Category Archives: How To Get A Home Loan

What are the new rules for Reverse Mortgages on April 27th 2015?

The Home Equity Conversion Mortgage, aka Reverse Mortgage will have new requirements after the 27th of April, 2015.

The borrower seeking a HECM will have to undergo a financial assessment done as a part of the process.  If the borrower is deemed to be incapable of handling the ongoing responsibilities of the loan, ie property taxes and insurance, a portion of the loan will be set aside to cover property taxes and insurance.

The most common way Reverse Mortgage borrowers get in trouble late is being unable to pay their insurance and taxes.  Defaulting on those items can put them into default and eventually foreclosure.

If a borrower has a good credit payment history and sufficient income, they can probably handle the property taxes and insurance.  If they are lacking income or have a history of delinquent payments, then it’s probably a good idea to set aside some of the funds to cover these future expenses.

Now, if you are currently in process of getting a reverse mortgage, this will not apply to you.  Anyone who starts an application after the 26th, the new rules will apply.

 

New Home Loan qualifications and bank overdrafts

New changes to mortgages in 2014 require a lender to judge the borrowers ability to repay.  I like to think that we did prior to this, but when new laws are passed, they always generate new guidelines that supersede the past methods of qualifying borrowers for a home mortgage.

In the past, the presence of overdraft fees in a borrowers bank accounts were left to the discretion on the underwriter.  Now, they are considered a negative factor in judging a borrowers ability to repay the home loan.  Even transfers from a line of credit when done to prevent an overdraft are considered a negative factor in the borrowers ability to repay their home mortgage payment.

Overdraft and Transfer fees can add up to a significant amount of fees in a month.  This in effects becomes a regular monthly debt which can at the least increase your Debt to Income to the point you don’t qualify.  Even if it’s not much, it’s an unnecessary fee that you don’t need to be paying.

What if you have them?  It might be possible to ignore them if  you have a few months of zero overdraft fees or credit line transfer fees.  How to address that if you do have them showing on your bank statements?  It’s sometimes possible to prove to the underwriter that you have changed your ways.  Pre purchasing and budget counseling certificates can prove you have. A letter explaining specific steps you have taken to better manage your money will probably be required as well.

It is definetly more complicated to qualif for a home loan these days, but with proper planning and the willininess to do what it takes, you can get qualified for your next home mortgage.

If you’re in Idaho, and you have questions or want me to look at your situation, call or request a loan pre-qualification at my site.

 

 

How to increase your credit score, FAST!

Outstanding credit card balances can impact a large portion of your total credit score.

Look at the available credit line vs what you owe.

If you have accounts that are being utilized over 50%, pay them down to under this amount.

If you are actually over the available balance, pay that down first.

The credit card companies usually report new data every month, and that will impact your next credit score when factored into the overall credit report.

 

Got a credit Question, ask below!

 

The quickest way to increase your credit score

I’ve been seeing a number of people who have lower credit scores lately.

A common attribute is excessive revolving debt or credit card balances that are close to the limit.

Having a credit card balance that is over 30% of the available limit will lower your credit score.  Being close to or even over the limit will put a hurting on your score.

Recently, a borrower who was over their limit by a few dollars said the credit card company told them to charge up the balance then pay the minimums to pay it off.  The only benefit for that “advice” is to the credit card company who is making interest off them.

Furthermore, with many people cutting back on credit cards, they can hurt them selves by closing accounts they don’t use often.  By reducing the amount of available credit to the ratio of credit in use, you can hurt your score as well.

So……My advice on how to increase your score the fastest, probably by next month is………Pay Down your outstanding credit card balances!

Further example, you have 3 credit cards.  One has 300 with a 500 limit.  The second one is 1500 balance on a 2000 limit and the last one has 400 on a 500 limit.

Pay the 400 balance down to less than 250 first.  Next pay the 1500 balance down to 1000 or less and finally pay down the 300 to 250 or less.  If you are tight on money, maybe the 300 before the 1500.  By reducing the credit used to under 50% of the balance available, you will get more points on your scores.

If you want even more points, the next step is to lower them to less than 30%, and finally to zero every month.  Don’t close them out but keep them open and available with minimal use.

“But  XYZ Bank is offering me a zero percent balance transfer?” I hear this sometimes.  That is great if you are trying to minimize your payments but if you are trying to get qualified for a mortgage, you have a different goal.

I’ll save my thoughts on the balance transfer scam,  strategy for a later post.

So what is it, “eaiser” or “tougher” to get a mortgage in 2014 and beyond?

It seem that everyday you see an article from the MSM that says lenders are relaxing their guidelines for mortgages one day and the next, you’ll see another predicting gloom and doom for anyone who seeks a mortgage in the future.   No wonder people don’t know what to believe.

 

If you want the facts, you should talk to a local mortgage professional you trust.  They are the “boots on the ground” and have to deal with the new rules and guidelines everyday.

As someone who has been in the business a long time and seen the massive changes, I will say it will be tougher in 2014 for some people to qualify.  The “qualified mortgage” rule is only one reason why.  The agencies such as Fannie Mae and the big banks like Chase and Wells will react, tighten guidelines and what they call “overlays”, additional rules for their underwriters, on all mortgages they agree to buy from smaller banks and mortgage brokers.  If you got a mortgage a few years ago and seek one in 2014, you will be surprised at how much more documentation is required and how much work a borrower has to do to get their mortgage funded.

That being said, the mortgage market reacted to the meltdown long before Congress passed Dodd-Frank and created the new super agency, the Consumer Finance Protection Bureau.  The CFPB will now regulate almost everything financial in the country and will certainly use its power to justify its existence.

 

I think we can all agree that not everyone is well suited for home ownership, a long-term commitment that requires financial stability and discipline.  The push to make everyone a home owner that started under President Carter forcing Fannie and Freddie Mac to relax guidelines and accept subprime loans into their portfolio did not work.  Our home owner ship rate has fallen back to where it was in the 70’s.  Being a renter is not a mark of a bad person, it’s just a better housing solution for some people than ownership.

 

Bottom line is if you think you are going to seek a mortgage in 2014, gather all your documents and go see a local mortgage lender.  They should be able to tell you in a few minutes if you could qualify and what, if anything else you need to do before you start looking at homes.

What does it take to buy a home in Boise? Meridian? Eagle? Nampa? Here goes…

This is a local variation of an article that MSN real estate re hashes every few months.

http://realestate.msn.com/what-you-must-earn-to-buy-a-home-in-25-cities-in-2013

The gist is that you would need to make x dollars to by the average house in these markets.

It assumes a 20% down payment and a conventional loan at the national average rate of 4.64%.  For Ada County, I will use .6% as the property tax with home owners exemption and $500/yr for home owners insurance.  I will also use the 28% housing payment ratio.

I think some local insight would be helpful to my fellow Idahoans, so here it is:

Boise Metro average: Median home price:  $199,900 $964/mo estimated PITI.  You need a salary of $3442 per month or $41,299 per year.

Now to break it down into specific sub-markets

Eagle, ID Median home price: $379,500 (according to Zillow) $1814 est, PITI.  You need a salary of $6477/mo or $77,728 per year.

Meridian, ID Median home price $ 210,000, $1005 est. PITI.  You need a salary of $3590/month or $43,083 per year.

Nampa, ID Median home price $140,000, Estimated $732 per month, $2049 per month or $24,589 per year.

 

Numbers came from this site: http://www.deptofnumbers.com/asking-prices/idaho/boise-city/

and Zillow: http://www.zillow.com/local-info/ID-Ada-County-home-value/r_66/

 

With the new Qualified Mortgage rule, the debt to income limits are 43%, a bit lower than what has been approved in the past, that means if you earn $4000 per month gross income, your total debts are limited to $1720 per month.  For the record, the old banker standard of 25%/36% works very well for most people’s budgets. That would mean a person with the $4000 per month gross income should spend no more than $1000 per month on their house payment and no more than $1440 for all debts, monthly utilities and groceries excluded.

The salaries mentioned are well within the range one can find in the Boise, Idaho area.

Everyone’s situation is different, I recommend talking to a Loan Officer you know and trust and get your Pre-Qualification ahead of time.  If you don’t have one, I would love to help.

 

 

Good article from USAA on building credit history from scratch

1146426_house_question_2I get many first time home buyers in my office who have no idea about their credit history much less their credit score.  With a little preparation ahead of time, they could prevent an unpleasant surprise.

If you have an adult child that is just going out into the real world or college, it would be wise to discuss this with them. https://www.usaa.com/inet/pages/advice_building_credit?offerName=logoff_advice_building_credit

You should take advantage of the free reports offered by the bureaus once per year at www.AnnualCreditReport.com.  These reports won’t give you their score-they make you pay for that, but you are looking for any surprises and how any existing creditors are reporting your credit history.

Even if you’re one of those types who says I don’t need credit, you do need a credit history to get the best financing when the day comes to apply for a mortgage.  Contrary to what some like Dave Ramsey say, living without a credit score has many disadvantages.

If you open credit accounts, buy a tank of gas a month on the account and then pay it in full when the bill comes, you’ll build a history of responsible use and avoid finance charges.  This method works well while avoiding debt building up.  After 6 months, you’ll see the positive effect on your credit score.

I would add that if you’ve had a bankruptcy or foreclosure, you really need to make an effort to repair and rebuild your credit history.  You can’t shun credit simply because you had problems.  A good part of your credit score is how you manage your credit.  Avoiding it is not the same as managing it.

With a little advance effort, you can detect any errors, bad credit, and monitor how your existing credit is showing.  It’s common for me to work with borrowers some time in advance to get ready to purchase.  Should you need this help or know someone who might, call me.

 

 

Will a so-called “government shutdown” affect the mortgage market?

It could, depending on the type of loan you are seeking and what still needs to be done on your loan.

There are several government agencies that come in to play when you seek a home loan.

  1. First of all, borrowers will have their tax returns verified through the IRS with a form 4506t.  The IRS has said its staff will still be operating in the event of a so-called “shutdown” but I wouldn’t take that for a definite that you can get the tax transcripts in a timely manner.  If you are seeking a mortgage, get your mortgage loan officer to order them asap!
  2.   Government insured programs such as VA Loan, FHA loans, and the USDA require a special report called CAVIRS to be run beforehand.  Once again, get it done asap.  If you don’t have a clear CAVIRS, your loan can’t be approved.
  3. Third, the USDA has indicated that its staff might be furloughed in the event of a “shutdown” and that will affect the final approval from USDA that is a part of getting an RD loan.  If you have an RD loan and it’s not ready to close right now, you should have a conversation will all parties about a possible extension if there is a “shutdown.”
  4. Furthermore, the RD’s eligibility map is in limbo over the budget.  Right now, the map is not fully accurate as to what properties are in an eligible area.  I would be hesitant to rely on an RD loan in an area such as Kuna, where they have indicated it is coming off the eligible areas.  We won’t know for sure what parts of Kuna will be eligible and what parts wont.

Anyway, the next week or two could be very exciting to say the least.  The key is to be proactive in the event of a “shutdown” of the Federal Government.

 

Big changes to mortgages next year!

The Qualified Mortgage Rule is taking effect on January 1st of 2014.  what does this mean for the prospective borrower?

It could be a lot.  First we must explain what is defined as a Qualified Mortgage.

A Qualified Mortgage is a mortgage that is assumed to be non risky and that the lender has done adequate qualifying to ensure the borrower can repay the loan.  the consumer Finance Protection Bureau released this definition earlier in the year.  To see the exact definition, here’s a link:

http://www.qualifiedmortgage.org/definition/

Lenders who do not make Qualified Mortgages will have to retain 5% of the loan on their books as a hedge against the risk of default.  this is not an ideal situation for lenders, as they want to sell the loan to an agency like Fannie Mae and simply service the loan.  Fannie Mae and Freddie Mac are probably not going to buy a non qualified mortgage as of this time, so essentially all conforming loans will have to be Qualified Mortgages.

What are the features of a Qualified Mortgage?

     No Excessive Upfront Points  and Fees-Points and fees cannot exceed 3% of the amount borrowed

No Toxic Loan  features Interest only, negative amortization, balloon payments and terms over 30 yrs. are prohibited.

Limits on Debt-to-Income  Ratios-The new standard will be 43% of total debts to pre-tax income.

 

Who is likely to be affected by the new Qualified Mortgage rules?

Jumbo loans for those seeking to borrow more than $417,000 in most areas

Borrowers with high debt to income levels.  right now, it is possible to get up to 50% debt to income level approvals if the borrower is strong in other regards, but that will go away with the new rules.  Most of the time, this comes up when a borrower is buying g a new home but hasn’t sold their old home and is trying to qualify with both house payments for the short-term.

Borrowers seeking to buy down the rate.  Paying discount points to get a lower rate will probably not be an option once the Qualified Mortgage rules go into effect.  the 3% cap would not allow for that.

Borrowers buying less expensive homes.  If there is that 3% cap on fees and the borrower is paying $475 for an appraisal, $600 in title fees, and say $1000 in other fees, that would mean any loan under $69167 would be a high cost loan according to the Qualified Mortgage rule.  Here in our market, Boise Idaho, there are some homes that fall under that price.

Mortgage Brokers typically have to charge a 1% fee on top of the other fees and that can put them over the 3% cap.  I expect to see the rate on brokered loans to increase to cover this fee.  Many Mortgage Brokers are changing to Mortgage Banker if they can as they do not have that extra fee, typically.

The next few months will see many changes to the market.  It will be important to keep a local lender who stays up to date with those changes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Are you really “pre-approved” for that home loan?

I sometimes get calls from a home buyer who states they are pre-approved at ………. Bank.

In the course of conversation, I ask the usual, necessary questions to provide good information and recommendations and discover that they have not been asked these questions by the other lender. Many times I hear that the other lender hasn’t seen their tax returns or bank statements.

Since lending in 2013 is much more complicated and requires documentation for all aspects of a borrower’s finances, credit, and the property being purchased, I’m very surprised that other lenders didn’t go into these questions.

Bottom line is; if a lender has not asked for and examined your W2s, paystubs, tax returns, bank statements, and ran credit, you don’t have a pre-approval for a home loan, you have at best a pre-qualification.  Pre-approvals are based on actual documentation and pre qualifications are based on whatever the borrower says to you.  We know that some borrowers will not tell you the whole story because they think that its not important.  Some will outright lie about past credit problems, and some simply don’t want to do their part in the home buying process, ie gathering the necessary documents that it take s to get a home mortgage in 2013.

I say that you approach getting a home mortgage the same way you approach a health concern with your doctor.  You tell them everything you are experiencing or are concerned about, you take the pre-appointments blood test or other screenings, you answer honestly the questions your doctor asks and then you can get the best advice and treatment.

If you are a home seller, you should insist that your prospective buyer provide a solid pre-approval letter from a reputable lender.  some home builders in my market, Boise Idaho , have required that any prospective buyer pre-approve with their lender to be sure.  If you are a Realtor, don’t let your buyers put offers on homes without having a solid pre-approval letter.  Yes, they want to go look at houses as that’s the fun part, but it will be well worth the time to make sure they have a solid pre-approval beforehand.

If you need a lender who will do the hard work beforehand, I know of one.

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