New Loan Requirements for Getting a Mortgage

It seems that many people would rather visit a dentist than talk to a loan officer to qualify for a mortgage.   And while there is more physical pain from the dentist chair, there is something extremely uncomfortable about having your entire financial history scrutinized and analyzed while your future hangs in the balance.  I get it.  My credit score is in excess of 800 and I still feel weak in the knees when I need to get pre-approved.

Effective January 10, 2014 there are new lending rules that make it essential for potential home buyers to get qualified for a home purchase as soon as possible.  It is not that the criteria to qualify has changed drastically, it that there is now no fudge room.  There is a strict maximum debt-to-income ratio if the lender wants to sell the loan through one of the agencies, such as FNMA, GNMA, VA, etc.  and many banks just are not interested in giving loans that don't qualify to be sold. 

Getting approved for financing is not just about credit scores.  It's about verifying income and assets.  Employment is also verified, which is not as simple as it seems, since today many more people are contract employees or independent contractors.   In addition, all debts and liabilities are looked at, including child support and alimony.  And then there is the credit history.  Mortgage qualifying is also about determining a monthly payment that includes taxes and insurance that works for the buyer as well as determining how much cash will be required at closing. 

There is a lot that can go wrong in this complex formula of mortgage qualification and the sooner that the borrower knows, the sooner it can be corrected.  Whether it is saving more money for the down payment, paying down debts or improving a credit score, time and sound financial advice from a seasoned mortgage professional are key to success.  A loan officer can advise on what bills to pay off first for the most rapid improvement in score and whether or not it makes sense to close accounts or consolidate debts. 

I don't send my clients to a loan officer to torture them.  I do it because I want them to succeed in their goal of purchasing a new home.  And I want them to succeed as painlessly as possible.   There is a lot of information on the internet about mortgage qualification and some of it is good, some of it is totally wrong and all of it is very general.   It does not replace the specific advice that you will get from a loan officer. 

So go ahead and make the call.  Hopefully all your news will be good news.  And save all your fretting for the dentist chair.  Just don't forget to brush twice a day and be sure to floss.  :-)

Five Biggest Mistakes When Getting a Mortgage

Once upon a time you didn't need money or a job to get a mortgage. In fact, you didn't even have to have a personal history of paying your bills and you could still get a mortgage. There are even rumors of deceased individuals getting mortgages as owner-occupants but I don't know if that was true or not. But since the mortgage melt-down of 2007-2009 there are much stricter guidelines to get funding for a personal residence. Here is my list of the top five things you DON'T want to do when applying for a mortgage.

 1. Don't keep secrets from your loan officer. The loan officer doesn't approve your loan. He or she prepares your file so that you have the greatest likelihood of getting the loan. He or she can't do that if they don't know about things like a past bankruptcy or foreclosure, or that you are legally separated or divorced with or without child support obligations or that your job is classified as temporary. Spill the beans so that the loan officer can do their job.

 2. Don't take it personally when the bank wants documentation. I agree. It feel like it would be easier to get a top secret clearance than to get a 30-year note on a house valued at $180,000. And it feels like no matter what you say, they don't believe you. But keep in mind they treat everyone the same way. If you were late on a car payment nine years ago, expect to explain why. If your father gave you a check for $500 for your birthday, expect to have to get him to write a letter verifying the fact. That is normal operating procedures for getting a mortgage in 2013.

 3. Do not make cash deposits into any of your accounts. If you've been collecting coins for 30 years and this is what you plan to use for your down payment, well, you might as well be up 'that' creek without a paddle. Banks want a paper-trail. If money has been deposited into your account, they want to know who from and how come and they want proof. Why? They simply want to make sure you didn't borrow funds that you will need to payback after the loan closes.

 4. Avoid job changes. Sometimes simply changing departments can through off a scheduled closing by several weeks. And unbelievably, even if the job pays lots more than the previous position, banks will hold up closing until you have at least one paycheck from the new employer. If you are contemplating a job change, see rule number one. Your loan officer can help you understand the consequences.

 5. Don't buy anything! In fact, don't shop for anything. Now is not the time to shop for a new car for your garage. Nor to you want to purchase furniture or appliances (unless, of course you have that coin collection - see rule number 3.) Every time your credit is pulled it is noted and if the bank learns you are buying appliances or furniture or anything on credit, they very well might shut down your loan application.

 So there you have it, 5 major rules. I've been told that it feels like you've been investigated by the CIA, the FBI as well as the Secret Service when you apply for a mortgage. That is just life in real estate in this day and age.

Getting a Mortgage in 2009

I am running into buyers that cannot be convinced to sit down with a mortgage loan officer to be pre-approved for financing early in the home searching process. Perhaps if I share a true life story about getting a mortgage in 2009, they will be more receptive to my nagging!

A client that I've worked with for several years was pre-approved for financing with a score approaching 800. During the time that he was shopping around for investment property, he made a major purchase on a deferred payment plan. The payment plan was a new line of credit and adversely effected his credit score by 70 points! He no longer qualified for the mortgage because his credit score was 7 points too low and he was stunned. He assumed that because he paid all his bills on time his credit was excellent. To make this even harder to understand, this buyer has enough cash in the bank to make a cash purchase but the lenders absolutely will not give him a mortgage.

In another situation, I had a client who's credit card company simply reduced the line of credit because of the credit crunch. Initially, my client was not the least bit concerned because she doesn't carry high balances but when she applied for a mortgage, she didn't qualify for as good of a rate as she had three months earlier. Her credit scores increased significantly because the reduction in the line of credit meant suddenly she had a higher debt ratio to credit available. It was the same effect as if she had made a major purchase on credit but this was totally not a result of her actions!!!!

There are many things that effect the FICO score that is used to qualify an individual for financing. Payment history is very important but so is the amount of debt owed as well as the number of new credit accounts opened and the length of the credit history. And from time to time, I still run into buyers that do not have any credit history which makes it just as difficult to get a mortgage as bad credit.

If you are thinking about buying real estate and have not recently won the lottery, please, please, pretty please start the process with a meeting with a mortgage loan officer. Not only will you avoid waisting a lot of time, you will be much less likely to have surprises and disappointments when you find a property that you want to purchase.

Fannie and Freddie Under Control

What does the news about the Federal Government takeover of Fannie Mae and Freddie Mac mean to Rochester area home buyers and sellers? The biggest immediate news is a significant drop in mortgage rates.

Home buyers Kerry Ryan and Joel Jensen have an accepted purchase offer on a property with a scheduled closing of October 15. Their inspections are done and mortgage commitment received two weeks ago. Today, they negotiated a new mortgage a .50 point drop in interest rate! That equates to a savings of approximately $30 a month off the monthly payment!

If you are currently under contract for the purchase of a property, call your lender tomorrow morning to see if you qualify for a rate reduction. These better deals are reserved for buyers with the best credit scores, generally 700 or better. And if you are in the process of shopping for property, consider getting re-qualified as a lower interest rate may qualify you for a larger loan amount.

Is this the end of the downturn of the local real estate market?  I doubt it, but it sure can't hurt!

Why Start With Pre-Qualifying!

When I start working with new buyers I always encourage them to start the home search by calling the bank and get prequalified. The usual response is grumbling about how they know they have good credit. For some reason, most people just hate to start their search with a call to the bank.

Today, I had my credit pulled to do a refinance of our home and boy did I have a big surprise. The loan officer asked me about my American Express bill. Well, I don't have an American Express Card. But according to my credit report, I have an outstanding balance of $57,025 along with a perfect history of making my payments on time. Thus started one of the most frustrating hours of my life.

I called American Express and when I gave them the account number on the credit report, they said they needed the number on my credit card. Well, I don't have a credit card. Finally, by giving them my social security number, they could find the account but for privacy reasons, I had to give them the name of the primary card holder. Good question. After a few guessing games, we finally figured out it was my ex-husband. She promptly removed my name from the account, and while she was not authorized to give me anything in writing to document me coming off the account, she encouraged me to call the American Express Credit Department to have this removed from my credit report.

Here is where the story gets interesting. The credit department could find no record of me ever being on the account much less being removed. They refused to verify whose name was on the account or the balance. And until I insisted that they search for me by my social security number did they even take my call serious. It seems that this account is in my ex-husbands name but my social security number and the only way they will do anything about it is if I bring formal fraud charges against him. And since this account has been open since 1981, I'm willing to bet that it's an American Express clerical error and not a case of fraud. Hopefully, together, we can get this resolved.

The moral of the story is that when I suggest you start your search for a new home with a call to a mortgage loan officer, it has nothing to do with whether or not I think you pay your bills on time. It has to do with the current mortgage lending policies and wanting to avoid the heartbreak of finding the perfect home and then learning there is a horible mistake on your credit report.

Practical Money Skills

There is a lot of talk in the Rochester and national media about the subprime mortgage mess. And it is very real. It has affected my business. I had three deals die this month that would have had no problem closing six or eight months ago.

The good news is that if you've got decent credit and some money for a down payment, there is financing available and the interest rates are very, very good. Paul Pastore, a big time ReMax agent in Arizona put it very clever words. He said, "The "wink, wink" zero-down, no-doc, adjustable, sub-prime loans are gone." But for the rest of us, it's a great time to purchase real estate.

Of course, not everyone has perfect credit, or even decent credit. I found a pretty cool web site for those that are willing to admit they need some help with money skills. Entitled "Practical Money Skills for Life," http://practicalmoneyskills.com/english/index.php it has some really great resources, including a podcast center for those that don't like doing a lot of reading, fun games to pound in the message and a selection of calculators that help with budgeting or deciding how much mortgage you can afford. Interestingly, the site is owned and operated by Visa, yes the credit card people, that do tons of commercials that encourage us to go spend, spend spend by swiping our plastic cards. Nevertheless, I think the site is well done and would be interested in hearing what you think.

A Holiday Gift For First Time Home Buyers

A recent client of mine was struggling with coming up with all the funds necessary to purchase his first home. He had a steady job, good credit but was short of money. To help him out, I put together a list of organizations that provide support to first time home buyers in Rochester and surrounding areas. He was so appreciative, that I thought this would make a good holiday gift for my readers.






NeighborWorks
570 South Ave
Rochester, NY 14620


(585) 325-4170 Ext 316



Providence Housing Development Corporation
1136 Buffalo Rd
Rochester, NY 14624


(585) 328-3228 ext. 1319


Marketview Heights Association
308 North Street
Rochester, NY 14605


(585) 423-1540


Rochester Housing Development Fund Corp
183 E. Main Street, Suite 900
Rochester, NY 14606


(585) 423-6326


Urban League of Rochester - Home Store
265 North Clinton Ave
Rochester, NY 14605


(585) 325-6530 ext 3078


Bishop Sheen Ecumenical Housing Foundation, Inc.
935 East Ave, Suite 300
Rochester, NY 14607


(585) 461-4263 ext 102


Rural Opportunities, Inc.

Monroe County (585) 340-3302


Genesee & Orleans Counties (585) 343-7297


Ontario & Wayne Counties (585) 234-3565

Each of these programs have unique criteria to qualify for assistance and they provide a wide assortment of services, from education & counseling, grants, matched savings to inspections and home repairs. I have a complete packet of information, so for more details drop me an e-mail.

Please have a safe and joyous holiday season!

Mary Shelsby

p.s. the cardinal photos were taken in Highland Park just after last weekend's snow storm.

Hey Future Home Buyers, Easy on the Holiday Shopping!

I can't count the number of times I pre-approved people before the Holidays, only to see their credit scores have dropped by the time they find a home during the Spring market. The culprit you ask, why its excessive Holiday spending of course. Lets face it, we as red blooded Americans spend to much money, a lot of which is credit debt. This just in, revolving trade lines (i.e. credit cards) that have a balance of more than 50% of the limit WILL LOWER our credit scores. Credit cards that are maxed out with consistent minimum payments is a sure fire way to have the old credit scores in the low 600s. I won't bother to insult your intelligence by telling you the impact of late payments on our precious ficos.

I know what your thinking, "but Steve, I'm doing a conventional loan with 10% down and the rate is the same whether my credit score is a 600 or an 800." Well not any longer! New guidelines from Fannie Mae and Freddie Mac for most conventional mortgage products state that rates will be based on credit scores. If your credit score is under a 680, your rate will be higher. If your credit is below 680 and you desire to have a rate dictated by a 680+ score, it will require an additional fee in the way of "Discount Points". That fee will represent exactly where your score is.

I want wish everyone a "Happy and Safe Holiday Season"!

Mortgage Crisis is Hitting Home

I had to make one of those God-awful real estate calls yesterday. I had to tell a family to stop packing because the deal on their home was unraveling. It seems that the buyer of their buyer's home no longer qualifies for a mortgage and since his contract on our house was contingent on the sale of his home, the deal is dieing. No fun!

And then I got another awful calls this morning that things are not looking good for a purchase for a buyer client. They have mortgage commitment and are awaiting clear-to-close on a non-income verification loan. All the rules have suddenly changed and now they need 20% down instead of 10. That's an extra $16,000. I don't know about you, but I don't have that kind of cash sitting around waiting for a bank to suddenly change the rules.



And in the past week or so, I've had two different buyers ask for my advice on private mortgages because the banks won't currently consider them under the current strict guidelines. Private lenders are looking for interest rates upward of 14%.



The very good news is that mortgage rates are improving (slightly, but still improving) for those with outstanding credit and money to put down.

My message to you? Do what it takes to have good credit. First and foremost, pay your bills and pay them on time. Learn the difference between money problems and spending problems. Develop a budget and spend less money than you make. Get out of debt. It's not easy and it takes a concerted effort and discipline by the entire family but a good credit score is increasingly becoming your most important asset.

Why Do People Hate to Get Pre-Qualified???

When ever I talk with a new buyer, I always encourage them to call a bank or a mortgage loan company to get pre-qualified before they start looking at property. And very often my suggestion gets lots of resistance.A couple of weeks ago I got a call from Chris in New York City. He wanted to buy an investment property in Rochester. When I urged him to get pre-qualified, he told me he had excellent credit and had just bought another property in Schenectady. He ordered an air line ticket and when I reminded him that I needed a pre-qual letter in order to take him into listed property, he forwarded a letter from an internet mortgage company that was pretty worthless. The letter did not identify how much Chris could borrow nor did it acknowledge that he would not be occupying the property.

Long story short….I convinced Chris to call a mortgage consultant that confirmed that Chris had excellent credit BUT Chris didn’t have the necessary cash required for a down payment and closing costs. In other words, Chris didn’t qualify for a mortgage for income property! Fortunately for Chris, Mother Nature was kind to him. The big snow storm in New York City last week canceled his flight and so he will be receiving a refund for his airline ticket!

I know first hand how intimidating it is to get pre-qualified. My husband and I are in the process of purchasing an income property in Rochester’s South Wedge. I know the feel of glowing cheeks when the loan officer inquires about a long-forgotten medical bill for $25 that was sent to collections. I’m a firm believer in the philosophy that a poor credit score is usually an indication of poor character. But mortgage loan officers are not judgmental! If they were, they would never, ever survive in that line of work.

Please, people, make the call! Get pre-qualified before you start to look at property. Even if you have cash in the bank and good credit history, verify that there has not been identity theft, there are no forgotten bills or other surprises that will stand in the way of you achieving your dream of home ownership or landlord-ship! If you need the name of a friendly loan officer or two, contact me and I will make some recommendations.