Approval/Qualification Process category archives

The $8000 tax credit for first-time home buyers has been extended through April 30, 2010.  It was previously due to expire November 30, 2009.  Not only has it been extended, but it has also been expanded to include more buyers.

Details

• The $8000 tax credit for first-time homebuyers is extended for those who sign a contract by April 30, 2010 and close by June 30, 2010.
• Homebuyers who have lived in their current residence at least five years are now eligible for a new $6500 tax credit on their primary residence.
• Couples earning as much as $225,000 a year and individuals earning up to $125,000 qualify.  This is an increase from $75,000 for individuals and $150,000 for couples.
• Tax credit is limited to homes worth $800,000 or less.
• Those who sell their new home or stop using it as their main residence within three years would have to repay the credit.
• Members of the military who have served outside the U.S. for at least 90 days from Jan. 1, 2009, to May 1, 2010, have an extended deadline of April 30, 2011.

How to get the credit

• Buyers can claim the credit on their federal income tax returns. If the credit exceeds their tax bill, the government will issue a payment.
• Those who want immediate refunds can amend their tax returns for 2008 to claim the credit.

Added bonus

Mortgage rates are at historically-low levels.  Combined with the tax credit, now is a great time to secure a super-low rate on a purchase loan.  Find out what rate you qualify for…anonymously…on Zillow Mortgage Marketplace.

If you’re applying for a new mortgage, refinancing an existing mortgage or applying for a loan modification, your FICO® credit score plays a key role in helping you qualify and get better terms.

Happily, there are things you can do to raise that FICO® score!

Last week, I posted tips on managing debt and credit cards. This week, I’ll cover how to rate shop for a loan without hurting your score and more overall credit scoring tips.  Remember, there are no quick fixes to improve your credit score, but it can be done.

1. Do your mortgage rate shopping in a timely manner. FICO scores make a distinction between a search for a single loan and pursuing many new credit lines. Making several rate inquiries in a short period of time for the same kind of loan, such as a car loan, is usually treated as a search for a single new loan. Stretch those inquiries out over several months, though, and it could look like you’re applying for several new credit lines. That would hurt your score. Learn more about what to know about rate shopping.  
2. If you’ve had problems, take immediate steps to re-establish your credit history.
   Open new accounts in a responsible manner, pay them on time, and keep any credit card balances low. Your credit score will slowly rise.
3. Don’t be afraid to check your own credit report. Contrary to popular belief, requesting your credit report doesn’t lower your score, as long as you order it directly from the credit reporting agency or through an organization authorized to provide consumers with reports. It is important to review your credit report to make sure it’s accurate and make corrections if you find discrepancies. 
4. Open new credit accounts only as needed. Applying for and opening new accounts or credit cards probably won’t raise your score and could lower it.
5. Have credit cards, but use them responsibly. Generally, having credit cards and installment loans will raise your credit score — if you pay them on time and keep balances low. Someone without credit cards may be seen as a higher risk than someone with credit cards who has handled them responsibly.
6. Remember that closing an account won’t make it go away. It will still appear on your credit report and may be taken into consideration by the score.

These actions won’t instantly improve your score, but as you start to manage your credit and pay on time, your score will eventually go up. If you need extra help, don’t hesitate to consult with a credit counselor.

According to the BAI survey, the perception is:

• 31% of the consumers thought it was harder to get a mortgage.
• 5% thought it was easier.
• By default that means that 64% thought it was about the same as 6 months ago.

What do I think?

If you have good credit, can document your income and assets, have enough assets for a downpayment, and are working with a MORE THAN competent mortgage lender who knows how to navigate the complexities of today’s market, then it’s no harder now than it was 6 months ago.

If your credit is struggling, you can’t document your income (sorry – self employed people who write everything off are out of luck) and don’t have either equity or a downpayment or you’re working with a lender who isn’t on top of things, then it is harder.

So, tell me – what’s the perception that you’re seeing?

31% of BAI Survey Respondents Find Mortgage Access Worsening : HousingWire || financial news for the mortgage market

Financial services information and intelligence provider Bank Administration Institute (BAI) launched the BAI & Finacle Banking Confidence Index, which tracks the effect of upheaval in the financial services industry on consumers’ views.

The index measures consumer views across five areas: financial stress and the economy, access to credit, fees and disclosure, managing personal finances and consumer trust.

The index’s findings, released Tuesday, indicate one-third of consumers feel their financial situation has deteriorated in recent months, but few expect conditions to grow even worse.

Of those surveyed, nearly one-third — or 31% — indicated access to mortgages is worse now than six months ago, while only 5% said it improved. The projections indicate 12% of respondents expected access to improve in another six months, while 15% expect access to worsen.

“In today’s fast-changing scenario, consumer opinion counts more than ever before and technology has made the consumer highly empowered,” said Haragopal Mangipudi, global head at Finacle, a solution from Infosys (INFY: 46.39 -1.70%). “Presented with diverse and ever-dynamic consumer segments, banks need to anticipate changing requirements and fine-tune business strategy.”

Markets: The bond market has reversed itself the last two days and is headed higher once again.  It has broken through a couple of lines of resistance and is now trading at what my sources say is “an unsustainable level”.  More on that below.  Current levels on the FNMA bond correspond to 30-year fixed rates below 5%, though not very much below.  Still.

Analysis: What is the definition of “unsustainable”?  If you ask me, unsustainable means “you can’t keep doing this forever”.  These days, it seems to also mean “you can’t keep doing this for long enough to matter,” as when a football team grabs an early lead through fancy trick plays, but shortly runs out of those and cannot sustain the advantage.  It matters which we’re talking about, because the bond market certainly is in Unsustainable 1 territory, but not - again, just as clearly - in Unsustainable 2 territory.  We know this because we’ve been here before.

So we’re here, and we’re here long enough to matter, IF.  It is absolutely true that most lenders (and this is especially true with the new federal babysitting regulations) cannot react fast enough to help you take advantage of rates that will be abnormally low for only a few hours.  It is also true, however, that some lenders can, and the number that have that capability can be increased by your timely action.  DO NOT WAIT FOR RATES TO HIT YOUR TARGET ZONE BEFORE YOU START TALKING TO YOUR LENDER.  That’s not going to work, people.  For most, a couple of hours is just not enough time to get all the documents whizzed back and forth before a lock becomes possible, not with rates moving with this kind of volatility.

Since I already used the running analogy last time, let me use a hunting one here.  If you think you’re going to get the perfect shot on a deer by waiting for the deer to get in the right area, then going in after it, you’re crazy.  The way to make sure of a good shot is to get there first and wait.  Similarly, the way to make sure you get the rate you want - and 15-year rates are in the very low 4s right now, for instance, with 5-year ARMs in the mid 3% range - is to get your documentation together and go over it with your lender BEFORE you need to shoot.  That gives you the very best possible chance to get exactly what you want.

These days, a couple of extra days is a godsend.  Get moving now, and give yourself a break.

Approximately a month ago, I was getting a client approved for a mortgage with mortgage insurance and while going over the details of what we needed to document the deal, the customer deadpanned to me, “Where do I go to get the bloodwork done?”    My response, “Nah, we don’t need that —- yet.”

The report below is actually from England but it now appears that the government is going to start requiring mortgage lenders in England to ask questions about how much their borrowers spend on tobacco and alcohol.

Now, if you ask me, I think that tighter restrictions in terms of downpayments, debt to income ratios, credit scores, job histories, cash reserves, etc. all make sense.   But whether my neighbor spends more or less on alcohol than I do, I can’t see what substantive difference that makes in our ability to repay our mortgages.  (Hint - I’m not the one who spends more on alcohol.)

The pendulum is swinging too far in the other direction in some areas and not far enough in others.

Homebuyers face questions on alcohol and smoking under new mortgage rules - Times Online

Homebuyers could be forced to provide detailed information about the amount of money they spend on alcohol each month to qualify for a new mortgage under a new clampdown on reckless lending.

In a sweeping review of the mortgage market published today, the Financial Services Authority (FSA) said lenders needed to be far more rigorous about their financial checks of potential borrowers.

It said lenders should delve deeper into homebuyers’ personal spending including the amount they spend on alcohol and tobacco.

Spending on shoes, clothes and childcare could also be assessed under a new, industry-wide “affordability test”.

At present, the FSA does not prescribe rules about assessing a consumers’ ability to repay a mortgage and practices vary from one lender to the next.

So this guy comes into my office. He sits down, we have a chat, and at one point he says, “I think I’d like to run a 10k.”

“You ever done any running?” I ask.

“Nope. Not really. Truth is I get winded climbing the stairs.”

“I don’t think you’re going to be able to run a 10k,” I tell him.

“Oh. Well, I guess I’ll come back in a few months and see if I can do it then.”

“You going to train, or anything?”

“Nah. Time takes care of everything, right?” he says

Okay, this didn’t happen, at least, it didn’t happen exactly like this. But I have people come see me all the time that would like to buy a house, only for one reason or another, they can’t qualify right now. They have a ding on their credit, or they don’t have a down payment saved up, or their income is spotty. Something.

We don’t beat around the bush with people. We tell them the straight dope – if they don’t qualify, then they don’t qualify. But the reaction to this news usually is something like what the guy said above, something like, “I guess we’ll try again later.”

Time was, nobody qualified for a home without serious preparation. It takes time to save enough money to make the down on a house. Credit fixes don’t happen overnight, no matter what the radio ads say. And establishing a good work history takes two years at a minimum. This was the way things were for generations. If you wanted a home loan, you needed 20% down, excellent credit and a solid work history.

Fast forward to the late 1990s. Congress decides that everyone should have a piece of the American Dream, and the standards start to relax. By 2006, if you had a pulse, you had a loan. It’s as if, to stick with the analogy above, everyone was entering marathons whether they had trained or not.

You know the rest. It turns out that the average Joe can’t run 26.2 miles. The world we live in now is much more like things have been for most of history. We’re back to the circumstances that used to exist – if you want a home, you’re going to have to work at it, just like if you want to run from Marathon to Athens, you have to train.

It’s far from the end of the world. All it takes is a bit of planning and some guidance. This part is actually fairly critical. It is certainly possible to get yourself in mortgage-shape without help, but it’s always going to go faster and be less stressful if someone helps you put a plan together. Rates are headed higher, home prices are rising, every month’s delay in getting in financial shape could cost you thousands. So why do it? The help is free.

Call your friendly neighborhood mortgage professional and ask for a checkup. If he’s not happy to speak with you and help you, call me and I’ll do it.

When shopping for a home, buyers often require extra funds to help with the down payment and closing costs. And while FHA offers programs with as little as 3.5% down, a cash gift from family members can prove very useful.

There’s no limit to the amount of cash a borrower can receive in the form of a gift –but lenders do that require several guidelines are met. Here’s a breakdown of these guidelines, along with a few tips.

You’ll need a gift letter
The bank will need to obtain a gift letter detailing the donor’s name, the recipient’s name, their relationship, the amount of cash gifted, the property address, and the source of the funds.

Non-family members must verify a longstanding relationship
Gift certificates to iTunes are one thing, but a down payment for a home is a completely different ballgame. If the gift is made by any non-family member such as friend, employer, etc., then the borrower will need to provide documentation of a very close and long lasting relationship. High School Debate Team photos probably won’t count.

The donor must be an independent source
The lender will need to verify that funds were not made available from any person involved with the sale of the property (including the seller, broker, real estate agent, loan officer, etc.) and that the gift doesn’t have to be repaid.

Funds have to be “seasoned”
Keep in mind that gifts may need to be seasoned (i.e. funds will need to be held in the borrower’s account for several months). Consult with your mortgage advisor for details, because guidelines on this vary from lender to lender. Long story short: you can’t get a gift for a down payment on the morning you’re set to close.

How do gifts affect taxes?
According to our industry expert Marc Heller (Partner and Director of Technical Tax at Warady and Davis), gift recipients never have to pay tax on the gifts they receive. Gift donors can give up to $13K per calendar year to an unlimited number of recipients, without the need to file any sort of return. For instance, a parent with three children can give them each $13k, totaling $39k in one year and not have to file a return.

For more information, please listen to a recent edition of the PERL Mortgage Podcast.

I am working on a deal that was originally with another lender as a purchase 203K, the other lender ended up dropping the ball to the point the borrower switched lenders in the 11th hour to close the loan on time as a regular FHA loan.

The borrower purchased the home and has started the renovation on his own, mainly demolition (I don’t recommend doing this prior to closing on a renovation loan).  So few lenders are actually doing these renovation loans….. he ended up back with the original lender trying to do the 203K loan as a refinance. 

While going through the process he came across some of my posts and blog on Zillow.com (thanks for the referral Zillow) and reached out to me.  Because he was so far along in the process I answered a few questions and coached him a little as to how to deal with the current lender to try and expedite his loan closing.  Three weeks go by and he is no closer to closing than he was when I spoke with him originally.  So he decided to apply with me.

I was walking through the project with him when I noticed the house was going to need to be painted and also knew that the proposed budget only had about $250 in it for minor painting.  I knew by looking at it that it was going to cost more than that!  I have to admit that I don’t go out and see every house I write a renovation loan on, although I do need to have a complete understanding of the project so I can spot potential hiccups and delays and address them up front.

Having done these loans for years I have a ton of experience with them and my customers get the benefit of that experience.  It is really tough to explain all the benefits of experience.  Much of what we have learned through experience is 2nd nature and you just do things differently. 

I have a three year old daughter and I am amazed almost moment to moment as I watch her develop.  It is the things that we take for granted I find the most interesting, the way she eats, gets dressed, walks up and down the stairs, climbs over under and on whatever gets in her way, and a zillion other things.  At some point we learn what works best.  We learn that walking around the table, although it may take a little longer than going over or under (or not), may be the most efficient way to get to the other side.

When working with an experienced lender and or experienced renovation lender their experience will make your experience much less stress full!

Below are some of the things I try and walk around:

1.      Self Help – These are almost always a recipe for disaster and I really discourage anyone from attempting to do these projects as self help

2.      Streamline Renovation – 203K streamline although less expensive by about $800 in costs, I have seen too many issues arise as a result of half the funds being disbursed upfront and contractors disappearing or demanding additional payment upfront to finish. 

3.      Cutting corners – eliminating $5,000-$15,000 from a project because you are spending more than you want.  The difference in your payment is usually minimal, and to go through a renovation project and settle for less than what you want tends to do nothing but generate regrets.  If you are going to do it…do it right!

4.      Hud Consultant - Make sure you are working with a good 203K consultant.  I have been working with AM Consults in Malden MA for well over a decade and am extremely hesitant to work with any other consultant.

5.      The Loan Officer – Choose a loan officer that has the experience actually writing these loans rather than the loan officer that just has access to the program.  The loans are more expensive than a standard loan so expect to pay a slightly higher premium for the loan, but don’t get taken advantage off.  I have seen on more than one occasion an LO charge a ridiculous amount for these loans…The Mind set being if the customer is willing to pay that amount I’ll figure out how to write the loan…They may figure it out but you don’t want to over pay to be a guinea pig (sorry animal lovers).

Before you start working with a Realtor and spend your weekends at open houses, you’ll need to get your “financial house” so that when your perfect home appears, you’ll be ready.

Consider these factors before making the leap:

Check your credit
It all starts with your credit report.  You can obtain a credit history at www.annualcreditreport.com. For about $7, you can get your score from one of three credit bureaus, providing you with a balance history for credit cards, checking accounts, and loans – and will display outstanding bills.  If you don’t have any lines of credit (such as credit cards), it’s wise to open an account.

How much can you afford?
When considering your financial options, focus on the proposed monthly payment – not just the sales price. Assess your monthly expenses to determine how much you’d like to spend on your home. Your debt-to-income ratio should be less than 60% (in other words, your proposed monthly housing payment + any other recurring monthly payments must not exceed 60% of your monthly income). However, you may want to keep your mortgage expenses lower and put any extra money into savings to build a surplus for home maintenance, repairs or general emergencies.

Prepare for a down payment
In today’s market, you’ll need to provide at least 5% of the final purchase for a down payment. Think about possible resources and start saving. Keep in mind: a financial gift can apply towards your down payment (as long as you have matching funds available). The same applies for money in a CD, 401K, or IRA account.  Government-funded programs providing down payment assistance are becoming more popular and widespread.

Find a job
It’s tough to obtain a mortgage if you don’t have a job (unless, of course, you have a small fortune tucked underneath your mattress). However, an employed co-borrower can join you on your loan. An underwriter will need to verify their income in order for you to qualify.

Plan your search
Consider these questions: How long do you plan to stay in your home? Are you looking for a fixer-upper, or a move-in ready home? Know your goals before you start looking at every home on the market – this will save you time, and allow you to jump on key properties when they become available.

What are your financial goals?
Are you looking to pay less over time – or pay less on a month-to-month basis?

The bottom line
Buying a home will be one of your most rewarding experiences – and, in the end, should be a straight forward process involving a series of important steps.  Successful homebuyers begin with a clear plan, set realistic expectations, and ask questions.  Remember: your real estate team will be there to help you every step of the way.

Good luck!

In today’s credit score driven world, it often seems as if there are rate add-ons for loans with anything under a 740 credit score. It has become increasingly important to monitor and maintain one’s credit rating to ensure qualifying at the best interest rates available. One of the most pesky things that can adversely affect one’s credit score are collection accounts. Here are some basic tips regarding collection accounts:

1. Review your credit report with a seasoned mortgage professional, and create a strategy for paying off collection accounts. For example, paying off collection accounts more than 2 years old may actually adversely affect your credit rating in some cases. You may be able to simply payoff a collection account at closing.
2. Document, Document, Document: If you do payoff an account, be sure to keep receipts from the creditor. Try to make sure the receipt corresponds with the account number reported on the credit bureaus.
3. Ask your lender what accounts will need to be paid off prior to closing. Some aged and/or smaller accounts may not be required to be paid off to complete your real estate transaction.
4. Contact your creditors. You can be your own advocate by taking the initiative to contact your creditors and make payment and/or payoff arrangements. You may also be able to document a filing made in error, and get documentation to remove an adverse credit item.

Best of luck!