Tag Archives: credit

Fannie Mae adds Speed Bump Prior to Funding Your Mortgage

Posted on by
38
photo compliments of veggiefrog via Flickr

photo compliments of veggiefrog via Flickr

Effective on loan applications taken on June 1, 2010 or later, Fannie Mae is requiring lenders to confirm that undisclosed liabilities are not present prior to funding a transaction as part of their Loan Quality Initiative (LQI).   Currently a credit report is pulled and is valid for a specific amount of time–as long as the transaction closes prior to the expiration of the credit report, it typically is not repulled.   Fannie Mae is now requiring the lender to make sure that there is no new or undisclosed credit at closing.   Relying on the original credit report pulled at application is no longer good enough.

Fannie Mae’s FAQs suggest these tips for lenders to help confirm there are no undisclosed liabilities:

  • Retrieving a refreshed credit report just prior to the closing date and reviewing it for additional credit lines.
  • Utilizing new vendor services to provide borrower credit report monitoring services between the time of loan application and closing.
  • Direct verification with a creditor that is listed on the credit report under recent inquiries to determine whether a prospective borrower did in fact obtain credit or enter into a financial arrangement that is not disclosed on the loan application.
  • Running a Mortgage Electronic Registration System (MERS) report to determine if the borrower has another mortgage that is being established simultaneously.

This means days before funding a Fannie Mae loan, the transactions are subject to being re-underwritten and if the borrower is “borderline” (which is a 620 mid-credit score in today’s climate and/or higher debt-to-income ratio) or decides to purchase their appliances for their new home before closing…they could potentially “kill” their deal and find themselves being “unapproved”.

Fannie Mae states that loans should be resubmitted to underwriting if:

  • additional debts have been incurred which would increase the debt-to-income ratios
  • if new derogatory information is detected
  • if the credit score has materially changed

Borrowers should understand that the loan application is intended to represent their financial scenario and whenever (even before LQI) changes are made to their application, their mortgage originator needs to know.   This is not new.   When changes occur and a borrower is aware (such as taking on more debt or changing their employment) and they hope they “won’t get caught” before closing, they’re committing fraud.   This is what Fannie Mae is trying to prevent with LQI.

Borrowers with conventional financing need to be extra mindful of LQI.   Using a credit card to fill your SUV full of gas could potentially ding your score if you’ve carry a balance of 30% or more of the available credit limit.   Even closing a credit card during or just before a transaction could drop your score low enough to where the lender may have to reconsider your loan approval AT CLOSING.

For mortgage companies and banks (anyone who sells loans to Fannie Mae)  it boils down to having to refresh, repull or face re-purchasing the loan if changes to the credit report are found between application and funding.    Fannie Mae is not specifically requiring credit reports be repulled prior to funding–they are holding the lender responsible for changes if they don’t.

Borrowers, real estate agents and originators need to be prepared for potential delays in closing, repricing of their mortgage loan (which would trigger another delay due to MDIA) or the loan potentially being denied.   It’s more important than ever that borrowers work closely with a qualified mortgage professional who can help guide them through the process.

Twas the Night Before March 4: Mortgage Eve

Posted on by
2

Twas the night before

more information to follow

about the new refinances and cram downs

…almost too much  to swallow. 

Okay…I’ll stop with the rhyme simply because I can’t keep it going!   There are a lot of Mortgage Professionals and Homeowners waiting to hear if they will be helped tomorrow. 

According to the White House Blog, responsible upside down home owners with good credit may qualify to refinance with a loan to value up to 105% with a conventional 30 or 15 year amortized mortgage.  (I’m guessing most would and should opt for a 30 year amortized mortgage)…tomorrow:

  • When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009. 

I’ve heard nothing as of yet…    I have a lot of questions that I hope will be answered soon.

This from Kenneth Harney’s article on Sunday:

In a letter to private mortgage insurers Feb. 20, Fannie and Freddie’s top regulator confirmed that there would be no requirement for refinancers to buy new mortgage insurance, despite exceeding the 80 percent LTV threshold.

James B. Lockhart III, director of the Federal Housing Finance Agency, described the new refinancing opportunity as “akin to a loan modification” that creates “an avenue for the borrower to reap the benefit of lower mortgage rates in the market.” Lockhart spelled out several key restrictions on those refinancings:

• No “cash outs” will be permitted. This means the new loan balance can only total the previous balance, plus settlement costs, insurance, property taxes and association fees.

• Loans that already had mortgage insurance will likely continue to have coverage under the existing amounts and terms, thereby limiting Fannie and Freddie’s exposure to loss. But loans where borrowers originally made down payments of 20 percent or higher will not require new insurance for the refi, despite current LTVs over the 80 percent limit.

• The cutoff date for the entire program is June 10, 2010.

The “no cash out” factor is concerning.  Refinances where a second mortgage and/or HELOC is included (being paid off) that was not obtained when the home was purchased, is classified as “cash out”.  Even if the second mortgage was refinanced as a rate-term (only to reduce or fix the rate–the home owner never saw a dime of equity from their home in the form of cash).    It appears as those home owners with second mortgages will only be able to subordinate the second mortgage…and good luck with that!  

Banks have yet to adapt the higher conforming loan limitseven though it’s been announced by HUD and FHFA…I’m hoping we’ll see this tomorrow as well “in concert” with the unveiling of Obama’s mortgage plan.

Obama’s plan promises lower mortgage rates…butthese rates are fighting Fannie Mae and Freddie Mac’s LLPAs (huge price hits, such as the 0.75% hit to fee with condos over 75% loan to value).   Why not just get rid of some of these adds that are making rates unactracting…or atleast consolidate some of the brackets.  Is there really a difference between a home owner with a 739 and 740 middle credit score?

We’ll know tomorrow if there is a Mortgage Santa Claus and if he left any goodies under the tree.

$8,000 Homebuyer Tax Credit

Posted on by
80

Looks like the $8,000 Home Buyer Tax Credit is now signed, sealed and delivered.

Update: Everything you wanted to know about the 2009 home purchase $8,000 credit. (There is a similar link below for the 2008 $7,500 loan/credit)

Zillow reports it is a FULL $8,000 credit, even if the buyers total tax liability is less than that amount. “Buyers may not have owned a home for the past three years to qualify.”

CNN Reports That you can get your $8,000 faster by claiming it on your 2008 Return (or amended return if you have already filed), even though to qualify for this $8,000 non-refundable credit, you have to buy a house between 1/1/2009 and 11/30/2009

There is an income limit of $75,000 for single people and $150,000 for couples, though there are reports that people making over the limit might be able to get a partial credit.

If anyone has any details on the partial credit for people earning over the limits, please do let us know. Update: This answer is in the link at the top of this post.

For people who bought between 4/9/08 and 12/31/08

I don’t see any news so far that there are any changes for people who bought in 2008.

Buyer Beware!!! – $8,000 Tax Credit?

Posted on by
178

UPDATE: signed and passed 2/17 at $8,000. See more details here.

Original post below does not indicate the change to “must not have owned a home during the last 3 years” which was added to the final bill before it was passed.

*********

If you are currently in the process of buying a house, be aware that there is a $15,000  ($8,000) Tax Credit in the new stimulus bill which may, or may not, pass tonight. Then it has to be signed, hopefully by President’s Day they are saying.  Then we have to watch the effective date closely “for homes closed on or after ?” Likely that will be on or after the day the bill is signed, which presumably will be some time during the month of February.

Just a day or so ago an RCG reader asked if she could take the old credit on this return, and she bought ONE DAY too early to get the credit!  Aaaargh…you don’t want that to be you, especially since this credit in this stimulus package is not a loan and is doubled (as of last night) to $15,000 as it stands right now!

That’s a lot of moolah to forfeit by closing one day too early!

Share this post!

stumbleupon

There are a lot of discussions all over the internet, the news and Twitter about the pros and cons of this, but very few warning buyers who are currently in escrow or looking at houses today!  Watch this closely, and sellers should be prepared to move the close date a day or two, if needed.  NO ONE wants to be responsible for a buyer losing out on a $15,000 (an $8,000) credit!

This is like every SELLER getting a $15,000 (an $8,000) price reduction, complements of Uncle Sam and President Obama!  Big NEWS for both buyers AND sellers of homes. Watch the news VERY closely in the coming days.

2009 $8,000 "1st time" buyer credit

Posted on by
26

IMPORTANT UPDATE!  Bill signed on 2/17/2009.

Original post below:

Back in October, I wrote this post about the repayment feature of the 2008 $7,500 1st time buyer “credit”, including this link to more information as to who qualifies, and the terms of the “credit”.

Yesterday on Twitter I noticed Ryan Hukill’s post referencing Kenneth Harney’s article suggesting that:

“… Congress might be on the verge of transforming it into a true tax credit — one that never has to be paid back…” for purchases made on or after 1/1/2009.

I personally don’t see how changing the repayment terms for people who bought houses last year can be part of a “stimulus” package.   Posting this so that people who are eligible for the credit are aware that there may be a change in the repayment feature. (update: Apparently Obama agreed with me, as there does not appear to be a change in the repayment feature for homes bought from 4/9/08 through 12/31/08 and the 2008 $7,500 Loan/Credit.)

Joe Sixpack and the Subprime Crisis

Posted on by
156



The Subprime Crisis is a broken promise to Joe “Sixpack”.

One Day in early 2006, Joe was feeling pretty darned good about himself. He was making $65,000 a year at a job he held for over 6 years. He had $30,000 saved up in the bank. He had no credit card debt. He owned his car free and clear. He looked at his pregnant wife and his 2 year old son about to outgrow the two bedroom apartment they were renting and said, heck…time for us to buy a house.

He didn’t need no granite counters or stainless steel appliances.  He just wanted a decent neighborhood and decent schools for his kids.  He needed a small yard for a dog and to throw a ball back & forth in with his son and to have a barbecue and a beer in with his buds once in a while.  His American Dream seemed within reach.  He read everywhere that mortgages were pretty easy to get, and interest rates were near all time lows at 5.5%.

Mrs. Joe picked the School District she wanted to live in, and Mr. and Mrs. Joe walked into a real estate office and said, “We’d like to buy a house in this School District”. Ms. Realtor pulled out a big questionnaire asking them to fill in all the things they wanted, while she left to figure out what they could afford.  She did a quick qualification in the back room of the office.  $65,000 a year divided by twelve times 33% equals a payment of $1,787.50 a month and at 5.5% interest rate that equaled a loan of $315,000.  She added the $30,000 they had saved, and came to $345,000. She wondered if that was a little high, but it was certainly the lowest price she could hope to find, so she found them a little old rambler in Kenmore asking $350,000.  They all went out to see it.  It had an old kitchen and needed some work but the couple hugged and said, “We can make this ‘home’ with a little hard work and some paint and curtains”.  Everyone smiled and went back to the real estate office to make an offer of $345,000, with the seller paying the closings costs.

The real estate agent called her favorite lender and put Joe on the phone with the lender while she typed the offer.  The lender faxed over a pre-approval letter for a purchase price of $345,000 to submit with the offer.  Joe’s agent called the Listing Agent of the little rambler who said, “We already have 3 offers, and we’re presenting offers at 7 o’clock tonight”.  It was 4:30 p.m.

Joe’s agent called the lender who shot over a new pre-approval letter for $375,000.  Joe’s agent added an Escalation Clause for $1,000 more than any one else’s offer up to $375,000.  She took out the seller paying the Closing Costs explaining that with multiple offers, that wasn’t going to fly. She took out the home inspection clause explaining that would strenghten the offer. She told them to up their Earnest Money Deposit from $5,000 to $10,000 to make the offer really solid. Mr. and Mrs. Joe  signed it, and the agent faxed the offer to the Listing Agent.  That night Joe’s family got the call that they got the house for ONLY $364,000!  WOO-HOOS and High Fives all around.  They WON!

Joe went to the lender’s office a couple of days later and made a full loan application.  He got a Good Faith Estimate saying his payment was going to be $2,646.47 a month. $1,937.36 on the first mortgage of $291,200 at 7% +$459.11 on the 15% second mortgage of $54,600 at 9.5% + $200 a month for real estate taxes and $50 a month for homeowner’s insurance.  Total payment $2,646.47 a month.  Joe started sweating profusely.  He called his agent and said, can we cancel this?  She said not without losing your $10,000 Earnest Money.  There was no home inspection contingency and the Finance Contingency didn’t have a little blank space to put in a rate cap.  There was no “legal out” for “OMG the payment is $1,000 more than I thought it was going to be”.

The agent called the lender and he switched the loan to an interest only on the first with a fully amortized 40 year second and added a two year pre-payment penalty.  That brought the payment on the first mortgage down from $1,937.36 to $1,698.67.  The fully amortized 2nd at 40 years vs. 30 years dropped that payment from $459.11 to $442.29. Total payment $1,698.67 + $442.29 + $200 + $50 is $2,390.96.

Joe scratched his head and asked, “Where’s the 5.5% lowest interest rate in years?”.  The lender explained that rate was only for people with credit scores of 660 or better, and Joe’s score was 640.  Also, that rate was for people whose ratios were 33/40 and Joe’s payment, even at the reduced rate of $2,390.96, was just over 44% of his gross income of $5,416.67 a month.  His ratios were “out” which made him SUB-PRIME.  BUT, here’s the good news! IF you can stick this out for 12 months…24 tops…and make your mortgage payment on time, you can RE-FI at the lower rates! The value of your house will grow so that the 5% you put down will be 20%, and you will have ONE mortgage at the low rate instead of TWO mortgages at SUB-PRIME rates.

Joe went home.  He was feeling a little sick in the stomach and he had a massive headache.  He looked at his pregnant wife.  She was packing and making yellow curtains for her new kitchen.  He kissed her on the forehead and went to the corner store and bought a sixpack.  Two weeks later they closed escrow, moved into the house and he and his son went out and bought a new puppy.

Joe worked hard for a year.  He put in overtime and drew down on the little savings he had left.  He was able to make his mortgage payment on time for 12 months.  He called the lender to get that RE-FI he was promised.  The lender said…oh, well…you really should wait another year because of that 2 year pre-payment penalty.  Joe said, I really can’t do this for another year.  The lender said OK, but I’m going to have to add the costs of the re-fi and the pre-payment penalty to the principal of the mortgage.  Joe asked how much the pre-payment penalty was and nearly fell off his chair.  He said, OK…I’ll stick it out for another year.  He went out in the yard where his son was playing with the dog and drank a couple of sixpacks.

6 months later Joe was told that he couldn’t get any overtime.  They were cutting back on expenses.  He opened his mail and there were those multiple offers for credit cards at ZERO INTEREST!  He got himself three of them.  He started charging stuff to make ends meet until he could get to 2 years and RE-FI his mortgage.  He went out with one of his new credit cards, bought his wife a box of chocolates, his son a new football, the dog a new collar and a case of beer for himself.

Finally…TWO YEARS had passed.  No pre-payment penalty!  Time to RE-FI! He called his lender.  Well Joe, I’ve got some bad news for you.  You did improve your credit score with all those on time payments for two years from 640 to 680, but the best rates are now going to people with scores of 700 or better.  The REALLY bad news is that because of your ratios, you were stated income-SUB-Prime…and those loans don’t exist anymore.  There is no re-fi for people with your ratio of payment to income.  Joe hung up the phone and went out in his yard and drank a couple of six-packs.

At first, Joe was only getting behind in his credit card payments.  He opened his statement and the interest rate jumped to 30%! Joe called around and said “Isn’t charging 30% ILLEGAL?”  Well Joe…it used to be…we used to have something called “Usury Laws”, but no more.  Usury Laws were part of RICO to get rid of Loan Sharks but in 1980 Congress elected to “deregulate” and exempted Banks from Usury Laws for the most part.  30% only seems fair, since you breached your promise to pay on time.  Joe wondered why breaching his promise demanded such a penalty, when those who breached their promise to him of getting a RE-FI and reasonable mortgage payments seemed not to matter.  He put his head down, grabbed a couple of six packs and headed out to the garage trying hard not to turn the motor on in the car.

Joe started getting behind in his mortgage payments.  He had the same job making $65,000 a year…in fact he got a raise to $69,000 a year.  Still he was falling further and further behind.  He called his real estate agent and said, I can’t do this anymore.  I have to sell this place.  The agent told him that prices were down, cost of sale was 8% or more, and there were those payments he was behind getting penalties and interest.  He was “upside down” and the new distressed property law scared her and she couldn’t help him. Meanwhile the mortgage company was calling him every day, sometimes 4 times in one hour.  They had no answers.  They just asked if they could post date a check for the $4,000 he owed them to next week.  He said “Do you really think if I can’t make my full payment again this month, that I can write you a fkn check for $4,000 today that is going to be good “next week” you fkn moron!”  Joe slammed the phone down, turned the ringer off and headed out to the garage with his little TV and a couple of sixpacks.

Joe drank his six-packs and watched all the Presidential Debates and Campaign speeches.  He heard someone talking about “Joe Sixpack” and wondered if she knew how “Joe Sixpack” got that nick-name, and what she was going to do about it.  He watched as everyone fought over the $700 Billion Bailout and wondered if that would help him…and hoped it would.  The Bailout passed, but his phone didn’t stop ringing.  The Credit Card Company was still charging him 30%.  The Mortgage Company still didn’t seem to have any answers.  He called his agent and asked again about selling the house.  She agreed to help him do a “short-sale”, but she didn’t quite know how that worked.  He went out to see where he might rent if he sold his house “short”, but no one would give him a rental, because his credit was now fckd…

He went back to the garage, popped open another beer and stared at the car with the motor off.

The First in a Series of Fannie and Freddie Bailouts

Posted on by
32

The rumors floated on Friday regarding Fannie and Freddie turned out to be true.  This first bailout proposal, released a few hours ago, has three parts.  I say “first” because there is no way that this is going to be enough to save what’s headed our way nor will this be the only time the government will need to “bailout” F&F.

The U.S. Treasury plans to seek approval for a temporary increase in the line of credit granted to Fannie Mae and Freddie Mac. They will also seek authority to buy equity in either company, and the Federal Reserve voted to allow the New York Fed to loan F&F money, if needed, giving F&F access to the Federal Reserve’s discount window.

The Wall Street Journal says the U.S. Treasury and The Federal Reserve are doing this mainly to boost confidence in F&F, not necessarily because any of this is needed, which to me seems to be a flat out lie.

The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power. The Treasury envisions the Fed working with the mortgage giants’ regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury’s broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.

I’m not sure if we’re suppose to be happy or scared at the thought of Ben Bernanke accumulating more power.  Maybe what’s really going on is some preemptive planning due to known or unknown possibilities that tomorrow’s auction of Freddie Mac debt doesn’t go well.

The Sunday move was designed in part to head off fears about Monday’s auction of Freddie Mac notes. While small, the planned sale had assumed an outsized importance as a test of investor confidence. Freddie should be able to find buyers for its three- and six-month notes, market analysts said. But there is a chance that some financial institutions and investors may demand higher-then-usual yields.

Similar Freddie and Fannie notes that are currently outstanding yield around 2.5%. If weak demand for Freddie’s auction leads to sharply higher yields on the new notes, that could trigger a selloff across a wide range of debt issued by the companies, some analysts said. But most said such a scenario is unlikely.

I’ve been glued to the web, the radio, and my phone since Friday evening reading, listening, and talking about this with friends and colleagues. If the federal government choses to provide (the implied) government backing for bondholders, then the United States increases our national debt by 5 trillion dollars which would have a profoundly negative impact on the value of the dollar and potentially bankrupting the U. S. economy. If the federal government chooses to do nothing and F&F are forced to mark their portfolio closer to market value and sell off assets to accumulate capital, then the true value of what’s in the bag becomes known. The secret will be out and now nobody will be interested in buying our Residential Mortgage Backed Securities, the market will know the true value of the loans currently being held by banks all over the U.S., mortgage lending slows way down, interest rates go way up, and the housing market goes cliff diving.

It seems to me that with this first bailout proposal (I am preparing for more bailouts as should you) everything is just going to be delayed as long as possible, taking us down further into a deeper recession step-by-step.

This bailout proposal is not enough. We have only just begun to see foreclosures rise. We still have the rest of 2008 to get through, when another round of pay option ARMS originated in 2006 begins to adjust, and through 2009 when the ARMs originated in 2007 adjust. Defaults and foreclosures are far from over.

There was a guy who predicted the demise of Fannie and Freddie back in 2006.  His proposal is that we nationalize Fannie and Freddie, quit pretending that they’re a private company, and restructure the debt, thereby forcing the bondholders to take a haircut.

Sniglet asks an interesting question (comment 123): “So what happens to the shareholders? Do any of these plans ensure that there is no dilution of equity if any form of bail-out were to occur? If the GSE shareholders aren’t protected then we could see a complete abandonment of the financial system by investors. Who will want to buy shares in financial firms if the government isn’t going to ensure their investments remain safe?”

From everything I’ve read over the weekend, the government likely will not protect shareholder equity.  Whether or not they should is up for debate.

FHA Jumbo

Posted on by
53

Update 10/18/2008: This post was written in April 2008 and since then, many FHA guidelines have changed.  This post has been updated, however it’s very important to not rely 100% on mortgage information from what you read on the web.  Our guidelines are changing too quickly these days!  FHA Jumbo loan limits mentioned in this post are effective through 12/31/2008 and will be reduced to 115% of the median home value 1/1/2009 (estimated at $522,000).  Click here for an update on FHA guidelines.

Update 2/27/2009:  Lenders are applying a minimum credit score of 620 for FHA loans and the 2008 loan limits are returning.  Is it possible for me to chop up this post any more?

I thought it might be helpful to provide some information for you to use for when I quote rates on Friday for the FHA Jumbo mortgage. There are other criteria to be considered beyond looking at the rate. You may not have considered FHA before due to loan limits, now it’s more attractive: how else can you buy a home priced at $584,000 with 3% down and credit scores below 720?

FHA Mortgage Insurance

FHA charges both upfront and monthly mortgage insurance regardless of how much money you’re putting down. Seriously, if you’re putting 50% down and using an FHA insured mortgage, you’re paying mortgage insurance. FHA mortgage insurance does not cancel out automatically when your home has an 80% loan to value. You will pay the FHA mortgage insurance for a minimum of 5 years and 78% of the original value (lesser of sales price or appraised value) of the home.

Upfront Mortgage Insurance

Upfront mortgage insurance for a FHA insured mortgage is 1.5% 1.75% of the loan amount for a purchase. With an FHA mortgage, you have a base loan amount and the adjusted loan amount (after you add in the upfront mortgage insurance). For example, if your base loan amount is at the current King, Snohomish and Pierce County level of $567,500, your adjusted loan amount will be $576,012 $577,431 (567,500 plus 1.5% or 8,512 1.75% or 9,931) . Once upon a time, FHA upfront mortgage insurance could be refunded if the mortgage was terminated early with a balance of the mortgage insurance premium remaining, this is no longer the case for new FHA mortgages (which I believe is part of the reason FHA fell from favor during the subprime boom). The adjusted loan amount is what your principal and interest payment is based on. So if the rate going for a FHA Jumbo was 6.500% (this is not a rate quote; this is for example only), the principal and interest payment would be $3,640.79 $3,649.76 (576012 577,431 amortized for 30 years at 6.5%).

Monthly Mortgage Insurance

Yes…as if paying that 1.5% 1.75% upfront MI wasn’t enough…FHA has monthly mortgage insurance as well…the good news is that it is at a low rate compared to traditional private mortgage insurance (especially factoring in a jumbo loan amount, higher loan to value and credit scores below 720). The rate for FHA mortgage insurance is 0.5% 0.55% (for a purchase) of the base loan amount. Using our current example, your monthly mortgage insurance would be $236.46 $260.10 (base loan amount = 567,500 x 0.5% 0.55% divided by 12).

FHA is a fully documented mortgage loan. You will need to provide 2 years of W2s (tax returns if self employed) and your most recent paystubs covering 30 days of income. Any gaps of employment during the past 24 months will need to be explained. There are no income limitations and the DTI is roughly 43%.

Low Down Payment

FHA Jumbos allow for as little as a 3% 3.5% down payment. This means you could be a home priced around $585,000 with the base loan amount of $567,500. Your down payment must be fully sourced and seasoned. Be prepared to hand over your last 2-3 months of bank statements and any asset accounts (all pages) and to explain any large deposits that are not from your source of income.    The Seller may contribute up to 6% towards closing costs however the buyer has a minimum investment required of 3% 3.5%. Family members can gift funds towards closing costs as well which counts towards the buyer’s required 3% 3.5%.

Update: Effective January 1, 2009, the minimum down payment will be increased to 3.5%.

Speaking of documentation…

I’ve covered FHA before…and the guidelines for traditional FHA are pretty true for the temporary Jumbo FHA mortgages as well. Here are a few more pointers for our current market:

* FHA does not have price or loan to value limits for geographical areas determined to be soft or declining.

 * FHA does not have credit score risked based pricing for credit scores above 620. (Lenders may have their own risk based pricing for credit scores under 620).

Sellers with homes priced around the new FHA jumbo loan limits should consider buyers utilizing FHA financing. A sales price of $584,000 would allow for a minimum down FHA insured mortgage. However a home buyer could always use more towards down payment and opt for a FHA mortgage meaning that if your home is priced higher, you may still want to consider allowing FHA buyers as they may be considering FHA over the price hits conforming has if their score is below 720.

Condo’s are acceptable for FHA financing as well. They may not be on the FHA approved list, however, if the condo meets the requirements for a “spot approval”, they can still qualify for FHA financing.

Act fast…FHA Jumbo is only here until December 31, 2008.  loan limits will be slightly reduced on January 1, 2009.

Improving Your Credit Score

Posted on by
42

With every point of your credit score being more crucial than ever, I thought it would be a good time to share some tips on how to improve your credit scores beyond paying your bills on time.   If you are considering obtaining a mortgage within the next 12 months, you should meet with your Mortgage Professional to help advise you on this process.   Some steps in repairing your credit may actually temporarily lower your scores (such as paying off a collection).   What steps you should take depends on how soon you plan on buying a home or refinancing.

  1. Obtain a copy of your report from www.annualcreditreport.com.  You are allowed one free report from each bureau annually.  This comes out to three free reports.   I recommend pulling one report at a time rotating the three bureaus every four months.   For example, this month, you could access your Experian report to review your credit and in May, pull your report from Transunion.  In September, you could obtain your report from Equifax.   This allows you to keep tabs on your credit for free throughout the year.   NOTE:  The bureaus will charge you a fee to access your credit scores (stinky, IMHO); if you’re really interested in obtaining your scores, I suggest you contact your Mortgage Professional and request a tri-merge report.  The cost should be around $20 and the scoring modules used for lenders is different than what you receive from www.annualcreditreport.com. 
  2. Review your credit report for errors and contact the creditors demanding they be corrected.  The contact information should be included with your credit report.   Keep a phone log of any conversations and follow up with a certified letter.  Request a confirmation letter for your records of any corrections the creditor offers to make.  
  3. Pay past due accounts current.  Your credit score is penalized for any accounts carrying a past due balance.    
  4. Keep your balances below 50% and 30% of their credit limit.  Review your credit report to see which accounts are just over 50% or 30% of the available credit line.   For example, if you have a credit card with a $1000 credit limit, and the balance is $550 pay down the account to where it stays below 50% of the line ($500 or less).   NOTE:  If you’re trying to reduce your credit debts, you should use a different strategy than maximizing your credit scores.
  5. Don’t close your old accounts in good standing. The scoring modules favor established credit and not new debt.  Keep your old card with a zero balance and use it once a month to fill your tank with gas and then pay it off each month.   Also, closing your accounts do not make them “go away” from your credit report. 
  6. Avoid obtaining new credit.  That new car will not only dramatically impact what you qualify for, it will also zap your credit scores as a new maxed out debt.   
  7. Before paying off old collections, contact your Mortgage Professional.   Depending on your scenario, you may be better paying off the collection after closing on your new mortgage than before.   The credit scoring modules will factor paying off the collection as new activity and ding your score as if the collection is currently “active”.  I actually had a loan declined last year after a client returned a library book that showed as a collection against my advice.   He just needed to wait until after closing (this was a condo conversion and there was a large time span for closing).
  8. If you’re allowing different LOs to pull your credit while “rate shopping” for your lender, do so during a short window (30 days) of time to avoid being hit for inquiries.  

The good news about your credit score is that it is not permanent.   It’s intended to reflect your current credit behavior.  If your credit is a mess, it will take more time, effort and determination to repair it…but it can be done!