The IRS 4506 is an IRS form used to request a copy of your tax transcripts from the IRS. Mortgage lenders now require a borrower to sign a 4506 to get a loan. It is an anti-fraud measure and data gathering step. And it can cause problems… Read More
401(k) loan to buy a house? Is it a good idea to borrow against your 401(k) to get the down payment to buy a home? If your employer allows you to borrow from your 401(k) plan, and most do, you can take the lesser of 50% of your vested balance or $50,000. The typical repayment term is five to fifteen years. Read More
Mortgage volume ebbs and flows like a tsunami. Sometimes it comes rushing in and business gets heavy and underwriting turn times swell to 2 weeks from 3 days! And then the tide of business eerily rolls back out to sea, and underwriting turn times get normal again.
Can you use an alternative credit history to help qualify for a mortgage? Banks typically want you to have to have at least four pieces of credit. Sometimes when I pull a credit report for a first time home buyer or a younger person, I see a credit report with one credit card on it, and on occasion nothing at all. Some people only use checks, cash and debit cards to pay for things. Without a credit history comprised of at least four different pieces of credit, it may be difficult to get a loan.
Apparently banks want to see more numerous items of credit history, to feel comfortable extending a large piece of credit (like a mortgage).
However, there is a solution. Banks will allow you to build an alternative credit history. This means that we can show them a 12 month (at least, or you can show a longer history if it exists) credit history of things that normally do not show up on a credit report. Read More
I hope you are not getting tired of blog posts about foolish decisions by banks and underwriters. That topic seems to be taking over the content here on my blog because, well, that is what is taking over the mortgage industry! Read More
When you’re ready to buy a new home, one of the first things you have to do is take steps to get your financing in place. Mortgage approval is based in part on an automated underwriting process. It is beneficial to get a pre-approval letter from a mortgage lender before you even make an offer. Having your loan pre-approved can show a seller you are a serious buyer with adequate funds. You can also reduce the risk of the contract falling through.
Lenders typically use one of two underwriting processes for mortgage loans: automated and manual. Understanding the basics of how these types of loan approval work can give you confidence when applying for your mortgage. Read More
I always hear how people miss the good old days. I am not sure I do. I prefer progress. But lately, the mortgage industry has been regressing. And I would say that we have not been making progress. We have actually been going backwards. It seems the mortgage process has swung from too easy, to too strict, and now to downright ludicrous. There is nothing that Fannie Mae wants undocumented that is related to a mortgage borrower’s finances. And I mean that literally. So I understand when someone says to me the following, Read More
What in the whole wide universe is a Change of Circumstance form? It sounds like the most bureaucratic and needless document ever. As part of recent RESPA law changes we now have to issue a mortgage borrower a Change of Circumstance form any time we make a change. Read More
Choosing the best contractors for home renovation projects is complicated. Below is a true story that illustrates why it is so crucial to carefully choose contractors to do work on your home. Advice: do NOT shop solely by price. Shopping solely or even mostly on price is what gets consumers into most of the trouble they get into with services or products.
SPRING 2009: A client contacted me for a $40,000 Home Equity Line Of Credit (HELOC) for renovations to his home. I gave him some advice on how to secure the best HELOC at another bank, as I did not have any good source for them at that time. Below was an update from him a few months later:
“The home equity option did not work for us. And our contractor owes us a significant amount of money on a botched home extension project. While we have some legal recourse, it will still take significant, immediate financial resources for us to complete the unfinished construction project. We are left with no choice but to decrease significant monthly expenditures to obtain the funds needed to complete construction. I want to talk about a 30 Year Fixed Rate refinance, which will save us money since we are now on a 15 Year Fixed Rate on our primary mortgage” Read More
It seems we are still in a banking environment where no one cares about debt-to-income ratios (DTI), which is astonishing. Isn’t this one of the things that got us in trouble in the first place? Read More
It used to be that when I was qualifying a mortgage borrower and they told me that their student loans were deferred, I could normally count on not using that debt against them in their debt ratios. However, as we all know underwriting guidelines are stricter these days. Now deferred student loans still have to be counted against mortgage borrowers’ debt ratios, even when no payments are being made and they are in deferred status.
Deferred Student Loans Now Count! It used to be that student loans that were deferred 3 years or more did not count against you in your debt ratios. Not anymore… Read More
What are Desktop Underwriting debt ratio rules? Desktop Underwriter is Fannie Mae’s computer-generated loan underwriting tool. Using completed loan application information, an automated underwriting systems retrieves relevant data, such as a borrower’s credit history, and arrives at a logic-based loan decision. In addition to the time savings, automated underwriting is preferred because it is based on algorithms, eliminating human bias. Freddie Mac maintains and markets a large automated underwriting engine known as Loan Prospector.
The latest version of Fannie Mae’s Desktop Underwriting System is being modified to only accept and approve loans that have a DTI (Debt-To-Income ratio) of 45% or less, with exceptions to 50% for borrowers with strong compensating factors. Assets are definitely a strong compensating factor.
FHA financing may allow for higher debt ratios. However, with HUD’s required capitalization ratio falling dangerously close to the industry minimum, they will likely follow suit.
The bottom line is to make sure homebuyers and Realtors are working with competent lenders who are versed in changes like these prior to shopping for a home.
I heard two things today from two separate underwriters that was infuriating. Neither of them made any common sense. Do mortgage underwriters use common sense?
The first one had to do with an appraisal that was done for a refinance and the appraisal value came in low. I worked up an “appraisal challenge” and sent in 4 new comparable properties as well as my reasoning behind why I thought the original appraisal showed a mistaken value. I clearly had good comps that supported a higher value, and I had two pages of narrative to explain why. The underwriter called me and told me I was wasting my time, and that no appraisal challenge would ever be victorious, and that a lowball appraisal value would never be overturned. Read More
Does it really help to have a cosigner for your loan? Some people think that getting a cosigner on a mortgage loan is a cure-all, and will automatically make someone qualify for the loan they seek. This is not so. Read More
Do not shoot the messenger. It is a fun cliche, is it not? However, it is more than a cliche. It is truth. Why do so many of us act like three year old children when given news we do not like? The mortgage industry is currently full of messengers and full of hard news to deliver. The news is usually fairly innocuous. But people do not take it that way. Below are some examples where the response I hear from people leaves me puzzled. Read More
I feel like I am drowning in rules! Save yourself…go on without me! I may make light of the Feds and the banking industry and their arcane rules a bit too much. But now they really deserve it. Now they have gone too far. I have witnessed bureaucratic insanity on such an unreal scale, I am not sure you will believe me.
Having an existing home equity or 2nd trust line can cause a problem when refinancing your mortgage. Unless you are closing the equity line/2nd trust and paying it off by wrapping it into the new loan amount, keeping your equity line/2nd trust could cause a problem in several ways. Read More
FHA now allows private appraisers to do FHA appraisals, this solved much of the old repair problems where FHA staff appraisers would require numerous repairs to the house before allowing the loan to fund. And, with FHA, lenders are still allowed to use their own appraiser as opposed to a Conventional loan where the bank’s random choice of appraiser is used. Sellers and Realtors should find this attractive, since the new appraisal ordering system for Conventional loans has become a nightmare. Click here for more information on this issue. Read More
Think about solar panels and mortgages when applying for your loan. The popularity of electric cars and solar panels is increasing. It’s important to point out that having solar panels on your house may impact your ability to get a mortgage. Many times, buying solar panels will be financed. And that is when they have an impact on your ability to purchase or refinance a mortgage. Read More
I often have people ask me if they can lend their son or daughter money instead of giving it as a down payment gift. Or some want to lend the money and then forgive the loan over time to avoid the gift tax. It seems many want to help their family but avoid taxes while they do it.
First, from an underwriting and mortgage guideline standpoint, this is not an option. Read More
It seems mortgage rules change frequently, below is the latest on down payment requirements. (UPDATED 11-04-2018)
For a primary residence you need a down payment of: Read More
When customer service goes wrong, it should be made public, shouldn’t it? Especially if it involves sloppy work habits! Read More
It’s not our fault! It is time I pull the curtain aside from the real villain in the mortgage industry, Fannie Mae and Freddie Mac! I know people like to bash individual lenders or even the mortgage underwriter assigned to their file. But they are only following the guidelines of Fannie Mae and Freddie Mac. Read More
A low credit score can be caused by several factors. The way they rate your credit used to be as simple as ‘have you made any late payments or not’. Now they go much deeper.
Mortgage debt ratios are what banks use to qualify a mortgage borrower. Your debt ratio is what percentage of your gross income a bank will allow you to spend on a new mortgage combined with your existing debts. However, if you are self-employed they use net income.
What is mortgage seasoning? Is it a spice? Believe it or not the word “seasoning” does come into use in the mortgage world. Seasoning means the length of time a homeowner has owned their home and paid on their mortgage. If you bought your house one year ago, you have ‘one year seasoning’.
This is important when you buy a house and want to refinance it quickly.
Some people want to refinance quickly because interest rates have dropped far enough below the interest rate they got when they bought the house that refinancing will save them a lot of money. And others want to refinance quickly after settlement to pull some ‘cash out’ of their home for repairs or renovations.
If you do not have at least six months seasoning you can still refinance, but you will not be able to use the increased appraised value in less than six months. In other words, to base your refinance on an increased appraised value, you can’t use the higher value until six months has elapsed (also known as six months seasoning).
On January 1, 2009 a new home was purchased for $500,000. Renovations were completed by March 2009 in three months time, and the renovations cost $200,000 and the home will now appraise for $800,000. But since only three months has elapsed, you cannot base your refinance on the new, higher appraised value of $800,000.
You can still refinance, but most lenders will base the value not on a recent appraisal, but on the acquisition cost plus documented receipts for all of the renovations. So in the above example, the refinance would be based on the $500,000 acquisition cost plus $200,000 renovations costs, or $700,000. When six months has elapsed, you would be able to use the appraised value of $800,000.
In the above example, if the homeowner wanted to take some cash out to recoup their renovation costs, they would recoup less cash due to using a lower appraisal valuation. Or they could wait until six months from the date of purchase, and then be eligible to use the higher appraised value.
And, in another example of “seasoning”, if you have your home listed for sale, you won’t be able to refinance. Mortgage lenders expect loans to last for a certain period of time, they don’t want to make short term loans, they want to lend to people who appear that they will own the property for a while. Lenders make money from servicing loans. When you put your home on the market, you’re signaling that you really want to sell.
If you take the home off the market, that signals your intentions are to stay, and a lender will refinance your loan. Properties listed for sale in the 6 months preceding the application date for new financing are limited to 70% Loan-To-Value though, So, to recap, if your home is on the market for sale, you cannot refinance. If it is off the market, even for just 1 day, you can refinance.
Loans aren’t immediately profitable for lenders. They have to be held for a period of time to become profitable. That’s why lenders want to be sure you’ll be in your home for a certain period of time.
New rules on top of more new rules! Back in May of 2009 there were the HVCC rules created (discussed in a previous post in this blog if you care to search for it), that caused changes in the way appraisals were ordered.
As of July 30th, 2009 there is now the Mortgage Disclosure Improvement Act (MDIA) which is an amendment to the Truth in Lending Act.
These changes now require lenders to provide consumers “early disclosure” of good faith estimates of mortgage loan costs and a minimum seven-day waiting period between disclosure and closing.
The new requirements also say that if the Annual Percentage Rate (APR) goes up or down later in the transaction by more than 1/8%, there must be an additional three business days before closing a loan transaction. This has forced lenders to scramble when a loan starts to contact the title attorney being used for the settlement, to get their exact costs. Waiting for this is time the lender could use to order the appraisal, which is always the slowest part of the process.But, MDIA says the lender cannot order the appraisal until three business days after the initial disclosures are received by the borrower.
There is very little room for error in estimating costs. This will put a lot of strain on a transaction if there is a change in costs that is out of the lender’s control that changes the APR by more than 1/8%, it will possibly cause a delay in settlement. Read More
Now you need more cash reserves! Break open the piggy bank! Freddie Mac now wants to see a mortgage borrower have even more cash reserves that ever before. Cash reserves is Read More
Hi, it is Brian Martucci doing a video blog from the beach. I am in Manhattan Beach, California. Take a look. Beautiful, is it not? So, today I want to do a video blog about occupancy fraud. By occupancy fraud I mean somebody that says that they’re going to live in a property as their primary residence when they really have no intention to live in the property as their primary residence. They really are going to rent it as a rental property.
Why do people do this and say that they’re going to live there when they are not? They do it because they will get a lower interest rate Read More
When a buyer and seller are negotiating over the sale of a home sometimes the buyer indicates they would like to have certain personal property from the home. The seller is OK with that either due to not wanting those items, or wanting the buyer to have them to help facilitate the sale.
There seems to be Private Mortgage Insurance confusion. Getting a Conventional loan with less than a 20% down payment means paying Private Mortgage Insurance (PMI). And you should be aware that getting PMI has become much more complicated and more difficult.
It is almost impossible to get PMI for a 95% loan is most of the Washington DC Metro area, since most of DC is considered a “declining market”. You would likely have to have 10% down payment in the Washington DC area for a mortgage loan. Read More
I have clients who are buying a rental property or who are buying a primary residence and already own rental property. And they think they need to provide a copy of a current lease for the rental property as part of the loan application. But, that is not always the case. Read More
Refinancing should be easy, right? If you have been making your payments on time on a higher rate, why wouldn’t someone refinance you to a lower rate? Your payments are on time, so who cares about the rest? Read More
Rough day? I had an experience recently I’d like to share. It will help people understand why underwriters are so rigid in requiring what Fannie Mae mandates. And why they require it to be submitted prior to closing, with no excuses. This is important because there are times where an underwriter requires some documentation that sometimes cannot be provided immediately by the client. And the client inevitably asks why can’t I send it in after closing.
I am sure it has happened to many readers or to someone you know…a mortgage settlement gets delayed or occurs several hours late! And it is customary to blame the mortgage lender, because after all, settlement had been scheduled for weeks and weeks. How could the settlement be delayed when we all knew for so long what the target settlement date was??
Here is the truth about delayed settlements, it is everyone’s fault, the lender, the seller, the buyer, the Realtors, the appraiser, etc. Read More
When you refinance your existing mortgage, if you have a home equity line or 2nd trust, the new bank will want a subordination agreement. What is this? Is a subordination agreement some sort of mortgage gibberish, or something that is really needed? Read More
Ever get a surprise you did not want, like surprise loan approval conditions? Chances are you have if you have gotten a mortgage in the last 3 years. Read More
It may seem odd that someone in the mortgage business wants to discuss how to help consumers find the best mortgage lenders. People search for mortgage providers every day without the benefit of professional help. So, I figured why not help people whether they find their way to me or someone else? Below I’ve listed the most important mortgage questions that you need to ask before you apply for a mortgage loan. Read More
I had to trick an underwriter the other day. I am not losing sleep over it. It is a great story and one worth retelling so that others may use this trick. Read More
Underwriters Know How To Use Google? After 24 years in the mortgage business I have seen every mortgage scam, and been approached about every way to cut a corner, get a better deal, or pull one over on an underwriter. Read More
Underwriting – The Dumb Rules Club. I usually have to wait a month or so to blog about another hard to believe underwriter request. But I find myself writing about such an underwriter request only a week after I last wrote about this very topic. Read More
Every now and again I like to share a story where an underwriter has lost their mind, and gone way too far in questioning a loan. I have a doozy I’d like to share. I have seen some idiotic loan approval conditions, but this recent situation was a bit much. Read More
Unreimbursed Business Expenses (UBE) is one of the newest issues to trip people up on mortgage applications. Fannie Mae and Freddie Mac have really cracked down on enforcing that lenders deduct any UBE from a mortgage borrower’s income. UBE are expenses that an employee pays that their employer does not pay and also does not reimburse them for. So if you tell me you earn $100,000 a year, Read More
You have a down payment saved up, a good credit score, and a low debt to income ratio. It is time to buy your dream home. However, something prevents you from buying the home. What can stop you from buying a house? In this article we will explore some common obstacles and how you can overcome them.
Most people do not know what it means to co-sign a mortgage. Some people think it’s a curse, and some think it’s no big deal. The truth is somewhere in between. Read More
LoanSafe attempts to find mortgage fraud for lenders. One of the most interesting thing it checks is to see if a mortgage borrower has any interest in any other property. This way an underwriter can check and see if a borrower owns other property they did not disclose, or rents another property. Or maybe a borrower is a partial owner in another property.
The service checks numerous databases to see if your name is associated with other property. If so, you have to explain and potentially document it. The underwriters and lenders want to make sure you do not have any other debt obligations that you are not disclosing that might affect your debt ratios negatively.
The service also checks for things related to undisclosed debts, employment issues, your identity, fraud, and more. The company website for this LoanSafe service says the following:
“LoanSafe Fraud Manager uses patented predictive-analytics scoring technology. It exposes suspicious mortgage loans at the application stage, enabling lenders, investors and servicers to quickly identify each loan’s fraud risk.”
I will describe my own personal experience with this LoanSafe service. I got a loan recently for a place I purchased in Washington DC. What they found, how far they dug back, and what I had to document was unreal. When they say LoanSafe attempts to find mortgage fraud, they are not kidding!
My name was associated with on South Lee Street in Alexandria. It was a street I had never heard of. I explained I had lived on a North Union Street in Alexandria, but never South Lee Street. It took me a week of thinking and head banging to think of it, and the answer finally hit me. The North Union Street was an address I rented with an ex-girlfriend. She must have moved into her new place on South Lee Street in the same area, and simply transferred our old utility accounts to her new place rather than setting up new accounts in her name alone. It was all fine in the end, we are on good terms, and I got the explanation I needed, but this was going to hold me up if I did not come up with a good answer.
They then questioned me as to why my name was associated with my father’s address in MD. I quickly remembered that I had registered a car there in his name before and never changed it. So I was able to assure them that I did not own my father’s house in MD.
Last, they found several addresses from CA that I used to rent places at, and I had to show leases and show that those were former rentals, and that I was not currently incurring any debt on those.
I found all this to be a bit much, but understand it in light of the losses the industry has taken. But now they have gone all the way in the other direction. So people who are qualified to buy now have to go under heavier scrutiny to pay for the sins of those that have come before us, and defaulted.
Remember these stories and how they may apply to you when you next get a mortgage.
To contact me to discuss your mortgage scenario, mortgage rates, or other mortgage questions, click here to schedule a call or you can email me directly.
When is an mortgage loan approval letter really an approval letter? Why is an approval letter not an approval letter, but it’s really a conditional approval letter? Is this a semantics discussion only? Either way, this matters more than you know. Read More
Getting a mortgage when self employed can be tricky. If you own a business and have a loan for it, and you are planning on buying a home, you might be wondering if the business loan will affect getting a mortgage. A business loan can impact your credit score. And if you are the sole proprietor of the business and take out the business loan in your name instead of the business’ name, that may cause issues.
