The new cliché in the mortgage industry is that “We are getting back to basics.”

I have heard this phrase thrown around lately, but sometimes I wonder if anyone except other lenders knows what we are talking about?

I have a theory that if you get 2 or more mortgage lenders in a room at a party and they start talking shop, others watching probably think we are speaking Klingon, or what I been calling for a long time “mortgagese.”  You see, we like to throw a lot of words and acronyms around like FICO, DTI, LTV, flipping, deals, etc.  But I think we sometimes forget that Joe homeowner or maybe even most Real Estate Professionals have no idea what we are talking about.  So in plain old English, let me share what I know about getting back to the basics with mortgage lending.

“Mortgage Lending Guidelines 101″

Cash is King:  The more funds liquid in bank deposits and retirement accounts the better.

Down payment is crucial:  The more funds you have for a down payment, the stronger the loan file becomes.

Credit trumps all cards:  Without a decent credit score, a mortgage lender cannot even give you lending options.

Weird deals are to be avoided at all costs:  95% of the time if the deal is a little off the wall, it won’t work.

You must have a job or income:  The income source must be verifiable, believable and well documented for usually 2 years.  No job, no loan…Sorry!

Equity in your existing home will have a huge impact on the new mortgage loan being approved:  Today you must either choose to sell your existing home or have some pretty good equity if you expect the bank to offset the debt with rents.  Also, it must actually be rented out!  You cannot just say “we plan to rent it out.”

Appraised value matters:  The home must appraise for your offer price or the lender will cut the maximum amount they are lending.

Chain of title is important:  I have run into this issue lately with short sale flipping companies.

Title seasoning is a big deal:  Most lenders have sources that can do this loan 1 day after transfer of title, but are limited to where the loan can be placed.  FHA has a 90 day anti-flipping policy.

Mortgage insurance companies prevail over the lenders guidelines:  If the loan is going conventional for whatever reason, the mortgage insurance companies have their own lending overlays.  It gets real fun when you are in a declining market value state.

 AND LASTLY,

Mortgage Rules Change Daily:  This one is the most crucial.  What your mortgage lender knew in the past means nothing today.  The good lenders study up on current mortgage guidelines sometimes daily or weekly.  Even then it is almost impossible to keep up with the ever changing mortgage guidelines.

Again, when we say “we are getting back to basics” it means that common sense underwriting will usually trump with a mortgage lender.  If you have cash in the bank for a down payment on a home with some left over cash called reserves, you have a great job for over 2 years and you have decent or better credit score; you should be able to get approved.  If you do not have those 3 items, then you might run into some challenges.  There are always exceptions to these basics, but in general, that is what a mortgage lender is looking for today in a borrower.

The $8,000 first time homebuyer tax credit of 2009 has been extended until April 30th, 2010.  By the deadline you must be in a written binding contract, but will have until July 1^st, 2010 to actually close on a home.  A first time homebuyer is someone who has not owned a home in the last three years.

 There are some changes to eligibility and limitations in this provision that were not part of the 2009 bill.   The maximum amount of the purchased home cannot exceed $800,000, where previously there was no max.  Also, the income levels have increased from $75,000 to $125,000 annual income for singles and from $150,000 to $225,000 for married couples. 

 The provision for the extension also included a $6,500 tax credit for current homebuyer’s purchasing a new home, that was not in the original bill.  This includes homebuyer’s who have lived in their home five consecutive years out of the last eight.  In purchasing a new home, the home does not need to cost more than the old house.  If you move from a high cost area to a lower cost area, you are still eligible.  Also, if you sold your home two years ago, and plan to buy a home between now and April 30^th  2010, you are eligible if you lived in that home for five consecutive years. 

 The changes made have opened the tax credit to a lot more individuals than before.  Take advantage of low home prices and this tax credit before it goes away for good!

Imagine yourself in your dream home, you’ve got everything you wanted including the white picket fence.  Now take a step back…how did you get there?  I will tell you one way of never getting into your dream home; bad credit.  Period.  The end.  If you have poor credit, you’ll never be able to carry out your dream of homeownership.  Some of you may be thinking that you have bad credit and you’ll never own a home.   Wrong.  There are steps you can take to make homeownership a reality.

So you’ve been behind on payments, creditors are reporting wrong.  I’ve heard them all.  Whatever it may be, you think the dream of homeownership has passed you by.  What you may not know is several companies exist to help repair your credit.  Some have charges up front and some charge a monthly fee, it just depends on the company.  You may think you cannot afford credit repair, but I say you can’t afford NOT to use a credit repair company.

It’s simple.  If you don’t have good credit, you can’t get your own home.  Why not take advantage of these companies and their expertise?  If you don’t know where to start, feel free to contact me with any questions or recommendations to get you closer to your dream home.

The Perfect Home Buyer Storm

photo credit: Christoph Schweiger

Normally I am not one to predict the market when it comes to mortgage rates, home values, good deals, tax incentives or tax rebates, but the writing on the wall is extremely clear to me that we have entered into what I want to phrase “The Perfect Home Buyer Storm”. I have not known a better time for first time home buyers or step-up home buyers to take advantage of all the benefits that are out there right now.

Here is my list of things that have transpired to make this “The Perfect Home Buyer Storm”:

1. Home Values have dropped to the lowest levels we have seen in the last 2-3 years. I saw a HUD Home in my local market priced at around $29,000.00 dollars. Now this does not mean that some areas might dip lower, but it’s like buying a good value stock at the bottom of the market.

2. The Tax Rebates that the government is offering for first time home buyers is incredible. (Home Buyer Tax Credits Worth $7,500.00). With $7,500.00 worth of tax credits, this should give you another reason to move on these great offers.

3. Good Deals on homes are plentiful. 2-3 years ago everyone had multiple bids out there to get into a home. Today all the choices, colors, locations, prices,
amenities and sizes are available. With so many pre-foreclosures, bank foreclosures and HUD homes of your choice, there is a home to fit any household budget.

4. Uncle Sam is still offering tax deductions on mortgage interest. I know this is an old reason to buy a home, but it still makes my list of ideal reasons.

5. Interest Rates are at it’s lowest point in the last 5 years. With interest rates so low, the cost to borrower is less, which equates to very affordable mortgage payments. There are a lot of people who are currently paying more for rent than the cost of a mortgage each month.

Right Now is the time to take action and get pre-approved. This is like seeing Halley’s Comet . This is a once in a lifetime home buyer storm that might never come back this great.

Calculating your mortgage payment can be confusing.  Some mortgage lenders briefly describe your total payment just as PITI and never really share the full details of the make up of your mortgage payment.  Your mortgage payment is made up of 4 parts:  principal, interest, taxes and insurance also known as PITI. 
 
The first part, the principal is the portion of your mortgage payment that actually pays down the mortgage balance.  The second part, the interest is the cost the lender charges for borrowing the money.  To determine this figure use the Mortgage Calculator provided.
 
The third portion of your mortgage payment represents the property taxes.  The mortgage lender will calculate your monthly tax amount by taking your annual property taxes and dividing it into 12 equal payments.  This way you are only paying 1/12 of the tax each month.  The lender holds these funds in an account called an escrow account and pays the taxes when your county, city or township requires. 
 
The last portion of your mortgage payment represents the hazard insurance or better known as your homeowners insurance.  Unfortunately no lender will allow your new loan to close until you provide proof of this insurance.  This insurance protects you and your lender in partnership in case of fire, bad weather and other incidents.  The mortgage lender will calculate your monthly insurance amount by taking your hazard insurance premium and dividing it into 12 equal payments.  Again you only pay 1/12 of the insurance premium each month.  The lender will also put these funds into that escrow account and pay the annual premium on its anniversary date. 

My speciality for the last 3 years has been primarily to focus on helping 1st time home buyers make the dream of home ownership a reality.  Wow what a cliche I just said.  Anyhow my question of the week from many real estate agents is:  How am I going to help buyers who having very little or nothing down?

In the past, the answer was pretty straight forward, we would look into down payment assistance.  With Housing Bill HR-3221 doing away with my favorite pet, clients, lenders and real estate agents are scrambling to find good solutions to help these buyers get into homes. 

So here are some solutions I came up with to help buyers with little or nothing down.  Some of the cities have programs for low income housing folks and these funds if approved usually can be used for down payment and closing costs.  We have the Maricopa County Home in 5 Bond Program.  These funds come and go, but if available at the time can work out great for down payment.  HUD Homes!  Hud offers all kinds of incentives to move their inventory and sometimes they will only require the buyer to put $100.00 down on a new FHA loan with a full price accepted offer.  Also do not forget that we can still use down payment assistance from family.  So Mom, Dad, Brother or Sister can help with a gift for the down payment.  Also multiple family members can gift funds so you can pool the gift funds together.  Last do not forget about those 401K funds you have set aside with your employer.  Did you know that you can borrow against your 401K to have funds for your down payment.  Finally, we may have to just start saving money like in the good old days.  If it worked for our parents and grandparents to put money down, then why can it not work for us?

Creative solutions is now the name of the game.  By thinking outside the box and not turning to statements like “it cannot be done”, I can help many more homebuyers achieve homeownership.