Posts Tagged ‘loan guidelines’

Changes to loan guidelines

May 15, 2018

Guidelines for getting approval on a home loan can seem like a moving target – they always seem to be changing. While that isn’t true, technically, what is true is this… there are so many guidelines in terms of a buyer’s qualifications (assets, credit, income, etc.) that small changes do tend to happen often. Here are some changes that we may have missed.

IRS Tax Payment plans – this one can be handy when looking to buy a home BUT a larger-than-expected tax bill comes due. As long as there is not a federal tax lien filed, the borrower can move forward with the home purchase using an accepted IRS tax payment plan. The borrower would provide the monthly tax payment, proof of IRS tax payment plan acceptance, and the reminder payment coupon for the second payment. Only one payment needs to be made. In regards to qualifying, the monthly payment is calculated as if it were any other debt such as a monthly car payment, student loan payment, etc.

Sourcing funds – all of those cash or check deposits made into a bank account… during the crash, it seemed we would need to document any deposit that was over $100. It was a nightmare. Fortunately, it has relaxed now. The guideline is any deposit that is less than half of monthly income can be ignored. This means the number of deposits that need to be documented dramatically decreased. One caveat to this is the number of deposits. If no individual deposit is over half of monthly income, but there are multiple deposits adding up to over half of the monthly income, and underwriter can request all of the deposits be documented to ensure no one gave our home buyer extra money as an incentive to purchase the home. While this caveat can be used by an underwriter, it is rare.

Liquidating retirement funds – in some cases (depending on the amount being liquidating and/or loan program), we no longer need to document the liquidation of retirement assets for funds to close. We just need to show the money exists and is accessible to our borrower.

IRS Tax Transcripts – we’ll begin and end with the IRS… IRS tax transcripts are no longer required in a majority of loan situations now. There are some programs that still require it, but tax transcripts are no longer ordered for every single loan. This helps speed up the process of buying a home. Over the past few years during the IRS busy season (think April 15th and Oct 15th), getting copies of transcripts could be delayed. That, in turn, could cause delays for getting loan approval.

In all of these examples, the requirements for loan approval has lightened up some from the housing crash, which is especially helpful during the home buying process.

Wanting to buy a home this year? Looking in the state of Georgia? If so, contact me! I can get you prequalified and well on your way to owning your new home.


Why are we not having a faster housing recovery?

September 25, 2014
Earlier this week, we focused on why the economy was sluggishly turning around. In that post, we touched on how the economy is directly tied to the housing market. The better question to ask could be “why are we not having a faster housing recover?”
Lending guidelines are stricter now compared to five to six years ago. I think we all agree we needed to tighten lending guidelines, but many feel we have over corrected. The biggest problem I see that exists are although Fannie Mae, Freddie Mac and FHA have one set of requirements, many lenders will not lend on those standards because of the concern of a buy back.
A buy back is when a loan is deemed not to conform to the guidelines and the lender is required to purchase  the loan back from Fannie Mae, Freddie Mac, or FHA. This tends to be more prevalent when a loan defaults.
A good example… a lender makes a loan and the loan defaults 9 months later because the buyer loses his job. The agency that owns that loan will audit to see if anything is not correct in the loan package, and I mean anything. If any small thing is found, they will require the lender to purchase the loan back. This happens even if the mistake in the loan file (such as a typo or missed signature) does not correlate to the reason for default. This has caused many lenders to put additional requirements to help mitigate the risk. This creates a tight credit environment, even more so when you add all the government regulation into the mix.
Some feel that if buyers put 20% down to buy a home, it would eliminate foreclosures. The idea is if a buyer has that much “skin in the game,” they would not stop making their mortgage payment.
This is not true. VA loans are 100% financing. It has the lowest default of any loan program available. Perhaps we should take a closer look at the requirements of the VA loan and us this as our standard.
Another area of concern is indications from the government that they want to shut down Fannie Mae and Freddie Mac. Many bills have been introduced to privatize this part of the mortgage industry. It may sound good, but if the mortgage industry privatizes expect interest rates to be roughly 2% higher than government backs the mortgages.
It remains to be seen how this will all unfold, but hopefully the overregulation will come to an end soon.

FHA needs a bailout?

August 14, 2012

I ran across this article by The Economist last week. It raises a valid point, and provides some insight into why FHA has made changes to their guidelines over the past few years. The one thing to know is that FHA loans do not need a bailout – for now. That is also the opinion of this article.

For the full article, please use this link. For a quick summary of the points:

  • FHA loans were intended to help people to secure home loans coming out of the Great Depression
  • FHA loans were a niche program until they began losing market share to subprime lending in the early 2000’s
  • when the housing market crashed, borrowers looking for subprime loans turned to FHA loans to purchase homes
  • In 2006, FHA insured loans of $52 billion. That figure increased to $330 billion by 2009. As you can see, FHA did become the new subprime loan program as I personally blogged about in 2008.
  • FHA now has some “dicier” loans, which is why the guidelines have increased with minimum credit scores and increases to monthly mortgage insurance rates
  • As long as there is not a double dip recession, it appears FHA will be OK and not in need of a bailout.

The one aspect the article ignores is going into detail about mortgage insurance. The upfront premium was increased from 1% of the loan amount to 1.75% of the loan amount. The monthly premium has increased 5 times in the past few years.

For all of you who ask “why is FHA continuing to increase its monthly mortgage insurance premiums?,” this article sheds some insight. It is to ensure FHA continues to operate and not need a bailout as it fully guarantees billions and billions of Dollars worth of loans from the U.S. housing market. The increase of premiums are designed to keep the coffers full to cover the losses from foreclosures on FHA insured home loans.

I hope this has provided some insight into FHA loans and the reason for all of the guideline changes over the past few years.

Just kidding

June 20, 2012

Apparently using the “Charlie Brown” picture in a previous post was even more appropriate that I first thought. As you read last week, FHA had a new change coming that forced borrowers to pay off all debt out for collection if the total exceeded $1,000.

FHA has apparently changed their mind. Just as the 21st amendment repealed the 18th amendment (prohibition), FHA has repealed this coming change.

  •  As long as a borrower is able to receive an approval through automated underwriting, collection accounts are not taken into consideration so long as they do not impact the borrower’s ability to repay the new mortgage.
  • Court ordered judgements still must be paid off in full prior to closing.

In this analogy, Lucy will be playing the role of FHA.

Those two items were the guidelines prior to the announced change, and they will be the guidelines moving forward. Well, that is until FHA repeals the repealing letter?!? Who knows? Things change so much at times, that just might happen!

FHA is at it again

June 14, 2012

It seems every time we turn around, FHA has a new change and/or tweak to their guidelines. Just when we think we know what is coming, FHA moves the ball on us again. Most of the time the changes involve mortgage insurance, but not this time.

As of July 1st, all FHA loans will have new guidelines regarding how borrowers are qualified for a loan. The new change specifically relates to disputed/collection accounts on one’s credit report.  If the total amount of collection/disputed accounts is less than $1,000, then nothing has changed. However, if the sum total of all accounts out for collections is $1,000 or more:

  • the borrower must pay off all of the items in full OR
  • the borrower must make payment arrangements with the creditor. Before being able to close, 3 months of payments made according to the terms of the agreement must be verified
  • court ordered judgements (regardless of the amount) must be paid off in full prior to closing

In the past, as long as automated underwriting gave a potential borrower approval, collection/disputed accounts could be ignored. That is no longer the case if the total of all the combined accounts is more than $1,000.

FHA does make allowances for disputed accounts resulting from identity theft, credit card theft, or unauthorized use. Documentation is required, so don’t view this as a quick solution to the change.

As you can read, the more things change, the more things change :-)… as I’ve said many, many times, planning ahead is key. If you are looking to buy or refinance a home and you know this could affect you, talking to someone now rather than later will help ensure a smooth loan process. If the home is in the state of Georgia, I’d be more than happy to help you get started!

Turn back time

July 12, 2011

“… if they could turn back time. If they could find a way…”

Well, they did find a way. Recently I blogged about changes private mortgage insurance (known as PMI) companies made to their guidelines for conventional loans. For all the details, see this post.

The short summary – in order to be approved for a loan with PMI, borrowers need 3 trade lines that are at least 12 months old (or over 12 months old when the account was closed).

This change wasn’t a deal breaker for my clients, it was just more annoying than anything else. As I said in another recent post, it is good to have options. If the PMI three trade line requirement was a problem, then I would be able to offer a program that would work. That is the advantage of working with multiple lenders who each have their own set of guidelines.

Now that the three trade line requirement is gone for some of the PMI companies, a great question to ask is “what is the new requirement?

Basically, guidelines are going back to what they were prior to the three trade line requirement. For the most part, borrowers who have at least 3% down, a qualifying credit score, and one established trade line (a credit card for example) will qualify for a conventional loan with PMI.

That is fantastic news as it allows for more options for consumers who have a limited credit history from either getting a late start OR simply choosing to pay cash for most items during their life.

If you are looking to buy or refinance a home in Georgia within the next 12 months, now is a good a time as any to get started! I’d be glad to help you through the mortgage in process.

But good news is good news, so let’s celebrate. Take it away Cher…

New credit requirements for mortgage insurance

June 14, 2011

For roughly two years now, FHA loans have required borrowers to show at least three trade lines in their credit history in order to qualify for an FHA loan. Some lenders allow exceptions if a borrower has one major trade line (such as a mortgage, car loan, or boat loan), but for the most part, it is three or no loan. For all the details, check out this post from late 2009 on my retired blog site.

Fast forward to May 2011, and it seems conventional loans are catching up. Well, at least conventional loans that require Private Mortgage Insurance (commonly referred to as PMI).

In early May, some of the PMI companies began requiring three trade lines for borrowers to be approved on loans that require PMI. A few weeks later, and they all now require three trade lines. These trade lines can be a mortgage, credit card, car loan, etc., but must be 12+ months old at the time of the loan application in order to be counted toward the minimum requirement of three trade lines.

Sound familiar? Well, it should because those are essentially the same guidelines borrowers have lived by on FHA loans for quite some time now. For the most part, it isn’t anything new, just being applied to a new area. There is a very important distinction between the trade line requirements for FHA versus the conventional PMI loans.

The PMI requirements require three trade lines that are at least 12 months old, but they can be from anytime in a borrower’s credit history. That means the accounts do NOT need to be currently open or active. At some point in time, the borrower needed to have used a credit account (car, student loan, anything along those lines) for 12+ months.

FHA loans allow for an account to be currently closed so long as it was not closed more than 24 months ago. No time limit for PMI guidelines (at least with today’s guidelines).

The recent PMI guideline change only continues to highlight why planning ahead is so essential when buying a home.

If you are looking to buy a new home OR refinance a current mortgage, it is never too early to get started. The current lending environment is volatile, and it highlights the need to work with a professional who is on top of all current and coming changes in the mortgage industry. If you find yourself in the “in need of a mortgage category,” I’d be glad to help you get started and guide you through the mortgage process!

An old wives’ tale comes true

July 4, 2010

I’m sure you’ve read or heard about things not to do when trying to get a mortgage that could disqualify you from buying or refinancing a home. You know what I’m talking about – a story that happened to someone somewhere, but could never happen to me…

I remember hearing a story of a couple that bought two luxury cars days before closing on their new home. Long story short – they no longer could buy the home!

Now it is doubtful that many of us would go out and buy one (let alone two) luxury cars right before closing. But that old wives’ tale may be coming true more often now than it ever has before.

I always warn my customers not to do anything in regards to credit once I’ve obtained a copy of their credit report. Don’t buy a car, don’t open a new credit card, don’t run up a higher balance on an existing credit card, don’t pay anything off or down if it isn’t needed to qualify. That advice is needed now more than ever thanks to Fannie Mae’s Loan Quality Initiative.

The purpose of the Loan Quality Initiative is to keep a close eye on any potential changes to a borrower’s circumstances from the application date to the closing date. Lenders will do this by pulling a copy of a loan applicant’s credit report up to the day of closing. This has always been a possibility – a random credit pull for quality control purposes – but now it is becoming standard practice.

If your credit report is pulled on the day of closing, and there is a credit account opened after your initial credit pull, your loan could be pulled back into underwriting to be reviewed before being allowed to close. If that happens, there will definitely be a delay in closing.

How can you prevent this from happening? Don’t do anything to your credit once you’ve been qualified for a new loan. Don’t apply for any credit, don’t let anyone make an inquiry on your credit report, don’t go out and purchase furniture or appliances on existing credit cards.

In short, don’t do anything until after you close on your loan. You’ve heard about the credit crunch, and this is simply another aspect of it. Remember this isn’t a single lender or bank’s guideline, but one from Fannie Mae. That means everyone will be subject to these new standards.

Have questions or comments? You know how to find me!