First Stop 4 Home Loans

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!

FHA is trying to re-build its reserves again.  Back in October 2010, FHA lowered their UFMIP (Up Front Mortgage Insurance Premium) from 2.25% to 1% to somewhat offset the increase in the monthly MIP (Mortgage Insurance Premium) from .5% to .9%.  This certainly didn’t help FHA buyers with their monthly payments.  It made it so a buyer couldn’t qualify for as much home.  And it took the argument away that FHA has a cheaper payment than conventional financing because the mortgage insurance is less.

So, why did they do it in the first place if it negatively impacted the borrower?  It was necessary.  FHA is required to keep reserves as a government program.  They have paid out, like many conventional PMI (Private Mortgage Insurance) companies, insurance claims to lenders when FHA insured homes go into default.  Unfortunately, they are still under the 2% reserves they are required to have and again, have to increase the MIP.

With case numbers* dated on or after April 18th, be prepared to see your FHA payment rise if you’re in the buying market.  This monthly figure in your payment will go from .9% to 1.15%.  On a $150,000 loan, that makes a $30/month difference.  For some, this may halt a transaction in its tracks.  This isn’t what anyone wants.

Unfortunately, you can’t change when you get an offer accepted.  The advice I can give, especially if you’re tight for qualifying, is to find a home sooner than later and get your purchase agreement to your lender ASAP.  It doesn’t take much for them to order the case #, but it will be a huge bummer if it doesn’t happen.   And, believe it or not, conventional loans, if you qualify, may actually have a lower payment for mortgage insurance — making the argument now favor conventional financing.

Still, some buyers will HAVE to use FHA.  Why? 

• FHA is more lenient on credit scores and allows for “creating” alternative credit.  So, if you don’t have a credit score, you could get FHA financing combined with a first time buyer program.  As of now, the first time buyer programs only require 620 for the mid-score using FHA financing.  Conventional financing will require a higher figure — 680+, if not even 720 or higher. 

• FHA also allows non-occupant co-borrowers to help qualify for the loan.  Let’s say part of your income is salary and some is commission and that income started a year ago.  Though you know you can count on it, lenders won’t for qualifying.  Commission income requires a 2-year history to establish a pattern.  Other income of this nature would be tips, self-employment, bonus and overtime.  Without 2 years, you can’t use it to qualify.  However,  if you had a family member co-sign with you, your qualifying ability could increase.  Keep in mind, my assumption is your family WON”T be paying your house payment, so you still need to use your head and stay within a payment range in which you’re comfortable.

• Did you know FHA offers job-loss protection?  I bet many people, including financing professionals, don’t know this.  If you can’t make your payments due to a job loss, FHA could pay up to 12 months of your house payment to your lender so you don’t fall behind.  The amounts you get will be added to your loan on the end — FHA is nice, but not that nice! 

• Another reason people may choose/need FHA financing is for rehab.   A loan type, called the 203K loan, offers rehab assistance that is added to the purchase price.  You still pay a lower amount for the home, but we add the fees and repair bid to the purchase price.  Your 3.5% down is figured on that higher number.

Long and short — if you have to do FHA, I suggest getting a purchase agreenment prior to April 18th.  Otherwise, prepare to pay the price when the 18th rolls around.  So stop waiting for something  better to happen with the market.  It’s not going to happen.  Get pre-approved and get out there and look! 

*Case number — a number assigned to a loan and a property address.  Lenders enter the property information into the FHA system, which then generates this number.   It’s like a social security number for the house.  If the current borrower doesn’t buy the home, and another person does using FHA financing, the case number will still attach to the address.  This also means if an appraisal was done, the appraisal sticks too and is used by the new lender.

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.

Is this house-hunting thing making you feel a little unraveled?  With all the homes on the market, people telling you to “buy now” and the overwhelming amounts of information about programs — who can blame you for not keeping it together!  Okay, so maybe do have this process all figured out.  I commend you for doing some homework and getting educated.

Let’s start with what you need to do BEFORE you start househunting — get pre-approved with a reputable and reliable lender.  A pre-approval means you’ve completed an application with a lender, had credit pulled, provided supporting documentation and your loan has been through an automated underwriting system and/or been seen by an underwriter.  If these things DON’T happen, you’re NOT pre-approved.  There are many things that the lender looks at when determining your qualifications. 

In order to determine the accuracy of your application, we must gather supporting documentation — hence, having you “pull it together”.  The list applies to anyone on the loan application and not all items on this list will pertain to everyone. 

-most recent TWO paystubs

-last TWO years W2s*

-last TWO years federal taxes, all schedules*

-most recent month bank statement, showing beginning and ending balance, all pages

-most recent quarterly statement for any accounts not monthly, i.e. retirement, stocks or bonds, all pages

-any court papers such as decrees or bankruptcy documentation

*If you intend on using a first time buyer program, you will need the last THREE years W2s and federal taxes.  This proves to us and the first time buyer powers-that-be  that you have not owned a home in the last 3 years which is the criteria to be considered a first time buyer.

I know what you’re thinking … along the way I may ask for more, including your first born, right?  People have stories and some are quite good.  My goal is to get everything I need upfront so there aren’t last minute dashes to find other paperwork.  Also, if other things enter your situation for buying, we need to address them with … more paperwork, i.e. a gift from family or document a large deposit into your account.  If you want to avoid some of the pitfalls that can cause havoc in your loan process, check out this great article written by my manager.  She makes a very boring thing, like what not to do while in the process, very funny.

Moral of this story — pull it together to support your application information.  If other documentation is requested, please provide that in a timely manner.  The sooner we have your paperwork, the better.  And before I forget, I am NOT perfect.  I make mistakes and sometimes miss things.  So forgive me if I ask for something you gave/emailed me.  I have so many conversations in a day and receive my share of emails.  I try to keep it all straight, but sometimes, it’s just better to ask again.  No double guessing.   The past few months have been fun as I am working with three ladies that all have the same first name!  Mama Mia!  So, forgive me now.  And most importantly, just know that you WILL be given the best service and communication around.

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!

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!

Oh no, the tax credit is gone!  Why would I want to buy a home?  A fantastic question that we will answer in this educational evening about buying your first home.  Please join Steve Howe, Realtor MN Real Estate Team, and me, on Thursday May 20th to learn the steps involved in purchasing a home.  The seminar goes from 6:30-7:30 pm and is located at the Cornerstone Mortgage office at 436 Gateway Blvd in Burnsville.  

Our agenda is simple — to educate.  Would we love to be your Realtor and loan officer … of course.  Do we make you feel like you HAVE to use us — no.  This isn’t a high-pressure seminar.  It’s a relaxed atmosphere where we hope you will learn a lot, get your questions answered and be able to make good choices moving forward in this process.

We will talk about the process in the order you’ll go through it, starting with pre-approval and ending with getting the keys to your home.  We will also discuss the available first time buyer programs and the many reasons why it is still the BEST time to buy, even without a tax incentive.

If you’re interested, please RSVP to clavey@houseloan.com as soon as possible.  We’d love to have you and look forward to sharing our knowledge.  Most importantly, come with questions!

Where have ethics and morals gone in America?  This is certainly a generalization as I know most of you reading this DO have ethics and a good moral compass.  But then there are those people who don’t.  Those people who “stated” income to get into a loan WAY above their means.  Those people who falsified bank statements or W2s or even took another person’s social security number to get a loan.  Those LOAN OFFICERS that suggested these things, suggested doing a 2-year ARM because they can sell in a few  years, suggested the amount of income the borrower “needs” to qualify or suggested a way around the system.  Now, due to this, we’re required to be licensed.   Woohoo … I am sure that will stop people from advising inappropriately.  And speaking of licenses, I officially passed the national exam — so be assured, I am “allowed” to originate loans.  Gosh, I hope so after 16 years of doing this   By the way, this is a long time coming and something I have supported.  Stock brokers are licensed, as are Realtors.  Why we haven’t been is beyond me. 

Did I do stated income loans?  Sure, I did a handful of them — literally less than five.  That’s a very small amount.  Did the people I work with falsify anything?  I have no idea and don’t care to know.  In the instances I can remember, I dealt with self-employed people who made WAY more than what they did on paper, ie federal taxes.  The nice benefit of being self-employed is the write-offs.  As lenders, we appear to penalize them for this.  To some extent we do, but if you tell the IRS you’re making $40K after expenses, but you brought in $100K, then that’s the income — $40K.  It’s a catch-22 for people who are self-employed.  That’s why a stated income program worked.  They’re now illegal in Minnesota and I would be hard-pressed to find a lender willing to do one.  And I get it.  Too many loan officers “coached” their clients.  It’s wrong and it’s caused a world of hurt for the rest of us.

So here we are, in a huge financial crisis and the government is helping people in the above situations “modify” their loans so they can stay in their home.  Don’t get me wrong.  There are thousands of people who were “duped” into certain loan programs with the promise that their credit will improve in 2 years and they could refinance.  This would have been sound advice if the market didn’t tank and values of homes hadn’t dropped.  Now, these people can’t refi AND now can’t make a payment that has possibly doubled.  How can you blame them?  They were told about the best case scenario.  This bugs me, as you can see. 

I am a worry wart — don’t want people upset at me or to come back and say “you told me” and have them in a tizzy over advice I gave.  A few years ago it was practically a requirement to buy a new home NOT contingent on the sale of your old home.  As lenders, we had to count the debt of the OLD house and the NEW house for qualifying.  This makes sense.  But, reality is, how long can someone make 2 house payments?  At some point, just giving up on the old house is easier to do if times get tough.  Heck, it’s not the roof over their heads now.  They still have a place to call home.  I was very upfront with buyers about the potential hazards of doing this.  Ultimately, it’s the buyer’s decision, but I lay it out there — the good, bad and ugly.  And speaking of ugly … in “those” days, if you had a signed lease agreement, you had income we could use to offset the old house payment.  I did a loan where I was given 2 leases for a duplex the borrower owned.  We followed guidelines and used 75% of the rent for qualifying so he and his fiance could move into their new home.  These kids were referred to me by a friend — a loan officer friend that had knowledge of their intent to let the house go.  I found this out about a year later.  To this day, I have no idea if the leases were legit and the renters finally decided to move.  Not a clue.  And I just don’t want to know. 

It’s disturbing to me that I had a part in a loan like that.  I didn’t have the knowledge of the end result, but it makes me feel icky inside that I trusted.  And as my husband will tell you, I trust a little too easy.  It’s my nature to assume you’re being honest unless I see or suspect differently.  Had I known their intention for letting the house go … I would not have done the loan.  My conscience would not have let me.  It’s funny, but we have a disclosure, required by the federal government, that states mortgage fraud is bad, prosecutable to the tune of 30 years in jail and/or one million dollars.  So, what’s funny about that?  The fact we have to “tell” people fraud is bad and not only that, people will still commit it — doesn’t matter if they sign a piece of paper warning them of the consequences.  Unbelievable.

So the moral dilemma as I see it — should we pay our mortgages on time, like we’re supposed to or do we get help from the government for NOT paying them on time?  Hmmmm, reinforcing  and going as far as rewarding bad behavior.  I don’t get it.  Here’s an article that speaks to this too.  I’m not the only one in this conundrum.  And here’s what’s really sad.  Over 50% of those people that modified their loans have already defaulted.  Oh yippee.  That means the government helped subsidize the rate to make the numbers work, paid the lenders a fee to do these types of loans and offer the client a cherry rate.  And what for?

My soapbox is getting slippery and I know views like this shouldn’t be put in blogs, but I feel so strongly about this, about the way the government has handled the misguided, misrepresented and possibly fraudulent buyers that are getting a pat on the back for going against what’s right – disregarding their debts.  As a landlord of a rental unit (used to have two), I am amazed and shocked how many of our tenants pay late or not at all and expected us to deal with it.  How dare us assess a late fee, blatantly addressed in the lease.  When I rented, I paid my rent.  If I didn’t, I was kicked out.  It was that simple.  I was taught that paying what you owe is honorable, ethical and the right thing to do.  It’s how I was raised.  It’s how I will raise my children and how I will continue to advise my clients.  Because these are the right things to do — no moral dilemma on this front.