EVERYONE'S AN EXPERT

                                                                    thepoisedlife.com

   When it comes to real estate and mortgages, everyone is an expert. Why? Because an awful lot of people have real estate stories and experiences to share. Buying a home is a big event and well meaning people want to keep you from making a big mistake. If you are in a social situation and mention that you are considering purchasing a home-see what happens.  You will be surrounded by folks who are willing to share not only their success stories on negotiating and securing both a property and a mortgage, but their horror stories as well-the low appraisal, bad inspection, how their Realtor didn't troubleshoot every possible contingency-the list goes on and on.

                                                                 nataliegouche.com

  The fact is, that unless someone is currently making their living in mortgage lending, real estate sales, the title insurance industry, or new home construction they probably aren't in a position to comment on how a real estate transaction should unfold. There are just too many variables.

  The first set of experts and probably the most influential that a potential home owner may encounter are Mom and Dad.  It is very hard for a son or daughter to tell their parents "here's the line-don't cross it."  Mom and Dad often do have home ownership experience but that experience may be years old and have nothing to do with what has happened since the mortgage meltdown of 2008. And while Mom and Dad may have something of relevance to add to the conversation in terms of suggestion on size or type of home or supporting you in your decision,  unless they are engaged in the real estate industry currently, they really aren't in a position to address value of the property, what type of mortgage is best for you or whether or not the lender is asking for too much information or whether the home is typical for the area.  In fact, since real estate markets are very local in nature, an out of town parent needs to recognize that what is applicable to their area may not apply at all to another location.

  Where mom and dad may be helpful is to give you a list of questions to ask your sales agent or lender.  Some of those questions may concern subjects like average utility payments on a particular property, the incidence of crime in the neighborhood, what the resale possibilities are etc. The types of questions that a first time home buyer might not think to ask.  I never have a problem if a parent sits in on a mortgage application to help their offspring understand some of the documents or to ask basic questions about the loan. If the parent wants to assure themselves that I am a straight shooter, that's fine. However, the ins and outs of the mortgage process are my job to manage and I don't welcome calls questioning the underwriting of a file, why we need the specific documents we need or asking questions about the credit or financial status of their child. This is confidential information, and can't be shared-even with a parent.

  Could any important decision be made without input from:

                         kidologist.com

  No, probably not. Of course your friends will be excited for you. Some may have their own ideas of what your new home will do for them-spare couch to crash on, party pad, etc. But the group of friends you will hear from the most once you decide to embark on the adventure of home ownership will be the ones who have just done the very same thing.  They will want to share their war stories inspection advice, and newly minted negotiating skills.  The information your friends have to impart may be more timely than what your parents can give you about the current state of the housing market but...

                                                      justanotefrommary.blogspot.com

  Just as no two snowflakes are the same, no two real estate transactions are exactly the same.  I often have people ask me about the type of loan their buddy got wondering why theirs is different. What many people don't realize is that different types of mortgage loans have different types of requirements. So a person's credit history, assets, income etc. may play a large part in what type of loan they are using to finance the purchase.  Likewise the success of the actual negotiation on price and terms with regard to the purchase is unique to each buyer and seller and their specific needs.

 Then of course there are the random individuals you meet in the supermarket check out line, or at your son's soccer match who will decide that you need their advice such as the client I had in process who took it upon himself to advise another client of mine how to structure his loan.

  Don't misunderstand-all these people have your best interests at heart. There is no doubt that they want you to have a good experience, get the best interest rate, and the house you want. But their experiences are colored by their own needs and specific situations, not yours.  The best source of information about all things real estate is your real estate agent. If you want mortgage information your mortgage broker is the best one to provide it.  Listen to the professionals and you will find yourself a happy home owner.

DON'T SPEND IT, DON'T BUY IT, DON'T OPEN IT

                                                           autos.yahoo.com

  That's some nice truck isn't it?  Kinda caught your eye didn't it?  I mean who can just walk by a bright red truck?  Ooooh, and did you see the special financing package that Ford is offering on it? SWEET!

  I hope I haven't confused you. This is a mortgage blog not a truck blog, but I wanted to discuss when it is appropriate to buy that new truck and when it isn't.  A truck or a vehicle is a large purchase and if you are considering purchasing a home in the near future, you probably want to consider delaying the vehicle purchase until after your home loan closes.  There are a couple of reasons for that. 

  On the one hand, when you go to the dealership to look at cars or trucks or motorcycles the dealer will shove a bunch of papers at you to sign, ask you some questions and all of a sudden they are suggesting you take a test spin in that Miata that had lured you in.  One of the papers you have just signed is an authorization for the dealership to pull your credit. Sometimes they ask, or mention it.  That isn't a big deal if you aren't planning to obtain a mortgage anytime soon, but if you are-when they pull credit for vehicles and you go to two or three different places you could have upwards of 10-20 credit pulls on your report. That will hurt your scores.

  The second issue that comes into play is once you buy that new car you may be using money for car payments that could go to house payment-in fact you may have sucked your ability to buy a house up into your vehicle payment.  I have seen some truck payments at $600 or more.  My house payment is less than that. My motto is, if it's on wheels and the payment is that high, it better have two bedrooms and a full bath, because otherwise it ain't worth that much. Unless of course, it's a Winnebago.

                                                       oocities.org

  In any event, I have seen situations in which the potential buyer was paying so much for their truck or car that they couldn't qualify for a house.  So if a house is in your near future you might forgo the status wheels until you have seen what you can and cannot afford.

  Once in a very great while someone will want to purchase a vehicle before their loan closes. If they do that without alerting their loan originator they may run the risk of increasing their debt ratio to the point that they no longer qualify for the mortgage and then can't close on their home. Normally replacing one car payment for a similar one will work out-except that in closing the old car loan account and adding a new one there is often a drop in credit score. So the best course of action is don't buy a new car until you have safely closed on your new home.

  A majority of mortgage loans have down payment requirements.  What this means is that the borrower is required to have the down payment amount be it 3.5%, 5% or 10% invested in the transaction. The underwriter is going to want to see this amount of money in the borrower's bank account prior to closing.  Just saying you have the money isn't enough.  It is definitely a Jerry MaGuire "show me the money" moment.

 

                                                            linkedin.com

 

  The above picture would be me when I find out that one of my borrowers has spent their down payment money on a vacation, or who knows what.  It happens, folks, though you would think it is plain old common sense. People sometimes unwittingly spend their down payments.

   Opening new credit card accounts or obtaining new bank loans can have the same effect as purchasing a new car.  If the debt ratios are tight, charging up that new living room furniture can throw the ratios over the top and the loan can and will be denied.  It is okay to go shopping for these items, you just can buy them until the new mortgage loan is closed.  Many people think the lender won't find out.  I have often said that by the time you are done with a mortgage loan we will know everything about you including your underwear size. I'm not kidding. Lenders often pull credit again prior to closing to be sure no shifts in scoring or debt ratios have been exceeded due to new credit.

 

 

 The last topic I want to address today is your job.  I hesitate to tell anyone to turn down a good possibility to better your financial position. But sometimes depending on what the change is, it can cause your loan to be denied.  If you are moving to a different position that pays more or even laterally within the same company-there shouldn't be an issue - unless - you move from a salaried or hourly position to a commission based position.  In lending if you are using commission as income there must be a two year history of the commission prior to it being considered stable income. So if you moved from an administrative job to sales and the sales job has commission attached to it you will not be able to count the commission as income.  The same applies to professions that may be seasonal in nature. If you  move from to a construction job, concrete work for example-there will need to be a two year history as there is a portion of the winter in Indiana in which you won't be able to work.

  If you are moving to a position with a different company doing the same type of work you probably will not have a problem unless you have a probationary period to fulfill prior to permanent employment. If there is a probationary period the loan will not close until it is completed.

  Change in job alone is not necessarily the kiss of death to a mortgage loan, but you need to check with your Tippecanoe Mortgage loan originator to be sure of what the consequences might be if you should switch jobs in the middle of a mortgage loan.  Be assured that the lender will find out-probably the day or two prior to closing.  All lenders do a final verbal verification of employment just prior to closing. Why? Because they want to be sure you are still working, you silly goose. And if there is a job switch that is undisclosed-verifications will have to be redone. If commission, bonus income, or a probationary period turns up you may be declined.

 

                                                                        sodahead.com

 

 I have had enough folks commit the aforementioned actions to know they often result in the denial of a mortgage. I have realized that many people have no idea of how decisions that are made in the daily course of living have to be amended when in the mortgage financing process.  The hard and fast rule is once you have decided that obtaining mortgage financing is in your future, do not make ANY financial decisions that affect income, monthly indebtedness, or assets prior to consulting with your loan originator to be fully aware of the impact of these decisions on your ability to obtain financing.

  Having to tell someone that they made a decision that results in their home not closing is a call I prefer not to have to make. Paying attention to a few simple rules will ensure that this doesn't happen to you.

A REAL ESTATE MYSTERY...PROPERTY TAXES

  Whatever you think about property taxes, they are a fact of life. In Indiana if you own real estate you will be billed for property taxes twice a year in May and November.  Property tax assessment and the methodology of payment often is a head scratcher for many people-particularly if the home owner is a first time home buyer or a home buyer from another state. Today I will try to provide some clarity to the issue so that homebuyers will have some idea of how the whole system works.

  The process of evaluating a property's worth for taxation purposes is meant to employ a market based system so that the tax assessment is roughly what the property would be worth if it were for sale.  Since every property is not sold on an annual basis there has to be some method of determining that value from year to year.  The method that is used in Indiana is a method called Trending.

 The state defines trending as: Process whereby property values are adjusted (the adjustment can be positive or negative) on an annual basis to bring them closer to market value-in-use. The assessing official uses sales of properties in a neighborhood, area, or class of property from the previous 14 months to determine the adjustment factor. In the past, the assessed values of real estate were adjusted only after a reassessment, which came as far apart as 10 years. Unlike reassessments, trending will occur every year.

Huh?

                                                                    panopticdev.com


 In other words, simply put, to clarify, I believe this means that computer modeling is done of geographic areas to get an idea of what is occurring with values within a particular neighborhood.
So if the characteristics of a neighborhood are all similar-homes built in a particular price range at about the same time, this snap shot of value may be in the ball park.  Then again if you live in a neighborhood like mine with homes that range in age from five or ten years old to sixty years old - the values may be a tad off.  (This is why I advise buyers that what the county records show as the value of a property for tax purposes may not be what the property is really worth, so basing an offer to purchase on what the county has as market value might not be a great idea - you might be way too low or way too high.)

  From time to time I have called the county offices to ask for more of a clarification of how assessments are determined but thus far haven't received succinct enough answer to pass along as fact to anyone yet. For that I apologize.  I think everyone is confused - just sayin'.

                                                hyperboleandahalf.blogspot.com

The good news is that I am a bit more well versed on how taxes are actually paid.  This too is confusing, but understandable once you wrap your head around it.

  So here we go. In Indiana taxes are paid a year in arrears-meaning that in 2014 it is the 2013 taxes that are due. So if you purchase a home in 2014 the seller will owe you the unpaid taxes for the portion of 2013 that hasn't yet been collected (right now the second half of 2013, due this upcoming November) and the portion of 2014 that the seller has owned the home.  The way this money is handled is it is given as a credit to the buyer on the settlement statement at closing.  In other words, it is subtracted off the amount of money you would bring to the closing table.  For example- if you were supposed to bring $8000 as your remaining down payment and closing costs and the taxes that seller owes were $800, the $800 would be subtracted from the $8000.  Then, this upcoming November you as the new owner of the home would make the tax payment.  Most mortgage loans collect the taxes upfront in the monthly payment and deposit it in the escrow account for your mortgage loan so the lender will make the payment on your behalf.  Most lenders will not allow the buyer to pay their own taxes unless they put 20% down, though we do work with a couple that will allow the escrow accounts to be waived if 10% is put down. If you don't have an escrow account then you will have to write a check to the county treasurer twice a year.

  Where this system gets a bit more murkey is when the house being purchase is a brand new home or a home that has been unoccupied or occupied by a tenant rather than an owner occupant.

  Let's tackle brand new homes first.  Since taxes are paid a year in arrears, the value of a new home is a year behind in assessment.  The taxes on a brand new home are based on what was on the land the previous year.  Which was nothing. So if you are buying a new home in 2014, last year all that was on your building site was dirt-and dirt isn't worth as much as an improved building site with the house sitting there all nice and ready to move into.  So-the first year you own the home all you owe is something crazy like $26 bucks a year.  However, when the lender determines the escrow account , the lender doesn't want the borrower to have the payment shock that will come when the house is fully assessed and the owner has to pay the full load of taxes.  So to remedy that situation the lender is going to use 1% of the value of the home to determine what will be taken into the escrow account for taxes. (1% because that is the maximum the state allows for property taxes.) But here's the thing...the Federal Government has rules about how much of a borrower's money a lender can keep in the escrow account and it won't be too long before there is too much in the account because the only taxes of record are the low taxes on the dirt. What happens then is that the home owner will receive a check from the lender for the overage.  But here's a word of caution - don't go out and spend that check on wine and dancing girls...

                                                                        joogleberry.com

 

  Because if you do, you won't have the money to give back when the actual assessments catch up to the escrow account and there is a shortfall and the lender wants you to make up the difference which you wouldn't have to do if they hadn't sent all the money back.

  Now let's tackle the topic of exemptions.   What?  Sorry, I am really not trying to blow your brain out here.

                                                                webwombat.com

 Exemptions are discounts that you receive for living in and having a mortgage on the home. The state allows you to reduce the taxable value of your home if you live there and have a mortgage to the tune of $48,000.  So if your home is worth $100,000 (due to the precise process of trending) you are allowed a $48,000 discount on that assessed valuation so you would be taxed on a value of $52,000 not $100,000. So that's cool.  There are other exemptions that you might qualify for-the blind World War one veteran exemption for example, but the main two are what is known as the homestead exemption and the mortgage exemption.

  If you purchase an unoccupied property or a property that was a rental property you do not get the benefit of the homestead exemption the first year you own the house-so your taxes will be quite a bit higher-maybe triple what they would be with the homestead exemption in place.  This is a fact that you must keep in mind when selecting the home you wish to buy.  If your debt to income ratio is high, the property taxes of a home without the homestead exemption could make you ineligible for your loan.  Or if you weren't aware of this fact, you might have a surprise when you see your total payment.  But, keep in mind, this is just for the first year-after your exemptions are in place for a year the payment will come down.

I hope that clears it all up for you. 

Well, yes.

DO NOT DITCH YOUR BUYER'S AGENT!

  With so many Internet sites that home buyers can access to view homes that are available on the real estate market it is not uncommon for a buyer to go rogue, contact a For Sale By Owner property or recently expired listing and attempt to make their own deal without the services of their buyer's agent.  In my humble opinion, people that do this, unless seasoned home buyers, do so at their own peril. The most often stated reason I hear is that they want a particular house and the seller refuses to work with their agent.

 bhamwire.com
             (89% of for sale by owners eventually list their homes with a real estate broker.)

  The conventional wisdom with regard to For Sale By Owner sellers is that the buyer will be entitled to a portion of the savings that the seller enjoys by not having to pay real estate fees. Let's consider that statement for a moment.  A house is worth as much as it is worth. When a real estate professional recommends a listing price, the property is generally not placed on the market with the price inflated to include the real estate commission. So if a property is worth $100,000 with a realtor involved, that is exactly what it is worth without one involved.  Most sellers aren't planning on giving the buyer the advantage of the no broker fee discount. They are going to retain the money themselves-so I think it is important that buyers understand that fact. The other facts are these-when you become your own agent you also become:

-Your own negotiator

- You are responsible for your own due diligence on the property-meaning it is up to you to check county records to be sure you obtain any and all information of public record with regard to the property, including current taxes, tax liens, judgments, encroachments or easements. (The seller may disclose these negative items, or may not even be aware of issues. The title work will find encumbrances on title but not until you are deeply involved in the transaction-both monetarily and emotionally.)

- Working through the whole house inspection from ordering to results become your responsibility-if there are repairs to be made it is up to you to obtain the seller's cooperation. You will also need to know what inspections are requirement of your mortgage loan type so you can be sure those are done in a timely fashion.

-Writing a legal purchase agreement becomes your job, along with obtaining appropriate disclosures from the seller. It is up to you to negotiate your own terms such as who is paying the closing costs, understanding your loan type and the time it will take to close the transaction. You will also need to determine who is choosing the title company-you or the seller.

 Here's the thing...when you give up your buyer's agent- the person who by law is negotiating and working on your behalf you have given up your representation. You have given up a valuable ally and skilled partner who can probably get you the best price, terms, and conditions on a property.  You  have also given up someone who is knowledgeable in legal issues, inspections and the ramifications that can come with them, and someone who can deal with any concerns that crop up with the title search.  For instance what will you do if the title work comes back with the information that the seller isn't in title and is not free to sell the property-which actually happened to a buyer for whom I was originating a loan.

  Or perhaps there is a well issue or septic problem.  From time to time we see those systems encroaching on the neighbor's land or households sharing one or both. What then? Or perhaps the driveway is on the neighbor's land not the land of the property upon which the house sits.  You see, these are all problems with properties that have occurred in transactions that have crossed my desk over time. If it wasn't for the realtor partners involved in the transaction, those sales probably would never have closed. That they did, and closed with the appropriate legal steps having been taken  is testament to the skill and dedication by the professionals that were representing their buyers and the seller.

 

  For the most part buyers that discard their Realtors or who believe that they can navigate their way through the complications and intricacies of a real estate transaction, I would give you a word of caution. Unless you are a seasoned buyer and seller of real estate, proceed with care. If you decide to go it alone, you are on your own. You are now working without a net.
 
  Many people believe that the lender will in essence do the work of the real estate professional. Not really. Lenders are not licensed real estate agents. And in Indiana at least, it is illegal to practice real estate without a license for a third party. The purpose of the lender is to ensure that the buyer and the property meet the criteria for the loan, and get the money to the closing table; we are not legal representatives of the buyer. Our job is to show up with the money.  If I think something is amiss will I mention it? Sure. If the purchase agreement is incorrect for lending purposes will I hand it back for you to correct it? Yes.  But I have no knowledge of the property other than what the appraiser determines in the appraisal report-and appraisers aren't contractors, whole house inspectors, or immune to making mistakes.  The first inkling that I will have that the property is over priced or has some serious condition issue is when I receive the appraisal. At that point you may have invested some money that you may or may not get back -if for instance you didn't realize it might not be a good idea to hand a check for earnest money over to the seller.

  If you had a buyer's agent your agent would have researched comparable properties to do their utmost to insure that the price you were offering was in keeping with the norms of the area in which the home was located.  And if you think the estimates offered by a popular real estate website or the assessed value shown on the county records is an accurate reflection of what the value of a property really is, think again. It might be-but then again, maybe not. Those numbers are derived by computer modeling and averaging sales data for a geographic area and may not be typical for the type of home you are purchasing.

  It is true that for sale by owner driven transactions do close and particularly if all parties are working together to make it happen they can work. And it's not that I won't work with a buyer who has selected a for sale by owner property-but I am much more open to these types of transactions if the buyer calls looking for a mortgage with the property already selected rather than having decided to kick their agent to the curb.  In some cases I referred the buyer to that agent or the agent has referred the buyer to me. While we all know it is part of the business, it is a part of the business that leaves a rather unpleasant aftertaste.

  It is important that buyers keep in mind that their agent can call on for sale by owners to see if the seller is willing to strike a deal so you can potentially make an offer on the home with the services of an agent. Or you can pay your agent yourself to represent you if you have the means. Or perhaps you can hire an agent to act as merely a facilitator-being sure the paperwork is correct and the transaction is moving along smoothly. These are options worth investigating, because when it comes to working without an agent...

                                                              sceameditions.com
  
 it truly is Buyer Beware, not because the sellers are trying to deceive you (though they might be - it has happened) but what you don't know can hurt you.

PROBING THE MIND OF A MORTGAGE LOAN ORIGINATOR

                                                          darpanmagazine.com


    When we advertise that we will find you the best loan for your financial situation what does that mean? Does that mean the best interest rate? Does that mean the lowest down payment with the lowest closing costs? Does that mean the loan that will cost the least over the long term? Or does that mean the loan that will make the loan originator and their company the most money? How is all that determined? What the heck are you mortgage people thinking?

                                                                          troll.me.com


 Let's put one of those pesky questions to rest-the how much the loan originator and their company make on a transaction and whether you will be steered to a loan that makes the originator or their company more money.  The answer is no.  The Dodd-Frank financial reform act changed the game on lender compensation.  And the Consumer Financial Protection Bureau is the gunslinger that is sure it is enforced. The law says the lender may make no more than 3% of the loan amount. So there you have it- doesn't really matter where we place a loan or the type of loan. FHA loans don't pay more than conventional loans or VA loans. There is no advantage for us to send you into one or another. So that is something the consumer doesn't have to worry about. And-to further promote transparency, mortgage brokers are required to disclose to the consumer how much that paycheck will be. In most cases it is the lender that pays the broker so that fee is not coming out of the borrower's pocket.

  So that concern out of the way, next up is the confusing maze of loans, their rules, and how folks fit into those particular boxes.

inetgrafx.deviantart.com


 Looks scary doesn't it?  Really-it's not.  But back to the boxes idea...

                                                           pandawhale.com


 Our job is to discover what box you do fit in.  The process to doing that begins with how much money the borrower may wish to put down or have available to put down.  No down payment funds-that consideration generates more questions:

Is the borrower a veteran?  Are gift monies available from family members?  Depending on these answers our box begins to take shape.  For instance if you have no down payment funds but you are a veteran-then the answer is obvious. The only time another type of financing may be better for the veteran is if the borrower wants to put 20% down or wants to buy home in addition to the one he/she has a current VA loan and there are some exceptions to that rule.  If there are gift funds available for down payment then we want to look at other criteria-what is the credit score?  In recent years a credit score below 680 would mean automatic inclusion into the FHA box as conventional lending would not work for those with scores lower than 680.  However, recently conventional score requirements have been lowered, which means that there may be another options available for those under 680. And a couple of our conventional lenders do allow 5% gift funds.

  The choice of specific lender also depends on the borrower's characteristics or the loan's characteristics.  Is credit below 640? That sends us in one direction, how big is the loan? That may dictate another as various lenders have requirements for loan size.  Once we have the big picture we can begin to pare down the lending possibilities to those that most fit the borrower's needs.

                                                            18chasestreet.com 

Sometimes our borrowers fit in multiple boxes.  Maybe someone meets the criteria for all offered types of loans.  At that point I normally begin figuring payments to show the borrower the difference in rates, mortgage insurance etc. so the borrower can choose what box they want jump in.

 In other cases such as a borrower that has just completed a Chapter 13 discharge, I have one box and one box only.  But at least I have a box. 

  And then there is the borrower that doesn't fit the criteria for any of my boxes. Then the task becomes figuring out what box they will fit in when they do certain things such as pay off debt or collections, or bring a credit score up.

 Of course the goal is to tie the box up neatly with a bow and hope it stays tied. But sometimes it seems that no matter how well you plan it the box turns into a jack in the box.

  All that takes is for something to be a bit different than what we are told about employment perhaps or an ill timed credit card purchase or late payment. The variations are as many as there are people who want mortgage loans.

  When that happens we might have to go back to the drawing board and look for a different box that can contain the issue.  The good news since we don't believe in one size fits all, we are more like

                                                                 gosublooger.com

and can choose a different size.




                                                                    

IN THE INTEREST OF FULL DISCLOSURE

                                                                          kathleenfinnegan.com
 

What's different about mortgage loans today than the mortgage loan of 2007 or 2008? Why do you keep reading that they are hard to close, that so many fewer people are being approved, or that borrowers have  a million and one hoops to jump through to receive the prize at the end of the process-a process that has become increasingly complex, so complex that the larger picture can get lost in the details?

  One of the biggest reasons is that the process is now consumed by disclosure.  As a lender there are many more things we are required to disclose than we had to disclose five or six years ago. Like what you may ask?

 Fees for instance.  When we disclose the fees for a loan on a particular property those fees with a few minor exceptions can't change.  So back in the pre Great Recession days there were horror stories of people showing up to closing only to find out that their interest rate, discount points, and total money to be brought to the closing table were different than what they had been told originally-by thousands of dollars.  It is pretty tough to walk away from purchasing a home at the last minute when everyone is expecting to close and the buyer is expecting to receive the keys to their new home.  A large part of financial reform had to do with fee disclosure and lenders showing the consumer one set of costs and then coming up with another set of costs at the worst possible time.

  Lenders also must disclose any affiliated business relationships that they may have ownership in-such as with title companies or real estate agencies to prospective clients. This requirement sheds sunlight on good ole boys networks and the mutual back scratching that went on between lenders, real estate brokerages, title companies and appraisers back in the bad old days.  In fact appraisers have been taken so far out of the mix that it is illegal for lenders to even speak with an appraiser regarding the value of a property.

  For the most part, this results in a positive outcome for the consumer as it eliminates kickbacks and pressure for the consumer to use one company over another. The one area in which perhaps more work needs to be done is with the no communication between lenders and appraisers.  I have been in situations in which multiple appraisals, re-inspections, or low appraisals that may have been in error and as a result have cost the consumer money and with no recourse. I think the Feds could do some tweaking in that area. But, hey, nothing is perfect and the current system eliminates collusion at least.

  So there is a burden on lenders to disclose, disclose, disclose to potential borrowers.  But there is also a burden on consumers to disclose.  I don't know how many of you remember the loan that was called Stated Income/Stated Asset or more lovingly referred to in the real estate community as The Liar Loan because there was no disclosure of assets or income required. People could just state whatever income they made or how much they had in the way of assets.  You can understand why this may have encouraged folks to be, well let's say, creative in those areas.

  To say those rather important details are scrutinized with a fine tooth microscope probably wouldn't be an understatement.  Not only are bank accounts examined for unsupported deposits (if you have ten thousand dollars buried in the back yard that you are planning on using for down payment you need to get it in the bank three months prior to when you want to use it as lending isn't going to allow random cash that shows up from somewhere to be used.) This is not only a result of the Dodd- Frank Financial Reform Act, but it is also part of Patriot Act Compliance.  No money laundering allowed.
  
 Your employment will be gone over fairly thoroughly as well. Dates, companies, salary, job title for the past two years please.  And while there can be job gaps, explanations are required.  If you just  went back to work after taking a couple years off to climb the Himalayan Mountains, you will need more than two weeks on your new job before you qualify for a mortgage.

 
  Yes, getting a loan is something like that now.  I sometimes tell people that by the time I am done with them I will know everything about them including their underwear size.  They laugh.  Did you have a divorce in the past ten years in which you are required to pay child support?  Please turn over the decree and the child support order.  How about a bankruptcy-there is a good chance your bankruptcy papers will be needed.  Student loans still in deferment? You will need to get in touch with your loan servicer to obtain the information regarding what those deferred payments will be.  Took out a new car loan that isn't reporting on your credit report? I will have a copy of the loan agreement on that car, please.  (I will add that unless you absolutely need a car, purchasing a car immediately prior to buying a home may not be the best idea-particularly one with a large payment-it will impact how much house you can buy.)

                                                           clipartguide.com

  I am not trying to discourage anyone from trying to obtain mortgage financing.  Buying a home is a great thing and I think as many people who wish to buy property should. But let this serve as a bit of information - nothing is assumed anymore or taken on faith.  Everyone involved in the process has to reveal their financial underwear.

PROPERTY CONDITION AND YOUR MORTGAGE LOAN

  Many people that come to me particularly for one of the government loans (VA,USDA, or FHA) have heard that there are specific property conditions on any home they buy that are required in order to get the loan.  Many of them have the idea that these required elements make it very difficult to purchase a home using one of these loans.  Today let's set the record straight.

                                                                    ukulerob.com

  It is a really safe bet the above property is not going to be sold using government backed financing-and in actuality probably not conventionally either. The financing that will work for this property is cash - there really is no other option. But the good news is that you can use a government loan to purchase a property that isn't in perfect condition. The intent of HUD in these instances is not to force a buyer into a perfect property but to ensure to the best of everyone's knowledge that the main systems of the home-the ones that require the most money to repair or could be safety hazards are in working order for the next couple of years at least. The assumption being that people who use government mortgages don't have a large pool of money from which to draw to make repairs should they be necessary.

  Who decides what is good enough condition for a government loan you may ask?

                                                                  blog.accusoft.com

 The decider in this case will be the appraiser, a disinterested third party.  Since the appraiser is the eyes of the lender it is their job to determine any issues that are not in compliance with the required property conditions of the loan. Here is a short list that appraisers look for when evaluating properties for HUD sponsored loans-this list is NOT all inclusive as a creative appraiser can come up with a condition issue that even I haven't seen before: (And I admit it, I am old, I've seen a lot.)

-100 AMP electrical service
-5 years life on the roof
-no negative grade along the foundation
-no water or puddles in the basement or crawl space
-no plumbing leaks
-GFE outlets required on switches and outlets within six feet of water
-railings on any stairs of more than two steps
-no peeling paint on homes that were built pre-1978
-mechanicals must be functional
-no mold or active wood devouring insects or structural damage due to wood devouring insects
all floors must have acceptable floor covering whether carpet, vinyl, laminate or hardwood-no bare subfloors or concrete exposed on homes built on slab foundations
-water test for all unoccupied properties that are on wells

  These are the items that I see noted by appraisers to be repaired most often. Sometimes whether or not a particular condition issue is cited has a lot to do with the appraiser.  Some appraisers cite for peeling paint on buildings such as garages not attached to the house-others don't.  The appraiser can also ask for further inspections on items that may be questionable - such as the life of the roof when the appraiser is unsure whether it meets the criteria.

  Just as an aside both VA and USDA loans do require water tests and a termite inspection whereas with FHA that is at the appraiser's discretion.

  What happens if the appraiser finds something that needs to be repaired?  The repair then becomes a condition of closing the loan which means it has to be done prior to closing day and verified by the appraiser. Generally speaking if a whole house inspection has been completed, none of this should be a surprise and the repair may have already been addressed. But in case it wasn't, either the buyer or the seller can arrange to have the repair done. Typically seller's pay for it but not always.  The only tricky part comes in when the seller is a bank that is selling a foreclosure. Banks are not the most congenial of sellers and sometimes will not make the repair.  Not only will they not make the repair they also will not allow the buyer to make the repair so we end up in a chasing our tail situation. The buyer's lender won't close without the repair, but the bank that owns the property won't make the repair nor will they allow the buyer to make it.

                                                         andersonlaymanblogspot.com

  But it isn't only the government loans that have property condition requirements. Conventional lending has tightened up as well.  The point is that lenders don't want to loan money on properties that are in disrepair.  Recently I had an appraiser cite peeling paint on a 10% down conventional loan. If the paint turned out to have been lead based paint, remediation was required. There is no fool proof method of buying a property in poor condition other than cold hard cash.

  I frequently have borrowers want to buy more than the purchase price so they will have money to repair a property.  The days of borrowing excess money and having the appraiser value the property
"as repaired" closing and collecting the money and doing what ever with the excess funds are long gone.  Seems there were just too many people who took the money and didn't do the repairs. So when the bank foreclosed they were left with a property that wasn't worth the value they had loaned as well as in bad condition.  There are two FHA products that do allow repair money over and above the purchase price of the home-the Streamlined 203K and the 203K. The streamline version is for cosmetic repairs and to repair and replace the existing structure and problems within the house. The maximum amount allowed by the loan is $35,000 and there can be no structural repairs made with that loan. The larger of the two the 203K goes up to $55,000 and requires a HUD consultant on board the program. Both loans also require licensed contractors to do the work-these are not programs for the do it yourselfer.

                                                                  rightscale.com

THE RETURN OF THE ADJUSTABLE RATE MORTGAGE

                                                        livingwithra-nan.blogspot.com

  How long has it been since anyone mentioned the phrase "adjustable rate mortgage?"  A while, right? In fact so long that it almost falls into the category of "He who shall not be named," of the Harry Potter series of books.  However, they do still exist, and just like Voldemort they have come creeping slowly back into usage. It seems there is a time and a place for adjustable rate mortgages.

                                                                   digitalspy.com

  I can't say that I have had a potential client ask for an adjustable rate mortgage since about 2009, when they turned into a four letter word of sorts, ARMS.  Back then many high risk loans were adjustable rate mortgages. It wasn't only the adjusting interest rate that made them a bad bet, it was that they were sold to so many buyers who didn't have the means to make the payments when the loans began adjusting or credit that was good enough to obtain an adjustable rate mortgage that was more mainstream-a loan with less punitive adjustments.

  Back in the bad old days of lending, when anyone with a pulse could obtain financing, adjustable rate loans were included in a category of loan referred to as subprime-meaning that the borrower didn't qualify for any of the mainstream products. The terms on these loans were harsh. The first one, three, or five years were fixed, but after that, Katie bar the door, these loans could increase by five, eight, or twelve percent at six month intervals. To further magnify the problem most of the borrowers for these loans were qualified at the lowest interest rate-or-the loan was a stated income loan in which the borrower could state their income which might or might not be a true representation of what the borrower actually made. So you can see some red flags along the way here and why things might not work out in the end.

                                                                    knau.org

 Once the immediate crisis had done its damage we can safely say there was no appetite for adjustable rate mortgages at all. None. And since interest rates were being kept low by the Fed with monetary policy, there was no reason to be particularly interested in obtaining one since a great rate could be had on a thirty year fixed rate loan.  However, the mainstream adjustable interest rates never went away. All those 5,7 and even 10 years adjustables just kind of hung out waiting for the climate to change.

  For those who aren't familiar with an ARM product, here is how they work. The rate is typically lower than a 30 year fixed rate.  For instance if today's thirty year fixed rate was at 4.375% the 5 year adjustable might be at 3.375 (as it is today). So what happens is that the rate is fixed at the low rate for 5 years at the expiration of which it can begin adjusting once a year every year. It is true that the rate can also go down but I think it is safe to say that given the current state of affairs interest rates-all of them will begin to increase in the very near future. (Since the Fed has actually named a date that it will stop buying mortgage backed securities and treasury bonds-which affect rates.) So that same 5/1 ARM will begin adjusting, most likely upward in the sixth year. 

  So why would anyone bother with that?  Well, because the more things change, the more they stay the same. And one thing that has remained fairly consistent in recent years is a statistic of how long the average American owns the home they are in.  Americans move every five to seven years. And in many cases they move from one region of the country to another. Many people accept certain employment knowing that they may not stay where they are currently located.  Do you see what I am getting at?  If you know that you will be moving inside of seven years, why not get a lower interest rate?

  The conforming ARMS do have caps on them-for instance, the 5 year can change no more than 2% annually but it can go up 5% over the lifetime of the loan. So in the 6th year the 3.375% can and probably will go up to 5.375% but it can't increase to more than 8.375% over the course of the thirty years on the loan. 8.375% may sound outrageous if you plan to be in your home for quite some time-but for those who know they will be gone before the rate has a chance to go that high an adjustable rate may seem like a good idea.

                                                           gospokanerealestate.com

  If you think you are in a situation in which an adjustable rate mortgage might work for you be sure to get all the facts. Don't be afraid to ask your loan originator about the caps on the loan-when and how much the adjustments might be. While this type of mortgage is another tool in the tool box, like any other implement, it is important to know when you need a socket wrench as opposed to when you need to use a screw driver.

ONE FROM COLUMN A, TWO FROM COLUMN B

                                                             lingandlouie's.com

While I am not sure I would go so far as to compare being a mortgage broker to  a Chinese menu, I would say they each possess some of the same properties.  Being a mortgage broker with an affiliation with several different monetary sources does give us some interesting options that we can suggest to our customers.

  We can't offer the Won-Ton Soup with the Sweet Sour Shrimp, but we can offer a 90% conventional mortgage with a no escrow option should the customer be escrow adverse.  Likewise if the client hates, hates, the idea of mortgage insurance our conventional loans do come in the lender paid mortgage insurance variety.

  In fact we have some very unusual possibilities on our little mortgage menu.  How many people were forced into short sales over the past few years? Quite a few. The bad thing about a short sale is that most lenders view it as in the same category as a foreclosure.  The good news about a short sale is that if the home owner has continued to pay their mortgage in a timely manner a short sale shouldn't have a huge effect on the credit scores.  While most lending won't allow someone who has had a short sale to obtain mortgage financing for three years and then only a government loan.  However, one of our conventional lenders will allow a short sale borrower with on time mortgage payments the year prior to the short sale to obtain conventional financing after two years with a 20% down payment.  One of our USDA lenders allows two years seasoning on a short sale as well. So there are some exceptions. Of course credit must be in order and there can be no deficiency judgments.

 In our community we all know that several of the largest employers use temporary agencies to provide employees.  In fact that is the normal method of obtaining regular employment with those organizations. The typical lending rule is that a borrower has to be on he job for two years with a temp service.  One of our lenders requires one year. How many potential home buyers would benefit from that? Quite a few I would venture to guess.

  What about a Chapter 13 bankruptcy discharge? Find a lender if you can that doesn't require two years from a chapter 13 discharge as a requirement for a new mortgage. I am not at all sure why that is...chapter 13 folks have just spent the past three or five years paying off their debts. The two year discharge rule is a chapter 7 rule. FHA allows mortgages once a 13 has been discharged. Maybe it is easier just to count all bankruptcies as the same-in any event, one of our lenders will work with chapter 13 discharges once the discharge is final as long as we can get an automated underwriting approval. Typically this means maintenance of credit -but chapter 13 folks normally come through with much better credit than a client with a chapter 7.

 While the FHA loan is still a viable choice for many people, the high mortgage insurance has made it much less appealing the past couple of years.  I am pleased to tell you there are conventional options. We have an investor that allows a gift of 5% down from relatives of the borrower down to a 640 credit score.  That's something we can get behind. How many people out there would  love to take advantage of that rather than MI for life with FHA? Celebrate opening that one! 

viahope.org

  We also have conventional financing available down to a 620 credit score. Count on a higher interest rate-but there it is-conventional back to pre 2008 levels.

 Here's some more good news for potential home buyers!  Rates are still low, and, while housing prices are appreciating, they are not appreciating as fast as rents are going up. Since I have two children who are renters, the weeping and wailing in my ears is loud and getting louder. Neither are quite established enough to become home owners yet, but I am sure they will be looking at that possibility as soon as they can. Like my two, more and more first time home buyers are going to figure out that buying is now a better choice than renting.  More and more sellers are going to figure out that they are no longer upside down in their homes and get them on the market. All the indicators are there for the real estate industry to come roaring back.  And we have the choices that a lot of those new buyers are looking for.

  Employment is increasing every month. Pretty soon even the world's most interesting man will have to move out of his mom's basement!

 

 

winstonnjguru@wordpress.com