The changes to seller concessions will have a large impact. Concessions include what the seller is contributing to the buyer in the transaction. A common concession is a credit from the seller to cover the buyer’s closing costs. A 3% limit on seller concessions is enough to cover closing costs on a purchase of around $250,000, but with a purchase price of anything less than $250,000 the buyer will be forced to pay some closing costs out-of-pocket. This will be a pain-point for many FHA borrowers in the months to come.
It’s important that buyers cut the check for their earnest deposit from an account they can trace the funds from. I recently had a transaction where the buyer used a cash gift to buy a cashiers check that was later used for their earnest deposit. This will create problems during the underwriting of your loan, which triggered me to write this post.
WHY DOES IT MATTER?
There are many reasons why the underwriter’s care about proving the source of your deposit. Loan guidelines only allow a buyer’s down payment to come from certain parties. For example, FHA allows a buyer to receive a gifted down payment from a family member. If the earnest deposit check was a cash gift, we cannot tell if the gift was from a friend, which is not allowed. When a gift is given from a family member, lenders will require a bank statement from the buyers account to show the amount of the gift, a bank statement from the donor’s account to show it came from their account, a gift letter stating the deposit is a gift and a copy of the check. All of the amounts should match exactly.
Another reason this is important is because the underwriter needs to make sure the funds did not come from a loan. All funds used towards the transaction should be accounted for. If you did take a loan for the down payment, that is fine for some mortgage programs but the underwriter must know the terms of that loan so they can make sure you qualify for your new loan and your new mortgage.
It’s a small request that can seem petty at the time of request, but there are reasons for these guidelines.
When a consumer calls me for mortgage rates, 90% of the time they’re looking for a 30 year fixed mortgage. I can almost guess immediately what mortgage the customer is going to ask for before they finish their sentence.
Let me start off by saying that I do not have anything against 30 year fixed loans. They have a relatively low payment with little risk. However, I truly believe there is a better loan out there. It’s a loan that helps homeowners reach financial freedom faster. If it were the standard, more homeowners would be debt free, house values couldn’t be inflated too easily and we likely would not be in the recession we’re in. So, what is this magical loan that is so special? So special that I risk being ridiculed by every industry expert for going against the grain? Well, the answer is simpler than you may imagine…the 15 year fixed mortgage.
The answer to this question varies depending on the loan program a buyer is looking at, but most buyers who have past credit problems rely on FHA loans as their fastest track back to homeownership. This is due to FHA’s lenient credit guidelines compared to conventional loan programs.
It appears that more homeowners with little-to-no-equity are gaining an interest in refinancing. More importantly, they’re gaining confidence that there is an option. This is good news as it appears the Home Affordable Refinance Program (HARP) is gaining both momentum and attention.
This seems like the right time to give homeowners an extensive guide to HARP, including who it best benefits, how to give homeowners the best shot of getting approved as well as other options to low-equity refinancing.
The HARP program was designed to help homeowners who are looking to refinance but have lost some to all of their equity in their home. It only applies to homeowners who currently have a Fannie Mae or Freddie Mac owned loan, but that does not mean HARP is a homeowners only choice. In fact, there’s surprisingly several opti0ns available to homeowners that may not have considered, nor did their lender give as an option. In this post, I will cover who qualifies for a HARP refinance, who best benefits from HARP guidelines, which customers do not qualify for HARP and some alternatives to consider.
If an owner cannot afford to pay their Fannie Mae backed mortgage, they can deed the property to Fannie Mae and rent it back at market rate. The homeowner can obtain a lease up to 12 months and either sign a new lease or go month to month after the initial lease expires.
All in all, this isn’t a bad idea. This is a good alternative for homeowners who do not want to be kicked out of their house if they’re on the verge of foreclosure. However, it isn’t a permanent solution. Fannie Mae is not in the property management business. They will sell the property as soon as they can, which means the homeowner should be prepared to move when the initial lease is up.
For homeowners who have had extremely bad credit hits and will not be able to buy a home for several years (such as large liens or a recent bankruptcy), this program should only be used to buy time since Fannie Mae will be looking to obtain a buyer later. For homeowners who have only had a few late payments or a bankruptcy at least a year old, this could be a perfect solution. Homeowners could potentially use this as a “Lease-Option-to-Own” program on their own house. They rent the house at market rent rates and re-establish their credit. If they are capable of qualifying for a home purchase by the time the lease is up, they can try to buy the house back from Fannie Mae. If the market price for the home is less than what they previously owed, they may even end up owing less on the house than they did when they were the original owner.
It also gives Fannie Mae time to prepare the house for sale and keep it from going to the foreclosure auction. This will keep the house from selling for below market price and in turn help boost the real estate market from further declines.
Any homeowner who does not obtain a loan modification should consider this option if it’s available and if they can qualify for a purchase loan by the end of the lease. You will want to work closely with a mortgage consultant and draw a plan to save for a down payment (if necessary) and build credit during the lease so you’ll qualify, just like consumers who choose to do a lease-option-to-own.
In the mortgage industry, lenders are required to send clients educational booklets relative to their loan application. I’ve always found it odd that there isn’t a centralized place for all of these booklets, so I thought I’d post them all here.
The changes took effect on November 7th, 2009 which was the day after President Obama signed the bill into law. This means that any transaction closed AFTER November 7th, 2009 will include all of the changes. This includes the provisions for Move-Up Buyers and the income limits which were raised from $75,000 single/ $150,000 married to $125,000 single/ $225,000 married.
It’s official. President Barack Obama signed the bill that includes an extension and expansion of the popular First-Time-Home-Buyer tax credit. which will now include some move up buyers.
In the coming days, I will be discussing all of the details. In the mean time, here are the details I currently have.
The extension will continue until the end of April to have a COMPLETED CONTRACT. This means you do not have to close by the end of April, but at least have a mutually accepted contract between the buyer and seller.
After the transaction has been mutually agreed upon by all parties, the transaction must be closed and finished by the end of June.
The tax credit will remain at $8,000 for First-Time-Home-Buyers
The income limits for the tax credit have been raised to $125,000 for single and $225,000 for married couples, expanding the credit to higher income buyers
The bill also includes a $6,500 tax credit for Move-Up-Buyers, which I believe includes a provision that the Move-Up-Buyer have lived in their current resident for at least 5 of the last 8 years (I will confirm this later)
I’m announcing an move in my career. Effective today, I’m officially working at Cobalt Mortgage. This is a move I’ve put thought and consideration into for many months. Cobalt is a company where I feel I can service my clients with the best array of products and service. I will have the ability broker loans as I have in the past but will have a very strong mortgage banking operation to support my clients needs. What this means to my clients is more options, faster responses from underwriting and better service.
This was a very difficult decision to make as I have worked with the staff at America One Finance and Loan Network for many years. Many have become very close friends of mine and I’m sad we won’t be working together. A special thanks to Matt Simmons, who has been the best boss I could ever ask for.
I want to let all the clients who I’m currently working with know I’ve done all the preparations to make sure your loan will close as planned. As many of you know, my office manager Marissa is fantastic to work with and she will wait until all loans that are scheduled to close are finished before she moves to Cobalt with me. I will remain available to answer any questions regarding your loan closing. The process should be no different than what you are already accustomed to. All of my contact information will stay the same.
I want to take a moment and thank the staff at Cobalt for making my transition as smooth as possible. I wanted to give thanks to Mark Everts for answering all my questions, Steven Marshall for believing in my future, Keith Tibbles and Ernie Gehre for the opportunity, and most of all, Janelle Steinberg for for being a guide, a friend and proof that there are good people in our industry.
