Tag Archive: loan

Oct 16

Mortgage Helpful Hint #4

Stay Home During Mortgage Processing

Last month I had 5 mortgage closings delayed because the buyer went out of town the week before the closing.  Four of them did not return until the day of the scheduled closing!!

The underwriter is going to review everything right before the closing even if the loan was approved a week or two before.  They will ask for SOMETHING. 

You can’t furnish what she/he asks for if you are mountain climbing in Bora Bora. 

If you go on vacation the week before closing and run up the balance on a credit card you loan might be in jeopardy and may not close.  See Helpful Hint #3 on New Debt.

If your job requires travel then you are probably better prepared for this Hint than most buyers, do not quit your job just to stay in town!

The mortgage industry is going through a period of extreme scrutiny.  This means a mortgage loan cannot close with loose ends, every “T” must be crossed, etc.  I suspect it is a stressful time for many home buyers causing them to have a desire to flee.  

If you follow the recommendations on this site the stress level will drop.  If you leave town with loose ends in your mortgage application the stress level will increase ruining the vacation.  Wait until after the deal is closed, then relax on a much deserved break.  

My goal in sharing these Helpful Hints is to make your experience as pleasant as possible.  If you want to finance a home in Kentucky and want be pre-approved the online application the quickest way to get started.  It is free, will give you access to all of the information you need, we even pay for the credit report.  No application fee, no cost or obligation to be pre-approved for your next mortgage.  The link to the online application is below my photo.

If you have friends that are planning to buy or refinance a home be sure to tell them about the Helpful Hints.  They’ll be glad you did.      

Jul 23

Sub-Prime Mortgages

Sub-Prime Will Return

The overall condition of the economy is creating an environment that will hasten the return of the sub-prime mortgage.  I was never an advocate of the sub-prime industry but it served a need.  That need is stronger today than ever before.  I predict sub-prime mortgages will return soon.  They may be called something different, may be touted as new and improved, but a rose is a rose.

There are many factors that will push my prediction forward.  Unemployment is very high with disposable income being the lowest it has been in modern time.   This is causing many homeowners to defer maintenance on their home opting instead to put food on the table.

Home inspectors are being super critical as their industry matures, causing many pending transactions to implode.  Not long ago the National Association of Realtors reported the highest fall out ratio since they have been keeping stats.   The number of real estate listings reported as a pending sale then changed back to an active listing is where that bit of information comes from.

Buyers and sellers are both more difficult than I have ever witnessed prior to the last couple of years.  Prior to last year I never had a buyer and seller disagree on a day and time for closing the deal.  This year it has been difficult to get both sides on the same page on any subject, let alone a closing date.  I mentioned in an earlier post that people searching for information on Power of Attorney or POA is the number one subject people are looking for when they visit this site.  They  just don’t want to attend the closing!

Another factor is the middle ground on credit scores seem to be disappearing.   I see either very high or very low credit scores, not much in the middle.  This is a personal observation; I haven’t read anything that supports this.  You would expect a general distribution, a third low, a third in the middle and finally a third on the top.  Not what I see these days, either very high above the top credit tier or very low below the minimum threshold.  Last week I saw several above 800 or in the high 700’s and an equal number in the low 500’s dipping into the high 400’s with none in the mid 600’s.

Finally, the wreckage caused by foreclosures and loan modifications will linger for at least a decade.   The buzz topic has been short sales, but in reality they are a very tiny slice of the pie.  They are a symptom of the times but I don’t think they are as serious to the overall market as the other factors mentioned above.

All of the dynamics mentioned here have one result, stress.   Sellers want to sell and buyers really want to buy but never has it been as stressful even back in the days of very high interest rates.

As the gap widens the mortgage industry will figure out a way to serve the demand that is having trouble moving above the minimum credit score threshold.   That segment of the buyer pool is the only one that is expanding.  The market conditions are not pushing people upwards, only down.   Individuals that have never been late on credit obligations are suddenly finding themselves below the credit thresholds.

The Solution

I don’t have an answer to the overall problem, but I see lots of opportunity.  A few people are doing very well, but most are not.  What I know for sure is the market has changed.  People have changed.  Those that are moving forward have a chance to improve greatly, interest rates are low and prices are good.  It has never been a better time to buy in the last 50 years.

Part of the solution to get things moving is going to be the return of some of the aspects of the sub-prime industry.  I am not calling for a movement, just predicting this is going to happen.

Jun 23

Overpriced Listings

Twice this week I ran across buyers that were attempting to purchase properties that were obviously overpriced. Declining property values have been a growing problem for everyone in the industry for the last few years.  Issues with appraisals run neck-and-neck with problems regarding the condition of the properties. 

The reduction in property values created an almost cottage industry called short sales.  Short sales have been around for as long as there have been mortgages but they have never been as main stream as they are today.  Lenders and the real estate industry were not prepared for the magnitude of the problem.  They have been playing catch up from the very beginning.  

A short sale is what happens when the value of the property is less than the balance of the mortgage and the seller asks the lender to accept less than is owed so the property can be sold.   Explaining this to a seller is not an easy task for a Realtor.  The idea that real estate is the best investment because “They don’t make any more of it” is hard wired in to all of us. 

Not all overpriced listings are an attempt to avoid a short sale, in fact most are simply an indication of greed.  The seller just wants more than the property is worth.

The rules for lending are very specific regarding the value of the real estate being pledged for a mortgage.  The lender must use the lower of the sale price or appraised value when computing the loan-to-value for the mortgage.  This doesn’t mean the buyer cannot pay more for the property than it will appraise for, it simply means they cannot use the inflated price for calculating the size of the mortgage.

How Mortgage Amounts Are Calculated

Let’s assume a property priced at $110,000 but will appraise for only $100,000.  On a standard conventional fixed rate mortgage the minimum down payment is 5%.  Okay, that is the flip side of saying the maximum loan amount is 95%.  But the definition is 95% of the sale price or the appraised value whichever is less.  If the property only appraised for $100,000 then the maximum mortgage is $95,000.  The buyer could still purchase the property for $110,000 but the amount needed for down payment would be the difference between that figure and the maximum loan amount which works out to be $15,000.  

If the property had appraised for $110,000 then the required down payment in our example would have been $5,500, a far cry from $15,000.  This is the primary reason most properties that are priced above the market value will not be sold at the inflated price. 

Some Realtors Will Take a Listing at Any Price

Listings are inventory and the more inventory a Realtor has the more inquiries they will receive from buyers.  Some Realtors will list a home at any price while others will not.  It is a numbers game for those who choose to ignore the comparable sales.  If a buyer calls about a Realtor’s overpriced listing the agent may be able to sell them another home that is not overpriced.  Although there is nothing illegal about taking an overpriced listing it doesn’t help the owner of the property or the marketplace only the Realtor taking the listing.  

The seller is hoping for a miracle, somehow their property will sell for a significant amount above what similar properties are selling for.  Even if they are lucky enough to find a buyer that loves the property a problem will occur when the buyer applies for a mortgage.  Okay, the seller hopes a cash buyer will step up that doesn’t need a mortgage.  Possible, but cash buyers think they are special because they are paying all cash and therefore deserve a bargain, not compatible with the seller’s plan.   

What Can a Buyer Do?

This article began because a couple of buyers asked what to do because they found a property they liked but the price was significantly above the market value.  There is actually a fair solution when you receive a counter offer from the seller that is higher than what you believe is the actual value.  Accept the seller’s counter offer provided the seller or the listing Realtor pays the buyer’s lender for the appraisal upfront.  

Oh man!  Can I kick a hornet’s nest or what?  Ask the seller’s Realtor to pay for the buyer’s appraisal?  You must admit that is out of the box thinking.  Leave it up to the selling side, let them decide who is going to pay it, or maybe they split the cost, it doesn’t matter to the buyer.  This little maneuver will at least initiate a serious dialogue between the seller and the listing Realtor about the true value of the property.

I had to toss the listing Realtor into the mix because the problem never would have surfaced in the first place if they had not listed the property for more than it was worth.    

The clause would also indicate that in the event the property does not appraise for the agreed upon price the seller will have the option to lower the price to the appraised value or release the buyer from the contract.  This solution protects both sides; the buyer is not forking out money for the appraisal on an overpriced property yet both parties have the possibility of discovering how much the property will appraise for.  Win, win.   

Please share this article with others if you like out of the box thinking.

 

May 23

Attend Your Closing

Recently had another closing when one of the sellers did not attend.    The closing attorney was kind enough to have the deed and closing statement prepared a day in advance so the missing seller could come by and sign off.  At the real closing the next day the seller made a $5 change to the closing figures! FIVE DOLLARS!!!

What a pain in the neck stuff like this is when the lender is trying to meet all of the federal regulations regarding the closing.  The closing was delayed because of the seller and then one of them decided they had something more important to do at the time they choose, we showed up on time.  What could possibly be more important than closing a half million dollar deal?  Couldn’t get a baby sitter? Had to water the lawn? I never did catch the conflict; it was glossed over by the attending side of the couple.  But it didn’t make sense to anyone that was in attendance.

If you lose money because you do not attend the closing there is no one to blame but yourself.  This little incident could easily have caused everything to go back to the underwriter.  It took the seller six months to find a buyer, another month to get to the closing table, it was not a surprise.

Compare the stacks.  How much was the stack worth that the missing seller had to attend to compared to the stack of money the buyer and I brought to the closing table, $50 versus $500,000? That doesn’t sound right does it?

A change to the figures could have required a change to the closing statement, thus requiring the missing spouse’s signature on the new numbers, therefore no closing that day.  The closing attorney accommodated the problem by issuing a refund check for the $5.

I have no idea why so many buyers and sellers are trying to not attend the closing.  It has happened to me more times this year than the previous 20 years combined; I would say that is a major change.

Ramifications

Could be many problems if the closing is delayed because one of the parties does not attend.  A closing late on a Friday afternoon might require rolling over to the following Monday.  That might require switching dates on movers, three extra days of interest on the seller’s mortgage.  Or how about this one, the buyer walks!  I have seen it happen for a lot less.

Attend your closing!

Apr 23

Down Payment Assistance In Kentucky

Ever had a loan officer GIVE you money? I am not talking about a $100 knocked off of the closing cost but cold hard cash ranging from $4,500 to $10,000 for down payment!

We had another training session this morning regarding Kentucky Housing Corp (KHC) loans, this time a DE Underwriter helped with the presentation.  In addition to being a Direct Endorsement Underwriter for FHA she is also delegated to sign on behalf of KHC.  That can speed up the timeline in our shop by as much as a week compared to other lenders.

We talked a great deal about the different combinations using an FHA/KHC first mortgage with down payment assistance (DAP).  The DAP’s are in the form of a second mortgages, some forgivable over time and one that must be repaid.    Kentucky Housing DAP’s range from $4,500 to $6,000. 

This is how it works.

The first mortgage is an FHA/KHC loan for 96.5% of the purchase price.

The DAP is a second mortgage for 3.5% of the purchase price. 

The seller can pay all of the closing cost and pre-paids.

The borrower only needs to pay for an appraisal (unless the seller pays for that too). 

Inside scoop for you, I spoke to my source in Louisville Metro last week, they are expecting funding for their DAP program in July.  Last year it was $10,000 a pop plus another $2,000 for closing costs.  This program requires FHA home ownership classes so sign up soon if you want to grab this round.

 

Need Assistance with a Down Payment?

Visit my online application site or print and use this simple form to get started. If you prefer we can do it over the phone, call my direct line during normal office hours, (502) 753-4127.

 

Apr 17

New Pages Added to the Credit Report Section

The Credit Report Section continues to grow.  A couple of new pages added recently, What is a Credit Score and Why Are Credit Scores Important

Coming soon is a page dedicated to taking the information on these two pages and turning it into cold, hard cash!

As always, my position is, “It’s not how much you pay for a house, it’s how you pay for it that matters”. 

 

 

Apr 11

Mortgage Application Support Documents – New Page Added

We just added a new page to help home buyers with the support documents that are needed to process a mortgage loan.  Being prepared eliminates most of the stress with the home buying and financing process.  Knowing what to expect helps the buyer and makes the process much simpler.

The single largest delay in processing a mortgage application is trying to obtain missing documents or pages that are missing from the documents.  This checklist will help eliminate the problem for the buyer that wants a Quick and Easy Process.

 

Apr 03

FHA Changes Mortgage Insurance

This post expands on another recent post FHA Mortgage Changes.  On the way to the office this morning I thought about what opportunities may be created by the upcoming changes.  I focused on the increase in the Up Front Mortgage Insurance Premium (UFMIP).  This Friday 4/6/12 is the last work day to pull an FHA case number using the existing premium, currently 1% of the loan amount.  Case numbers pulled on Monday will use the new premium of 1.75%, a significant increase.  

Any big change creates an opportunity if we search hard enough.  This little slice of the mortgage terrain is weird even without the upcoming change.  In the last post it was compared to a premium on a home owner’s insurance policy regarding how the payments are collected.  It was also pointed out that the initial premium could be paid in cash at closing or financed in the mortgage.  

What I neglected to point out is that no matter how the initial installment is paid the entire amount can only come from one source.  In other words the borrower could choose to finance the entire amount or pay the entire amount at closing.  It cannot be split, half financed and half paid up front.  

 Another option would be the seller pays the entire amount from the proceeds of the sale.  Again, must be the entire amount, it can’t be split a portion to the seller and the rest to the buyer.  Somewhere in this mess is an opportunity for one side or the other.   Which brings us back to the math problem that claimed the morning commute.  I tried to determine if the buyer would be in a better position if the sale price of the home is reduced by 1.75% or if price stayed the same and the seller paid the 1.75% premium for the buyer.  Not exactly light fodder while in bumper-to-bumper traffic.  

The answer please, the buyer is slightly, very slightly better off if the sale price is reduced, because the price reduction also reduces the tax assessment.  The loan amount is slightly better with this option as well because the maximum loan amount is based on the smaller sale price.  Most people would see the small difference as swatting flies, nothing worthy of wasting quality commute solitude.  

Therein lies an opportunity.  Most people won’t think about the implications.  Looking at it from the buyer’s side, would a seller be more likely to accept a 1.75% price reduction or pay 1.75% of the buyer’s closing cost?  The result of either option to both parties is almost exactly the same.  But any experienced Realtor will testify to the fact that sometimes people just need to see things from a different perspective.

The same would be true from the seller’s side.  If the buyer offered 5% less than the asking price, would they be more likely to accept a counter from the seller at full price if the seller offered to pay the UFMIP?

 

Apr 01

Lease Options – Sellers

Why Sellers Offer Lease Options  

In the previous post we looked at lease options from the buyers’ point of view.

There are two main reasons sellers will entertain a lease option, profit or necessity. Both reasons attempt to exploit the strong desire for homeownership. The number of buyers that can’t qualify for a mortgage is swelling.  The overall economy is not great, unemployment is high, even people that had good credit histories are now being squeezed.

Any shift in the market creates both problems and opportunities. Real estate is no exception.  There is an abundance of properties for sale, the amount of inventory far exceeds the number of qualified buyers.  Many sellers that are unable to sell their homes are leasing them so they can move on.  People relocate for many reasons, jobs, health, family or maybe just to get a better view.  The problems created by the recent meltdown have made it necessary for many sellers to take measures they would never have considered a few years ago.

It has also created a niche that is being exploited by many investors out to make a profit.  There is absolutely nothing wrong with making a profit, our entire financial system is based on the concept of profit.  However, there is a fine line between a legitimate profit and taking advantage of someone’s misfortune.  We can find plenty of evidence that is happening on a daily basis.  

Profit  

Some investors understand the opportunities very well and are able to exploit the circumstances. Since World War II real estate has been oversold.  The downside of homeownership, the liability factor, has been overshadowed by the industry’s sales pitch.  The result is an almost rabid desire for homeownership.  The most common forms of mortgage fraud are for ownership, not profit.  This extreme desire to own a home is the foundation that creates the opportunities to be exploited. People will do anything in order to own a home.

Many people will try to work around the very mortgage system that protects them.  Mortgage underwriting guidelines are actually very liberal in spite of everything you may hear about how hard it is to be approved for a loan.  The actual hard line numbers in the guidelines are more liberal today than they were when I first became a loan officer in 1991.  If you do not qualify for a mortgage it may be a good idea not to circumvent the system that is protecting you.

However, in the real world that isn’t how goes down.  Already mentioned, some people will do anything in order to own a home.  This is why we find plenty of investors willing to offer a lease option.  They can sell a home without really selling it.  

Here is how it works; the investor buys a home at a good price, usually way below market value, makes any needed repairs then offers to lease the property with an option the purchase.  The option will usually be at or often way above the market value.  The “buyer” enters a lease and makes a very sizable non-refundable payment for the option to purchase.  If the buyer does not exercise the option to purchase the investor keeps the money paid for the option.  The investor also receives full market rent, sometimes a little more rent than a market rate.

It isn’t unusual for a portion of the rent to be a credit towards the purchase price.  The investor knows the likelihood the buyer will actually close on the purchase is slim so it doesn’t matter. 

It should be obvious once you understand how it is structured that it can be easy to exploit.  The investor can rent a home; collect a huge hunk upfront and “sell” the same house multiple times. 

Why do so few lease options result in a transfer of title to the buyer?  It starts with the beginning motivation; the buyer doesn’t qualify for traditional financing.  Something you may remember from high school a body in motion…

The buyer is overly optimistic and underestimates the seriousness of their original problem.  A well-meaning loan officer may have told them they will be eligible for financing in two years.  They structure the lease option for how long?  Two years of course!

But they didn’t listen closely, the minimum time line was two years, that doesn’t mean “their timeline” is two years.

The profiteer will take advantage of this combination of keen desire and over-optimistic timeline to structure a deal that has a very high probability of not working out for the buyer.  The investor wins either way, they get money up-front, agree to sell the property for more than it was worth in the beginning and also receives hefty rent that doesn’t reflect the big down payment.  If the buyer defaults the investor wins if the buyer exercises the investor wins.

In the next post we will look at sellers that offer lease options out of necessity.

Mar 25

Legal Credit Repair with CreditXpert™

Everyone that knows me professionally is aware of my opinion of the credit repair industry.  It is my belief these guys are the root of the mortgage meltdown. These guys call frequently asking for my turndowns, loan applicants that have had an application rejected. 

Traditional credit repair is based on lying about what is contained in the client’s credit report.  They instruct the client to dispute everything on the report that is negative in nature, even if the information is correct.  These snake salesmen attack the soft underbelly of the credit industry.  Federal laws place the responsibility on the credit grantor to prove the information is correct.  And the timeline to answer a dispute from a creditor is very short.

The credit repair guys know if you dispute everything some of the credit grantors will not respond or may even be out of business and therefore unable to respond.  It’s a numbers game, dispute everything and some of it will go away making the client’s credit score improve.

The only problem with this tactic is it isn’t legal.  If the client knows they were late on a payment and lies about it by disputing the information in order to be approved for a mortgage then it is fraud.  And mortgage fraud is a very, very serious crime. 

I order all of the credit reports for my loan applicants from CBCInnovis.  They recently hosted a seminar for my company and introduced us to a legal alternative to credit repair called CreditXpert™.  What a fantastic product!

It is a web-based software program that reviews an individual’s credit report and makes suggestions of what can be done to increase the credit score.  It is common knowledge that when credit cards are maxed out the credit scores will plummet.  CreditXpert™ will not only make suggestions, it estimates how much each action will add to the credit score.  It doesn’t suggest doing anything wrong, it just fine tunes the debt structure to maximize the credit score using the same matrix used by the credit bureaus.

Buying a property in Kentucky and want to use  CreditXpert™? Visit my online application site or printand use this simple form to get started. If you prefer we can do it over the phone, call my direct line during normal office hours, (502) 753-4127.

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