First Stop 4 Home Loans

Many people have tried to refinance, only to be stopped by the value of their home in relation to the mortgage debt they carry.  In so many instances, people owe more on their loans than what their home appraises for in today’s market.  Currently, we have options for those that are “underwater.”  This would apply to people where their current loan is owned by Fannie Mae or Freddie Mac. 

Current guidelines allow up to 125% of the home’s value to be financed on just the first loan.  Many folks owe more than this.  The word on the street is that on November 15th, we will have new guidelines for this program, known as HARP (Home Affordable Refinance Program), allowing people above that 125% to refinance.  The details won’t be released until then, so we don’t know the exact parameters of the new program.

There are a few advantages for those with Fannie Mae-owned loans — such as the possibility of NOT needing an appraisal, not needing private mortgage insurance (PMI) if the loan currently doesn’t have it and not having to escrow for taxes and insurance if you currently don’t do that either.  With Freddie Mac, the advantages are the same, BUT, Freddie Mac’s program does require an appraisal. 

Important criteria for the current program:

• You must be current on your mortgage payments (no more than 30-days late in the last 12 months)
• Your home value has DEcreased (pretty typical in today’s market)
• Your first mortgage doesn’t exceed 125% of the current market value (known as loan-to-value or LTV)

Second loans, known as subordinate financing, CANNOT be paid off under this program, even if you used that second loan to purchase the home.  Any subordinate financing would stay in place and be re-subordinated (meaning subordinated again, but this time as second lien position to the NEW first loan). 

There is NO limit as to the COMBINED loan-to-value (CLTV) under this program.  This means that as long as the first loan is under the 125% LTV, the seconds can go above that.  Just know that the lender who has the second loan may NOT be willing to subordinate to the new first loan, which is where we find a lot of these refinances stopping short of closing.  Many second mortgage loan companies prefer to keep BOTH the first and second loans UNDER 90% LTV, which would be impossible for most people attempting this program. 

The occupancy type can be owner occupied as your primary residence, a second home OR even an investment property.  Pricing may be higher for a non-owner occupied home, so keep that in mind.

If you feel this may benefit you now or if you think the new guidelines may help, please let me know.  I would be happy to assist.  At a bare minimum, the following information would be required to process your loan:

• a recent paystub
• 2010 W2
• 2010 federal taxes
• recent month bank statement, all pages
• copy of your mortgage note you received at your closing

Though this option is out there and may be available, not everyone qualifies.  Feel free to contact me to determine your eligibility!

Who knew you needed money to buy a home?  It’s a crazy thought, but it’s true.  Now … there are programs that can help you with a portion of the required down payment and closing costs.  Or, if you’re a Veteran, you may be eligible for a loan with nothing down.*  Because not all people are Vets or qualify for these first time programs,  you need to know how much is required for down payment and closing costs.  Plus, it’s helpful to know what lenders are looking for in terms of documentation to prove you have the funds to cover these necessary loan requirements.

Let’s start with how much you need, which will depend on the program you’re doing and the loan amount.  In general, on an FHA loan, you need 3.5% of the sale price for down payment and approximately another 4% of the sale price for closing costs.  This number may seem high, but closing costs make up a lot of different things — lender charges associated with originating your loan, appraisal, credit report, funds to start your escrow account, 1-year upfront homeowner’s insurance, title company charges, county charges and possibly a broker commission fee charged by your Realtor.

Your down payment can come from logical sources like your own money, a gift from a family member or even down payment assistance available to some first time buyers.  Money for closing costs can come from these sources too, plus in most cases, the seller can pay for some or all of your costs, depending on the program.  They cannot cover any of your down payment.

Let’s say you’ll be using your own money — which is very commendable.  Lenders will require the last 60 days of bank statements to prove you have the funds necessary for closing and down payment.  Funds can come from many different account types – savings, checking, money market, roth IRA, stocks, bonds, mutual funds, 401K accounts and possibly more.

The big thing to know is that CASH on hand or deposited is NOT acceptable in a mortgage transaction.  Cash cannot be verified or traced, so it’s unacceptable as an asset.  Any deposits made into your bank accounts on the statements you provide for your loan, and those going forward, will be scrutinized in terms of deposits and overdrafts.  It’s important to only deposit your work income while in the mortgage process.  Check out the other things NOT to do in the process.

Taking a loan against an asset is also acceptable for down payment, though the payment, in most cases, will have to be used as a debt in qualifying.  Loans against another home, car or your retirement are typical places you could finance the costs or down payment.  An unsecured loan or draw against a credit card is NOT acceptable.

Assets are important, but not crucial at the time of pre-approval.  For instance, some of my borrowers save during the process.  Though they may not have the funds at our first meeting, they will within a month or so prior to closing.  As I mentioned, gifts are acceptable sources of assets too as long as they are from a family member.  There is a method to the madness for verifying these assets, so please seek advice from your loan officer PRIOR to getting any funds from family.

The take-away from this is that you will need money for down payment and closing costs; however, the amount you need will vary on the program and if you’re eligible for special assistance and/or if the seller agrees to assist with costs.  The other big take away — DON’T make deposits that aren’t from your employment or they will be questioned.  It’s better to be above-board with your loan officer about your intentions rather than finding out at the last minute you have an issue with your loan due to unverifiable assets.

Your pre-approval puzzle is solved now that you have all four things in place.  The glue that will hold it all together is choosing the right loan officer who will help you make sure the pieces are where they need to be.  Of course, it would be my pleasure to serve as your glue, but with anything, you need to find a person you trust and are comfortable with.  Good luck!!!

*You must be a Veteran to qualify for a VA loan.  Zero-down is par for the program, but there are still closing costs that either need to be paid by the Veteran, a gift from family or the seller.

As you learned in the previous blog, in most instances,  you do need a job with income to get a loan.  I should be careful saying this, as there are people with steady income via social security, pension, disability or investments that technically don’t have employment and could still get financing. So, the other important piece to this ever-changing pre-approval puzzle is INCOME!

Long gone are the days we could do those crazy no-income verification loans.  In order to figure  out what you qualify for, there needs to be income.  We can’t just write a guesstimate down on the application or use a number that “looks good” from the tax return.  And just so I am clear here, doing this was NEVER okay, but many people in my industry took some pretty dangerous liberties.  Need I say more??

Income comes in MANY forms — the most common is employment.  This is the most logical place I will look.  But some income is sneaky and not-so-identifiable.  Such as investment income.  Many people have assets that earn interest or dividends on a yearly basis.  If the same assets have earned income for the last two years, we can use these as income.

Could we count rent from your sister for income?  The easy answer is no since a lot of things have to fall in place to use this. Most importantly, will she be living with you in the new home and will she continue to rent??  If yes, then the question — can this income be documented with canceled checks from her to you for the rent and did you claim it on your taxes as income with a preferable two-year history???  If so, then there is a good chance we can.

How about the second job you got so you can save more money for down payment?  Easy answer … maybe.  Again, more questions.  Have you been working two jobs for the last two years?  (we sure like the two-year history thing in lending, don’t we??)  This is really the most important question.  If the answer is yes, then more than likely we can.  We’ll look at the hours you put in at both and may have to do some averaging to determine the actual numbers we can use for qualifying.  If, however, you started the job a year ago or 6 months ago to save for down payment, then no, we can’t use it for qualifying.  It is still a good thing and will still help you during this process!!!

How about self-employment or commission income??  You’ll love this … need a two-year history to use these types of income.  And so you know, lenders use the income you reported to the IRS, meaning we use the NET income (or loss for some) after you write-off expenses.  A few things can be added back, but without a lesson on tax returns and lending, this is the easiest thing to remember …. NET.

The two-year history holds true if you want to use tips, bonuses, overtime or even seasonal employment. Tips, by the way, actually have to be claimed to use — so either they show up on your paychecks or your taxes and if they don’t we can’t use them.   Oh, and speaking of seasonal employment, we can even use UN-employment income for qualifying if you work seasonally and have the two-year history of receiving both.

Something I want to point out here relative to first time buyer programs — these special programs have MAX income limits for qualifying.  Even if we can’t use all of your income for qualifying because it’s less than two years or for some other reason, we MUST still use it in calculating income for the program.  Federal guidelines require us to use ALL household income, regardless of it’s source or history.

Let’s say your spouse isn’t on the loan due to credit issues.  Though we aren’t using ANYTHING about their situation on the loan, we still MUST calculate their income for the first time programs.  And if you receive child or spousal support, we must use it under the program guidelines.  If you choose, you could also use this in qualifying for a loan; but there needs to be a history of receiving this income (which that history varies on the program you’re doing); it needs to be on-time and we must document it will continue for at least three years.

Are you a fan of the races or playing a mean hand of poker?  Gambling winnings could be counted as income if consistently received for the past two years!  Rental income from investment properties you own can be used as income.  Payments of pension, social security or disability could be used as income — have to meet not only the two-year rule, but we also need to show the income will continue for at least three more years, just like child or spousal support.

I am sure there are many income situations I haven’t listed and maybe some that are so obvious, they aren’t coming to the top of my head.  The main gist to remember is the “power of two” — having that two-year history.  Not all sources of income require this, but most do, so it’s a good rule of thumb.

As always, I am happy to go over your income situation to determine if we can use it when helping you qualify for a loan.  Next piece to our puzzle — assets — gotta have ‘em!

In putting your pre-approval puzzle together, we look at things other than just credit.  Though credit is such a big, anchoring piece, it’s also important to know about piece #2 — Employment.

Years ago, we had loans available for just about anyone — people who didn’t have jobs, those that didn’t claim any income and even those that didn’t have both!  These loans were called no-income verification loans and for the most part, they just depended on the credit and asset merits of the borrower.  Of course, there were even loans where we didn’t verify assets either.  Buying a house with none of these things verified was truly crazy!!!!

Today, this is NOT the case.  You need to have a job, preferably a stable one AND you need to have a history of working.  Getting out of high school and being on a job for 2 months isn’t an acceptable duration any longer. 

Lenders are looking for a 24 month history of employment, at a minimum.  This history doesn’t have to be on the same job, though it does make your file stronger if this is the case. 

Recently, many people have hit hard times with layoffs and down-sizing.  As an example, maybe  the last 2 years of employment history are spotty – just working 1 1/2 years, then 3 months laid off looking for work and finally starting back up.  Due to this, we will go back further than 2 years to create that necessary 24 months history.

What about college graduates just getting started in the workforce?  If the student had a history of working while going to school, we may have that 24 month history already.  But many times, being a student IS their main job.  In this case, we will look at the schooling as history; but more than that, we want to correlate their schooling (degree or classes they took) with the field they just started in.  In this case, we may not need the full 24 month”work” history.

Back to the recent graduate — what if they can’t find a job in their field of study and have to settle for something else?  First, kudos for finding and accepting work.  That’s great.  In this case, though, we will need to see at least 6 months on the job to show there is some history after their “job” as a student.  As with many things in the loan process, we will look at each scenario on a case-by-case basis.

This leads me to stay-at-home parents.  This is a GREAT thing to be able to spend time with your kids.  Believe me, I know the drill.  If however, you decided to take that time with the kids, whether it be 6 months or 5 years, and get back into the workforce, then we need to show a history of not only working prior to the time off, but also at least 6 months back on the job.  Depending on how long the sabatical was, we may need longer than 6 months — another case-by-case situation.

Then, there is the part-time work moving to full-time work.  This would be seen similarily to the above, in that we may want to see at least 6 months on the full-time job to show a history and the ability to work full-time.

Nutshell — working is a good thing and a necessary one in order to get a home loan.  But it’s not just about working, as you can see, it’s also about duration.  These tips will be true for any person on the loan in which we want to use income.

And speaking of income — that is the 3rd piece to the pre-approval puzzle that I will discuss in my next blog.  Anything I can do to make the process more understandable for YOU is my ultimate goal!

Buying a home can be a daunting process.  Throw in the pre-approval process, which determines your ability to get a mortgage.  It’s a lot of work and can take some time, but by knowing the “pieces” to the pre-approval puzzle, you will feel a lot better about the process and hopefully, a lot more prepared.

Ranking #1 is Credit.  You’ve probably seen the ads for credit scores or credit monitoring companies on TV.  It’s good to have a pulse on your score, but there is so much more that goes into determining “credit worthiness” in the eyes of a lender.

Lenders are looking for a few things now in terms of credit, such as history, how many accounts you have, what your payments look like and how recent your history is.  It used to be, which seems like FOREVER ago, that the score “spoke for itself.”  If you had over 680*, you were golden.  Typically, no more questions were asked and no other checks were done.  Not so much anymore

As a starting point, there is a minimum credit score that is required by investors and the first time buyer programs — 620.  Typically, people have three scores, one from each credit bureau.  We need the middle of the three to be at least 620 or higher and we will always use the LOWER of the middle scores if there is more than one borrower on the application.

Along with the score requirement, investors are looking for history of current credit.  We want to see at least three items of current credit on your report.  Current credit is something reporting to the credit bureau in the last 12-24 months AND where there is at least a 12-month history, preferrably, history with on-time payments. 

Here’s the deal — you could have an 80o score, which is awesome, but if you only have one current item, let’s say a credit card you use for gas and all your other credit hasn’t reported since 2008, then your loan financing options may be limited.  Strange, but true.  Technically, if current items aren’t reporting, then that 800 score you have really isn’t accurate.  It’s a dated score because nothing is causing it to be that good any longer.

A few other things can skew your score, such as authorized user accounts and disputed accounts.  Remember that card that Mom and Dad put you on when you were in college?  It’s not yours and shouldn’t be on your report.  It’s not being calculated in the score since it’s not your responsibility to pay, BUT, it could be throwing off our automated loan decision.  Thus, these need to be removed from your report if found during the pre-approval process.

Disputed accounts — most people don’t even remember “disputing” an account.  It could be as simple as calling up your creditor and stating you weren’t late back in May or you shouldn’t have been charged a late fee because you paid the balance in full.  At that point, you disputed the account.  Same thing applies here — it’s not affecting your score AND if this account happens to be in good standing, it’s also not giving you bonus points in your score.  So, in these cases, the accounts aren’t removed,  BUT, the dispute verbiage needs to go away.  

And, though I haven’t said this because it seems obvious, we are also looking for clean credit.  Everyone has a boo-boo here and there — it happens.  We want to make sure your report isn’t litered with bandages and if there are issues, why?  Sometimes, it’s getting beyond a certain time-frame (i.e. 2 years after the discharge date of a bankruptcy) or having a full 12-months of on-time payments since having some credit issues.  Believe it or not, MOST credit issues can get better with TIME.  But time takes time and we don’t always have the patience to wait.

Now, you may be thinking, ”I have NO credit and no score, so now what?”  Thankfully, we may have a solution if y0u meet the guidelines of the first time buyer programs.  We can use alternative credit, so credit that isn’t normally on a credit report — i.e. rent, utilities, phone, cell, Netflix, health club, tanning salon, War of the Worlds gaming (yes, this works!) etc.  Again, we need to see a 12-month history with on-time payments for at least three items.  These won’t go on your report and won’t get you a score, but at least you may still be able to buy a home!

So credit — really, it’s the biggest piece to the puzzle these days since the “crash” of the mortgage world.  But, it’s just ONE piece and there are a few more to come — next up, Employment.

 *scores range from 350-850 – the higher the better

I can’t believe how quickly the third Thursday of the month came!  Wow.  I’m ready to educate you on the home-buying process.

The FREE seminar starts at 6:30 and ends between 7:30 and 8pm.  This seminar has been presented many times and continues to be a successful avenue for first time buyers to get their feet wet on the process of buying  home.  Be prepared to learn what you need to do starting with the pre-approval from a lender to getting the keys at closing.  There are a lot of steps in-between but if you’re familiar with them, the process will be much smoother. 

Needless to say, the market is a little upside down.  Things have and are changing daily with regards to down payment, credit requirements, as well as documents needed to verify assets or income.  What hasn’t changed are the great opportunities to get into a home at a great value, pay as little as $750 out of your pocket AND take advantage of some great programs made especially for you.

I will be honored with the presence of my first time buyer partner, Steve Howe.  He will address the other “stuff” you need to know about making an offer, inspections and the process in general.

Our goal for the evening is to give you the information you need to feel comfortable about setting foot into the world of buying a home and eventually, home-ownership.  We want to educate and honestly hope you will gain a clear understanding of the process, as well as the great opportunities the market has to offer you right now.

Please RSVP to Cheryl by clicking here.  You can bring as many guests as you want and most importantly, come with questions!  See you tonight.

We just completed another successful first time buyer seminar this past Thursday night.  That was quite the night of storms — thought we might be talking to a small, non-existent audience, but we got lucky and people “weathered” the storm!  I hope you all did too and thanks to those of you who did make the trek!

Every month, on the third Thursday, we perform an exciting light show with music and dance — okay, not really.  But we do present an evening of information so you can learn what you need to know before you get out and look at homes.  Please join us from 6:30-8 pm at the Cornerstone Mortgage office located in Burnsville at 436 Gateway Blvd. 

Steve Howe from Re/Max, and I, will walk you through the homebuying process starting with the first step … pre-approval.  That’s the step of getting your financing set up so you know you can actually purchase a home if you find one.  This is CRUCIAL in today’s market since, as a loan officer, I am seeing changes constantly on what investors are requiring to get a loan.  Come learn what the new changes are and come find out about the special programs you may be eligible for to help you afford your new home.

Steve will explain the home purchasing process and what you can expect from a Realtor.  He makes this process simple and easy to understand; whereas I just confuse you!  Just kidding.  Making sure you’re still reading!  He specializes in in helping first time buyers which is important since your needs are vastly different than a current homeowner.

Anyway, we’d love to have you at the seminar, whether it’s in July or our future classes.  And speaking of classes — this is NOT the Homestretch class that is required to qualify for the first time buyer programs.  You can see this as the Cliff Notes, but with additional information on the special programs that Homestretch doesn’t delve into.

Please RSVP with Cheryl to let us know how many spaces to save.  Can’t wait to meet you!  Oh and one pre-requisite … come with questions!

Every third Thursday of the month we are happy to offer you a free seminar* to learn more about the First Time Homebuyer Process.  Join us on Thursday, the 17th, 6:30-7:30 pm at the Cornerstone Mortgage office located at 436 Gateway Blvd in Burnsville.

From the starting point of getting pre-approved and all that entails to going to closing and signing a bunch of papers to officially dub you a First Time Home OWNER!  We are here to educate, not sell you something.  Steve Howe, Realtor with the Minnesota Real Estate Team, and I will also talk about purchase agreements, the many down payment assistance programs and answer ANY questions you have. Ultimately, we hope you will leave the seminar with a greater understanding of buying a home.

If you’d like to attend, please call Cheryl (952-808-0042) or email her to get your name on the list.  Bring any questions you have so we can address those throughout the seminar or at the end.  We look forward to seeing you this week!

*This is NOT Homestretch.  Go to www.HOCMN.org to register for this 8-hour class.

Believe me; I ask myself this daily.  You hear that you need 20% down to get financing or sterling credit.  And though these are GREAT attributes, they aren’t a guarantee that you will get a mortgage OR that you won’t have to go through a few hurdles.  It used to be so easy to get financing.  It wasn’t that we just handed money out to anyone, though there were people who did and look where that got us.  It’s not just them; it’s the lenders that accepted high risk buyers and did deals that should have never been done.  This is neither here nor there.  Right now, we need to focus on what the rules or guidelines are NOW, not what they used to be.  Those days are gone my friends.

Let’s start with the simplest issue I see today and the piece that has had the most changes — CREDIT.  Let’s talk about credit scores first.  Way back when, credit scores mattered; but they weren’t as much of a guage as they are now.  What I mean by that is we were able to create credit for people if they had lower scores or if they had NO scores.  It may have been acceptable to help someone who had lower scores, let’s say 560, if we could show clean credit on alternative sources such as insurance, utilities, rent, cell bills, etc — this is how we “created” credit.  And, if there was a clean credit history in the last 12 months, this deal could have probably worked.  Now, the line is drawn.  For the most part, you will need scores AND the middle of the 3 scores (most of us have a score from each bureau – Experian, Equifax and TransUnion) must be at least 620 or higher.  This is NOW.  I am guessing in the next few months, or sooner, most investors will be at 640, as some have already taken that leap.

Still referring to credit, you now need at least THREE tradelines (an item of credit on your credit report) AND they each must have 12 months’ history.  Plus, these lines need to be current.  Let’s say you haven’t done anything with your credit for a few years because you worked abroad.  You may have great credit scores because, before you left, you did a good job managing your credit.  Unfortunately, most, if not all, of your tradelines will be older in terms of the last active date.  This is one of the things that’s catching people and making it so they can’t get a loan.  It’s a shame really because you can tell they’re good at making payments and are responsible.  Thing is, the score isn’t a true representation of their credit since it doesn’t have current information reporting.  There is one exception to this rule, as of now.  The 3 main first time buyer programs, CityLiving, Dakota County Bond and MN Housing, in conjunction with an FHA loan, will allow less than 3 tradelines and less than the 12 month history.  If there is a score, it must still be over 620, however.  With the first time programs, we would work on creating credit and we WOULD need to find 3 items of credit to have added to our credit report — again, car insurance, utilities, layaway plans, healthclub memberships, utilities, etc., are all items we can use to create your history.  And by the way, this will NOT help your score as we do this on our credit report we pulled.  This does not get reported to the credit bureaus.

Another fun credit change that is COMING, and fast — Fannie Mae is requiring that lenders verify the borrower’s credit prior to closing.  It’s under the new Loan Quality Initiative.   Some Minnesota lenders have already put this in motion.  The interpretation of pulling credit prior to closing is within 48 hours of closing.  So, in my article, “Things Not to Do”, you learned that while in the loan process, don’t open new accounts or close accounts.  Well, this just became CRUCIAL to follow.  If you open a new account, just have a creditor check your credit for a possible new account, increase balances on what you owe, or anything … your approved, ready-to-go-to-closing loan could be un-approved.  For instance, the credit pull or increase in balances, could have dropped your score under what your approval requires.  Or, the new debt now makes it so your ratios are too high for qualifying.  If you want to deal with stress or the possibility of not closing on a home, then feel free to mess with your credit.  My advice is far different and will be quite bold.  If you want your loan to stay approved, DO NOT, under any circumstances, open new credit, consider opening new credit so your credit has to be pulled by another lender or increase your balances on your current debts.  This could make or break whether you close on your home or not.  There is no first time buyer exception to this either, so my advice stands in all circumstances — Just Don’t!

What else is making it hard to get financing?  How about qualifying ratios?  This is how a lender determines what you qualify for.  We use your gross monthly income and run some calculations.  In most cases, the “debt ratio” is the most common one for us to look at.  We want to make sure your new house payment PLUS all other obligations, does not exceed the program guidelines.  Essentially, for most loans, that means not spending more than 45% of your income toward the new housepayment and your other debts.  PMI companies (private mortgage insurance) have put their guidelines on this too.  Many PMI companies require a ratio of 41% or less.  Even though you may have an approval through an automated underwriting system, the PMI company could trump it and disapprove your loan due to excessive ratios.  I can remember the “days” when we saw ratios at 65%.  Now, was that a good underwriting decision?  Maybe, maybe not.  For an underwriter to make this call, the borrower must have excessive compensating factors, such as plenty of money left over after closing, good credit scores as well as good job stability.

This is a small sampling of the changes in the loan industry.  They are a few of the guideline changes that have impacted much of the business I do.  So, in answer to the blog’s title question … yes, many people can get loans.  No, you don’t need 20% down and sterling credit.  Fortunately, FHA is a great loan requiring only 3.5% down and more leniency with credit.  FHA also allows us to go a little higher in ratios and doesn’t limit us to the 45%.  I am not saying we can go over that just willy nilly.  That’s not the case.  We can go a little higher if, and only if, there are good compensating factors.  And I bet you didn’t know this (well, unless you read the blog), City Living and Dakota Bond programs ONLY allow FHA loans or VA, no conventional.  And don’t forget FHA and their guidelines in regards to disputed accounts.  This just adds another item on the checklist of things we have to watch for in order to make sure you can get approved for a loan.

Enough already, huh?  That’s all I have to say.  There are just too many variables that if it’s something YOU can control, you should.  You may want to check out our office blog titled Pain in the Assets – this goes over another important piece to your loan puzzle.  With all that can go wrong in the loan process now due to guideline changes, title issues or bank issues, we need all the humor we can get, so hopefully you like our article.  I’d love to do your loan right the first time by educating you BEFORE things become an issue.

Huh? What dispute? The one I am having with my roommate or with my parents about buying a home? You may have many disputes going on in your life. The one I am referring to is a dispute you started yesterday or 10 years ago with a creditor.

If you’ve been one to check your credit or maybe have had some issues in the past, you may have seen erroneous “tradelines” on your credit report.  A tradeline is an item of credit — car loan, credit card, mortgage, student loan,etc.  Now, if I were you I would be all over that like a bee to honey.  I’d contact the creditor and “dispute” the inaccurate information.  Wouldn’t you?  The whole goal is to get the right things reporting on your report, not items that don’t reflect your score and ability to pay on time.  True.  BUT one little catch.  Though you’re trying to BETTER your credit situation, you are actually making it harder to get financing.

Seriously?  Helping your credit/disputing an account = tough time getting a loan.  Tough to follow that logic,huh?  FHA is the most popular loan right now and the most lenient when it comes to credit scoring, as well as only requiring 3.5% down.  However, they have this little guideline that has been creating BIG issues for folks getting home loans.  The deal is, if you have disputed an account on your report, regardless of what the dispute consists of, your loan guidelines just got stricter.  Yes, your loan qualifications got tighter because you were trying to help your score improve.  Does that make sense?  Nope, not to me, but lately, many of the “rules” and changes have caused me to scratch my head quite often.

So, what changes with your underwriting guidelines?  For one, your loan must be manually underwritten.  90% of my loans are run through and approved through AUS (automated underwriting system).  Information about you in … decision on a loan for you out.  Slick and easy.  Your file is still processed, verified and still gets in front of an underwriter for the final stamp of approval.  In a manual underwrite, it doesn’t matter what the loan decision is through the AUS.  It’s no longer eligible for this to move to the underwriter faster and with more assurances of getting  your final approval.  It now has to be reviewed in depth and documented in depth in order for an underwriter to make a decision.

The rules to follow:

• Your ratios cannot exceed 31/43%.  This means you cannot spend over 31% of your GROSS monthly income toward your house payment, OR over 43% of your gross monthly income toward your house payment and other monthly debts.  This is concrete; no wiggle room here.  We will use the lesser payment for qualifying when choosing the payment you can be approved for.
• We must get traditional VOE’s and VOD’s (verification of employment and deposits)  So, even though you provided me with W2′s and paystubs, as well as bank statements, we must still get this information from a 3rd party.  No fun especially since some banks and some employers charge a fee to give us that information.  Unbelievable.
• We must do a VOR which is a verification of rent.  Important that we confirm you make rent payments on time.  Don’t worry if you’re not renting and with family; this won’t hurt your chances of getting a loan.
• The biggest one — you must have 2 months of reserves.  In layman’s terms, that means after closing, you need 2 months of your PITI payment leftover.  This can include retirement.  Here’s the thing.  Most first time buyers have a hard enough time coming up with their down payment or minimum investment depending on the first time program the buyer uses.  Now you’re saying we need money left over?  Yup and it hurts.

So how do you combat this?  Well, there may be a way to work on getting the dispute removed.  For instance, you could contact the creditor and tell them you don’t want to dispute the account any longer.  About 30 days after you call, we can re-pull credit to make sure the verbiage “account in dispute” has been removed.  It’s not an ideal situation, BUT, it would allow for a faster decision, more leniency on what you qualify for and NO requirement to have money leftover after you close, though there is nothing wrong with that!

The moral of this story — don’t wait to find a house to make an offer to find out you might have to wait due to this rule.  Make sure you’re getting pre-approved with a lender that knows these guidelines and looks for them when reviewing your report.  Also, there are people I can refer you to with regard to credit restoration if you’re in that boat.  Let me help you get ready for the biggest purchase of your life.  Knowledge is power and the more you know and can prepare for now will save a lot of headaches and stress when you do buy.  I think you’ll have enough of that just from doing something new!