Tuesday, December 14, 2010

New Credit Rule

There is a new underwriting regulation for Fannie Mae (non-government) loans that is important to know.

If a borrower pays off a revolving debt (like a credit card) to qualify for a loan, the borrower must close that account before closing or at closing. If they don't close the account, the debt must be counted against them when calculating the debt-to-income ratio, even if the balance is zero.

If the account is paid off but not closed, the balance that showed on the first credit report that was pulled by the lender must be used. Pulling a new credit report to show the balance as zero is not allowed.

This is one of those underwriting guidelines that most lenders will not know about because most lenders do not read the underwriting guideline updates every day. If your lender doesn't read the updates and your deal falls apart, dump the bum and start using a good lender who reads.

Want to make sure your loans close? Call the Mortgage Experts at 303-345-3683.

Thursday, December 9, 2010

New Licensing Regulations

On January 1, 2011 - just a few weeks from now - all mortgage brokers in Colorado must be licensed by the State and registered with the Nationwide Mortgage Licensing System (NMLS). At the moment, thousands of Colorado mortgage brokers have chosen to either ignore the new regulations, or have failed to complete the paperwork correctly or pay the required fees.

On January 1, any mortgage broker who is not licensed by Colorado or registered with NMLS will not be allowed to originate loans in Colorado. However, no one will know that a broker is not licensed and registered until the loans they have sold go to underwriting. That means many deals may fall apart.

Here's how to protect yourself and your clients:
  • If you are the selling agent, ask the mortgage broker who is working with your buyers if they are licensed and registered. If they are, they will have a Colorado Mortgage Loan Originator License number and an NMLS registration number.
  • If you are the listing agent, you should also ask the mortgage broker. Don't assume that the selling agent has done it for you. If they haven't, and the mortgage broker is not licensed and registered, your deal will fall apart.

Monday, December 6, 2010

Mortgage Booklet Gets Business for Realtors

When we get a referral from a real estate agent, one of our main goals is to do everything we possibly can to make sure the home buyer refers the agent to other home buyers. The easiest way to do that is by demonstrating to the client that their real estate agent has referred them to the most knowledgable lender in the Metro Denver area.

We have an 11-page booklet entitled "Mortgage Essentials" that is regarded by everyone who reads it as being the most comprehensive handout on mortgages they have ever seen.

Here is the Table of Contents:

How Do I Qualify for a Loan?
The Down Payment
Down Payment Assistance Programs
Mortgage Insurance
Closing Costs
Locking the Interest Rate
Getting Pre-Approved
The Loan Application
Loan Disclosures
How to Tell if You Have a Good Mortgage Broker
Should You Use a Real Estate Agent?

"Mortgage Essentials" closes deals for us, and it helps to build the business of the real estate agents who refer their clients to us. If you would like to see a copy, give us a call and we'll be happy to email it to you.

Want to make sure you loans close? Call the Mortgage Experts at 303-345-3683.

Friday, December 3, 2010

FHA and Conventional Loan Limits for 2011

The loan limits for Fannie Mae, Freddie Mac, and FHA have been announced for 2011 for the Denver Metro area. Here they are:

The Fannie Mae and Freddie Mac limit is $417,000 for the Denver Metro counties, and $460,000 for Boulder County. Anything over those amounts is considered a jumbo loan. Fannie Mae and Freddie Mac loans are conventional loans, which means they are non-government (FHA or VA) loans.

FHA loan limits also vary depending on the county in which the property is located. For the Denver Metro counties, the limit is $406,250. For Boulder County, the limit is $460,000.

Need to find the limits for a property in a different location? Here's the link to get to the web site that will give you all the loan limits in the country:


Here's how to use the web site:

- From the SORTED BY menu, select County.
- Select the state.
- From the LIMIT TYPE menu, select FHA Forward for FHA loans, or Fannie/Freddie for conventional loans.
- In the LIMIT YEAR menu, make sure the correct year is selected. CY2010 means calendar year 2010 and CY 2011 means calendar year 2011.
- Click on SEND and you will get the loan limits.

Have a question about how to find the loan limits? Call us at 303-345-3683.

Want to make sure you loan closes? Call the Mortgage Experts at 303-345-3683.

Thursday, November 18, 2010

# 1 Reason Loans Don't Close

Most real estate agents have experienced the frustration of a loan falling apart at the last minute. Here's the # 1 reason that happens.

When a conventional (non-government) loan is underwritten, it must comply with three sets of underwriting guidelines: Fannie Mae or Freddie Mac guidelines, the individual lender guidelines, and the mortgage insurance company guidelines. When a deal falls apart, it's probably because the loan originator (the person who is selling the loan) didn't check all three sets of guidelines.

Here's an example of how the additional guidelines might affect a loan:

First set of guidelines is Fannie Mae's. Minimum credit score of 620.

Second set of guidelines is the individual lender's. Minimum credit score of 640.

Third set of guidelines is the mortgage insurance company's. Minimum credit score of 680.

The strictest set of guidelines is always the set that matters, so the minimum credit score is 680.

If the person selling the loan only checked the Fannie Mae guidelines (either manually or by using the underwriting software that Fannie Mae provides) and the borrower has a credit score below 680, they may think the loan can get approved and will write you a pre-approval letter. However, the loan needs a 680 credit score and the borrower doesn't have a score that high, so there really is no deal. It falls apart at the last minute when the person selling the loan gets the bad news from the mortgage insurance company. They will probably tell you that the guidelines changed, but that's not true - the loan originator just didn't check them.

With FHA loans, there are two sets of guidelines: FHA's and the individual lender's. The mortgage insurance guidelines are included in the FHA guidelines.

With VA loans, there are also two sets of guidelines: VA's and the individual lender's. There is no mortgage insurance with VA loans.

How do you protect yourself from deals falling apart? It is super easy. Make sure you are using a lender who knows there are three sets of guidelines. The way to tell is to ask them. If they don't know what you're talking about, dump the bum because you might have a bogus pre-approval letter. If you keep using a lender who doesn't know what they're doing, you are the only one to blame for ruining your business.

Tuesday, November 9, 2010

Refinance Your Rental with an FHA Loan

Here’s a great deal for anyone who has an FHA loan on an investment property.

FHA will allow you to refinance the loan into another FHA loan, even though it’s an investment property. And you do not need an appraisal! The only requirement is that you reduce your total monthly mortgage payment by 5%. Considering how low interest rates are now, that should not be too hard to do.

Not many people know about these loans, but we sure do.

Want one of these great refi’s? Call the Mortgage Experts at 303-345-3683.

Check out our web site at www.mtgsupportservices.com

Thursday, November 4, 2010

Second Home Guidelines

When someone buys a property, there are three possible types of occupancy: primary residence, second home, and investment property.

All three types of occupancy have different underwriting guidelines, and interest rates for primary residences and second homes are lower than they are for investment properties. Here are the Fannie Mae guidelines that determine whether a property is a second home:

-- The property must be located a reasonable distance away from the borrower's principal residence. Most lenders interpret this to mean 50 miles. If the second home is in an obvious vacation area (beach, ski resort, etc.) then the 50-mile limit does not apply.
-- The borrower must live in the property for some portion of the year.
-- The second home can only be a one-unit property.
-- It must be suitable for year-round occupancy.
-- The borrower must have exclusive control over the property.
-- The property must not be a rental or a timeshare.
-- The property cannot be subject to any agreements that give a management firm control over the occupancy of the property.

Sunday, October 31, 2010

VA Loans Quick Reference Guide

Need a Quick Reference Guide for VA Loans? Here you go.

Down Payment and Seller Concessions
-- No down payment required – 100% financing
-- No limit on seller-paid closing costs
-- Pre-paids (insurance, taxes, permanent buydown points, etc.) are limited to 4% of purchase price

Declining Market Restrictions
-- VA does NOT have declining market restrictions

Borrower Eligibility
-- Limited to active and retired members of the military and their surviving spouses
-- NOT limited to first time homebuyers
-- NO income limitations

Occupancy Requirements
-- Primary residences only

Maximum Loan Size
-- $417,000 in all counties and some counties are much higher – it is possible to purchase a house over the limit, but 25% of anything over the limit must be paid in cash

Credit Requirements
-- Each lender has their own minimum credit score – typically 640
-- Non-traditional credit is OK (need 3 trade lines verified for the past 12 months)
-- Bankruptcy – Chapter 7 is 2 years from the discharge date, Chapter 13 is 1 year of timely payments
-- Foreclosure – 2 years from the recording date of the Public Trustee’s Deed
-- Collection accounts do NOT have to be paid

Mortgage Insurance
-- No mortgage insurance
-- VA funding fee of 1.25% - 3.3% is paid at closing (it can be financed into the loan)
-- Funding fee is waived if the borrower is receiving permanent military disability benefits

-- The property must be in good condition and safety issues must be addressed

Thursday, October 28, 2010

Mortgage Insurance with 3% Down

Last month, Fannie Mae announced that they were lowering their down payment requirement to 3% for one-unit primary residence purchase transactions. However, at the time of the Fannie Mae announcement, the mortgage insurance companies required 5% down, so the Fannie Mae announcement did not really change things.

But here's some GREAT NEWS! The mortgage insurance companies have just announced that they will now insure loans with 3% down. Here are some details:

-- The minimum down payment is only 3%.
-- The minimum credit score at the moment is 700.
-- These are not restricted to first-time home buyers. If you have owned a home in the last three years, you are still eligible.
-- Primary residences only. No second homes and no investment properties.
-- One-unit properties only.

What impact does this have on the real estate industry?

Lowering the down payment requirement from 5% to 3% will increase the number of people who will be able to buy a house. However, these new down payment rules are only for people with good credit. When a loan that is insured by a mortgage company goes into foreclosure, the mortgage insurance company has to write a very big check to the lender, and they want to make sure they don't write too many big checks. Do not think that the lower down payment requirement is the beginning of a return to the sub-prime mortgage days! The mortgage insurance underwriting guidelines are still very strict.

Sunday, October 24, 2010

FHA Quick Reference Guide

Need a Quick Reference Guide for FHA Loans? Here you go.

Down Payment and Seller Concessions
-- 3.5% down
-- A relative can either GIVE the money to the borrower or LEND the money to the borrower
-- 6% seller concessions are allowed

Declining Market Restrictions
-- FHA does NOT have declining market restrictions

Borrower Eligibility
-- NOT limited to first time homebuyers
-- NO income limitations
-- Non-occupying co-borrowers are allowed (occupying borrower does not need any income to qualify)

Occupancy Requirements
-- Primary residences for maximum financing
-- 2, 3, and 4 units properties are allowed, as long as one unit is occupied by the borrower
-- Two FHA loans to the same borrower are OK, but they need 25% equity in the first property

Maximum Loan Size
-- Varies by county
-- The maximum loan size is $406,250 in Metro-Denver counties; Boulder County is $460,000
-- Loan size is higher for 2, 3, and 4 family units

Credit Requirements
-- Each lender has their own minimum credit score – typically 640
-- Non-traditional credit is OK (need 3 trade lines verified for the past 12 months)
-- Bankruptcy – Chapter 7 is 2 years from the discharge date, Chapter 13 is 1 year of timely payments
-- Foreclosure – 3 years from the recording date of the Public Trustee’s Deed
-- Short Sales – no waiting period if the mortgage was not delinquent at the time of the short sale, 3 years if the mortgage was delinquent – (other restrictions may apply – call us for details)
-- Collection accounts do NOT have to be paid

Mortgage Insurance
-- 1% up-front mortgage insurance premium is required, but it can be financed into the loan
-- Monthly mortgage insurance premium is based on a 0.90% annual rate (for most FHA loans)

-- They are NOT any more restrictive than conventional appraisals (safety issues must be addressed)

Wednesday, October 13, 2010

Bankruptcy, Foreclosure, and Short Sale Timelines

Here are the current waiting periods before someone who has had a bankruptcy, foreclosure, or a short sale can qualify for a mortgage:

Chapter 7 Bankruptcies:

Conventional (non-government) loans:
-- 4 years from the discharge date
FHA loans:
-- 2 years from the discharge date
VA loans:
-- 2 years from the discharge date

Chapter 13 Bankruptcies:

Conventional loans:
-- 2 years from the discharge date or 4 years from the dismissal date
FHA loans:
-- 1 year of the payout period must elapse
VA loans:
-- 1 year of the payout period must elapse


Conventional loans:
-- 5 years from the completion date with 10% down and a 680 credit score
-- 7 years from the completion date with 3% or 5% down
FHA loans:
-- 3 years from the completion date
VA loans:
-- 2 years from the completion date

Short Sales:

Conventional loans:
-- 2 years with 20% down
-- 4 years with 10% down
-- 7 years with 3% or 5% down
FHA loans:
-- No waiting period if all mortgage payments and all other installment debt payments were made on time for the 12 months prior to the short sale
-- The short sale payoff must serve as payment in full. No outstanding deficiency can exist after the short sale.
-- The new purchase cannot be for a property of equal or greater value than the property sold in the short sale if the new property is within a "reasonable commuting distance" of the short sale property.
-- If the borrower is in default on their mortgage at the time of the short sale, the waiting period is 3 years.
VA loans:
-- VA does not have a specific policy regarding short sales.

In addition, each lender is allowed to impose their own, more restrictive guidelines on top of these guidelines. Always check with the individual lenders to find out what their guidelines are. Some lenders follow the guidelines above, and some have much stricter guidelines.

What impact does this have on the real estate industry?

These guidelines (and all guidelines) are not put in place to prevent people from owning houses. Rather, they are intended to keep people in houses.

The short-term effect of strict underwriting guidelines is never good for the industry because fewer people will be able to qualify for a mortgage. However, the long-term effect of strict underwriting guidelines is very good for the industry. Fewer properties will go into foreclosure, helping to preserve values. If values are maintained or go up, more people will want to buy a house.

It is important to understand the guidelines so you can advise your clients correctly. For instance, no one should ever tell a client to stop paying their mortgage so they can qualify for a short sale.

The FHA and VA rules for bankruptcies, foreclosures, and short sales are actually quite lenient when compared to conventional underwriting guidelines.

Thursday, October 7, 2010

Learn ALL the Mortgage Rip-Offs -- for Free!

By now, everyone knows that you can get ripped-off when you get a mortgage, but most people are a little fuzzy on exactly how those rip-offs occur. Want to know how it's done?

Attend our "How Not to Get Ripped-Off When Buying a House" class at Colorado Free University on Wednesday, October 20, and find out how the bad guys operate and how to protect yourself from their evil ways.

The class is a crowd pleaser and it's FREE!

Here's who should attend:

-- Your prospects who are sitting on the fence because they're afraid of the banks and the mortgage brokers.
-- You. Unless you've been a mortgage broker, you can't even begin to imagine how bad some of them are. Protect YOUR deals by learning what to look for.
-- Everyone in your sphere of influence. If you are the person who educates your sphere, then you are the person who gets the deals.

Here's what we cover:

-- The flow of mortgage money, from the closing until when China buys our mortgage backed securities. Learn how it all works, in plain English. If you don't know how the money flows, you can't possibly understand how the rip-offs occur. If you've ever wondered about how or why the money gets (or doesn't get) to a closing, this class is for you.
-- Get a look at an actual rate sheet. Learn exactly how much lenders get paid (it's a lot more than you think). Learn how almost EVERYONE gets ripped off when they pay points.
-- Learn all the common rip-off lines.
-- Learn why interest rates change.
-- Learn how to tell in a minute if your lender is honest, or good, or honest AND good.

Here are the details:

-- The class is FREE.
-- The date is Wednesday, October 20, from 6:30 PM - 9:30 PM.
-- The place is the Colorado Free University campus at Lowry - near 1st and Quebec.
-- To register, call Colorado Free University at 303-399-0093.
-- We do NOT offer CEU credits for this class.

Tell your prospects, tell your friends, and make sure you attend yourself.

Monday, October 4, 2010

How to Determine the Interest Rate

We get calls every day from real estate agents, people interested in buying a house, and people interested in refinancing their current loan. Just about every conversation includes the question, "What's the interest rate?"

We never know the answer. Not because we're out of touch, but because we know that we need to have certain information before we can quote someone a rate (and not just be making it up). Here's the magic list of the things every lender needs to know before they can quote an accurate interest rate.

First the easy questions (most people know the answers to these):

-- What is the term of the loan (10, 15, 20, 25, 30, or 40 years)?
-- How big is the loan?
-- Is it fixed rate or adjustable rate?
-- Is it fully amortized (principal and interest payments every month) or interest only?
-- Is it a primary residence, a second home, or an investment property?
-- How many units are there? 1 unit, 2 units, or 3-4 units?

Next are the questions that about half the people can answer:

-- What is the credit score? "Excellent", "very good", "good", "fair", and "poor" don't help us because those terms mean different things to different people. Every 20 points in score below a 740 raises the rate for a conventional loan. The middle score of the borrowers' three credit scores is the one that counts. If there is more than one borrower, then the lower of the two middle scores counts.
-- What is the down payment?
-- What type of loan is it: FHA, VA, or conventional?
-- Is it a condo?

And finally, the questions that very few people can answer:

-- How long does the rate lock need to be? Every 15 days raises the rate.
-- Is there subordinate financing (a second lien)? Home equity lines of credit (HELOCs) count as second liens.
-- If the new loan is for a refinance transaction, is it a rate and term refinance or a cash-out refinance? The rules for this are very complicated.

Want to know the easiest way to tell if a lender is being honest with you? Ask for the rate. If they don't ask you all of these questions, they're just making it up.

And that's one of the reasons we have so many foreclosures!

Thursday, September 30, 2010

Two Credit Reports for Conventional Loans

Two credit reports are now needed for conventional loans. A conventional loan is any loan that is NOT a government loan - if a loan is not an FHA loan, a VA loan, or a USDA loan, then it is a conventional loan.

If the loan is a conventional loan, lenders are required to refresh the credit reports of all borrowers shortly before the closing. A refreshed credit report updates account balances, minimum payments, and credit inquiries (every time someone pulls your credit, you have a credit inquiry).

If there are any major differences between the original credit report and the refreshed report, they must be explained. This can cause delays in closings, and in some cases, can cause the loan to be denied.

How do you combat this new problem? Very easily. If you have applied for a mortgage, do NOT apply for any new credit (credit cards, car loans, furniture loans, increases in credit card limits, etc.) and do NOT charge more on your existing accounts. Wait until after the closing to buy all those things you need for your new house.

Thursday, September 23, 2010

Changes for Conventional Loans

Fannie Mae (the ruler of conventional loans) is making some changes to their underwriting guidelines that will affect many real estate deals. Here are the two changes that will get the most press:
  • The minimum down payment for one-unit, primary residence loans is being lowered to 3%. This does not apply to cash-out refinances. It is incredibly important to note that mortgage insurance companies will not insure these loans at the moment, with the exception of loans for first-time homebuyers with very good credit, so do NOT assume that 3% down is the new standard. FHA loans (3.5% down) are still, at the moment, the lowest down payment option for most borrowers.
  • The down payment can now be paid by a relative of the borrower, as long as it is a gift. Again, private mortgage insurance companies are NOT insuring these loans at the moment. FHA loans allow gifts from relatives and FHA will insure the loans, the same as always.
  • These changes affect loan applications dated December 11, 2010 and later.

By the time these changes take effect, the mortgage insurance companies may insure the loans, but that is anyone's guess.

Sunday, September 19, 2010

What the Heck Does POC Mean?

We are often asked what POC means on a Final Settlement Statement.

Quick quiz - does POC stand for:
  1. Primary Occupancy Charge
  2. Pickled Onion Curry
  3. Ponies On Causeway
  4. Paid Outside of Closing
POC stands for Paid Outside of Closing, and refers to any fee that is not being disbursed at the closing. The two most common POC charges are the appraisal fee (if it has been paid by the borrower before the closing) and the yield spread premium (the rebate that the lender pays the mortgage broker).

When POC is listed on the Settlement Statement, the letters are often followed by the words Borrower, Seller, Broker, or Lender. This refers to who paid the fee. For example, if the borrower paid for the appraisal before the closing, the fee would be marked as "POC Borrower" on the Settlement Statement.

If a fee is marked as POC, it is not included in the bottom line on the settlement statement because someone has already paid it (in the case of a paid appraisal) or the borrower does not owe it (in the case of a yield spread premium).

POC fees are listed on the Settlement Statement because the Real Estate Settlement Procedures Act (RESPA) states that all fees associated with a federally regulated mortgage must be shown on the Settlement Statement, regardless of whether they have already been paid or not.

Wednesday, September 15, 2010

How Much Does a Mortgage Broker REALLY Get Paid?

Here's how mortgage brokers get paid.

We can make money in two ways. The first is by charging the borrower directly for fees. This is known as front-end compensation. The second way we get paid is by receiving a payment from the lender. This is known as back-end compensation.

Here are some examples of front-end compensation (direct charges to the borrower):
  • Origination fee
  • Discount fee
  • Underwriting fee
  • Processing fee
  • Admin fee
  • Marketing fee
  • Warehouse fee
  • Any other fee we decide to charge

On the Good Faith Estimate (GFE), all of these fees except the discount fee will be combined into Our Origination Charge (line 1 on the second page of the GFE). The discount fee will be on line 2. Always ask your mortgage broker for a breakdown of these fees. If he won't tell you, dump the bum and find someone who will be honest with you.

Does the broker get to keep all of these fees? No, they don't. However, there is absolutely no way for a borrower to know which fees the broker is paying to someone else and which fees he is keeping for himself.

Here is how back-end compensation works:

  • If the mortgage broker is acting as a true broker (meaning he is arranging for the financing, but does not actually fund the loan with his company's money), then he gets a check from the lender for increasng the interest rate. The more he increases the interest rate, the more money he gets. This is known as a Yield Spread Premium, or YSP. This is supposed to be reported on the Good Faith Estimate (GFE), but people still cheat in the mortgage industry, so it may or may not be on the GFE.

  • If the mortgage broker is acting as a mortgage banker (meaning he is not only arranging for the financing, but also funding the loan with his company's money), then he gets an additional check from the lender. This is known as a Servicing Released Premium, or SRP. This does not have to be reported on the GFE, so the borrower will never know if the broker is getting this check.

Every loan works this way, regardless of whether the person selling the loan works for a retail bank or sells loans for more than one bank.

Sunday, September 12, 2010

Mortgage Insurance Rates

Now that FHA mortgage insurance is going up from .55% a year to .90% a year, conventional loans will become more attractive to many borrowers. If a borrower has good credit, their monthly mortgage payment might be cheaper with a conventional loan than it would be with an FHA loan.

However, it is important to know that not all private mortgage insurance companies have the same rates. On a loan that we originated recently, the lender told us the mortgage insurance (MI) payment was going to be $195 a month for a $250,000 loan. We told the lender that we wanted to use a different MI company and got a cheaper payment of $139 a month, lowering the borrower's payment by $56 a month.

It was cheaper with the company we asked to use because they give discounts for good credit scores. The MI company that the lender wanted to use does not give discounts for good credit.

Not every state has approved the MI rates that are based on credit scores, but Colorado has approved the lower rates.

Make sure you are using a lender who knows about the rates that are based on credit scores. The cheap rates are not automatically given to people when they apply for a loan.

Wednesday, September 8, 2010

Quick Way to Raise Credit Scores

When we run someone's credit through the software that tells us exactly what to do to raise their credit scores, the most common recommendation is to lower the percentage of the person's credit limit that is being used.

Here are the percentages that affect credit scores:

-- If the balance is more than 70% of your credit limit, it lowers your score the most.
-- If the balance is 50% - 70% of your credit limit, it lowers your score a bit less.
-- If the balance is 30% - 50% of your credit limit, it lowers your score even less.
-- If the balance is below 30%, it will improve your score the most.

These percentages apply to individual credit accounts and also to the total credit limit of all credit accounts. So if you pay off a credit card account, do not close the account. That will lower your total available credit limit and therefore lower your credit scores.

Sunday, August 22, 2010

How to Find the Correct Property Address

Here's a great way to avoid having to amend sales contracts.

Before approving a loan for closing, underwriters need to make sure the address that is on the sales contract is the correct address. If the address is incorrect, the sales contract will need to be amended to show the correct address, and that can cause unnecessary delays.

The address that shows on the title commitment is NOT the official address, so if for some reason you have the title commitment before writing the contract, you can't rely on that address.

Underwriters use the United States Postal Service Zip Code look-up web site to get the official addresses of properties.

Here's the link to the site:


Once you are on the site, enter the street address, city, and state that you have (you do not need to enter the Zip Code), and hit SUBMIT. The correct USPS address will be returned.

If you use this official USPS address on the sales contract, you will avoid closing delays.

Tuesday, August 17, 2010

How to Find Public Records

Ever wonder how underwriters find out all the details about a buyer or a property? One of the greatest resources for an underwriter is the Public Records Online Directory. This web site is a portal to all the official Assessor's, Recorder's, and Treasurer's web sites.

Here are just a few of the things that can be found by using this site:

- assessed value
- taxes
- current owners' name and address
- sales history
- deed recording dates
- zoning information
- property type (end the confusion about whether a property is a condo or a townhouse)

Here's the link to the site:


When the web page opens, just click on the state, then the county, and then the link to the Assessor, Recorder, or Treasurer. If the link says "Go to Data Online" that means you will be able to access the information yourself. If the link says "Website Only" or "No Information Online", then you won't be able to get the information yourself, but you can call the phone number listed next to the link to get what you need.

We use this web site for every loan we originate, just so we'll know exactly what the underwriter is going to see when they start their research. It's much better to head off problems early in the game than to have a deal fall apart at the last minute.

Friday, August 13, 2010

How to Speed Up Short Sales

You've finally gotten the short sale approval from the seller's lender, and they've given you 3 weeks to close. But the buyer's lender says they need 5 weeks to close.

How do you prevent this from happening? By being proactive.

Any good lender will get the loan file into underwriting as soon as a sales contract is signed. They won't wait until the short sale approval arrives. If things are done this way, the loan can already be approved except for the following:

-- Appraisal
-- Any necessary updates to income and assets (most recent pay stubs and bank statements)

If that's all that the underwriter needs to see to issue the final approval, 3 weeks should be plenty of time to close.

Wednesday, August 11, 2010

Updated Roll-Out Date for FHA Mortgage Insurance Changes

The roll-out date for the change in FHA mortgage insurance premiums has been moved to October 4, 2010. The new mortgage insurance rates affect all loans that have the FHA case number issued on or after October 4, 2010.

See the previous post for the original announcement and how it will change monthly payments for FHA loans.

Monday, August 9, 2010

FHA Mortgage Insurance Is Going Up!

In a press release dated August 5, 2010, FHA Commissioner David Stevens announced that effective September 7, 2010, FHA intends to lower the up-front mortgage insurance premium from 2.25% to 1.00%.

At the same time, FHA will increase the monthly mortgage insurance premium from .55% to .90% for loans with less than 5% down, and to .85% for loans with 5% or more down.

Of course, everyone will go bananas when they hear this, so let's see what it really means before declaring that HUD is killing the real estate industry. Let's look at two examples of how the changes will affect the industry.

In our first example, we will assume the purchase price is $100,000, the down payment is the minimum 3.5%, and the interest rate is 5%. We will also assume that the borrower will finance the up-front mortgage insurance premium (because they almost always do).

Under the current mortgage insurance rules, the monthly payment for principal, interest, and mortgage insurance would be $573.62. Under the new rules, the principal, interest, and mortgage insurance would be $595.10.

That's an increase of $21.48.

In our second example, let's assume a purchase price of $200,000, a down payment of 3.5%, and an interest rate of 5%. Again, we will assume that the borrower will finance the up-front mortgage insurance premium.

Under the current mortgage insurance rules, the monthly payment for principal, interest, and mortgage insurance would be $1147.24. Under the new rules, the principal, interest, and mortgage insurance would be $1190.21.

That's an increase of $42.97.

Will either of those increases kill many deals? Probably not. Will they help to ensure that FHA will be able to continue its role of providing very stable, very low interest rate mortgages to borrowers who otherwise might not qualify for a loan? Absolutely.

Thursday, August 5, 2010

3% Down Mortgages from Fannie Mae

3% down payment mortgages from Fannie Mae are still available! They never went away!

They're called Flexible mortgages and the "flexible" part means that the 3% down payment can come from what Fannie Mae calls "flexible" sources. Gifts or loans from relatives are the two most common sources of flexible funds.

Here are some of the highlights of these loans:

- There are no income limits.
- Down payment is only 3% of the purchase price.
- There is no "up-front mortgage insurance premium" like there is with FHA loans. There is monthly mortgage insurance.
- The down payment and closing costs can come from "flexible" sources: primarily gifts or loans from relatives.
- They are for 1-unit primary residences only.
- They are not only for first-time home buyers. As long as the property will be the buyer's primary residence, it doesn't matter if they own other property.
- They are all underwritten using Fannie Mae's online underwriting system for quick approval decisions.
- The seller can pay up to 3% of the purchase price towards the buyer's closing costs.

Tuesday, August 3, 2010

Property Tax Credit

One of the most common questions we get asked is "What is the property tax credit and how is it calculated?"

Property taxes are paid in arrears in Colorado, meaning the property taxes for this year are paid to the county next year. If you buy a house on August 15, 2010, then the property taxes for all of 2010 will be due in 2011. But wait! You only lived in the house from August 15, 2010 until the end of the year - why should you have to pay the taxes for all of 2010? Well, you don't. That's where the property tax credit comes in.

At the closing, the seller will pay you one day's worth of property taxes from January 1 until the last day that they owned it - August 14. That's 7 1/2 months of taxes that get moved from the seller's account into the buyer's account.It doesn't matter when you close on your house - you will only pay property taxes for the time you owned it. As the year goes on, the property tax credit gets larger. For example, if you close on a house on January 2, you will only get 1 day of taxes from the seller. If you close on December 31, you will get an entire year of taxes from the seller (less the one day you lived in it - December 31). This is important to know if you are asking the seller to pay some of your closing costs.

If the closing costs are $5,000 and the property tax credit is $2,000, then the most you should ask the seller to pay is $3,000. You don't need all $5,000 from the seller, so don't ask for it. Instead, ask for $3,000 in closing costs and lower your offer price by $2,000. The seller will end up netting the exact same amount of money, and you will pay $2,000 less for the property. Both parties will be happy. If both parties are happy, you have a well-constructed sales contract.

One more reason why you need to get your home loan financing from people who understands everything there is to know about mortgages - people like The Mortgage Experts!

Friday, July 30, 2010

Why Do Lenders Want My Bank Statements?

"Why does a lender want to see my bank statements?"

Here are the reasons that lenders ask to see a borrower's bank statements:

They need to verify that the money being used for the down payment and closing costs really belongs to the borrower. If there are deposits that came from sources other than a pay check, the borrower will need to provide some sort of documentation showing where they got the money.

The lender wants to make sure that the borrower does not have any insufficient funds charges. If they do, then they will need to provide an explanation about why they had problems keeping track of their money.

The lender is looking for loans that might not show up on the borrower's credit report. If a borrower gets a loan for a car, furniture, or something else directly from their bank, the bank might not report it to the credit bureaus. However, the lender must count the debt against the borrower in order to sell the loan to Fannie Mae, Freddie Mac, FHA, or VA.

The lender wants to make sure that the borrower has full access to all of the money in their bank accounts. If the borrower has a joint account with someone other than their spouse, the lender will require a letter from the other person saying that the borrower can use all of the money in the account.

Tuesday, July 27, 2010

Do All Late Payments Show Up on Your Credit Report?

In order for a late payment to appear on your credit report, it must be a full 30 days late. If your credit card (or mortgage, or car loan) payment is due on the 1st of the month, and you pay it on the 20th of the month, you will have a late payment fee, but it will not be reported to the credit bureaus and no lender will ever know that you paid late. Your credit score will not go down at all.

It is possible to be late on every single bill you ever have and still have excellent credit. You may pay a lot of money in late fees, but your credit scores will not go down at all as long as you pay within 30 days of the due date.

Is Earnest Money Part of the Down Payment?

Buyers often ask us if the earnest money check they write when they make an offer on a house is part of the down payment.

The answer is YES. The earnest money check is a good-faith deposit to demonstrate to the seller that the buyer is serious about the transaction. If the transaction closes, the earnest money deposit can be counted as part of the down payment.

In addition, if the earnest money deposit is larger than the required down payment, then any excess amount can be applied towards the buyer's closing costs.

If there is any money left over after the earnest money is used for the down payment and the closing costs, then the buyer will receive a refund at the closing. A good example of when this might happen is when a buyer gets 100% VA financing and the seller agrees to pay the buyer's closing costs. There is no down payment with a VA loan, and if the seller agreed to pay the buyer's closing costs, then 100% of the earnest money would be refunded to the buyer at closing.

Friday, July 23, 2010

Can All Lenders Sell Purchase Loans AND Refinance Loans?

Can all lenders sell purchase loans AND refinance loans?

That's a common question and the answer is YES. Unless a lender only deals in a very small niche (fix and flip loans, hard money loans, etc.) they can sell loans for both purchase and refinance transactions.

The underwriting guidelines are different for refinances (generally a little stricter than they are for purchases), but there is nothing preventing a mortgage originator from selling either type of loan.

Most originators market themselves towards one market (either purchase or refinance) depending on their sales skills and preference for dealing with one market over the other. If an originator likes working with real estate agents, then they will probably be more inclined to concentrate on purchase transactions. If they prefer to work more independently, or prefer not to be tied down by contract deadlines, then they will usually concentrate on refinance transactions.

The majority of our loans are purchase transactions, but we still sell refinance loans as well. Even though the number of purchases across the country is low compared to the number of refinances, marketing ourselves to real estate agents has proven to be very effective. As more and more loan originators drop out of the industry, the number of agent referrals we get steadily increases. So far, things have worked out pretty well.

We would like to remind everyone that we do sell refi loans and always love more business, so pass the word to your clients and friends that The Mortgage Experts can get them those super low rates that everyone should have right now.

Since refinance business is just extra business for us (we spend $0.00 marketing ourselves as refi lenders), we pass that low overhead onto our refi clients. We always sell refi loans at the par interest rate (the lowest rate that does not require the borrower to pay points). That means we almost always have lower interest rates than anyone else.

Monday, July 19, 2010

Finance Reform - How Will It Affect Mortgages and Real Estate?

Now that the Wall Street Reform and Consumer Protection Act (the new finance reform law) has been passed by Congress, we’re getting many questions about how this new law is going to affect the lending and real estate industries.

The specifics of the new law will only be known when the new Bureau of Consumer Financial Protection is formed and hammers out the details. However, here are a few things that are known:

-- Unless a loan is a “qualified mortgage”, meaning it is low risk: full doc (income and assets verified), fully amortized (no interest-only payments), no balloon payment, no negative amortization (option ARMs), etc., the lender will need to cover 5% of the risk. That means the lender will be on the hook for 5% of the loan if the borrower goes into foreclosure. Not many sane lenders are going to want to write checks that big, so kiss stated doc, interest-only, and risky loans good-bye – unless the interest rates are a lot higher than they are for a low-risk “qualified mortgage”.

-- Income for mortgage loan originators (loan officers) will be restricted, but only for mortgage brokers, not mortgage bankers. The difference between a broker and a banker is that a broker only arranges for the financing, but does not fund the loan themselves. The money that is sent to the closing comes directly from the lender. A banker, on the other hand, funds their own loans. No one except the loan officer and the title company typically knows how the loan is funded, so don’t expect much of a change here. Any broker can very easily become a banker. It just takes a few hours to sign up with a different company. Wholesale bankers can still represent more than one lender, just as they do now, so everyone will NOT end up working for one of the big banks.

-- Loan disclosures (including the Good Faith Estimate) will change once again. Not much of an impact here because no one reads anything anyway.

The bottom line is that loans will continue to get harder to qualify for because sub-prime is dead and not coming back until the economy is fixed. That will take years and years. To get a loan, people will need good credit, steady income, and some money for a down payment.

The new law makes it official – things have changed.

Monday, July 12, 2010

Will Fannie Mae's New Requirement to Pull a Second Credit Report Lower Your Score?

Now that Fannie Mae "recommends" that all lenders pull a new credit report right before closing (meaning "do it or else we won't buy the loan"), there is much concern about whether the extra credit pull will lower a borrower's credit scores.

The short answer is NO, provided the report is "refreshed" and not just re-pulled as a new report. A refreshed credit report is considered to be a "soft" credit pull, which does not impact a borrower's scores. A "hard" credit pull occurs when someone applies for new credit and that may impact the scores.

Again, if the credit report is just being refreshed, and not being pulled again as a new report, then it will not change the credit scores.

Also, keep in mind that multiple credit pulls by a mortgage lender within a 14-day period only count as one credit pull, even if different lenders pull the credit. If a lender tells you or your buyers that you shouldn't shop around for a mortgage because it might lower your credit scores, find a new lender because the one you have is not very knowledgeable.

Thursday, July 8, 2010

HUD $100 Down Loan Program

We've gotten a number of requests for information about HUD's $100 down deals in the past week, so here's a rundown of what you need to know:

-- A HUD home is a house that used to have an FHA loan, but it went into foreclosure. HUD now owns the property.
-- HUD (the Department of Housing and Urban Development) is the agency that oversees the FHA loan program.
-- If a buyer makes a full price offer on a HUD home, they are able to buy the property with a down payment of only $100 if they get an FHA loan.
-- If they bid more than the listing price and want FHA financing, they have to pay any excess amount in cash.
-- A buyer does not have to get FHA financing to buy a HUD home. HUD does not care at all where the money comes from. They just want to sell the property.
-- HUD will pay up to 3% towards the buyer's closing costs and pre-paids. To get the 3%, you need to ask for it when you bid on the property.
-- Earnest money requirements are as follows: if the sales price is $49,999 or less, the earnest money is $500; if the sales price is $50,000 or more, the earnest money is $1,000.
-- If the buyer uses the FHA $100 down program and does not have to pay for any closing costs, they will be able to get their earnest money back at the closing (except for $100).

Do not let anyone try to talk your buyers out of getting FHA financing. The appraisal guidelines for FHA loans are a tiny bit more restrictive than they are for conventional loans, but there is hardly enough difference to avoid FHA loans. Some brokers who have "been in the business for years" have not kept up with the changes in the mortgage industry and are doing themselves and their clients a real disservice by avoiding FHA loans.

If a lender ever tells you to stay away from FHA loans, that probably means they are not approved to sell them. You should not use those lenders.

Thursday, July 1, 2010

New Appraisal Rules to Love and Hate

Fannie Mae appraisal rules are changing. Here's what you need to know:

-- If an interior inspection is required, the following photographs must be included in the appraisal:
-- Kitchen
-- All bathrooms
-- Main living area
-- Examples of physical deterioration, if present
-- Examples of recent updates, such as restoration, remodeling, and renovation, if present

-- If an underwriter thinks the appraisal does not support the value indicated in the report, they will not be able to arbitrarily reduce the value. They must follow the following process:
-- Contact the appraiser to address the report deficiencies.
-- Order a desk review appraisal or a field review appraisal. The appraiser performing the review appraisal must be licensed in the state where the property is located and must have the knowledge and experience to appraise the subject property with respect to both the specific property type and geographical location (in other words, the appraiser performing the review must be a local appraiser).
-- The lender can also order a new appraisal instead of ordering a review appraisal.
-- If they order a review appraisal or a new appraisal, it must be performed by a local appraiser and the value in the new appraisal must be used. The lender cannot average the values of the old appraisal and the new appraisal.

-- Appraisers who do not have the knowledge or experience to perform an appraisal in a specific area cannot be used for Fannie Mae appraisals.

-- If a foreclosed property is used as a comparable property in an appraisal, the appraiser must account for any differences between the foreclosed property and the subject property, such as the condition of the property.

-- Appraisers are not allowed to say they are prohibited from discussing the appraisal with the lender, as long as the lender contact is not someone who is involved in loan production (loan officers, processors, etc.), or someone who is paid on a commission basis, or someone who reports to anyone not independent of the loan production process.

-- Appraisers cannot deduct a dollar for dollar amount from the value of a comparable sale because of seller concessions. They can only deduct the amount that they believe resulted in an increase in the sales price.

Some of these changes take effect immediately and some take effect on September 1, 2010. The changes are only for loans being sold to Fannie Mae.

Monday, June 28, 2010

Fannie Mae Adds 2 Years to the Foreclosure Waiting Period

Effective for all loan applications dated October 1, 2010 and later, Fannie Mae is increasing the waiting period before someone can get a mortgage after a foreclosure.

The current waiting period is 5 years, provided the borrower makes a larger than normal down payment, and 7 years if the borrower makes a normal down payment. The 5 year option is being discontinued and the new waiting period will be increasing to 7 years.

If the borrower can document extenuating circumstances, they will be able to buy a house with a Fannie Mae loan after 3 years, but they will need a minimum down payment of 10% and they can only buy a principal residence. They will need to wait the full 7 years to buy a second home or a rental property.

Here is how Fannie Mae defines "extenuating circumstances":

Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns covering the periods prior to, during, and after a loss of employment, etc.).

The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

This new guideline only applies to Fannie Mae loans. FHA and VA loans have shorter waiting periods after a foreclosure.

Wednesday, June 23, 2010

Second Credit Report May Delay Closings

The new Fannie Mae rules for credit have officially taken effect. They WILL change the way you do business.

These new rules affect all conforming (non-government) loans that are sold to Fannie Mae.

Here's what you need to know:

-- Shortly before the closing, the borrower's credit report must be "refreshed". A refreshed credit report shows the borrower's accounts, the balances, the minimum monthly payments, and the number of credit inquiries (the number of times the borrower has applied for credit).
-- If the borrower's total minimum payments increase enough to make the debt-to-income (DTI) ratio 2% higher than it was using the original credit report, the loan must go back to underwriting!
-- If there are any new credit inquiries, the loan must go back to underwriting!
-- Example #1: A borrower makes $5,000 gross income per month. If their payments go up by $100 or more on the refreshed report (2% of $5,000, enough to raise the DTI ratio by 2%), then the loan must be underwritten again.
-- Example #2: After the lender pulls the initial credit report, the borrower applies for a new account, or applies for an increase in the credit limit on an existing account. This will result in a new credit inquiry on the refreshed report and the loan must be underwritten again.

There is a very big chance that the loan will not close on time if it has to be underwritten again 3 days before the closing. The loan will still close (provided the borrower still qualifies), but the closing will probably be delayed.

If you are a real estate agent, here's what you need to do to minimize the impact of this new Fannie Mae rule:

-- Make sure you are using a lender who knows about the new credit rules, and make sure they are telling your buyers about it. No good lender will mind if you ask, so ask.
-- Write your contracts so the loan conditions deadline is as close to the closing date as possible - within a day or two. If the loan gets delayed because it has to go back to underwriting, your buyer is risking their earnest money. The loan conditions deadline does not have anything to do with the loan being approved. It is the last date that the buyer can get their earnest money back by objecting to the loan conditions. That means the buyer can get their money back if they say they don't like the interest rate or anything else about the loan. If you think the loan conditions deadline has something to do with the loan being approved, read the contract again to learn what it really means.
-- Repeatedly ask your buyers if they are using their credit cards or applying for new credit. If the answer is yes, you may have a problem.
-- Do not assume that these new rules will simply go away because they make life tough for lenders, real estate agents, buyers, and sellers. The intent of the new rules is to eliminate foreclosures, and they will go a long way towards doing that. These rules are probably here to stay for a very long time. Everyone needs to accept the new reality of the mortgage industry. The government is forcing us all to think strategically (long-term). Most of us only think about the short-term, and that way of thinking has resulted in the current economic mess, so they are forcing us to act differently.

The new rules are for all Fannie Mae loans. It does not matter which lender is used. If the loan is going to be sold to Fannie Mae, the lender must follow the rules. At the moment, the new rules do not apply to FHA or VA loans, but that doesn't mean FHA and VA will never adopt similar rules.

Monday, June 14, 2010

Have $50,000 in Credit Card Debt? - Can You Get a Mortgage?

People are always asking us if they can get a mortgage with $30,000, $40,000, $50,000 or more in credit card debt. The short answer is that it doesn't really matter how much your total debt is. The debt-to-income ratio (DTI) used to determine whether you qualify for a loan is based on the minimum monthly payments that show on your credit report, NOT on the total balance due.

To calculate your DTI, take the minimum monthly payments that show on your credit report, add your monthly housing payment to that amount, and then divide the total by your monthly gross income (income before taxes).

If you owe $1,000 in minimum monthly payments each month, and your housing payment is going to be $1,500 per month, then your total payments each month will be $2,500. Divide that $2,500 by your monthly gross income to get your DTI. If you make $5,000 a month, your DTI would be 50%. If you make $6,000 a month, then your DTI would be 41.6%.

The total debt amount does not matter. Only the monthly payments count.

How high a DTI can you have and still qualify? That depends on your credit score and the type of loan you are getting. It is common to get loans approved in the 50%-55% range if you have very good credit (above 740).

Thursday, June 3, 2010

New Fannie Mae Rules Will Kill Your Real Estate Deals if You Ignore Them!

For all conventional loan applications dated on or after June 1, 2010, Fannie Mae has instituted some new rules as part of their Loan Quality Initiative. They are not fooling around this time. Their goal is clear: to reduce loan fraud and the number of foreclosures. There are many new changes, but here is the main thing that WILL cause a deal to STOP!

Lenders must ensure that borrowers have not taken on any additional debt between the date of loan application and the date of closing. If a lender does not follow the new rules, Fannie Mae will refuse to buy the loan from them. To remain compliant, Fannie Mae suggests that lenders do the following:

• Refresh the borrower’s credit report just prior to closing in order to uncover additional debt or credit inquiries.
• If the borrower has new debt that was not included on the loan application, the additional debt must be considered in qualifying the borrower.
• Credit inquiries must be researched to determine whether the borrower has obtained additional debt that is not yet shown on the credit report.

It is no longer an acceptable practice to “suggest” to borrowers that they refrain from taking on additional debt before the closing. New debt will, at the very least, delay the closing. If the new debt pushes the borrowers outside of the qualifying debt-to-income ratio for the loan, then the deal will die.

None of this is bad. In fact, it’s very good. The financial mess we’re in at the moment was caused by Wall Street greed (inventing loan products that were intended to rip-off borrowers), by lender greed (selling the loans), by real estate agent greed (directing borrowers to lenders who would cheat to close a loan), by title company greed (ignoring the unethical business practices of lenders and agents in order to maintain their flow of business), by appraiser greed (falsifying appraisals), and by borrower greed (lying to get their dream house).

Although some are innocent, many are not. Now we all get to pay for the sins of the guilty.

The best way to handle a situation like this is to spend your energy on learning the rules and learning how to operate in the new environment. It is not going to go away. The only way to stop the bailouts and the regulation and the recession is to stop cheating. A free market society is a great thing until it gets out of control, and it is clearly out of control. The rules are now tightening, the crooks are being driven from the business (at a very slow pace), and the people who have accepted the new reality are thriving. The pie is definitely getting smaller, but for the people who understand that things are not going to magically return to sub-prime heaven, their piece of the pie has gotten bigger.

Tuesday, June 1, 2010

What are Loan Buybacks and Why Do You Need to Know About Them?

When a borrower stops making payments on a loan, Fannie Mae, Freddie Mac, and Ginnie Mae – the government sponsored enterprises that purchase mortgages from lenders after the loans close – review the loan to make sure that the lender underwrote the loan according to the published guidelines. In other words, they audit the loan file to make sure the lender followed the rules.

If the lender didn’t follow the rules, then Fannie Mae, Freddie Mac, and Ginnie Mae can force the lender to buy the loan back from them. If that happens, the lender is stuck with a loan that no one is paying.

Lenders don’t want to be stuck with loans that no one is paying, so they have recently begun to enforce the rules, meaning they now follow the underwriting guidelines very carefully. In the past, underwriters had a great deal of discretion when they underwrote a loan. Now they do not.

Fannie, Freddie, and Ginnie are making lenders buy back loans so the flood of foreclosures will stop. That is certainly a good thing, but borrowers and real estate agents need to be aware that loans are now being underwritten much more carefully than they were even a few weeks ago.

As long as a borrower meets all the underwriting guidelines, their loan will still be approved. However, underwriters are requiring much more documentation than ever before because they have to be able to prove they did their job correctly if the loan goes into default. That means it sometimes takes longer to get a final approval for a loan.

It’s hard to find fault with someone who is doing their job a bit more carefully in order to hang onto their job, so underwriters really shouldn’t be cast as the enemy. They still get paid to approve loans, not to deny them.

If everyone is aware that a loan might take an extra week or so to be approved, everything generally goes pretty smoothly.

Monday, May 17, 2010

Would You Pay to Make a Lender Suffer?

Would you pay to make a lender suffer?
What if it was tax deductible?

On June 6, I’ll be running in the San Diego Marathon to raise funds for Free Food 4 Families, a Denver non-profit that provides free food deliveries to Denver families in need. This will be the second of four marathons I’ll be running this year and I’m already suffering horribly. If you sponsor me, you can rest easy knowing you are helping the less fortunate in our community. Your donation is also tax deductible to the fullest extent of the law. But best of all, you can sit back and smile knowing you are a part of the intense pain being inflicted upon a mortgage broker.

Here’s a link to the sponsor form:


The suggested donation is $1 per mile, for a total of $26.20. Free Food 4 Families can use any amount you choose to donate, though. Sign up today and help some needy families get nutritious food, get a tax deduction, and make a lender suffer!

Wednesday, May 12, 2010

Adjustable Rate Mortgages Will Soon be Harder to Get

Fannie Mae is changing the way they qualify borrowers who are getting adjustable rate mortgages (ARMs). For all ARMs with an initial fixed-rate period of five years or less that are submitted to underwriting on or after the weekend of June 19, 2010, lenders must use the greater of the note rate plus 2%, or the fully indexed rate to determine the debt-to-income ratio (DTI).

Here's an example. Assume a borrower is getting a 5-year ARM (fixed rate for the first 5 years and an adjustable rate after that). Let's say the note rate (the rate the borrower pays for the first 5 years) is 4%. Let's assume that the index is 3.5% and the margin is 2.25%.

The lender must calculate the note rate plus 2%. In this case it would be 4% + 2% = 6%.

The lender must also calculate the fully indexed rate, which is the index plus the margin. In this case it would be 3.5% + 2.25% = 5.75%.

The interest rate used to calculate the borrower's DTI is the greater of those two numbers. In our example, it would be 6%.

So even though the interest rate the borrower will pay for the first 5 years is only 4%, the borrower will be qualified for the loan as if the interest rate were 6%.

The reason for this change is to make sure borrowers don't run into trouble paying their mortgages when their interest rate increases after the 5-year fixed period.

Friday, May 7, 2010

3.5% HomePath Incentive is Extended

Fannie Mae has extended the incentive program they are offering to buyers of HomePath homes. A HomePath home is a house that Fannie Mae now owns because the previous owner went into foreclosure.

Fannie will pay 3.5% of the purchase price towards the buyer's closing costs. The 3.5% can also be used to buy appliances (refrigerator, stove, etc.). Fannie Mae buys the appliances from Whirlpool and installs them for the buyer.

The program was set to expire on April 30, but has been extended to June 30. As long as the sales contract was signed after January 28, 2010 and the deal closes by June 30, 2010, the 3.5% incentive is in effect.

The incentive is only available for people who intend to occupy the house. Second homes are included, as long as they are owner-occupied. No investment properties are allowed.

Monday, May 3, 2010

Yikes! No More Interest-Only Loans for Investors?

Beginning in the middle of June, there are some big changes to interest-only loans. The following types of interest-only loans will no longer be accepted by Fannie Mae:
• Cash-out refinances
• Flexible mortgages
MyCommunity mortgages
• Investment properties
• 2 -4 unit properties

Also, for the types of interest-only loans that are still available, the minimum credit score is going up to 720, and the borrower must have 24 months of reserves (2 full years of mortgage payments in a bank account, retirement account, etc.).

Fannie Mae is making these changes because they want to make sure that interest-only loans are only used by borrowers who are in a position to use them “as a financial management tool, rather than as an affordability tool”.

I’m sure a lot of people who own rental properties will see things quite differently, but Fannie Has Spoken!

Saturday, May 1, 2010

Lower Mortgage Insurance Rates in Effect

Mortgage insurance rates for conventional (non-government) loans just got cheaper. Effective May 1, 2010, private mortgage insurance companies are basing the rates for the insurance on credit scores, in addition to the size of the down payment. This is good news for borrowers.

Here's how the new rates break down:
  • If your score is 720 or above, you get the cheapest rates
  • If your score is between 680 and 719, your pay more than someone with better credit
  • If your score is below 680, you pay a lot more than someone with better credit

FHA mortgage insurance rates have not changed, and are still generally cheaper than private mortgage insurance rates. It's always best if your lender (that should be us) prices the loan both ways to see which is a better deal for you.

Mortgage insurance is an insurance policy that is required for most mortgages that are for more than 80% of the value (or the purchase price) of a house. If you put 20% down, you don't have to pay it. If you put less than 20% down, you generally have to pay it.

The insurance policy only pays out if a borrower stops paying their mortgage and the loan goes into foreclosure. Then the mortgage insurance company writes a check to the lender to cover their losses. The borrower has to pay for the policy, but doesn't get a dime. The theory behind mortgage insurance is that if the loan is insured, the lenders will be more likely to offer cheaper interest rates.

Thursday, April 15, 2010

Mortgage Experts are Asked for Industry Insight Again

Here’s one more example of why we are known as The Mortgage Experts. When industry experts need some insight, they call us.

American Banker needed some information on why so many loans fall apart at the last minute, costing lenders lots of money, so they gave us a call. Here’s an excerpt from an April 14 article by Kate Berry:

This month, Steve Abreu, the president of GMAC Inc.'s mortgage operations, warned 150 loan officers that wasting the back office's time would cost them.

He told the sales representatives at a Fort Washington, Pa., branch that from now on part of their compensation would be tied to pull-through rates — the percentage of applications that end up being converted to closed loans. GMAC wanted to cut the costs of having processors and underwriters work on loans that don't get funded. So it gave the loan officers an incentive to do better up-front screening.

"The whole reason we did this was just to lower our costs to originate and make sure our loan officers were taking good applications so we would have a better close ratio," Abreu said in an interview. "If they don't hit a certain threshold, they get dinged."

While GMAC's move is unusual, it underscores one of the industry's less-obvious problems today. Tightened underwriting guidelines have increased the risk that a loan will not make it all the way through the pipeline. Aside from the man-hours spent in the back office, lenders stand to waste money on hedging future secondary-market sales of loans that never materialize.

Chris Bennett, the president and chief executive of Vice Capital Markets, a Novi, Mich., hedging and interest rate risk management firm, said loan officers often hold out hope that a loan will be funded "even if they know the deal is dead."

"You could have a loan that is locked for 45 days and it gets extended and the lender ends up hedging the loan for 90 days and it may never be closing," Bennett said. "So lenders end up hedging what amounts to [nothing], and it's expensive."

Despite the turmoil of the past few years, lenders complain that many loan officers have not changed with the times.

"The subprime days lasted for so long and so many people got in the business when all you did was collect a Social Security number and an address and the deal miraculously closed," said Chris Thomas, the owner of Mortgage Support Services, a Westminster, Colo., lender. Today, most real estate deals fall apart at the last minute because loan officers "haven't read the guidelines," Thomas said.

Though lenders typically run loan applications through automated underwriting engines, such software may not catch tighter restrictions added by mortgage insurers, such as (lower) total debt-to-income ratios, he said. "The reason loan officers are not up to speed is that they don't know how to process a loan."

Loan officers need to do a better job of collecting data from potential borrowers, so lenders are not spending money out-of-pocket underwriting and processing loans that ultimately fail, several executives said.

"It's a different world," GMAC's Abreu said. "You really need to gather as much information as possible before you hand off the loan so you have a clearer picture of the credit profile of the borrower."

Walsh agreed. "Some loan officers really didn't learn the business," he said. "The business was always, 'Just take loans, just take loans,' and there was no ramification for high fallout."

New Rules for Short Sales

Fannie Mae has just announced new waiting periods for people who have sold a house in a short sale and want to buy a new house.

The new waiting period is 2 years if the borrower has a 20% down payment, 4 years if they have a 10% down payment, and 7 years if they only have the minimum down payment allowed for a particular loan program. The minimum is usually 5%.

The new rules take effect in June for loans that are run through Fannie Mae's online underwriting system, and in July for loans that are manually underwritten.

Friday, April 9, 2010

FHA Now Accepts Electronic Signatures on Sales Contracts

FHA is now officially accepting electronic signatures on real estate sales contracts. Although most lenders have accepted electronic signatures on sales contracts in the past, they really weren't supposed to be doing it. (Imagine that - a lender doing something they weren't supposed to be doing!)

If anyone needs documentation because they are in a fight to the finish with their lender about this, refer to Mortgagee Letter 2010-14.

Wednesday, April 7, 2010

Disputing Credit Report Errors Can Prevent You from Qualifying for a Loan!

Thinking of disputing an account on your credit report? Better think twice!

Everyone is allowed to dispute inaccurate information on their credit report. If you send a letter to the three credit bureau (Experian, TransUnion, and Equifax), they are obligated to pursue the matter for you. If the creditor (the company whose information you are disputing) does not reply within 30 days, the information you are disputing gets removed from your credit report. So far, so good.

Here's the problem. Many "credit repair" companies and individuals are disputing legitimate derogatory information, in the hopes that the creditor will not respond and the derogatory information will be removed from the report. Without the derogatory information, the credit scores go up. However, Fannie Mae and Freddie Mac (the companies that buy most loans from lenders after the closing) are on to this scheme. So now, when there is a notation on a credit report that an account has been disputed, Fannie and Freddie are often exercising the option of downgrading the loan application and are imposing lower debt-to-income (DTI) ratios on the borrower. Instead of being able to borrow 45% of your gross income to pay for your house and other debts, you will be limited to a maximum DTI of 38%. That is a huge difference and will prevent many people from qualifying for a mortgage.

So what should you do?

Don't listen to anyone who tells you they will "repair" your credit. They will most likely dispute every derogatory account on your report (even the legitimate ones) and your DTI ratio will be lowered by Fannie and Freddie. They will also charge you lots of money for doing something that you can do by yourself, but that is an entirely different issue.

The most important thing to do is use a lender who stays current on the changes in the lending industry. Most lenders do not. The best way to tell if they know what they're doing is to ask them how to find the Fannie Mae underwriting guidelines. If they aren't able to tell you, they are obviously not reading them. Here's the link to the guidelines - use it to test your lender - it's great fun!


If you have an error on your credit report, don't dispute it until after you close on your loan. Many times, the error will not affect your ability to qualify for the loan. If it does need to be corrected before qualifying for the loan, any competent lender will be able to do it for you without having it show up on the report as being a disputed account. If they don't know how to do that, find another lender who does know how to do it.

Wednesday, March 31, 2010

Denver Area Seminar: How to Avoid Home Loan Rip-Offs

Have you attended our “How to Avoid Home Loan Rip-Offs” seminar yet? Here’s what we cover in this FREE eye-opening presentation:

• How to spot the rip-offs before they happen
-- We give you a list of all the common rip-offs, tell you how they work, and tell you how to avoid them
• How to interview a lender and find out if they are knowledgeable and honest
-- We provide a fool-proof set of questions you should ask every lender
• How are interest rates determined and how to tell if you are getting a good deal
• How to know if your closing costs are reasonable, and how to make sure they don’t change
• What to do if you think you’re being ripped-off
• How to tell if your lender really locked your interest rate
• How to tell if your pre-approval letter (the letter your lender gives you to show that you can qualify for a mortgage) is even worth the paper it’s printed on

We are often asked, “Why do you present these seminars for free?” The answer is quite simple.

Dishonesty in the mortgage industry has resulted in millions of people in the United States being victimized. Up until a few years ago, there were only two states that had absolutely NO registration or licensing for mortgage brokers – Alaska and COLORADO!

Licensing exists now, but it has done very little to stop the dishonesty. People continue to be ripped-off, and WE ARE SICK OF IT!

Most people don’t buy more than a few houses in their entire lifetime, and the financing for homes is very confusing, to say the least.

Our goal is to clearly explain to you exactly what is involved with home financing. This seminar cuts through the hype and the lies and will leave you with the knowledge necessary to AVOID HOME LOAN RIP-OFFS!

We hold the seminars on Wednesday evenings from 6:30PM – 8:30PM and on Saturdays from 10:00AM – noon. Call us for more details and dates. 303-345-3683

Monday, March 22, 2010

Our Most Popular Post

We've had 1608 unique visitors come to our blog site so far in 2010, and 596 of those visitors were trying to find out how long someone needs a job before being able to get a mortgage. That is by far the most popular post.

Since so many people are interested in that subject, it's worth discussing some more. Here's the original post with some updates (UPDATES IN CAPS):

Many people are changing jobs these days and we are getting a lot of questions about how long someone must be employed before a lender will use their income. Here are the rules:

-- If the borrower is paid as a W-2 employee (not self-employed), then an underwriter will only need to see one pay stub in order to count the income, provided the current job has something to do with the previous job.
-- If the borrower is a W-2 employee, but their current job is in a different field than their previous job, then the automated underwriting systems at Fannie Mae, Freddie Mac, FHA, or VA will tell us how long they have to be at the job.
-- If the borrower just graduated from school and gets a job in their field of study, then they don't need anything more than one pay stub and their diploma.
-- One exception to the W-2 rules is when the borrower earns more than 25% of their income as commission. In that case, the automated underwriting systems will tell us how long they have to be at the job. It could be as short as 6 months or as long as 24 months.
-- If the borrower is self-employed, then the automated underwriting systems will tell us how long they need to have the job, just as if they are paid commission. It could be anywhere from 6 months to 24 months. UPDATE: EVEN THOUGH THE AUTOMATED UNDERWRITING SYSTEMS MAY NOT REQUIRE A FULL 24 MONTHS OF SELF-EMPLOYED INCOME, MOST LENDERS DO REQUIRE 24 MONTHS AT THE SAME SELF-EMPLOYED JOB.
-- If the borrower is employed part-time or has a second job, then once again, the automated underwriting systems will tell us how long they need to have the job. Anything less than 24 months for a second job is generally unacceptable.

One thing to keep in mind when dealing with commission or self-employed borrowers is that the income is either averaged over the last 24 months, or annualized (for example, if someone has had a commission job for 6 months, the underwriter would divide that 6 months of income by 12 months to annualize it).

The reason for the different rules is that the lenders are concerned that the income is stable. A new job in the same field as the previous job is stable. A new job for a recent graduate in their field of study is also stable. A commission job is a little less stable. Self-employed income is the least stable of all for full-time employment. Part-time employment or second jobs are extremely unstable.



Thursday, March 18, 2010

FHA Condo Approval Email Address

Confused by all the recent changes in the FHA condo approval process? If so, you're not the only one!

It looks like FHA has been overloaded with questions. Yesterday, they announced that a special email address has been set up to handle them all. Following is the announcement from FHA:

FHA has set up a special on-line mailbox for all condominium inquiries: CondoProjectApprovalInquiries@hud.gov

Lenders, trade associations, industry professionals, and other interested parties must use this mailbox rather than contacting the FHA Homeownership Centers (HOCs) or the FHA Resource Center. Questions will be answered within 24-48 hours, unless additional research is required; in such cases, the inquirer will be advised that there is a delayed response forthcoming. Any inquiries directed to the FHA Homeownership Centers and/or the Resource Center will be redirected to this mailbox.

Monday, March 15, 2010

Guidelines Are More Relaxed for Mortgage Insurance!

Here's something we haven't seen in a long time - more relaxed underwriting guidelines!

Some of the private mortgage insurance companies recently raised the debt-to-income ratio (DTI) from 41% to 45%. You still need to have a good credit score (700) to take advantage of the higher ratio, but it's the first thing we've seen in more than two years that signals the tightening of the guidelines may be nearing an end.

Just don't confuse this with a return to sub-prime loans. The mortgage insurance (MI) guidelines used to be routinely ignored by everyone, including the MI companies. MI underwriting was a rubber stamp process. If the lender approved a loan, so did they.

Then the MI companies started writing those checks for millions of dollars to the lenders for all the houses that went into foreclosure and the MI companies that were still in business became very serious about following the guidelines.

Remember that the MI guidelines are always the strictest guidelines. A conventional loan gets underwritten three times: once by Fannie Mae or Freddie Mac, again by the lender, and a third time by the MI company. The MI company is the one to write the check if the borrower stops paying, so naturally, they have the strictest guidelines.

We've said this countless times, but not reading the guidelines is why loans fall apart. If your lender reads, your loan will close. If he doesn't read very well, then the loan probably won't close.

Want to have some fun? Ask your lender where to find the online Fannie Mae guidelines. Chances are pretty good he won't have the slightest clue where to find them because he's never read them. Mock him. Then dump him.

Tuesday, March 9, 2010

These Guys are in Charge of My Ethics???

Debbie and I recently took the national licensing test required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). The National Mortgage Licensing System (NMLS) is the organization that administers the test. One of the sections covers ethics. If the NMLS decides we are unethical, we don’t get to sell loans. Fair enough.

Another function of the NMLS is to conduct criminal background checks. Applicants pay $39 and are directed to have their fingerprints taken by Fieldprint, the exclusive fingerprint vendor of the NMLS.

Debbie paid her $39 and had her fingerprints taken last week. She was notified by the NMLS yesterday that Fieldprint had sent them fingerprints that the FBI could not read.

Ready for the solution? She must now pay an additional $39 and go back to Fieldprint to have them try again. If they botch it a second time, then the FBI will do the background check without even using fingerprints. There will be NO refunds.

I asked a manager at NMLS if this was a common occurrence. She said "we are reviewing the system."

Can you say “SCAM”?

These are the guys who get to decide if we’re ethical enough to sell mortgages?

PS Debbie scored 100% on the ethics section of the test. Maybe they should consult her during their review of the "system".

Friday, March 5, 2010

The Pros Know How Good We Are!

Just had our latest post to the ActiveRain real estate blog listed as their featured post. That's twice in the past few weeks!

ActiveRain has more than 175,000 real estate professionals as members. They know a Mortgage Expert when they see one!

Here's the link to the ActiveRain blog:


Thursday, March 4, 2010

Fannie Mae is Cracking Down!

There are some new rules going into effect shortly that will have an enormous effect on some mortgage transactions. Here's the biggest one:

Effective for all loan applications dated June 1, 2010 and later, Fannie Mae is "requiring lenders to determine that all debts of the borrower incurred or closed up to and concurrent with the closing of the subject mortgage are disclosed on the final loan application and included in the qualification for the subject mortgage loan."

Here's what it means. If a borrower opens a new account or increases the balance on an existing account between the time of application and the closing, the new debt has to be included. The best case is that the closing gets delayed. The worst case is that the borrower no longer qualifies for the loan and the deal is dead.

Fannie Mae provides the following "tips for lenders to consider" when attempting to find undisclosed liabilities. That's Fannie Mae Speak for "Do these things or else!"

- Refreshing a credit report just prior to closing may uncover additional debt or credit inquiries.

- Credit inquiries found on the credit report should be investigated to determine whether the borrower did in fact open additional debt resulting in repayment obligations. In some cases, it is possible to obtain a direct verification with the creditor associated with the inquiry.

- Fraud-detection tools are available through multiple vendors that assist lenders in identifying undisclosed mortgages or other potentially fraudulent scenarios.

Fannie Mae is not requiring these things until June 1, but lenders are allowed to implement them earlier. Many lenders probably will.

Be prepared! The mortgage industry has changed and continues to change. Being in the industry for 20 years means nothing if you don't stay up to date with all the changes. If your current lender has not already told you about these new rules, ask him why he hasn't. Maybe it's time to change lenders.

Wednesday, March 3, 2010

"American Banker" Asks The Mortgage Experts

American Banker needed some insight into the new Real Estate Settlement Procedures Act (RESPA) and how it affects loan pre-approvals, so they gave us a call.

There is a RESPA requirement prohibiting lenders from withholding a Good Faith Estimate from their clients simply because the borrowers have not provided supporting documentation (pay stubs, for example) for the financial information they have given the lender. Many lenders are confused because they haven't actually read the law they are so quick to criticize. Imagine that!

The end result is that some lenders are either hesitant to provide or refuse to provide borrowers and real estate agents with pre-approval letters, which tell everyone that they are not wasting their time by looking at houses that are out of the borrower's price range.

Of course, this is nonsense. Nothing in the new RESPA law prohibits pre-approvals.

Here are some excerpts from the article that was published on Feb. 24:

HUD (Department of Housing and Urban Development), in an update last month to the (RESPA) frequently asked questions, said it wants to prevent "overburdensome documentation demands on mortgage applicants." That is why it won't let lenders require documents from borrowers as a condition of providing a Good Faith Estimate. Likewise, HUD said, lenders may not charge consumers anything more than the cost of a credit report before supplying the Good Faith Estimate.

Chris Thomas, owner of Mortgage Support Services, a Westminster, Colo., correspondent lender, said he understood HUD's rationale.

"The spirit of the law is to prevent borrowers from being locked in to using unscrupulous lenders who demand original copies of income and asset documentation," Thomas said. "If I tell a borrower that I need their original W-2's and pay stubs before I can give them a Good Faith Estimate, the less-educated borrower will then believe they must buy their loan from me."

"We cannot force the borrower to provide documentation before issuing a Good Faith Estimate," he said, "but it doesn't say we can't ask them for their income, assets or anything else" and then run that information through underwriting software. (A person is considered to be "preapproved" if the lender runs a borrower's information through Fannie Mae's or Freddie Mac's automated underwriting system.)

Moreover, Thomas said, if it turns out the customer misstated their income, that is considered a "changed circumstance" and the lender is allowed to change the good-faith estimate once it gets documentation.

Preapprovals are not to be confused with prequalification letters. These are nonbinding, back-of-the-envelope calculations of what a borrower might be approved for based on verbal information, and they have fallen out of favor because of market changes.

During the housing bubble, Thomas said, lenders got into the habit of giving out pre-qualification letters to anyone, "because everything got approved anyway."

"A preapproval letter means something, because you have to put in accurate information," he said. "A 'pre-qual' letter is almost useless these days, because the underwriting guidelines change so frequently."

This article is one more example of how the national publications rely on us for accurate mortgage information. There is a reason we are known as The Mortgage Experts. We are very good at what we do!

Monday, February 22, 2010

The Official Down Payment Requirements

Here are the down payment requirements for the various types of loans:

Conventional (non-government) loans:
• For most conventional loans, the minimum down payment requirement is 5% for primary residences, 10% for second homes, and 15% for investment properties.
• If the property is a primary residence, there are special loan programs that only require 3% down, but the interest rates are higher than regular conventional loans.
• IMPORTANT NOTE: The mortgage insurance (MI) companies have stricter guidelines than the lenders do. If the loan is for more than 80% of the sales price, the MI guidelines must be followed. Typically, the MI companies require 5% down, unless the borrower is a first-time homebuyer (no ownership in the past 3 years). The MI companies also base the down payment requirement on the borrower’s credit score and whether they consider the house to be in a “restricted market”, meaning values are going down.
• Some foreclosed houses that are owned by Fannie Mae only require 3% down.
• The only way to tell for sure what the conventional down payment requirements are is to know the borrower’s financial information and the property address. If all that information is not available, then anyone telling you the down payment requirements is just making it up.

FHA loans:
• The minimum down payment is 3.5% of the purchase price.
• If the property is being sold by HUD (the house used to have an FHA loan, but is now in foreclosure), then it is possible to only need $100 down. There are restrictions to this program, primarily that the offer must be for the full listing price. If the offer is for more than the listing price, the borrower must pay the excess amount at the closing.
• FHA loans are insured by the federal government and there are no additional down payment requirements related to the mortgage insurance.

VA loans:
• There is no down payment requirement for properties up to $417,000. It is 100% financing.
• If the property is more than $417,000, then the borrower must bring 25% of the excess amount to the closing.
• VA loans are guaranteed (not insured) by the federal government, and no mortgage insurance is required.

Tuesday, February 16, 2010

Forget the Appraisal - You Don't Need One!

How about buying a house without an appraisal? Fannie Mae has a loan program called HomePath that does not require an appraisal. It’s for their REO (foreclosed) properties. Here are some of the highlights of the loans:

-- No appraisal required
-- Only 3% down payment
-- No mortgage insurance required

At the moment, they are having a special deal that includes the following:

-- The borrower can get up to 3.5% of the sales price towards new appliances. Fannie Mae buys them and delivers them to the house.
-- The borrower can get an additional 6% to pay for closing costs and pre-paids.
-- These deals must close and fund by April 30.

Here’s the web site to look at the properties:


We are an approved HomePath mortgage lender.

Thursday, February 4, 2010

Current Debt-to-Income Ratios (DTI)

We get a lot of questions about debt-to-income ratios these days. Here are the underwriting guidelines for the various types of loans:

Conventional (non-government) loans:

• If the loan is underwritten manually (by a person), the debt-to-income ratio (DTI) is 36%. If the borrower has strong compensation factors, the DTI can be as high as 45%. Compensating factors include such things as very high credit scores, large down payment, large amount of reserves (money in the bank), etc.
• If the loan is underwritten by the underwriting software that is available to some lenders, the DTI ratio is 45%, and it can go as high as 50% with strong compensating factors.
• IMPORTANT NOTE: Individual lenders are allowed to impose their own, more restrictive DTI guidelines on top of Fannie Mae’s, so make sure you are using a lender who does not do that.
• SUPER IMPORTANT NOTE: Private mortgage insurance companies impose their own, more restrictive DTI guidelines on top of the lender’s guidelines and Fannie Mae’s guidelines. At the moment, 41% is the maximum allowable DTI at most private mortgage insurance companies. Their guidelines change constantly, so this needs to be checked every time a loan is originated.
• In the old days, there were two DTI ratios for conventional loans – one for the housing expense ratio and one for the total expense ratio. Fannie Mae no longer uses two DTI ratios.

FHA loans:

• Unlike Fannie Mae, FHA uses two DTI ratios. The front-end DTI ratio (housing expenses) is 31% and the back-end DTI ratio (total expenses) is 43%. This only applies if the loan is manually underwritten.
• If the loan is underwritten by the software FHA provides to some lenders, then the ratios are not specified. It depends on credit scores, down payment, reserves, etc. We commonly get approvals from the software for ratios of 40-46% for the housing ratio and 50-55% for the total expense ratio.
• Lenders are allowed to add their own, more restrictive guidelines on top of FHA’s, so it is wise to use a lender who does not.
• Mortgage insurance is not an issue with FHA ratios because FHA insures the loan. There are no additional restrictions for mortgage insurance with FHA loans.
• If a borrower is using alternative credit (they have no credit scores and are using other trade lines to establish credit – rent, utilities, etc.), then they are restricted to the manual underwriting guidelines – 31% front-end and 43% back-end.

VA loans:

• VA only uses one, total expense ratio as well. It is 41% if the loan is underwritten manually.
• If the underwriting software that VA supplies to some lenders is used, then the DTI ratio is not specified. We typically see loans approved with DTI ratios in the 45% - 55% range. It all depends on credit scores, reserves, etc.
• Lenders are allowed to add their own, more restrictive guidelines on top of VA’s, so check with your lender before assuming VA’s guidelines can be used.
• There is no mortgage insurance with VA loans, so there are no additional restrictions related to mortgage insurance.