Tag Archives: loan qualifying

You ARE Worthy!

Life is hard, and at times, just not fair!  Things happen – whether it’s a job loss, divorce, decline in home values, medical emergency or death in the family.  These things wreak havoc with our financial well-being.

The above reasons, and I am sure many more, played a large role in people filing bankruptcy, losing their home to foreclosure, or for some, having to sell their homes as a short sale just to get out from under.  It’s tough, and for those of you who experienced these major set-backs, I am truly sorry you had to deal with such devastation!

ID-100142021You might be thinking your chances of owning a home for the first time, or ever again, will never happen after these experiences.  I am here to tell you that we all have second chances and you are worthy of being a homeowner!  But how?

First, it helps to know the general guidelines for loan qualification after a short sale, foreclosure or bankruptcy.  The guidelines vary by the type of loan you take out.  FHA, the Federal Housing Administration, will be more lenient than Fannie Mae or Freddie Mac, which offer conventional loans.  Sometimes, there are extenuating circumstances that could lessen the wait period, but those are considered on a case-by-case basis.

Bankruptcy – home financing eligibility date is taken from the date the bankruptcy was discharged from the courts.  It is also dependent on the type of bankruptcy – Chapter 7 or 13.  I will advise for Chapter 7 bankruptcies, but the wait period may be less with a Chapter 13 if certain requirements are met.

  • FHA & VA:              2 years
  • Conventional:   4 years

Foreclosure – eligibility date is taken from the latter of the sheriff’s sale date or the date the claim was paid to FHA.  The claim date is only applicable if the loan foreclosed upon was FHA financing.  This date is usually 3-6 months after the sheriff’s sale.  Conventional financing could have a shorter waiting period depending on circumstances and other criteria.

  • FHA:                          3 years
  • VA:                             2 years
  • Conventional:    7 years

Short Sale – eligibility date is the date the sale of the home took place.  The waiting periods are the same as a foreclosure, except with conventional, where the waiting period can vary depending on the circumstances, as well as the amount of money you have down.

Once you’re over that waiting period, then what?  As lenders, we certainly want to see that you’ve re-established credit.  We understand that your credit and finances took a beating during that time – it happens!  But, we want to see that you came out in a better place.  We’re looking for on-time payments and a lack of derogatory credit, such as collections or charge offs.

Long and short of it – you ARE worthy, and after having a bankruptcy, short sale or foreclosure in your past, there is hope of becoming a homeowner!  We’d love to help!

*Image compliments of Stuart Miles — freedigitalphotos.net

 

Out with the Old, In with the New

In August, MN Housing retired one of their popular MN first time homebuyer programs – Home Help. This program was very beneficial for borrowers with lower incomes and allowed a borrower to get a larger amount of down payment assistance – up to $10,000, as a deferred loan. Home Help had some obstacles making it a little more difficult to obtain, such as a special home quality housing inspection. Though the borrower qualified for the program, the home may not have.

Fortunately, MN Housing didn’t leave us hanging without a replacement – one that’s similar in terms of assistance, but different in that the previous obstacles are now gone!  As of October 1, 2014, MN Housing is now offering the Deferred Payment Plus program (DPP for short). This is a secondary alternative to the current Deferred Payment Loan program.

For some clarification, a deferred payment loan is just that – deferred. There is no interestID-100246872 rate tied to it and no monthly payments are required. Full repayment of the loan is due upon sale of the property, or when it’s no longer your primary residence, or if you were to refinance the home without using a new MN Housing loan.

The current Deferred Payment loan allows a borrower to get up to 5% of the sale price with a maximum assistance amount of $7,500. For a household of 1-3 people, the maximum household income is $60,000. Larger households have higher income limits depending on the number of members. Household income is defined as ANY income derived from any of the borrowers on the loan, whether consistent or not, as well as any spousal income from a spouse NOT on the loan.

You could qualify for more than the $7500, depending on your need, with the Down Payment Plus program. To qualify for more funds, which go up to $10,000, there are some additional parameters that must be met. At least TWO of the following items must apply to your situation in order to be eligible for the higher assistance.

  • You’re a single head of household with dependents
  • You have a household of four or more people
  • One of your household members is disabled
  • Your front end ratio is over 28%

The first three are pretty simple to understand. The fourth parameter, the “front end ratio,” may need some explanation. As lenders, we look at how much of your GROSS monthly income is used toward your house payment, which we call the front end or “housing” ratio. We also look at how much you spend toward your housing AND other monthly obligations, this we call the “debt” ratio. For the “front end ratio” to be one of the two items for you, the proposed housing payment must be higher than 28% of your gross monthly income. Your approved MN Housing lender will help you determine this.

The DPP loan with MN Housing is a wonderful opportunity to help you and your family make homeownership attainable. With all the MN Housing programs, there are other qualifying parameters. You can find further information about these requirements on their site or allow us to go over those guidelines with you. We’d love to help determine your eligibility to make your home buying dreams a reality!

Image compliments of Stuart Mills – freedigitalphotos.net

No Credit = No Loan … or Not?

You hear all over the news and in advertisements how important your credit score is. I agree … your score is absolutely important and has become the first go-to thing lenders look at. We want to know what the score is, how long you’ve had credit and how well you pay your bills on time.

But what if you’re one of those people who don’t have a credit score? It happens, even to some people who have some credit established. Maybe the history isn’t enough for a FICO (Fair Isaac Corporation) score to be generated or there are just too few items on the report.

credit  cardI’m here to give you some hope. Not all loan programs require a credit score. The main criteria – you must meet the eligibility requirements of a Minnesota first time homebuyer program. In conjunction with this, we will use FHA financing which allows us to evaluate credit not necessarily reported to the credit agencies.

Really, what it all comes down to is what you have for debt obligations outside of a traditional credit report. It’s imperative that we review credit for the lending process. This means we’re looking for accounts that you pay on a monthly basis, ON TIME and over the last 12 months. Our goal is to analyze three accounts, but that’s not set in stone.

So, what do we look at? Are you renting? Are your payments on time? If it’s a management company or apartment complex you pay, we can verify directly with them your timeliness. If you pay a private party, such as a private landlord, or your parents, we want to see the last 12 months cleared checks, or auto withdrawal, from you to demonstrate you’ve paid on time. As a tip, if you’re living at home, it makes sense to pay something to your parents, EVERY month, for 12 months, always due the same time (say, the 1st of the month) and by check. This way, regardless of the amount, we can look at your history as a source of credit.

What about other sources? Here is a quick reference list of items that you may pay monthly that can be used to develope your credit history. This list isn’t all-inclusive, but a way to get you thinking about what you have out there and how it can help you get your first home! Remember, these items must be in your name.

Utilities, cell phone, car insurance, weight loss plans, lot rent for a mobile home, renters insurance, health club payments, child support/alimony paid separately from your work paycheck, Netflix, gaming sites, internet services, lay-away or monthly payments to a doctor

Not all lenders allow the evaluation of credit from these sources, so you’ll want to ask ahead of time. The main idea I want to get across is that having no credit doesn’t necessarily mean no loan. It’s best to find a lender you’re comfortable with and one that has the ability to walk alongside with you to make your dreams become reality! I am here to help if you so desire!

 

Dakota County + Conventional Financing = Happy Homebuyers

Shout out to our partners at the Dakota County CDA!  For as long as I can remember, they have only allowed FHA or VA loans to be used in conjunction with their MN first time home buyer program.  They now allow a 30-Year fixed conventional financing option via the HFA Preferred conventional program and this is great news.

As a refresher, all MN first time home buyers must qualify for a basic loan program — FHA, VA or conventional financing.  I look at this as the cake.  As long as you meet the parameters for credit, income and assets for the specific program, you can qualify for your loan — the cake.

One step further, if you meet the parameters of the first time home buyer program, such as the one in Dakota County, you could then get down payment and closing cost assistance — which is the frosting on your delicious cake!  Now wouldn’t that be sweet?

There are guidelines for the conventional loan that must be met in order to qualify.  First, ID-10039817there is a minimum credit score of 640  to even be eligible for the Dakota County  program.  The required down payment is at least 3% and you must contribute $1000 of your own money (no gift) to the transaction.

Since you have less than 20% down, you will be required to have private mortgage insurance, also known as PMI.  The good news is that the PMI for this first time buyer program has reduced coverage requirements which may result in lower monthly PMI payments.

You can learn more about the Dakota County program here, but as a quick recap, they offer three different down payment options.  These are dependent on your household income, but range from 3.5% of the purchase price (max of $7500)  up to 10% of the purchase price (max of $10,000).  As with all MN first time home buyer programs, the assistance is a second loan against your property.  If you sell or refinance your home, the second loan becomes due and payable.

Another requirement for this program, as with other MN first time buyer programs, is to attend the Homestretch class.  This is a worthwhile, 8-hour class that will teach you everything you need to know about buying a home, the process, as well as keeping your home.  You can find classes at the Homeownership Center. Costs for these classes will vary on the location you choose, such as directly from Dakota County or another provider.

I am an advocate of the in-person class because you can learn so much from other attendees.  If it doesn’t work in your schedule, you can “attend” the class online via their Framework class.  If you go this route, you will also need to set up a one-on-one meeting with a first time buyer specialist at the Dakota County CDA.

I am excited we can now offer conventional financing with Dakota County.  They have a wonderful program and for those of you with higher credit scores, it may be a much better financial option to FHA financing in terms of your monthly payment.

As always, it would be a pleasure to discuss your situation to see which cake you qualify for and what type of frosting we can layer on top!

*photo courtesy of  Salvatore Vuono, freedigitalphotos.net

 

Inspection and Appraisal – Two Peas in a Pod, Right?

The quick answer to this is no, but it helps to understand why they aren’t the same and what purpose they play in your home purchase process.

The inspection is for YOU.  This is the time you can decide to move forward with your purchase, or opt to cancel due to new information, or maybe, you just get cold feet.  The inspection period is the time to reflect on your purchase.

The inspection is NOT a requirement of financing for a home.  It’s optional, but highly recommended.  The cost of the inspection is not part of your loan closing costs.  It is a separate payment made directly to the inspector and can range from $250 – $400.  You choose the inspector, usually with guidance from your realtor.

Most people will make their offer “contingent” on an inspection.  That ID-100270859means, you’re telling the seller you want to move forward, BUT, you first want the home inspected.  Typically, you have a window of time to get the inspection done and that window is defined in the purchase agreement.

The inspector will look for hazards and any immediate concerns, as well as urgent repairs needed after you purchase.    For instance, if the basement shows major water damage or settling of the foundation, this may raise concerns about the soundness of the home.  You may opt to not buy the home knowing that you may be getting into something that you can’t afford in terms of repairs.

The inspector will also look at the positives – let you know what’s good about the house, such as new mechanical equipment or a new roof.  They will also walk you through basic information – how do you shut off the gas or the water in case of an emergency?  How often should you change the filter on the furnace?  They will provide you with great maintenance tips for homeownership.

The appraisal, on the other hand, is for the LENDER.  Of course, you will get a copy of it for your records, but the appraisal is required for you to obtain financing.  The lender wants to make sure that the home used for collateral is not only worth what you paid for it, but also has good future marketability.

As long as you’ve decided to proceed after the inspection, the lender will order the appraisal.  It’s done randomly, meaning the appraiser is not a choice.  This is to protect both the lender and buyer from steering or having influence on the appraiser’s decision.

The appraiser will also look for safety and hazards, but they will also dig a little deeper.  They will compare similar homes – if you’re buying a rambler, they will compare ramblers.  If you are buying a townhome, they will compare similar style townhomes, preferably in the same complex.  They must consider sold and closed properties within a certain radius of the home (typically within a mile) and within a certain time period (typically within 6 months).

There is so much more involved with appraisals and inspections.  Two peas, yes, but not the same pod.  The biggest thing to take from this is that one is optional and for your purposes – the inspection.  From this, you can determine if you want to move forward with the purchase.

The appraisal is for the lender in order to determine if the home is a good risk and will help determine if they can extend credit, as it’s required to secure financing.  In any instance, the hope is that both the inspection and the appraisal are in your favor!

*photo courtesy of hywards/freedigitalphotos.net

Pre-Approved for What?

If you’re a MN first time home buyer or are in the home buying market, it’s crucial to obtain pre-approval.  This terminology can mean different things to different lenders.  How much information are they gathering to determine your eligibility for financing?  Are they just asking some general questions via a website and going off what you entered?  What information are they looking at to confidently send you out looking for a home?   Again, this process varies from lender to lender.  Regardless of who you choose to work with, you want to make sure a few things happen.

Compliments Stuart Miles/freedigitalphotos.net
Compliments Stuart Miles/freedigitalphotos.net

First, you’ve provided an application.  The application provides the lender with the stepping blocks to dig deeper into your situation.  It gives them the keys to check credit — which helps them to know if you meet today’s guidelines for a loan.  For instance, are your credit scores where they need to be?  Do you have any derogatory credit that could prohibit you from obtaining financing?  Or even simpler, do you have enough credit established?

Second, they request supporting documents from you.  I’ve heard many people say that they were pre-approved just off of their credit and information they provided on the application.  My concern is nothing was verified.   Different types of income have different requirements on whether we can use it in qualifying or not.  Without seeing paystubs, W2s, bank statements, taxes, and possibly verifications of employment, we can’t really say if someone’s pre-approved.

Third, they’ve taken the time to go over your options and your comfort level.  It’s all good to be told you can buy a house for $250,000, but do you know what a payment looks like for that size home?  Is it even a payment you’re comfortable with?  What are the costs involved with buying a home?  Are you eligible for any assistance if you’re a MN first time home buyer?  Do you know where you will be getting the money from for down payment and closing costs?

Even more important, for “what” are you pre-approved?  Many people say they’re pre-approved for a certain house price.  And while that is partially true, it’s not really what the lender is approving you for.  Based on your income and debts, you will be pre-approved for a PAYMENT.  This will include principal, interest, taxes and insurance (both homeowner’s and possibly mortgage insurance).

Depending on the home type you want, this payment may also include association dues and if you’re using a first time buyer program, it may include a payment for the assistance you’re getting.  This payment will determine the price of the single family home, townhome or condo you may purchase, BUT, the interest rate, taxes and association dues will truly determine the actual purchase price while keeping you within the payment limit.

There’s a lot to know about getting pre-approved.  The most important thing is education.  Understanding what pre-approval means, knowing your options and being comfortable with these are key.  We’d love to help make sure your pre-approval is a “YES!”

MN Housing Makes a Few Changes

So many of my blogs have to do with MN Housing and their great programs.  It’s true, I love working with MN Housing.  They have fantastic programs for MN first time home buyers and even NON first time home buyers.

They offer quite a few different assistance programs to help buyers with down payment, as well as closing costs.  They even offer a conventional loan program with just 3% down and NO monthly private mortgage insurance (PMI).  That’s a huge savings — and another blog post!

up down arrowAs with all MN first time home buyer programs, there are income limits and purchase price limits.  To be eligible for these programs, you need to fall under the household income limits.  These limits have just been revised DOWN a tad.

The new income limits for their Start Up, Step Up and MCC programs have been revised:

  • $82,900  1-2 person household
  • $95,335  3+ person household

Household income is calculated differently depending on the program.  The Start Up program looks at ONLY the income of the people on the loan.  If the person is married, and the spouse is NOT on the loan, the spouse’s income is STILL counted.  All income is counted, even if the lender isn’t using it for qualifying.  For instance, if the borrower gets overtime, but it’s been less than a 2-year history, the lender will not use this in qualifying.  BUT, the income must be calculated for household income purposes.

The Step Up program uses “qualifying income” for the household income.  That means, if the spouse is not on the loan, their income is NOT calculated.  It also means if we don’t use overtime, like in the example above, then that income isn’t used in calculating the household income.  The benefit to this is more people will be eligible for this program!!

As a point of differentiation, MN Housing actually has TWO programs under Start Up which have DIFFERENT income limits than the above.  These limits have not changed and can be found at their site.  The respective programs are the deferred payment loan and the Home Help loan.

They made another change to the purchase price limits.  The maximum price of the property has been increased to $310,000 for the 11-county metro area.  This means if you purchase a home for $310,001, it will disqualify you for the MN Housing program — just make sure you purchase it for $310,000 and you’re golden.  Less is good too!

As with all programs, guidelines change.  That said, some of my older blogs may reference income limits or purchase price limits that are out of date.  Please always check with me, or the respective first time buyer site, on the current guidelines to make sure you’re eligible for the program you want!

Assistance … Not Just for First Time Home Buyers Anymore!

For as long as I can remember, down payment assistance has been associated with MN first time home buyers, meaning the only way someone qualified to get down payment or closing cost assistance was they had to buy their very first home.  This definition is actually broader than a true first time home buyer and applies to anyone who has not owned a home in the last three years.  The broader definition has helped those people who may have experienced a foreclosure or short sale be considered MN first time buyers, enabling them to get assistance.

But what about buyers who own a home now and need assistance?  Is there any help for those folks?  I think many people would consider selling if they had a way to come up with the money needed for their 43next move.  Unfortunately, some people are having to pay to get out of their current homes, leaving them with nothing for the next home.  This just makes the process of moving impossible.  The good news, and answer to the question, is YES, there is help for these folks, thanks to our partners at MN Housing.

Over a year ago, MN Housing introduced the Step Up program.  This is specific to those people looking to refinance a home where they had down payment assistance or to purchase a new home where the NEED down payment and closing cost assistance.  The available loan types are the same as the Start Up program, which is specific to MN first time home buyers.  We can use Step Up with FHA, VA or conventional financing.  The home the borrower currently owns MUST be sold prior to closing on the new home.

The assistance is a true second loan against the home and is required to be paid back.  It’s called the Monthly Payment Loan (MPL). The interest rate on this second loan is the same as the rate the borrower has on their first loan.  All rates are published on MN Housing’s site.

The assistance is equal to 5% of the sale price of the home and the term of the loan is amortized over 10 years.  Most minimum required down payments range from 3 – 3.5%, making ALL the down payment covered by the assistance.  The leftover amount can go toward closing costs.  If worked into the purchase agreement, the seller could cover some, or all, of the closing costs as well, making it so the borrower may only need the required minimum investment of $1000!

As with all MN Housing programs, there are income limits that the household must be under to qualify.  For a 1-2 person household, the limit is $83,900.  Recently, the way income is calculated with Step Up changed, making it so more people can qualify for the assistance they deserve!

If you’re looking to move up to your second, third or even fourth home and need some help getting there, please don’t hesitate to contact me.  It would be a pleasure to see if the Step Up program will benefit you and get you moving up sooner than later!

You … from the Underwriter’s Perspective — The Final “C”

We’ve made it to the final “C.”  Thing about this “C,” is it really isn’t about YOU this time, as the title of this blog suggests.  It’s about the home you’re getting a loan on, lovingly known in our world as Collateral.

As lenders, we really want to make sure that the home we’re providing a loan on is a good investment.  Certainly, we don’t want to be left owning the home if anything goes south with your payments, but if it does, then at least we know we have a pretty good chance of selling it.

house dollar symbolIn order to determine the quality and value of the collateral, we order an appraisal on the home.  This is a third-party assessment in terms of value and marketability.  Since you paid a certain price for the home, we definitely want the house to at least be worth what you paid for it.

The appraiser will look at comparable properties to determine value.  They will look at like-styled homes.  If the home you’re buying is a 2-story, then they need to look at other 2-stories.  Comparing the home to a rambler, one-level, isn’t comparing apples to apples.  They’ll look at homes that have closed in the last 6 months or less and are located within a mile of the subject property.  If appraising a townhome, they need to find comparable homes in the same complex, if possible.  Similar size and amenities are important for comparison– number of bedrooms, bathrooms, etc.

Based on the comparables, the value could come in higher, which is great for you, but it doesn’t play at all into the loan.  For instance, if you’re doing 5% down and the appraisal comes in high enough to give you 10% equity, it won’t matter.  All lenders will lend on the LESSER of the appraised value or, in this case, the sale price.

If, however, the value comes in less than the purchase price, you may have to come up with more money.  In line with above, if you’re doing 5% down, the 5% is off the LOWER appraised value.  You’ll have to pay the difference between the price and appraised value.  More than likely, your Realtor will go back to the seller to re-negotiate the price down to the actual appraised value. Hopefully, this works out in your favor!

The appraiser is also looking at marketability.  They will look at the home style, location, as well as any concerning factors — like is the home backed up to an apartment complex or an active railroad?  These things won’t necessarily make it so you can’t get a loan on the home, but they absolutely affect the marketability of the home.

What about the condition?  Is the home in decent repair?  Does it have any major issues — foundation or structural concerns?  How about standing water or peeling paint?  Some of these things can be fixed and could become a “work order.”  The type of financing will determine what items are required to be repaired.

For instance, FHA financing will require any peeling paint, in or out of the home, to be scraped and repainted IF the home was built before 1978.  This is due to the possibility of the paint being lead-based.  FHA is all about safety.  If a work order is called, the work must be completed prior to closing in order to pass the FHA appraisal.  What if the seller won’t do the work?  You an check out the 203K loan we offer to help in this situation.

The appraisal is an opinion.  This is why we have the underwriter look at it as part of your file.  Of course, being that we’re placing a lien against the property, the collateral “C” is a big part of the underwriter’s decision.  But, as explained in the last three blogs, it’s not the only “C.”  As with the others, there is more that’s taken into account with Collateral and this is just a summary.

At least now you have a good idea of what goes into YOU from the underwriter’s perspective.  If I can help you navigate these waters, please give a shout.  It would be my pleasure!

You … from the Underwriter’s Perspective — The Third “C”

Another piece to your underwriting puzzle — Cash.  I love this one because cash actually isn’t an acceptable source of down payment or closing costs.  The better term for this “C” is assets, or what you have available for the transaction, but then it wouldn’t be with the other cool “C” kids!

You may wonder why cash isn’t allowable, I mean, it’s money and that’s what you need to

courtesy of  ddpavumba|freedigitalphotos.net
courtesy of ddpavumba|freedigitalphotos.net

buy a home, right?  True, but cash isn’t traceable.  We have no idea if it was yours from the tips you made at your server job, money saved at home, a gift from family, an unsecured loan or quite possibly, money derived from other unacceptable sources.  This is why we tell you NOT to make deposits into your accounts using cash with our list of things “not to do” in the loan process.

So if cash isn’t allowed, then what do we look for?  The obvious sources of assets are checking, savings and money market accounts.  We’re looking to make sure that the only deposits going into your accounts are funds from your employment and we determine this by looking at the last two months bank statements.  More statements may be requested depending on how long you’re in the process.  Any other deposits will be questioned, because again, the money could be an unsecured loan or untraceable funds.

Some people have CDs (certificate of deposits), mutual funds, stocks or bonds.  These are certainly acceptable sources.  We would need to prove ownership of the accounts by the last two months statements, prove that you liquidated the funds and have them in your account.  For bonds, we would get copies of the actual bonds.  A Roth IRA is also usable.  Typically, you can pull everything out you’ve put in with no penalty.  You aren’t able to take any of the funds you’ve earned from the investment though.  Since I am not a financial planner, I would get their advice on this.

Retirement accounts are other acceptable sources of assets.  Most of the time we use retirement or 401K statements as reserves.  That means, we’re looking at the balances just to make us feel good about the transaction.  Sometimes, certain programs require reserves.  For instance, we need to prove you have at least 2 months of the new house payment leftover after closing.  Or if you’re retaining your current home while purchasing the new home, we may need to prove six months reserves for BOTH the current house payment and the new house payment.  These guidelines vary by program.

Another source of assets is a gift.  Acceptability of this is dependent on the loan type, but in most instances, a gift is okay as long as it’s from a family member.  There are guidelines on how to get a gift, including a form to be completed called a gift letter.

I’ve mentioned unsecured loans and how they aren’t acceptable, but are any loans acceptable for the money you need?  Yes!  If the loan is secured against another home you own, a retirement account or a car, for instance, then a loan is okay.  If the loan is against anything but the retirement account, we must use the monthly debt payment in your qualifications.

Another form of funds for down payment and closing costs could be from an assistance program, like those found with MN Housing or Dakota County Bond.  These aren’t assets you possess, but would serve proof that you have the funds necessary.  All of these programs would require you have at least $1000 of YOUR own money into the transaction, verified via your bank account or some other asset account.  A gift is NOT acceptable for this $1000 as that would not be considered your funds.

Even the seller can contribute to what you need for closing costs, but there are limits to this and it’s a negotiation between you and the seller.

Of course, there are other forms of assets that I may not have touched on.  To know what you need to purchase a home, it’s best to sit down with a professional to look at all your options!  Last “C” coming up next — Collateral.