The FHA Loan

2011-05-18T08:03:00.002-04:00

Thinking about buying a home? Time to get off the fence. The Department of Housing and Urban Development is strapped for cash these days due to the high record of foreclosures and the result is an increase in Mortgage Insurance MI). On April 18, 2011 the almighty MI increased yet again to 1.15, from .9.

If you think you've seen the end of this increase, then you must think we've seen the end of foreclosures. Remember mortgage insurance is how HUD finances the FHA loan and in order to continue with this program they will continue to adjust MI as needed.

So get off the fence. If you think you want to purchase a home, now is the time, before MI rises yet again.

FHA Changes Mortgage Insurance Premium

2010-10-03T09:50:00.004-04:00

Hold on to your seat. Effective October 4, 2010 the Federal Housing Administration will be shaving it's upfront premium down to 1% of the the base loan amount, instead of 2.25%. Sounds good? Not so fast. With the recent popularity of the FHA loan--a government insured loan--there have been some "liquid" challenges that have come into play with the plethora of foreclosures. The goal here is to insure that the government can continue lending by beefing up their reserve account that pays the lender in case of loss. This will come with the new +.9% for the annual premium.

This new Mortage Insurance change will help. In the long run it's better for FHA/HUD and worse for a buyer if they keep their loan for more than three years. Let's lay this out so you can understand it more clearly. If a buyer purchases a house for $200,000 and puts 3.5% down, they will only pay $1,930 upfront, but their monthly MI will be a different story--try $144.75 per month instead of the comfortable $88.50. Using these same numbers watch what happens over time:

As you can see by year four FHA gets the upper hand in the MI game--what would have in the past cost $8,588 now will have a cumulative cost of $8,878 with the new MI schedule. The fact of the matter here is that most homeowners keep their mortgages for more than four years. Today the rates are so low there is no justification to refinance the loan.

This is not the end of the changes. There are still more under consideration on the white board in Washington. Stay tuned.

FHA Changes Upfront MIP from 1.75% to 2.25%

2010-01-27T16:42:00.004-05:00

Let's not get it twisted. FHA has only "officially" changed their upfront MIP from 1.75% to 2.25%. Per their latest Mortgagee Letter, this change will be effective on all new case numbers on 2/5/2010. There are others changes in the works but they are on the discussion table. They include a possible decrease in allowable seller contributions from 6% to 3%. HUD is also changing their minimum credit score requirement and tweaking their required down payment. If you have less than a 580, then you will need 10% down. Greater than 580 they will still allow you to put 3.5% down. This change will not affect many of us as the average score needed by most banks (who supply the funds) is 620.

It's fair to say that we all need to hold on to our seats as more changes are on the horizon. Just remember that you must see an official mortagee letter before any changes are official. The mortgagee letter for the Flipping Rule should be out on 2/1/2010. More on that in my next post.

FHA Training Class - Smyrna, GA on 1/23/2010

2010-01-05T09:31:00.008-05:00

If you are thinking of buying a home and you would like to learn more about the FHA Loan, I am giving a live training class on 1/23/2010, click here to register.

This course will get you up to speed on any changes as well as update you on FHA features such as:

- Credit Requirements
- Down Payment Options
- Property Conditions
- 203K Rehab Loan
- Common Challenges that borrowers can overcome

Changes are commonplace in this industry. If you are an real estate agent, or a consumer interested in purchasing a house soon, you do not want to miss this class!

Cost: $20

Register Here

Consumer Credit Information

2010-01-05T09:31:00.001-05:00

Major HUD/FHA Condo Lending Changes

2009-10-04T09:22:00.005-04:00

On October 1, 2009 (though there’s some talk about this being delayed for 30 days), FHA is implementing a new approval process for condominiums to be eligible for FHA financing. Under the new guidelines, the spot approval process will no longer be available, and approvals expire every two years. Click here to see a copy of the HUD Notice.

For years I have bragged on this blog about FHA being an anchor for many of us in the mortgage business. And it’s true, their guidelines rarely change, however, the new market place is forcing HUD to adjust. Even HUD is seeing a rise in foreclosures over the last 12 months and they must protect themselves. The message here, hang on to your seat. There’s more to come. So here’s the gist of the change:

Applicable to condominium developments that are:
· Proposed and Under Construction
· Existing Construction
· Condo Conversions

These projects will no longer be eligible after October 1, 2009:
· Condominium Hotels or "Condotels"
· Timeshares or Segmented Ownership Projects
· Houseboat Projects
· Multi-dwelling Unit Condominiums (More than 1 Dwelling Per Condo Unit)
· All Projects Not Deemed to be Used Primarily as Residential

Zillow® recently posted the following in regards to this new HUD rule as well:

In the past, you only needed to satisfy one of the following two criteria to finance a condo unit using FHA financing.

1.) The Condo Project has a FHA warranty - This requires the Homeowners Association of the condominium project to apply and receive a warranty on the project from the HUD.

2.) The unit must pass a questionnaire called a “Spot Check” done on an individual basis
HUD just released an announcement that they will be changing the guidelines which includes the removal of “Spot Check” approvals which means you will only be able to get a FHA loan on a condo if the project has a warranty. (Mortgage Letter 2009-19).

If you are looking to buy a condo, think twice. It’s always been a fact that condos are hard to resell. Now, with this change in financing, it will be more difficult. If you find a condo that does not have a FHA warranty and you really want to buy it, know that the new guidelines are already in affect for most lenders.

Georgia Dream Plus - For GA Residents

2009-09-12T15:46:00.002-04:00

I know that many potential homeowners are looking for down payment options. If you live in the state of GA and you are familiar with the Georgia Dream Bond program, get ready to add another program under the same Department of Community Affairs to your list of possibilities. It's called Georgia Dream Plus. It has a higher income limit of 71,000 for Atlanta metro area counties. 5,000 for dpa/closing costs. A few more items to know. 660 credit score is required and you must have $1000 in the transaction. You will find more information on this program and other DCA programs by going to www.dcaloans.com.

FHA and the 90 Day Rule

2009-07-16T14:07:00.004-04:00

Hear ye, everyone that is interested in purchasing a home in 2009. Your seller must hold title for 90 days. There is no way around this requirement UNLESS the seller is a bank.

It seems that every other week, those of us in Mortgage Land, we run into this situation.

Agents, check the date of sale on the property that you are showing your FHA borrower (and by the way that's almost everyone). Also, make sure you date your contracts appropriately.

Let this be a warning to flippers. You must find a buyer who can go Conventional. And here's another small notice--oftentimes, lenders want 2 appraisals, especially if there is a big price difference between what you purchased the home for and what you're now trying to sell if for.

FHA 203K Loan - What is it all about?

2009-07-02T18:31:00.002-04:00

Gabcast! The FHA Loan: Real Life Examples #1

2009-06-12T11:14:00.001-04:00

How to Improve Your Credit Score

2009-05-27T16:27:00.000-04:00

$8000 Tax Credit Explained

2009-05-08T05:32:00.000-04:00

2 Years Seasoning Not Always Required for BK

2009-04-26T09:04:00.000-04:00

Another happy family in a home.

And so it goes once again. Last month I received a phone call from a borrower less than 2 years out of a bankruptcy (last time it was an email from a blog reader). It was an interesting situation. She had been abandoned by her husband and left to raise their 4 kids. So, I'm sure you would ask--how do you prove abandonment? Well, my smart borrower had kept an email message from her husband in 2006 that clearly proved the case.

Again, let me be clear. This is not the norm, however, I want all of my readers to know that the FHA guidelines are very clear, you are still eligible for a FHA loan if you have "extentuating circumstances beyond your control." A few things to remember:

You must have written evidence of these circumstances
You must able to show that you have re-established credit

In my borrower's case she had saved every dime she had for a home and had amassed a significant amount in her savings. She deserved a home. She had opened new tradelines that proved she could pay her bills on time.

If you are in this situation, just know to keep hope alive. There's still hope.

What Credit Score Do I need for FHA?

2009-04-02T20:11:00.000-04:00

In a blog post that I wrote in 2007, I stated very clearly that FHA has no credit score requirement. The problem is, the banks that must approve the loans want to curb their defaults. As it was explained to me by one mortgage company executive, "We comb the loans that we have approved over the past few years, assessing where the majority of our failures are coming from. In our case, less than 600 FICOs seem to lead the pack."

That was 2007. Today the bar has been raised. Most banks want to see a 620 score or they will not lock and approve the loans. Are there exceptions to this rule? Sure, but they are far and few between. Will it ever loosen up? Not as long as we continue to see record number of foreclosures.

For borrowers with less than a 620, I suggest you work with a lender who has a "Credit Rescoring" tool available to them. Start early by ordering your credit report so that you know what you need to do in order to improve your score. This is the first step.

For in 2009, credit is king!

Hope for Homeowners

2009-02-22T17:42:00.001-05:00

I want to be fair here. A few weeks ago, I posted a less than flattering article on the Hope for Homeowners program. Now I want to give everyone a chance to listen to a short snippet from Fox News. I thought the interviewer should have been more aggressive in his questioning. After all we know that the number of homeowners that this program has helped has been extremely small. If not 83 people exact, it's some small number. It proves the program is not working.

But...maybe there's hope after all. Time will tell.

Self-employed and the FHA Loan

2009-02-22T02:02:00.000-05:00

I've been asked to publish this again so here it is. The reference for this post is FHA's website.

RE: FHA SELF-EMPLOYED BORROWERS

A borrower with a 25 percent or greater ownership interest in a business is considered self-employed for FHA mortgage loan underwriting purposes. The following conditions apply to underwriting self-employed borrowers:

A. Minimum Length of Self-Employment. Income from self-employment is considered stable and effective if the borrower has been self-employed for two or more years. The high probability of failure during the first few years of a business makes the following requirements necessary for individuals who have been self-employed less than two years:

1. Between One and Two Years. An individual self-employed between one and two years must have at least two years of documented previous successful employment (or a combination of one year of employment and formal education or training) in the line of work in which the borrower is self-employed or in a related occupation to be eligible.

2. Less than One Year. The income from a borrower self-employed less than one year may not be considered effective income.

B. Documentation Requirements. The following documents are required from self-employed borrowers:

1. Signed and dated individual tax returns, plus all applicable schedules, for the most recent two years.
2. Signed copies of federal business income tax returns for the last two years, with all applicable schedules, if the business is a corporation, an "S" corporation, or a partnership.
3. A year-to-date profit-and-loss (P&L) statement and balance sheet.
4. A business credit report on corporations and "S" corporations.

C. Analyzing Income. The lender must establish the borrower’s earnings trend over the previous two years but may average the income over three years, if all three years’ tax returns are provided. If the borrower provides quarterly tax returns, the analysis can include income through the period covered by the tax filings. If the borrower is not subject to quarterly tax filings or does not file quarterly returns (Form IRS 1040 ES), the income shown on the P&L statement may be included in the analysis, provided the income stream based on the P&L statement is consistent with the previous years’ earnings. If the P&L statements submitted for the current year show an income stream considerably greater than what is supported by the previous years’ tax returns, the analysis of income must be predicated solely on the income verified through the tax returns. To determine if the business can be expected to continue to generate sufficient income for the borrower’s needs, lenders must analyze carefully the business’s financial strength, the source of its income, and the general economic outlook for similar businesses in the area. Annual earnings that are stable or increasing are acceptable.

Conversely, a borrower whose business shows a significant decline in income over the period analyzed is not acceptable, even if current income and debt ratios meet our guidelines.There are four basic types of business structures: sole proprietorships, corporations; limited liability ("S" corporations); and partnerships. Each type requires slightly different forms of analysis. The following provides additional information on analyzing tax returns:

1. Individual Tax Returns (IRS Form 1040). The amount shown on the IRS Form 1040 as "adjusted gross income" either must be increased or decreased, based on the lender’s analysis of the individual tax returns and any related tax schedules. Particular attention must be paid to the following:
a. Wages, Salaries, and Tips. An amount shown under this heading may indicate that the individual is a salaried employee of a corporation or has other sources of income. It also may indicate that the spouse is employed, in which case the income must be subtracted from the adjusted gross income in the analysis.
b. Business Income or Loss (from Schedule C). The sole proprietorship income calculated on Schedule C is business income. Depreciation or depletion may be added back to adjusted gross income.
c. Rents, Royalties, Partnerships, Etc. (from Schedule E). Any income received from rental properties or royalties may be used as income after adding back any depreciation shown on Schedule E.
d. Capital Gain or Loss (from Schedule D). This transaction generally occurs only one time, and it should not be considered in determining effective income. However, if the business has a constant turnover of assets resulting in gains or losses, the capital gain or loss may be considered in determining the income, provided the borrower has at least three years’ tax returns evidencing capital gains. An example includes an individual who purchases old houses, remodels them, and sells them for a profit.
e. Interest and Dividend Income (from Schedule B). This income, which is taxable and tax-exempt, may be added back to the adjusted gross income only if it has been received for the past two years and is expected to continue. (If the interest-bearing asset will be liquidated as a source of the cash investment, the lender must adjust accordingly.)
f. Farm Income or Loss (from Schedule F). Any depreciation shown on Schedule F may be added back to the adjusted gross income.
g. IRA Distributions, Pensions, Annuities, and Social Security Benefits. The non-taxable portion of these items may be added back to the adjusted gross income, if the income is expected to continue for the first three years of the mortgage.
h. Adjustments to Income. Certain adjustments to income shown on the IRS Form 1040 may be added back to the adjusted gross income. Among these adjustments are IRA and Keogh retirement deductions, penalties on early withdrawal of savings, health insurance deductions, and alimony payments.
i. Employee Business Expenses. These expenses are actual cash expenses that must be deducted from the borrower’s adjusted gross income.

2. Corporate Tax Returns (IRS Form 1120). Corporations are state-chartered businesses owned by their stockholders. Compensation to its officers, generally in proportion to the percentage of ownership, is shown on the corporate tax returns and will appear on individual tax returns. If the borrower’s percentage of ownership is not shown, it must be obtained separately from the corporation’s accountant, with evidence that the borrower has the right to those funds. Once the adjusted business income is determined, it should be multiplied by the borrower’s percentage of ownership in the business. In analyzing the corporate tax returns, lenders must adjust for the following:

a. Depreciation and Depletion. The corporation’s depreciation and depletion must be added back to after-tax income.
b. Taxable Income. Taxable income is the corporation’s net income before federal taxes. It must be reduced by the tax liability.
c. Fiscal Year vs. Calendar Year. If the corporation operates on a fiscal year that is different from the calendar year, an adjustment must be made by the lender to relate corporate income to the individual tax return.
d. Cash Withdrawals. The borrower’s withdrawal of cash from the corporation may have a severe negative impact on the corporation’s ability to continue operating.

3. "S" Corporation Tax Returns. An "S" corporation is generally a small, start-up business, with gains and losses passed on to stockholders in proportion to each stockholder’s percentage of business ownership. The income for the owners comes from W-2 wages and is taxed at the individual rate.The "compensation of officers" line on the IRS Form 1120S is transferred to the borrower’s IRS Form 1040. Both depreciation and depletion may be added back to income in proportion to the borrower’s share of income. However, income also must be deducted proportionately by the total obligations payable by the corporation in less than one year. The borrower’s withdrawal of cash from the corporation may have a severe negative impact on the corporation’s ability to continue operating and must be considered in the analysis.

4. Partnership Tax Returns. A partnership is formed when two or more individuals form a business and share in profits, losses, and responsibility for running the company. Each partner pays taxes on his or her proportionate share of the partnership’s net income. Both general and limited partnerships report income on the IRS Form 1065; this form must be reviewed by the lender to assess the viability of the business. The partner’s share of income is carried over to Schedule E of IRS Form 1040. Both depreciation and depletion may be added back to income in proportion to the borrower’s share of income. However, income also must be deducted proportionately by the total obligations payable by the partnership in less than one year. The borrower’s withdrawal of cash from the partnership may have a severe negative impact on the partnership’s ability to continue operating and must be considered in the analysis.

EMPLOYMENT BY FAMILY-OWNED BUSINESSES. Borrowers employed at businesses owned by their family member(s) are required to provide additional income documentation. These borrowers must provide the normal verification of employment, pay stubs, and evidence that they are not an owner of the business. This evidence may include copies of the borrower’s signed personal tax returns or a signed copy of the corporate tax return showing ownership percentages.

Source - www.FHA.gov

FHA and Borrowed Funds - Option 2-4

2009-02-05T03:24:00.000-05:00

Let's continue our series on acceptable sources of down payment.

Yes, it’s true, there are some acceptable circumstances where a person can borrow funds for their down payment, as well as closing costs, prepaids, and discount points. In this post, we'll highlight a few of these.

Stocks, bonds, autos, real estate (other than the subject property). Last week a client of mine needed money for a down payment. She owned her car free and clear. She took out a loan against the car and used it for a dp. Simple enough. However, this new payment must be used in the DTI calculation. When she gets her tax credit next year, she can use the funds to pay off this loan. Or, I should say, replace this loan with her tax credit obligation.

IRAs, Thrift Savings Plans, 401(k)s, & Keogh Accounts. When the funds are borrowed from these sources, we do not need to count their monthly repayment in the DTI calculation. But be careful—these funds cannot also be used as reserve funds or taken into consideration as a compensating factor to approve the loan.

FYI: Stocks and Bonds. The monthly or quarterly statement provided by the stockbroker or financial institution managing the portfolio may be used to verify the value of these securities. Actual receipt of funds must be verified and documented.

Stay tuned for more ideas on creative down payment options.

FHA Down Payment - Option 1

2009-01-17T18:25:00.000-05:00

Here's a question I get from time to time: "My borrower wants to use cash for his down payment. Will this be a problem?"

The answer to the question is, "Yes," but here's the deal. Cash saved at home (aka cash-on-hand; mattress money) can be used for their down payment and closing costs, however, a word of CAUTION -- if they DO have checking and/or savings accounts, a lender is less likely to allow money from under the mattress. I have done this before and the underwriter asked my client for a written statement stating that he did not have an account at any bank.

Be careful though. I would then ask how much money does the borrower need for a down payment. $10,000? Per the guidelines, we must determine the reasonableness that this money was judiciously saved based on the borrower's income, the period of time the funds were saved, overall spending habits, and use of financial institutions in general. We must also verify the actual money by seeing it either properly deposited into a financial account or given to the title company in anticipation of closing.

Next time we will look at another down payment option outside of the norm. Til then....

Hope for Homeowners - Part II

2009-01-02T07:54:00.000-05:00

As promised in my previous post, I will now provide you with the final two bullets published by HUD in their FACT Sheet for H4H training manual. They saved these 2 for last for a reason - they are not reasonable criteria in my mind.

In order for Congress to sign off on this program, according to the powers that be, they had to add these requirements:

Homeowners must agree to share both the equity created at the beginning of their new HOPE for Homeowners mortgage and any future appreciation in the value of their home.

To participate, existing subordinate lenders must agree to release their outstanding mortgage liens.

OK, class. I mean, really. Would anyone want to give the government 50% of your equity after 20 long years? Probably not. Is this really a fair criteria? No. I say there are more options if you need help on your mortgage due to hardship, better options that I will discuss in the next post.

As for the second lien holder. IF you participate in this program and IF you're lucky enough to have your 2nd lien holder release you from your obligation, know that you are lucky indeed. When someone in the session stood up and asked which mortgage companies were doing the latter--the FHA/HUD trainers had no response. Counselors and other participants to this training companies spoke openly about the unwillingness of lenders to approve this program.

So, as I stated in Part I--back to the drawing board. Surely there's a better solution..

FHA and Hope For Homeowners - Part I

2008-11-21T06:17:00.000-05:00

Last week I attended FHA's Hope for Homeowners training in Atlanta. I will reserve comment (if I can) for now and give you the cliff notes version that you may find useful. First off, do you remember FHA Secure? Well, it had a fixed beginning and end. H4H simply picks up where FHA Secure trails away.

FHA's desire to continue to help struggling homeowners is admirable but I believe they need to return to the drawing board on this one, call in a committee of salt-of-the-earth loan officers who talk to borrowers everyday and get the real deal on what's needed to slow down this foreclosure boom.

Here's how the program was laid out: "Under the program, borrowers having difficulties paying their mortgages will be eligible to refinance into FHA-insured mortgages they can afford. (JG-Gotta love it so far).

...cont'd: For borrowers who refinance under HOPE for Homeowners, lenders will be required to "write down" the size of the mortgage to a maximum of 90 percent of the home's new appraised value. (JG - Well, you're probably asking --which lender is going to agree to do this? Also, what about the numerous borrowers who have 1st and 2nd liens--both lien holders would have to agree to this). Here's their response: In many instances, lenders will determine that such a reduction in principal will allow them to avoid a costly foreclosure, while helping borrowers stay in their home.

I admit I like this as an option to lenders. Certainly, with the high cost of foreclosing on a property, lenders need more options. OK, so what criteria must borrowers meet in order to be eligible for this program?

Their mortgage must have originated on or before January 1, 2008
They cannot afford their current loan;
They must have made a minimum of six full payments on their existing first mortgage and did not intentionally miss mortgage payments*;
They do not own a second home;
Their mortgage debt-to-income must be at least 31 percent;
They did not knowingly or willfully provide false information to obtain the existing mortgage, and they have not been convicted of fraud in the last 10 years;
They must follow FHA's long-standing and strict policy of fully documented income and employment.

OK class, I have a problem with * for obvious reasons. Most lenders today do not want to help a homeowner unless they show evidence they are behind on their mortgage, thus confirming there is a hardship situation in play. This is reality. Also, the last bullet--if you go deeper--it was explained during the training that the borrower could not have come from a "Stated" loan program in which they falsified income. They are going back to the old loan application and comparing this to the 1040s that were submitted to the IRS. Well, let's keep it real. Stated programs did not represent the exact income of an IRS tax returns. At the time, lenders created this program so that self-employed borrowers could still buy homes. The income used on the application had to be deemed reasonable for the profession. There was a "reasonable test" administered and a salary.com system used for this. So, with this criteria, automatically you will eliminate quite a few folks.

In the next post we will discuss 2 additional criteria which are huge in my mind and thus the reason that I think FHA needs to revisit this program. We will also discuss the program timeline and the steps that a homeowner should take to participate in H4H.

Until then....

Less Than 2 Years After a Bankruptcy for FHA

2008-11-20T09:20:00.000-05:00

Never let anyone tell you, "No," when you believe in your heart there's another way. And so the story goes for one of my borrowers that closed last month (smoothly, I should add).

He had been declined by multiple lenders due to a bankruptcy that had been discharged less than two years ago. Luckily, he did not accept that. He went online and found my blog and read about a borrower that I had closed with his same profile. Sure enough, we were able to use the FHA guideline that clearly speaks to accepting an applicant less than 2 years out of BK provided they have extentuating circumstances that are beyond their control that can be documented. Also, you must be able to show current stability. With proper documentation and a clean current profile, this can be easy. And so was the case with my Borrower X last month.

There's a life lesson here we can't ignore -- Choose a positive outcome for yourself and never accept the words: It's impossible.

FHA Guideline Change You Need to Know

2008-10-07T02:39:00.000-04:00

OK, hold on to your life jackets. The Federal Housing Administration (FHA) has made an important change in their guidelines that affects us all. Feel free to read Mortgagee Letter 2008-25 but here's the gist of it.

HUD is trying to avoid a practice known as "Buy and Bail," where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage. Not good. So here's the deal going forward: If a borrower wants to hold on to their current property (and provide the lender with a lease agreement) and purchase another, HUD is allowing this under two conditions:

1. Relocation

Homebuyer is relocating with a new employer, or transferred by current employer to an area not within resonable commuting distance

2. Sufficient Equity in Vacating Property

Have a minimum of 25% equity in the existing property (departing residence), as evidenced by a current appraisal (no older than six months old) or by comparing the unpaid principal balance to the original sales price of the property

Yes, this is utterly unfair to move-up buyers who have legitimate leases in place, but here's a ray of light in darkness: this change is only temporary "while FHA analyzes this situation to determine whether permanent measures may need to be taken." And remember, your borrower can always go Conventional if they meet the guidelines.

Have a productive week.

Juanita

FHA and Down Payment Assistance

2008-07-30T05:00:00.000-04:00

I want to make you aware of potential changes in FHA that may affect us all. For years borrowers have used Down Payment Assistance (ex.Nehemiah) as a way of satisfying FHA's requirement of having 3% in the transaction. However, thanks to the House and Senate, we will no longer be able to do this. The highlights of the bill are below.

· Seller participation in down payment assistance loans is being terminated. Must have obtained credit approval prior to October 1st.

· New Risk-based pricing moratorium is effective October 1 (risk based MI that rolled out 7/14/08 will be suspended for 1 year)

· Proposed Downpayment requirement of 3.0%-3.5% (gifts from family, bond programs allowed)

· House is expected to begin debate and possibly vote on Wednesday (July 23rd) on the final version of the omnibus housing bill

· The Senate could vote as early as Friday on the final bill with the President signing shortly thereafter (possibly early next week).

Stay tuned...

FHA and the Self-employed - Part III

2008-05-31T07:11:00.000-04:00

Self-employed borrowers come in different shades and sizes. If you are applying for a mortgage loan for your personal use, you need a better understanding of what the lender is concerned about and why. This post will guide you.

The legal structure of a business determines the way income or loss is reported to the IRS, the taxes that are paid, the ability of the business to accumulate capital, and the extent of the owner's liability. There are five principal business structures: Sole Proprietorships, Partnerships, Limited Liability Corporations, S Corporations, and Corporations.

Knowledge of the structure of a self-employed borrower's business will assist the lender in evaluating the stability of the business and the degree of the borrower's involvement. In analyzing a self-employed borrower's personal income, the lender should focus on earnings trends and the actual sources of the income, not just on the total amount of the income. The lender must confirm the stability and likelihood of continuance for each.

Federal income tax returns (both individual returns and business returns) for the past two years, with all applicable schedules attached. Instead of obtaining a copy of a self-employed borrower's applicable tax returns directly from the borrower, the lender may use IRS-issued transcripts of the borrower's individual and business federal income tax returns that were filed with the IRS for the most recent two years, provided the information is complete and legible and the transcripts include the information from all of the applicable schedules.

Post questions and I will post answers.

FHA and the Self-Employed Borrower - Part II

2008-05-23T11:27:00.000-04:00

OK, as promised this post will follow-up on the topic of mortgage lending for self-employed borrowers. Let’s finish up by asking this question: Who is considered self-employed?

Answer: Any individual who has a 25% or greater ownership interest in a business is considered self-employed. A number of factors need to be considered in underwriting a self-employed borrower, some of which may be beyond the borrower's control (although they still have a significant effect on the borrower's business).

Lenders analyze many factors before approving self-employed borrowers:

As per the guidelines (let’s discuss a few of these):

Stability of the borrower's income. This is a no-brainer and these days looked at by underwriters very closely.
The location and nature of the borrower's business, the demand for the product or service offered by the business, the financial strength of the business, and the ability of the business to continue generating sufficient income to enable the borrower to make the payments on the requested mortgage.

Let’s discuss this briefly. Occasionally I receive calls from out of state borrowers who have a successful business, say in New York, and now they wish to relocate to GA. This is a problem for an underwriter trying to assess risk on a mortgage loan. It will take several months if not years to build up a new clientele. And your success is not automatic. In the process your income is lower. This must be taken into consideration.

Another question I am often asked: Why a two year history for self-employment?

Here’s a small dose of reality: Because income from self-employment may be unpredictable and the business owner is often personally liable for the business debt, self-employed borrowers tend to default at a much higher rate than other borrowers. For this reason, lenders require a two-year history of the borrower's prior earnings as a means of demonstrating the likelihood that the income will continue to be received. As stated previously, a person who has a shorter history of self-employment -- 12 to 24 months -- may be considered, as long as the borrower's latest federal income tax returns reflect the receipt of such income for a 12-month period and he or she has a history of receiving income at the same (or a greater) level in a field that provides the same products or services as the current business or in an occupation in which the he or she had similar responsibilities to those undertaken in connection with the current business.

In the next post, we will analyze the self-employed borrower in more detail.

Until then…….

FHA and the Self-employed Borrower - Part I

2008-05-21T20:52:00.000-04:00

I have received numerous calls from self-employed borrowers since I posted an entry a while ago. I have decided to revisit this issue but I want to break it down in parts so that it is clearly understood. With the elimination of Stated loans (unless you have 25% to put down), self-employed borrowers need the facts on how to proceed on a fully documented loan using FHA.

So, here's your first tidbit for my caller in Texas who called and said, "A lender here told me I need a solid 2 years of self-employment in order to qualify for a FHA loan. Is that true?"

My response: Often the answer is yes. However, per Fannie Mae:

A person who has a shorter history of self-employment -- 12 to 24 months -- may be considered for a FHA loan, as long as the borrower's latest federal income tax returns reflect the receipt of such income for a 12-month period and he or she has a history of receiving income at the same (or a greater) level in a field that provides the same products or services as the current business or in an occupation in which the he or she had similar responsibilities to those undertaken in connection with the current business.

However, every file is different and must be taken as a whole. There's more to the story which we will cover in tomorrow's post. Stay tuned.

Is FHA Only for First-time Homebuyers?

2008-04-15T21:10:00.000-04:00

No, is the answer to this question. As long as the FHA loan has not been used in the last 3 years you may still obtain a FHA loan.

This is great news for move-up buyers.

FHA and Bankruptcy

2008-04-01T20:54:00.000-04:00

Let's revisit the following question: Can I obtain a FHA loan if I am less than two years out of a bankruptcy (Chapter 7). Most often, the answer is, "No." However, remember that every file stands on its own merits. FHA considers circumstances that are beyond the applicant's control (such as the death of the principal wage earner or serious long-term uninsured illness, etc.). As I have said before, you never know until you ask your lender.

Are There Income Limits With FHA?

2008-03-30T07:43:00.000-04:00

The answer is "No." I have received this question lately, now that FHA has increased its loan limits. If you make a millionaire dollars per year (and lucky you), you can still obtain a FHA loan.

With the revived popularity of FHA loans, I will try to post a popular question and answer each day. As always, feel free to contact me on 404-401-6209 if you need additional information on FHA loans. I'm here to help!

FHA - Reduce Your Rate

2008-02-08T20:33:00.001-05:00

If you have one of those funky subprime loan with a high interest rate and your loan is within the FHA loan limits for your area (www.fha.gov), you may want to consider a FHA refinance. Especially if you have a credit score less than 620. If your goal is only to reduce your rate, FHA will allow you to do a "Rate and Term" refi for up to 97.75% of your value.

And rates are good right now. Don't wait until your ARM has already adjusted. Act quickly!

FHA Loan Requirements

2008-01-03T05:52:00.000-05:00

FHA Loan Requirements

As I have posted before, the FHA loan is ideal for these borrowers:

1. Individuals with no credit or newly established credit.For now FHA accepts such a situation, provided you have “alternative credit,” which includes (but is not limited to) car insurance, cell phone, a utility bill such as gas, electric, or water. It goes without saying that a stellar rent history is always a plus. A lender verifying this type of credit history prefers at least 3 types of alternative credit that has an on-time, twelve month history.

2. Families with previous credit challenges but are now credit-worthy.FHA is not a credit score (as of 1/3/2008 anyway) driven loan and FHA underwriters allow written explanations for past credit problems. Sometimes these explanations will require supplemental paperwork to support them. An example includes a borrower who has written that she was hospitalized for several months during a particular year. An underwriter may ask for a doctor’s note or proof of hospitalization. A word of caution: Do not write anything that you cannot back up!

3. First-time home buyers. HUD was created to help low-to-moderate income families. Many first-time buyers are fresh out of college, starting a new job and therefore lack an established work history of 2 years.

FHA also allows a borrower more acceptable sources of down payment as well as higher qualifying ratios. For these reasons, as well as others listed above, you can rely on the FHA loan.

Here’s a review of items your lender will need to get you started:

1. 2 years of W-2s (most recent 2 years)
2. 2 paystubs (if you get paid once a month, 1 is sufficient) for all jobs
3. Most recent bank statements for the last 2 months
4. If you are self-employed, tax returns for the last 2 years
5. Landlord name and # for the last 2 years (or residential history for the last 2 years)
6. Employer name and number for the last 2 years
7. Go to http://www.getdownpayment.com/ and take the homebuyer's course if your organization uses Nehemiah. If not, this is still a great online class for the first-timer. Should not take more than 20 minutes.
8. IF you have student loans, make sure they are in deferment or you know the monthly payment amount. Sometimes credit reports are not accurate.
9. IF you have paid collections or judgments, also submit any payoff letters that you have
10. IF you have experienced a divorce, provide the decree. IF you pay or receive child support, provide the documentation that supports this.

Get to work. :-) Make 2008 the year you become a homeowner.

Update on FHA Changes

2007-12-18T05:40:00.000-05:00

On Friday, December 14 the senate passed a bill that would loosen underwriting guidelines and increase the loan size of our bright and beautiful FHA loan. It appears that Washington recognizes the woes created by subprime lending and our congressional friends want to offer support. It’s not a question as to whether this help is needed. During the five-year housing boom many consumers turned to Adjustable Rate Mortgages (ARMs) that will soon reset (if they have not already done so). With the new proposal on the table, we might see a lower down payment for FHA (if the Senate gets their way, even lower than today’s 3% required) and, the risk-based MI that I have referred to in a previous blog, will be delayed by twelve months.

Perhaps 1.8 Million Americans can exhale; that is the number of borrowers that will see their mortgage costs skyrocket before the end of 2008. Credit and underwriting guidelines have already tightened and many economists and analysts fear that a recession is heading our way.
But for now, we will keep our eye on the middle of the road and see where the Senate and House will meet. The White House has already said that President Bush will sign off on this bill which is also a relief. More updates to come.

Credit Tips for 2008

2007-12-13T21:08:00.000-05:00

I posted the previous blog entry, "Will FHA Require a 620 in '08?" on http://www.activerain.com/ and the first question I was asked by a reader was, "What tips can you give someone to improve your credit?"

Here are a few suggestions for future borrowers:

1. You need to start early, get a copy of your report, make sure all liabilities are reporting correctly. If not, contact your creditor.

2. Check balances against high credit limits. Make sure to obey the 1/3 rule--balances should not be more than 1/3 of the high credit limit. You may need to open up a new card; this is important.

3. Pay off or settle all open collections. After 24 months, they are not impacting your score, however, if the debt is resold, it will open up on your report as a new collection and therefore drop your score.

4. Get to your true score. Remove authorized users if you do not know them well and know their ability to pay on-time. If they are late, so are you. This is scheduled to change soon.

5. Watch student loans carefully. This can wreak havoc on your score if not monitored carefully. I often see errors that damage credit scores.

6. If you do not have credit lines, begin now and open up a new account, even if it's a secure card.

7. Of course it goes without saying be vigilant and pay your bills on-time. Especially automobile loans.

Don't wait until you decide to purchase a home. Act now!

Will FHA Require a 620 Credit Score in 2008?

2007-12-12T08:18:00.000-05:00

Will FHA Require a 620 in 2008?

I shall answer this question with deliberate ease, a bit of caution, a tad of apprehension. Over the years, I have stood proudly from my mortgage rooftop and boasted that FHA is a great loan for the credit challenged borrower, the first-timer, the borrower seeking a second chance to start over. “Who do you have for me this time, Juanita?” my underwriter always ask when I plop down in front of her to state my case. She braces herself, for experience has taught her that I attract those that have a “make-me-cry” story, a credit score that could be as low as a 447 (closed 2 weeks ago). And so I dribble on and present my case and 9/10 times, if I believe strongly in a borrower, the final scene of this saga plays out at the closing table. “Call me afterwards and jingle those keys in my ear,” I tell these ecstatic borrowers if I cannot attend their closing. Ahhh, the jingling sound is like music to my ears. No words need be said. They know and I know that we have defeated the odds, that the other lenders were wrong; their family and friends who said, “just wait a while” were wrong. They fought the good fight—and won. The single mom now has a home for her three kids, not a cramped apartment without a backyard. I have tracked many of these borrowers and their payment history and they have proven over the years that they were worth the effort and time to get them closed. Add to that, they are always an excellent source of referrals for me and my agents.

Now times are indeed a-changing. For those who are unaware, FHA has developed a new risk-based structure. Among the many changes that will go into effect in 2008, the standard upfront mortgage insurance (1.5% of the base loan amount) will now range from .75% of the loan amount for lower-risk mortgages up to a maximum of 2.25% for those considered high risk. Credit scores will be used to determine risk; in fact the HUD notice (dated 9/20/07**) that announces this change must be copied and studied so that you fully understand this new change and its impact. The most significant change is this: borrowers who cannot obtain a downpayment from their own funds or a family member must have a 620 credit score in order to qualify.

If you’re like me, you’re asking other questions. Here are some other key points I’d like to bring to light.

Ø When will this change occur? Originally the change was scheduled for January 1, 2008, but according to the Washington Post, “On December 4, 2007, HUD announced it is temporarily delaying the implementation of the risk-based premium rule for up to 60 days.” FHA Commissioner Brian Montgomery said, "It's good to have breathing room to let Congress work something out and let banks adjust their systems to the new rule."

Ø If the borrower has no credit score, they must have a downpayment of at least 5% of their own money to qualify for FHA-insured financing and will pay 2.25% upfront. These borrowers can lower the premium to 2.0% by making a downpayment of 10% of their own money.

Ø If there are two borrowers, don’t think of the “decision score” as you would a conventional loan (i.e. the lower of the 2 scores). FHA will average the two decision scores with hopes that a higher percentage of borrowers will receive a reduced premium.

Ø If a borrower is a first-time homebuyer who has received pre-purchase homeownership counseling, the maximum upfront premium is 2%, even if their credit score would fall into the 2.5% category. Agents, make sure your borrowers receive this counseling prior to execution of the sales contract.

It's time for first-timers to attend credit workships and homebuyer seminars BEFORE you sign a contract.

Starting Over - After a Divorce

2007-12-06T22:07:00.000-05:00

Among other things, a divorce can devastate a person financially. In my occupation, I hear of this all too often. A boatload of credit card debt. A car loan with late payments. Open collections. These are only a few of the credit vexations that may occur when someone has gone through a divorce.

Let's assign these problems to Jane Doe. Now years past; she attempts to recover from her divorce but her credit is ruined. 480 FICO. She wants a house but she has not yet rebuilt her credit. Can we help her? Here's more:

Rent: $800 and paid on-time
Utilities, car insurance: paid on-time
Collections: Less than $5000
Employment/Income: Stable and enough to afford a $1000 mortgage payment.
Assets: $4500 and thank goodness she still has her 401k with $10,000

Can we help her?

She's afraid to call because of her score, her collections. But she shouldn't be. Excellent rent history and her alternative credit will bode well for her. She has also saved up for a home and can prove > 3 months of reserves. She can explain and document her past credit challenges (previously she had good credit, her dates of late payments coincide with her divorce.

Is it possible for her to get a loan?

She won't know until she calls. Never be afraid to call. You never know.

Times are A-Changing for Other Loan Programs

2007-12-05T19:54:00.000-05:00

Today I got word from my company that we will no longer offer the NINA loan. For those unfamiliar, NINA stands for No Income No Asset. At one time, we needed nothing more than signatures on a loan application, no matter if the property was $1M. It was crazy and quite frankly, never made sense to me. I guess at the end of the day, Wall Street investors would purchase such nonsense so everyone was OK. Other changes were noted in the unwelcome memo of new loan program changes.

Does anyone need to ask why I believe in the constancy and reliability of the FHA loan? It's the only loan program over the years whose name has not appeared in email alerts, followed by "Urgent - Please see changes." Yes, it's true that we only have Nehemiah until March 2008 but FHA Optimist like myself have a strange feeling that even without Down Payment Assistance programs, everything will be alright.

One Question - One Answer - Re: Bankruptcy

2007-12-03T03:16:00.000-05:00

This weekend someone called and asked me if they were still eligible for a FHA loan though they were less than 2 years out of a bankruptcy. Though you would think that the answer would be No, since the guidelines state very clearly that you must have the 2 year seasoning, I surprised the caller by saying, "This is possible, provided you have extenuating circumstances."

I have closed a loan for a borrower that was only twelve months out of a Chapter 7, however hers was a story that would leave you in tears. She had done a good deed for a relative and by doing so she was left financially strapped. She had the court papers to prove it. I submitted her loan application, credit and supplemental documentation to my underwriter and she granted us permission to proceed. We closed her loan two months ago.

Every case is different but one thing is for sure--you will never know until you ask.

The Teacher Next Door

2007-11-29T21:58:00.000-05:00

Today an agent/friend called and asked me to put together some marketing collateral for teachers. I immediately began my research, thinking of a Department of Community Affairs program that loves teachers. Then I remembered The Teacher Next Door, a program established by HUD to offer single-family houses, condominiums, and townhouses to teachers at a 50 percent discount. If the “HUD acquired home” cost $150,000, the borrower pays only $75,000. How’s that for a bargain? It gets even sweeter.

The teacher may also apply for a FHA-insured mortgage with a down payment of only $100 and he/she may finance all closing costs. Are you loving this yet?

Well, there’s more to the story.

The goal of this program is to encourage teachers to buy homes in revitalization areas across the nation. As per the guidelines, you must be "employed full-time by a public school, private school, or federal, state, county, or municipal educational agency as a state-certified classroom teacher or administrator in grades K-12."

However, there are property type restrictions (ex. No duplexes, no triplexes). Also, the homes cannot be other real estate for sale in the area (i.e. forget the 3-bedroom dream home in the new subdivision down the street—no new construction). HUD sells all qualifying homes as-is and it does not provide any warranties.

The good news—there are tons of revitalization areas across the country listed and sold exclusively over the Internet. Every week a bid is awarded. And the bid must be the amount of the list price. The computer randomly selects each bid and it is posted each week on the web. I advise clients to enlist the services of a professional real estate agent even though they think they understand the program requirements and bidding process.

It’s important to note that a borrower will be required to sign a silent second mortgage and note for the discount amount. No interest or payments are required as long as they fulfill the three-year occupancy requirement. For this point alone, I recommend that a borrower read the fine print carefully. It turns out there are no free rides, even on a good neighbor program. Here are a few URLs that will provide more information on this program.

For Frequently Asked Questions, go to http://www.hud.gov/offices/hsg/sfh/reo/goodn/gnndfaq.cfm

To find out where these properties are located, visit: http://www.hud.gov/offices/hsg/sfh/revite/abtrevt.cfm

For a Teacher Pre-qual Questionnaire:
http://www.hmbireo.com/forms/9549-b.pdf
A great niche in a down market. Many teachers have never heard of this program and the targeted areas may be right in your backyard. And a similar program exists for firefighters.

Juanita McDowell
The FHA Originator

One Question - One Answer

2007-11-28T20:05:00.000-05:00

Today I received a call regarding student loans. "If my student loans are in deferment until 2009, do I need to worry about them? I know my debt is already high."

No, is the answer. If you are doing a FHA loan, and your student loans are in deferment for the next 12 months (from the closing date), your lender does not need to count them in your Debt-to-Income ratio. Period.

Conventional loans are a different story.

Early Preparation is the Key

2007-11-27T20:10:00.002-05:00

It's the end of the month, the most exhausting time of the month for a Loan Consultant. Most people choose to close at this time to avoid prepaid interest, which reduces the total amount owed at closing. Some months are better than others, meaning, we have our approvals done and our closing packages are sitting happily on an attorney's desk, ready to transform into an accurate HUD Settlement Statement. However, there are other months that stand alone, that no one can explain. Loans are approved with conditions but the borrower simply can't find...whatever. Appraisals may come in short and the seller refuses to adjust the price, even slightly. Or the seller has tax liens and we cannot prove clear title. Or student loan creditors refuse to give that all-too-important deferment letter. And the list goes on.

But here's a tip. Gather everything upfront so that conditions are few. Here's a good generic list to get you started if you are doing FHA or any fully documented loan.

Remember the number 2.

1. 2 years of W-2s (most recent 2 years)
2. 2 paystubs (if you get paid once a month, 1 is sufficient) for all jobs
3. Most recent bank statements for the last 2 months
4. If you are self-employed, tax returns for the last 2 years
5. Landlord name and # for the last 2 years (or residential history for the last 2 years)
6. Employer name and number for the last 2 years
7. Go to http://www.getdownpayment.com/ and take the homebuyer's course if your organization uses Nehemiah. If not, this is still a great online class for the first-timer. Should not take more than 20 minutes.
8. IF you have student loans, make sure they are in deferment or you know the monthly payment amount. Sometimes credit reports are not accurate.
9. IF you have paid collections or judgments, also submit any payoff letters that you have
10. IF you have experienced a divorce, provide the decree. IF you pay or receive child support, provide the documentation that supports this.

This list will get you started. Ask your lender for a "checklist" of items that apply to your situation. This upfront preparation will make a world of difference in you loan experience.

Can an Investor Obtain a FHA Loan?

2007-11-26T21:33:00.001-05:00

Today an investor called and asked me if he would be eligible for a FHA loan. My first thought was No, as I have never originated a FHA loan for a non-occupant borrower; my rates sheets over the years have never allowed me to price out a rate for an investment FHA loan. And I suppose some companies do not allow such a thing regardless. However, the 4155, that golden light that guides us to FHA guidelines, does have specific stipulations for investment properties. Let me quote directly from the light: "With permission from the appropriate Home Ownership Center (HOC), private investors, including non-profit organizations ... may obtain FHA-insured mortgages for the following reasons:

Purchasing HUD Real Estate Owned (REO) properties. Owner occupancy is not required when the jurisdictional HOC sells the property and permits the purchaser to obtain FHA-insured financing on the investment property."

There's always more to the story and heaven knows there are plenty of HUD REOs right now on the market. If you are an investor interested in purchasing a HUD property, ask your Loan Consultant to check their program guidelines before answering "No" to this question too quickly.

Overtime and Bonus Income and FHA

2007-11-25T12:50:00.000-05:00

Per the 4155, the FHA bible for those of us in the business, "Both overtime and bonus income may be used to qualify if the borrower has received such income for the past two years and it is likely to continue. The lender must develop an average of bonus or overtime income for the past two years and the employment verification must not state that such income is unlikely to continue."

Most people stop reading there. I have taken over many "declined" loans from other lenders because they don't read or know to read the sentence that follows: "Periods of less than 2 years may be acceptable provided the lender justifies and documents in writing the reason for using the income for qualifying purposes."

This line is golden for those who have been turned down because the principals involved in helping them get a loan did not know this. And so, another reason I love the FHA loan. The flexibility in structuring this loan is nothing short of incredible.

Who Can Get a FHA Loan?

2007-11-24T06:50:00.000-05:00

Who Can Get a FHA loan?

I will provide 3 answers to this question:

1. Individuals with no credit or newly established credit.

Occasionally a potential borrower will call, boasting of the fact that they have no credit cards, they pay everything in cash. This type of borrower falls into a small elite group which I admire but have never been eligible for membership. I believe in credit cards, if for no other reason, to establish a credit history with the bureaus (Experian, Transunion, and Equifax). No credit cards ever means no credit scores, and this limits you to the FHA loan. FHA accepts such a situation, provided you have “alternative credit,” which includes (but is not limited to) car insurance, cell phone, a utility bill such as gas, electric, or water. It goes without saying that a stellar rent history is always a plus. A lender verifying this type of credit history prefers at least 3 types of alternative credit that has an on-time, twelve month history.

2. Families with previous credit challenges but are now credit-worthy.

I have always believed in second chances and perhaps that is why I love the FHA loan; it is the “second chance” loan. Life happens to all of us, and behind this fact is a host of potential tragedies, including divorce, sickness, the death of a loved one. Such circumstances may drive several late payments or a bankruptcy that drastically lowers one’s credit score to less than 620, the magic number that enables Conventional financing. FHA is not a credit score driven loan and FHA underwriters allow written explanations for past credit problems. Sometimes these explanations will require supplemental paperwork to support them. An example includes a borrower who has written that she was hospitalized for several months during a particular year. An underwriter may ask for a doctor’s note or proof of hospitalization. A word of caution: Do not write anything that you cannot back up!

3. First-time home buyers.

HUD was created to help low-to-moderate income families. Many first-time buyers are fresh out of college, starting a new job and therefore lack an established work history of 2 years. This is only one example of the first-time buyer for there are a host of other examples which we will cover in this blog over time.

FHA also allows a borrower more acceptable sources of down payment as well as higher qualifying ratios. For these reasons, as well as others listed above, you can rely on the FHA loan. However, there are loan limits. Visit www.fha.gov to research your area.

2007-11-21T20:13:00.001-05:00

If you look in webopedia for a definition of HUD it will feed you the following definition:

“Short for Heads Up Display in video and computer games. HUD is the display area where gamers can see their character's vital statistics such as current health, bonus attributes, armor level, ammunition count, and more.”

Wrong HUD. For purposes of home buying, HUD refers to The U.S. Department of Housing and Urban Development. It is a government agency established to help Americans in home ownership. Their mission statement reads like this: "HUD's mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships--particularly with faith-based and community organizations--that leverage resources and improve HUD's ability to be effective on the community level."

Like many people I was surprised to learn that, through the Federal Housing Administration (aka FHA), HUD is the largest mortgage issuer in the world. FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.

For more information, you can visite www.fha.gov.

The Self-Employed Borrower and FHA

2007-11-20T07:11:00.000-05:00

Now here's a challenge. You work for yourself, maybe you sell Mary Kay, or, maybe you're an independent landscape artist. In either case, your tax returns are done in your favor--you don't owe Uncle Sam anything, and life is good until...you decide to purchase a home.

Everyday I attempt to pre-qualify this type of borrower. They want and oftentimes need 100% financing. In today's mortgage market, that means you must do a fully documented loan. In most cases, lender require tax returns for the last 2 years. The net earnings reported must be enough to qualify for a home; in most cases, it is not. So what do you do?

This dilemna probably inspired the "Stated" loan. Some lenders use other names like "Reduced Documentation." If you meet the credit score requirement and you have money for a down payment (~5% or more, depending on your score), then you are still in the game. At one time we used a "Bank Statement Loan" for these type of borrowers. I have not closed this type of loan in a while.

If you need a FHA loan and there is not enough income on your tax returns, you may want to consider adding a blood related, non-occupant co-borrower to the loan. Or, you may want to have your tax returns amended. Better yet, if you are newly self-employed and not yet a homeowner, I hope you are reading this post now so that you will take this into consideration before you buy.

As always, I can be reached on 404-401-6209 if you have additional questions about this.

A True and Trusted Friend

2007-11-19T05:52:00.000-05:00

I have reserved this blog for one type of loan--The FHA Loan. It's a trustworthy friend that has been around the potential homebuyer since the 1930s. It was formed to encourage wider home ownership. Nowadays, with tighter underwriting guidelines and what I'll loosely call the dying off of Subprime loans (this is not entirely true but who wants to pay a few extra hundred on a mortgage payment due to higher mortgage insurance premiums--more on that in another blog), we need to resurrect and promote FHA.

Why FHA? As a Mortgage Consultant who has always closed credit challenged borrowers, this has always been my mainstay. It’s like the Many of my clients were fresh out of college or divorce or simply had credit challenges caused by some circumstance out of their control. Life had dealt them an interesting hand but they deserved a second chance. FHA is more lenient and forgiving when a client (s) has been down a rough road where credit or limited cash on hand is concerned. FHA also allows the borrower to use gift funds for the down payment.

Look to this blog to give you more information about the aspects of this loan, the requirements, as well as its benefits.