the arbor edge

Fannie Mae Loan Quality Initiative – You’re going to pull my credit how many times?!

2010-07-14T16:47:00.003-04:00

Technically, the news about the Fannie Mae Loan Quality Initiative is not new. In fact, it’s pretty darn old; being first announced in February of 2010. But, a big “to-do” is still being made over it since its implementation on June 1, 2010. The section that has every one up in arms is “undisclosed liabilities”. This is FNMA’s way of shifting some of the responsibility for a loan’s performance to the lender, by requiring that the lender verify that all the borrower debts have been disclosed in the loan file.

This means that the lender has to double check to be sure that you didn’t get a new car loan or increase the balance on an existing credit card. If anything material changed on the credit profile before closing, the lender will be on the hook for that loan.

I think we all know that they only way to actually check to make sure there’s no new credit is to pull another credit report. So, it’s with a wry smile that we react to the Fannie Mae LQI FAQ stating

“The Selling Guide update was not intended to require additional credit report pulls or underwriting at the time of closing.”

Right…. How else are we going to know? Since there really isn’t any other way, lenders have taken the conservative approach and are pulling a second credit report after underwriting, but prior to loan funding.

The second credit report is what is really driving people crazy. Credit ratings are tough enough to manage, with the littlest thing shifting your scores just out of reach of the best program or rates. People don’t like to hear that they will be subject to yet another inquiry, since it runs the risk of lowering their score.

Cynics are spouting that this just another way for the banks to try and charge you more; ding your credit score, just to raise your rate. That’s not quite accurate. While some banks are pulling full credit reports, and using the scores to re-price when applicable, that is NOT required by Fannie Mae. Your lender should be looking for only 3 things:

1. New Credit inquiries since your application – If you have any new credit inquiries, this will red flag your lender that you could be opening new credit and they will ask for an explanation.

2. Change in balances – Lenders will be checking to see if your credit card balances have increased significantly. They will use any higher payments to recalculate your debt to income ratio. If your ratio becomes higher than allowable for your loan program, your loan could be denied.

3. New trade lines – Of course the magnifying glass will be out, looking for any new credit line added since application.

Your lender does NOT need to look at the scores. In fact, credit providers offer a tri merged mortgage report with no scores, just for this instance. It’s actually called an LQI credit report and used expressly for determining new debt.

There are two things you can do to be sure that your loan doesn’t get denied at the last minute. First, don’t shop for new credit until after closing. Don’t even buy a pack of gum (ok, that’s extreme, you can buy gum). You get the picture. Don’t make any large purchases; don’t charge more to your credit cards; and go over your current report to ensure your loan officer has accurate information. Second, use a lender that only pulls an LQI report before closing and not a full credit report, like Arbor Mortgage.

Appraisals and the New Home Buyer

2010-07-08T14:13:00.003-04:00

One of the most confusing parts of the home loan process these days is the appraisal. There have been so many changes in guidelines and legislation that you practically need an advanced degree just to figure out who is even ALLOWED to appraise your home.

Let’s start with the basics:

What is an appraisal?

An appraisal is a professional appraiser’s opinion of the current market value of a home. An appraisal performed for a mortgage transaction will often involve a physical inspection of the subject property. The appraiser will collect and analyze local real estate sales data along with your property information; including condition, prior sales information, sales contract data, and other pertinent property information. The appraiser is not a home inspector and will only be inspecting the home for the purpose of concluding an opinion of value for your lender.

Why do I need an appraisal?

Every mortgage lender requires an appraisal when lending money on real property. The most common appraisals are the full physical inspections mentioned above. The appraiser not only determines an opinion of market value, but they also inspect the property for adherence to specific loan program guidelines. For example, FHA appraisals have additional rules that conventional appraisals do not.

Who picks the appraiser?

The appraiser is always chosen by the lender. Recent legislation requires that someone not within the loan origination process (i.e. – not the loan officer) to order the appraisal. Many banks and lenders have interpreted this law in a way that causes them to use third party Appraisal Management Companies (AMC) to order their appraisals. This often raises the price (to pay the middle man) and lowers the quality of the appraisal (AMC’s generally pay appraisers less and choose outside the geographic area).

Some lenders, like Arbor Mortgage, have an internal appraisal ordering system separate from the loan originators that orders from a specified list of appraisers local to your market. Always use a lender that utilizes an internal system to order appraisals, instead of outsourcing it. Appraisals that are managed by internal systems generally have lower costs, faster turn times, and higher quality.

How long does an appraisal take?

There is no one size fits all answer for the turn-around time on an appraisal. Each appraisal has its own level of complexity that will affect the amount of time it takes to complete. For a suburban area, with a common style home, it should take 3-5 days to receive an appraisal after inspection. For more rural areas or unique properties it can take a little longer.

What happens if my appraisal is too low?

In today’s market, many appraisals are falling short of contract prices. For a home buyer, this is not the end of the world. While it will take additional work and negotiation, this can actually be a GOOD thing. The appraiser is there to make sure that the contract price is a fair price, based on comparable local sales. If recent sales in the area are much less, than the last thing you want to do is overpay. Having the appraiser come back with a lower value gives you an opportunity to negotiate a lower purchase price with seller, potentially saving you thousands.

That’s not to say that all sellers will agree to a lower price. In some cases the seller may refuse, or even ask the buyer to bring the difference. But, that is the your choice, since most contracts have an appraisal contingency that allow you to walk away from the sale if the appraisal falls short of the agreed upon sales price.

For other questions about appraisals or the home buying process, Contact Us.

Home Buying for Beginners - Down Payment Options

2010-06-29T16:28:00.003-04:00

With the mortgage market tightening up over the last couple of years, many people think their only down payment option for a new home is 20% or more. That couldn’t be further from the truth. Surprisingly, there are many options for low down payment loans.

Zero – That’s right, $0 – down loans

Didn’t zero down loans go away with the mortgage meltdown? No way, there are still some terrific zero down programs available.

USDA Rural Development – The United States Department of Agriculture has a Rural Development loan product that is truly zero down. USDA loans come in 2 flavors – Guaranteed and Direct. The Direct program is for low income buyers and is only available through the USDA offices. The Guaranteed program is available through mortgage lenders or brokers and is for low-moderate income families purchasing in rural/semi-rural areas. Aside from not requiring a down payment, these loans have many other advantages. There is no monthly mortgage insurance, interest rates are very low, and the areas of rural eligibility are very liberal.

Veteran’s Administration Loans (VA) – VA loans are for veteran’s, active duty military, reservists/National Guard, and some surviving spouses. This zero down loan program also doesn’t charge monthly mortgage insurance; there are less closing costs, and very low interest rates. One unique advantage right now for military members is the recent tax credit. If you were active duty for more than 90 consecutive days last year, you may have until June of 2011 to collect the home buyer tax credit.

Low Down Payments – 3-5%

Fannie Mae Homepath – Fannie Mae offers a specialized loan program for a select number of their REO homes (homes Fannie owns due to foreclosure). If the property is eligible for a Homepath loan, there are huge advantages, including no appraisal, lower credit requirements, and only a 3% down payment required.

FHA Loans – Federal Housing Administration loans require a 3.5% down payment on all loans. FHA loans allow the funds to come from multiple sources, though, including a gift from family or community grants, which can make it easier to achieve. FHA loans have many advantages, including low interest rates and easier credit qualifications.

Conventional Loans – Fannie Mae and Freddie Mac offer a conventional loan product that only requires 5% down. These loans types are much harder to meet qualifications. Not only do you have to meet the minimum requirements of Fannie or Freddie, but you need to meet any lender specific guidelines along with those of the mortgage insurance company. Mortgage insurance is required, and you must have stellar credit and cash reserves to qualify. These loans aren’t available in all areas.

10% down or more

Once you have 10% down or more, your loan options widen and there are more options without mortgage insurance. FHA even offers a 15 year fixed loan with no mortgage insurance if you put down 10% or more as a down payment. Conventional loans – generally Fannie or Freddie – lose the mortgage insurance after 20% down. After 20% down, things get much easier. Many credit restrictions are lifted and the guidelines loosen considerably.

There are also other loan options available for more unique situations. Just talk to your loan officer about all your options and keep an open mind. It’s important to always look at the whole picture. You don’t just want a loan based on down payment. You want a loan with affordable terms as well, so do your homework on all aspects of the loan.

My mortgage payment went up - but I have a fixed rate?!

2010-06-22T11:09:00.003-04:00

Raise your hand if you've ever received the dreaded "Escrow Analysis" from your mortgage lender? I see it, dozens, hundreds, no thousands of hands are raising right now.

It usually comes once a year and describes which bills, tax and insurance, were paid out of your escrow account and how much money was put into your escrow account each month. Inevitably, there wasn't enough money to cover those bills and keep a cushion, so now your mortgage company is {gasp} raising your payment!

How can they do that? How can they raise your mortgage payment if you have a fixed rate? Well, it's pretty simple actually. When you have an escrow account that collects and disburses your property tax and insurance bills, your mortgage company will collect the amount of your annual bills, plus a cushion in case those bills go up. The maximum cushion allowed by law is 2 months worth of tax and insurance payments and almost all mortgage companies collect the max. If the balance in your escrow account ever dips below that 2 month cushion, your mortgage company will raise your escrow portion of your payment to not only replenish the shortage, but to make sure that the shortage doesn't happen again next year.

How did the escrow account get shorted in the first place? Usually, an escrow account becomes short by rising property tax or insurance bills. It's very common for new home buyers to have their homes reassessed the year following their purchase and find themselves on the receiving end of an increased tax bill. Thus, an increase in mortgage payment. It's especially common with newly constructed homes, because many times, the initial tax bill is based on the land only, and not the new home. Once it's completed and assessed, the tax bill goes up.

What can you do to stop this? There truly isn't anything you can do to prevent an escrow shortage. What you can do, to minimize the damage to your finances, is pay close attention to anything the lender sends you about the account. When your lender informs you of an escrow shortage, they will generally give you the option to pay the shortage in full, instead of increasing your payment. If the shortage is small enough, that's a great option. If the shortage and subsequent higher payment is too much to handle, give your mortgage company a call, they may be willing to spread out the shortage over a longer period of time - 12-36 months - but you have to ask.

Finally, don't forget to review the escrow analysis fully. Mortgage companies, and even local governments make mistakes. Follow up with your local offices to be sure that the tax amounts are correct. If the home is your primary residence, check that you are paying the "homestead" rate, which is much lower than a property that isn't owner occupied. If the tax assessment seems too high, it's time to inquire with your county assessor's office on how to dispute the assessed value. If insurance premiums are the problem, call your agent and review the policy for accuracy. You may even call for additional insurance quotes to try to bring the cost down.

No matter what happens, never stop communicating with your lender. If you find yourself unable to make the higher payments, call them to work something out. If they are unwilling to work with you, refinancing into a more affordable mortgage is always an option.

"I heard the tax credit was extended??!"

2010-06-17T10:29:00.001-04:00

The web is just abuzz today with reports that the Homebuyer Tax Credit has been extended. This is not quite true. In fact, it’s downright misleading. In the first case, the issue on the table is extending the deadline for those already in contract to still be eligible. It would not allow new buyers to take advantage of any credits. Second, it was not approved.

The original proposal, which would extend the deadline for those with executed contracts before April 30, would give until September 30, 2010 to close their loans; extending it 3 months. The Senate actually voted AGAINST it. They did, however, accept it as an Amendment to the Tax Extenders Bill. The Senate Finance Committee just has to rework the proposal, and any amendments will stand, as long as the reworked proposal is approved.

What does this mean for you? This means that if you entered contract on a home before April 30, you could have up until September 30 to close your transaction. For those waiting bank responses on short sales, this is a big relief. Those transactions typically take much longer and are out of the buyer’s hands. It does not change the deadline of April 30 for the contract date. If you don’t have a contract now, you won’t be eligible for a tax credit.

The proposal is likely to be approved with the new amendment, but the House will have to reconsider the new amendment and agree to the final version. It’s hoped that this will be resolved by July 2.

FHA Increasing Annual Premiums

2010-06-15T13:35:00.003-04:00

On June 10, the House of Representatives passed the Federal Housing Administration Reform Act (HR 5072) in a practically unanimous vote of 406-4. This law is intended to boost the reserves held by the FHA, which now insures roughly a third of the nation's mortgages.

This vote just finishes what was started back in April 2010, when the up front mortgage insurance was increased from 1.75% to 2.25%. The passage of the bill allows FHA to increase the annual mortgage insurance premium, which is paid monthly, from .50% or .55% to 1.5% maximum. However, FHA says they only intend to raise it to .9% at this time.

There are some serious pros and cons to this increase. Plain and simple, FHA needs to the money. They went from insuring only 4% of home loans just 4 years ago to almost a third of all home loans today. The reserve fund has plummeted well below the required 2% of all loans, to a miserable .53%. Without some sort of infusion, this program wouldn't last, and housing needs FHA. The passage of this bill is key to stability of this program.

But, at the same time, when it's harder than ever to qualify for a loan, raising mortgage insurance premiums just makes housing less and less affordable for the little guy. In the Midwest, median home prices in April of 2010 were $146,400 according to www.realtor.org. Currently, if you put down 3.5% on a home at that price, you would pay $66 per month in monthly mortgage insurance premium. Under the new guidelines, if it raised to .9% as FHA reports, the monthly premium raises to $108 - a difference of $42. That doesn't sound like much, but it can severely cut back what a buyer qualifies. A person that qualified for a maximum loan of 200,000 now will be cut back to 189,000.

One pro to this bill passage is actually what wasn't said. The House actually defeated the proposal to raise the minimum down payment on FHA loans to 5%. It also shot down an amendment to lower the FHA loan limits, and an amendment to limit FHA's market share.

The proposal to increase the down payments was the most hotly debated. The Mortgage Bankers Association, National Association of Home Builders, and the National Association of Realtors all made efforts to successfully squash the proposal. In compromise, a provision was injected into the bill that would require FHA to reexamine down payment requirements annually and submit the findings to Congress each year.

The big questions now is what will become of the up front mortgage insurance premium? FHA is saying that with the annual premiums raised, they can afford to slash the up front costs; possibly to as little as 1%. Since this fee is almost always financed on top of the loan amount, reducing it by this much will help take back some of the affordability that is lost by increasing the monthly payments.

Only time will tell. If you'd like to learn more about FHA changes, Contact Us.

How do I choose a real estate agent?

2010-06-09T10:46:00.002-04:00

If you don’t know anyone in the real estate business, how do you choose a real estate agent? It doesn’t have to be a drawn out process. Try these easy steps:

Start by asking friends or family for a personal referral. If you know someone has had a good experience with a person, chances are good you will, too. If you can’t find a personal referral, speak to your loan officer about a referral. Arbor Mortgage has a list of Preferred Real Estate Agents all over the state of Michigan. Try to interview a couple of agents to find a good fit.

Gauge the agents level of expertise by how many/what questions they ask you. Try to let them direct the conversation; it will tell you a lot. Example: Are they positive in their outlook of market or down right away about your ability to sell? You don’t want someone too eager to tell you what you want to hear, but at the same time, there are agents that don’t want to put the work in on the tougher or lower dollar cases. Use your judgment about their attitude and level of excitement.

Do they talk money right away? Or are they asking personal questions about your lifestyle? Good agents will want to find out all they can about you first, to help you make the right choices, before they even bring up sale prices or commissions.

Are they on their phone during your meeting or do you have their undivided attention?

How much do they talk about themselves? You want someone successful, but not an egomaniac.

Ask how long they've been in the business. You want some with a good level of experience.
Ask how many transactions they close per month. You want to know that they are closing at least a few a month, but not too many. They might be great, but you might not get the level of attention you want.

What hours are they available? You want a full time agent that can work your schedule. Also, ask them when you expect to hear from them. You want to set expectations for regular contact.

If selling your home, ask about their marketing plan.

Are they using the most up to date tools/technology available?
How will prospective buyers find your house?
Will they be doing open houses – why or why not? Open houses aren’t a necessity depending on the market, but you want to know their reasoning. You’ll know if it makes sense.
Ask them for a comparative marketing analysis, so you can see what price other homes have sold or are listed.

If buying a home, avoid "dual agencies" when possible. A dual agency is when the agent represents both the buyer and the seller in the transaction. You want an agent that works only for your interests, not the seller's.

Above all, go with your gut. Is the person friendly, knowledgeable, easily accessible and passionate about their work? If so, you’ve found your guy/gal.

First Time Home Buyers - Where Do I Start??

2010-06-01T10:55:00.006-04:00

The most stressful step for a first time home buyer is often the first one. Where do you start the home buying process? It’s not as daunting as it seems. Let’s walk through the home buying process step by step.

Step 1 – Become Pre-Approved for Financing

Many new home buyers make the mistake of looking at homes first, before becoming pre-approved for financing. They could spend countless hours finding just the right home, only to find out they don’t qualify for a home loan. For this reason, many real estate agents won’t even start working with a client until they know that they can be approved for a mortgage.

Your first phone call should always be to a trusted financing source. Many people ask, “How do I pick a lender?” Start by asking your friends and family for a referral to someone they have worked with successfully. Try getting at least 3 options, and then research those companies. Be sure to call them all on the same day for quotes when you’re ready to be pre-approved. Calling them the same day solves two problems; it ensures that you are getting “apples to apples” pricing from each (since pricing changes every day) and it ensures that your credit pulls will all be grouped together and only count as 1 mortgage pull. If you don’t have any friends or family that can refer you to someone, you can still check online or your phone book; just be sure to research the company with places like the Better Business Bureau.

Step 2 – Choose a Buyer’s Agent

First time home buyers can be reluctant to work with a real estate agent for their buying needs because they are afraid of the cost. What they don’t know is that most often, it doesn’t cost anything! That’s right; home buyers usually pay $0 to work with a buyer’s agent. In most circumstances, the seller pays all the real estate agents involved by taking the agreed upon commission to their agent, and splitting it between the 2 agents.

The advantage to working with a buyer’s agent is that you will have someone that works exclusively for you; writing a contract with YOUR best interests in mind. When you work with the listing agent on a property, that agent has a fiduciary duty to the seller. This means it’s their job to make sure the seller gets the best deal possible, NOT YOU.

When choosing a buyer’s agent, use the same tactic of asking your friends and family for a referral. If that doesn’t work, your loan officer will always have a list of preferred agents that he knows give great service.

Step 3 – Find a Home

Now it’s time to put that buyer’s agent to work. Give your buyer’s agent your list of requirements for a new home and let them provide you with suggested listings to view. Don’t forget to research your chosen area fully for things like school systems, crime rates, and amenities. Maybe you want to be in the country, 10 miles away from the closest fast food joint. Or, maybe you need to be right in the heart of the city, just blocks from every hot spot. Either way, remember to not just research the home, but also the community.

Step 4 – Write a Contract

Even though your buyer’s agent is working directly for you to write the purchase contract, always read everything you are signing. There are certain things you want to make sure are included in your contract. Items to watch for:

Do you want the seller to pay your closing costs? This needs to be written into the contract, either as a percentage or a dollar amount.

Earnest Money – how much money is the seller asking for up front with the contract? Earnest money shows the seller that you are serious about purchasing their home. If you walk away from the contract, you forfeit that money to the seller; unless there are contingencies

Contingencies – There should always be at least 3 contingencies written into the contract for appraisal, inspection and financing. That way, if the house doesn’t appraise for the sales price, or if the inspection turns up something unacceptable, or if your financing falls through, you can always walk away from the deal with your earnest money intact.

Step 5 – Full Loan Application and Conditional Approval

Once a purchase contract has been executed, the hard work begins. Your full loan application with your loan officer must be completed and processed for approval. The most important part of this process for you is to follow your loan officer’s directions as quickly as possible. It will feel like they are asking your life story, but try not to get frustrated. The state of mortgage financing today causes banks to be much more cautious in approving loans, so they ask for a lot more documentation to be sure you’ll be able to make the payments. Just turn in whatever documents are requested as quickly as you can, and your loan will be processed a lot smoother.

During this part of the process, be sure you are asking as many questions as you need, and hold your loan officer accountable to answer them promptly. The one thing that makes this part easier for all parties is communication. Keep in constant touch, and ask questions when you don’t understand something.

Once the loan officer has all the items they need, which can include application, appraisal, title search and more, the loan will be submitted to underwriting. The underwriter will review the file and provide a conditional approval. This is an approval with conditions that must be met in order for final approval to be issued. Conditions can be a variety of items from a letter of explanation to an updated pay stub or even additional information on the appraisal. If the underwriter requests something of you, just be sure to get it back to your loan officer as soon as possible.

Step 6 – Final Approval and Closing

Once the conditions have been cleared on the approval, a final approval and clear to close is issued by the underwriter. This is when the closing is scheduled. Bring your identification to the closing along with all people on the purchase contract to sign the documents. Not all purchase loans will fund on the same day the documents are signed. You will officially own the home (and get the keys!) once the loan funds.

Step 7 – Party at Your House!

For more information on first time home buyer programs Contact Us.

USDA back to issuing Conditional Commitments

2010-05-28T09:12:00.000-04:00

Breaking News! (again)

The USDA is back to issuing conditional commitments on loans. The Emergency Supplemental Appropriations bill passed on 5/27, giving up to $2.5 billion in funds to the program. However, the bill referring to the program itself has not yet been addressed in the Senate, so we aren't sure what the actual Guarantee Fee will be. The majority assumption for the time being, seems to be 3.5%.

Stay tuned....

USDA Will Be Issuing Conditional Commitments at Fund Exhaustion

2010-05-12T08:02:00.005-04:00

UPDATE: 5/25 - Senate convenes today at 10:00 am for consideration of HR 4899, Emergency Supplemental Appropriations

UPDATE: 5/14 - Funds are now officially exhausted for this program and there is STILL no further guidance.

UPDATE: 5/12 - USDA recalled their announcement to continue issuing conditional commitments in the wake of fund exhaustion. Their bulletin states that new guidance will be issued within 24-48 hours of that date. Back to the waiting game!

Funds for the USDA RD Guarantee program are likely exhausted today (or will be shortly). No word on the bill in the Senate to increase funding to the program. The good news is that on May 11, 2010, the USDA National Office released a statement authorizing the issuance of Conditional Commitments for the Single Family Guaranteed Loan Program. The Commitments will be issued "subject to the availability of funds and Congressional Authority to charge a 3.5 percent guarantee fee for purchase loans and a 2.25 percent guarantee fee for refinance loans".

What this means is that the Rural Development offices will continue to accept applications and issue commitments. Lenders can continue to close and fund these loans with those commitments. RD will "obligate" funds for those loans when they become available, as long as Congress authorizes the increase in funds and fees.

The big change here, of course, is the increase in Guarantee Fee to 3.5%. This was certainly expected based on the bill currently in the Senate, but now we're seeing it right from the horse's mouth - RD. Anyone who hasn't closed their RD loan yet, will be paying more for the program. It still is a small price to pay for a 0 down payment loan program with no mortgage insurance.

For more information on the USDA Rural Development loan program, Contact Us.

Funds for USDA Rural Development Loans Likely Extended

2010-04-28T16:23:00.001-04:00

One of the best, and most under appreciated, home purchase loans today is the USDA Rural Development Section 502 Guaranteed loan. This program is a $0 down purchase loan intended for rural America. These loans are for buyers with low to moderate income that are purchasing homes that fall within the USDA’s rural maps. The maps happen to be very outdated, meaning that there are many places you or I wouldn’t consider rural, that actually qualify for 100% financing.

These loans aren’t just great for buyers, but for lenders, too. The lender funds the loan, but the USDA Guarantees it up to 90% of the original loan amount – that’s far and away better than conventional mortgage insurance. Guarantee funds aren’t unlimited, though. In the past, it has taken an act of Congress each year to appropriate funds for the program.

With credit becoming tighter every day, more and more people are turning to this (used to be) little know loan product to secure $0 down financing. As a result, those congressionally appointed funds are running out faster and faster. In 2009, the program ran out of funds midyear, only to be funded again by the stimulus package. Funds are again running low and are not expected to be available past May. Many lenders stopped taking applications a month ago, in anticipation of the funds being drained, with no hope for Congress to step in.

Luckily, there has been a new bill introduced to turn the USDA into a self funded program. H.R. 5017 has already been approved by the House of Representatives, but has not yet been introduced in the Senate. The bill authorizes up to $30 billion in loans during the 2010 fiscal year. In order to make the program self-funded, the Guarantee fee, paid by the home buyer, would be increased from 2% to as much as 4%. While this is a hefty fee increase, this is one of few programs with no monthly mortgage insurance, even at 100% financing.

This bill is more important than ever, because this loan program aids an under served community. Lower income families in rural communities often have less financing options than those in urban areas. This program is also the only option for many people to secure 100% financing. Loan guidelines allow buyers to finance their closing costs and even appliance purchases up to the appraised value of the home. There is no other loan program like it.

For more information on USDA Rural Development loans, Contact Us.

When can I get a new loan after foreclosure or short sale?

2010-04-20T12:31:00.007-04:00

Everyone understands that a foreclosure is bad for your credit. But, how bad? How long before someone will lend to you again? There’s a common misconception that it needs to fall off your credit report all together, which could take 7-10 years. Good news is the wait is actually much shorter than that.

Foreclosure/Short Sale Waiting Periods

Event	Wait for FHA	Wait for VA	Wait for Fannie Mae (FNMA)
Foreclosure	3 years	2 years	5 years
Short Sale	3 years (if late pays) No wait (if no late pays)	2 years	2 years (w/ 20% down) 4 years (w/ 10% down) 7 years (w/ less than 10% down)
**These guidelines are as of the day posted, and are subject to change at any time without notice

Exceptions can be made to gain an approval in a lesser period of time if the foreclosure event was due to extenuating circumstances beyond a borrower’s control. Death of a wage earner, or severe medical issue could possibly fall under that category. Whatever the event, be sure it’s well documented and that your current credit is in good standing.

Now, just because it’s possible, doesn’t mean you can find a lender to approve it. Each lender has their own unique set of guidelines that they enforce on top of the minimum standards set by the FHA, VA and FNMA. Lenders are allowed to set stricter guidelines and many do just that. While FHA may allow loans to those that had no late payments during their short sale, most lenders will not approve it outside 3 years. If your situation is a little outside the box, it may take some extra leg work to find a lender that will consider it.

If you’re still under the minimum wait period before you can buy your next home, then it’s time to work on your credit and savings. Do everything you can during that wait period to save up a decent reserve fund, and make good on any outstanding obligations. Good credit, with a solid pay history, and adequate liquid reserves will make you a much more attractive borrower to a lender that might have to make an exception to get you approved.

And, remember, mortgage guidelines change regularly, so, always do your homework to be sure the programs we’ve listed here are still accurate.

Divorce - How do I remove my name from the mortgage?

2010-04-12T16:26:00.004-04:00

Divorce is a rough time for anyone; causing squabbles over the tiniest of details. The home and mortgage, however, is not a tiny detail. It is likely the largest debt in play. If both spouse’s names are on a mortgage how do you remove the other spouse’s liability?

It is a common misunderstanding that if the marital home is awarded to one spouse in a divorce, the other spouse is free and clear of that debt. Not true at all. Even if you remove a name from title of the home, if that person is still on the mortgage note, they are still responsible for that debt. This means that the mortgage will remain on both credit reports making it near impossible for the other spouse to obtain a new mortgage. Or, even worse, if one spouse stops paying the mortgage, it will damage BOTH credit ratings.

There are 2 main ways to absolve someone of their mortgage responsibilities – Sell or Refinance. If selling isn’t an option, it’s time to look at refinancing. The spouse retaining the home does have to credit qualify for a loan, and they have to be able to handle the payments on only their income. The home will have to be appraised and any equity can be used to “buy out” the other spouse per the divorce decree.

The important thing here is to not just ignore this because one spouse says they will make the payments. Address the mortgage debt early on, and be sure the time line for refinancing is clearly spelled out. For additional help on divorce related refinances Contact Us.

**This post is information in purpose and not intended to be legal advice. Please pose all legal questions to a qualified professional.

Who is honoring the FHA “Flipping Waiver”?

2010-04-06T12:13:00.006-04:00

Effective February 1, 2010, HUD has suspended the rule that prevented a buyer from obtaining FHA financing on a home which had been owned by a seller for less than 90 days. This guideline was commonly called “the anti-flip rule”. This suspension of the rule or “flipping waiver” is valid for 12 months and is a boon for real estate investors because they can now turn their flips much more quickly by opening up the huge pool of FHA buyers.

Now, this may seem like old news – it’s April already, and this has been out for 2 months. Yet, the lending canvas has been strangely silent on it. Many lenders just aren’t allowing it. They are refusing to honor the flip waivers, because they see the limited time the seller owns the home as a large risk, and possibly an easy area for fraud.

Yet there are a vast number of investors scooping up properties at fire sale, and turning them quickly into habitable homes. These properties are well worth the increased cost. Now, there are stipulations to the flip waiver. Guidelines include:

If the sales price is more than 20% over what the seller paid for the property, the seller will have to show proof of the improvements made to the home to justify the higher price.
The home sale must be at arm's length, which means there can be no close relationship between the buyer and seller
There can be no pattern of flipping in the previous 12 months, which is evidenced by numerous title changes.
The Home Equity Conversion Mortgage for Purchase program is excluded from the waiver. This program is for senior citizens to use a Reverse Mortgage to purchase a home.
The 90-day time period might may vary, depending on when the previous sale was recorded and when the purchase contract is signed.

The good news? Arbor Mortgage is able to fund these loans. So, if you are an investor in need of a financing source, or a buyer looking to purchase the home of your dreams, Contact Us today for more information.

Can I even get a loan?

2010-03-31T09:23:00.010-04:00

The most common question we get at Arbor Mortgage is “Can I even get a loan?”. Mortgage loans are about the 3 C’s – Credit, Capacity and Collateral. Collateral, or the home being secured by the loan, is most often not in the client’s control. Credit and Capacity (or ability to pay/income), however, are in the client’s control. So, let’s talk about what YOU can do to make yourself approvable.

Credit

Most lenders are requiring at least a 620 credit score in order to obtain a mortgage loan. 620 is not a magic number, though. Lenders are still looking at the actual credit history as well. It’s important to have at least 1 year “clean”; meaning no late payments in the last year. If there are late payments in the last year, be prepared to explain and document them.

Collections and judgments are often problems, even for those with higher credit scores. Judgments must be satisfied before any mortgage lender will even consider you. Collections are more of a gray area. Government guidelines do allow collections to remain open, but most lenders like to see them paid, especially if they exceed $1000. Disputing collections is one technique that many credit repair companies used in the past to try to remove them. Fannie Mae has since caught on to that trick and will flag any collections in dispute by downgrading the file to a manual underwrite. Manual underwrite might as well be a decline, because most lenders refuse to approve them.

Bankruptcies and Foreclosures are two items that have come under heavier scrutiny in the last year. Conventional mortgages will require at least 5 years have elapsed since a discharged bankruptcy and 4 years since a foreclosure. FHA is a little more lenient, allowing for just 2 years for bankruptcy (or only 1 year with extenuating circumstances) and 3 years for foreclosure. There better not be any late payments after a bankruptcy or foreclosure, though, because many underwriters will immediately reject the file.

Income

People are often shocked at the amount of documentation they are asked for when it comes to their employment. Why? Doesn’t it make sense if you’re borrowing 6 figures or more that the bank would want to know that you have the ability to pay it back? Trust me, the banks aren’t trying to be intrusive and ask for everything down to a DNA sample. They just want to know you can make the payment. The type of documentation you have to provide varies for the type of employment.

W2’d employees (who do not own their own business or receive a 1099)

You must show a 2 year history of employment. It doesn’t have to be the same job, and it can even be several jobs. The lenders just want to see a consistent history of employment, with no lengthy job gaps. If you had a week or 2 between jobs; no big deal. 6 months? That might be a problem. To prove your employment, you’ll be asked to show:

Last month’s worth of paystubs
2 years W2’s
2 months bank statements or other asset statements

Self Employed (own your business or receive a 1099)

Again, a 2 year history is a must, especially for self employment. If you’ve only been on a 1099 at your job for 6 months, you are likely to be declined. Each lender has their own requirements for documentation on a self employed borrower, but at minimum, expect to show:

2 years tax returns
A year to date profit and loss statement
2 months bank statements or other asset statements

Keep in mind, the lender will still pull a copy of your tax return transcripts from the IRS to match to your documentation. So, don’t leave anything out when providing documents to your loan officer.

What’s Next?

If your credit history meets the basic guidelines above and you can provide all the income documents mentioned, than you have a very good shot of loan approval. That means it’s time to talk to a loan officer about the next step. Pre approvals are always free at Arbor Mortgage, so Contact Us today to get yours!

Help! I owe more than my house is worth.

2010-03-23T08:25:00.011-04:00

Many will argue that the biggest problem affecting mortgage lending today is declining property values. According to First American Core Logic’s Negative Equity report, more than 1 and 4 families are underwater on their mortgage; meaning that they owe more than the property is worth. Michigan is actually fourth in the nation with 38.5% of mortgages underwater. These are the same people that are struggling with today’s other problems; unemployment and underemployment. At a time when home owner’s need lower payments to survive, and the interest rates are actually low enough to make that happen, people think they will never get approved because their home value is diminished.

This is simply not true. Cue “short refinance”, with the glowing white light and “hallelujah” chorus. What is a “short refinance”? Much like a short sale, it’s when a bank or lending institution takes less than the full balance of the loan as payment in full. In the case of a refinance, they provide a payoff to the new lender for the lesser balance and they write off the difference.

Is it as simple as it sounds? Yes and no. Yes, it is as simple as asking for that payoff reduction. But, no, it is not quite as simple as just sitting back and waiting for the faxed payoff to show up. Your new loan officer will have to work hand in hand with you and your current lender to negotiate the payoff and it may take as little as 3 weeks, to as many as 3 months to actually hammer out a deal. This is where it’s important to work with a loan officer with experience in short negotiations, who is willing to spend the time and extra service to you.

Heath Haslam, Senior Loan Officer for Arbor Mortgage, says, “If you don’t ask, you don’t receive. Even if it sounds crazy, give it a try. I asked a major national lender to forgive $96,000 on a mortgage balance, and unbelievably, they said yes! That homeowner now has a payment that’s $1000 less than her previous loan.”

The other issue is that you still have to qualify for the new refinance in every other way. If your credit scores are too low, your outstanding consumer debt payments too high, or you’re currently behind on the mortgage, you likely won’t qualify for a new loan.

It’s time to put this in perspective, if your credit score is over 620, you can make your other payments on time, and you believe you’re “underwater” on your mortgage, it’s time to look into a short refinance. Start by contacting Arbor Mortgage at www.arbormortgage.com/contactus.

FHA Announces Major Changes

2010-01-26T16:34:00.002-05:00

On January 20, 2010 the Federal Housing Administration (FHA) commissioner David Stevens announced a set of policy changes that will tighten the qualifications even further, making it even harder to obtain a government backed mortgage.

The first change to take effect will be the increase in mortgage insurance premium (MIP). The increase is to build up the agency’s reserves. On April 5, 2010, the premium will increase from 1.75% to 2.25% of the loan amount for single family programs with certain exceptions. This adds $500 to every $100,000 of mortgage loan to a borrower’s closing costs.

Another proposed change requires a minimum credit score for FHA’s 3.5% down payment program. If a buyer has less than a 580 credit score, a down payment of up to 10% may be necessary. According to the Department of Housing and Urban Development (press release HUD No. 10-016), “This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer”.

One last change expected for early this summer is the reduction of money a seller is allowed to provide a home buyer for closing costs. Under the current FHA guidelines, a seller can give back up to 6% of the sales price to cover closing costs and prepaid items. The proposed change would reduce that amount to 3%.

For areas hardest hit by declining values, this will be the toughest change to endure. For example, at the end of 2009, the average home price in Western Michigan per the National Association of Realtors® was $97,000. Under the current guidelines, a seller could give up to $5820 back to the buyer to cover settlement charges. Once this change is imposed, the seller contributions allowed would only be $2910, not providing enough to cover all the costs and prepaid items involved. This means buyers are going to have to save even more money to be able to cover their minimum down payments and closings costs come summer.

With these changes fast approaching, and the home buyer tax credits slated to expire at the end of April, now is the time to purchase a new home. Signing a purchase contract before April will help you spend less on a home, and get money back at tax time!

How to Shop for the Lowest Interest Rate

2009-12-22T15:13:00.013-05:00

A home mortgage is the single biggest purchase that most people will make in their lifetime. Yet, most people put more effort into pricing a flat screen TV than shopping for a mortgage. One of the reasons is the sheer complexity of something as small as the mortgage interest rate. There are so many factors that determine your interest rate, that it can be hard for the average consumer to know where to start when mortgage shopping. We’re going to break down what goes into determining your interest rate and how you can use that knowledge to shop for the best mortgage.

1. Know what factors determine an interest rate:

Credit Score

The first thing any lender looks at is your credit scores. Most mortgage lenders pull a tri-merge credit report. This is a credit report that shows all 3 major credit bureau scores. Lenders use the middle of those three scores to determine your qualifications. The higher the credit score, the lower the interest rate. To qualify for conventional or government loan programs, you’ll want to have greater than a 620 middle score. FHA pricing doesn’t vary much by score, but conventional loan pricing can vary wildly. For the very best rates, you’ll want to have a 740 middle score or better. To find out where you stand, start with getting your own free credit report at www.annualcreditreport.com. This report won’t give you the scores, though. For that, www.myfico.com has the closest model to the report mortgage lenders pull.

Loan Size

Is your loan amount under $100,000 or over $417,000? Expect to be charged slightly higher rates in these cases.

Loan to Value or LTV

Your loan to value is the ratio of your loan amount to the value of your home. If you are borrowing 80% of your home’s value or less, then the best conventional interest rates should be available to you. The higher you get above 80%, the worse your interest rate will get. For government financing, loan to value does not affect interest rate. So, if your loan to value is over 80% and you don’t like the interest rate offered, ask to see the price on an FHA or other government loan. It may be better.

Loan purpose

If you are taking cash out on your refinance, there will be a penalty to the interest rate for that. Purchase loans and rate and term refinances won’t see a change.

Rate lock period

The shorter you are able to lock your interest rate, the better the rate. Be careful, though, that you don’t ask for too short of a lock period. If you have to extend the lock, it could end up costing you more than if you just chose the longer lock to begin with.

2. Know what loan program and loan purpose you are being quoted and only compare like programs.

Don’t compare a FHA cash out refinance to a conventional rate and term refinance. Interest rates and closing costs will vary wildly between the two products and you’ll never know which lender actually had the better deal. Only compare when the loan program and purpose are exactly the same.

3. Ask for good faith or initial fee estimates on the same day.

Interest rates change daily, so if you look at fee estimates from differing days you won’t be able to guarantee which is the best. Unless a rate is locked, it is only good on the day it’s quoted. Don’t compare last week’s quote to todays, because last week’s may not even be available any longer.

4. When comparing offers, compare origination charges (including all processing, underwriting, lender, administration and commitment fees), discount points and interest rates.

These are the only items that the lender controls. Third party charges like credit report, appraisal fees, title fees, and flood certifications are not set by the lender and should be similar with all lenders. Pre paid items such as escrow start up and prepaid interest are also not set by the lender and shouldn’t vary.

When taking all of the above into account, you may have an edge on finding the lowest interest rate. Don’t confuse lowest interest rate with best deal, though. There are many other things to consider when shopping for a mortgage, like customer service and expertise. Did your loan officer return your calls promptly? Explain everything thoroughly? Sound knowledgeable about their products? If the answer is “no” to any of those questions, you may find yourself with other obstacles in your home loan process that make closing difficult. Take a look at the entire picture when shopping; interest rate, closing costs, customer service and expertise. This will ensure you don’t just get the lowest price, but the easiest closing as well.

Have questions about the homebuyer tax credit? Here's some answers!

2009-12-18T16:36:00.000-05:00

Prospective home buyers have a unique opportunity under the newly expanded government tax credit program. First time and repeat home buyers can gain up to 10% of the home’s purchase price as a refundable tax credit. First time buyers can claim up to a maximum of $8000, while repeat buyers are limited to a maximum of $6500. A refundable tax credit is a credit that can be claimed on income taxes even if the taxpayer has little to no federal income tax to offset.

Each credit has its own qualifications. Below is a list of key points to help you determine if you may qualify.

The refundable tax credit of up to $8000 is available for first time home buyers (anyone who hasn’t owned a principal residence in the last 3 years) purchasing a primary residence before April 30, 2010. In the case where a legal sales contract has been executed by April 30, 2010, the purchase would only have to be completed by June 30, 2010.

The refundable tax credit of up to $6500 is available for repeat home buyers who have owned a home for at least 5 consecutive out of the last 8 years. This tax credit only applies to homes sold between November 6, 2009 and April 30, 2010. In the case where a legal sales contract has been executed by April 30, 2010, the purchase would only have to be completed by June 30, 2010.

The income limits enacted on November 6, 2009 require a single home buyer to make less than $125,000 per year and for married couples filing jointly to make less than $225,000 per year to receive the full credit.

If you currently make more than the income limits, a partial credit may be available. See the IRS website or speak to a tax professional for more information.

Any home type that will be used as a primary residence will qualify, but the home must be priced under $800,000 in order to claim either credit. New home builds also qualify for the credits, but the settlement must be completed by April 30, 2010.

Purchases must be made from an uninterested third party. Purchases from relatives of the buyer or buyer’s spouse will not qualify for the credit.

Married couples can only claim the first time home buyer credit if both spouses qualify. They may be eligible for the repeat home buyer credit, though.

Neither tax credit has to be repaid, unless the home is sold or is no longer used as the buyer’s primary residence with the first 3 years of purchase. Qualified service members may be exempt from this requirement.

To claim either credit, taxpayers must submit a copy of the HUD-1 settlement statement and IRS Form 5405. Home purchases made in 2010 can be claimed on an amended 2009 tax return. See a tax professional for more details.

The above information is for general use only and should not be construed as professional tax, legal or accounting advice. This information is no substitute for professional tax or legal advice and a professional should be consulted before making any decisions. This information is provided as-is and no warranties or guarantees are made as to the completeness, accuracy or timeliness of the information.

Top 5 Home Buying Mistakes

2009-12-17T14:25:00.001-05:00

Buying a home is the single biggest purchase you will make in your lifetime. The process isn’t always easy, and little mistakes can lead to costly regrets down the line. Use this list of top 5 home buying mistakes to help you make all the right moves in your home purchase.

Not getting pre-approved for a mortgage
It’s important to know whether or not you qualify for the financing you need. If you look at homes before knowing if you’re financeable and for how much, you could end up with a lot of time wasted.
Not using a buyer’s agent
A buyer’s agent is a real estate agent that works exclusively for the buyer, negotiating the best possible price and watching out for only your interests in any contract. What’s the best part about using a buyer’s agent? It’s free to you, since the seller pays any real estate agent commission. Arbor Mortgage provides a list of Preferred Real Estate Agents during your pre-approval.
Not getting a home inspection
Even if the house is brand new, there is bound to be something that needs attention, so never forgo a home inspection. A good inspector will look for possible costly problems, such as mold, structural issues, and hidden damage.
Not adding contingencies to your contract
Never enter into a contract that doesn’t have contingencies in place to protect you. There should be an inspection contingency, allowing you terminate the contract if the house isn’t inspected to your liking. There should also be a financing contingency in case any problems occur with your mortgage financing.
Not researching the neighborhood
You may be a young married couple now with no children, but what happens when the family starts to expand? How are the schools in the neighborhood? Is it safe at night there? Visit the home at all hours of the day and find out all you can about the town amenities and public works.

Making a successful move; address the tiny details early.

2009-12-15T13:45:00.000-05:00

When purchasing a home, there are many aspects to consider that may make the moving process stressful. Arrange for the following to be handled before moving, so you can be sure to have a smooth transition.

Notify Utilities
Forward Mail
Verify cell phone coverage
Change locks
Arrange home & lawn maintenance needs
Test smoke detectors
Change furnace filters

With these items arranged ahead of time, you can focus on the more important things; like planning the housewarming party!

53% of mortgage applications are denied nationwide. How can YOU get approved?

2009-12-11T10:44:00.000-05:00

In today’s shaky real estate and financial markets, it’s harder than ever to get approved for a mortgage. Mortgage application denials are often avoidable. Here are the top 4 reasons your mortgage application could be denied and how to avoid them.

1. Not getting pre-qualified
Always get pre-qualified for a home loan before you begin shopping. This will include a credit and income review and let you know what price range you should be shopping. Arbor Mortgage provides a free qualification in minutes. Knowing your qualifications up front will take a lot of guess work out of the process.

2. Changing or quitting your job
A stable job history is key to gaining mortgage approval. The underwriter will want to see a 2 year employment history. If you’ve started a new job, they will insist on seeing paycheck stubs from the new job, likely delaying your closing. Only change jobs during the mortgage process if it’s in the same line of work. Otherwise, wait until after you’ve obtained the mortgage.

3. Making a major purchase
Never finance a large purchase during the mortgage process. Buying a new car or boat, or maxing out your credit cards holiday shopping can greatly raise your debt to income ratio. When that ratio gets too high, your loan will be denied.

4. Not setting a budget
Purchasing a home isn’t just about a principal and interest payment on a mortgage. There are property taxes, homeowners insurance, maintenance, repairs and more. Know what you can afford and be aware of all the costs involved; from the mortgage payment to the utilities, to the cost of your first lawnmower.