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Archive for the ‘Mortgages’ Category

Documenting Assets is Important

Mortgage lenders have tightened up on underwriting criteria since the subprime fallout. One area that is increasingly looked at is the documentation of assets.

Asstes play a key role in qualifying for a mortgage loan. In many cases having assets may help a home buyer get approved when job time or income is less than desired. And while horrible credit is hard to overcome, tremendous assets can also help overcome some credit chellenges.

Assets can be used for paying towards money down or closing costs on your mortgage. They can also be used to provide mortgage “reserves.” Reserves of cash make a lender feel more comfortable should you run into a tight spot financially. With a reserve cushion, you would still have funds to make your mortgage payment, possibly for a few months!

Assets must be “liquid”. In other words, you must have access to get your hands on the funds. Certain retirement plans (like pension plans) do not allow any withdrawls at all, and therefore can not be considered assets. Other property owned, regardless of the amount of equity available, would not be considered assets. (Until you sell the property there is no guarantee as to how much money you would have, and taking a loan out against the property creates another liability.)

So for a mortgage application, acceptable assets would be items like savings accounts, checking accounts, money market accounts, stock shares, 401k and IRA accounts… any account that can be easily liquidated. For certain accounts such as 401k and IRA accounts, you may need to document the terms in which you can get the funds as well as the funds available.

Do you have money spread accross 4 different accounts? You may be tempted to consolidate them all to one account to make things “easier”… don’t do it! Leave the money in the accounts as they are. Any time accounts are opened, closed or money is transferred, it can become a headache having to not only document the accounts but also the source of all the deposits, withdrawls and transfers.

You may ask, why does this all matter? After all, it’s your money, right? It may well be your money, but from an underwriter’s viewpoint they need to be sure there are no unusual deposits that can not be documented. Their fear is that a borrower may have gone out and borrowed the $5,000 deposit that can not be documented creating another monthly payment not showing on credit yet.

So when you are applying for a mortgage loan in Charlotte (or anywhere!) be sure to provide every source of money you have saved. But don’t try to consolidate them into one particular account. It is easier for a processor to verify 5 accounts than to try and document 5 accounts plus 15 deposits and withdrawls.

Special Mortgage Loans for Teachers of North Carolina

I know first had how under paid, under appreciated and under supported teachers are. (My wife is a teacher in North Carolina.)  While I can’t solve all the problems in the education system, I can help North Carolina Teachers with mortgage loans!

(My wife is a N.C. teacher, but this is not my wife.)

So, this summer I want to reward North Carolina teachers with a special mortgage program. In addition to great mortgage rates and programs, I will provide reduced fees and preferred processing to my NC teacher mortgage customers!

Add this to the Teacher’s Good Neighbor Next Door program that allows teachers to buy a home for half price and you have the best possible deal for Carolina teachers! Think about that… no money down, 100% equity from day one and a low mortgage rate to boot! Aren’t you gald you are a teacher?

North Carolina teachers, you deserve the best. Let me do my part in giving back by helping you in the best way I possibly can. No matter if you are a first time home buyer or a seasoned home owner, I am here to help you buy the home of your dreams!

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What FHA Can Do With No Alternative Credit

Earlier I began a 3 part series on Alternative Credit for FHA mortgage loans. Recently HUD released a memorandum letter to all lenders describing the types of Alternative Credit they are looking for. This includes alternative tradelines from 2 different credit reference groups. But what if you can’t provide options from these two groups?

HUD does offer guideance to lenders on evaluating alternative credit when only references from the Secondary reference group, or no alternative credit at all. If there are some references, a 12 month history with no more that one 30 day late is permitted. There should also be no collection accounts (beyond medical) nor any public records (judgements, liens, ect) filed within the past 12 months. In addition, underwriters will be held to tighter debt to income ratios to enure there is enough cash flow to maintain monthly mortgage payments. Finally, at least 2 months of cash reserves (enough to make 2 mortgage payments) should be available, which must be the borrowers own funds.

While HUD sets these guidelines it is important to understand that lenders have the freedom to adapt and add to the FHA guidelines when they approve a loan. So just because a borrower just fits in the guidelines does not mean that borrower will be approved. It is the job of the loan officer to help build a case to present to the lender and underwriter showing why that borrower deserves that a risk be taken on them.

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Working at Residential Mortgage Center in Charlotte, NC I am blessed to work with some of the best mortgage processors in the area. They work hard to get all the details together so that your mortgage loan can close quickly. If there are problems, they provide clear and efficient communication so that we can work together to get things needed.

This is one of the key ingredients to The Carolina Mortgage Connection. It truely is a team, working hard together to ensure your mortgage and home buying experience is the best it can be. With the professional processors we have working at Residential, you can be assured that your mortgage processing is in excellent hands.

How close an estimate are you given?

When you apply for a mortgage loan, lenders are required to offer a form known as the “Good Faith Estimate.” This form is supposed to provide the borrower with a realistic estimate of the costs involved in obtaining a mortgage loan. This should provide the borrower with the knowledge up front to know if they can afford to obatin the mortgage. However, some argue that these should be used to compare and shop lenders. But could this be just a “fantasy” notion which can backfire on the borrower? Let’s consider this…

The Good Faith Estimate (commonly referred to as the GFE) is designed to be a disclosure of what to expect. But becuase so many “experts” and “talking heads” have preached and continue to instruct borrowers to compare GFE’s between lenders, many lenders have begun to go “skinny” on their estimates. As a result, many do not provide a real estimate to the consumer in ‘good faith.’ Since these lenders are afraid of the consumer using it to shop them against other lenders, many will play a kind of ”bait and switch” game just to look the best and get the application.

The problem is that when a good faith estimate does not provide realistic numbers, borrowers get hurt. Let’s say for example that you are looking to buy a home and obtain a good faith estimate from “Big Bank USA”.  On this GFE, the money you need to have ready to close on your loan is roughly $2,500. You evaluate your money and feel confident you can handle this. So you begin the home buying process and find a home. After inspections and appraisals (which you ususally pay upfront out of your pocket) you are finally about ready to close. But when you get to the attorney’s office you find out that your closing costs are actually $4,000 and you need $1,500 more to close on your loan, or lose your home! Yikes!

What happened? Well, the loan officer at “Big Bank USA” was afraid that you might shop his GFE against other lenders. So he did a “skinny” verison of an estimate. He “miscalculated” the amount of money needed to establish your escrow account. Although he knew the closing would be mid-month, he only figured 1 day of pre-paid interest instead of 15. The estimate for home owner’s insurance and taxes were “low balled.” The attorney, title insurance and other fees related to the closing were “slightly off”. All of which adds up! (Of course, he won’t actually be at the closing, but over the phone he will “confess” that these items were all “outside of his control.”)

So I wonder if using a Good Faith Estimate for “shopping” is what it should be used for? Regardless, I would suggest that you should definetly review the estimate and see if it is something you can afford. And be sure to ask some questions…

• Is this accurate?
• What on here might change?
• Which are actual lender fees and which are “outside of your control?”

Listen to the responses and you will quickly see if the one you are talking to has provided you something you can be confident in. After all, its not what someone “promises” when you apply… it’s what they deliver when you close.

Acceptable types of Alternative Credit for FHA Mortgages

According to the HUD Mortgagee Letter 2008-11, HUD has created two groups of references that can be used as alternative credit for FHA mortgage loans. These are used when the borrower’s credit file does not have enough information to create a credit score, or when the credit file produces a score with very limited credit. HUD stressed that these are not to be considered as an alternative to “poor credit.”

Basic Guidelines for FHA Alternative Credit

There must be at least 3 references that can show a solid bill payment history. All of these should cover the payment history of the most recent 12 months. At least one of these should be from the “Preferred” Group with the focus of references being mainly in the “Preferred” group. Once all options have been exhuasted with the “Preferred” group, then references from the “Secondary” group can be considered.

The “Preferred Group”

rental housing payments (subject to independent verification if the borrower is a renter), utility company reference (if not included in the rental housing payment), including gas, electricity, water, land-line home telephone service, cable TV. If the borrower is renting from a family member, request independent documents to prove regularity of payments, such as cancelled checks.

The “Secondary Group”

insurance coverage, i.e., medical, auto, life, renter’s insurance (not payroll deducted); payment to child care providers – made to a business providing such services; school tuition; retail stores – department, furniture, appliance stores, specialty stores; rent to own – i.e., furniture, appliances; payment of that part of medical bills not covered by insurance; Internet/cell phone services; a documented 12 month history of saving by regular deposits (at least quarterly/non-payroll deducted/no NSF checks reflected), resulting in an increasing balance to the account; automobile leases, or a personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the payments.

These alternative credit references must be verifiable. HUD’s preference is that they are verified by a credit reporting agency and that they create a “nontraditional mortgage credit report.” This report would be used by the lender just like a standard credit report would be used.

If a nontraditional mortgage credit report is not possible, HUD further requires that each reference be independantly verified and should be backed up by cancelled checks covering the last 12 months’ payment history.

In my next posting I will address what can be done if no references can be found, or if there no “Preferred” group references available.

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HUD Clarification on Alternative Credit

A while back, I wrote an article dicussing how FHA mortgage loans are not Subprime Mortgage Loans. Obviously, too many loan officers are not getting that point very clear in their minds. With the lack of mortgage loans available to individuals with very poor credit, many loan officers that worked strictly in subprime lending have turned to FHA as their savior. This is causing a lot of trouble and a major backlog with many lenders in their government underwriting departments.

The mess has gotten so bad with many lenders that loans can take up to 30 days just to get their government deals looked at! This includes both FHA and VA mortgage loans!

So in an attempt to help bring loan officers back to reality, HUD has released a Mortgagee Letter (#2008-11) to clarify Nontraditional Credit Verification and Evaluation. In this letter HUD addresses using alternative credit references, when they can be used and how they should be verified.

The idea is that using these alternative tradelines is appropriate when a borrower does not have sufficient credit to create a credit score. Alternative credit can also be used to help support what is considered to be a “thin” credit file where a credit score is created but based on very limited credit. HUD does clairify that if the credit is in bad shape, you can’t simply turn in a payment history for a light bill and get it approved!

“nontraditional credit reports may not be used to enhance any poor credit history on a traditional credit report.” HUD Mortgagee Letter 2008-11

Alternative credit lines must have a solid 12 month history and be one of two groups of trade line references. In the next couple postings, I will go more into what these groups are and how HUD wants these references to be verified.

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Why Charlotte NC is The Place to Buy Your First Home

Are you tired of renting? Every month you write that check for $600, $750 or over $1,000 for your rent and you have to wonder… how much home could you buy in Charlotte?

If you are thinking about buying your first home, Charlotte NC is the best bet around!

Charlotte’s real estate market is great! There is a great selection of homes available to purchase and despite the national news of falling home values, Charlotte boasts one of the few growing real estate markets in the country. So the investment you make today won’t disappear tomorrow!

Mortgage rates in Charlotte are cheap! While the entire country is still seeing great mortgage rates, Charlotte is really reaping the benefits! In addition to people buying their first home today, many Charlotte home owners are also refinancing their current mortgage. When you see mortgage refinances up, you know mortgage rates are low! And right now, you can enjoy super low mortgage rates in Charlotte.

Despite the news that it’s harder to get a mortgage today, there are still many Charlotte mortgage financing options. First time home buyers are finding it a little more tricky today, but with the right guideance and advice (from the right Charlotte loan officer of course), Charlotte home buyers can find the right mortgage product to help them get approved! FHA and VA mortgages for Charlotte are just a few of the many options available today.

So if you are still renting, you need to consider buying your first home in the Charlotte area. With a solid real estate market, great selection of homes for sale in Charlotte, super low Charlotte mortgage rates and mortgage programs designed to help first time home buyers, now is your time to buy!

Could a “Failing Economy” be Political Hype?

Sure, I know its tough out there. Energy costs, especially at the gas pump, are eating up more and more of our money. And it seems that everywhere we turn the feeling is that we are in a recession.

However, the numbers say something different. For the past 2 economic quarters we have still seen growth in our economy. Sure it was just a small gain, but it was positive. This morning, despite economists expectations of bad news about unemployment rates, the numbers actually showed that umemployment rates fell in April! And all reports earlier late last year said we would not see the real estate housing market return until 2009, but now they are saying 3rd quarter 2008. Personally, I think the real estate market turns the tide this summer nationwide, with Charlotte real estate beginning any time.

So what does this all mean? Is it all just politics? Are we in a recession? Is the sky falling?

I have been saying for months that the sky is NOT falling. Yes, we have seen a down turn in the economy and we are all feeling the crunch. But listening to the talking heads, the politicians, and the news media (which can’t say anything good) you would think we are in another great depression!

So it makes me wonder… how much of this is spin and hype from a big year in politics? How much of this is “Bold Headlines” material, and just how much of it is reality?

For those that do not subscribe to the theory that America is falling away and that our economy is dead, now is the best time to take action. While others are sitting around moping about how bad things are, you are able to take advantage of the market and make big strides. From investments to real estate, the world lays at your feet waiting to be seized!

If you live in the Charlotte NC area for example, you are part of the best real estate market in the country. Charlotte even features the best economy in the nation. So take advantage of your opportunity and stake your claim today.

What do you think? Express you opinion now…

Mortgage Marketplace at Zillow

Earlier I voice my opinion as to Zillow’s new Mortgage Marketplace expressing serious concern for how it may make borrowers feel as if they are being lied to. My concern comes from years of experience with what we call the “rate shopper.”

The “rate shopper” is a borrower that grabs the yellow pages and call 10 lenders asking them “What’s your best rate?” The lender then has to hope that they are picking the right product, rate, terms, fees, etc to grab that possible borrower. Afterwards the borrower, having given very little information, tells them thank you and I will call you back.

I have found that in dealing with the “rate shopper” that when they get to lender #7 on their list, they are confused and frustrated. They get rates ranging all over the place, different terms thrown at them and all kinds of sales pitches. This tends to leave them feeling a bit beat up, when in fact they were the ones beating up the lenders.

I am not against comparing rates. I think it is a healty and smart thing to do, especially if you are unsure about your lender. However, in today’s market shopping can cost you more than it can save as rates jump around quite frequently throughout the day… yes, 5-6 times a day!

With all this in mind, I may not have given Zillow a fair shake and have decided to give it a try. I have signed up with them and once they confirm I am real I will begin getting these “leads.” I will try my best to give realistic “quotes” to the anonymous borrowers and hope that I don’t get lost in the shuffle of all the bait and switch games that others can play. We will see what happens.

I still believe that the best way to approach your mortgage is to find a lender you feel you can trust. If they can answer your questions and help you understand what is going on with the process, chances are they will be good to you when it comes time for pricing. If you are not sure, call someone else to compare. But if the lender has been doing their job and answering your questions, be sure to contact them before jumping ship if someone else offers the “too good to pass up” deal. Give them the shot to see if they can make that work first… could be a program they had not considered for you. (We aren’t all perfect!)

I am posting this to make sure I am not compared to a politician, that says one thing and does another. I am going to give Zillow a fair shot and see what becomes of it. Wish me well…