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How to Improve Your Credit and Score Lower Interest Rates!

July 20th, 2010

 
Figures provided by FICO Inc. show that as of April, 25% of consumers (about 43 million people) now have a credit score of 599 or below, making them a big risk for lenders. This number is up from the historical norm of 15%. At the other end, interestingly, the number of consumers who have a top score of 800 or above has increased in recent years - mostly attributed to them cutting spending and paying down debt. So what can you do to improve your credit scores and keep them higher? as this will ultimately get you a lower interest rate and save more money on a purchase or refinance loan.
 
Falling Credit in the US
 
Here is a chart below that shows how credit in the US was before the recession and after the recession.  
 
 
More and more people are having their credit profiles affected by the ongoing financial crisis in this country. With loans getting tougher to qualify for and underwriting guidelines requiring higher credit scores, understanding how credit scoring works is going to be something that many people are going to have to learn to understand so they can repair their credit.
 
Just how much does lower scores cost on a loan?
 
Below is a table of Fannie Mae’s Risk Based Loan Level Price Adjustments (LLPA’s). These LLPA’s take into consideration a buyers credit score and down payment on a loan scenario. These LLPA’s are subtracted from a borrower’s loan pricing, which pushes their mortgage rate higher. For example, a borrower with a FICO score between 680-699 takes a 1.50 point hit on their pricing at an 80% loan to value. If this fee was paid at closing, on a $300,000 loan, it would cost an additional $4500 to close! As this is usually just too much for a borrower to pay, they will then have to take a higher interest rate.
 
 
I don’t blame the GSE’s (Fannie Mae & Freddie Mac) for adjusting their risk model, but these loan level pricing adjustor’s will prevent many folks from qualifying for a refinance…either that or they will look to the FHA, which has less restrictive underwriting regs after a “pre-foreclosure event” (3 years!) and far fewer LLPAs for financing. But then of course the FHA has a 2.25% funding fee that must be paid on all loans so either way you slice it these days, loans are getting a lot more expensive for most people.

What does this mean for the future of housing demand?

Fixing a consumer’s credit is not an easy process, nor is it quick. Depending on the make-up of defaults, it can take years to rebuild a credit profile, especially when banks are reluctant to lend. We are heading in opposite directions here! Underwriting guidelines are as tight as they’ve ever been (I feel for the self-employed) and over 26 million Americans are unemployed or underemployed. Many of the jobs that were lost over the course of the last two years will be lost forever to gains in labor productivity and investments in technology. 

Plain and Simple: We all need to be looking at the macroeconomic recovery from a long-term perspective.  We must focus on educating our children. We must start building their credit profiles now so they fit into underwriting guidelines when they’re ready to buy a home. We must prepare the next generation to carry the torch of the economic recovery.
 
 
5 ways to increase your credit score-and fast
 
Here are 5 great strategies that you can utilize right away to give your score a little boost. 
 
1. Get Your Report
The three main credit bureaus, Equifax, Experian®, and TransUnion®, are required by law to provide you with a free copy of your credit report once every 12 months. To request your free copy (one from each company) visit AnnualCreditReport.com or call 1-877-322-8228. (Note: free credit reports do not include credit scores. Scores can either be purchased on-line or pulled by your mortgage professional.) While you’re on-line, be sure to visit www.optoutprescreen.com as well. This will help you “opt out” of all the junk mail you get in the mail, credit experts advise this will give your score a boost immediately.
 
2. Create Some Balance: The trick is to get and keep your balances below 30% of your credit limit on each card. Remember, if you pay off any credit cards completely, do not close your accounts without discussing it with your mortgage professional first. Canceling those cards may inadvertently undo all of your hard work.
 
3. Know your limits: Make sure that your credit card issuers are reporting the correct limits on your accounts to the three major credit bureaus. Without an available limit, your account will appear to be maxed out at its highest reported balance each month. This could cost you up to 80 points in certain instances. Also, if you’re in very good standing, ask your creditor for a lower rate or higher credit limit. This will increase the gap in the debt you owe versus the credit you have available. Sometimes hinting about closing an account can suddenly bring out the generous spirit of certain card issuers. Give it a try. The worst they can say is no.
 
4. Protect Your Interests: Your credit is calculated based solely on the information available to your creditors. If you have a HELOC, make sure it’s listed as a mortgage or an installment account on your credit reports and not a revolving debt. If you had a bankruptcy, be sure that all items associated with the bankruptcy are being reported correctly, that is with a zero balance. This action could increase your score by 50-100 points. Because simple mistakes like these can wreak havoc on your credit score, it’s important to monitor your credit every four to six months.
 
5. Even the Score: If you find information on your credit report that you believe is inaccurate or incomplete, then you have the right to dispute it free of charge. For the fastest results, visit the appropriate credit bureau’s website and file a complaint on-line. If supporting documents are necessary, you have to file your dispute by mail.
 
Educating people about credit scoring 

As we seen above, a simple increase in credit scores from 700 to 740 can save someone $4,500k on a $300k purchase loan and get them a lower rate. I think it is imperative that people beging to learn about credit scoring, so they have every possibility to score the lowest interest rate on their loan. I have learned to become pretty educated on credit scoring myself and have worked with many buyers who were unable to qualify for a loan because their scores were too low.

One of the tools we can use is the ”credit analyzer” system which our credit company offers for our clients, this predicitive credit scoring system will allow you to see how high credit scores can go if certain actions are taken in regards to credit, this way a potential buyer has a definite plan of action to improve their credit scores to meet the qualifications needed for a loan. The credit analyzer truly is a fantastic tool as it accurately predicts future credit scores using the same algorithms used in credit scoring.   

If you know of anyone that needs a little help improving their credit scores so they can qualify for a loan or they need help getting pointed in the right direction to repair their credit, feel free to contact me with any questions you have. I look forward to chatting soon. 

  

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A Quick Guide to Understanding Mortgage Rates

July 6th, 2010
Mortgage rates are a very popular topic right now, as all the media channels have been reporting that rates are now at all time record lows. Understanding what determines mortgage rates is also quite simple once you understand some basic fundamentals. As most people are asking questions like “What are rates at right now” or “Why are rates so low”, here is a quick guide that will help you answer those questions correctly.
 
 
What economic events force mortgage rates to go up or down?
 
So what causes mortgage rates to go up or down? These are tied to some fundamental economic activities that take place everyday in our markets, by understanding these you will now be able to better predict and understand what direction rates will probably move. 

Stocks and bonds compete everyday for investors dollars in the open markets, stocks pay a higher rate of return so they are more risky, bonds have a lower return so they are seen as more stable and less risky. Remember: When there is weak economic news (higher unemployment, less homes sold), this normally causes money to flow out of Stocks and into more stable Bonds, helping Bonds and home loan rates improve, while strong economic news (lower unemployment, more homes sold etc) normally has the opposite result, so investors will put their money into more risky stocks, thus causing mortgage rates to increase. It is an interesting dynamic that generally bad economic news is good for mortgage rates!  

Inflation is going to be a problem sometime in the near future because of all this money that is being printed to pay for Government spending. So how will this affect mortgage rates? The bottom line is that as inflation increases, home loan rates will rise too. That’s because lenders know that a rise in inflation actually diminishes the value of the money they receive over the life of a loan, as the money they receive for payment simply won’t go as far. So when they see changes in inflation or even anticipate a rise, they increase their interest rates to make up for the loss in future buying power that will happen as a result of inflation.  

Also, when you hear the Federal Reserve talk about possibly raising their federal funds rate, or their discount rate, this does not directly affect mortgage rates and in most cases has nothing to do with mortgage rates. The federal funds rate is what home equity lines of credit and credit cards are tied to for example.
 
The Relationship between Mortgage Bonds & 30 year Fixed Mortgage Rates 
 
Mortgage rates are traded everyday as mortgage backed securities/mortgage bonds (MBS) just like stocks. They either go up or down in price on a daily basis. Here is a picture of a MBS trading chart below. When MBS (green) are trading downwards, mortgage rates (red) will go up and when MBS are trading higher, mortgage rates will go down.
 
   
When MBS trade lower, lenders raise their rates and distribute “Reprices for the Worse” (see chart below) and republish these higher rates to the public. This daily trading of MBS directly correlates to the mortgage rates we see everyday from our lenders.

When MBS Trade Lower Mortgage Rates Increase

 

What is causing mortgage rates to be at record lows?
 
Economists largely attribute the decline in mortgage rates to the European debt crisis and new concerns about the global economy, which has unleashed a massive wave of cash into U.S. bonds from investors around the world.

Investors recently have not been convinced that the worst is behind us and instead chose to continue to allocate funds into risk-averse assets like government guaranteed U.S. Treasuries. This “flight to safety” has allowed mortgage bonds to move higher and rates to go lower. 

What is a “Flight to Safety” 

A flight to safety occurs when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. As Treasury yields fall, prices of mortgage backed-securities move higher, which allows lenders to offer lower mortgage rates. When Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
 
Because of this recent flight to safety in the market,  mortgage bonds have hit new trading records recently (see chart below), this has resulted in record low interest rates. These plummeting interest rates have occured in direct proportion to the declines in the stock markets and the Euro currency for example. 

 

Where will rates go from here?  

Personally I don’t see rates moving too much higher than 
where they are currently, at least through the summertime. If you keep hearing that the Euro zone and other markets around the world are continuing to have problems, you can rest assured that this will keep money flowing into the US bond and treasury markets, thus keeping US mortgage rates low. Until many of the countries around the world address their debt issues, we could see very low mortgage rates in the US for a considerable period of time.
 
It sure is a great time for anyone who can refinance or is looking to purchase, borrowers can get 4.375% on a 30 and 20 year fixed loan, and 3.875% on a 15 year fixed. As always, if you have any questions about any of the information above, please do not hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.
 
  

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FHA Set to Raise Monthly Mortgage Insurance Premiums For New Buyers

June 25th, 2010
 
The FHA has just been given the green light by congress to increase the cost of the monthly mortgage insurance on all FHA loans for new buyers. Right now, depending on your LTV (loan to value), the FHA monthly mortgage insurance Premium (MIP) is either .50% or .55% of the base loan amount, under this new law the cap has been raised to 1.5%. 
 
The House of Representatives approved by a 406-4 vote the Federal Housing Administration Act, a law designed to shore up the finances of the agency which now guarantees nearly one-third of the nation’s mortgages. The new law gives FHA the authority it had requested to raise the ceiling on the annual premiums it charges borrowers for its guarantee. 
 

FHA’s 2 step process to shore up finances

 
 
Earlier this year the FHA announced its intention to raise its premiums in a two-step process that was part of a larger program to put itself back on a firm financial footing. This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing.
 
The first step was raising the up-front premiums due from the borrower at loan closing, this became effective April 9, 2010 when upfront premiums went from 1.75 percent to 2.25 percent. However, the FHA was not able to raise the monthly mortgage insurance (MIP) without the permission of Congress as it was already at the authorized ceiling.  Now under the law passed the agency will be allowed to increase its annual premium to 1.50 percent of the unpaid balance of the loan. 

 
What can new buyers expect?
 
However FHA Commissioner David Stevens has come out and said the agency does not plan on raising rates to the maximum limit when this bill becomes law. Instead, the agency wants to raise the fee for new borrowers from 0.55 to 0.9 percent, Stevens said. The increase would help the FHA raise capital as well as make its fee structure more consistent with that of the private mortgage insurers, which have been crowded out as FHA’s market share has exploded (see chart below).
 
 

 
Comparing current vs new mortgage insurance payments 
 
Lets take a look at how this increase in monthly MIP will effect overall mortgage payments and affordability for new buyers. Lets look at FHA Monthly Mortgage Insurance Premiums (with less than 5% down).
 
Current premium                  -  .55% monthly

Expected increased premium  -  .90% monthly 

Maximum increased premium   - 1.55% monthly  

On a $400k loan for example, the monthly insurance amount with the current premium (.55%) is $183 a month. On the new “Expected” increased premium of .90%, this same buyer will pay $300 a month for mortgage insurance, which is an increase of $117 a month. $117 a month is a lot of money for some people and will make that $400k home purchase more expensive and possibly out of range now for many new buyers. This will also increase debt to income ratios, as this will be an additional debt of $117 to plug into a buyers debts. 

Lets hope they do not enforce the limit up to the cap of 1.5%, as this will increase payments by $317 a month on a $400k loan. This will not be a wise move by the FHA as this will decrease the price even more for what a buyer can afford. But as we have seen many times in the recent past, the people in congress do not make the wisest decisions most of the time…I will say no more on this subject.

 
Will FHA change their debt to income rules soon too?
 

Another important point to make is that the FHA have not lowered their debt to income ratios down to 50% yet. Fannie Mae and Freddie Mac have capped their debt to income ratios at 45% and allow 50% for strong borrowers. I will be very surprised if the FHA does not do this sometime soon, so that the whole lending industry has a cap of 50% debt to income ratios for all loans. If and when they do this, this will also limit the qualified pool of buyers who can buy at certain prices now.  

A good idea would be to explain this future increase in mortgage insurance premiums to any buyers who are still unsure about buying now. Show them the difference in payments with the current mortgage insurance and with the new future increased mortgage premium, an increase of $117 a month just might be enough to get some buyers off the fence to buy now.

 

 
Most of CA First Time Credit Claimed 
 

I just read an article this morning CA Tax Credit that says California ’s Franchise Tax Board is warning consumers that nearly 80% of the state’s $100 million first-time buyer credit has been claimed. As of June 15, the agency has received more than 15,000 applications from consumers. However, since many are duplicates or invalid, FTB will accept at least 28,000 applications to ensure the entire $100 million allocation is spent. It will announce a cut-off date for the program on its website, giving at least 24 hours notice for applicants to fax in their documentation.
 

However, submission before the deadline does not guarantee consumers being approved for the credit. FTB will stop allocating credits once the $100 million is exhausted. A separate program, the $100 million tax credit for the purchase of a newly constructed home, is still operational. Consumers need to enter into contract before Jan. 1, 2011 and complete the purchase before Aug. 1, 2011. This is another great reason to create urgency with buyers who may have thought this tax credit would be around for a while. 

 

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Compare the Savings on a 20 Year Loan vs a 30 Year Loan!

June 10th, 2010
There has never been a better time than now, for new buyers and existing homeowners to take a reduced term mortgage that will set them up to be mortgage free for an earlier retirement. Because of plummeting mortgage rates the 20 year fixed loan is now at 4.375% and the 15 year fixed is available around 3.99%.  Today’s record low interest rate environment is presenting just that opportunity.  
 
Look at options to a 30 year loan
 
I would say because of the really low rates recently, almost 40% of my clients have been taking reduced term mortgages in the past couple of months. The 20 fixed loan has been the loan of choice, as it has an affordable payment payment for a lot more clients with rates being so low. The 15 year fixed payment is usually just a little too high for all first time buyers. The idea of being mortgage free in 20 years and saving more than a $100k in mortgage payments and interest compared to a 30 year loan, is now becoming very appealing to a lot of buyers, as it opens up a whole new door of opportunities for retiring earlier. 
 
Educating homeowners with more options 
 
I believe that now more than ever, we must be ready to take the time to truly teach people what is happening in the market and why it is happening. Then, and only then, can they truly make the right decisions for themselves and their families. Its important to show buyers and homeowners why record low rates are presenting the opportunity of a lifetime to get a shorter term loan that will enable them to save more money and help them achieve their retirement goals a lot earlier. 
 
Compare the Savings on a 20 Year Loan vs a 30 Year Loan!
Here is a great example that compares the total savings on a 20 year fixed loan versus a 30 year fixed loan. For this particular example, let’s take a $400k 30 year fixed loan at 4.875% and a 20 year fixed loan at 4.375%. The difference in payment is only $387 a month more for the 20 year fixed loan. I know this will be too much for some people, but it will also be affordable to a lot of people too.
 
 
 
Now lets compare the total mortgage savings on the 20 year fixed versus the 30 year fixed loan, as you can see below the 20 year loan will save $161,175 in mortgage payments and interest over the 30 year loan. (See Net Savings)
 
Now lets see what the balance of each loan will be after 10 and 20 years. As you can see after 10 years, the 20 year fixed loan has already paid down an extra $81,147 in principle. Now let’s look at the balances after 20 years…on the 20 year fixed the balance is $0, whereas the loan balance after 20 years on the 30 year fixed is still $200,732.
 
 
So the two huge benefits here are #1 the borrower will payoff his home 10 years early and get to retire earlier, #2 the borrower will save over $161k in mortgage payments and interest.
 
Chat to family and friends about a 20 year loan?
 
A recent Wall St Journal article noted that 50% of US households have an interest rate over 5.75% on a 30 year fixed loan. Have a chat with your friends and family and ask them if they have a rate this high, or if they would be interested in looking at a reduced term 20 year fixed loan and becoming mortgage free for an earlier retirement? 
 
You can let them know that if they qualify, they would be able to refinance into a 20 year fixed loan at 4.375% or a 15 year fixed as low as 3.99%. I would be happy to help out any friends or family you have and present the figures to them as shown above, so they can make an informed decision about their future goals. As these record low rates really present an opportunity of a lifetime for many homeowners and buyers who can now look to achieve retirement goals a lot earlier.
 
An update on mortgage rates 
 
Mortgage rates are still edging downwards as investor cash continues to pour into the US bond market from around the world. Mortgage bonds actually had their new “price record” (highest yields on record) on Monday the 7th of June when the Fannie Mae 4.5% coupon priced out at 103.00 (see trading chart below). What does this mean to consumers? It means that if these yields stay around this high 103.00 range for the next few weeks or so, and this becomes a solid new trading range, lenders might be offering 4.5% 30 year fixed rates across the board very soon. What a fantastic opportunity this would be for new buyers and current homeowners who can refinance. 
 
 
BUT also do not discount rates spiking up either as we are in a very volatile market right now. It is the Euro crisis that is driving everything lower including the US stock markets..Remember when stocks go down, this causes bonds to up and mortgage rates rates in turn go down. But if the Euro crisis starts to dissipate fast and the “flight to safety” of investor money to the US markets alleviates, then we will see rates rise fast.
 
Personally I don’t see rates moving too much higher than they currently are for a few months or maybe even longer, as the member countries in the Euro zone are only starting to acknowledge and realize that severe austerity measures need to be initiated immediately in most countries. This will be a long drawn out and painful process for many countries, as evidenced by the recent riots in Greece and current union strikes in Spain. So in summary, while the Euro zone continues to have problems, this will keep money flowing to the US bond and treasury markets, thus keeping US mortgage rates low and the US stock markets lower too. But when you hear that the Euro zone is starting to get its house in order, watch this as a key factor for rates to rise and US stocks to improve again.  
 
If you have any questions about any of the information above, please do not hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.
 
 
 

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Euro Crisis Drives Mortgage Rates Down to Record Lows!

May 26th, 2010
When the federal tax credits ended last month, everyone started wondering what will it take now to keep buyers interested in buying homes and keep the housing market moving forward? The answer for now seems to to be the crisis in Europe. Because of the financial turmoil in the Euro Zone, mortgage rates have plummeted down in the past 10 days to match their lowest levels on record. For example did you know that a qualified buyer can get 3.99% on a 15 year fixed loan!
 
 
Rates are at record lows
I don’t think even the media has caught onto how low rates are yet, as this sudden drop in rates has happened so fast. But this presents a great opportunityfor anybuyers who may have been a little disappointed in missing out on the $8k tax credit or to buyers who still are on the fence thinking about buying. Because with these really low rates, buying a home now will present an opportunity for a buyer to save more money than they would have received from the $8k federal tax credit when rates were higher.
 
These low rates have more savings than the $8k tax credit
If anyone was wondering if the tax credits that ended April 30th would have an affect on buyers? well they had their answer last week. Purchase applications had their biggest drop in 13 years as applications plummeted 27% for the week ending May 14th. 
 
So obviously there are a lot of buyers out there who are disappointed they missed out on the $8k credit. But these record low rates now present a great opportunity for buyers to save more money than the $8k credit if they secure a loan now. Check it out 
 
 
1. How to recoup the tax credit loss of $8k and more by securing a record low rate. Because rates are roughly -.375 to -.5% lower than they were a month ago, the savings long term on a loan at 4.625% will more than make up for the loss of the $8k credit on a loan at 5%.
 
Loan A                          Loan B
 
Before tax credit        After tax credit

$400k loan                $400k loan

5% interest               4.625% interest

Payment $2379          Payment $2291
 
Monthly savings = $88
 
$88 x 30 years = $31,680 total savings
 
If you multiply the $88 monthly savings over 30 years, this amounts to $31,680 in total savings. So the loan made after the tax credit deadline ends up being a better investment than the loan that received the $8k tax credit, as the before tax credit loan had a higher rate. 
 
2. Consider a 25 year fixed loan instead
Did you know that some lenders offer a 25 year fixed loan? With the rate on a 25 year loan at 4.625%, the payment on a 25 year fixed loan today will almost match the payment on a 30 year fixed loan that had a higher rate recently. This will save 5 years off a mortgage. For example, the payments at 5.125% on a 30 year fixed are almost the same as a loan at 4.625% on a 25 year fixed.
 
Using the example above on the $400k loan at 5% with a $2379 payment, saving 5 years mortgage payments will amount to $142,740 in mortgage payments and interest. This is a great way for someone to make a great investment with a shorter term loan, and all of a sudden the $8k tax credit does not seem as important compared to 5 years worth of mortgage payment savings.
 
So how low are rates?
Rates are now at 50 year lows. Qualified buyers with excellent credit scores and strong down payments of 20% or more can now get 3.99% on a 15 year fixed, or a 20 year fixed is at 4.375% and a 30 year fixed around 4.625%, but I have one lender that can offer qualified first time buyers 4.49% on a 30 year fixed. Jumbo loan rates are also incredible right now too at 4.875% for loans up to $729k. 
 
What is causing mortgage rates to go so low?
Economists largely attribute the decline in mortgage rates to the European debt crisis and new concerns about the global economy, which unleashed a massive wave of cash into U.S. bonds from investors around the world.
 
 
Even though EU officials, the IMF (International Monetary Fund), and global central bankers officially have “addressed” the European fiscal crisis, market participants have not yet been convinced that the worst is behind and instead chose to continue to allocate funds into risk-averse assets like government guaranteed U.S. Treasuries. This “flight to safety” has allowed mortgage bonds to move higher and rates to go lower.
 
A flight to safety occurs when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. As Treasury yields fall, prices of mortgage backed-securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
 
 
Where will rates go from here? 
Economists are advising that predicting rates has become a little more difficult due to unforseen circumstances. NO ONE predicted the current chaos in Europe, in fact everyone had predicted mortgage rates to increase significantly after the Feds pulled the plug on their rate reduction program on March 31st this year. 
 
For now, I don’t think the troubles in the European markets are going to go away anytime soon. It really is a crisis of confidence right now in the Euro zone because the markets know that these countries are not going to solve their debt problems overnight. So with that being said, I would say we are going to have a low interest rate environment here in the US at least for the next few months, unless there is another crazy twist in the financial markets that has not been accounted for yet.
 
 
 
Another golden opportunity for buyers still on the fence
There is no doubt that the end of the tax credits has lowered demand for housing. But with these sudden low rates, there truly lies another golden opportunity for a buyer to get a much lower payment on a loan that was not available a few weeks ago. Also, lower mortgage rates can give a powerful lift to a buyers purchasing ability too, A general rule of thumb holds that for every 1% percentage point decline in rates, is the equivalent of roughly a 10% reduction in the home price for a buyer. 
 
A good idea if you are a buyer, is to address your buying position again, as lower rates will help some buyers afford a slightly larger home, or a lower rate will mean that the new mortgage payment now fits within your budget.
 
If you have any questions in regards to any of the information above or you need help getting pre-approved for financing, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon
 
 

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How to Make a Buyers Offer Stand Out From the Crowd!

May 13th, 2010

 

With multiple offers going in on properties these days, it is important that the buyers offer is given every chance to stand out from the crowd and get accepted. With tougher lending rules now in place, the sellers are learning fast that only the most qualified buyers are getting their loans approved for financing. So from talking to several top agents recently who also list REO’s, I got the inside scoop on what it is they look for in the offers they look at. I want to share some of these tips so you can maximize the chances of getting your buyers accepted too. You can also use these pointers as a reference on your listings too, so you can determine the strength of the buyers offer you will eventually accept. 
 
Here are 4 tips to use when presenting an offer for your buyer. 
   

1. Provide a DU Underwriting approval with all offers
It is imperative that all buyers have an offer that is accompanied by a DU underwriting approval. A DU approval is when the buyers application has been ran through Fannie Mae’s or FHA’s automated DU (Desktop Underwriter) and will issue either an approval or a denial. A pre approval letter does not carry as much weight anymore even if it is from a direct lender, as essentially anyone can write up an approval letter even at a direct lender.
 
An offer letter accompanied by a DU underwriting approval will always place ahead of a basic approval letter, as a DU underwriting approval shows the most important information needed on a buyers profile to give the seller a good idea of the strength of the buyer. For example it lists the credit scores, the debt ratios and the type of loan they are approved for, as well as other information too. Also it is important to note that the DU underwriting approval must match up with the loan program the offer is submitted for, it is not uncommon for example, to have a buyer who has a FHA DU approval but will submit an offer with conforming financing. 

 

2. Provide proof of down payment funds
Always provide proof of where the down payment funds are coming from for the buyer. Make sure to send over recent bank statements or whatever asset account they are using for the down payment. Make sure there are enough funds in the statements you are providing to match the % of down payment the offer is for. Many times statements are provided but there are not enough funds to cover a 20% down payment for example. If the buyers are going FHA and are getting a gift from the parents, provide a copy of the gift letter from the parents.
 
3. Provide a copy of the buyers credit report (first page only)
If the buyers credit scores are very good, list them on the pre approval letter and point this out on the offer. Also provide a copy of the first page of the buyers credit report that lists the 3 credit bureaus and the 3 fico scores, make sure to black out their social security numbers for privacy issues. This is a great way to provide full transparency on your buyers offer, so the seller can see the credit strength of the buyers profile.
 
Now you may say that providing a copy of the buyers credit and bank statements is a private issue, but the seller can also say, if you don’t want to show everything on the buyers profile then we will consider someone elses offer.
 

4. Make sure the buyers approval is current
Make sure the date on the buyers approval is current. It is not uncommon these days for a buyer to be submitting offers for up to 6 months, so sometimes the pre approval letter or the DU underwriting approval has a date from 6 months ago. This will not fly as perhaps the buyers credit scores have dropped or they do not qualify for a particular loan program anymore. If the date is more than 30 days old make sure to run the buyers application through DU’s automated underwriter again. Remember Fannie Mae and FHA have been making changes to their DU underwriting guides quite frequently recently, so the buyer may not qualify for the particular loan program anymore if a few months have gone by.
 

 

Be prepared to answer the following questions on your buyer
Many times the seller may ask other questions in regards to a buyers profile to make sure they will qualify for financing. Here is a few examples that the seller may bring up in regards to your buyer.
 
1. What is the buyers employment situation?
Many times the sellers are now asking about a buyers employment situation to make sure they will meet the minimum underwriting requirements for a lender. For example, has the buyer just started a new job, is the buyer self employed, how does the buyer get paid? For example, a lot of lenders are requiring that a buyer be on a new job now for a few months at least, or if your buyer just started a new job, make sure they are salaried and not commissioned only, as most of the time the lenders need 2 years commissioned income to be able to use commission income.
 
If the buyer is self employed, make sure the buyer has filed their taxes for 2009, as some self employed people file extensions on their taxes. If they have not filed, then of course the lender will have to use 07 & 08 taxes to get approved, and if they had a bad year for one of these years they may not qualify for the loan anymore.
 
2. Does the buyer have any additional reserves or funds?
This is an important question these days, as sometimes the sellers are making sure that buyers have back up funds for a plan B just in case there is a change in the transaction that will require additional funds to close. For example, sometimes there are repairs needed on a property that will pop up on an appraisal that the seller will not pay for, or perhaps the appraisal may come in a few thousand short which may leave the buyer a few thousand short for closing, as the lender will only finance the loan based on the appraised value.
 
Here you do not need to provide any additional funds to the seller, but make sure if someone asks these questions that you know the buyer has additional funds for a Plan B scenario. Many times FHA buyers are breaking the bank to buy a home and this can be off putting to a seller in case any additional funds maybe required, it is always a good discussion to have with a buyer to make sure they have “access” to any emergency funds in case a situation arises.

 

 
Ask these questions on listings
A good idea would be to use the same format above for your listings and request the same information on all buyers. Keep a cheat sheet handy and ask all these questions to the loan officer providing the information for the buyer on your listing, then keep it in the file for the seller. Too many times, something pops up in a buyers profile and no one will know about it until the last minute. This way you will have addressed all the specifics on a buyers profile ahead of time.
 
Full transparency and communication is key to helping a buyers offer get approved from start to finish. I always perform this duty for all the listings I am in charge off, so only solid buyers will get through the door and will get approved for financing.
 
A note on Greece, the EU and mortgage rates

   

What a week last week was in the financial markets all over the world. The DOW at almost -1000 had its largest one day drop in history, supposedly caused by someone hitting the wrong key on a trade (yet to be confirmed, but the conspiracy theorists are running rampant). Whatever the reason behind the plummeting DOW, it has certainly brought back fear and uncertainty into the markets again.
 
Keep your eye on events in Europe as they DIRECTLY affect interest rates in our markets. For example mortgage rates dropped down to 4.75% last week when the DOW started plummeting, because when there is fear and uncertainty in the markets, investors will pull their funds from the high risk equity markets (stock markets) and flock to the safe haven of US Treasuries and Bonds, thus dragging down interest rates with them. Check out the huge spike in mortgage bonds below (this lowers mortgage rates) last Thursday which was directly proportional to the massive sell off in the DOW on the same day).
 
    Mortgage bond market last week when DOW Plummeted 

 
Remember: When there is weak economic news (Euro zone problems, higher unemployment etc), this normally causes money to flow out of Stocks and into more stable treasuries & Bonds, helping Bonds and home loan rates improve. But if there is strong economic news (lower unemployment, Euro Zone problems getting fixed, more homes sold etc) investors will pull their money from the lower yielding bond markets and put their money into more risky higher yielding stocks, thus causing mortgage rates to increase. It is an interesting dynamic that generally bad economic news is good for mortgage rates.
 
I hope that these tips above help you and your business, remember the more work that is done upfront to ensure the buyers financial profile and offer is solid, the better chances everyone has of meeting their goals. If you have any questions about any of the information above, or you need help getting a buyer approved, please do not hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.  
 
 

  

   
  

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Qualified VA Buyers Get $8k Tax Credit Extended to June 2011

May 13th, 2010

 

While all the different loan products in our market seem to be chopping and changing every week, VA financing still stands as the best loan product out there. Did you know the $8k tax credit has been extended for some VA buyers until June 30th 2011? If you are not tapping into the VA market then you are leaving a lot of business on the table. In this weeks newsletter I will discuss 3 tips to use when presenting an offer for a buyer using VA financing. 

  

The $8k tax credit is extended for veterans until June 2011! 
While the Home Buyer Tax Credit program will come to an end for most consumers, eligible Veterans will have an extra year to participate in this program? extension of 8k tax credit for VA buyers It’s nice that they are giving these young men and women an extra year to take advantage of the $8,000 first time home buyer tax credit and the $6,500 tax credit for those who are not first time buyers. There is one caveat, though; the veteran must have been on active duty outside the US for at least 90 days between December 31st 2008 and May 1st 2010, Otherwise, the same rules apply. These incredible people deserve all of the help they can get after the disruption their service overseas has brought to their everyday lives.
 
Who is eligible for VA financing
 
A veteran is eligible for VA financing if he/she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard and was honorably discharged after 24 continuous months of active duty, or the full period for which called, or ordered to active duty, but not less than 90 days (during wartime) or 181 continuous days (during peacetime).
 
3 reasons why VA financing is the best loan program
 
  
 
1. VA buyers can purchase with $0 down 
On a VA Loan a borrower can finance 100% of the home’s value and purchase with $0 down. Eligible veterans are allowed to take out a mortgage for up to $417,000 (or the County limit as designated by the VA, VA loan limits for each county for 2010 ). Now more than ever banks are requiring larger down payments, the FHA still requires a 3.5% down payment and most conventional loan programs still require 10-20% down, putting home ownership out of reach for many first time home buyers.
 
2. Easier qualification rules for VA buyers 
Most banks have easier qualifying and credit guidelines for VA buyers. Because many first time buyers typically don’t have a lot of established credit, getting qualified for a conventional loan can be difficult. Most lenders only need a 620 score to offer 100% VA financing. Also I have a few lenders that allow us to go to a 60% debt to income (DTI) ratio on VA loans ( remember Fannie Mae has capped conventional loans at 45% dti).
 
3. VA buyers pay no Mortgage Insurance 
Another huge advantage for VA buyers is that the do not have to pay any mortgage insurance (MI) on their loans, as these are backed by the government. As all other loan products carry MI if you put down less than a 20% down payment, this helps VA buyers qualify for even more financing and a lower monthly mortgage payment.
 
Debunking seller held myth’s about VA financing so you can get your offers accepted 
So if VA home loans are great for buyers, then why won’t sellers accept them? Many people will argue that sellers discriminate against buyers using government- assisted financing because of the following reasons:
The low down payment requirement means less skin in the game.
The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs.
The (false) belief that VA appraisers are less generous in their valuations. 

Here are 3 tips to use when presenting an offer for a buyer using VA financing. 

1. The low down payment requirement means less skin in the game 
We can’t argue this because it’s logistically true. What we can do here is show the seller that the borrower has a DU approved loan (automated underwriting approval) and also include income and asset documentation (proof of reserves etc) to support that approval. This will assuage the fears a seller might have about a buyer (and that buyer’s lender) performing within a prescribed time period.
 
2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs. 
The seller is not required to pay ANY costs for the buyer, but is allowed to pay up to 4% for VA loans. There are certain “non-allowable” costs for which the buyer is forbidden to pay, for example some of these are (No escrow, wiring, notary, tax service, or loan application or processing fees are allowed). Here is a good tip to help get an offer accepted. It is advised that the following language be inserted in to the CAR purchase and sale agreement so the seller is not put off by the VA offer:    “Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related “non-allowable” costs to be borne by lender”.
 
3. The (false) belief that VA appraisers are less generous in their valuations.  
This is a common misperception that VA appraisals usually come in lower. While I am sure that plenty of people have had a VA appraisal come in lower, underwriters and appraisers will point out that as long as the property is properly priced and the offer is reasonable, the appraisal should go smoothly. I have been averaging 2 VA transactions a month for the past year and I have only seen a value come in lower in one out of the last 10, as the home was way overpriced.
 
One of the most common “hits’ I have seen is when the purchase price is increased, above listing price, to accommodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. If the appraisal does come in low make sure the buyer has additional reserves to potentially come in with more cash to close. Remember the lender will only approve financing to 100% of the appraised value.
 
VA requirements on REO and short sales 
Be careful with REO’s and short sales for VA buyers, as these properties must meet the VA minimum property requirements (MPR’s). VA requirements on foreclosed properties Properties that can be repaired prior to closing to satisfy the MPR’s may be appraised as if the repairs were done. The seller is expected to pay for the repairs. Make sure you are aware of VA financing rules, so you are pairing up your VA buyer with the right property.

Why VA buyers are great to work with 


With over 2.3 million veterans in California and with a large percentage of these based in San Diego, this presents a great opportunity to work with VA buyers. I think VA buyers are great to work with as they are usually very loyal and communicate very efficiently (those are two of the biggest complaints I have heard about buyers recently). I always feel that I am giving a little back to our armed forces too, as they do this for all of us on a daily basis. They are great for referrals too if you take very good care of them, as they always know a colleague who is interested in buying a home. 
 
If you have any questions in regards to VA loans or you need help getting anyone pre approved for VA financing, please feel free to contact me directly at 858-200-9602. My company is approved directly with the VA, so we can offer excellent service and rates for all our military friends. I look forward to chatting soon.
 
 
  

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The 95% Conventional Loan is Back for New Home Buyers!

May 13th, 2010

 
A good sign for the real estate market is that some lenders have reintroduced the 95% conventional loan product. There are also some other “more risky” loan products making a comeback. I think we can look at these new financing options as a positive sign for our market place. Investors and mortgage insurance companies are now willing to offer these loan programs that have been unavailable for the past two years. In this weeks mortgage market insider newsletter, I want to cover some of the loan programs that have been recently revised and updated and are now available for buyers in California. 

 

1. The 95% conventional loan is back
A few lenders have started offering this loan product again in the past few weeks. This is good news for the markets as the Mortgage Insurance companies obviously believe that these loans are now worth insuring again, until recently most MI companies would only go to 85% financing. This loan is available for first time buyers up to $417k on single family residences only. Good credit scores over 740, low debt ratios and reserves are required.
 
This truly is a great low down payment alternative to FHA loans, especially since FHA just increased their upfront MIP (mortgage insurance premium) to 2.25%..conforming loans do not have this charge.  

 
2. Jumbo loans up to 90% and $729k are now available
Several banks are now offering 90% financing on Fannie Mae jumbo purchase loans up to $729k in CA on single family homes only, the San Diego’s county loan limit is $697k. This is excellent news as the mortgage insurance companies are now willing to offer MI on jumbo loans with a lower down payment, until recently most MI companies would only go to 80% financing. This loan is also available for first time buyers, you need a 720 credit score and debt ratios are required to be under 45%.

 

3. Super Jumbo loans are making a comeback
This has been a demographic of the market that has been hit really bad in the past few years, as many investors and banks would not offer loans over the Fannie Mae jumbo loan limits of $729k here in California. There are now a few investors that will go to $2 million dollars on jumbo loans up to 80% financing. Up until recently most super jumbo lenders would only go to 65% or 70%. These loans are full documentation only, require good credit scores, Strong debt ratios and plenty of reserves
 
David Adamo the CEO of Luxury Mortgage Corp, whose company is always one of the biggest players in the super jumbo loans arena, recently announced “I am very optimistic that we’ll be restoring the liquidity in that end of the market very soon, as investor groups have been asking our company to come up with new super jumbo products having loan balances over $1 million for the first time in two years”.
 
4. Stated loans are available
Stated loans have practically disappeared over the past two years. But now there are two investors offering stated loans to new buyers. W2 stated borrowers can get financing to 80% up to $417k on a single family home or a condo. Once again good credit scores over 720, low debt ratios and assets are required.  
 
Stated self employed is another segment of our industry that has taken a beating recently, as no one has been willing to lend to this group. There are many Americans that are self employed with excellent credit and tons of reserves that cannot qualify full documentation, but deserve the opportunity to get a good loan. These loans absolutely make sense if they are underwritten properly. I have an investor that can now offer Stated self employed buyers between 50-70% financing up to $1 million with a 720 credit scores and Strong reserves. Interest rates are also very good. 
  
5. Private money loans for REO’s
Private money loans are a great financing option in this market especially for investors looking to flip properties. I have one very good source that I work with that offers up to 65% of rehab value and only requires 10% down of the purchase price, in most cases affords 90% financing and will do escrow hold backs like the 203K program. There are no payments and no prepay penalties due while the property is being fixed up, so maximum profits can be taken for the investor. Terms are also very competitive.  

 
Fannie Shortens Wait for Some Distressed Borrowers to Get New Loans
Fannie Mae just announced last week that it is reducing the wait time for some borrowers between when they complete a short sale or deed-in-lieu of foreclosure transaction and when they can obtain a new mortgage. Previously, a borrower was required to wait four years before getting a new mortgage, or two years if their home sold in a short sale. Under the new guidelines, a borrower that previously completed a deed-in-lieu of foreclosure transaction can get a new mortgage in two years, provided the borrower has a 20% down payment. This new policy is effective for manually underwritten mortgage loans with application dates beginning July 1, 2010.
 
Showing signs of recovery
I think it is great news for our markets that investors are beginning to offer these alternative financing options again for our buyers. Many of these loan programs above were not available a few months ago, so this is definitely a boost for everyone. The mortgage insurance companies are obviously deciphering that in most areas serious depreciation is becoming stable, hence why they are now allowing loans to get financing up to 95% for example. Now we can just hope that some of the other underwriting guidelines start to ease up for some of our buyers…I can hear some people groan:).  Click here to find out the top 5 reasons why loans are being denied by underwriters.  

 
I believe that for a full market recovery it is imperative that investors continue to make more of these financing options available, so more buyers can continue to enter the markets. But, as each month passes too, we also must be thankful for the signs of recovery we see. As these new programs become available, it is important to let your clients and friends know these new financing options are available to them. As one door opens there is always someone who is waiting for that opportunity.
 
If you have any questions about how to qualify for any of these loan programs, or you have a buyer that might fit one of the scenarios above, please do not to hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.

    
 

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State of CA Announces New $10k Home Buyer Credit!

March 27th, 2010

 

I wanted to inform you of some breaking news. The State of CA is signing into law a new $10k home buyer tax credit starting May 1st. There is a possibility that new buyers now have an opportunity to make $18k just by purchasing a home over the next few months, as this will combine the current federal $8k home buyer credit along with this new State of CA $10k credit. If anyone has been on the fence about buying a home then this just might be the reason to move forward now

Governor Schwarzenegger proposed the housing stimulus in his January State of the State Address to help revive the California economy. The legislation allocates $200 million for more state tax credits – twice what was offered last year to 10,659 buyers of new, unoccupied homes. The state’s newest housing stimulus will grant $100 million in tax credits to first-time buyers of exisitng homes and $100 million to anyone who buys a new, unoccupied home. Here is a newspaper article on the tax credit.
 
But, it might not get off to a peaceful start on May 1: Get ready for a stampede early on as some buyers rush to overlap with the federal tax credit that’s also dangling $8,000 To buyers. To take advantage of both you would need to be in contract by April 30th so you can claim the $8k federal credit and then close between May 1st and June 30th so you can claim the CA credit also.
 
I am not sure if lawmakers realized they set up a double dipping scenario, as I am sure they they created the $10k CA credit to start immediately following the expiration of the $8k tax credit. We will see if they allow both, I think they will.

For the federal incentive, contracts must be inked by April 30, while closings have to happen by June 30. The California credit covers closings on existing or new homes on or after May 1, leaving a short window for double dipping. “We already anticipated increased contract activity in March and April due to the federal tax credit with scheduled closings in May and June,” writes Credit Suisse builder analyst Dan Oppenheim. “These buyers will now be eligible for both the federal and state credit and will likely consume a significant piece of the state credit given the first-come, first-serve allocation.”

Buyers must be at least 18 years old and be unrelated to the seller. They must live in the home they buy. First-time buyers are defined as those who have not owned a home in the past three years.
 
Personally I think the State must be a little crazy for allocating these funds considering that the budget deficit is $20 billion. But I think this is great news for new buyers here in CA, especially as the federal tax credits were expiring soon.
 
But time is off the essence, as the funds allocated for the 2009 $10k CA tax credit were used up in only 4 months by buyers. Experts are predicting that the funds for this new 2010 tax credit will be used within 4 months again too. 
 
Here are the new tax credit rules:
 
1. Eligible California buyers get a credit equal to 5% of the purchase price or $10,000, whichever is less. (As long as the house sells for $200,000+ the credit is $10k).
 
2. The credit is divided in thirds. You can take 1/3 of the credit for each of the next 3 tax years (so a max of $3,333/year).

3. You must purchase (close escrow) between May 1-Dec. 31, but as long as you’re in contract by the end of the year, you can close escrow all the way up to July 31, 2011.

4. The credits will be allocated on a first-come/first-served basis. Once all the funds have been committed, other eligible buyers will go on a waiting list.

5. If a first-time buyer purchases a new home, the credit will come out of the new-home-buyer pool.

6. Eligible buyers must submit a copy of their closing statement and a certification that they’re either a first-time or new-home buyer within 2 weeks of the close of escrow. The credit isn’t awarded until the state Franchise Tax Board confirms that the buyer is eligible and funds are still available.

Unlike the Federal Tax Credit, which was available for every American who qualified, the state’s program is only available as long as funds are available.

So if last year’s new-home buyer credit is any indication, this could be another case of the early bird getting the worm.
 
Mortgage rates spiked up this week!  
FYI in case you did not hear, mortgage rates fell of a cliff on Wednesday as they went from the lowest levels of 2010 to the highest levels of 2010 in one day. Mortgage bonds lost almost -100bps (see below). This translates to almost an extra 1% increase in fees for the same rate a buyer could have got on Tuesday..for example today it will cost a buyer an extra $4k on a $400k loan to get the same rate as Tuesday.  
 
 
I can’t emphasize enough to clients how important it is that they are getting the correct information about interest rates, so they can make an informed decision when to lock in their rate. If you think about the cost of Wednesday’s rate increase (increase in costs of $4k on a $400k loan), it wiped out half the $8k tax credit for some buyers in one day if they did not lock in! That is why it is so important you are working with a mortgage professional who understands the interest rate markets and will be able to advise you when is the right time to lock.
 
It must be noted that Volatile trading days will be the new norm in the interest rate markets from here on, especially since the Feds are pulling the plug on their life support for the mortgage rate markets come March 31st. Understanding interest rates.  
 
If you have any questions in regards to the tax credits or you need help getting anyone pre-approved for financing, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon. 
 
 
 
 

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Underwriters Reveal the Top 5 Reasons Why Loans are Being Denied!

March 24th, 2010
 
If it seems like banks are getting tougher with loan approvals these days then you are correct. From talking to 6 underwriters in the past few weeks about the state of our lending environment, I wanted to share with you the top 5 reasons why loans are getting turned down. Almost everyone I talked to shared the same information with me and had the same concerns. I will definitely be using this inside information as a guide on all future loans that I work on.
 
So why are the banks geting tougher?
I have heard some people say that the banks don’t have enough money to lend or that there is a lack of liquidity in the markets, well let me dismiss that theory because that is not true at all. As you can see below the banks are more than flush with reserves and in fact should be lending a lot more money.  
 
 34652_5f00_11-excess-reserves2 
 
Unfortunately as more and more loan losses accumulate and they don’t show any signs of dissipating anytime soon, bank underwriting rulesthe  are getting stricter across the board to prevent future losses on all new loans. It is because of this fear of future losses that all of the underwriters admitted that the pendulum has swung too far the other way. Here are the top 5 reasons why loans are getting turned down, they are in no particular order.  
 
1. We don’t allow flipped properties
“Flipped properties” are homes that were bought in the past 90 days and are to be sold for a reasonable profit, most of the time these are bought by investors. Every underwriter admitted that they have to turn down this type of loan everyday. Each lender has a different set of rules for flipped properties, but unfortunately many of these loans get submitted to a bank that does not accept this type of loan. For example, even though the FHA eliminated their “90 day flip rule” recently, not all FHA lenders have followed suit and many still carry their own rules.
 
 
It is important to know which bank allows flipped properties within 90 days if a buyer is purchasing this type of property. Also it is important to note that if the property is being sold for more than a 20% profit, the buyer may have to pay for a second appraisal with some lenders, this may cause a further delay in the transaction.
 
2. Properties are being overpriced and appraisals coming in much lower
Properties are going into contract overpriced and over valued and because of this appraisals are coming in under value. Some underwriters are seeing appraisals come in as much as 5-10% or more under contract price. Then because there is such a disparity between the contract price and the appraisal, both the buyer and seller cannot agree on a price or the buyer cannot afford to come in with any more funds and the loan falls apart, as the lender will base their loan to value financing approval for the buyer off the appraised value and not the contract price.
 
I think this will cease to be a problem soon once the $8k tax credit and low rates go away, as there will be fewer buyers bidding on properties driving values up.
 
3. Not following recent changes to condominium guidelines
Condo guidelines are changing all the time. For example, is there Litigation in the complex and if so what type of litigation? if it is structural litigation it will probably be turned down immediately.
 
 

Are there more than 15% of the tenants delinquent with their HOA dues? If so then Fannie and Freddie for example will not lend in this complex. Is the complex FHA approved? Is the complex Fannie Mae approved? All underwriters recommend contacting the HOA of initially and asking questions to try and dig up as much info as possible on the subject complex.

As condo’s are the type of property that most first time buyers can only afford, it is very important to do some homework upfront, as addressing all of these questions will ensure your loan will get approved.

4. The loan file does not qualify for the loan program
 In many circumstances the loan file does not get submitted for the right loan program or to the correct lender. A good example is let’s say a husband previously bought a property in his name only before they were married, but now he has a short sale on his credit. When the wife with the clean credit tries to buy a home in her name only and tries and qualify through FHA financing, they will not qualify because the FHA must take into consideration both of their credit reports.
 
5. No one explained the buyer’s motivation so we turned their loan down
This is a subject that is especially annoying to an underwriter, whereby loan files are being submitted without any explanation. It is important to note that underwriters are not giving the benefit of the doubt so they will turn these files down immediately. For example a buyer lives in a 2800 sq feet home on an acre that is worth $550k, but goes into contract on an 1800 sq feet condo worth $325k. An underwriter will turn this down immediately becuase she assumes that this is probably an investment property purchase, (because this is considered buying down and why would they move out of their nicer bigger home).
 
 
The correct thing to do here is to provide a letter of explanation written by the buyers advising that they are near retirement age and the upkeep of this bigger house is too much for them. As homes are much more affordable now and they are are preparing for retirement age in 3 years, they want to buy a smaller house that will not have any stairs or a large yard to maintain. This now makes sense to an underwriter and will get approved in most cases.
 
Do your homework before you buy a property
I hope these 5 reasons provide an insight into what the underwriters are looking for on transactions. Remember sometimes it is taking almost two weeks for an underwriter to decision a loan, so if the loan is not worked up correctly at the beginning you can find yourself in the middle of escrow with a loan application that just got denied. This is why it is so important that you work with a mortgage professional that understands the market and will take the time to answer all these difficult questions that will arise.  
 
If you are looking to get pre approved for a home loan or are running into difficulties with your current loan application because of one of the aforementioned reasons above, please feel free to contact me and I would be hapy to help out. I look forward to chatting soon.
 
 
 
 

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