Buying After a Short Sale is an Excellent Mortgage Credit Risk

While lenders will admit that it’s technically possible to provide mortgages to homebuyers who recently had a short sale without a waiting period, most lenders are not offering this product (for the record, we are offering it).  Because of the complexities of the process involved with closing these loans that creates perceived risk, most lenders elect not to do them and fail to ask the more important question. . .  “Are they a good credit risk?”  The principles of underwriting mortgages and loans in general are outlined in the Four C’s (Credit, Collateral, Character and Capacity).  By these measurements, borrowers …

Do Credit Inquiries Hurt Your Credit Score?

Reblogged with Permission Via: http://www.mtgprofessor.com/A%20-%20Credit%20Issues/do_inquiries_hurt_your_credit.htm Posted September 18, 2000, Revised January 29, 2004, Revised November 18, 2004, November 16, 2006, March 26, 2011, August 1, 2011 Borrowers in distress often contact many lenders hoping to find one who will approve them. For this reason, multiple inquiries can have a negative impact on a consumer’s credit score. But multiple inquiries can also result from loan applicants shopping for the best deal. The challenge to the scoring system is to distinguish borrowers in shopping mode from borrowers in distress mode. Hard Inquiries Versus Soft Inquiries Self-inquiries, such as ordering a credit report …

Compensating Factors: facts and myths

Consumers are becoming more and more educated these days. Some clients even quote me guidelines. I blame myself. After all I’m the one posting these online. Believe it or not, I love educated clients. It makes my job easier. It also means their reading my posts! But for those of you savvy borrowers out there, here’s a list of compensating factors for FHA borrowers whose debt-to-income ratios exceed benchmark recommendations. The borrower has successfully demonstrated the ability to pay housing expenses great than or equal to the proposed monthly housing expenses for the new mortgage over the past 12-24 months. …

So HVCC is Over? – Nope, it Still Lives On – Fannie Mae’s Appraisal Policy Broken Down

Breaking Down Fannie Mae’s Appraisal Rules Have you heard of the Home Valuation Code of Conduct (HVCC)? If you are a lender or Realtor, of course you have. What I wanted to do with this post is breakdown Fannie Mae’s policy now that HVCC has expired. Basically the Code lives on and has been slightly rewritten from the original. Unlike HVCC, Fannie’s policy has the force of law behind it. This new policy is clearly illustrated in Fannie Mae’s Appraiser Independence Requirements, Fannie, Freddie Mac, the Federal Housing Finance Agency and others developed this specifically to replace HVCC. So whether …

Should I Stay or Should I Go Now?

Should I Stay or Should I Go Now? The million dollar question, should I stay, and continue renting, or should I go, and become a homeowner? Sometimes, I think first time homebuyers are looking at this question as a million dollar question, and really, it is not. Are we at the bottom of the declining market, or still dropping? There are “experts” all over the internet in both camps telling us we are at the bottom, and others saying more to come. This is making it a more difficult decision for the first time homebuyer than what is needed. The …

Seller Contributions Towards Closing Costs on a Home Purchase

Doesn’t the Seller Pay for All of Our Closing Costs? We all have to remind buyers that they are responsible to pay the required down payment percentage (3.5% for FHA or 3-10% etc for Conventional) AND their closing costs/pre-paids too. Even if you stipulate that the sellers contribute towards “closing costs and pre-paids” in the purchase agreement it may not cover ALL of those fees. If you want a smooth purchase transaction make sure that you ask your favorite mortgage guy if there is a NEED to try to get all/most of the closing costs/pre-paids included with the offer. It …

Can I Buy a Home While I’m Getting Divorced in Minnesota?

It has been widely and wrongly asserted that someone who is getting divorced in Minnesota cannot purchase a home prior to finalizing a divorce decree and at the same time prevent their soon to be ex-spouse from being entitled to marital property rights in the newly purchased home.  This used to be a serious problem that made the already long and painful process of getting divorced in Minnesota even longer and more painful yet.  In 2004, the Minnesota legislature put this recurring issue to rest. In 2004, the MN legislature enacted MS 507.03 PURHCASE-MONEY MORTGAGE; NONJOINDER OF SPOUSE.  Amongst other …

Short Sales DO NOT Require a Delinquent Mortgage – “Imminent Danger of Default”

Clearly, many if not most short sales involve a loan presently in default. As well, many times a short sale might involve a current borrower who can currently afford the payment. In several other situations, a seller may be “just hanging on” and the smallest thing could put them irreparably behind on their loan. Welcome to “eminent danger of default.” In a hardship letter for a short sale (also known as short payoff), if a borrower/seller is currently not in default but can justifiably make the case that it is nearly unavoidable despite their willingness if circumstances were otherwise, they …

The New Real Estate Boom(ers): Purchasing with Reverse Mortgages

In October of 2008, HUD rolled out their reverse mortgage product and in March of 2009, they perfected it. With rates expected to rise and the tax credit setto expire, many real estate professionals are looking for new and under-served markets to reach out to. Since HUD has perfected their reverse mortgage, the Home Equity Conversion Mortgage (HECM) and the market for US residents 62 or older is expected to nearly double between now and 2050, perhaps now is their time. A reverse mortgage is a loan where home equity is converted into a lump sum payment or series of payments to …

The Statistical Relevancy of the 7/1 ARM vs. the 30 Year Fixed

Each person’s personal circumstances and long term objectives determine the type of mortgage they choose. For the past couple of years, the clear favorite has been the 30 year fixed rate mortgage because the yield curve between short term and long term bonds has been flat.  When this happens, there is very little difference in the interest rates between adjustable rate mortgages (ARM’s) and fixed rate mortgages.  But things are changing.  That yield curve is bending and significant differences between fixed rate mortgages and ARM’s are emerging.  What’s more, people are becoming more and more mobile.  Consequently, they don’t need as …

What’s the difference between pursuing bank-owned properties vs. short sale properties?

Understanding the differences between these two forms of distressed sales is critical to writing winning offers and paving the road to a successful closing. Perhaps more importantly, understanding their differences will mean that you’ll get the best deal possible on your purchase. A bank-owned property (often referred to as a “foreclosure” or “REO”) is a home which has been taken by the bank. In this case, the foreclosure process has concluded and the property is now owned “free and clear” by the lender. Making an offer on a on a bank-owned property is relatively simple in that response times are …

What are Compensating Factors When Qualifying for a Mortgage?

Although we wouldn’t know it from watching the six o’clock news, mortgage underwriting guidelines and mortgage insurance underwriting guidelines have been in a pattern of loosening, not tightening.  This trend started in late 2009 and continues today with such examples as lower minimum credit scores for mortgage underwriting guidelines and fewer declining markets for mortgage insurance guidelines.  As this has happened, another trend has emerged.  The phrase “underwriting exception” is coming back in practical contexts rather than a nostalgic reference to days gone by.  These days, underwriting exceptions are more and more common where a mortgage loan file has “Compensating …

Converting a Primary Residence into a Second Home or Investment Property

You may not be familiar with the term “buy and bail” but lenders are. And if you’re not familiar you may be very surprised when a lender denies your loan when you try to convert your primary, current residence into a second home or rental.  That is, unless you stumbled upon this blog.  First let’s talk about conventional loans (those backed by Fannie Mae and Freddie Mac.) If you are applying for a conventional loan, the guidelines are as follows: Borrowers who currently own their own home typically have three (3) options when they decide to purchase a new Primary …

FHA Premium Rate Increase Makes PMI a Better Option for Many Borrowers

The Federal Housing Administration (FHA) implemented a 25 bps increase to its annual premium rates on April 18, resulting in a payment increase for FHA borrowers. With this change, RMIC (an iLoan preferred mortgage insurer) offers equal or lower monthly premium rates on all LTVs with no upfront premium. RMIC Monthy PMI vs. FHA MIP · Lower Total MI Premiums 30-Year Fixed · Purchase1 Unit Primary Residence Loan Amount £ $417,000 > 95% LTV · 35% Coverage 95% LTV · 30% Coverage FICO 720+ FICO 700+ RMIC FHA RMIC FHA Upfront — 1.00% — 1.00% Year 1 1.15% 1.15% 0.94% …

What are extenuating circumstances?

Many people trying to buy a home after a short sale find it difficult to navigate through loan programs that they may be eligible for and various waiting periods that may be applicable.  If late payments occur, most people are told that the waiting period for buying a home after a short sale is 3 years because that’s what FHA requires if late payments occur.  Then they learn that Fannie Mae will back a loan for someone after a short sale after 2 years with a 10 percent down payment if there are “extenuating circumstances.”  But what are extenuating circumstances? Fannie …

Contract for Deed (CD) – Preparing for a Real Mortgage

I’m going to explore with you some ideas on how to structure a contract for deed when buying a home so that when it comes times to ditch the CFD and refinance into a regular mortgage you can choose your path.  First thing you should consider is an attorney to assist in writing up the CFD.  For those of you that don’t believe “if there is a will — there is an attorney”, then try this for some tips on protecting yourself when writing up the CFD. Most people that are buying using a CFD have either have damaged credit …

Mortgages for Saint Paul, Minnesota Community Land Trusts (CLT) Housing

Community land trusts are created to preserve long-term affordable housing by purchasing homes in their communities, then leasing the land using a long-term ground lease to low-income and moderate-income families at affordable monthly ground rents. Community Land Trusts (CLT) have had a foothold in the Twin Cities for decades. More broadly, the leasehold form of home ownership is more common in Minnesota than many would think. It is a market that Realtors would do well to be skilled in. More especially, it is a market that is crying out for more readily available, quality financing through Fannie Mae. For the …

Buying a Home on a Lease with Option to Purchase – Rent to Own

Since the housing crash and great recession, there have been swelling ranks of people that have had credit damaged but have increased their savings and reduced their consumer debt. Many of these people, in a reasonable time frame will qualify for conventional, VA, FHA, or Rural Development loans but at this time, do not. For those who have their finances situated, saved money and increased their capacity to cover their housing payments, a Lease with Option to Purchase is a great choice. A Lease with Option to Purchase is really two contracts that, by referencing each other in their respective …

Do’s and Don’ts with Credit During the Home Buying Process

When buying your next home, changes to your credit (additional accounts, closing accounts, fluctuating credit card balances) can result in the lowering of your credit score. If your credit score changes, that can affect your interest rate and even the loan approval itself. Therefore, it is imperative that there are no major changes to your credit and information provided, during this process. In order for your loan to reach final approval and fund, you’ll want to adhere to the following: DO NOT charge any new items on your charge cards (higher balances will lower credit scores). DO NOT apply for …