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

Appraisals
-- 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)

Appraisals
-- 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

Foreclosures:

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!