USDA Changes - October 1, 2011

Most every USDA lender will be temporarily halting USDA originations ahead of the pending fee changes that will become effective October 1st, 2011.

These changes include the following:

1. Up front funding fee will be reduced from 3.5% to 2% for purchases, and 1% for refinances.

2. The addition of a monthly loan fee of .30% will be added to the program.

USDA lenders will need time to set-up systems to handle the new fee structure and, from what we have been reading, this will take between 2 and 4 weeks to accomplish. For current files in process there will be no impact of the new fees. If you have additional questions please call or email us.

Demystify Selling A Home with VA Financing

  There was a time when selling a home with VA financing was a monumental task; taking several weeks longer due to appraisal issues and costing sellers more in closing costs. The net result was Sellers and Realtor's shying away from VA buyers. After many changes to this loan product, we are now able to complete transactions quickly and efficiently. To accomplish this, it is important to understand what needs to be done up front. We will discuss in this post the updates to the program and how to smoothly assist both buyers and seller through the process. At the end of this post are some facts that you may find helpful as well.

  As Real Estate Professionals become more comfortable and confident with this type of loan they will find them a great way to increase sales. Lets address some of the misconceptions:

MYTH 1

“VA LOANS TAKE 90 DAYS TO CLOSE BECAUSE THEY NEED TO BE UNDERWRITTEN BY THE VETERANS ADMINISTRATION.”

  This is false. An approved VA Lender is the one that performs the underwriting the same as FHA and any conventional loan. Of course, there are VA guidelines that must be adhered to. This process is not any longer than any traditional or government loan. Most VA lenders have teams of underwriters and processor that focus solely on VA loan files; making this process as fast as possible.

MYTH 2

“THE CLOSING COSTS FOR THE SELLER ARE MUCH HIGHER IF THE BUYER USES VA FOR FINANCING.”

  There was a time when the Seller was saddled with many of the non-traditional closing costs making a VA buyer unattractive to sellers and their Realtors. THAT HAS NOW CHANGED. The ONLY fees that the Veteran is NOT allowed to pay for are:

1. Pest/Termite Inspection

2. Septic Inspection – If Applicable

3. Well Inspection – If Applicable

  The seller has the right to select any reputable company that is licensed and/or authorized to perform and certify the inspections. VA requires the applicable National Pest Management Association form (NPMA-33, NPCA-99A, NPCA-99b) completed by the pest inspection company performing the inspection.

MYTH 3

“WRITING A PURCHASE AND SALES AGREEMENT THAT INCLUDES A VA LOAN IS A NIGHTMARE.”

  This is another big change from the past. There are THREE items that MUST be in every VA associated Purchase and Sales Agreement as follows:

1.      Must be contingent on Buyer obtaining VA Financing

2.      Escape Clause is Mandatory

3.      Seller must pay for PEST, SEPTIC (if needed) and WELL (if needed) inspections

 

MYTH 4

“SELLER MUST CONTRIBUTE TOWARDS SELLERS CLOSING COSTS.”

  While sellers are allowed to contribute up to 4% towards buyers closing costs, it is not mandatory. If seller concession are to be included as part of a contract, the wording should be as listed below:

“Seller to contribute up to __% towards Buyers pre-paids,
closing costs and non-allowables”

  It is important to point out that the inspections listed in the section above that CAN NOT be paid by the Veteran CAN NOT be included within the concession percentage.

INTERESTING FACTS ABOUT VA LOANS

There are over 24 Million Veterans living in the US today; only 10% have used VA to buy a home.

Of the remaining Veterans, 800,000 of them will not qualify for a traditional home loan.

The average VA loan is $209,395.

More than 350,000 VA transactions will close per year.

Every Veteran must obtain a DD-214. This can be done online or by downloading a form. Here are the links:

ONLINE DD-214 REQUEST

LINK TO DOWNLOAD FORM

  As always, if you ever have any questions or need assistance with a transaction please feel free to email or call us.

Interesting Economic Numbers

Funny how there are some very positive things happening with our economy and US businesses, but they are hard to find. I will admit that any positive news is being shrouded by the current Debit Ceiling issues, but they are worth looking and talking about.

Of the 231 U.S. companies have reported earnings, 181 had positive surprises, and 47 negative. The average surprise was an astounding gain of +7.12%

Comparatively, of the 127 European companies reporting, 59 had positive surprises, and 56 negative. The average surprise being a decline of -1.36%

Additionally, the U.S. dollar surged against the euro yesterday, trading at $1.4358. Albeit a small surge, more like a swell I would say, it is still good.

Treasuries were mixed, yield on the 10-year note at 2.981%. This is good news for 15 and 30 year interest rates as it continues its downward trend since the beginning of the year when it was 3.36%.

The best advice I was ever given was to "Question Everything, and Do Your Own Research." We have become a society of sound bite news and sensational events. Dig-in and take time to truly understand what is happening around us.

Mortgage rates fall again - Real Estate - ReviewJournal.com

Great news for interest rates!

Mortgage rates fall again - Real Estate - ReviewJournal.com

Buying A Home While Owning Another

Listed below are some additional terms used when referencing these types of transactions.

Vacating Primary Residence

Primary to Rental

Conversion to Investment

Conversion to Rental

Conversion to Second Home

There are essentially two types of borrowers in this situation:

Those that are Over-Mortgage (No Equity) and those that have equity, but want to retain their current home.

OVER-MORTGAGED

Here’s a common scenario in today’s market. A borrower owns a home that is currently their primary residence. There is a mortgage of $230,000 but the property is worth $140,000 in the current market. They see a newer home for $180,000 that is bigger and in a nicer neighborhood; so they decide to take advantage of the lower prices and buy another home.

Some borrowers plan to buy the newer home and then let the current one foreclose. This is called “Buy-and-Bail” in the industry. This type of transaction, while not illegal, is highly unethical. I would encourage anyone contemplating a buy-and-bail to avoid it at all costs. There are many reasons to avoid this; most importantly is the legal liability of what they are doing. To accomplish a buy-and-bail, borrowers, Loan Officers and Realtor’s, that assist them, are most likely producing fraudulent documents to achieve a closing of the new loan. That constitutes Bank Fraud. Lenders have up to five years after a foreclosure to “collect” on their losses; and as time goes on they are going to become more and more aggressive about litigating these cases.

EQUITY IN RETAINED PROPERTY

Some borrowers do in fact have equity in their current residence. However they may want to wait and sell when the market rebounds or retain the property as part of an investment portfolio.

There are several things to be aware of prior to making application for the new mortgage when you have an existing home. To make it easier to understand we will break them down by loan type as we have done in our other posts.

CONVENTIONAL FINANCING

Borrowers who have 30% or greater equity in the home they are converting to a rental will be able to use 75% of the total rental income towards off-setting the mortgage payment ON THAT PROPERTY. It is important to note that many Loan Officers miss this vital point – The countable rental income (75%) can not go towards total income to qualify for the new property, only to help cover the current mortgage. In addition to this the borrower will need to supply the following documents at application:

1. A fully signed lease for the home they are converting to rental
2. Copy of security deposit/first months rent check from tenant
3. Proof the funds form the deposit have cleared in to the borrowers account
4. Equity needs to be proven with a 2055 Exterior Appraisal

For borrowers that have less than 30% or NO Equity at all – NONE of the rental income can be used for qualification or to help off-set the current mortgage payments. This boils down to the borrower needing to make enough monthly income to cover BOTH the old and new mortgage payments, taxes and insurance (PITI).

In addition to the income the borrower will need to show they have 6 Months of PITI for BOTH properties. This means that the borrower needs to have enough assets to cover both PITI payments of each property for SIX months. These funds need to be from an acceptable source or in the possession of the borrower for no less than 60+ days. They can not be borrowed, however they can be Gifted to the borrower from an immediate family member.

FHA FINANCING

Borrowers may use rental income from a converted primary. The percentage allowable is determined by the local FHA HOC for a given area, but is 75% in most all cases. The use of the rental income is allowed when:

1. The borrower is relocating with a new or existing employer to an area that is considered not to be within a reasonable commute. This is allowable even if the borrower has no equity in the current home.

-OR-

2. If the borrower has a current loan-to-value of 75% or less in the residence. This can be determined by either a 2055 appraisal or by producing the original HUD statement from the closing on the current home showing the original purchase price compared to the current loan amount.

For borrowers that have less than 30% or NO Equity at all – NONE of the rental income can be used for qualification or to help off-set the current mortgage payments. This again comes down to the borrower needing to make enough monthly income to cover BOTH the old and new mortgage payments, taxes and insurance (PITI).

As with Conventional financing the borrower will need to show they have 6 Months of PITI for BOTH properties. This means that the borrower needs to have enough assets to cover both PITI payments of each property for SIX months. These funds need to be from an acceptable source or in the possession of the borrower for no less than 60+ days. They can not be borrowed, however they can be Gifted to the borrower from an immediate family member.

VA FINANCING

VA makes this pretty simple. There are no Equity needs and rental income can be used to off-set the current mortgage payments only, and can not be used to qualify for the new mortgage. Borrowers need to supply a copy of rental agreement or lease, if they have one.

Obviously, there are many, many possible scenarios within these guidelines above. It is vitally important that you work with someone that is seasoned with and knowledgeable when it comes to these types of loans. As always, we are here to assist or answer any questions you may have about this. 

Credit Report / Score Maintenance

Today, more than ever before, credit scores are evaluated for just about everything we do. From mortgages to utility service, your score is vital.

Keep in mind that while your creditors report your activity once a month, the reporting agency only updates your profile 4 times a year. Since your score is a product of what is on your credit report; I recommend that you obtain a copy of your report, from all three major credit reporting agencies, at least two times per year. The best time to request would be January and July.

Requesting a copy is easy and FREE. Since we are each allowed ONE free copy from each of the THREE major reporting agencies, it is best to order only ONE at a time. This provides you with the opportunity to check each report, address any mistakes, and then pull another one.

Obtaining your TRULY FREE report can be done online at one site. Do not be fooled by TV ads with catchy songs and flashy graphics. The link below is a true free site.

Here is the link: http://www.annualcreditreport.com

Be aware of the little pitfalls in their system:

1. Do not upgrade/pay to see your credit score. The score will NOT be the same as what a creditor will pull and is a waste of your money.


2. Check the box that hides the first 5 digits of your Social Security Number once the report is created. This will ensure your privacy and secure your SSN in case the report is stolen or misplaced.


3. Only order ONE report at a time. You can return to the site and order the others as you need. Remember that it is ONE from each of the THREE One Time a year.


4. Be sure to print your report and do not save it on their system for the 30 days.


If you do not have access to order the report(s) online you can request them directly from the bureau as listed below:

- Equifax: (800) 685-1111
- Experian (formerly TRW:(888) 397-3742
- TransUnion: (800) 888-4213

Getting A Mortgage After a Short Sale

  Getting a mortgage again after a Short Sale or Deed-In-Lieu can be difficult; but if you follow these simple guidelines to qualify you will be well on your way to owning another home. Both a Short Sale and Deed-In-Lieu are preemptive ways to avoid Foreclosure, but both are viewed as a default in the eyes of the lending industry.

  Let’s begin with the definition of Short Sale. The lending industry calls this a “Pre-Foreclosure Sale” meaning that the lender allows you to sell the home (collateral) before the lender takes it from you in a formal process called a foreclosure. The term “Short Sale” comes from the lender accepting a sale price for less than is owed. The “Date of Event” for a Short Sale will be the date of the closing as per the HUD1.

  A Deed-In-Lieu of foreclosure is offering your deed of ownership to the lender to avoid the home being taken from you in a formal foreclosure. The “Date of Event” for Deed-In-Lieu will be the date on which the new deed and title was recorded.

  It is important to point out that the following guidelines are not the same as when someone has lost their home through a formal foreclosure. See our post about qualifying for a new mortgage if you have a Foreclosure on your credit – Click Here.

  The following rules and guidelines are currently in place as of the publishing of this post. We will do our best to keep this post updated as changes are made. As we do in all our guideline type posts, the easiest way to break them down is by Loan Type. We encourage you to email or phone us if you have specific questions.

CONVENTIONAL FINANCING

  The amount of elapsed time from the date of event will vary based on the new Loan-To-Value (LTV). The table below outlines these time lines and LTV’s.

ELAPSED TIME	MAXIMUM LOAN-TO-VALUE
Less than 24 Months	Not Allowable
24 Months	80%
48 Months	90%
72 Months	Standard Guidelines

  As you can see, 2 years is the absolute minimum amount of elapsed time. Unlike other obstacles to qualifying such as Bankruptcy or Foreclosure, there is no waiver of the two years for extenuating circumstances.

FHA FINANCING

  There are two distinct ways to qualify for a new FHA mortgage if you have a Short Sale on your credit.

  In Default at time of Short Sale = 3 Years - If the borrower was in default or behind on payments at the time of short sale there is a 3 year waiting period. There is an exception to this for those that had experienced a hardship such as death of a primary wage earner, long term illness etc. Generally these events need to substantiated as being beyond the control of the borrower. Additionally, all other credit accounts and installment credit history must show as being made on time prior to the event.

  Not in Default at time of Short Sale = No Waiting Period – If the borrower made payments on the mortgage within the month due for the 12 months prior to the short sale along with any installment (ie Auto Loan) payments and the short sale was accepted by the lender as payment in full, they qualify for FHA financing immediately.

  Contrary to popular thinking, a short sale can be accomplished WITHOUT being behind on payments. Unfortunately some lenders and real estate professionals inform clients that they need to miss two or three payments before they will be considered for short sale approval. This is not accurate. In some cases such as job relocation, medical reasons, and family needs, a non-default short sale is possible. While not easy to achieve, they are and can be done with the help of a good attorney.

VA FINANCING

   VA guidelines call for a two year waiting period since the date of event. Some borrowers may qualify prior to the 2 year anniversary; however it can be difficult to get approval. The VA has the following rules for qualifying inside the 24 month window:

  Applicant or Spouse has re-established credit since the date of Foreclosure
  and can show that the foreclosure was caused by extenuating circumstances
  beyond their control.

  Divorce is not generally viewed as being beyond the control of the applicant or spouse

  We try to break down the information to make it as easy to understand as possible. We are always happy to answer any specific questions you may have or assist you in obtaining financing.