Posts Tagged ‘atlanta real estate market’

Waiting Periods After Derogatory Credit Items – Bankruptcies

October 30, 2017

In the last post, we looked at how lending guidelines require specific waiting periods for different types of “derogatory items” on a borrower’s credit report.  Then we zeroed in on waiting periods following a property foreclosure.  In this post, we will cover the waiting periods required after bankruptcy filings.  As with foreclosures, the different mortgage types specify different waiting periods.  The waiting periods also vary by the type of bankruptcy filed – Chapter 7 or Chapter 13.

Let’s start with Chapter 7 – the required waiting periods are as follows:

  • FHA – 2 years from the discharge date
  • VA – 2 years from the discharge date
  • Conventional – 4 years from the discharge or dismissal date
  • Jumbo – 7 years from the discharge date

The waiting period calculations get a bit more complicated with Chapter 13 bankruptcy filings.  The Chapter 13 waiting periods are as follows:

  • FHA – 1 year from the start of the payout period, as long as the borrower has made all required payments on time.
  • VA – 2 years from the discharge date, or if the Chapter 13 is in repayment, the Trustee must document satisfactory payment history for 12 months of the payout period and the court must give permission to enter into a mortgage transaction
  • Conventional – 2 years from the discharge date or 4 years from the dismissal date
  • Jumbo – 7 years from the discharge date.

So ultimately the good news here is that you don’t have to wait “forever” to apply for a new mortgage after a bankruptcy – unless of course you want a jumbo loan.  (7 years is a long time to wait.)  As always, FHA and VA loans are more “forgiving” of past credit problems.

Do you or someone you know have a bankruptcy in your past and now want to buy a home?  It may be possible to make it happen.  Be sure to work with a lender who will ask detailed questions and help coach you to the best option for your specific situation.  I’ve recently closed loans for multiple clients “bouncing back” after a bankruptcy.  It brings joy to close that loan and help my clients reach another financial milestone following their struggles.  Call me at Dunwoody Mortgage and let’s determine the best option for you or whomever you know with a past bankruptcy.

 

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Georgia’s TV and Film Industry is Booming. Forget Hollywood! Put Down Roots Right Here.

October 26, 2017

On your commute today, you probably passed a yellow TV or movie production sign – they are that common around Atlanta these days.

Look at the numbers:

  • FilmLA says Georgia is the #1 filming location in the world.
  • 320 film & TV productions will be shot here in 2017, generating $9.5 billion in direct spending.
  • The Motion Picture Association of America reports that more than 28,600 Georgians are directly employed by the film industry, while an additional 12,500 people work in production-related jobs.

The movie business may be kind to Georgia, but the mortgage industry traditionally hasn’t been kind to movie makers.

Film and TV studio workers may earn great livings, but they often have irregular employment schedules. Their employer of record can change with each project, and that’s a big red flag for mortgage underwriting. When it comes time to get financing for a home, regularly employed studio employees may be denied because they can’t demonstrate the stable income underwriters demand.

Until now.

I have access to a new loan program that can ease the way to home ownership for film & TV union members. The qualification requirements are simple.

Union members:

  • Who receive W-2s as salary employees
  • Who have two full years of filed tax returns in the film & TV industry

Underwriting will view the union as the employer, rather than the studio, and the union will be able to verify length of employment. The qualifying income will be based on the monthly average income. The borrower will still produce pay stubs to document current year earnings.

If you know someone in the film & TV industry who complains about renting or apartment life, please forward this email.  They may finally be able to put down roots in the new movie mecca.

 

Waiting Periods After Derogatory Credit Items – Foreclosures

October 24, 2017

Our nation’s economy has shown positive growth for several years now, following the Great Recession.  Many folks who were hit hard during the recession have rebounded and are doing well now.  Back when times were tough, they may have faced financial crises like home foreclosures or bankruptcies.  These financial crises appear as “derogatory items” on a credit report.

So let’s say your cousin Phil went through a really tough stretch financially.  But he persevered, got that new job, has been paying his bills on time and is saving some money.  He asks you if you think he can win mortgage approval now so he can buy a new home.  Like most people, you really don’t know how to counsel Phil, until now!

You can tell Phil that certain derogatory credit items carry mandatory waiting periods – he must let a specific amount of time pass before he can apply for a new mortgage.  There are different waiting periods for foreclosures, bankruptcies, and short sales.  And the waiting periods also vary by the type of loan Phil can get – FHA, VA, jumbo, or conventional.

Let’s start with a foreclosure.  Phil wasn’t able to make his home payments and the bank foreclosed.  Here are the required waiting periods by loan type:

  • FHA – 3 years
  • VA – 2 years
  • Conventional – 7 years, unless the foreclosure was part of a bankruptcy, in which case the wait is 4 years
  • Jumbo – 7 years

It is important to note that the waiting period “clock” starts when the foreclosure deed is recorded with the county.  In some cases, it may take the foreclosing bank several months to document and record the foreclosure deed after seizing the property.  So as a borrower with a past foreclosure, Phil needs to understand that the waiting period clock does not start on the date that the bank seizes the home.  I have run into situations where the bank took quite a few months to record the foreclosure deed, and this little date detail almost delayed the new mortgage.  Many times, the borrower may not know when the prior bank filed the deed after the foreclosure; however, this information is public record and most counties have the data available online now.

We will look at waiting periods after bankruptcies in the next post.  For now, if you or someone you know is like Phil and wants to buy a home, but has a past foreclosure, please refer them to me at Dunwoody Mortgage.  I will pay close attention to the details and even look up the old property online, if necessary, to make sure the borrower meets all lending guidelines.  Don’t waste time looking for a home until you have a high degree of confidence you can close!  I’ll work with you up front to give you the confidence you need.

Helping People Qualify to Buy a House – Coborrowers

September 25, 2017

Another way for people to qualify to buy a home is finding a co-borrower on the loan.  In most circumstances, a parent is used as a non-occupant co-borrower.  They can help qualify and sign for the loan without living in the subject property.  Don’t have a parent that can assist? Today’s guidelines state that if the non-occupant borrower is not a family member, there must be an established relationship and motivation not including equity participation for profit. In other words, it is much easier when it is a family member involved, but not out of the realm of possibility if it is a non-family member.

That said, this technique can pose some challenges for the generous non-occupant co-borrower. So, when is it used and what are the drawbacks?

Non-occupant co-borrwers are often used when our buyer’s debt to income ratio is too high to qualify for the loan on their own.  Whether it’s because of student loans, needing to buy a new home before selling the current home, auto loans, etc., the situation is that the buyer’s debts make up a higher proportion of her income than permitted in underwriting guidelines. It is rarely used when assets are needed as these can be gifted to the borrower MUCH easier than adding someone as a non-occupant co-borrower.

A few years ago, Paul (not his real name) called me.  He wanted to buy the perfect new home, but he had to make an offer without a contingency to sell his current home.  So we had to underwrite him with two mortgages.  He could not qualify for both loans on his salary.  His mother, Beth (not her real name), agreed to sign on the loan with him.  So we completed loan applications for both Paul and Beth, merged the files, and submitted the joint file for underwriting review.  Beth had a great income and little debt, so the two of them together easily won loan approval.

One year later, Beth decided she wanted to buy her own home.  Now the challenge for her – Paul’s home loan showed in her credit report and had to be included in her debt to income calculation.  Now Beth was the one who could not qualify for two mortgage payments.  And this is the “drawback.”  Those who cosign are legally obligated to pay the loan on behalf of the child-the loan belongs to them both!  So cosigning affects the everyone’s credit and may impact their ability to qualify for future loans.

By the time Beth decided to buy, Paul had sold his original house, so he could qualify for a new mortgage by himself.  Therefore, we refinanced his mortgage in his name only, freed Beth from the original loan, and then won loan approval for Beth’s home purchase.

Bottom line, being a non-occupant co-borrwer can help someone buying a home with debt to income limitations, but this solution can eventually impact the cosigner’s financial goals.  It’s an option to be considered carefully.

Do you know a parent who wants to help their adult child escape the landlord and start building home equity?  Refer them to me at Dunwoody Mortgage and we will review all options.  We’ll cover the pros and cons of each option, and let that parent choose the best way to help the child.

 

Helping Relatives Buy a Home – Cash Gifts

September 19, 2017

Our recent posts have debunked home buying myths and reviewed tools that can help young adults (or any other home buyers) buy a home.  To recap, buyers can often win mortgage approval with down payments of 5%, 3.5%, and even 3%, if the buyer qualifies.  If the buyer is short on cash to close, there are multiple ways to help cover the cash shortfall.  In this post, let’s review how a home buyer can receive a cash gift from a relative.

First and foremost, the gift must come from a current relative such as a spouse, parents, siblings, grandparents, aunts, uncles, etc.  I have encountered a situation where an ex-spouse was willing to give money for closing, but that is not allowed.  The ex-spouse is no longer considered a “relative” so that will not work.

Secondly, the cash provided must be a gift given to the home buyer.  This cannot be a loan.  Both the giver and recipient must sign documents declaring that the cash is truly a gift and no repayment is expected.  We call this the “gift letter” and it specifies details about the giver, the recipient, the relationship, the gift amount, the gift date, and the source of the gift funds.

Thirdly, we must document a “paper trail” to win underwriting approval.  The documents required depend on HOW the gift is delivered to the recipient.  In all gift situations, the giver must submit their most recent bank statement showing that they have the funds to make the gift and that the account truly belongs to them.  In addition, other documents can be required depending on the gift delivery, as shown below:

  • The giver can wire the funds directly to the closing attorney.  In this case, only the gift letter and the bank statement described above are needed.
  • The giver can electronically transfer the funds to the recipient’s bank account.  In this case, the giver must show a bank account activity listing showing the funds transfer and the recipient must show a bank account activity listing showing the deposit, in addition to the gift letter and bank statement.
  • The giver can write a check to the recipient.  In this case, the borrower must submit a copy of the gift check in addition to all other gift documents described above.

The key here is advance planning to make sure all documents are ready and submitted in a timely manner so the loan can close on time.

Do you know a parent of an adult child who wants to help that child buy their first home?  Refer them to me at Dunwoody Mortgage. We will make sure document the gift right the first time, so everyone can be happy with an on-time closing.

Beyond the Down Payment…Cash to Close

August 30, 2017

In the last post, we debunked the myth that home buyers must make a 20% down payment to buy their home.  There are many programs enabling buyers to close with 5%, 3.5%, or even 3% down payments.  But there is one other factor to consider regarding the cash you have available to buy a home…your “cash to close.”

Cash to close includes your down payment, PLUS the closing costs and prepaid escrow.  In short, you need more cash than just the down payment to close the purchase.  Here is a quick description of the other items:

  • Closing costs are the actual costs of transferring title and obtaining a mortgage loan.  Closing costs include items such as appraisal fees, transfer taxes, intangible tax, attorney fees, title insurance, etc.  Some of these costs are fixed while others increase with the home purchase price or loan amount.
  • Prepaid escrow represents the cash needed to pay the first year of homeowners insurance and to prefund your escrow account to pay future property taxes and homeowners insurance premiums.  These typically increase as the home price increases.

So what options does a buyer have when he has scraped together that 3.5% down payment, but does not have enough cash to cover the remaining cash to close?  Here’s where a proactive lender, working as a consultant to help the buyer, can make a huge difference.  Typically, the buyer has 4 options, and the lender should explore them all with the buyer:

  1. The seller can agree to contribute cash towards the closing as part of the purchase contract.  There are limits regarding how much the seller can contribute based on the loan type and down payment percentage, but a seller contribution can be a huge help.  Note that the seller contribution cannot be applied to the down payment.
  2. The buyer can choose a “no closing cost” loan.  Many buyers choose not to use this option because it involves a higher interest rate and monthly payment, but it can be a good option for some buyers who have limited available cash.
  3. The buyer can receive a gift from a relative.  We must carefully document the gift, but this is a great way for parents and grandparents to help a young adult get started building equity.  The gift can be applied to the down payment.
  4. We can combine the 3 options above to resolve a cash shortfall.

The key here is to remember (1) more cash than just the down payment is needed to close a mortgage and (2) there are creative ways we can solve a cash shortfall.

If you know a renter with a good job but not much cash, refer them to me at Dunwoody Mortgage Services.  We will work closely with your referral and his / her Realtor to structure a mortgage that best meets their financial situation.

Mortgage Rates and the Second Part of the Fed’s Announcement

June 23, 2017

The Federal Reserve’s announcement last week that it was increasing the Federal Funds rate included a second statement regarding the Fed’s bond holdings.  The Fed began buying Treasury and mortgage bonds after the Great Recession to lower long-term loan rates.  In the process, the Fed increased its debt holdings by over five times the previous balance – to over $4.5 trillion.

As part of last week’s announcement, the Fed said it will allow a small amount of bonds to mature without being replaced.  The Fed also said this amount will gradually rise as markets adjusted to the process.  Experts stated, “This process could put upward pressure on long-term borrowing rates.”

With the Fed out of the bond-buying business, the overall demand for Treasury bonds and mortgage backed securities will decrease.  A reduction in the demand for these investments should cause their prices to fall.  Remember that when values of mortgage backed securities fall, mortgage rates rise.

 

That is how the second component of last week’s Fed announcement can push mortgage rates higher.  Not by increasing the Federal Funds Rate, but by no longer buying bonds (and also possibly selling the bonds they already own). We could be entering an environment of lowering bond values and rising mortgage rates.

We can assume that Fed will be careful not to shock the markets too dramatically, so we don’t expect rates to dramatically increase. The goal of the Fed would be to complete the second part of their statement without pushing mortgages rates up.

That being said, mortgage rates are currently at their lowest levels of 2017.  Now is a great time to buy a home – from a mortgage perspective.  If you are looking to buy in Georgia and you want focused service with a keen attention to detail, call me at Dunwoody Mortgage Services.  We will do as much of the “heavy-lifting” as possible so your mortgage experience is as pleasant as possible.

 

Down Payments Basics for Home Buyers

February 23, 2017

Blog HeaderA recent home ownership survey showed that 3 times more first time home buyers than repeat buyers say they lack enough money for a down payment.  Perhaps this is due to folks not truly understanding down payment requirements.  Many people believe you must make a 20% down payment to buy a home.  That is a myth!! 

Home buyers can purchase a home with as little as 3.5% down for a FHA loan.  Depending on your credit score and available cash, you may be better off going with a 5% down conventional mortgage.  In certain cases, you may be able to qualify (depending on your income and geographic area) for the low interest rate, low cost mortgage insurance “HomeReady” program, for as little as 3% down.  (Certain geographic areas have no income requirements.)

So what if you don’t even have 3% – 5% available for a down payment?  Are there options?  The first question for you is, “Do you have a relative who can give you the down payment?”  If you do have a loving person who will give you the down payment, we can use that with the proper documentation.  Note that the giver must be a blood relative or a spouse.  Generous ex-spouses are not considered family members so they cannot provide a gift.

missing_down_payment

If you lack the available cash and you don’t have a giving relative, do you have a 401K or similar retirement account?  Depending on your plan’s rules, you may be able to borrow against your account to help fund your down payment.  Talk with your plan administrator for the details.

If these options are not available to you, you may need to wait and save.  But the time needed to save 3% to 5% is much better than saving for the 20% many people think is required.  Note that you must have 20% to avoid mortgage insurance, but if you can handle the mortgage insurance included in your monthly payment, you can buy a home with much less than 20% down.

Do you need coaching on the best loan / down payment option for you?  That’s what I do!  Call me at Dunwoody Mortgage.  Together we will evaluate your situation, review your options, thus allowing you to make the best decision for you and your family.

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Planning Your Home Purchase While Renting

February 16, 2017

A recent survey reported that 2.9 times more first time home buyers than repeat buyers expect a home purchase delay due to their current lease terms.  My first reaction to this statement is “No duh!”  I would expect most repeat buyers do not have a lease but own their home.  Lease terms definitely can affect a first time buyers’ purchase timeframe.  A lease is a written legal contract between the landlord and the lessee.  Note that I am not an attorney, but here are some common sense thoughts about leases and home purchases.

Firstly, plan ahead.  If you know your lease terminates in 6 months and you want to buy a house, go ahead and start planning now.  Submit a mortgage application and get prequalified.  Build a relationship with a Realtor.  Set aside more money for a down payment and closing.  Planning ahead may help you win loan approval and buy your dream home.  Waiting until the last minute will likely cause you stress and frustration.

landlord

Secondly, know your lease terms.  What is the penalty for terminating your lease early?  Do you forfeit your security deposit?  Is there a different penalty?  Then evaluate the contractual penalty versus the home you want.  If you find and can buy your dream home, and the lease termination penalty is not too steep, you may want to go ahead and buy now.  The key here is to know the penalty so you can evaluate your opportunities.  Is missing the opportunity to buy the perfect home worth saving the security deposit you paid a few years ago?  Only you can make that choice.

Thirdly, talk with your landlord.  If your lease expires in 30 days and you still haven’t found the perfect house, perhaps you can negotiate a month to month lease or a 90 day lease continuation instead of signing a longer term lease.  Perhaps you could offer a slightly higher monthly rent to compensate the landlord for the shorter term lease, thus “buying more time” to search for and find the right home for you.

In short, planning ahead, knowing your lease details, and making an effort to negotiate with your landlord may give you the flexibility you need to find the perfect first home, without the stress of having a “deadline” hanging over you.  When you are ready to do your home purchase planning, call me.  I will give you as much time as you need to coach and counsel you, making sure you are truly ready to buy your first home.

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Credit Score Basics for Home Buyers

February 9, 2017

A recent survey reported that 2.7 times more first time home buyers than repeat buyers believe they must improve their credit scores before buying a house.  First let’s dispel credit score myths.  A home buyer can possibly win mortgage approval with a credit score as low as 620.  If your score is 620 or higher, you can possibly win loan approval.

If your score is less than 620, you need to work to improve it before you can qualify.  If your score is 620 or higher, you may want to take steps to increase your score as better scores tend to lower mortgage costs.  Note that I am not a credit score repair specialist, but here are some basic, fundamental tips to improve your credit score:

Pay down your credit card balances:  You get the best score on each credit card account when your balance is less than 1/3 of that account’s credit limit.  Your score drops when your balance is more than 1/3 of the limit.  And your score drops even further if your score is more than ½ of the credit limit. 

Pay your bills on time:  Late payments lower your score.  The later the payment, the more your score is penalized.

image-credit-score-breakdown

Time heals all wounds:  The more time that has elapsed since your last late payment, the less those late payments will affect your current score.  Some credit issues have mandatory waiting periods.  For example, if your credit report shows a bankruptcy, 2 years must elapse before you can obtain a FHA mortgage, and 3 years must elapse before you can qualify for a conventional mortgage. 

Resolve account disputes now:  Mortgage underwriters hate account disputes.  If you have disputes on credit accounts, go ahead and resolve them prior to applying for a mortgage.

Be aware of collections accounts:  Note that I didn’t say to pay them off.  Sometimes, paying off a collection account will actually lower your credit score.  If you want to buy a home in the next 12 months or so, it may be best to just know about the collections accounts – you may have to deal with them as part of your mortgage process.  In some cases, we require the borrower to bring enough cash to close and to pay off collections account balances as part of the mortgage closing process.

If you want to buy a house in Georgia, get a good idea of your credit score and your monthly debt payments.  Then call me to discuss your loan options.  I’ll invest time coaching you on the best ways to help you win loan approval. 

More mortgage questions?  Check out our home buyer educational videos.

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