.

To remove Someone from Title

You may need/want to add or remove someone from title and/or the mortgage. If this is the case, a refinance can be an appropriate vehicle to do. Maybe there was a divorce and you’re buying someone out. Or maybe you’re ready to fly solo and remove mom and dad as co-signers. Again, this could be a good time to snag a lower interest rate or make a product change too.

To apply a Lump Sum to Lower your Balance

Say you’ve come across some money recently and as such have the ability to take a big chunk out of your mortgage balance. If you’re one of those people who likes to pay down the mortgage as quickly as possible, applying a lump sum to lower the balance (and the loan-to-value or LTV) will lead to a lower monthly payment, assuming you refinance (or recast). A lower interest rate and/or shorter term could apply here too.

To consolidate Multiple Mortgages

This is another classic reason to refinance. You’ve got multiple mortgages (most often, two) and want to consolidate them into one loan. A refinance is often a great way to accomplish this while also winding up with a lower interest rate. Many second mortgages have higher interest rates or are adjustable rate, so this is can be a money-saving move.

To consolidate other Debts

Another frequent reason to refinance is to consolidate other non-mortgage debt, such as credit cards or other debts with higher interest rates. This could be a wonderful move, just remember not to run up your credit cards again.

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