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Important Change to IRS Transcript Requirements

By Jake Perry, Fairway Independent Mortgage Corporation and Member, CCAR’s REALTOR®/Lender Committee
Have you ever been told by a lender: “We are approved, but we must have IRS Tax Transcripts before we close, this is going to delay closing”?
Good news – mortgage companies have recently changed their requirements regarding IRS transcripts. Prior to this change, many lenders would not allow a loan to close before receiving transcripts that matched the returns submitted to the lender by the borrower. This policy led to a countless number of delays and confused and dissatisfied borrowers. Borrowers could have faced a delay of days or weeks from closing on the home of their dreams.

What is this mysterious IRS tax transcript or Record of Account Transcript? It is an electronic record of a taxpayer’s IRS Tax Return. The IRS maintains records of exactly what an individual, couple, or business has filed every year. These records are kept so the government, a consumer, a CPA, or a mortgage company can go back and get a copy later.  They document the reported income to the IRS. Mortgage companies historically have required these records as one fraud prevention mechanism.

Prior to late 2017, mortgage companies were required, in most cases, to obtain transcripts that matched the returns.

The CCAR REALTOR®/Lender Committee is very excited to announce that many mortgage loans that previously required tax transcripts no longer do. Unfortunately, not all loans were excluded from the new transcript rules. For example, loans to self-employed borrowers still require transcripts. Also, borrowers must still sign the IRS form 4506T.

Here are the situations that no longer need transcripts:

  • Only hourly/salaried W2 or not employed, using documentation other than tax returns to qualify, such as Social Security or pension
  • Not employed by a family member
  • No tax returns in the file for any purpose
  • Conventional, VA, FHA

Here are situations that still require transcripts:

  • When a borrower is not required to file taxes, the lender must have a transcript that shows that there is no filed return
  • Self-employed borrowers using the income from self-employment
  • Manually underwritten loans
  • Bond
  • USDA
  • Jumbo
  • Non-arm’s length

The changes in the IRS transcript rule will remove some delays that could previously not be prevented. Will it prevent every IRS related delay? No! It’s the government, after all.

For these and other questions about lending, contact the REALTOR®/Lender Committee at RealtorLender@ccar.net.

2017 in Review

Gifts That Keep On Giving, Version 2017

By Scott Drescher, Highlands Residential Mortgage and 2017 Chairman, CCAR’s REALTOR®/Lender Committee

2017 was a positive year, despite individual struggles that some of us may have endured. The CCAR REALTOR®/Lender Committee can point to improvements in the mortgage landscape practically every year, even those that were marred by over-regulation after the market crash. However, this year we received gifts, from Fannie Mae in particular, that will keep on giving throughout 2018, as well as some improvements in other parts of the industry. Setbacks? Sure, there are always a few setbacks, too, but the positives outweighed the negatives. In case you missed any, here are some of the ones we believe stood out.

At the beginning 2017 (and it seems soooooo long ago now), FHA was poised to lower the mortgage insurance premium for new mortgages, but it was quashed. That was a disappointing start to the year, but it turned out not to portend a bad year for home buyers.

Mid-year, Freddie Mac explicitly shut down 1% down payment mortgages that were the 3% down payment mortgages with lenders rebating 2% of the sale price to go toward the down payment. The problem for both agencies is that lenders were not following their guidelines, particularly when it came to not charging a higher rate to use premium pricing to pay for the rebate. Since lenders only net less than .60% (according to the 2016 report from Mortgage Bankers Association), it would mean that lenders who follow the rules would have to pay over three times the profit from other loans to fund the losses from just one, 1% loan – a bad idea for any business.

Qualifying buyers for North Texas’ ever higher sale prices is an ongoing challenge since prices began to rise after the recession. The Agencies (Fannie Mae and Freddie Mac) made it a little easier in 2017 in four ways. First and the most important by far, they raised the maximum debt ratio 50% for down payments less than 20%. Second, the Agencies both will allow one year’s tax return for self-employed borrowers when the borrowers have owned their business for at least five years. Third, non-mortgage debts paid by others will not be counted in the debt ratio of borrowers even if the payer is not a borrower on the debt. Fourth, Fannie Mae will allow more flexibility in using a lower payment for student loan payments than old way of using 1% of the balance that was calculated prior. These changes could all allow for substantially higher sale prices than before.

Another improvement that may occasionally create some headaches or even busted closings is the removal of liens and judgments from credit reports. This puts greater emphasis on the fraud guard reports lenders use because they are designed to pick up public records. Similarly, the title commitment may have them, too. Lenders who don’t order the reports early in the process are just asking for trouble.

As for double-edged swords, the news that the Agencies expanded appraisal-free mortgages to purchase loans could help avoid both value and condition potential problems. However, your REALTOR®/Lender Committee was quick to point out that it would preclude allowing a home buyer to renegotiate the purchase price due to a low appraisal (that he might have been counting on getting) or lender-required repairs (that he was hoping to require). The value of a REALTOR® as the option arises is never more evident than when a buyer needs the wise counsel regarding saving the appraisal fee or not.

In further automation upgrade news, Fannie Mae rolled out Day 1 Certainty. This allows lenders who use it to retrieve income and asset documentation from institutions who participate, eliminating the need for income and asset documentation that comply from being hunted down by buyers. Not only has this shortened the turn times in processing slightly, but it has also allowed for fewer questions and problems that arise when underwriters unintentionally see things that were better left unseen.

Probably the best news for REALTORS® in markets with rapid appreciation is that loan limits increase along with prices. For our area, the new conforming single family limit is $453,100, and the FHA single family limit is $386,400. This humble writer started in real estate when the conforming SFR limit was $191,250.

Of course, the biggest news of the year (testing to see whether anybody is really paying attention), was when Beyoncé and Jay-Z took out a $52 million mortgage to buy a house in 2017. As the highest paid celebrity couple, it’s unlikely they cannot afford the mortgage payment.  Although it is probably not a 30-year fixed, guessing at the payment using that as a guide puts the monthly at $263,476, but you should not have fear for the wealthy couple – they must have an interest-only adjustable rate mortgage because the payment was reported to be under $150,000 per month, making it much easier to pay, I’m quite sure.

Onward and upward, friends!

Reminder: 2018 Annual Membership Renewal Dues

December 1, 2017 is the due date for 2018 Dues. The 2018 Annual REALTOR® dues and fees are $456. Following are the three ways to submit your payment:
  1. To view your invoice and/or pay online:   
    1. Go to www.ccar.net and select “Pay Dues” from the white “Supporting Your Success” box.
    2. Log-in with your seven-digit real estate license number. You will also need your MLS password. If you don’t remember your password, please click here.
    3. Affiliate members please use your member # and password assigned by Member Services. If you don’t know your member number or password, please contact membership@ccar.net
    4. Follow the step-by-step procedure to pay your invoice.
    5. PRINT your receipt page for your records.
    6. Auto-bill-pay credit card forms on file will be charged on December 1, 2017. NOTE: Members taking advantage of auto-bill-pay will continue to receive reminders until December 1, 2017.
  1. You may fax or email your credit card payment:
To fax in your credit card payment, complete this form: www.ccar.net/docs/membership/forms/credit_card_form.pdf
Fax the completed form to 972-491-3180, or email the completed form to membership@ccar.net
  1. You may also pay your dues by bringing or mailing a check payable to CCAR to:
Collin County Association of REALTORS®
6821 Coit Road
Plano, Texas 75024
If you pay local dues to CCAR as a Secondary Member, and you wish to make CCAR your primary association, please contact Member Services at 972-618-3800 or membership@ccar.net  Application fees for REALTORS® and Designated REALTORS® are waived if you are transferring membership from another association in Texas or joining CCAR as a Secondary Member.
December 1, 2017 is the due date for all 2018 Annual Membership Dues. For more information about your dues, please click here.
A $50 late fee will be assessed for all dues received at CCAR after December 15, 2017. 
Please pay online at www.ccar.net or remit to: CCAR – 6821 Coit Rd. – Plano, TX 75024-5417.
Collin County Association of REALTORS® is very pleased to have you as a member. It is our mission to aggressively provide the tools and resources for our members to succeed. For 17 years, CCAR has held the line on local dues costs while continuously improving the most responsive and personalized member services in the region. For personal attention to your dues or membership questions, please call us at 972-618-3800 or email membership@ccar.net.
Melissa Hailey

Q & A with Melissa Hailey, 2018 CCAR President

Melissa Hailey, the founder of North Texas Top Team, REALTORS®, Inc., will be installed as the 2018 President of the Collin County Association of REALTORS® (CCAR) on Nov. 9, 2017. An active member of CCAR since 2006, Hailey has served as the Chairperson for several committees, and she currently instructs various educational classes. She chats with us about her introduction into the real estate industry, her history with CCAR, and the vision she has as the next President.

Q: Since becoming a member of CCAR, what roles have you held within the Association?

A: “I started attending the Wylie Business Development Meetings in 2006. After attending these meetings for a year, someone asked me if I would help schedule the topics/speakers for the next year. After serving as the Vice Chair and then the Chair the next year, I learned about other ways to get involved at CCAR. I have served as past-Chair of CCAR’s Wylie BDM, Technology Committee, and Budget & Finance Committee. I also attend the meetings of the  Professional Development Committee, Government Affairs Committee, and TREPAC Committee, but I have not served as the Chair of these committees.”

Q: What do you enjoy most about the work you do? 

A: “I truly love what I do. I love helping people and being paid to do so. Over the years, I have found that helping clients is fulfilling, but now that I am an Independent Broker, I find that helping my agents so that they can help their clients is even more rewarding. Additionally, I love teaching for TAR and CCAR. One of my passions is to raise the bar in real estate by teaching other REALTORS® to assist their clients and build their businesses.”

Q: What has been the most beneficial part of being a member and President-Elect, prior to fulfilling your upcoming role as President?

A: “As part of the Executive Team, I find that my involvement with, and being on the Board of Directors for, TAR and NAR has been very beneficial. I now have so many connections with REALTORS® from across the country that my referral network has grown tremendously. I have also learned so much about different ways that REALTOR® Associations function across the country. One of the most eye-opening things was learning about other MLS’s and understanding how blessed we are to be a part of NTREIS.”

Q: As the incoming President, what is your vision for CCAR, and what initiatives do you have lined-up to achieve those visions?

A: “I am very passionate about educating REALTORS®. One of the things we are working on is a partnership with other area associations to host some education classes focused on fair housing. Additionally, we have moved our Technology Committee to become a part of our Education Committee so that they can work together to bring additional technology classes to our members. Another thing that is important to me is that we are reaching all of our members, regardless of where they live and work. I want all of our members to have the educational opportunities they need, as well as other member services more readily available to them in their local communities.”

Q: What surprises you most about the local real estate industry?

A: “I don’t necessarily know that anything surprises me. One of the things I am most excited about is the fact that we have had such tremendous growth in our area. With all of the corporate relocation in the Collin County area and our immediate surrounding communities, the need for housing is great, and our members are here to assist people who are moving to our area. I think that this growth will somewhat insulate our area from any potential downturns in the real estate market across the rest of the country.”

Dish on MHailey

 

1. She has a thing for cars.

While she was in high school, Hailey raced cars every weekend at Texas Raceway Drag Races in Kennedale, Texas. While her need for speed has subsided today, there is one thing car-related still on her bucket list. “My dream car is a 1976 Corvette: classic white exterior and red leather interior with a T-Top,” she said.

2. Before she became a REALTOR®, she worked at a radio station (where she met her husband), attended over 400 concerts and rubbed elbows with noted artists including Dan Aykroyd, Brad Paisley, Clint Black, Willie Nelson, Ted Nugent, Blake Shelton, Sara Evans, Tanya Tucker, Gary Allen, and John Goodman.

“My first concert ever was the “Van Halen 1984” tour,” Hailey said. While she enjoyed working for a host of radio stations—99.5 The Wolf, 570 KLIF, 1310 The Ticket, and Hot 93.3FM, to be exact—and meeting renowned musicians, she also feared losing her job. “They were consolidating,” she explained.” There was a possibility that I could be laid-off, so I was considering what I might want to do in that event.” Her husband suggested getting a real estate license, and although she was hesitant as first, his confidence in her inspired her to do so.”I am so thankful that he convinced me to become a REALTOR®.  It is one of the best decisions I have ever made.”

3. She is always up for an adventure.

Besides her love for roller coasters and visiting theme parks, Hailey also enjoys traveling. “For the past 16 years, I have taken at least one vacation trip per year and never visited the same place twice,” she says. Among her most memorable occurred in the late 1990s, when she went to the observatory at the top of the World Trade Center.

bridge loan

The Advantages and Disadvantages of Bridge Loans

By Alexandra Swann, GenEquity Mortgage and Member, CCAR’s REALTOR®/Lender Committee

With the summer home buying season drawing to a close, more and more buyers and their agents inquire about bridge loans. Sellers faced with multiple offers do not want to take an offer with a contingency to sell an existing home, and buyers often do not want to be faced with making two house payments. A bridge loan sounds like a great alternative—and for the right buyer, it can be.

How does a bridge loan work?

The term “bridge loan” can mean a couple of different things in the industry, so when talking to a loan originator, you need to be specific on exactly what you want. A bridge loan is a type of financing that eliminates the need for a contingent offer, making it easier to win a competitive bid. Since there is no contingency, bridge financing can help with shorter closing times.

Types of Bridge Loans

There are currently two popular uses of the term “bridge loan,” as well as a new third type—each with its own advantages and disadvantages.

 Short-Term Home Equity Line of Credit

The first type of bridge loan is a short-term home equity line of credit against the equity in an existing home, which can then be used as the down payment on the new house. This is most common when the prospective buyer has a home with a lot of equity and a small first-lien balance or no balance at all. The new bridge loan is attached behind any existing first, and the buyer suddenly has access to the equity in the house.

Advantages:

This type of bridge loan can solve the problem of not having sufficient down payment because the funds to close on the new home are tied up in the current home. Home equity loans in Texas have no prepayment penalties, so when the house is sold, any first lien and the bridge loan are both paid in full. The only real expenses to the homeowner are any closing costs and the interest paid on the bridge loan during the months until the original primary sells. Also, the buyer is getting a permanent loan on the new primary immediately.

Disadvantages:

The buyer is making two house payments until the original home sells, which can deplete assets and strain income. In Texas, home equity loans are capped at 80% of the value of the property, so the borrower will not be able to access all of the equity. Most importantly, Texas cash-out loans are for primary residences only, so for a borrower to take out a home equity loan knowing that he/she is planning to immediately buy a new primary is dishonest.

Portfolio Loan

The second type of bridge loan is a portfolio loan which is offered by several of the smaller regional banks. In this type of loan, there is no dishonesty because the lender understands that the loan is for the purpose of purchasing a new house. The lender qualifies the borrower and then orders two appraisals—one on the current primary and one on the new purchase.

Advantages:

Like the home equity loan above, this type of bridge loan can solve the problem of not having sufficient down payment because the funds to close on the new home are tied up in the current home. It is set up to have no prepayment penalties; when the house is sold, any first lien and the bridge loan are both paid in full. As before, the only real expenses to the homeowner are any closing costs and the interest paid on the bridge loan during the months until the original primary sells. Furthermore, the buyer is getting a permanent loan on the new primary immediately.

Disadvantages:

As with a home equity loan, the buyer is making two house payments until the original home sells, which can deplete assets and strain income. Most lenders of this type of bridge loan also cap the loan at 80% of the value of the property, but in some cases, the lender may go as high as 90%. This is very rare, however. Regardless, the borrower will not be able to access all of the equity.

The New Bridge Loan: A Short-Term Loan on the New Primary

The new, third type of bridge loan is not really a bridge loan, but because it is being sold to REALTORS® as a bridge loan, the REALTOR®/Lender committee felt we should include it here.

With this loan, the lender assesses the equity in the current home as the future down payment on the new primary and then makes a short-term loan on the new primary at 100% of the purchase price. The borrower does not have any payments on the new home for a set period of time—usually six months—while he/she is waiting to sell the prior home. The borrower is responsible for six months of interest payments, but these are generally “rolled” into the costs for the prior home. So when that home sells, the bank is paid, the lien is released, and the current home is refinanced into a new, permanent, fixed-rate mortgage.

Advantages:

The advantages of this type of financing are obvious. The buyer is able to purchase a new home without first selling the former home, without the financial pressure of two house payments, and without having to qualify with two house payments.

Disadvantages:

If for any reason the borrower’s prior home does not sell during the period set by the bank, he/she is going to be making two house payments plus interest. This could be a huge issue for a borrower who really does not have the financial resources to make both payments. Although we are accustomed to a red-hot housing market in most of DFW, remember that we have buyers coming in from all parts of the country, and those housing markets may be much cooler than ours. If the house being sold has not been priced or marketed properly, the buyer with the bridge loan may find themselves in a financially disastrous situation. Another major concern is that the qualifying situation may change during the period between the home purchase and the refinance of the new home. There are no guarantees that the buyer will qualify for the refinance, and the terms after the initial period can be quite onerous. The last major issue is that the buyer is not locking in the rate and terms of the permanent mortgage when buying the new primary residence. If rates rise or values decline, which are not unprecedented, it could be terribly painful for the buyer at the time of the refinance.

Determining if Bridge Loan is a Good Option

Bridge loans are simply tools; they are not inherently good or bad. Like most mortgage products, they are highly appropriate for some buyers and extremely inappropriate for others. No borrower should ever take a bridge loan if he/she really cannot afford to make two payments. If the buyer really does not have strong cash reserves or the income to support two house payments, that buyer needs to sell his/her house before buying a new one. Better to miss out on the perfect home today than to buy that home and be unable to make the payments nine months later. It’s always better to be safe than sorry. 

For these and other questions about lending, contact the REALTOR®/Lender Committee at RealtorLender@ccar.net.

Give Now to Help Hurricane and Flooding Victims: Monetary and Item Donations Being Accepted

The Collin County Association of REALTORS®’ heartfelt thoughts and prayers are with those affected by Hurricane Harvey’s devastation. CCAR’s North Texas REALTORS® in Action Foundation is in the process of aiding victims. Here’s how you can help:

MONETARY DONATIONS

CCAR’s North Texas REALTORS® in Action Foundation (NTRIAF) is accepting financial donations to assist the victims of the devastation left behind by Harvey. In addition, money donated will also help with the ongoing cleanup, repair and support of local communities impacted by Harvey’s destruction. NTRIAF is a recognized 501c3 nonprofit organization, and financial contributions are tax-deductible to the extent allowed by law. Donate to NTRIAF here:  www.HelpNorthTexas.org/donate.

 

ITEM DONATIONS

REALTOR® offices across the Metroplex are collecting items to aid the victims of Hurricane Harvey. Offices accepting donation items are listed below alphabetically by city. A list of crucial items needed can be found further down the page.

ARLINGTON
JP & Associates: 701 Highlander, Suite 155 – Arlington, TX 76015

DALLAS
Keller Williams Dallas Preston Road: 8383 Preston Road – Dallas, TX 75252
Donation times: Monday (8/28)–Tuesday (8/29): 9 a.m.–5 p.m. and Wednesday (8/30): 9 a.m.–Noon

FORT WORTH
JP & Associates: 1200 Summit Pkwy, Suite 500 – Fort Worth, TX 76102

FRISCO
JP & Associates: 6136 Frisco Square, Suite 200 – Frisco, TX 75034

MURPHY
Keller Williams Central: 104 N. Murphy Road – Murphy, TX 75094
RE/MAX Dallas Suburbs: 418 Village Drive, Suite 100 – Murphy, TX 75094

PLANO
RE/MAX Dallas Suburbs: 3915 McDermott Road, Suite 100 – Plano, TX 75025
VIVO Realty: 5200 McDermott Road, #135 – Plano, TX 75024

RICHARDSON
Keller Williams Central: 501 W. President George Bush – Richardson, TX 75080

These are the CRUCIAL items that are needed:
Wheelbarrows
Large black trash bags
Gloves for outdoor use
Face masks
Brooms
Paper products: Paper towels, toilet paper, paper plates, plastic forks and spoons
Mops
Windex
Rubber gloves
Water testing kits
Dog and cat food
Rubber boots
First aid kits
Flashlights
Bleach
Batteries (all sizes)
Blankets
Shampoo/body wash
Soap
Bug spray
Toothbrushes/toothpaste
Underwear (new) for men, women, and children
Socks (new) for men, women, and children
Feminine hygiene products
Diapers
Aspirin
Non-perishable food
Bottled water

If you belong to a REALTOR® or Affiliate office that is conducting a donation drive, please forward the information to editor@ccar.net so that your office can be added to the above list.

3 Common Costly Mistakes Home Sellers Should Avoid

Selling a home can be just as emotional as purchasing one. Ask any first-time home sellers. Between the anxieties of getting close to, if not exactly, the market value of the home and getting it prepared to place on the market, the prospect of things going wrong is conceivable. In a recent survey conducted by the Texas Association of REALTORS®, there are several common mistakes sellers make.

For some, the presence of substandard remodels can raise flags during the inspection and either jeopardize the sale of the home or require more money to fix. Dishonesty by not disclosing known issues with the property is another; this could lead to a lawsuit.

Even when a seller has a decent offer on the table, problems can still arise. Greediness is most likely to fault when he or she rejects reasonable offers in anticipation of higher offers. Then, there are sellers whose emotions can endanger negotiations. Yes, the house most likely holds a lot of cherished memories for the sellers. However, those moments do not warrant any merit in the home selling process or the buyer’s bottom line. While these situations are familiar, here are the top three costly mistakes sellers make:

1. Renovation costs are not recouped. There are necessary expenses that yield a worthwhile investment. Then, there are unnecessary expenses the seller either never recoups or end up costing the seller by way of repairs or credit for repairs. According to the 2016 Cost vs. Value Report by National Association of REALTORS®, some of the projects that offer the best return on investment include attic insulation at 123%, new garage door at 101%, master suite addition at 58%, and bathroom addition or remodel at 57%. The seller can spend too much money renovating the property and find that they have simply over-improved for their neighborhood. In some situations, they opt for finishes that cater to their specific tastes, rather than remaining neutral to suite a wide range of buyers.

What you can do: If possible, discuss such improvements with the seller prior to them investing their funds. Share data with them so they can educate themselves on determining what projects would yield the most return on their investment.

2. The home is overpriced. Since Texas is one of several states where disclosure of the sales price is not required, the accuracy of the value of a home can be questionable. When sellers overprice their homes, they usually seek out a REALTOR® willing to go along with that price. This might hurt your sellers’ chances to sell quickly, even when they are presented with a good offer or one that can be negotiated. They find themselves not wanting to budge on the price, especially if the offer is within days of the property being on the market. They have the illusion that more offers will come, or they anticipate a bidding war. By doing so, they take a risk of the house remaining on the market longer than expected and, ultimately, accepting a lesser amount than what they were originally offered.

What you can do: Once you meet with the seller to discuss price, present comparables in the area that are similar to theirs. Explain that the house down the street that is $50,000 more than theirs has an extra bedroom, bathroom, and a swimming pool, thus warranting the higher price. Invite them to an open house so they can visually analyze their competitors. This will hopefully provide them with a better understanding of what buyers might be comparing their house and their price to. Be honest with your sellers and if they value your expertise, they will take your suggestion and rethink the asking price.

3. The home requires basic repairs, or it is in an unsightly state. A common complaint REALTORS® hear from buyers concerns the condition of the seller’s property. Since most buyers start their home search online, they seek properties they can see themselves moving into that usually require minimal to no work. When sellers place their homes on the market, they need to appeal to as many buyers as possible, so the condition of their homes is crucial. Whether they are simple repairs like painting walls neutral colors, decluttering the home, or fixing minor issues, the money spent will help with the showings. A messy property or one permeated with pet or cigarette smells can deter otherwise interested buyers.

What you can do: While most sellers prefer not to spend money on a property they will soon place on the market, they need to appeal to buyers. Unless the property is one that is sold “as is” or is clearly a fixer upper, now is the time to have a frank conversation with your seller. Explain how making simple changes and prepping the home for sale will be money well spent in the long run.

Collin County CCAR Pulse Stats

Market Shows Early Signs of Steadying after Record-Charting Year

While the real estate market in Collin County remained strong during the month of July, it began showing early signs of stabilizing after a year of record-breaking sales.

According to data from the latest Collin County Association of Realtors (CCAR) Pulse report, three areas that are beginning to show signs of a balancing market include new listings, inventory of homes for sale, and days on market. New listings increased 4.8 percent in July compared to last year, and the supply of available homes rose 13.5 percent from July 2016. In addition, the average number of days a home was on the market last month was up 6.7 percent to 32 days.

“Seeing the amount of new listings increase in July, coupled with inventory going up, could mean that the Collin County area is very slowly making its way to a balanced housing market, which is a good thing,” says Jonna Fernandez, CCAR Chief Operating Officer. “Six months of inventory is considered a balanced market. At the beginning of this year, our inventory was only at 1.8 months—an extremely strong seller’s market. Seeing the supply of homes at 2.7 months for July is encouraging.”

Although the housing market may be showing some very early signs of stabilizing, there are still many indicators of our years-long seller’s market. Median sales price is up 8.5 percent to $305,000, which has also impacted how much home buyers can afford. Currently, the median household income is 113 percent of what is necessary to qualify for a median-priced home under prevailing interest rates. This is a 10.3 percent reduction in housing affordability from last year, when household income was 126 percent of what was needed.

“It is no surprise that we see the housing affordability index has decreased in the past year, given the strong seller’s market that we’ve experienced” notes Fernandez. “When you have multiple offer situations, homes often sell for more than their list price, thereby increasing the median sales prices of homes over time. An increase in home prices, means that a potential buyer with a median household income is finding it more difficult to find a median-priced home.”

Qualified No More: How Fall Events Wreck Havoc on Buyers’ Lending Status

By Sam Brock, Supreme Lending and Member, CCAR’s REALTOR®/Lender Committee

Your buyers have finally gotten an offer accepted on the perfect property, in the perfect neighborhood, with the perfect school district. Congratulations! They’ll be closing in September, you will have a new listing in their existing home, and you luckily have buyers ready for it as soon as it hits the market. When the contract is submitted to the lender with whom they prequalified in May, you receive an email reply simply saying, “Call me on this, ASAP please.” What could the lender need? They did the prequalification already; you know the lender does a great job, and you know the borrower looks good. What in the world has happened?

The months of August and September are wrought with opportunity for your buyers to damage their mortgage qualification status. Through what would normally be viewed as sound, financially prudent decisions, buyers can negatively affect their ability to qualify for some of today’s most widely used mortgage programs. Here’s how:

Credit Cards: Retailers flood consumers with ‘Back to School’ and ‘Labor Day Savings’ sale ads, and then pile on the discounts for opening a store credit card when they check out. For some buyers, a single inquiry can cause their FICO score to decrease below acceptable levels. For others, the new account’s monthly payment may increase their debt-to-income (DTI) ratio over what is allowed by guidelines. Even if the promotion states that there are ‘No Payments for 6 Months,’ the lender will have to ascertain what the new payment will be and add that to the list of monthly liabilities used in calculating the DTI. This can be especially detrimental with larger purchases such as appliances.

Auto loans: Traditionally, auto makers release their new models in September and October, which means dealerships are motivated to move their current inventory to make room for new models. There are often great deals to be had in August and September, and financing terms can be very attractive, but the DTI change can be a deal breaker. With many loan programs, an installment debt, such as a car loan, can be left out of the DTI calculation if there are 10 months or less remaining on the loan. If your borrower’s qualification includes a debt being omitted because of the length of time remaining, a new car loan, even with a lower payment than his or her existing car loan, will force the payment back into the DTI calculation, potentially causing that individual to exceed allowable guidelines. Again, the inquiries, especially if the buyer did what he or she should and shopped rates with multiple lenders, can cause his or her FICO score to decrease.

Student loans: Cosigning for a college-bound child’s student loans may appear relatively harmless, but changes to agency guidelines over the last few years now oblige lenders to include 1% or more of the outstanding balance in the DTI, depending on loan program. Even if the payments are deferred, lenders have to include a monthly payment in the DTI ratio. The payments that the parents and child have no intention of making until later can damage their qualification status.

Tax returns:  Many taxpayers file extensions for their personal and/or business tax returns in the spring, with the plan to file later in the year. As we all know, these extended returns must be file by October 15. If they haven’t gotten around to it yet, a loan closing in early October can easily be extended past that date. There are no exceptions available in most cases, and an unfiled return or a filed return with an outstanding balance due can cause a lender to keep a purchase from being able to fund.

The bottom line is that in the constantly evolving landscape of mortgage guidelines, everyone has to keep everyone else in the loop when making financial decisions.  Lenders, REALTORS®, and buyers have to be vigilant and communicate openly until the loan funds.  Through open, honest communication with all parties, great local lenders, like those in the CCAR REALTOR®/Lender Committee, can keep your buyer’s hopes of homeownership alive and well, no matter the season.