NEW FHA collection, charge-off, and judgement rules to make loans harder

updateIn a recent announcement (FHA Mortgagee Letter 2013-25) ,  HUD said that while they will continue with their basic rule that most  unpaid collection accounts DO NOT need to be paid off in order to obtain an FHA loan,  they now WILL require that lenders consider how a creditor’s efforts to collect the account can impact the borrower’s ability to repay the loan.

When ANY ONE, OR COMBINATION of unpaid collection accounts equal $2,000 or more, the lender now needs to factor in monthly payments of 5 percent (5%) of the outstanding balance for the account into the debt-to-income ratio. If payment arrangements were made with the creditor, then that payment must be used. This is going to be a major deal breaker for many applicants.

Collection accounts for non-purchasing spouses need to also be considered in community property states (like Wisconsin).  Nothing needs to be done if the aggregate balance is under $2,000.

This additional debt-to-income requirement is sure to hurt many applicants.

Any medical accounts many be  excluded from the requirement.

Impacted loans are those that have case numbers assigned on or after Oct. 15, 2013.

On disputed accounts, manual underwriting is required when the  total is at least $1,000.  Lenders must analyze whether collection accounts or judgments were a result of disregard for financial obligations, an inability to manage debt or extenuating circumstances.

In any event, the borrower needs to write an explanation and provide supporting documentation for each account.

All of this is just more reason to make sure you are working with an experience LICENSED Loan Officer, not an unlicensed bank application clerk.


Mortgage Loan Approval – Things NOT to do

Applying for a home loan can be a stressful time, but doesn’t need to be if you follow certain rules that can unexpectedly trip up your mortgage loan approval.

Some of these tips will be obvious, while others won’t – but all of them are items that regularly cause underwriting headaches. Avoiding these mistakes will help lead to a smooth stress free home loan closing.

images124Dos and Donts of a Smooth Home Loan Approval

  • DO continue to live at your current home.
  • DO continue to make your home loan payments or rent payments on time
  • DO continue to use your credit as normal (but see don’t items)
  • DO keep working at your current job.
  • DO keep your same insurance company.
  • DO stay current on all your existing accounts.
  • DO keep credit card balances low (below 25% of available credit is perfect)
  • DO call your home loan expert if you have any questions.

DON’T  do any of these items within 90-days of application or until after closing

  • DON’T apply for ANY new credit. No cars, no furniture, no credit cards, no cell phones, no boats, no new loans of any kind
  • DON’T buy any furniture ON CREDIT after you’ve found your dream home
  • DON’T close any credit card accounts,  or consolidate your debt onto one or two credit cards.
  • DON’T pay off any loans or credit cards without discussing it with your Loan Officer.
  • DON’T change bank accounts
  • DON’T move money around from one account to another.
  • DON’T pay off collection and charge offs accounts without a discussion with your home loan expert.
  • DON’T amend your tax returns
For a Refinance
  • DON’T start any home improvement projects, or don’t bother applying until any current project is finished

The biggest item left is simply this… ALWAYS tell your Loan Officer EVERYTHING. Not thinking it is important, or even straight up lying, is only going to cause trouble down the line.  You’d be surprised at the checks underwriting does during the process, and the things that are “discovered”. Mention everything it to your licensed Loan Officer right away so they can help you determine the best way to achieve your home loan goals, and avoid any unnecessary delays or surprises during the process.

 


FHA new Foreclosure forgiveness policy – Not what you think. Read why

FHA foreclosure guidelinesHow long after foreclosure for a new FHA loan?

Recently FHA announced in mortgage letter 2013-26 the ability to FOREGO the current three year waiting period for previous Foreclosures and Short Sales before you can qualify for an FHA Loan if the borrower had an ECONOMIC EVENT that created a hardship.

It has been brought to my attention that many real estate agents are now advertising this, WITHOUT GIVING THE FULL STORY.

Borrowers MUST MEET VERY STRINGENT guidelines in order to qualify for this EXTENUATING CIRCUMSTANCE.

Here is the link to the actual Mortgagee letter for your reference.  Please read the FHA foreclosure guidelines so you understand what is required.

But there is more…  Just because FHA indicates they may insure a loan meeting these guidelines, you need to understand that FHA DOES NOT DO LOANS.  Lenders do loans, and you will still need to find a lender willing to offer loans under these new guidelines.

My experience tells me that very few lenders will jump on board to offer this product, so be sure to cross your T’s and dot your I’s before you get too excited about suddenly being about to get an FHA Home Loan with a recent foreclosure or short-sale.


FHA Loans versus Conventional Mortgage Loans

Many folks are confused when it comes to loan options. What type of loan, FHA Loan, VA Loan, or maybe a Conforming Conventional loan? What about fixed rates versus  adjustable loans?

worth_balanceHere are some important differences between FHA Loans and Conforming Conventional Loans (Meaning Fannie Mae or Freddie Mac)

Consider FHA:

1. FHA charges a 1.75% upfront fee known as MIP (Mortgage Insurance Premium) (which is added to your loan balance)
2. FHA charges Monthly Mortgage Insurance of 1.35% annual (divided by 12 monthly payments) on a 30-yr loan with less than 10% down. To calculate it, take your loan amount times 1.35%, then divide by 12. This number is what is added to your loan payment
3. FHA Mortgage insurance can never be removed from the loan if you put down less than 10%.  This is change from the old rules as of 2013
4. FHA technically allows a credit score down to 580 with just 3.5% down, but most lender will require at least a 620 or higher score
5. With FHA, there is no real difference in the interest rate from borrowers with a low 640 score to borrowers with a 800 score.
6. While rates can change, currently FHA rates are usually a little lower than conforming mortgage rates.

Consider Conforming Conventional:

1. No upfront Mortgage Insurance Premium  charge
2. Monthly PMI is lower than FHA PMI.  The cost does vary by credit score and down payment. The more down payment, the cheaper the PMI.
3. PMI can be avoided when the borrower puts 20% or more as down payment
4. Conventional PMI can be asked to be removed at 80% loan-to-value. This can be a combination of paying down the loan, or increased value. PMI will automatically go away once your reach 78% loan-to-value though payments alone. You must have made at least 24 mortgage payments before this can happen.
6. Most conventional lenders require a 660 minimum credit score., and a few will go to as low as a 620 score
7. Conforming conventional loan interest rates vary greatly by credit score in 20 point increments. Someone with a 660 credit score could be paying as much as 1/2% higher interest rate than someone with a 760 credit score.

Although this quick summary shows some of the key differences between FHA and Conventional financing, there could be other considerations which will make one loan product more beneficial to you than the other..

It can be overwhelming.  That is why is is so important to deal with an experienced, and licensed mortgage professional – not just the unlicensed application taker at the bank or credit union.  Sadly, around 80% of  “Loan Officers” are mere application takers, with little to no qualifications to consult or properly advise a potential first time home buyer.  Be sure to only work with an actual licensed loan officer.

LEARN HOW to determine if your Loan Officer is Licensed, or simply an application clerk.

 


No down payment VA home loans

Take Advantage of your VA Benefits! VA Home Loans for Minnesota and Wisconsin military veterans

VA loans MNWhy get a VA Loan?    

It’s simple … Lower Rates. Lower Payments. $0 Down Payment.

Thousands of people are using their VA Loan benefit every single month. Let us help you purchase a MN or WI home with ZERO DOWN, or lower your existing VA home loan with a refinance to today’s low interest rates.

BUYING A HOME WITH A VA HOME LOANS

Purchase with Zero Down

A VA Loan allows a Vet buy a home with Zero DOWN and finance 100% of the home’s purchase priceup to $453,100 in MN, WI, and SD (as of 2018). Now more than ever, banks are requiring larger down payments for conventional loans with more expensive mortgage insurance. In many cases they require 10-20% down, putting home ownership out of reach for many prospective buyers.

How much will $0 down save you? FHA loans require 3.5% down. Conventional loans will require a minimum of 5% down, and in many cases as much as 10% and 20%.VA Loans Minnesota

VA loans have NO PMI = Lower Monthly Payments

A VA Loan offers a HUGE savings benefit. They do NOT require monthly PMI, or private mortgage insurance. PMI is an added monthly expense required for conventional loans and FHA loans where the borrower finances more than 80% of the home’s value.

Interest rates are also typically lower with a VA Loan, than a conventional loan. A lower rate combined with monthly PMI savings can substantially lower your monthly payment.

Getting Qualified is Easier

The qualification guidelines are less stringent for VA Loans. Because the loan is backed by the government, lenders don’t need to meet strict lending rules.

VA Loan Application

VA Purchase loans for Veterans IN MN, WI, SD – APPLY

VA Loans require no down payment, and have no mortgage insurance, plus you can roll all your closing costs into the loan. This makes for one heck of a great first-time home buyer deal for military veterans wanting to buy a home! The country appreciates your service. This is one way we pay you back. Today mortgage rates on VA loans are very low, making homes even more affordable.

ZERO DOWN VA Home Loans

 

VA Home Mortgage Loan Advantages vs Other Mortgage Loan Options

  • VA home loans do not require a down payment, unless the purchase price is more than the appraised value or in excess of current loan limits.

  • VA home loans have limitations on which closing costs may be assessed to the veteran.

  • VA home loans have no prepaid without penalty.

  •  Maximum (zero down) VA loan has increased to match conforming loans!

  • VA home loans may have forbearance extended to worthy VA homeowners experiencing temporary financial difficulty

  • VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties

  • VA interest rates are competitive with conventional loan interest rates.

  • VA home loans do not require mortgage insurance – this is a HUGE savings.

  • Although there is no down payment required – There are still closing costs, but the seller usually pays ALL of the veteran’s closing costs (and with a $0 down payment, the veteran can literally purchase a home for nothing).


Brokers accused again of being bad players

keysThe SEC has accused mortgage brokers of originating the majority of the bad loans that went into an $855m mortgage-backed security deal that has landed a lawsuit at Bank of America’s door.

Hmmm…  Interesting view from the SEC,  because mortgage brokers DON’T:

  • Come up with loan programs or guidelines
  • Underwrite loans, or Quality Control loans
  • Fund or Close loans

Mortgage brokers take applications, collect documentation, go over loan options, select the appropriate lender, then send everything to the actual lender for underwriting and approval.  Mortgage brokers do not make any underwriting decisions.

While brokers have become the scapegoat for many of the problems, the reality is that loose loan guidelines, very poor underwriting, and a desire to push everything through the system was the real culprit.

Click here to READ THE FULL STORY

 


Refinancing activity down 55% – Rates still awesome

Mortgages Rates in Minneapolis, MNAccording to recent surveys from the Mortgage Bankers Association, refinance applications are down 55% from recent highs. The latest survey shows the smallest amount of refinance activity in years, yet refinances still account for 63 percent of all mortgage applications.

Clearly the uptick in interest rates from the lows we say back in May 2013 are having an effect on activity. As mortgage rates move higher, refinancing makes less sense for more and more people.  Current best execution on 30-year fixed mortgage rates is running +/- 4.50%, which is about 1% higher than the recent lows.

From a historical perspective, interest rates are still fantastic, and surveys show there are still millions of people who could benefit be refinancing to today’s current interest rates.

HARP Refinance MNThere is also a huge mental aspect to refinancing. When people “hear” rates have gone up, many don’t even both to check with their local mortgage professional to run numbers.   But interest rates are only one aspect of refinancing.  Getting a short term, like a 15-year mortgage, can easily save many people well in excess of $100,000 or more.  That is nothing to ignore.   For others, refinancing back to a new 30-year fixed mortgage could save them hundreds of dollars a month.

Finally, many people still are under the belief that that can not refinance because of underwriting rules, or because their home has lost value.  But programs like HARP 2, the Home Affordable refinance Program for underwater home are working well for millions of people.

My advice is to never assume.  Call your local licensed mortgage professional for a quick review.  You may be surprised at what you hear!

 


How many homes should we look at before buying?

You are fully pre-approved with your mortgage lender, and out looking at new homes.

How many homes should we look at before buying?

Minneapolis, MN Real Estate - Mortgage BrokerReal Estate Agents and lenders get this question all the time. The answer? It depends.

Realistically, most people only physically need to look at between 5 – 7 homes before deciding on which one to make an offer on. Some look at 1 or 2 homes before making and offer, and some look at 20 plus homes. The trick is to work with your Real Estate Agent and Loan Officer to have realistic expectations of your wants, needs, goals, and affordability.

The first step is to get pre-approved with a local Minneapolis area mortgage broker.

This way you’ve already discussed mortgage loan programs, down payment and loan requirements, and have set a realistic home purchase price. How can you even start looking at homes if you don’t know this information?

Meet with the Real Estate Agent

With mortgage knowledge in hand, now you can meet with a local Realtor to go over your housing needs, Bedrooms, neighborhoods, yards, features, priorities, and more. Your agent will discuss all of these items, and figure out a realistic plan. Usually they will then set up some automated listings to be sent to you by Email that meets your criteria. When you find some that you like, now it is time to physically go look at homes.

Because you’ve already discuss financing, and set good expectations with your Realtor, you can usually achieve the dream of home ownership without looking at dozens of homes. It’s all about educating them up front and getting on the same page.

First Time Home Buyers

Many first time home buyers in the Minneapolis, MN area look at a little high average, more like 7 – 10 homes before buying. This is OK, as they sometimes need to discover features and options on homes that they may have not been as familiar with as a move up buying looking at their second or third home.

The Bottom Line is that there is no set number

Each person is different. But if you’ve physically looked at more than 10 homes, it is probably time to sit down with your mortgage and real estate professional to re-examine your housing wants, needs, goals, and affordability.before they find the right home.