I’ve seen more and more headlines like this recently and I’m left wondering who is spinning this information to the media and why?  I figure when there’s this much buzz around a non-issue, some group has decided to make it one.

Let me preface my comments by saying I recognize being turned down for a home loan is a very emotional issue, and in some cases a financially burdensome issue (if you can’t refinance to a lower payment).  However, while I’m sure there is a small percentage of people who probably should qualify for a loan but can’t as a result of tougher lending guidelines, the majority of the time a borrower is declined it is for legitimate reasons.

There are really only four large segments of borrowers who can’t get a home loan right now:

1. People with less than 620 credit scores.  Even this isn’t entirely accurate as FHA will go below 600.  It’s hard to have a good credit history of paying bills on time and be under that mark. I’ve even seen credit reports in which the borrower had a short sale or a bankruptcy within the last two years and still have a 680 credit score.




2. Investors who have more than 10 financed homes, and they want to buy more.  No slight against investors but I’m not concerned. Fannie Mae, Freddie Mac, FHA, VA, and USDA are there to help families buy a home to live in.




3. Self-employed people who are no longer allowed to lie about their income.  I realize “lie” is a very strong word but that’s the best description as to how the Stated Income loans were used in the past.  I have plenty of self-employed customers who can provide tax returns that demonstrate they make sufficient income.  On the other side, I frequently hear “Mike, you know how it is to be self-employed. You don’t report all your income and you overstate your expenses.”  No, I don’t know how it is.  And you can’t lie to the IRS and then get mad because a lender won’t give you a loan.  In most tax returns I have reviewed resulting in a loan denial, the business really didn’t make enough money.  The owner often focuses on the cash coming in but they don’t acknowledge the impact of offsetting expenses that reduce the take home pay.  I’ve never had a problem claiming all my expenses to run my business and still show a healthy profit – nor have dozens of self-employed people we’ve helped get approved.




4. Borrowers with absolutely no money in the bank.  In the mid 2000’s a borrower could easily move into a home with nothing out of pocket.  100% financing was widely available.  Today, there are still zero down loans available if you qualify for a VA, USDA, or WA State Bond program.  Even if you can’t fit into one of those programs, you only need 3.5% down for an FHA loan.  That is not a lot of money, and I’d argue if you can’t come up with at least $5,000 maybe you aren’t ready to purchase a home.
   

So, are 30% of home loan applicants being turned down?  I’m not seeing those kinds of numbers, but I’ll finish with a message to all those banks that are turning down 30% of their applications – please send them my way!  I’m sure we can turn at least some of those into approved loans.

Credits monitoring services, credit score providers, and fraud alert systems have boomed in the last few years. While I think paying for a legitimate credit monitoring service has some merit, paying for your credit score is a waste of time and what you get won’t be what you think it is.

Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires the newly created Consumer Financial Protection Bureau (CFPB) to study and report to Congress the differences between credit scores sold to creditors (lenders) and consumers (you), and whether these variances are detrimental to consumers. I’m sorely disappointed our taxpayer dollars were wasted on something like this when a Google search on the topic of “FICO scores,” or “credit scores” will tell you everything you need to know.

I’ll condense the whole report in one line for you – the credit score you purchase online is not the same score I will get when I order a score on your behalf (except by accident); therefore there is no reason for you to order one yourself.

Why are there so many different versions of your credit score?

• While FICO is a brand that has upwards of 90% of the scoring market either directly or by licensing its scoring model to other entities under their own brand, there are in fact other companies offering similar credit scoring engines.
• Just within the FICO company’s offerings there are different generations of models in use.
• The auto loan industry, credit card companies, and home loan lenders all use different scoring models.
• Data inconsistency. If one lender orders a credit report for you and omits your middle name and then I order a report using your middle name we may very well get different results. If your report is pulled on Monday, and then your Visa company reports an updated higher account balance to the bureaus on Tuesday, your score will be lower when I order your report on Wednesday.

The credit vendors are prolific with their spam emails and pop up online ads in an effort to sell you a credit score. If you do order one, just realize it is a meaningless number.

Don’t get me wrong, your credit history and the resulting score are critically important regardless the type of home loan you are applying for. Conventional Fannie and Freddie loans, FHA home loans, VA loan, and USDA Rural home loans all require you to have a particular score.

What’s more important is that you monitor your accounts frequently and take advantage of the free credit history you can get yearly from www.annualcreditreport.com. I monitor my own credit cards online on a weekly basis and just two weeks ago discovered my card information had been stolen somehow. Visa was very helpful in reversing the fraudulent charges but I had to cancel the card and order a new one. The Visa rep told me that most consumers don’t even notice fraudulent charges for almost 60 days in most cases, and it’s much harder to clean up the mess by that point.

If you’d like a copy of the full 22 page report the CFPB sent to Congress, just email your request to mmullin@theloanconsultant.com, and I’ll send you a copy.

If you’ve not been able to refinance your loan to a better interest rate, or you’ve just been waiting for the right time, you need to pay attention in the coming days.  Home owners in Washington and California are likely to see an unprecedented opportunity to refinance their home loans.

There’s a growing buzz that President Obama is going to announce a new mortgage relief refinance program during his speech scheduled for next Thursday evening, September 8.

Why the big focus on helping you refinance into a lower interest rate mortgage?  It’s about the only immediate way to put cash in your hands that you will hopefully spend, thus stimulating the economy. 

If you can save $200 a month on your mortgage payment that’s the equivalent to a 6% pay raise if you’re earning $40,000 a year.  We’ve recently helped a family in California reduce their mortgage payment by $340, and they had just refinanced a little over a year ago!

Regardless the President’s new initiative, we already have a great mortgage relief refinance program in place.  The Making Homes Affordable refinance program (HARP) already allows eligible Spokane area home owners to refinance their existing mortgage balance up to 125% of the home’s value.

 I’m not sure the current program can be expanded enough that it makes a significant difference.  A quick Google search turned up numerous articles on Obama’s refinance program and I’ve lifted some choice sections from a Reuters.comarticle.

“The refinancing initiative would allow certain borrowers to refinance loans that are backed by government-owned Fannie Mae and Freddie Mac or the Federal Housing Administration.”  I’m not sure why that’s news – this can already be done.  The Home Affordable Refinance Program covers conventional loans and FHA has its own Streamline Refinance program.

“…allowing borrowers to refinance even if they owe a significant amount above their property’s current value.”  We can do that too.  However, if the current limit of 125% of the home’s value was lifted and  was made unlimited you’d probably get a rush of refinance applications from home owners in CA, NV, AZ, and FL.

Considering how important states like CA and FL (in particular) are to the economic health of the entire county, lowering the mortgage payments for home owners in those states could have a decent impact.

“While the administration is under pressure to firm up the details, it is not yet clear whether borrowers seeking to take out a loan that is more than 80 percent of the value of the home would qualify for refinancing.”  I wish reporters would consult industry professionals before they rushed to print!

You already CAN refinance a loan that is more than 80% of the home’s value.  The current Homes Affordable Refinance Program already allows eligible borrowers to finance up to 125% of the home’s current value.

To be notified immediately of the opportunity to lower your mortgage interest rate, send me an email at mmullin@theloanconsultant.com and we’ll make sure to add you to the notification list.

When you call the lender advertising such a loan you will likely hear a pitch that goes something like this – “the benefit of the no cost loan is that when rates go down another 1/4% you can just refinance again!”

Sounds great but it’s an empty premise, and not based upon any sound financial analysis.

I do know of at least one person that benefits greatly from this type of loan – the loan originator and the lender they work for.

This is a great way for the loan originator to churn their client pipeline easily and profitably, earning commissions on your loan each time rates trickle down a smidgen with small benefit to you…if any.

It IS possible a no cost loan might, in fact, be the best option for you.

But that can only be determined after a detailed conversation with a mortgage professional about your financial situation, and a discussion of how long you think you’ll have the new loan.

The length of time you are likely to keep the new loan is truly the accurate method to use in determining what interest rate and cost combination best suits your needs.

Make no mistake – there is no such thing as a No Cost loan.  And it doesn’t matter if it’s a Conventional loan, FHA, VA, or a USDA Rural Housing loan.

• The mortgage originators, loan processors, Underwriters, and other employees need to be paid.
• There’s office rent and utilities to be covered.
• Then you have all the other service providers like the appraisal company, the title and escrow companies. There’s no way they are providing their product and service for “no cost.”

The costs must be paid for in some way.

Lenders will typically cover their internal overhead by charging an Origination Fee (a percentage of the amount you borrow), or as a flat fee. The flat fee will typically be labeled as an Underwriting Fee, a Doc Preparation Fee, or Admin Fee.

Property valuation reports are produced by independent appraisers – they are not employees of the lender – and appraisal costs can run anywhere from about $400 to $600.

The Title and Escrow companies collect fees that are on a sliding scale based upon how much money you borrow. The fees increase as your loan amount increases. That makes it difficult to provide a range in an article like this, but typical fees would be in the $1,000 to $1,200 range for refinancing a $200,000 loan. If you are buying a home the fees will be a little higher because there is an additional title policy required.

I haven’t even touched on all the other costs that might apply to your particular refinance or purchase scenario. There might be an inspection fee for the property, and you could have septic and/or water tests completed. Then there are recording fees charged by every county recorder’s office.

Just a very rough estimate is that there is $2,000 to $3,000 in real costs in EVERY home loan – and that’s ignoring the wage expense of the lender’s employees.

So how does a lender get away with advertising a “No Cost Loan?”

In a “no cost” loan scenario the lender is covering the costs by charging you a higher interest rate for the life of the loan. This might be a very good deal for you in the first couple of years, but if you keep the loan long enough the higher interest rate eventually erodes all the benefit of not having to pay costs up front.

Don’t let a lender “sell” you a program – have them analyze your specific needs and then ask them to provide 2-3 different loan options so you have all the facts so you can make an informed decision.

To find out if a “No Cost” loan is the smart choice for you, give us a call – we’d be happy to help you explore your options.

The USDA Rural Home loan program offers an incredible benefit to prospective home buyers in rural areas of Washington State.

The program offers 30 year fixed rate financing with great rates, and requires no down payment. There are income limits that can’t be exceeded, but they are very liberal and many families will have no trouble staying within the guidelines.

Effective October 1, 2011 USDA is altering how it insures its loans.

Currently, borrowers finance a 3.5% Guarantee Fee into their loan. Going forward that fee is being reduced to 2% of the loan amount, but there will be an additional annual fee of .3% This will be collected on a monthly basis with your regular mortgage payment.

The numbers sound small but it’s a pretty sizable increase in the monthly payment for a USDA Rural loan borrower. A 3.5% fee is $7,000 on a $200,000 loan which equates to about $35 in monthly payment when financed into the mortgage.

The reduced 2% fee would be $4,000 on the same loan which equates to about $20 in payment. But the .3% annual fee adds a huge $50.00 to the payment for a combined total of $70.00.

If you’d rather pay the $35 instead of $70, you need to call to get pre-approved quickly.

Following are some additional recent updates:

• Borrowers who are in a Consumer Credit Counseling (CCC) program will be eligible if they have been in CCC for at least one year, and have made the last 12 months’ payments on time. In addition, you must get written permission from the counseling agency to take on the responsibility of a home loan.

• Another obstacle we are seeing more frequently is borrowers who have been recently divorced. Even if the court ordered final divorce decree assigns the responsibility of the mortgage to the spouse who will be occupying the home, the departing spouse will still have to be able to qualify with that mortgage payment along with the new home loan.Why? That’s not fair, is it!?It might not feel that way but you signed a contract with a lender and the court can’t release you from that liability. In most cases the only way to get off that loan is to have your spouse refinance the loan into their name only – if they can.

• Properties with non-farm related accessory units – like a granny flat – are now eligible for a USDA Rural Home loan. This was a major revision as many lenders rejected any loan request that was secured by a property with outbuildings because USDA had not clarified its position on what was acceptable and what wasn’t.

USDA is a fantastic loan program. If you are thinking about purchasing a home in the coming months, keep the October 1 deadline in mind. It would be a shame to miss it by a week and end up paying more than was necessary.

To get started now on a USDA pre-approved loan, just complete the online application and we’ll be glad to help.

I am finding that many Spokane home owners are not being told about the Obama administration’s Making Home Affordable Refinance program.

Regardless your political views, homeowners like you are successfully using this stimulus refinance program to lower their mortgage interest rate and monthly payments.

The Making Home Affordable program:

• Allows for financing up to 125% of your home’s value.

• If your current loan does not have mortgage insurance you will not be required to purchase it even if you don’t have the required 20% equity.

• Appraisals may be waived! The appraisal is waived for eligible borrowers, saving you $400 to $500. We have successfully used this provision even with clients that DID have the 20% equity. In other words, they didn’t need the MHA program but we utilized it to save the appraisal fee!!

 Determining your eligibility is simple:

• Your loan must be owned by Fannie Mae or Freddie Mac. We can show you how to find out if either agency owns your loan.

• You must have made all payments within 30 days of the due date during the last 12 months.

• The new loan can’t exceed 125% of the home’s current value.

• The new loan cannot be used to pay off a second mortgage or to take cash out.

I’ve been surprised at how little attention this program has received and suspect it’s due to the “special” nature of the program. The lender needs to be current on their guidelines to understand the nuances of how to get these loans approved and closed.

To find out if the Fannie or Freddie Home Affordable Refinance program can help you lower your mortgage payments call 509-252-9151. Either Rebecca or I will pick up the phone and we would be honored to help. You will work directly with the two of us – I am the Branch Manager and Rebecca is the Branch Processor.

Disclaimer – I am not an attorney and have not spoken to any of the parties in this story. All information was assembled from a simple, but careful, Google search of the topic matter.  A variety of sources was utilized including ABC News, Huffpost blog, and Wink News Now.  The various sites do not agree on all the details so take that into consideration when reading.

We’ve all read and heard about people falling on hard times and losing their homes to foreclosure but did you realize the same laws can be used against the lenders?

Bank of America attempted to foreclose on a home owned by Warren and Maureen Nyerges of Golden Gate Estates in Naples. This was a shock to the Nyerges because they had no mortgage on their home.  They had paid cash.  And they bought it directly from Bank of America.

After a few months Bank of America realized their mistake and ceased the foreclosure proceedings.  However, they unwisely chose to ignore a judge’s finding for the Nyerges that BofA must reimburse them for their legal costs incurred while challenging the unlawful foreclosure.

The Nyerges’ attorney chased after BofA with phone calls to branch managers and certified letters to BofA’s President and legal counsel.  No response from BofA.

So the Nyerges went back to court and got a “writ of execution” which gave them the legal right to seize bank assets to compensate them for their attorney’s fees from the previous judgment.  They could foreclose on the bank!

On June 3, the Nyerges along with sheriff’s deputies and a moving van arrived at the local BofA branch.  Wouldn’t you have loved to be there to watch?  The branch manager was informed he could write a check or the movers would start taking the branch furniture, computers and cash!

According to the story, sheriff’s deputies were held at bay for an entire hour until the branch manager finally wrote a check.  Presumably it took that long to get authorization from senior management.  The dilemma they faced, and the same excuse most businesses use when trying to avoid paying a claim, is that payment would set precedence and admit wrongdoing in the first case.  On the other hand they knew the sheriff’s deputies had the right to remove the branch assets and that would have been a disaster.  Can you imagine the patience of those deputies?  I’m sure they were ready to start handcuffing people for wasting their time.

How much was the check that needed to be written?  $2,500 (another source says the amount was $5,700 but does it really matter?).

There are lots of really wrong things going on this case, least of which is a bank of BoA’s stature ignoring a lawful judgment. I’m surprised the judge in the initial case wasn’t so insulted that he didn’t issue a contempt of court citation.  What angers me is that our tax dollars were wasted as the two deputies had to stand around waiting to collect on a lawfully issued judgment from a bank that took our tax dollars a few years ago (along with many other banks) to bail them out.

Why did BofA even begin the foreclosure proceedings?  Hard to say what excuse they can have since title records for properties are public record and pretty easily accessible.  Bank of America did foreclose on the previous homeowners but the Nyerges bought the home with cash directly from BofA.  I’ve got to think that somewhere in BofA’s computer system and legal offices there is a record of that transaction.

While researching this article  I found another story in which a judge in Atlanta has scheduled a June 28 hearing in which a local BofA branch manager faces ARREST and JAIL for being in contempt of a previous city finding that a foreclosed home owned by BofA is an eyesore and must be torn down.  JAIL!!  In that case I actually feel sorry for that poor branch manager because he has nothing to do with BofA’s home loan operations. Hope they send him a good attorney!

The Spokane WA area is home to Fairchild Air Force Base, and we have many active and retired military members living in and relocating to Airway Heights, and the surrounding communities.  Affordable relocation housing is abundant in the area and a VA home loan is the perfect program for qualified military members.

There are a number of units serving at Fairchild Airforce Base and I’ve had the honor to be trained by the incredible young men serving as SERE (Survival, Evasion, Resistance, and Escape) instructors at the Survival School through my volunteer activities with the Inland Northwest Search and Rescue team.

Thankfully, we only get the “Survival” part of the training!

In this article I’ll discuss what role the VA plays in a VA guaranteed mortgage, the benefits of a VA home loan, who is eligible for a VA loan, and the documentation you will need to present to your lender in order to apply.

A VA (Veterans Administration) guaranteed home loan is the preferred loan program for active, non-active, Reserve, National Guard, and retired military of the armed forces primarily because there is no down payment needed and no private monthly mortgage insurance required.

VA mortgage loans can be used towards purchasing a home, building a home, or refinancing an existing mortgage.

Did you know that more than 27 million veterans and service personnel are eligible for VA financing, yet many aren’t aware it may be possible for them to buy homes again with VA financing using remaining or restored loan entitlement?

VA Does Not Offer Loans Directly and Does Not Guaranty You Will Qualify.

The VA does not actually lend the money to you directly. They offer a guaranty to a lender that if you should default on the loan, they will pay the lender a percentage of the loan balance to cover their loss.

*The word GUARANTY does not actually guarantee the veteran will qualify for a VA home loan.

Primary Benefits of a VA Mortgage:

• 100% financing
• No monthly private mortgage insurance is required
• There is a limitation on buyers’ closing costs
• The loan is assumable, subject to VA approval of the assumer’s credit
• 30,20, and 15 year fixed loan options; 3/1 and 5/1 ARM loan options
• Seller can pay up to 4% of the veteran’s closing costs and even pay down the veteran’s buyer’s debt to help qualify for the loan
• Interest rates are similar to FHA home loan rates and conventional home loan rates
• You don’t need perfect credit

Frequently Asked Questions:

Q: My parent is a veteran. Can I obtain a VA loan if I have not served in the military myself?

No, the VA loan benefit does not extend to a veteran’s children.

Q: What is required to prove my record of military service?

You will be required to use Standard Form 180, Request Pertaining to Military Records, to apply for proof of military service.

Q: My spouse who has passed away was an eligible veteran. Am I eligible for the home loan benefit myself?

A surviving spouse is eligible if they have not remarried, and the eligible veteran died during active duty service or as a result of a service-related disability.

Q: Is a VA loan better than a conventional mortgage?

In many cases, yes. VA guaranteed loans require less down payment than conventional mortgages, they do not require monthly private mortgage insurance when borrowing more than 80% of a home’s value, and they can be easier to get approved for.  However, if you do have 20% for a down payment you will want to ask your lender to compare the VA loan to a Conventional loan as well.

Q: How long does it take to get approved for a VA loan?

It varies depending on the current workload of your lender, but it is typically the same as for conventional mortgages – 2 weeks to 30 days.  If you apply with us I can give you a much better estimate once we’ve reviewed you particular situation.

If you are anticipating relocation to Spokane WA, Airway Heights, or Fairchild Air Force Base, just give us a call at 509-252-9151.  If you are out of the area but still in Washington or California we’d be honored to help.

If a VA guaranteed mortgage is not the right loan for you we can look at the USDA Rural, FHA home loan, or a Conventional loan as well.

The current cost is calculated at .90% of the loan amount, divided by 12 to arrive at a monthly payment amount.  The new mortgage insurance premium will be 1.15% of the loan amount.

That may not sound like a big difference but let’s look at an example – if you are borrowing $200,000 and using an FHA home loan then the monthly mortgage insurance premium under the old calculation would be $150 per month and under the new formula that monthly payment will jump to $192.

How do you avoid paying the higher insurance premium?

You need to be in contract to purchase a home no later than Friday April 15.  But wait! The insurance doesn’t go up until Monday April 18.  That’s correct – but why wait until the last minute and then find out your lender can’t get the property address and your information loaded into FHA’s system on time?

If the Loan Processor hasn’t ordered the FHA Case ID (that’s the technical term for what needs to happen by the 18th) before end of business on Monday then you’ll be paying that higher rate.

Why is FHA increasing its mortgage insurance premium?

A common myth is that FHA makes home loans.  They don’t.  What FHA does is provide your lender with a guarantee they won’t take a loss if you default on the home loan.  Losses on FHA loans are paid out of an insurance pool of money that is funded by borrowers using the FHA home loan program.

If losses are less than expected then FHA can lower their insurance premiums.  If losses are increasing, as they are now, then FHA raises its insurance premiums to ensure the fund is sufficient to cover anticipated losses.

To find out if a FHA home loan is the best option for financing your home, just give us a call at 509-252-9151

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