Latest from the Mortgage Blog
Buyers: Why Work With A Local Lender…
Over the years I have come to understand how important the wording on a lender pre-approval letter is. With feedback from trusted Realtors, we have included in ours that we underwrite, draw documents, and fund all in house, and that our Certified Pre-Approval means that we have 100% of the documents, and they have been signed off by an underwriter. I feel that a good lender letter, really helps the listing agent advise the sellers as to the strength of the buyer. I have heard in the past, of sellers rejecting offers from buyers who were pre-approved by “online” lenders, and that makes a lot of sense – if something goes wrong the day of closing, there is no one here locally that can help.
I am hearing a new twist on this lately, in fact, I have heard this 3 times this week. Listing agents and sellers are actually turning down offers where the buyers are pre-approved by the two largest banks in America, or countering back that the offer is only accepted if the buyer changes lenders to a local, smaller lender. I thought this was interesting, and not something I have heard in the past. I can tell you, that about 50% of the files that come across my Trauma Center, are loans that were “pre-approved” by these two banks, and now, are having problems closing or just being completely rejected – so I am glad to see that everyone is taking notice. It is easy to say yes upfront in 5 minutes (as some commercials advertise), much harder to make sure when you say yes, the loan is guaranteed to close.
Not surprising, just yesterday I spoke to a client about an upcoming purchase, who said her “biggest goal” for the new financing, was simply to get away from her current bank (one of the two, by the way). Her last refinance took 8 months to close, and was a nightmare. The bank collected an upfront application fee, so the borrower was hooked in. Over those 8 months, her credit was pulled 3 times, because it kept expiring, and she received a new stack of documents to sign every 2 weeks. The whole time she was told that the delay was because the underwriter was “not happy.” When it did close, the notary showed up at her home, and the rate was 0.375% HIGHER than what she had seen all along. I am curious as to how this can happen, when the RESPA rules state that if the fees/rate change, the borrower has to know and re-sign documents, and if not, it is illegal to close. Not sure how the big boys can get away with this, but I had to share.
At Hallmark, we guarantee your approvals upfront, and by taking an extra moment to obtaining our Certified Pre-Approval, your closing will happen on time, under budget, with no surprises!
New Changes Coming For Conventional Loans
This has been a very busy week for lenders, as we keep up with a lot of changes coming down from Fannie Mae. Some changes are big, and some are somewhat irrelevant, so I will try and go through some of the most important ones here.
Conventional loan changes go into effect November 16th, with a new version of DU (9.1):
1. It appears for now that after November 16th, Conventional loans with 3% down will be a thing of the past...again. This popular loan program was around for years, then went away in 2009, back again this year, and now going away again. This means that Conventional loans will now require 5% down payment again, with FHA being the alternative with 3.5% down. With the changes FHA made to their mortgage insurance, Fannie Mae was probably feeling the load of these "higher" risk loans, and decided to cut back for now. Really disappointing as it was a great alternative to a high credit score client, who did not want to get stuck with FHA's mortgage insurance for life.
2. Underwriting will require 2 months of bank statements, instead of 1 month of bank statements. This is more of just a pain for borrowers, as they will need to have 2 months of statements scrutinized and more deposits questions and documented.
3. Area Median Incomes will change with this new version. This will affect the eligibility for the state bond program, CHFA.
4. Interest Only loans and mortgages with terms longer than 30 years are no longer an option - no one was really offering these anyways
5. For the HARP DU Refi Plus loan program, some timelines for time since a bankruptcy, foreclosure or short sales will be REMOVED. This is only for the DU Refi Plus loan program, and not traditional purchase or refinance loans. This sounds like a big change, but banks may add their own overlays to this - on top of that, it seems that most who benefited from a refinance, have already completed the transaction, so this may turn out to be no big deal after all.
Call me with any questions!
FHA Cuts Bank Wait Period After Foreclosure, Bankruptcy and Short Sales
The Federal Housing Administration is cutting the amount of time that homebuyers must wait after a bankruptcy, foreclosure or short sale to one year before they may qualify for an FHA-backed mortgage.
Previously, buyers had to wait two years after a bankruptcy and three years after a foreclosure or short sale.
But in order to qualify, borrowers will need to prove their household income fell by 20 percent or more for at least six months; that the income drop was tied to unemployment or another event beyond their control; that they have had at least one hour of approved housing counseling; and that they have had a full year of on-time housing payments, among other things.
Banks will likely have overlays to these rules, which have not been announced yet, so I will keep you posted as we know more on how this will play out.
Home Inspections…Don't Skimp On Them!
When you are buying a home, the first thing you do, after your offer is accepted, is to do a home inspection. Depending on the age of the home, maybe even more than one. Why? Inspections uncover big-ticket items that will be your problems, soon after you close on the home. Depending on what needs to be fixed, as a buyer, you can negotiate a lower price, or a seller credit for closing costs, to reduce your cash due at closing.
I am working on a transaction now where the borrower skipped the inspection all together to save the money. I did not know about this, until the following series of events took place. The home is a $70,000 home in Greeley, and at that price point, it was bound to have some challenges. The appraisal came back with a list of 30+ things that needed to be fixed/replaced. This home was in the worst condition of any home I have ever seen in 11 years. The Realtor, who I don't know, also happened to be really new at the business. So now it has turned into a nightmare scenario where the FHA appraisal is logged in the HUD system, so anyone who wants to buy that home for the next 4 months, has to use this appraisal. The seller is trying to fix everything, but pretty much, everyone is frustrated. I asked the borrower if he did an inspection, because I found it odd that an inspector would not have raised these 30 red flags.
An experienced Realtor would not have put a contract on that home, and a home inspection would have cost the borrower $200, and uncovered all these major problems. By skipping the inspection, the borrower saved $200, but spent $500 on an appraisal -- an appraisal that told him the same thing that the inspection could have told him - essentially STOP moving forward with this home.
Please make sure you hire an experienced Realtor, and never skip an home inspection!