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New Home Appraisal Nightmares For Homebuyers

admin — Wed, 15 Jul 2009 18:53:23 +0000

I just read this very interesting article about how the new rules regarding home appraisals are having some unintended negative consequences. I know this to be true because I just went through a similar situation with one of my clients. The appraisal for the home she was buying came in much lower than expected and much lower than the home was actually worth. The result was, the deal was dead.

Read this article to learn more.

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When It Comes To Getting A Mortgage, Patience Is A Virtue

admin — Wed, 15 Jul 2009 13:27:41 +0000

If you are in the process of buying a home or refinancing your current mortgage, you may need to exercise a great deal of patience. Mortgage lenders have now become the gold standard in caution. Where once they would approve a monkey with a social security number, now you will have an easier time getting top secret clearance from the federal government. And why shouldn’t they? After all, it’s our money they are lending us, right? I am not saying that banks shouldn’t be careful and take necessary precautions before issuing mortgages. However, they have gone completely overboard in the opposite direction.When I first got into the mortgage business, long before there was any such thing as automated underwriting, there was a a standard that every one lived by. Banks, brokers and lenders would look at a mortgage application and ask: does it make sense? And if the answer was yes, then generally, the loan would be approved. If it did not, then it would be denied. Then came the housing boom. And when the question “Does it make Sense?” was asked, everyone said “Who Cares?” Now we have flopped over to the extreme opposite and when the question is asked “Does it make Sense?” The answer is “Even if it does, you probably won’t get approved anyway.” These are our banks, people. The ones we spent a trillion dollars bailing out which is why it stings a bit more.

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Why I’m Mad at the New York Times and their view of the Mortgage World…..

admin — Tue, 14 Jul 2009 14:00:38 +0000

Here is an article where i disagree with the author. If you read the entire post, you will see that the New York Times wrote an article detailing just how difficult it is to get a mortgage now days. The author of this post strongly disagrees with the times. But as a mortgage professional myself since 1999, I have to say that I think The Times is right on the money here.

You read and you decide.

Here is the post:

I read this article over the weekend and it was so full of inaccuracies and distortions that I had to share my perceptions on it. My comments are in bold and italics….. and I’ll have more at the bottom.

Tight Mortgage Rules Exclude Even Good Risks – NYTimes.com

Inna Komarovskaya was ready to do her part to revive the economy: She found a “really cute” condo to buy.
Despite a good credit score, a six-figure income and an ample down payment, Dr. Komarovskaya, a recent dental school graduate, could not get a loan. Her mortgage broker told her she ran afoul of new rules requiring two years of sufficient tax returns from some home buyers, instead of only one……

Tom here – the way they say it makes it sound like they are randomly saying, “we need two years tax returns rather than one.” Let me tell you the details that I “know” they aren’t putting in the story: Dr. K recently graduated from dental school and then, rather than going to work for a practice with a guaranteed salary, either started her own practice or bought into a practice where she has an ownership stake in the practice. Because of her ownership interest, the mortgage market is going back to what they have required for years which is a 2 year history to verify income. Is that a new and restrictive guideline? Nope, it’s going back to the way things have worked for a very long time.

The recession is the major reason sales are dragging, of course, but it is not the only one. As Dr. Komarovskaya found, buyers once viewed as perfectly qualified are being denied mortgages……

Tom here – “once viewed as perfectly qualified?” As in, perfectly qualified for a subprime loan? Perfectly qualified for a stated income loan? Perfectly qualified for one of the loans that is performing so badly it was the “match that light the fire that almost blew up our financial system?”

The credit pendulum is stuck at ‘stupid,’” said Lou S. Barnes, an owner of Boulder West Financial Services, a Colorado mortgage bank. “I am turning down loans every day that my grandfather in his Ponca City, Okla., savings and loan in 1935 would have been happy to make. And he was tough.”………
Tom here – I’d like to talk to this Lou Barnes and find out what his customer baser is like. Am I talking to customers on a daily basis who can’t do what they want to do? Yeah, I am. But why? Not because the guidelines are too tight, but because the bubble burst and property values have fallen. It’s not stupid lending to refuse to do a “secured” mortgage at 130% of the value of the property.

The denials are occurring for a wide array of reasons: the buyers’ incomes are adequate but irregular; they are self-employed and take many deductions, reducing the taxable income on which lenders focus; their credit scores are below the cut-off point, which has been raised drastically; their down payments are less than 20 percent……
Okay, I think I can disagree with a lot of things in this sentence:

Adequate but irregular – Gee, hasn’t the mortgage world always (as in like since I was in 1st grade?) taken a 2 year average to deal with irregular income? So what’s the problem now? The problem now is that too many people are used to dealing with mortgage rules that allowed virtually anyone to get a mortgage. Those days are over.
Self employed and take many deductions, reducing taxable income: This one has bothered me for a long time. For many many years, well educated lenders have known that true non-cash writeoffs that self employed people take on their tax returns can be added back to their income. The cash expenses – well, guess what “cash expenses” means? It means that you actually paid them. Now some of you are probably saying, “But I write off the payments on my car loan, so why should that penalize me?” A couple of things about that: 1) If you are writing off your car loan and doing it appropriately, you should have absolutely no issues providing enough documentation to your lender so that while you can’t count it as income, at least you don’t have to have it counted as a liability. 2) If you structure things in such a way that you can use “pre-tax” income to pay for personal expenses, then you end up not having the same amount of income to qualify for a long, but employees don’t have that option.
Their credit scores are below the cut-off point, which has been raised drastically; Yeah, the cut off points have been raised drastically for credit scores. Why? Because the people with lower credit scores are a large amount of the people who are delinquent on their mortgages. But guess what? Through FHA, we’re still doing doing mortgages for people with credit scores down in the lower 600’s. So, if someone has a credit score that’s too low for an FHA mortgage, then yes, they areally shouldn’t be getting a mortgage.
Their downpayments are less than 20%. Have the PMI companies instituted what are called “restricted markets?” Yes. What does that mean? It means that if you are located in a restricted market, you have to come up with an extra 5% down. Take the state of Michigan for example. We are, according to some PMI companies, a restricted market, so rather than being able to do a 5% down conventional mortgage, we’re limited to a 10% down mortgage. Oh, and how about FHA and VA? According to what I’ve read, FHA and VA are in excess of 30% of the entire market. So, there are a lot of options without 20% down.

Fannie Mae, the government-controlled company that buys mortgages, is so dominant in the lending market that its rules set the standard. It recently toughened its policies, saying it would count only 70 percent of the value of stocks and mutual funds when calculating a buyer’s assets. Previously, that figure was 100 percent…….

Once again, that’s not true. If you have a current statement for a mutual fund AND IT’S NOT RETIREMENT FUNDS, you can use the entire amount because you could liquidate it Monday and get the money by the end of the week. But, if the money is in an IRA, 401K, 403B, deferred comp plan or anything like that with tax deferred advantages, then yes, they’ll count 70% of it. Why? It’s pretty simple. If I went and wanted to cash in my 401K plan on Monday, they would take 20% of it and withhold that for taxes and 10% because I’m under the age where I can take the money out without penalties. So, assuming I had $100,000 in my account, how much would I get? $70,000. But come on, this isn’t something new.

Mortgage brokers say those who are being rejected for loans are often entrepreneurs who are used to taking risks. “They are chomping at the bit to get into this market, but are forced to the sidelines,” said Stuart Fraass of Guaranteed Rate Inc. “If you’re self-employed, you have virtually no chance of getting a mortgage now.”……..
If you are self employed, don’t claim all of your income, write off a lot of personal expenses as business expenses, haven’t been in the business for at least 2 calendar (tax return) years, yes, you’re going to find it challenging to get a mortgage now. But if you are self employed, are showing a profit and are reasonable about what you want to borrow, you should be good to go. If that applies to you and you are having troubles getting financed, call me.

Mr. Fraass was unable to help Raghbir Singh, a real estate investor who owns a gas station in Dover, N.H. Mr. Singh tried to buy a $301,000 house for himself and his family with 10 percent down and excellent credit, but was rejected. “It was unfair,” Mr. Singh said. “I’m a good risk, but I’m forced to rent.”

A couple of things about this story that don’t “line up.” Let me explain: 1) Mr. Singh is a real estate investor who claims that he’s “forced to rent.” What’s up with that? 2) I’d be willing to venture that Mr. Singh’s tax returns don’t show quite the same income amounts that he’d like to “tell you” he makes. 3) “I’m a good risk?” Didn’t we get away from the borrower underwriting (stated income loans) because they performed so horrendously?

Members of Congress are proposing to extend and enlarge an $8,000 credit for first-time buyers, which is due to expire in December. One bill would extend the credit to all buyers through next June. Another would extend it to all buyers through 2010. A third bill would expand it to $15,000 for all buyers.

Remember – none of these have been approved yet.

Some economists, noting that tax incentives helped stoke the boom, say these proposals should be shunned. “When do you decide enough is enough?” said the housing consultant Ivy Zelman. “I don’t want to feed the drug addict with more drugs.”

Housing consultant? That’s a unique title that doesn’t tell us anything. I do believe that you can make a clear case that tax incentives were an influencing factor and I think she raises a valid point. When is enough enough? However, it smacks of irresponsibility to imply that the tax credits are responsible for the mess. I’ve said before that a tax credit for all buyers would be counter productive. All that would do is shuffle inventory. I do believe that the housing market would be in much worse shape if we didn’t have the $8,000 incentive for those who are renting to buy and that will probably be extended.

Okay, a couple of additional thoughts to wrap things up:

In case you can’t tell, this sort of “half story” journalism really bothers me. Is the mortgage world a lot harder than it was 3 years ago? Absolutely. But don’t tell lies and fabrications and half truths that make it seem worse than it is.
Can people still get a mortgage? Absolutely! If you have a downpayment (as little as 3.5%), verifiable and stable income, are looking at buying a house that is reasonable for your income and debt levels and have decent credit, you’re good to go.
This is exactly why I wrote my book, “Straight Talk About Mortgages – How to Survive and Thrive in Today’s New Mortgage World.”
The world already believes the mortgage industry is dead. It’s not and we don’t need irresponsible stories and half truths making it worse.

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Wow! Mortgage Applications Climb Out Of 7 Month Low

admin — Wed, 24 Jun 2009 19:51:10 +0000

The Mortgage Bankers Association is reporting that mortgage applications have climed out of a 7 month low last week. Is this a sign that the housing collapse is starting to stabilize? Perhaps. Maybe it is that folks are realizing that the fantastic mortgage rates we have right now will not last forever. In any event, the fact the more and more people are applying for mortgages is a good thing. Let’s hope the trend continues next week. By the way, if you haven’t heard, mortgage interest rates are great today. If you are thinking about buying or refinancing your home, now is a great time to act.

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Don’t Ask Me When You Should Lock Your Loan… Please!

admin — Tue, 23 Jun 2009 19:16:24 +0000

I can’t tell you how many phone calls I get every day where people ask me if they should lock in their loan. And the answer is definitely, “I DON’T KNOW” I will never know and that is the end of that. I will never tell you. And the reason is that as sure as I am sitting here writing this, as soon as I tell you to lock or not to lock, the market is going to move in the opposite direction and you will hate me forever. The only people who really know if you should lock or not are the puppet masters on Wall Street who control everything — And they’re not talking.

If you want my opinion, here it is. Get four offers from different lenders, then negotiate your best deal.

Fed meets; lock your rate If you
Lock at the Price Highs, Float at the Price Lows Prices of
The Single Most Important Question You Need To Ask Your Loan Officer: Right Now. Pull up a

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FHA Loan Basic Requirements

admin — Tue, 16 Jun 2009 18:32:35 +0000

FHA Loan Basic Requirements

If you are shopping for a home loan weather as a first time home buyer or a refinance, you will be faced with several options when it comes to the type of loan. This can be overwhelming. There is a great deal of information out there and it may seem difficult to make the right choice. A good place to start would be looking into an FHA mortgage. Here are the basic requirements for getting an FHA Loan.

FHA Employment Requirements

FHA requires that you have stable employment or a stable source of income for at least the past two years. There may be exceptions when FHA will approve you with less than two years of steady employment, but there must be a satisfactory reason for it. Two consecutive years of non employment income such as retirement or interest may also be used to qualify.

Credit Score Requirements For Getting an FHA Loan

To qualify for a mortgage through the FHA you must have at least decent credit. The FHA says that your minimum credit score should be above 580. The truth of the matter however is that there are practically no FHA lenders out there who will approve your mortgage with anything less than a 620 credit score. It is a good idea to understand exactly what your credit score is before you begin the application process.

Other Requirements For FHA Loan Approval

There are several other requirements that you must meet in order to obtain an FHA mortgage. The property must be appraised at and amount equal to or greater than the purchase price. An appraisal must be completed by an FHA approved appraiser. The appraisal will in all likely hood be ordered by the lender, not the borrower.

FHA Minimum Down Payment Requirements

If you are purchasing a home and plan to get an FHA loan, you must put at least 3% of the purchase price down as a down payment. If you are refinance your home you must have at least 5% equity. FHA will finance a loan to value of up to 95%. This is a pretty good deal as most other types of financing have raised the amount of equity required to obtain a mortgage. Your debt to income ratio should be fairly low as well.

Who To Call To Get An FHA Mortgage

With so much at stake, you should always seek the advice of trusted professionals. We believe that information is power and that you should obtain as much information as you can. A great place to start would be through a company such as Lending Tree. They are great because they are able to get multiple loan offers for you with one simple application.

You can then take all your offers and compare them so that you can choose the one that is best for you. You can start by filling out the simple for below and in no time you will have several banks offering your their best rate on a FHA loan or conventional mortgage.

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