mortgages category archives

An interesting thread is happening on Zillow Advice as a result of a question posed by Peter888:

Am I entitled the learn the reasons why my mortgage application was turned down?

From Corona, CA comes a question posed by Curlyhead in Zillow Advice:

What would I need to qualify to get a second loan for an investment home?

Some lenders have chimed in with their views, as well as agents. Thoughts?

You don’t have to be a first time homeowner to receive the new tax credit.  Great news for everyone looking to purchase a home now! 

• First Time Homeowners can now receive the $8,000 tax credit up until April 30, 2010
• Current Homeowners can qualify now for up to $6,500 tax credit up until April 30, 2010

This is a gift for all wishing to purchase a new or existing home - it doesn’t have to be repaid back.  So for those who are sitting on the fence…no need to wait now!  Prices are low and rates are great!

The maximum $729,750 conforming loan limit is due to expire on Dec. 21, which would drop the loan limit down to $625,500. This is leaving lenders in a bit of a holding pattern as to whether they can approve balances above $625,500 for mortgages they’re dealing with now.

Good news to keep things stable: The Committees on Appropriations agreed this week in a Continuing Resolution (CR) to maintain housing loan limits for FHA, GSE and HECM single-family mortgages at $729,750 through end of calendar year 2010. And, Congress passed a stopgap funding plan that the loan limit extension is attached to — it just needs President Obama’s signature, which is expected today, if not early next week.

That means FHA loans, and GSE (Fannie Mae and Freddie Mac) loan limits will stay the same for another year.

Earlier this week, Treasury Secretary Shaun Donovan was urging Congress to approve the conforming loan limit measure, which is part of his three-part proposal to help heal the housing market:

• Extend the First Time Homebuyer Credit, with strong anti-fraud measures
• Extend Loan Limits for Mortgage Loans
• Secure Financing for the Housing Trust Fund

Score one for the little guy: New York judge wipes out borrower’s mortgage debt when lender can’t produce the note.

In July of 2008, I wrote a piece as a guest post on Paul Kedrosky’s site, Infectious Greed.    I called that piece The Top 7 Things Every Home Buyer Should Know.   The piece got a lot of “press” and actually got me interviewed by the New York Times.    I was talking with the reporter who I’ve gotten to know at the New York Times about a month ago and we realized that it was almost exactly a year since he had ran the piece, “Considering the 7 Year Plan.”    He made a comment at that point, “It would be interesting to see what, if anything, has changed over the last year in your opinion of what a home buyer needs to think about.”     I agreed and decided at that point to do that.

So this is the introduction to what will be a 7 part series over the course of the next week or so.   I’m going to take each item, one by one, and look at what my view was in July of last year and then factoring in what I think has or has not changed over the last 15 months.

Here’s a hint for you – out of the 7 parts, I think that we’re going to find that at least 3 or 4 of them have changed substantially.

I’ll have the first one up in a day or two.

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.

Refinance requests on Zillow Mortgage Marketplace are up 20% so far this month versus August.  The chart below shows that lower mortgage rates appear to be driving this spike in demand.

In an effort to continute to prop up the financial markets, the Federal Reserve’s policy-setting panel just announced that it plans to continue purchasing mortgage-backed securities into next year.  This activity should help to keep mortgage rates at low levels.

So with rates this low, now is a great time to see if it makes sense to refinance.

I had a great comment on my blog about shorts sales.  I felt both the questions and answers deserved their own blog post.

Question: How much was paid to the homeowner to contract the rights to buy a house facing foreclosure to try to pre-sell it to someone else for profit?

Answer: Why do you assume that the homeowner was paid anything?  When a Realtor negotiates a short sale placing the home in a listing agreement, what do they compensate the homeowner?  To the best of my knowledge the compensation is simply getting out from underneath the house without having the home foreclosed on.

Question: By marketing houses at a higher price then that required by the bank they are increasing the chance that no buyer will be found and the house will foreclose.? The compensation to the homeowner for this is?

Answer: Why would marketing the house at or below market value increase the risk of foreclosure?  LMSG is negotiating the short sale based on their cash offer.  If they cannot get the bank to accept a cash offer for below market value then no short sale occurs, no different than when a Realtor takes a listing in hopes of negotiating a short sale.  If the bank won’t accept the offer the sale doesn’t go through.

Question: Technically, contracts are legal and binding if they offer a benefit to both parties. A normal RE agent contract for a short sale covers listing and bank negotiation processes. What is the compensation to the homeowner for contracting LMSG to have rights to sell their property and is the compensation fair relative to the increase risk of foreclosure?

Answer: I am not an attorney…nor did I sleep at a Holiday Inn express last night (anyone think I can get paid for product placement on my blog?).  But my understanding of a binding contract is that it consists of 3 elements: competent parties, consideration and mutual assent.  Your questions seems to revolve around what the seller gets in return for the services provided by LMSG and I see no difference between what the sellers receive from a realtor that lists and closes a short sale.  They get out from underneath the mortgage.

Question: Aren’t there laws in effect about presenting all sales offers to sellers (and selling banks) and not hiding some for personal gain?

Answer: Again I am not an attorney, so without a doubt, consult one…but the seller not the bank is the owner of the home.  The seller has accepted LMSG’s offer to purchase the home in a short sale, provided one can be negotiated.  I don’t see why the bank would need to be made aware of any offers made to LMSG to purchase a property that neither currently own.

Question: My experience is that most times banks do not allow compensation to the homeowner in a short sale.

Answer: You seem to be looking for a smoking gun….in that the seller is being compensated in some way other than simply getting out from underneath a mortgage they cannot afford.  I have been doing the same thing since the first deal was brought to my attention.  I am a skeptic at heart but can’t find the problem with the business model.