More People Buying Vacation Homes Now

vacation homeWhat could be better than a cozy getaway with the family? Answer: A cozy getaway that you own.

Last year, 717,000 people purchased vacation homes, according to an estimate by The National Association of Realtors.

Sound interesting? Here are some quick facts about getting a mortgage for a vacation home:

* Down payment required is at least 10% of the purchase price.

* Your debt-to-income ratio will include your current mortgage, installment loan and credit card obligations, and the new proposed payment for the second home loan, including property taxes and insurance.

* It needs to be a true vacation home and not a rental property disguised as a vacation home.

A vacation home might make sense if:

* Your primary residence is paid off or your income can easily handle a second mortgage.

* You are nearing retirement age and want to secure your retirement home now while interest rates are so low.

You should not buy a vacation home if:

* Your current income is tight.

* You have insufficient liquid funds for emergencies.

* You would get bored of going to the same place on vacation time and again.

Never buy a vacation home (or any home, for that matter) on impulse. Take your time to select the right location. Make sure you scout out the local area. And visit the property in person before making a final decision.

If you’d like to explore further, talk to your mortgage loan officer about a pre-qualification, then contact your Realtor for available homes.




In Honor of Veterans Day

flag-flyingThank you, U.S. Veterans, for serving our great country, the United States of America. To those who are still overseas, we pray for your safety. To those who are back home, welcome. To all, we express our respect, appreciation, and gratitude.

VA Loans Are Gaining Popularity

The VA home loan program for is flying at record levels. New VA loans for Veteran home buyers has more than doubled since 2007.

In 2011, VA loans were about 3% of the purchase market. Today, they are approximately 7%.

For new construction, VA loans make up about 14.5%.

An estimated 22 million U.S. veterans may be eligible for VA loan benefits now.

Advantages of VA Home Loans

* VA loans require zero down payment.

* VA interest rates are competitive with prime conventional loans.

* VA underwriting offers more generous requirements for credit and debt ratio (depending on the individual lender).

U.S. Veterans: A Heads-Up!

Not all VA loans are priced the same, so Veterans still need to do their due diligence and shop for the best deal. For example, recently I saw a $2,000+ fee difference between two lenders with the same interest rate for the same borrower.

The best way to shop for a mortgage is to contact one bank, one mortgage broker, and a third lender of your choice. Ask for a Cost Estimate Worksheet, and then describe your scenario. For example, you might say, “I am looking for a VA loan, 30-year fixed rate, $350,000 purchase price. My credit score is 685.”

If you have any concerns about getting the best loan, please feel free to take advantage of my personal coaching service.

God bless you, U.S. Veterans, and God bless America!



Mortgage Fraud Leaders Sentenced to Prison

Fraud Charles Head and his brother Jeremy Michael Head have been sentenced to prison for a fraud scheme that cheated homeowners in California, the Northwest and East Coast out of their homes and damaged their credit.

According to the FBI website, the Head boys and their team of 16 cohorts preyed upon home owners who were seeking help with their mortgages.

These liars secretly added individuals who were friends and family members to the home owners’ real estate titles. Once that was accomplished, they proceeded to do maximum cash-out refinances. Altogether, they stole $15 million for themselves, which they shared with their team.

U.S. Attorney Wagner said: “This defendant purposely targeted the financially vulnerable during their time of greatest distress with promises of help. Then he tricked them into handing over their most valuable asset, their home. When victims in one scheme grew scarce, he opened up a new scheme drawing in victims from across the country. Few economic crimes are more reprehensible. No sentence will undo the damage wrought by Charles Head and his fellow scammers, but today’s sentence brings a measure of justice for their victims.” Source

Charles Head was sentenced to 35 years in prison, Jeremy Michael to 10 years. The 16 other convicted fraudsters are awaiting sentencing.


Should You Roll Closing Costs into Your Loan?

GFE4 Rolling the closing costs into your loan so that you don’t have to bring in money at signing is an option in a refinance.

For a purchase loan, closing costs may not be rolled into a loan. Most home owners refinancing do roll in closing costs; but then again, most do not consider doing it any other way. Let’s look at the pros and cons for your options.

Advantages of Rolling Closing Costs into Your Refinance

1) There is no money out-of-pocket except for the appraisal. (A minority of lenders also require the credit report be paid out-of-pocket. Still fewer want a non-refundable application fee, and I do not recommend working with those lenders.)

2) It requires one less step, because you don’t need to get a cashier’s check.

Disadvantages of Rolling Closing Costs into Your Refinance

1) You take out a larger loan, because your closing costs are added. (In a 30-year term loan, it does not make much difference in your monthly payment. Depending on loan size and the lender’s costs, it could be as little as $10 to $30/month.)

2) You pay interest on the closing costs, because they are now part of the loan.

3) It may be easier for the lender to overcharge you, because borrowers who are bringing in no money out of pocket do not pay as much attention to points, high fees, and junk fees. It all seems so “painless” with the costs all rolled in.

I have seen people sign shockingly expensive loans with a big smile on their faces all because the loan officer told them, “Don’t worry about it; it’s all rolled into the loan.”


Which option is best depends on your personal cash flow situation. If you can easily pay for your closing costs, then why not take the smaller loan with the smaller payment?

On the other hand, if paying for the closing costs would present a financial hardship, then by all means, go ahead and roll them into the loan.

Before you proceed, make sure your refinance is a good one. Pick up a copy of the best-selling book that exposes all the dirty secrets that make consumers pay too much. It’s a quick, easy read and you can skip around to the chapters that interest you most.
Mortgage Rip-Offs and Money Savers

I recommend the paperback copy, because the Good Faith Estimates from real banks and brokers that expose the junk fees, etc. come out too small to read on the Kindle.




Oops! Dream House Built on Wrong Lot

Dream House wrong lot A Missouri couple thought they were having their $680,000 dream home built in the perfect location. They purchased a lot in the gated community of Ocean Hammock, an exclusive community that is accessible by beach or air.

As you can see from the photo, it’s a three-story home with balconies from which to enjoy the impressive view. What a vision! The only problem is that Keystone Builders constructed it on the wrong lot, not the land Mr. and Mrs. Voss bought.

How could this happen? East Coast Land Surveying incorrectly marked off the stakes for the home — and didn’t catch their error during any of the three surveys they conducted during the construction process.

The mistake was finally caught by a different surveyor working in the area, but only after the home had been rented out several times.

“We are in total disbelief,” the Vosses told local media.

Both the Flagler County Home Builders Association and the Flagler County appraiser said that houses built on the wrong property “happen more often than people think.”

Perhaps a trip down to the construction site early in the process is a prudent step for home owners to take. In the case of the Vosses, it will be interesting to find out what happens next.

Source: Housing Wire

When the Good Faith Estimate Doesn’t Match Your First Estimate or Initial Fees Worksheet

GFE3 HELP! My GFE doesn’t match the original estimate or fees worksheet that my loan officer gave me. What can I do?

This is a good question and one that home buyers ask me. Here are two reasons why you might see a different origination fee on your official 3-page Good Faith Estimate.

Two Reasons Why Your GFE Might Be Different Than Your Fees Worksheet

1) Look to see if the loan officer split up the origination fee on several different lines in the upfront estimate. This often happens when the origination fee is high and not competitive with a fair market fee. I saw this again earlier this week when a home buyer used my consultation service.

On the upfront worksheet, there were four fees:

an origination fee,
an additional underwriting fee,
an additional processing fee,
and an IRS tax transcript fee.

These four fees were added together on the official GFE, because this form does not allow the loan officer to split up lender fees on different lines.

In this particular situation, the lender was charging $2,412 more than the national average origination fee, so I told the home buyer what steps to take.

2) If there is a legitimate “change in circumstances” (as the law says), then the lender has the right to increase their origination fee. A legal change in circumstances would be something like you told the loan officer you had excellent credit, but then when they pulled your credit report, they discovered that your credit was sub-par. Another legitimate change would be a change in loan programs, such as the need to switch from a conventional loan to a FHA loan.

A “change in circumstances” is not when the purchase price changed due to negotiations, but the loan-to-value ratio and loan program remain unchanged. If the price is higher or lower, but you are still putting 20% down, that does not constitute an excuse to raise the lender fees.

“Borrower Beware”

The new lending laws have not put all loan sharks or liars out of business. There are wolves in sheep’s clothing in every type of institution, including credit unions. Some home buyers think that if they go to their local credit union, they automatically get a good deal, but that is not true. I have posted in the past about credit unions pulling a bait-and-switch or overcharging.

Before you sign the loan disclosures, make sure you understand all the charges for your loan and agree to them. Once you sign, the lender is not going to negotiate, because your signature certifies your acceptance. However, your signature does not obligate you to the loan. That is important to know, because if you discover you are being over-charged, you are free to cancel and go elsewhere, if a satisfactory conclusion cannot be reached. (Always speak to your loan officer and try to work out a fair fee schedule before canceling. Respect your loan officer’s time and effort, but also respect yourself.)

I am available to review your cost estimate, initial fees worksheet, and/or Good Faith Estimate. Please see my Personal Coaching page for details, including the fee schedule.

Be smart, be informed, and then be confident with the terms of your loan.









Revamping the Credit Score System

creditscore1Should the credit scoring system be revamped? In a controversial move, Rep. Maxine Waters (D-Calif.) proposed a federal amendment that would require the national credit bureaus to delete negative information such as late payments on credit cards and mortgages, foreclosures, and short sales after only four years. Currently, those negative marks remain for seven years.

If this passes, the “sins” that occurred during the housing bust years would be washed away now, enabling more Americans to start fresh sooner.

In Sweden, negative credit marks are deleted after only three years. In Germany, after four.

Arguing against a more lenient credit system is Stuart Pratt, president and CEO of the Consumer Data Industry Association. He said “82 percent of credit systems” worldwide require negative data to remain on record for four to 10 years.

On the side of leniency is the real estate and mortgage industry. They believe that four years is long enough to be “punished” for financial hardship, and that a revamped credit system would provide a much-needed boost to the housing and the U.S. economy.

Pratt told Kenneth Harney, syndicated columnist for “Nation’s Housing” that “it doesn’t seem right to us coming out of the Great Recession that we would erase predictive data.”

What do you think? Should late payments, foreclosures, and short sales be deleted from credit files after four years? Or remain as is for seven?


Prepayment Penalty to Become Illegal

home ownerThe FHA loan, commonly called “the first time home buyer loan” because of its low down payment, has been charging a prepayment penalty when the home owner sells or refinances.

How the Prepayment Penalty Works

Regardless of the day your FHA loan ends, you have to pay interest on the loan through the end of the month. This means if your refinance or sale closes on the 10th of the month, FHA keeps on charging you for the additional 20 to 21 days till month-end. This is considered to be a prepayment penalty.

Prepayment Penalties Have Been Hidden

Near the bottom of the Truth-in-Lending Disclosure, it says:

Prepayment: If you pay off early, you
may or will not have to pay a penalty

The lender checks the box next to may or will not. Most lenders check the box for will not, thinking that the FHA prepayment penalty is not like the sub-prime prepayment penalties. But the FHA does have a prepayment penalty, and the may box should be checked accordingly.

Thus, most home owners with a FHA loan have had their prepayment penalty hidden from them.

FHA Will Discontinue Prepayment Penalties

The good news is that for loans that close on January 21, 2015 or later, there will be no prepayment penalty, regardless of when you refinance or close on your sold property.

For everyone who already has an FHA loan, you’ll want to time the closing of your next loan to be on the last day of the month to avoid paying extra interest.


Five Dangers of Co-Signing

co-sign Before you agree to be a co-signer for a friend or family member, consider the hidden dangers. By co-signing, you are not simply vouching for that person’s integrity. You are legally taking on responsibility for the loan yourself.

As a result, the debt and payment are yours in the eyes of a mortgage lender. The mortgage underwriter will calculate that payment into your debt ratio. This could easily prevent you from being able to buy the house you want. But hold on, there’s more…

Five Reasons Why Co-Signing is a Dangerous Move

1) No one can predict the future. What if the primary borrower gets hit with an illness and is hospitalized? What if he/she needs surgery and cannot work? What if the company they work for is sold or undergoes a restructure so that they are laid off work? What if they are a victim of identify theft? What if natural disaster strikes? What if they die in a crash? I don’t mean to be negative, but no one can promise with 100% certainty that the loan won’t pass on to you.

2) If the primary borrower does not make payments for any reason whatsoever, you are legally responsible for the loan. No exceptions.

3) The debt goes on your credit report. This could lower your credit score due to high balance-to-limit ratio and/or to debt load.

4) The debt goes on your debt ratio. This could prevent you from being approved to buy a house or an automobile.

5) It has the potential to harm, and even completely ruin, a good relationship. It’s happened more often than you might think.

Never co-sign for your girlfriend or boyfriend, not even if you are engaged to be married. That might sound extreme, but I’ve seen too many tearful people with unpaid debt on their credit reports that are leftover from a relationship that didn’t work out. Not only did the string of late payments ruin their score, but they were prevented from moving on with their lives in buying a home for themselves.

I’ve seen co-signing situations turn into lawsuits among family members.

Co-signing is dangerous. If you value your relationship, say no. Often people don’t realize what they’re asking, and if they did, they would not put you in such an awkward and precarious position.

If you feel reticent to say no, then blame it on me. Say, “I’d be happy to write you a letter of recommendation, but Carolyn Warren — whose advice I follow — says co-signing is dangerous and must not be done, ever, no exceptions.”

Make your friend or family member feel good with a nice letter. But whatever you do, DO NOT SIGN a legal agreement, not even as a co-signer.



How Mortgage Lenders Calculate Your Debt Ratio to Determine What Price House You Can Afford

kitchen counter top viewBefore you fall in love with that gorgeous home, figure out whether or not you can afford it. Remember this:

The one who holds the money makes the rules.

If the underwriter says your debt ratio is too high, you will be denied. (And be forewarned: the spreadsheet you made showing you can afford it means nothing. The underwriter will not give it a moment’s glance.)

As I mentioned in a previous post, your loan officer can calculate your debt-to-income (DTI) ratio for you. But what if you want to do it yourself? What if you want to double-check the loan officer? Here’s how it’s done.

1) Take your gross income (before taxes and other deductions). Use the highest figure on your W-2 forms. You must have been employed in the same line of work for the last two years in order to count the income. If you have a brand new part-time gig, it won’t count. If you have brand new bonus income, it won’t count.

For self-employed people, use the Adjusted Gross Income near the bottom of page one of your tax returns. Again, you must be self-employed for the last two years. If you have a new business, you cannot count your self-employment, even if it is in the same line of work as your previous W-2 job.

2) Add up your monthly outgo. Use all of the minimum payment obligations that show on your credit report. If you pay your entire credit card bill each month, you do not use that balance in your outgo; instead, use only the minimum payment required.

Do not count expenses that do not show on a credit report such as phone, utilities, cable, gas or bus, or grocery.

Add in the new proposed mortgage payment for the house you want to buy. Include principal, interest, taxes, insurance, and monthly mortgage insurance if putting less than 20% down. (You can use the easy calculator at here.)

3) Divide your total outgo by your gross income. This is your DTI. Most mortgage lenders want to see a max of 38% DTI, but some will go higher if the rest of your application is strong. The highest I’ve seen is 49% DTI with a 800 credit score and significant cash reserves.

For example, if your gross income is $5,000/mo. and your outgo is $3,000/month:

5,000 divided by 3,000 = 60 DTI. That is too high and will be denied.

You would then need to pay down debts and/or choose a less pricey house.

By knowing your price range, you avoid the disappointment of being denied. And again, if it seems too complicated to calculate yourself, all loan officers at mortgage companies and banks are happy to do it for you. They love using their handy HP calculators, so don’t hesitate to ask.

Happy house hunting! It’s a good time to own your own home.


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