THE EFFECTS OF QM

                                                    123rf.com

  What? What is QM and why should I care? That will be the reaction of most borrowers when they read an article or have a lender tell them that the loan they may be considering is not "QM".  QM is an acronym that refers to Quality Mortgage.  Since January 10th of this year lenders were required to be sure that the products that they offer are QM.  QM requires higher standards for proof of employment and income, debt ratios, and assets.
 QM is a ruling set by the Consumer Financial Protection Bureau to protect consumers from being approved for loans they can't afford or have the probability of not being able to pay back.  It keeps lenders from becoming sloppy in their lending practices, and it has set new rules for new financial disclosures for lending that quite frankly, are far less confusing for the consumer than the disclosure forms that HUD has been requiring.
 "Yeah, so that's great," you say. "But what does that mean to me?"  In practical terms, most of the mortgage choices that are currently available (FHA,VA, USDA and Conventional lending overseen by Fannie Mae and Freddie Mac) are not included in the QM requirements.  Debt ratios exceptions and documentation standards remain fundamentally the same...except...
  And it is the exceptions that get you, right?
  Even though the above mentioned loans aren't held to the new QM standards-lenders are increasing their scrutiny while a loan is in underwriting. For example:  from time to time there are an exceptions made to lending rules. One such rule has to do with income if it comes from commission or bonus. The rule is that the borrower must have received this money for two years prior to being able to count it as income.  Once in a while a case can be made that the time restriction should be waived. If that request is made, a borrower should expect to produce more material pertaining to income than they might, if they had two years of the commission income. So maybe one more year of tax returns and W2's than normal. Letters from the employer stating whether or not the commission or bonus will continue at present levels may make the difference between and approval and a decline. 
 Bank statements are examined thoroughly as well. Many of my clients are frustrated when they are asked to produce a paper trail for random large deposits.  Lenders don't require this to be difficult-it is done to insure the integrity of the funds. Sometimes it seems ridiculous but if anyone has ever had the IRS breathing down their necks, they would understand that lenders don't need the enforcement arm of all the Federal Agencies available picking through their loan departments. Not only do we have Consumer Financial Protection Bureau issues, HUD issues, but clean lending  also involves the Federal Reserve, Homeland Security and the Patriot Act. 
 May I remind my readers that the 2001 hijackers funded their spree by running large amounts of cash through their respective bank accounts.  While it does seem ridiculous to consider a $200 cash deposit as "large", some banks are covering all their federally mandated backsides in great detail.
  This emphasis on documentation and verification is especially upsetting to borrowers who purchased a home back in the "anything goes" days and don't understand what all the fuss is about. The Great Recession of 2008 and the role of housing in helping to tank the global economy is what we are talking about-so my expectation is that these requirements are going to be with us for the foreseeable future.

 

                                                       ideastorevenue.com
Because of the head scratching nature of many of these new requirements and the extreme changes in lending which make it a much more complex process than ever before, I am going to make a recommendation. (Of course I am, you knew I would didn't  you?)

  While I know that many first time buyers are very internet savvy and are used to shopping and researching online for just about anything they desire-a mortgage loan isn't a good product to buy when you have no idea who the seller is or how the process is supposed to unfold. Even if you do- if you make application with a large bank will you understand what you are signing and what the terms mean? While I don't mind doing a save for someone who got in over their head with an online lender-the situation creates a huge amount of stress that could have been avoided had the borrow taken the time to sit down face to face and discuss the loan product they were signing up for. Shopping for a loan isn't the same as buying a pair of Nike's online, and making a decision based solely upon the interest rate doesn't get you the service you need to assure you of what you are buying and what the final costs will look like in layman's terms.

                                                                   ideachampions.com


 I know, I know-you like to do things on line-but keep in mind that when you live in Indiana and you do business with a lender that is headquartered in New York City or Detroit or California you and your Realtor lose control of many facets of the transaction. The lender may choose the title company and that title company may not be located in your community. The appraiser may come from hundreds of miles away and not be familiar with the local market. The loan originator who doesn't ever have to do business in your market again may not keep you or your realtor informed of the progress of the transaction. And that means if you don't know what is going on and your house doesn't close on time-your seller could choose to walk, and you lose-time and money. So my advice is keep it local. Preferably with me!

SHOULD I SELL MY CURRENT HOME BEFORE I BUY A NEW ONE?

  The answer to that question depends on how you deal with stress.

                                                                                           sodahead.com
 Putting your home on the market, applying for financing, finding a new home, and coordination of these efforts in addition to the routines of normal daily life can be a bit overwhelming.

  For some people, knowing where they are moving to is less stressful than the unknown-or the idea that if they can't find what they want prior to closing their existing home they may have to move twice. And, some people can afford two house payments if necessary. So a lot of the decision is up to individual preferences and the reality of individual financial situations.

No one wants to move twice.  That is a fact. Many if not most people put their homes on the market and allow prospective buyers to see the home while they are also out looking for a new home.  So the problem arises when the next home is found, but the old one isn't sold yet. What to do?

 For people who can't afford two house payments the only thing to do is make what is known as a contingency offer-i.e. the offer they are tendering is subject to the sale and closing of the property they are selling within a certain amount of time.  In an active market this type of offer isn't the most appealing offer for a seller.  However, some sellers will entertain the possibility as long as a "first right of refusal" is written into the contract so they don't tie up the house and make it impossible to accept another offer that can close more quickly.  What occurs is that they accept the initial offer, but leave the home on the market for other offers.  The first buyer has the first right of refusal should another offer come in. The first buyer then can, if they choose  (and if financially possible) move forward to close without selling their current home first. Should they decide not to do so, then they will be released from their commitment to buy the home and the second buyer will get the house. This works for many people but it is a bitter pill to swallow to lose the dream home while waiting on the sale of the current home.

  The second possibility for those who can't or don't want to be stuck with two house payments is to get their current home under contract for sale prior to writing an offer on another home.  This can put the buyer in a time crunch to find acceptable housing. In this scenario the buyer may want to consider the possibility that they will have to move twice. Once into short term housing or into a relative's basement. Not an attractive idea but if a buyer doesn't want to make a fast decision or can't find something they like this takes the pressure off.

 The third possibility is that the borrower is affluent enough that they can afford to make two house payments. This isn't the most desirable option for anyone, but particularly if the current home is priced to sell it may be a realistic choice.
 
 Some folks hang onto their current home to use as a rental.  Again, you need to be sure that you can afford both house payments in your debt ratios.  Rent can't be counted as a wash against a mortgage payment unless the home has been a rental property and reported as so for two years on tax returns.  In addition if the applicant is using FHA to purchase the new home, the current home can not have an existing FHA mortgage and must have  25%  equity between its value and what is owed. (No, they don't make it easy on you.)

  Sometimes there are no good options-so all you can do is choose the one that is best for you.  Doing so should at least give you a plan of attack and turn this

                                                                          dottedline.com

into

                                                                mamamarmalade.com

It's all in how you frame the problem-right?

A LITTLE HELP FROM MOM AND DAD

abcnews.com

  I often get calls from parents who want to assist their children with the purchase of a home. Sometimes the child has poor credit so mom and dad want to co-sign for the mortgage loan.  Given the new credit rules for mortgages, if someone has poor credit, co-signing will not help as the lowest middle credit score of all borrowers determines whether or not the loan will be approved.

 Sometimes parents want to gift the down payment to assist their child. There are of course rules that determine how much down payment is required from a family member with each type of loan, and it is possible for a parent to gift the down payment without being on the loan or responsible for the mortgage.

  

 What gets a little touchy is for a parent to buy a home for a child when they themselves are not occupying the property.  Conventional lending calls this an investment property.  In this case large down payments are required.

  There is a way for a parent to help a child buy a home.

                                                                           mylouisvillekentuckymortgage.com

 The FHA loan program allows non occupying co-borrowers and does not require large down payments. The down payment factor is the normal 3.5% required by FHA. The 3.5% can come from either the child or the parent or a combination of both. Many times we see this loan used by parents for college age children because the parent has determined that it is more financially sound to purchase a property for their child or children while the child attends college rather than pay for housing-campus based or an apartment. Sometimes we see the loan used for children that have a job, but perhaps the job doesn't pay enough for the child to afford a home, so the parents help out by co-signing the loan which allows FHA to use the parent's income and assets to underwrite the loan.

 The main requirement for the child in either of these cases is that the child must have a credit score.  While FHA does not necessarily require the son or daughter to have a score, it is hard to find a lender that doesn't. 

 The way this program works is for the parents to be the non occupying co-borrowers. They have the same responsibility towards the mortgage as the child, but the parental income is added to that of the child as well as the debts for figuring the debt ratio. 

 

                                                                evolvingpf.com



  If you are buying for your student it is probably a good idea to research the market you are considering for your purchase to be sure that housing is stable at minimum and hopefully appreciating so that you can make the right decision on whether paying rent makes more sense than buying. No one likes to be stuck with a loss.  

  

YOUR REAL ESTATE LIST

                                                                thisissideupfamily.org
  One thing about buying a house is that there is always a list or a series of lists-right? There is the wish list-the three bedrooms, 2 baths. 2 car garage, fenced yard list of features you really want in the new place.  Then there is the packing list, and of course once you find the house and get an accepted offer-the to do list that comes with buying a home-inspections, obtaining insurance etc. After closing-it evolves into the household chore list-which is a bit more extensive than when you resided in the rental property. No more landlord to shovel the sidewalks and parking lot, mow the grass,and paint the trim. That's now on you.

  But there is one more list that I want to talk about.  It is the list of items that you will need to gather for your mortgage loan.  The reason I mention this is because many people get caught up in the excitement of buying a home and begin packing-at once-before the new home is procured. And where do we begin when we are packing and sending items to charitable organizations? The items we think we will not need until we are moved. Which would be the contents of filing cabinets, the top cupboards etc. And that means that many times the financial documents that are needed for the mortgage loan get packed up and stashed in storage or at the bottom of a pile of boxes waiting to be moved.

                                                                     keciametty.blogspot.com
  Here is where  I am going to tell you what not to pack! These items are essential to obtaining mortgage financing. If you don't have them-your loan will not be approved. There is no court of appeal-these items are essential so don't put them out of reach.

                                                       protectamerican.com


  Here we go, this is what you will need:

W2's-the past two years

Tax returns-we don't always need them, but if we do, getting them from the IRS is a pain so don't pack them away.
 (As an aside, tax returns and W2's are not interchangeable)

Pay stubs-30 days

Bank statements-60 days

Driver's license/social security card (The soc card is often put away somewhere since most people don't carry them any more. If you can't find it you can obtain verification of your number at the local social security office and that form will work .If you have no driver's license a military ID, passport, or state issued ID will work)

If you have had a divorce you will need your decree and property settlement as well as any child support or maintenance orders

If  you had a bankruptcy in the past 5 years, you will need to produce your bankruptcy papers. 

  That is the short list-where we begin. Depending on the situation other documents such as marriage licenses to prove relationship, grade transcripts, diplomas and other odds and ends may be requested. But those are on a case by case basis. Does this sound like a lot of documentation? In order to prevent another mortgage meltdown the Consumer Financial Protection Bureau has set stipulations on the documentation that must be in loan files. So if you wish you can blame the government. Personally I think it is good business. Not good business to hassle any individual, but good business to ensure that mortgage loans are going to folks who can actually pay back the money. While everyone who wants a mortgage has every intention of making their house payments it is important that in reality, they can.

  Tax season is upon us so if you are planning on buying a home this spring, now is a great time to pull those documents out and set them aside so they are ready when you make your mortgage application.



 

2014 SO FAR

                                                                           dailyherald.com This has kind of been the problem hasn't it?  It is hard to get excited to go look at homes you might like to purchase with snow and ice going on.  But interestingly enough, there has been quite a bit of activity in the local housing market.  Most of my Realtor associates tell me that they have listings inking on a daily basis and more lined up to do so when the snowy pattern breaks.

  I have attended a few open houses lately and there have been several hearty souls out looking to beat the rush to home ownership. The showings reports for January despite the weather have been quite good-activity is up.

  At the moment, interest rates are holding steadily in the mid to upper 4's which is still great news for the wallets of potential purchasers.  However, we do anticipate that once the weather breaks and demand goes up, the rates will go up as well.

Lately inventory has been in short supply so sellers have been able to hold the lid on pricing that is advantageous to them.  The Anything Buyer's Say Market is over.  This year we will no doubt return to equilibrium.  Sellers should be willing to assist buyer's with closing costs, but they will want a higher price in return.   There will be properties and price ranges that are highly desirable and we may see a return to list price offers.  This return to more normal patterns may see a decrease in investment buying as pricing will reflect a healthier market.  While there are still some foreclosures that will hit the market this year, the bulk of the foreclosure crunch is over.  All reports are that new foreclosures are down-so what is left is to flush what remains.  By next year the foreclosure wave should be done.

  There seems to be a general agreement among most of the real estate professionals I speak with-the pent up demand of the past few years is ready to burst. Many young adults have been making do with Mom and Dad until they found a job-those folks will be out in droves. Since rents are increasing at a rapid rate, the new lease agreement may be the incentive that many people need to ask the question: "Would I be better off buying?"

 Since market values are appreciating again the trade up buyers will be out.  Of course there are many folks who will need to trade down because the kids have found jobs and left the nest. All in all, it is stacking up to be a great year in real estate.

  My best advice to any buyer who is serious about getting a good price is to get pre-purchase underwritten now.  Get your ducks in a row and buy earlier this year rather than later. Be ready to close quickly.   Let's see - if you wait-prices will be higher, rates will be higher-what's to think about? The time to start your search for your new home is now.

                                                              timminstimes.com

Well, it might be good to wait until the drive is plowed out at any rate!

CASH-AN ONGOING COMPLICATION WITH LENDING

  First, there is the obvious problem-if we all paid cash to buy houses then I would be out of a job-being required to sell popcorn at the circus or engage myself with  some other dubious career. But it is probably unlikely that anytime soon (before I hit retirement age anyway) that most homes will be purchased in cash transactions.

  The problem with cash is the Patriot Act.  What? What does the Patriot Act have to do with cash?  The Patriot Act is the reason that if you drop your garage sale money or the gift that your Aunt Emma gave you for Christmas into your checking account and then decide to buy a house we will send you to obtain the paper trail for the money or ...if there is no paper trail, not allow you to use the money in your home buying transaction. 

                                                                  blog.fpweb.net

  I had a client I worked with last year that had several thousands for his down payment stored in his freezer. (I am not kidding-the money was in his freezer.) It was his money he argued. Why couldn't he use it?  The reason he can't use it to purchase a home is because every loan program that I can access for my clients has the fingerprints of Uncle Sam all over it. Whether it is the Federal insurance or guarantee that come with FHA and VA or the fact that Fannie Mae and Freddie Mac are entities that are controlled by standards set by the Federal Government with respect to conventional loans-all of them are regulated by the Federal Government. (There may be private investors out there that provide money for mortgages but that ain't my gig so I don't know much about those.) So with all that Federal oversight, what that means is that the Patriot Act applies to banks and lenders-and ultimately to you.

 
 Still don't understand how your $500 cash deposit has anything to do with the Patriot Act?  You probably remember 9/11-right?  The 9/11 highjackers paid for all their mayhem with cash. Cash that rolled into their bank accounts unnoticed because in 2011 no one paid any attention to deposits.  So in an attempt to track terror plots, lenders and banks are now required to prove the paper trail for all large deposits.  That includes your friendly neighborhood bank or mortgage broker. Which means you.

                                                              shoutot.com

  What you may ask constitutes a large deposit? That is where it gets tricky.  The Federal Government has said that large deposits must be sourced, but they don't define what constitutes a large deposit-in the lending world anyway.

  I think we can all agree that my prior client's frozen thousands would constitute a large deposit.  But I have seen $200 be declared a large deposit. I think a good rule of thumb is that any deposit over 25% of your gross monthly income would be considered a "large" deposit.

Here's the thing...if the deposit came from a check or wire from another source such as the US Treasury, or direct deposit from your employer-no problem with the money. It can be traced to the source.  But if it came out of a hole in the backyard where it has been buried for a year-then there is a problem.  Unless...

The money is deposited and you wait for two months of bank statements that don't show the deposit - then you are okay.  Lending requires two months of bank statements to process a loan. If the money is in the bank on two successive bank statements after the month of the deposit-voila! The money is good.

  You can anticipate that transfers from your mom's account or even from an account that belongs to your spouse but does not have your name on it will beg questioned. Those are generally not a problem as we handle them as "gifts" by seeing the money in the transferring account prior to the transfer and then obtaining a gift letter from the owner of the originating account.

  We want you to be able to use all the money that is coming to you. We never like to disallow money-it can sometimes mean that someone has to delay or not complete a transaction.  The simplest way to remember all this is that when it comes to buying a home-all money must be accounted for-so be sure that any cash deposits are small and not monies that you depend on for the down payment.

YES! PRE-PURCHASE UNDERWRITING

pilotfire.com

  There is nothing better than being able to say YES!  The best days are the days when I get to tell people yes.YES, your mortgage is approved.  But sometimes in mortgage lending the "YES" is problematical.  Sometimes the YES is based on enough information to believe the answer will be YES but there is something else floating around out there that I don't know about-a something that can turn a YES into a cold hard NO!

  Most sellers upon receiving an offer have a reasonable expectation that the potential buyer has the means to actually close the deal and cough up the money to buy the house.  To those ends the buyer's agent presents the seller's agent with what is customarily known as a letter of pre-approval.  This letter is written on the letter head of the lender with whom the buyer wishes to obtain financing. It typically outlines that the lender has at least spoken to the buyer, taken a look at credit and given that broad overview, thinks that the buyer will be able to obtain financing.  Hopefully they have reviewed some pay stubs and W2's.  

  I can't even begin to enumerate all the things that can go wrong with only the information upon which a pre-approval is based.  The key part of the phrase pre-approval is the "pre".  What the "pre" means is that the loan is not approved-an underwriter hasn't even peeked at it in most cases. Any questions that will be generated once an underwriter gets their grubby hands on the loan package are as yet, unanswered.  Depending on how diligent the loan originator was in following the questions that sprout from the basic questions he/she has asked-any result can occur-including "LOAN DENIED".  By the time we get to "LOAN DENIED" money has been spent, a home has been taken off the market and time has been wasted. Not a pretty picture. 

   Loan originators aren't underwriters.  Over time we learn a lot and may have a good idea of what can be approved and what can't.  But more than once I have had a loan that I thought couldn't be done be approved and ones that I thought would be no problem denied. So we aren't the last word in approval predictions.  The rules on mortgage loans have changed so many times that knowing them all on any given day is a Herculean task.  That is why we have underwriters.  People who specialize in particular loan products.  Most companies are set up so the underwriter's task is specific-one underwriter may underwrite conventional loans, VA loans, FHA loans or USDA loans and they stick to that product. (Many are cross trained-but normally you don't see a conventional underwriter adding an FHA loan to their to do list.

  What every loan originator wants and every lender wants is this:

                                                                         123rf.com

    

If we don't get to "LOAN APPROVED" a lot of time energy and money has been wasted and quite frankly. I look like a putz.

  And since I don't like looking like a putz, I  tend to prefer the "APPROVED" days- I have a solution. (You knew I would didn't you?)

  My solution is a PRE-PURCHASE  UNDERWRITTEN APPROVAL.  And yes, my company is one of the few that offers those. What this means is that you come in, we take your application without a house -you don't have a house yet, but we have all the pertinent information to submit a loan file and we get you underwritten. Any issues, unanswered questions, deal breakers-all that stuff, if there is any, will come out in the wash.  We then have time to solve any problems before the clock is ticking on a closing date.  When I turn you loose with an "APPROVED" stamp on your forehead, you are ready to buy.  You are ready like a cash buyer is ready.  All that we need is an appraisal and clear title work.   It doesn't get much better than that.

  Why doesn't every lender do that? Underwriting takes time, underwriter's expect to be paid, and if the buyer chooses to go somewhere else for their loan then the time has been spent to no benefit for the lender.

  Is this a growing trend? I can't say-what I can say is that it works for us and it can work for you too.

 

HOW DO I FINANCE A BRAND NEW HOME?

                                                            ez1realty.net
  Who hasn't ever thought, "Gee, if I could build my own home, I could design everything  exactly the way I want it."  And every year thousands of Americans do just that-build their own homes.  When you look around the community, many times available existing properties were built when we lived quite differently. Maybe a one car garage, one full bath home just isn't cutting it for you, no matter how nicely it is upgraded. So you start thinking-what if I built a new home? How much will it cost? Can I get a loan for a new home?
 
 Mortgage loans are blind whether what you want to buy is a new home or an older home-what you can afford given your income and debt ratios is what you can afford.  It doesn't matter if it is old or new. However, the key question you need to answer is-what will the amount I can afford buy me in new construction?  The answer varies from market to market, but size, location, and amenities normally play a role  in the price of a new home.  You may be able to afford a home with a full basement in a pre-existing home but not be able to afford the cost of adding a full basement to a new home.  In any case, if you can't find what you want in existing housing, building a new home may be for you.

  In terms of the financing, there are two ways to obtain a loan on a new home. One is using a construction loan. In this case, you as the buyer would obtain the money to pay your builder as he moves through different phases of construction. The builder obtains money (a draw) as each phase is completed. There is an up side and a down side to construction loans. The up side is that you have (the illusion at least) of having more control of the process. You are the one who writes the check to builder as each component of the job is completed. However, there is a down side too. You are the one paying the interest on the project and if it is delayed by weather, a shortage of lumber,drywall etc. you are the one footing the bill.  Many construction loans now have a one time close so the loan will move into your final loan without having to go through the closing process twice. Buyer construction loans are often used when dealing with a custom builder or a more expensive home builder that is building outside of a development project.

  The second way to finance your new home is with builder carried construction loans. The positive to this is that if there are delays, the builder will be the one paying any extra interest. The builder is also the one who manages the draws for each phase of construction. (Keep in mind that most communities require permits to be signed off on by government officials-so your builder does have accountability to meet local building codes and rules.) And the obvious question is-do you have the expertise and knowledge to know if he was meeting local requirements anyway? So the power of the checkbook isn't quite so great as some would think.)   This is the simplest method of obtaining financing for your new home. Not all builders can carry the construction loan of course, but if this is your preference you might choose to shop for a builder who can.

 In order to finance your home either way you would determine how much you can afford by going through the pre-approval steps to determine price range. How much you actually spend depends on the builder you choose, amenities, building site and prep work for the site, etc.  I normally add another step to the process and that is to submit the loan file for credit underwriting prior to the builder starting the project.  At that time we would know that the loan for the price of the home will be approved, and if there are any issues they can be dealt with during the construction process.

                                                             interiordesignable.com

  With regard to mortgages there are a couple of downsides to new construction financing:  Until the home is about 60 days from completion it  it is very expensive to lock an interest rate.  Also - once the rate is locked and closing is in sight credit is repulled, and income and asset documents are updated. If there have been any significant changes to any of these to the negative, the loan may be in jeopardy.  If you have purchased a home at the top end of your debt ratio and there is a significant increase in the interest rate from the beginning of the process, the approved loan amount could change.

  However, if you have a good handle on your credit, income and assets, building a new home may be a possibility well worth investigating.  Don't be shy about looking into it.