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.