Posts Tagged ‘FHA loan’

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.

 

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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.

The Truth About Down Payments…

August 25, 2017

Many young adults and other potential home buyers mistakenly assume that they cannot buy a house.  Why?  Because they believe the myth that a home buyer must make a 20% down payment to buy a home.  A recent study by the National Association of Realtors® (NAR) shows that the average down payment for 60% of first time buyers is 6% or less.  However, their research indicates that just 13% of adults age 34 and younger understand that they can buy a home with as little as 5% down, or less.  Their analysis shows that, over the last 5 years, more than 70% of non-cash, first time buyers, along with 54% of all home buyers, made down payments of less than 20%.

So why do so many Americans not understand this home buying truth?  Perhaps it is because 20% is the down payment benchmark most often quoted by “experts” in print and other news media.  And perhaps it is because that to avoid mortgage insurance on a conventional loan, you must make at least a 20% down payment.

Whatever the reason, it is time for us to spread the truth about down payments.  That truth is, the majority of home buyers make down payments of less than 20%.  Here are some quick options for folks who want to buy, but don’t have a lot of cash saved for a purchase:

  • Active duty military, National Guard, Reserves, or military veterans may qualify for a 0% down VA loan.
  • FHA loans offer minimum down payments of 3.5% with low interest rates.
  • Buyer who qualify can obtain a Home Ready conventional loan for 3% down, with competitive interest rates and discounted mortgage insurance premiums.
  • Buyers who do not qualify for Home Ready may still qualify for a 3% down payment, but possibly with a higher interest rate.  In this case, the buyer will likely receive a lower interest rate if she makes a 5% down payment.

Bottom line, many home buying options exist for folks who can afford less than a 20% down payment.  These home buyers need a mortgage expert to coach them to the best option for their financial situation.  That is the type of individualized service we deliver at Dunwoody Mortgage.  We work closely with our clients to help them obtain the mortgage solution that best meets their needs.

If you know a young adult in Georgia who has a good job, who is renting and doesn’t think she can buy her own home, suggest that she call me at Dunwoody Mortgage.  She just might be able to fire her landlord, buy her own place, and start building equity.  Don’t let her believe the down payment myths.

 

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.

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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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Using government loans after a derogatory credit event

February 21, 2017

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Last week, we focused on using conventional loans to purchase a home after a major derogatory credit event such as a bankruptcy, short sale, foreclosure, etc. This week, we will focus on VA and FHA loans offered by the government.

In every instance, a government loan has a shorter waiting period after one of these events. It is the loan of choice to use if it will fit your needs. Let’s discuss the waiting periods:

  • Chapter 7 bankruptcy: requires a 2-year wait
  • Chapter 13 bankruptcy: requires a 1-year wait from the beginning of the payout period
  • Multiple bankruptcy filings: VA requires only 2 years, but FHA is a case-by-case basis
  • Foreclosure: VA once again is only 2 years, but FHA is 3 years.
  • VA Specific: in order the qualify for a VA loan (in addition to being a veteran), there must be a 1 year minimum of re-established after the judgement dates and other derogatory events paid/resolved
  • FHA Specific: If HUD has a claim against a borrower for a foreclosed/short sold home (and that home was financed using an FHA loan), a borrower isn’t eligible for a new FHA loan until after 3 years from the date of the claim being paid.

As anyone can read here, government loans have a much shorter waiting period than conventional loans. As low as one year, but mostly just a 2-year wait. An FHA or VA loan would be the preferred method for buying a home after one of these major events. That said, there a couple of situations that make conventional loans the way to go:

  • the borrower is not eligible for a VA loan (so you go FHA unless….)
  • the loan needed to purchase a home will exceed the maximum FHA allowed loan amount
  • there is a claim against the borrower from HUD
  • a borrower is not eligible for an FHA loan due to CAIVRS (a government credit monitoring tool to ensure people who take out government loans pay them back)

The last two on the list are not that common, so buying a home within the FHA maximum loan limits would be the way to go. In addition to a shorter waiting period, the interest rate tends to be better than conventional loans, the borrower only needs a 3.5% down payment, and the monthly mortgage insurance rate is lower. A borrower’s credit score will confirm those items, but in general, those are all reasons why FHA loans are the best way to go after a derogatory credit event.

Completed a bankruptcy two years ago, and ready to buy a home in Georgia? If so, we can get started today in the process. Contact me and we’ll make sure you qualify for a loan, and then send you out looking for your next home.

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Credit Reports and Qualifying for a Mortgage #3

October 19, 2016

In prior posts we reviewed the credit score and public record components of a credit report.  But even with a qualifying score and a clean public record history, that doesn’t mean you are in the clear.  There are other credit report factors that can create underwriting hurdles which we must overcome.  Here are some other details we consider…

The credit report shows a history of open and closed credit accounts.  Data shown for each account includes:

  • Current account balance.
  • Account credit limit.
  • Account type – credit card, mortgage, student loan, auto loan, etc.
  • Account status – open, closed, collections, etc.
  • Minimum payment – these are important because they are included in the client’s (let’s call her Mindy) debt to income ratio.  If the total of all monthly payments is too high, Mindy might not qualify for the loan desired.
  • Late payment history – late payments are categorized as follows — 30 day lates are not good; 60 day lates are bad, and 90 day lates are really bad.  The report shows the dates of the most recent late payments.

If Mindy’s late payments were made more than 2 or 3 years ago and she has been consistently making on-time payments since then, it likely will not cause loan denial.  However, if Mindy’s late payments occurred after a bankruptcy, then underwriting may deny the loan.  I’ve had this happen where the underwriter said no to a client with a bankruptcy in 2010 followed by two 30-day late payments in 2012.

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  • Account disputes – if Mindy has officially disputed an account, it will show on her report.  Underwriters do not like account disputes.  This is especially true for FHA mortgages when a disputed account balance exceeds $1,000.  In some cases, the dispute can lead to loan denial.  I’ve had clients who had to go through a multi-week process to get a dispute removed from their credit before we could win loan approval.  I search for the word “dispute” on all credit reports.
  • Collections accounts – when an account has a collections status, this can cause loan denial.  This is especially true for FHA mortgages.  If the total outstanding amount of all collections accounts exceeds $1,000, underwriters will not approve an FHA loan until the balances are paid in full.  I had a client with 3 collections accounts earlier this year.  The client had plenty of cash, so we simply included the payoff of all collections accounts at the closing of her home purchase.

Once again, there is much more to a credit report than the score.  If you know someone who wants to buy a home in Georgia, don’t let them get mislead by a lender in a hurry.  Refer them to Dunwoody Mortgage, we will invest enough time up front to give everyone great confidence that the mortgage will actually close.

 

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The Simplest Loan Around – Part 3

September 8, 2016

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Continuing the FHA streamline refinance theme… Here’s an example.  I’m currently talking with Confidential.  Confidential is self-employed.  Confidential’s spouse, Anonymous, recently took a new all-commission sales job. 

With a standard mortgage, the income and employment verification for Confidential and Anonymous would be very tedious at best, and they likely may not qualify.  Underwriters want to see a 24 month history of income for self-employed persons.  And they will average the 24 month income to determine the borrower’s current monthly income.  That hurts self-employed borrowers whose incomes are growing.  But those normal underwriting concerns do not apply to the FHA Streamline Refinance!

The interest rate on Confidential and Anonymous’ current mortgage is 4.75%.  That is high by today’s standards.  The good news is that they bought their home with a FHA loan several years ago.  I quoted Confidential and Anonymous a new FHA interest rate at less than 3.5%, and we expect to lower their monthly payment by over $220!  Given the closing costs for the loan, this refinance will pay for itself in less than a year.  After that, they are saving over $2,500 per year!

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I’m not worried about this loan being approved in spite of the fact that Confidential and Anonymous are self-employed and they cannot provide the standard 24 month income history.  And we don’t have to fret about an appraisal value.  They have made all FHA mortgage payments on time, and this refinance will reduce their payment by over 15%.  They qualify for what might be the easiest loan around – the FHA Streamline Refinance.

So how do you determine if a refinance is right for you?  There are many considerations, but we have a couple of rules of thumb:  (1) If you can lower your payment by $100 per month or more, and (2) if the refinance will “pay for itself”* in 36 months or less, then you may want to investigate refinancing options.  (*Divide the loan closing costs by the estimated monthly savings to calculate how many months will pass before the savings cover the entire cost of the refinance.  If this time period is 3 years or less, then refinancing may be a good option for you.)

If you want to lower your current monthly payment by taking advantage of current low, low mortgage interest rates, contact me here at Dunwoody Mortgage.  I will take the time to help you understand all of the options available to you, and I will coach you to make the best financial decision possible for you and your family.

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The Simplest Loan Around – Part 2

August 12, 2016

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In the last blog post, I introduced the FHA “streamline” refinance loan. These loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.

The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP).  Like an Olympic swimmer reduces friction by “streamlining” when underwater, the FHA streamline refinance offers much less resistance and effort than a regular purchase loan.

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Here’s a quick summary of the benefits:

  1. No appraisal is required – FHA will use your original purchase price as your home’s current value, regardless of what the house is worth today.
  2. No employment verification is required with the streamline refinance.
  3. No income verification is required.
  4. No detailed review of your credit report is performed. If your score is 600 or higher, you qualify.

So to sum up the benefits, you can be (a) out of work, (b) without income, (c) have a low credit score, and (d) be underwater on your home mortgage and you can still qualify for an FHA streamline refinance.

Now this sounds crazy.  Why would they do this?  Well remember, to qualify, you must already own the home and have an FHA mortgage.  We are not qualifying you to take on a new mortgage payment for a new house.  The FHA is already committed to insuring your home mortgage.

Therefore, it is in the FHA’s best interest to help as many existing mortgage holders as possible lower their payments.  By lowering payments, they will lower the default rate.  So this program helps the FHA, but it also helps the borrower who can lower his monthly payment.

In the next post, we will review example scenarios where this type of loan can really help the homeowner.  But for now, if someone you know in Georgia has a FHA mortgage with an interest rate of 4.00% or higher, have them call me to discuss a potential refinance.  We’ll run the numbers together to make sure it’s a good financial move for them.

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The Simplest Loan Around – Part 1

August 4, 2016

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It’s a fun time to be a mortgage lender.  Interest rates are hovering near their historic lows.  They’ve been close to rock bottom for a while, but this Brexit situation has pushed them back to almost the lowest level in history.

Right now, for borrowers with a credit score of 680 or higher, I can quote an interest rate in a range right around 3.25% for a 30 year fixed rate FHA mortgage.  To me that is amazing.

That rate applies to both purchases and refinances.  But it gets even better for refinances….if you have an existing FHA loan that you want to refinance, we can do a “streamline” refinance that is much easier than a standard loan.

So what is this awesome FHA streamline refi program?  Here are the details:

  1. It is only for people with an FHA mortgage.  If you have a conventional mortgage, this does not apply.
  2. It is only for people who are current on their FHA mortgage.  If you are behind on your payments, you don’t qualify.
  3. It is only for people who have no more than one late payment in the last 12 months.  If you have multiple late payments recently, you don’t qualify.
  4. It can only be used if it lowers your monthly payment by 5% or more.  And by monthly payment, we are talking about principal plus interest plus mortgage insurance.  Escrow is not considered.
  5. If you have previously refinanced an FHA mortgage on your home, 210 days must have passed from the date you closed your last refinance before you are eligible.

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So that’s what it takes to qualify, what’s the big deal?  What makes this streamline program so special?

In short, these loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.

The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP).

I’ll provide more details in my next post, but keep this in mind for now, if you or a friend / family member bought a house before January 2012 or in the second half of 2013 / early 2014, ask yourself or the other person (1) do you have an FHA mortgage and (2) have you refinanced that mortgage?

If their answers are “Yes” and “No,” tell them you know a mortgage lender who might be able to save them thousands of dollars on their home loan, and can make the process really easy.

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