Posts Tagged ‘underwriting guidelines’

Competing in a seller’s market

April 18, 2017

By now I’m sure everyone is aware it is a seller’s market right now. In metro Atlanta, there is less than a 3 month supply of homes available to purchase. For a balanced market, it is good to have close to 6 months of homes available. This is a big change from a few years ago when it was a buyer’s market… low ball offers, take time looking, find the absolute perfect home. Today when making an offer, the initial offer starts at the list price. You better get to a property within day or two of it being listed or it may be under contract, and buyers are making compromises on a home. If the home has, say, 80-90% of what they are looking for in a home, make an offer!

Even with those strategies, buyers can still find themselves being one of many offers on a home in this crowded real estate market. How else can a buyer differentiate themselves from the competition?

                              How some home buyers feel in this market!

One way is being underwritten prior to being under contract on a home purchase. I can start the loan process, send out loan docs, collect financial docs, and submit to underwriting with a “To Be Determined” property address. Once out of underwriting, I can give a letter to my clients for an offer that says “Approved”…. not a prequalification letter… not a preapproval letter… a letter that says the buyer is approved for the purchase pending the appraisal. The buyer can also close in as little as two weeks. We only need the appraisal back at that point!

Looking to buy a home in Georgia? Having problems differentiating yourself from other buyers in this crowded market? Contact me today. I can not only help you get prequalified, but we can submit your loan to underwriting for an approval on the loan. That will give you a major advantage over buyers with a letter that says “prequalified” or “preapproved.”


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.

Asset Based Loan Program

March 25, 2014


Looking to purchase a new home as a recent retiree with no history of receiving retirement income from your portfolio? What about someone who wants to purchase a home, but recently started their own company so there is no history of income from their business?

An asset based loan program might be just the thing you need.

Here are the details on how assets can replace monthly income when qualifying to purchase or refinance a home:

– Combine all forms of retirement assets into one lump sum. Retirement funds from an IRA, 401k, SEP and/or Keogh can be used so long as the borrower can withdraw assets from these accounts without penalty.
– Take 70% of the balance of those combined accounts.
– Finally, divided out the reduced balance by 360, and use that figure for a monthly income to qualify for a mortgage.

Example: A borrower has a total of $600,000 in qualifying retirement assets. Taking 70% of that balance, the figure to use for qualifying purposes is $420,000. Divide that number by 360, and the monthly income to be used on a mortgage application is $1,167.

There is no need to document currently receiving retirement income or a need to show a three year continuance. The asset based income can be combined with social security and other qualifying income for the loan. To get started, borrowers also need a 620+ credit score and a minimum of a 30% down payment/equity in the home. This loan program can be used to purchase or refinance a home (rate term refinance only; cash out refinances are currently unavailable for this program).

To learn more about qualifying for a mortgage from assets OR to get started on a loan application, contact me today. I’d be happy to help you get started.


Coming Soon: Asset Based Loan

December 3, 2013

In a recent post, I mentioned about conventional loans lowering the minimum credit score requirements and raising the debt to income ratio limit as signs that loan guidelines are easing. Another sign is the reintroduction of asset based loan programs.

These programs were more readily available during the housing bubble from a few years back. With the downturn in the housing market, asset based loans disappeared. In order to qualify buying or refinancing a home using retirement assets, the borrower would need to document a history of receiving retirement income. The borrower also needs to document at least a three year continuance of receiving the same level of income from retirement savings. Not anymore.

To qualify, add up all retirement assets (IRA, 401k, SEP or Keogh) to get a lump sum. As long as the borrower can take money from these accounts without penalty, they can be used. Then take 70% of the balance of those combined accounts. Then divide that number by 360. For example:

– borrower has a total of $600,000 in qualifying retirement assets
– 70% of the $600,000 balance is $420,000
– Divide $420,000 by 360 and the monthly income is $1,167

You now have a monthly income for qualifying purposes without the need to document currently receiving the income or a three year continuance. The asset based income can be combined with social security and other qualifying income for the loan. Borrowers also need a 620+ credit score and a minimum of a 30% down payment/equity.

This is a great program for a soon to be retiree who has the assets, but has yet to begin drawing from the retirement accounts. If this is you and buying a home in the state of Georgia, I’d be happy to help you get started.


FHA changes begin April 1st

February 12, 2013


As you may have heard OR read on this blog, FHA announced changes to their loans. Those changes take place on all case numbers assigned on or after April 1, 2013. Does this mean you need to be closed on a home by the end of March.

In the words of Lee Corso – not so fast my friend!


The changes that increase the monthly mortgage insurance rate AND make the mortgage insurance permanent are for all loans with case numbers assigned by April 1st. That doesn’t mean you need to be closed by that date. Ideally, you need to be under contract by Monday, March 25, 2013 so your lender can order your case number. Under this scenario, you should have a case number before April 1st.

Typically it takes 24-48 hours to get a case number back, but there could be a rush on case number orders due to the April 1st deadline. To ensure you get a case number assigned before April 1, 2013, be under contract by March 25th. Have your lender order the case number ASAP, and you should have it back by the end of the week.

This means you don’t have to find a home and be closed in roughly 45 days from now. What it does mean is you have six weeks to get prequalified, find a home, make an offer, and get under contract. You can close after April 1st and still get the current mortgage insurance terms and guidelines for your FHA loan.

Looking to buy a home in the state of Georgia? Contact me today, and I can help y0u get started with the prequalification process.


FHA changes officially announced

January 31, 2013


As I mentioned earlier this month, FHA has indeed announced changes to their guidelines. While FHA was approved by Congress to increase their monthly mortgage insurance rates by roughly 60%, the actual increase wasn’t that severe. Don’t get too excited though. There is one change that isn’t going to be very popular at all.

The announced changes include:

  • Monthly mortgage insurance for borrowers making the minimum down payment will see the monthly mortgage insurance rates increase from 1.25% to 1.35%. On a $200,000 that works out to about a $17 per month increase.
  • The biggest change is that mortgage insurance will be required for the life of the loan. Mortgage insurance will no longer fall off of the loan once you have 22% equity. You’ll pay monthly mortgage insurance for 30 years on a 30 year fixed FHA loan unless you make a 10% down payment when you buy the home (if you can make a 10% down payment, you more likely to be better off going conventional).
  • Borrowers with a credit score less than 620 and a debt to income ratio higher than 43% will require manual underwriting for approval along with a letter from the lender explaining why this borrower was approved. Individuals looking to buy a home that fall into this category will be hard pressed to find a lender who will process their loan.

As expected, these changes make conventional loans look way more attractive. For example, let’s assume you are looking to buy a home and have a credit score 720 or more. With today’s PMI rates, the monthly mortgage insurance on FHA loans is twice as much than conventional loans with a 5% down payment.

Let’s use a $200,000 purchase price again and compare FHA and conventional loans:

  • The FHA down payment is only $7,000, but the monthly mortgage insurance is $220 per month.
  • The conventional loan down payment is a little higher at $10,000, but the monthly mortgage insurance is $107. That is a savings of $113 per month (over $1,300 per year).

Why the changes? It is twofold. First, FHA is looking to raise money because their reserves are exhausted. Increasing mortgage insurance and requiring it for the life of the loan would help replenish their reserves that have been severely hurt by the foreclosure crisis over the past few years.

The second reason is to reduce the number of FHA loans they insure. By making it more expensive to use an FHA loan, it will steer borrowers to conventional loans – which is the goal of the government so they do not have to insure as many mortgages as they are currently funding.

The moral of the story – if you are looking to buy a home using an FHA loan, you want to get started and closed before these changes take effect. If you are buying in the state of Georgia, I can help you get started with the prequalification process today. Don’t delay as these changes are coming!


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…