Whew! Another bout with continuing education is over for another year. You see, every year mortgage brokers have to pass a continuing education class and an exam that satisfies state and national requirements to qualify to originate mortgage loans for the next 12 months. What do we study you ask?
The law mostly- Federal Law such as the ins and outs of the Truth in Lending Act, and the Real Estate Settlement Procedures Act which require all lenders to make certain disclosures pertaining to fees available to loan applicants within a specific time frame after application. Once those fees have been disclosed in conjunction with a particular property and loan type they are written in cement for the most part. The point being that your fees will be the same at the beginning as they are at the end of your loan process and that available interest rates and options are disclosed.
The other biggie that emphasis was put on this year was diligence with regard to fraud-loan fraud and real estate fraud-I had not realized after everything that has happened in the past few years that there are still people out there scamming the public and attempting to scam lenders. A lot of people don't know what constitutes loan fraud. I don't want to write a "how to book" on the subject but here are a couple of instances that many consumers don't think about:
-Declaring on loan documents that you are going to live in a property that you are intending to rent out. There are different requirements for investment properties than primary properties so to say you are going to live in one that you have no intention of living in is a federal crime.
-Falsifying income or employment information in order to obtain a larger mortgage than a borrower can qualify for-while this one is hard to pull off anymore due to the stringent documentation and verification requirements on loans, people still try.
Next up before the end of the year is a criminal background check complete with fingerprints. If you have a felony on your record, federal law doesn't want you obtaining sensitive information from people such as social security numbers, bank account numbers, etc. Makes sense doesn't it?
We are also tracked along with our fellow originators who are employed by banks (though they do not have to go through the background checks) in a national mortgage originator registration system, the NMLS. We all have a number which you will see posted on loan documents. What this means is that when you call your neighborhood mortgage broker you will receive the services of an educated professional who you can trust to receive some of your most sensitive financial information. I wouldn't have it any other way.
Wednesday, October 30, 2013
Monday, October 28, 2013
INTERNET LENDING
The internet has made many things easier for the consumer. Just think about it-if you want to find a particular item at your favorite department store you can browse online to see if they have it and then order it and have it sent to your doorstep. Pretty convenient. The internet has made shopping for a home easier as well. You can look at pictures on line, get neighborhood crime statistics, find evaluations of school systems etc.all the data at your fingertips. This enables you to be a much more prepared shopper when you do make the phone call to your Realtor to actually get inside the homes that you think you would like.
But what about mortgage lending? Most lenders have websites that you can access to give pertinent data in order to obtain a pre-approval. When you look at different website offerings for lending do you really know what the offer is? How much do you know about various loan programs, the differences between them, and what makes one lender more desirable than another?
Gen X'ers and Millenials have grown up with internet access and are very comfortable navigating through cyberspace to find what they want. But in order to find what you want you have to not only know what you want, but what you are actually able to obtain. Mortgage loan products aren't quite the same as finding the best price on a pair of Nike running shoes.
Generally speaking I won't compete with internet interest rates. The fine print can hurt you. If you don't know what you are comparing then you don't know what you are buying. Interest rates may differ depending on location but overall there isn't a lot of variation-maybe an eighth to a quarter of a point on any given day on identical products. If you run across a rate that is significantly different than what I or other local lenders is quoting something's up. The old adage "if it sounds to good to be true, it is" definitely applies to comparing interest rates.
The last time I had someone call to ask me to match an online rate I went to the website myself to see what he was asking me to match. The buyer wanted a 30 year fixed rate conventional mortgage. What he was looking at was a fifteen year fixed rate with a discount point attached to the pricing to bring the interest rate lower. Not what he wanted, nor what he was qualified to pay for.
Individual issues that affects interest rates are:
1) credit score
2) Down payment amount
3)Loan type
4) Loan amount
In addition if the loan is for a refinance, whether or not a borrower takes cash out of the transaction to pay off bills will make a difference to the rate as well.
There is an another issue with internet mortgages and that is knowing who it is you are dealing with. There are large companies such as Bank of America, Wells Fargo and JP Morgan Chase that are certainly reputable, but it is difficult to find accountability. Do you want to speak with the same person twice? What about if you run into an appraisal problem-how does that get resolved? When you use online lending sources you may be losing your ability to have any control over the tracking your own loan. Not knowing where you are in the process or the ability to find out who does, can kill a real estate deal. You could lose the house you love. The stakes are high.
Wouldn't you rather be able to sit down face to face if there is a problem or concern about your loan? Wouldn't you rather have someone that you can ask about what the fees mean or the lending terms if you are unfamiliar with them? What about the process? Even if you are a veteran of buying homes, if you haven't obtained a new mortgage in the past few years you will find that things have radically changed. Personally I think accountability is worth something. I hope you do too.
But what about mortgage lending? Most lenders have websites that you can access to give pertinent data in order to obtain a pre-approval. When you look at different website offerings for lending do you really know what the offer is? How much do you know about various loan programs, the differences between them, and what makes one lender more desirable than another?
Gen X'ers and Millenials have grown up with internet access and are very comfortable navigating through cyberspace to find what they want. But in order to find what you want you have to not only know what you want, but what you are actually able to obtain. Mortgage loan products aren't quite the same as finding the best price on a pair of Nike running shoes.
Generally speaking I won't compete with internet interest rates. The fine print can hurt you. If you don't know what you are comparing then you don't know what you are buying. Interest rates may differ depending on location but overall there isn't a lot of variation-maybe an eighth to a quarter of a point on any given day on identical products. If you run across a rate that is significantly different than what I or other local lenders is quoting something's up. The old adage "if it sounds to good to be true, it is" definitely applies to comparing interest rates.
The last time I had someone call to ask me to match an online rate I went to the website myself to see what he was asking me to match. The buyer wanted a 30 year fixed rate conventional mortgage. What he was looking at was a fifteen year fixed rate with a discount point attached to the pricing to bring the interest rate lower. Not what he wanted, nor what he was qualified to pay for.
Individual issues that affects interest rates are:
1) credit score
2) Down payment amount
3)Loan type
4) Loan amount
In addition if the loan is for a refinance, whether or not a borrower takes cash out of the transaction to pay off bills will make a difference to the rate as well.
There is an another issue with internet mortgages and that is knowing who it is you are dealing with. There are large companies such as Bank of America, Wells Fargo and JP Morgan Chase that are certainly reputable, but it is difficult to find accountability. Do you want to speak with the same person twice? What about if you run into an appraisal problem-how does that get resolved? When you use online lending sources you may be losing your ability to have any control over the tracking your own loan. Not knowing where you are in the process or the ability to find out who does, can kill a real estate deal. You could lose the house you love. The stakes are high.
Wouldn't you rather be able to sit down face to face if there is a problem or concern about your loan? Wouldn't you rather have someone that you can ask about what the fees mean or the lending terms if you are unfamiliar with them? What about the process? Even if you are a veteran of buying homes, if you haven't obtained a new mortgage in the past few years you will find that things have radically changed. Personally I think accountability is worth something. I hope you do too.
Friday, October 25, 2013
LET'S TALK CREDIT
Specifically problem credit. I would love to be able to say that everyone I speak with has terrific credit unmarred by any mistakes or erroneous information. But that wouldn't be true. Unfortunately, in a large measure due to the issues stemming from 2008 and the ensuing recession, many, many people who previously had good to great credit have issues on their reports that can slow or stop them from achieving their dream of home ownership.
Some folks, due to job loss or medical issues that occurred while they were without a job and health insurance had lost the homes they had or have incurred medical debt that only a bankruptcy would resolve. Others got behind in payments and their credit scores are still suffering the effects. And...there is the simple fact that most people have incorrect information reporting on credit-plain and simple.
I often speak with people who are discouraged because they have been "working" on their credit for a year or two years and it doesn't seem to be improving. Many times what they are "working"on is paying off collections or disputing accounts that they feel are reporting inaccurately. What they don't realize is that paying off a collection doesn't guarantee that the collection company is going to report that the collection has been paid to the the credit bureaus. They might, but then again, they might not. Similarly, judgments don't always get reported upon release. These items remain on the credit report for years-so it is in the borrower's best interest to get them to report correctly. Many people try to "dispute" accounts which is to say, contacting the credit bureaus and asking them to investigate whether or not the creditor is reporting credit correctly. The usual result of this request is that the tag "information in dispute" is added to the credit line which resolves nothing. All that means is that the consumer has a question about about how the creditor is reporting. To correct a credit report, documentation providing proof of the error must be presented to all three bureaus-asking for resolution from one bureau isn't enough-all three must be addressed individually.
With collections this may be a daunting task. Let's say you had a medical issue that resulted in an expensive surgery. Medical billing companies are impatient entities. If your insurance doesn't pony up within 30 days it is possible that thousands of dollars of unpaid medical bills could end up as a collections on your credit report. Those bills could be paid within days of the time they hit the collection company, but too late. The original creditor (the hospital) may not go back and tell the collection company-"sorry, our bad, we just got paid." Or they might, but the collection company may not get around to correcting your credit report even though they mark the bills as satisfied. To make matters worse-collection companies sell their accounts to other collection companies so your collections could be sold, thereby tangling the web even further. Or maybe someone transposes a number of your social security number incorrectly and items that have nothing to do with you begin to appear on your report. How do you prove that whoever isn't paying these bills isn't you? This is what people encounter when they try to muddle through and "fix" credit themselves.
So okay, Ms Casey Smartypants, what is someone supposed to do?
If you have only one item that is reporting incorrectly, say a judgment that is showing unreleased and you have a copy of the release-this isn't hard to undo. Send copies of the release, a copy of your driver's license and a copy of a bill with your current address (and it needs to match your driver's license) for identification purposes, with a letter to each of the credit bureaus and ask them to show the judgment as released or paid. You have the proof. Normally within in 45 days the bureaus will inform you that this item has been corrected. One or two items of this nature are not too difficult for the average consumer to deal with. However, if you have multiple items and some of them are old-that is where it gets difficult- maybe you think they are paid, but you don't have receipts. You can call the creditor and try to get them to research the account and hope they do the right thing. 90% of the time you will be spitting into the wind. The job of collection companies is to get the money and they will take it more than once. I have had consumers that had to pay them a second time because they were still being reported as in arrears and they had no proof of payment. What do you do? Here is my suggestion. (You knew I had one, didn't you?)
You need professional help. The Fair Credit Reporting Act which was passed to protect consumers from incorrect reporting of credit and give them access to their credit, requires creditors to go through a series of extensive steps in order to report someone delinquent on credit. Unfortunately, most creditors don't go through the steps. What you need to do is require those creditors to report any deficiencies in credit correctly and legally. Which means you have to get them to correctly investigate each negative item on credit. So-the collection company would have to go back to the hospital and research whether or not that bill was ultimately paid by the insurance company and correct the credit if it was. But remember-the job of the collection company is to chase you down like a dog to get you to pay the bill-not figure out if it was paid. Few individuals have the time, expertise or sheer grit to handle the details of the follow up to do this. One caveat to the above advice-this is not for people who habitually default on their credit obligation or who are not in the habit of paying their bills on time. For those folks, enrolling in a program such as this is a bit like the mother who is running the sweeper with her three year old following behind trailing cracker crumbs on the carpet. It won't work. This type of program is for people who have genuine errors or concerns about how their credit is reporting.
There is an entire industry that revolves around credit clean up. In the course of originating loans I have worked with several companies that do an excellent job of repairing credit, correcting issues and getting credit scores back to where they need to be. It does cost money. Once again you are paying someone for their experience and expertise. It is your choice- you can continue to hammer away and try to do it yourself, but I will add this to the discussion. When I sit down with someone who has a credit report that is a non starter for a mortgage loan, and they tell me that they don't want to pay for the service, that they will fix it themselves; 98% of the time, a year later when we up meet again there is no improvement on credit. And I can tell you that of the people that I have referred to a credit repair company that have stayed with the program and done what they are told to do, 100% of those folks have come back to me ready, willing, and most importantly ABLE to buy a home. I have seen it repeatedly, and it works. I would caution anyone who is considering enrolling a third party company to assist, get referrals. There are those who will take your money and don't do much. So be sure you are referred to a reputable source.
I am always excited when I have a client I have referred to credit clean up call me and say, "My credit score is 680-I want to buy a house!" It is a perfect ending to a job well done.
Some folks, due to job loss or medical issues that occurred while they were without a job and health insurance had lost the homes they had or have incurred medical debt that only a bankruptcy would resolve. Others got behind in payments and their credit scores are still suffering the effects. And...there is the simple fact that most people have incorrect information reporting on credit-plain and simple.
I often speak with people who are discouraged because they have been "working" on their credit for a year or two years and it doesn't seem to be improving. Many times what they are "working"on is paying off collections or disputing accounts that they feel are reporting inaccurately. What they don't realize is that paying off a collection doesn't guarantee that the collection company is going to report that the collection has been paid to the the credit bureaus. They might, but then again, they might not. Similarly, judgments don't always get reported upon release. These items remain on the credit report for years-so it is in the borrower's best interest to get them to report correctly. Many people try to "dispute" accounts which is to say, contacting the credit bureaus and asking them to investigate whether or not the creditor is reporting credit correctly. The usual result of this request is that the tag "information in dispute" is added to the credit line which resolves nothing. All that means is that the consumer has a question about about how the creditor is reporting. To correct a credit report, documentation providing proof of the error must be presented to all three bureaus-asking for resolution from one bureau isn't enough-all three must be addressed individually.
With collections this may be a daunting task. Let's say you had a medical issue that resulted in an expensive surgery. Medical billing companies are impatient entities. If your insurance doesn't pony up within 30 days it is possible that thousands of dollars of unpaid medical bills could end up as a collections on your credit report. Those bills could be paid within days of the time they hit the collection company, but too late. The original creditor (the hospital) may not go back and tell the collection company-"sorry, our bad, we just got paid." Or they might, but the collection company may not get around to correcting your credit report even though they mark the bills as satisfied. To make matters worse-collection companies sell their accounts to other collection companies so your collections could be sold, thereby tangling the web even further. Or maybe someone transposes a number of your social security number incorrectly and items that have nothing to do with you begin to appear on your report. How do you prove that whoever isn't paying these bills isn't you? This is what people encounter when they try to muddle through and "fix" credit themselves.
So okay, Ms Casey Smartypants, what is someone supposed to do?
If you have only one item that is reporting incorrectly, say a judgment that is showing unreleased and you have a copy of the release-this isn't hard to undo. Send copies of the release, a copy of your driver's license and a copy of a bill with your current address (and it needs to match your driver's license) for identification purposes, with a letter to each of the credit bureaus and ask them to show the judgment as released or paid. You have the proof. Normally within in 45 days the bureaus will inform you that this item has been corrected. One or two items of this nature are not too difficult for the average consumer to deal with. However, if you have multiple items and some of them are old-that is where it gets difficult- maybe you think they are paid, but you don't have receipts. You can call the creditor and try to get them to research the account and hope they do the right thing. 90% of the time you will be spitting into the wind. The job of collection companies is to get the money and they will take it more than once. I have had consumers that had to pay them a second time because they were still being reported as in arrears and they had no proof of payment. What do you do? Here is my suggestion. (You knew I had one, didn't you?)
You need professional help. The Fair Credit Reporting Act which was passed to protect consumers from incorrect reporting of credit and give them access to their credit, requires creditors to go through a series of extensive steps in order to report someone delinquent on credit. Unfortunately, most creditors don't go through the steps. What you need to do is require those creditors to report any deficiencies in credit correctly and legally. Which means you have to get them to correctly investigate each negative item on credit. So-the collection company would have to go back to the hospital and research whether or not that bill was ultimately paid by the insurance company and correct the credit if it was. But remember-the job of the collection company is to chase you down like a dog to get you to pay the bill-not figure out if it was paid. Few individuals have the time, expertise or sheer grit to handle the details of the follow up to do this. One caveat to the above advice-this is not for people who habitually default on their credit obligation or who are not in the habit of paying their bills on time. For those folks, enrolling in a program such as this is a bit like the mother who is running the sweeper with her three year old following behind trailing cracker crumbs on the carpet. It won't work. This type of program is for people who have genuine errors or concerns about how their credit is reporting.
There is an entire industry that revolves around credit clean up. In the course of originating loans I have worked with several companies that do an excellent job of repairing credit, correcting issues and getting credit scores back to where they need to be. It does cost money. Once again you are paying someone for their experience and expertise. It is your choice- you can continue to hammer away and try to do it yourself, but I will add this to the discussion. When I sit down with someone who has a credit report that is a non starter for a mortgage loan, and they tell me that they don't want to pay for the service, that they will fix it themselves; 98% of the time, a year later when we up meet again there is no improvement on credit. And I can tell you that of the people that I have referred to a credit repair company that have stayed with the program and done what they are told to do, 100% of those folks have come back to me ready, willing, and most importantly ABLE to buy a home. I have seen it repeatedly, and it works. I would caution anyone who is considering enrolling a third party company to assist, get referrals. There are those who will take your money and don't do much. So be sure you are referred to a reputable source.
I am always excited when I have a client I have referred to credit clean up call me and say, "My credit score is 680-I want to buy a house!" It is a perfect ending to a job well done.
Tuesday, October 22, 2013
VA LOANS
Could there be a better loan for those who have served our country so well in the armed services? Not in my opinion. Which is why I am often shocked when I hear someone say that they were told at their bank or credit union that the VA loan isn't a good loan; that borrowers and the properties they select have to meet all kinds of difficult criteria to qualify. I am dismayed when I hear that veterans are being given bad information about a loan that is geared to give the veteran a great interest rate and great terms, and the ability to refinance the loan if interest rates go down with an easy low document refinance.
Why is VA so much better for the veteran?
-100% financing
-no monthly mortgage insurance (the only loan left that has no mortgage insurance with less than 20% down payment)
-low fixed interest rate
This loan is literally the least expensive loan available to the veteran.
So how difficult is it to qualify for a VA loan? Here are the basics:
-The borrower must be currently in the military or a veteran of military service and have been honorably discharged or have served in the National Guard or Reserves
-The borrower's credit score must be 620 or above
-The borrower must be employed and or be able to qualify on disability payments
As for the property-typical HUD guidelines apply-good roof, mechanicals, no plumbing leaks, 100 amp service-all the criteria I have discussed in previous posts.
There are the normal underwriting criteria that is looked at-debt ratio, credit history etc. but it is no more difficult for the veteran to qualify for this loan than any other loan product.
So do a vet a favor-if any lender tells him or her that the VA loan isn't a good loan, tell that person to run don't walk to the nearest lender who offers VA-like Tippecanoe Mortgage!
Why is VA so much better for the veteran?
-100% financing
-no monthly mortgage insurance (the only loan left that has no mortgage insurance with less than 20% down payment)
-low fixed interest rate
This loan is literally the least expensive loan available to the veteran.
So how difficult is it to qualify for a VA loan? Here are the basics:
-The borrower must be currently in the military or a veteran of military service and have been honorably discharged or have served in the National Guard or Reserves
-The borrower's credit score must be 620 or above
-The borrower must be employed and or be able to qualify on disability payments
As for the property-typical HUD guidelines apply-good roof, mechanicals, no plumbing leaks, 100 amp service-all the criteria I have discussed in previous posts.
There are the normal underwriting criteria that is looked at-debt ratio, credit history etc. but it is no more difficult for the veteran to qualify for this loan than any other loan product.
So do a vet a favor-if any lender tells him or her that the VA loan isn't a good loan, tell that person to run don't walk to the nearest lender who offers VA-like Tippecanoe Mortgage!
Monday, October 21, 2013
GOOD NEWS
Safely past the government shut down for awhile, anyway, I am pleased to report that interest rates have gone down since just prior to the shutdown. This is good news for buyers or folks who are still dragging their heels about refinancing their homes. There is time this year to get into a home before the holidays if you have been shopping.
An unscientific survey that I have done among real estate agents indicates to me that folks are still putting their homes on the market in order to trade up or trade down and take advantage of the buying power that lower rates give us while we still have them available. This decrease in interest rates could mean that we have a good fourth quarter market in home sales-which in turn means more work for contractors, suppliers of home goods etc. The importance of the housing market can't be over stated. It becomes a snowball for affiliated businesses when homes are selling.
What many people don't realize is that late fall and winter are great times to purchase a home. While the inventory is a little lower, the fact is that many sellers don't want to keep their homes on the market over the winter so may be a bit more negotiable in price. New home construction can be contracted before spring price increases occur which means that building a brand new home may be less expensive if contracts are signed during the winter months.
There is no time like the present-so if you know that you need more space, or less space, a lower payment or lower term in your mortgage, don't let the coming colder months scare you off.
An unscientific survey that I have done among real estate agents indicates to me that folks are still putting their homes on the market in order to trade up or trade down and take advantage of the buying power that lower rates give us while we still have them available. This decrease in interest rates could mean that we have a good fourth quarter market in home sales-which in turn means more work for contractors, suppliers of home goods etc. The importance of the housing market can't be over stated. It becomes a snowball for affiliated businesses when homes are selling.
What many people don't realize is that late fall and winter are great times to purchase a home. While the inventory is a little lower, the fact is that many sellers don't want to keep their homes on the market over the winter so may be a bit more negotiable in price. New home construction can be contracted before spring price increases occur which means that building a brand new home may be less expensive if contracts are signed during the winter months.
There is no time like the present-so if you know that you need more space, or less space, a lower payment or lower term in your mortgage, don't let the coming colder months scare you off.
Wednesday, October 16, 2013
Property Condition for Government Loans
Many times when people are qualified to use one of the government loans-FHA, VA or USDA they are concerned about property condition issues and whether or not those issues will disqualify a property they may be considering.
Fifteen or twenty years ago there was a long laundry list of condition issues that the appraiser had to check off as being satisfied in order for the loan to proceed. Today's government loan is not nearly as restrictive. The reason for property condition requirements is that both VA and USDA are 0 down programs and FHA has a small down payment. First and foremost if Uncle Sam is backing a loan, HUD wants to ensure that the homes funded by these programs are in habitable condition in case they wind up in foreclosure. Secondarily, by ensuring certain property condition standards are met, it decreases the likelihood that the borrower will have an expensive repair during the first year or two they reside in the property-the assumption being that borrowers who use these loan products may not have a large amount of assets to pay for repairs.
What exactly needs to be in good repair so the property qualifies for the loan? The following is a list of items that we see appraisers cite most often. There are other issues of course that are not on this list, but these are the biggies:
1) Five years life in the roof
2) No peeling paint on properties that were built prior to 1978
3)100 amp circuit breaker box
4) Ground Fault Interrupter outlets within six feet of water
5) If there is a negative grade that allows water to drain towards the foundation, gutters will be required to be installed
6)No broken windows, holes in drywall.
7) No exposed concrete or subflooring
8) No plumbing leaks
9) Heating and Cooling must work
10) Basement and crawl space must be dry
11) If the water and sewage system is provided by private well and septic, that minimum distances between the two are satisfied.
Chances are if the property that has been selected meets these requirements there will not be an issue with property condition. Even if the appraiser cites one or more of these items; if the buyer or the seller can make repairs the loan will move forward. The problem comes into play when neither party can afford to repair the necessary items prior to closing or the property is bank owned and the bank will not repair the items or allow anyone else to repair them. In that case, the borrower needs to buy the property using cash or use one of the rehabilitation loans such as the FHA 203K streamline loan. While conventional mortgages aren't underwritten specifically using the above conditions, an underwriter can still call to have repairs made as a condition of closing the loan.
Fifteen or twenty years ago there was a long laundry list of condition issues that the appraiser had to check off as being satisfied in order for the loan to proceed. Today's government loan is not nearly as restrictive. The reason for property condition requirements is that both VA and USDA are 0 down programs and FHA has a small down payment. First and foremost if Uncle Sam is backing a loan, HUD wants to ensure that the homes funded by these programs are in habitable condition in case they wind up in foreclosure. Secondarily, by ensuring certain property condition standards are met, it decreases the likelihood that the borrower will have an expensive repair during the first year or two they reside in the property-the assumption being that borrowers who use these loan products may not have a large amount of assets to pay for repairs.
What exactly needs to be in good repair so the property qualifies for the loan? The following is a list of items that we see appraisers cite most often. There are other issues of course that are not on this list, but these are the biggies:
1) Five years life in the roof
2) No peeling paint on properties that were built prior to 1978
3)100 amp circuit breaker box
4) Ground Fault Interrupter outlets within six feet of water
5) If there is a negative grade that allows water to drain towards the foundation, gutters will be required to be installed
6)No broken windows, holes in drywall.
7) No exposed concrete or subflooring
8) No plumbing leaks
9) Heating and Cooling must work
10) Basement and crawl space must be dry
11) If the water and sewage system is provided by private well and septic, that minimum distances between the two are satisfied.
Chances are if the property that has been selected meets these requirements there will not be an issue with property condition. Even if the appraiser cites one or more of these items; if the buyer or the seller can make repairs the loan will move forward. The problem comes into play when neither party can afford to repair the necessary items prior to closing or the property is bank owned and the bank will not repair the items or allow anyone else to repair them. In that case, the borrower needs to buy the property using cash or use one of the rehabilitation loans such as the FHA 203K streamline loan. While conventional mortgages aren't underwritten specifically using the above conditions, an underwriter can still call to have repairs made as a condition of closing the loan.
Tuesday, October 15, 2013
DOCUMENTATION FOR YOUR MORTGAGE LOAN
I sometimes joke with clients that by the time I am done with them I will know everything about them including their underwear size. It seems that lessons have been learned since the crash of the housing market-or at least the Federal Government is requiring lenders learn them as documentation requirements for mortgage loans have increased substantially. (I guess an increase of nothing to one or two documents would be substantial, wouldn't it?)
In any event, it is now required that buyers can prove they have jobs, bank accounts, and that all funds used in the transaction are from legitimate sources. Here is a typical list of items that are required by lenders to process a mortgage loan:
W2's for the past two years
In the case of self employed borrowers, tax returns for the past two years
60 days of bank statements
Large deposits showing on the bank statements must have sources provided
30 days of pay stubs
Current identification
Rent checks for the past 12 months in some cases
That is the starter list. For many borrowers that will be enough to get the loan approved. It is highly likely that updated pay stubs and bank statements will be required immediately prior to closing to verify that the funds to close are still available and that the borrower is still employed.
If there has been a divorce, death, release of judgment, prior foreclosure or bankruptcy or any legal situation that impacts income such as child support paid in or out, there may be a requirement for the legal documents that support those issues.
In addition, if the buyer is using a government loan such as USDA, FHA or VA there will be inspections that may be required such as termite or well and septic depending on the situation and the lender. The inspection results all become part of the loan file. Typically the whole house inspection is between the buyer and the inspector and not required by the lender.
Our company sends out surveys to all of our clients once their transaction has closed. These surveys evaluate customer service throughout the transaction. One comment that I see every now and then is that documentation requirements seem excessive. I can see how a buyer would think that to be the case. Let me assure you of a couple of points:
1) We never ask for anything unless we are 75% certain we will need it. We make these assessments based upon our experience with the loans that we have closed in the past. Most of the time the documentation requests originate in underwriting. There is no choice in the matter-the house won't close without the request being satisfied. Sometimes if a document is difficult to obtain there are alternate means of supporting the request.
2) Many of the items required are now mandated by the Federal Government, so once again no one has a choice in the matter.
Once in while we lose time processing a loan because our borrower for one reason or another doesn't give us what we ask for. For instance a W2 is not the same as a tax return in mortgage lending and you can't substitute one for the other. So it is important to get us the specific item we request and the sooner the better. Underwriters don't look at loan files on a piecemeal basis. Each file has its place in line. After the initial approval, it goes back into queue waiting on the additional items the underwriter has requested to complete the file. We sent all the items at one time so the underwriter can sign off in one session.
As a general rules the items we request are going to be items that will be requested by any lender. The documentation for mortgage loans is standardized and we try to choose partner lenders that stick to the basics as much as possible. But they are and we are accountable to the Federal Government. If a loan file is audited and found to be lacking in required documentation, the buyer will be contacted to provide the missing materials.
In any event, it is now required that buyers can prove they have jobs, bank accounts, and that all funds used in the transaction are from legitimate sources. Here is a typical list of items that are required by lenders to process a mortgage loan:
W2's for the past two years
In the case of self employed borrowers, tax returns for the past two years
60 days of bank statements
Large deposits showing on the bank statements must have sources provided
30 days of pay stubs
Current identification
Rent checks for the past 12 months in some cases
That is the starter list. For many borrowers that will be enough to get the loan approved. It is highly likely that updated pay stubs and bank statements will be required immediately prior to closing to verify that the funds to close are still available and that the borrower is still employed.
If there has been a divorce, death, release of judgment, prior foreclosure or bankruptcy or any legal situation that impacts income such as child support paid in or out, there may be a requirement for the legal documents that support those issues.
In addition, if the buyer is using a government loan such as USDA, FHA or VA there will be inspections that may be required such as termite or well and septic depending on the situation and the lender. The inspection results all become part of the loan file. Typically the whole house inspection is between the buyer and the inspector and not required by the lender.
Our company sends out surveys to all of our clients once their transaction has closed. These surveys evaluate customer service throughout the transaction. One comment that I see every now and then is that documentation requirements seem excessive. I can see how a buyer would think that to be the case. Let me assure you of a couple of points:
1) We never ask for anything unless we are 75% certain we will need it. We make these assessments based upon our experience with the loans that we have closed in the past. Most of the time the documentation requests originate in underwriting. There is no choice in the matter-the house won't close without the request being satisfied. Sometimes if a document is difficult to obtain there are alternate means of supporting the request.
2) Many of the items required are now mandated by the Federal Government, so once again no one has a choice in the matter.
Once in while we lose time processing a loan because our borrower for one reason or another doesn't give us what we ask for. For instance a W2 is not the same as a tax return in mortgage lending and you can't substitute one for the other. So it is important to get us the specific item we request and the sooner the better. Underwriters don't look at loan files on a piecemeal basis. Each file has its place in line. After the initial approval, it goes back into queue waiting on the additional items the underwriter has requested to complete the file. We sent all the items at one time so the underwriter can sign off in one session.
As a general rules the items we request are going to be items that will be requested by any lender. The documentation for mortgage loans is standardized and we try to choose partner lenders that stick to the basics as much as possible. But they are and we are accountable to the Federal Government. If a loan file is audited and found to be lacking in required documentation, the buyer will be contacted to provide the missing materials.
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