USDA-NOT JUST A WAY TO EVALUATE MEAT

                                                yourerie.com
  Who knew the United States Department of Agriculture was in the mortgage loan business? Strange but true. The Department of Agriculture does have a division whose mission is the development of residential housing in rural areas. The following are the key components of the loan:

-100% financing

-Restricted to properties in smaller communities and rural areas of lower population density

-Income limitations based upon family size as the loan is designed for borrowers of moderate means

- Credit is also assessed along the lines of the FHA and VA loans. It is a bigger box than what is allowed with conventional lending. Most lenders will allow scores down to 620 on the USDA loan. We have one lender that allows 640 and above and one that allows 580 and above-but you can expect that the underwriting is much tougher for credit scores lower than 640.

                                           modernfarmer.com

 That's it in a nutshell-which is why this is one of the most attractive and popular loans in the State of Indiana and surrounding rural states. In many respects this loan is a hybrid of the VA loan and the FHA loan. It has an upfront funding fee of 2% which rolls into the mortgage like VA. It also has a monthly mortgage insurance premium for the life of the loan similar to FHA. It has no down payment requirement like VA, but there is no mortgage limit as there is in both FHA and VA.

  For young families who need their savings for other emergencies this is a perfect method of buying a home.

  The USDA loan is underwritten by two entities-the lender who provides the money for the loan and USDA that oversees each loan file to ensure that the home and borrowers meet USDA specifications.  Ultimately, USDA is underwritten to HUD guidelines in a fashion quite similar to FHA.

  In addition, even though the loan is specific to rural areas it is not a loan that can be used to finance farms or farmettes.  Acreage that is in use as tillable acreage makes a property ineligible for the loan. Similarly any barns that can be used to for machine storage or to house livestock are deducted from the value of the property.

                                                  neemaa.com

 The other consideration with USDA is the processing time.  If you are looking for a quick closing, USDA is not the best choice.  In Indiana due to cuts at the Federal Budget level the number of USDA underwriters are few.  During the height of the buying season USDA can take up to 50 business days to process-that is almost three months in calendar time.

  In order to increase your likelihood of getting a USDA offer accepted by a seller who is in a hurry to move we highly recommend that you take advantage of our pre-purchase underwriting approval process.  Your loan can be underwritten by the lender prior to you having a property under contract so that portion of the process is all but done by the time you select your perfect home in the country!

VA FINANCING-UNQUESTIONABLY THE BEST LOAN FOR THE VET

                                             www.baconbuzz.com

  I'm back. Aren't you glad?  After taking a couple days off to rest and regroup in Nashville, Tennessee I have returned to the spring housing rush. As I had anticipated, the moment the snow went away the phones began ringing.  Today's topic is the VA loan- a product that is shamefully underused as many lenders talk veterans into other loan products, erroneously thinking that the VA loan is in some way difficult to close or they simply don't have or understand the product.

  I will state here and now, that other than in a very few specific circumstances, there is no better loan for a veteran than a VA loan.  The VA loan offers the following benefits to the vet:

- No down payment required

-The seller can pay all closing costs

-A Gift can be used for any closing costs the veteran elects to pay

-The veteran can refinance the loan without requalifying

-Credit requirements aren't as stringent as many loans

-A disabled veteran is exempt from the upfront funding fee

-No monthly mortgage insurance is required

  I have had veterans call who mistakenly think that the only qualification is being a veteran-but that isn't true. As with any loan the borrower must show ability to repay the loan by being employed.  They also must show that they are able to handle credit so there are credit score requirements that very from lender to lender -typically 620 is the lowest eligible credit score for VA loans.

  The loan does have some property condition requirements-but those are requirements that most borrowers would want in their home anyway. The include 100 amp electrical service, 5 years life in the roof, a furnace and air conditoner that work when turned on, no standing water in the crawl space or basement, no broker window-normal items.  The VA loan allows you to have a barn on the property or up to 10 acres of land.  You can also build a new home using VA as the end loan. In general the interest rate on the VA loan is lower than its conventional counter parts. The

 The loan is open to all active duty members, honorably discharged veterans, members of the reserves and the national guard.
  Do not let someone talk you out of this one-check it out before you consider any other type of financing.

www.sodahead.com
 

 

CUTTING RED TAPE-FHA...A GOVERNEMENT PROGRAM THAT REALY WORKS

  Lately it is in vogue to criticize the Federal Government as being too big, too bloated and full of too many do-nothing people to be effective. No doubt there are examples to support that theory but let's talk about a government program that works extremely well...the FHA mortgage loan.  This loan has great interest rates, is insured by the Federal Government and works like a well oiled clock. If you want to see government red tape cut-this is the program.

                                                                           agbeat.com
  For a borrower that may not have the credit scores to qualify for a conventional loan or have saved enough down payment money for a conventional mortgage this loan may be the ticket to home ownership.  Let's reveiew the characteristics of the FHA loan:

-Credit scores may be significantly lower with the FHA loan. The sweet spot for FHA is 640-679 but there are lenders that will accept FHA loans down to 580.  At a 580 there have to be compensatory factors such as a larger down payment, excellent job history, a history of savings etc. but suffice it to say, FHA is a bigger box credit wise.

-Down payment requirements are lower than conventional lending. FHA requires a 3.5% investment.  This down payment may be gift funds from a family member-so the borrower can get help from mom and dad if necessary.

-Job time is less stringent that a conventional mortgage. While FHA requires employment history, if a borrower has changed jobs or just obtained a new job after being unemployed for a period of time, FHA will close on a mortgage after 30 days on the new job assuming all probationary periods have been met. Keep in mind there will need to be previous employment or education history required.

-Interest rates are usually lower than conventional rates-sometimes as much as half a percent.

-Loan terms come in the 30 and 15 year fixed rate variety as well as adjustable rate products.

 What are the down sides of this loan you ask?

                                                            learndash.com

 There must be some, right? This loan is administrated by a government agency. The down sides aren't the kind that you would think of when dealing with a bureaucracy. For instance-the loan closes in about the same time frame as any other loan.  There is no sign off by a government agency.  HUD has decided that mortgage lenders are perfectly capable of underwriting to HUD standards.  So if you want to consider downsides let's try these on for size:

-Higher mortgage insurance.  FHA took quite a hit during the housing downturn. And in order to survive, mortgage insurance on FHA loans increased significantly.  FHA has always had a mortgage insurance up-front factor that rolled into the total loan amount-it still does-1.75% of the loan amount.  FHA also has a monthly factor of 1.350% which is roughly double the mortgage insurance on a conventional loan.  But the real kicker is that the mortgage insurance never drops off the loan unless a 10% down payment is used. So that is one thing to consider. But-if you need the lower down payment and your credit scores put you squarely in FHA land, it is still a great loan.

-Condition of the property. I don't really consider this a negative. Property condition is being scrutinized by every type of loan. With FHA there is a HUD checklist that is used by the appraiser to determine whether or not the property meets minimum condition standards. Such things as roof life, 100 AMP electrical service, no plumbing leaks etc. are considered and noted to be repaired prior to a loan being closed if satisfactory conditions are not present. These are all items that most buyers would want in working order to purchase a home anyway, so I don't think this is cause for rejecting the use of the loan.

  A couple other things about FHA that are worth noting:  FHA does have several rehabilitation products if one uses the loan to purchase a home that is in disrepair.  Keep in mind that not every lender has these products and the loan products themselves have their own set of rules. But if you have the stomach for repair and upgrading and want instant equity you might look into the 203K streamline, or the $5000 limited repair loan. If you do have a taste for regulation you can try the full blown 203K loan that allows up to $50,000 for repairs.

  And HUD offers buyers who wish to live in a property first choice on the purchase of their repossessions-in specific instances HUD offers a $100 down program. That $100 down loan program can be used with the FHA 203K streamline repair loan to get into a primary residence for very little cost and repair the property as well. Can't beat that-even with a big stick.

  FHA also allows a non occupying co-borrower loan for parents who want to assist their children in their first home purchase if the child doesn't yet have the income to afford the mortgage on their own.Or it can work in reverse-a child can assist a parent who is on limited income buy that way as well.

  And finally-if you have ever wanted to be a landlord FHA will allow the purchase of up to a four unit property as long as the home owner lives in one of the units. So a buyer can purchase a property that will pay the mortgage. 

  In many, many ways, the FHA mortgage loan is a great loan product with an enormous amount of flexibility.  It is a government program at its finest.

CONVENTIONAL LENDING - THE GOOD, THE BAD, AND THE UGLY

   That got your attention, didn't it? But when we are talking about conventional lending we are speaking of the basic, the standard, vanilla lending-

                                           zestyflavors.com

White bread if you will.  Conventional lending may or may not be the best loan for any particular individual, but it is the loan that most folks aspire to.  Here are the characteristics of a conventional loan:

-Credit Score of 680 or above (the score can be lower-I will go into that in a minute)
-Down payment requirement of 5%
-In addition to the 5% down, many times the loan requires two months of mortgage payments in assets
Lower mortgage insurance requirements than FHA, and no upfront  mortgage insurance requirement as opposed to the government loans, all of which have an upfront mortgage insurance or a funding fee that rolls into the loan.
-No specific credit line requirements in most cases (i.e. number of credit account open and in use)
-Monthly mortgage insurance falls off the loan automatically at a 78% equity position-normally about 11 years into the loan. FHA and USDA monthly mortgage insurance are in place for the lifetime of the loan.

 Interestingly enough, interest rates on conventional financing are higher than the government counterparts. (Unless someone is interested in an adjustable rate mortgage.  I haven't had too many hands in the air to take on one of those lately.) But if payments are compared-the conventional with the higher rate will beat out the FHA with the monthly mortgage insurance most of the time. VA mortgage payments often beat out a conventional as  VA has no monthly mortgage insurance.

Let's look at an example:

                                         aalanturning.com

Let's assume a mortgage loan of $150,000
The conventional loan has an interest rate of 4.5%, the FHA and VA loans have a rate of   3.875%-here are the payments plus Mortgage insurance:

Conventional with 5% down - $841.16
FHA with 3.5% down            $886.45
VA-no monthly MI                 $720.52

 Tell me again why conventional lending is better for a veteran? This is what many of my competitors who are either unfamiliar with or do not have the VA product are telling vets.

 In any event, most people who are not eligible for VA would prefer a conventional mortgage. So the question is-what if one's credit scores are below 680? 

 One solution is putting 20% down. It is the mortgage insurance companies that dictate what credit score they will insure if less than 20% is put down. Some will go down to 660, but the interest rate will increase accordingly. At 640 even with 20% down the rate will be significantly higher too-but having a lower credit score will not necessarily bump a borrower out of conventional financing. They will just pay more for the loan. Mortgage lending is all about risk, remember. Lenders want a reasonable assurance that they will get their money back and as credit scores decrease the risk of foreclosure goes up-hence the much higher mortgage insurance on FHA as FHA lends money with lower score requirements.

 Down payment requirements is another reason why some borrowers turn to a government loan rather than conventional.  FHA only requires 3.5% down and the money can be a gift from a family member.  USDA and VA have no down payment requirements. Typically, conventional lending requires 5% down and the 5% has to be the borrower's own money.  There are exceptions-we have a lender that will allow the full 5% to be a gift from a family member. However the credit score requirement in that situation goes up to 720.  Once again risk is involved-statistics bear out that the less money a borrower has in a transaction the likelihood of foreclosure increases. And I think it can be mentioned that many folks who need low or no down payments may not have the cash reserves to weather an economic downturn.

 For the most part, conventional loans are a bit easier to process and close. But don't think for a minute that a conventional loan is the answer to a house that does not meet minimum condition standards.  Mortgage lenders learned a lot in 2008 when the housing market crashed. One of the things they learned was that they were sitting on a lot of foreclosed homes that were condition disasters because there had been no condition standards for conventional lending previous to that time. So appraiser are the lender's eyes and will note any substandard conditions and a lender can and will refuse to loan on those properties.

  In days to come, in preparation for the spring buying season I will talk about the government loans as well-the good the bad and the ugly.  All in all I try to match the right loan to the right borrower so that as many people as possible can achieve the dream of home ownership.

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.