overleveraged

With mortgage rates at historic lows, many people might be tempted to buy a home before they’re financially ready.

In order to determine where homeowners have the most unsustainable mortgage debts in the country, WalletHub recently released the 2017 Home Overleverage Report. Their analysts compared the median mortgage debt to the median income and median home value in more than 2,500 U.S. cities.

Dallas did not fare well when it comes to overleveraged mortgage debtors.

“Dallas ranked fairly well when compared to other major cities as it has an affordable median house value at $135,400,” said WalletHub analyst Jill Gonzalez. “However, the median earnings per individual are fairly low at just $27,935, which makes it harder to pay off a $131,144 median individual mortgage debt.”

Many residents are simply taking on more mortgage debt than they can handle, and putting very little money forward as a down payment.

“Being overleveraged can make it harder for homeowners to make their monthly payments, possibly leading to defaulting on their mortgages,” she said. “The city was ranked and scored based on its mortgage debt-to-income ratio and mortgage debt-to-house value ratio. Dallas’ overall rank is mostly due to its high debt-to-income ratio, at 469 percent.”

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mortgage

On Friday afternoon, just hours after swearing in, President Donald Trump suspended a Federal Housing Authority (FHA) mortgage premium rate cut issued by former President Barack Obama earlier in the month. The quarter-point cut would have taken effect on January 27.

An FHA loan, with its low down payment and less stringent credit score requirements, offers first-time and low-income homebuyers the opportunity to get a foot in the proverbial door. Aimed at countering rising interest rates following the November elections, the Obama administration’s mortgage insurance premium (MIP) cut would have made it possible for a greater number of buyers to be eligible for credit based on their debt-to-income ratios. For even more buyers, it may have made a monthly mortgage payment more affordable.

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CB - CD-1

Cheryl Brown started at Guardian Mortgage Company in 1982 as a loan processor in the original Grand Blanc, Mich., office. Thirty four years later, Brown is the senior vice president, head of operations at the company. What a wonderful success story, one that also tells us just how dedicated Guardian Mortgage employees are to the company. You just don’t hear of long-term, ladder-climbing employees anymore, and this is a welcome message!

But that’s not the only reason we’re singling out Cheryl Brown as our Guardian Angel of the month. We also want to praise Brown’s adaptability in the ever-changing regulatory landscape of the real estate business, and her focus on customer satisfaction.

Learn more about Brown and her journey after the jump!

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Courtesy Kirwan Institute This 1937 Home Owners' Loan Corp. map of Dallas (laid over a current map for reference) shows who could get a loan, and who couldn't.

Courtesy Kirwan Institute
This 1937 Home Owners’ Loan Corp. map of Dallas shows who could get a loan, and who couldn’t.

If the lending practices of the 1940s were still in place, would you have been able to get the mortgage you currently have? In some neighborhoods in Dallas, you’d be fairly confident in saying yes. But in others, the answer might surprise you.

A week ago, I was able to attend a workshop hosted by Children’s Medical Center and Ohio State’s Kirwan Institute about (in part) lending practices in the post-Depression era. Many of these practices openly continued until 1968, when they were forbidden by law. But they continue to shape and affect some neighborhoods even today.

But first, some history on home ownership prior to the Depression. Prior to the FDR era, home finance was not the standard 80/20 30-year mortgage we are all familiar with. Home ownership tended to be for the wealthy, or those who could afford variable rates, very high down payments and short terms. Many renegotiated their mortgage every year. Many also were faced with a large balloon payment at the end of the loan.

Partly in a bid to create steady work for construction sector and partly to address pressure placed on the housing market by banks reselling foreclosures (nearly 10 percent of all homes were in foreclosure at the height of the Depression and around 250,000 homes per year were foreclosed upon between 1931 and 1935), the federal government stepped in to modify the business of financing a home.

One of the results of that intervention was the Home Owners Refinancing Act of 1933, which created the Home Owners’ Loan Corporation, or HOLC. The HOLC raised funds through government-backed bonds, purchased the defaulted mortgages and then reinstated them. The agency also changed the terms for mortgages entirely, creating the mortgage as we know it now – fully amortized mortgages that were fixed rate and long term. (more…)

Mortgage loan

Getting a home loan can be a challenge for self-employed people: A typical mortgage lender wants to see one job with steady month-over-month income.

But an independent contractor might have time off between jobs, varying amounts of income each pay period, and business income that looks low because of capital investments, which are common tax write-offs for the self-employed. This often means they can’t qualify for a traditional home loan, even though they’re earning enough to afford it.

In fact, about one in four borrowers see their traditional purchase loan applications rejected in areas like Dallas and Travis counties, where self-employment is roughly 30 percent, according to Zillow. Around the rest of Texas, the chances of being rejected can be even higher for well-qualified borrowers, including small business owners, freelancers, entrepreneurs, and self-employed borrowers.

“It’s not that they aren’t financially capable of buying a home—it’s that they’re up against a traditional lending system that hasn’t adapted to a changing workforce,” said Michael Slavin, CEO of online mortgage lender Privlo, which rolled out its services in Texas Friday, one of nine states in which it is currently doing business.

“We underwrite each borrower and are able to tailor the loans,” Slavin said. “We’re using technology to be a lot more flexible because we deal with the exceptions to all the lending rules.”

Because of those exceptions, Privlo considers many more data points beyond the typical W2 used by traditional banks and institutions to assess a borrower’s creditworthiness, like tax returns and bank statements.

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monthly_payment 1-affordability

I love using real estate apps on my phone. Every time I drive by a “For Sale” sign in a neighborhood, I pull out my phone and queue up one of my favorite listing apps (yes, I have more than one on my phone!) and check out the property and sometimes other ones nearby.

Now, if I was actively looking for a home and wanted to know what kind of rate I could get and how much my monthly mortgage payment would be on a property, well, most listing apps don’t offer that service. And if they do, the information isn’t always accurate.

But Realtor.com, the site that prides itself on having the most accurate listing information on the web, says it’s fixed that issue for good.

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Chart: Zillow

Chart: Zillow

Lots of people wonder if, considering their location and income, if it’s not more financially sound to buy or rent a home in their area. In some cities, renting is the obvious choice (hello, New York!). But what about Dallas?

Zillow combed some facts and figures and came up with data that shows where it makes more financial sense to rent based on what they call the “break even horizon.

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Print

Like they say, there’s good news and there’s bad news.

Realtors and brokers won’t come out unscathed from the federal government shutdown, as a report from the National Association of Realtors shows. If you’ve got a closing coming up, best be prepared to have some hiccups.

While the NAR report says that FHA will “continue to endorse new loans in the Single Family Mortgage Loan Program, multi-family loans won’t be processed. VA loans will be processed, too, and flood insurance from FEMA will get a government stamp, and Fannie Mae and Freddie Mac are still keeping the gears greased.

On the flip side, if you have to process IRS forms or verify Social Security numbers through the SSA, you’re out of luck because these offices are closed.

Read the whole document below.

NAR Government Shutdown Brief