Were there bad times and bad credit in your past? Are you looking to make a fresh start and buy a home? Here are the guidelines for buying a home with the Fresh Start Loan Program.
* No waiting period after a bankruptcy (BK), short sale, deed-in-lieu, or foreclosure.
* However, the short sale or foreclosure must be completed, not pending, at the time of application.
* Chapter 7 BK must be discharged.
* Chapter 13 BK must be filed, but it can be open with payments being made on time. The court needs to approve the purchase.
* Property can be a detached house, a warrantable condominium, or a one-unit cooperative. (Not a manufactured home.)
* Debt-to-income ratio up to 50% DTI. (55 DTI with compensating factors, but I don’t recommend it.)
What’s the catch?
With such generous approval guidelines, is there a catch? Yes, you must have a good down payment to show that you are willing to take a risk on yourself. What does that mean?
If you aren’t willing to put money into the deal, then the lender feels like it’s too easy for you to walk away and leave them taking on the expense of reselling the property. They don’t want that! They want a home owner who is back on track financially and will make all their payments on time.
The silver lining is that the down payment can be gift money from family. Or, if you have 5% of your own money, the remainder can be a gift.
Here are the Down Payment Requirements
640 credit score = 15% down payment required
620 credit score = 20% down
580 credit score = 25% down
The credit score is the middle score out of three scores from Equifax, Experian, and TransUnion. The lowest score is ignored. The credit report is pulled by the lender.
How to Get a Loan with Fresh Start
Your mortgage broker can get the Fresh Start loan program for you through their wholesale channel. This is not a program you get at a bank or credit union. You get it through a broker. If you’re in California or Washington (and soon Oregon), then I can be your broker. For other states, find a broker in your area.
There are other non-prime loan programs available, but I wanted to highlight this program today, because of its generosity with no waiting period after a major derogatory credit event.
As always, thank you for reading my blog and passing it on to anyone who might benefit from the information.
Is 2018 your time to buy a home? If so, here is a Short List to help you reach your goal.
SHORT LIST TO HOME OWNERSHIP
1) Check your credit.
- Have or establish clean credit for 12 months so the lender can see you are on track financially. One late payment can be excused with a good explanation.
- To qualify for the best interest rate, you want the following credit score:
- FHA with 3.5% down payment: 620 to 640
- Conventional with 3% down payment: 640
- Conventional with down payment assistance: 640
- VA with zero down: 580 to 620
- USDA with zero down: 640
2) Save enough money for your down payment and closing costs.
Now is the time to cut spending and save money. The sacrifice is worth the reward.
3) Avoid opening new accounts.
Do not open a new credit card, line of credit, take out an auto loan, or acquire any other type of financing for the six months prior to buying a home, because doing so could hurt your credit score and/or your debt ratio for qualifying.
“Buy the house first. Buy the car later.”
4) Leave your bank accounts as they are.
Don’t move money around during the three months prior to or during your loan application, because doing so will complicate your loan file and require you to submit more documentation and letters of explanation.
5) Get the cash out of your home!
If you have money stashed in a home safe or hiding under the mattress, get that money into a bank account immediately. Cash is “poison money” and cannot be used for a home loan. The funds must be seasoned in your bank account for three months prior to loan approval.
Home Ownership is both emotionally and financially rewarding. Doing the work to get there is worth the effort.
Happy 2018, Everyone!
Jesus Is Born
2 At that time the Emperor Augustus ordered a census of the Roman Empire. 2 This was the first census taken while Quirinius was governor of Syria. 3 All the people went to register in the cities where their ancestors had lived.
4 So Joseph went from Nazareth, a city in Galilee, to a Judean city called Bethlehem. Joseph, a descendant of King David, went to Bethlehem because David had been born there. 5 Joseph went there to register with Mary. She had been promised to him in marriage and was pregnant.
6 While they were in Bethlehem, the time came for Mary to have her child. 7 She gave birth to her firstborn son. She wrapped him in strips of cloth and laid him in a manger because there wasn’t any room for them in the inn.
Angels Announce the Birth of Jesus
8 Shepherds were in the fields near Bethlehem. They were taking turns watching their flock during the night. 9 An angel from the Lord suddenly appeared to them. The glory of the Lord filled the area with light, and they were terrified. 10 The angel said to them, “Don’t be afraid! I have good news for you, a message that will fill everyone with joy. 11 Today your Savior, Christ the Lord, was born in David’s city. 12 This is how you will recognize him: You will find an infant wrapped in strips of cloth and lying in a manger.”
13 Suddenly, a large army of angels appeared with the angel. They were praising God by saying,
14 “Glory to God in the highest heaven,
and on earth peace to those who have his good will!”
15 The angels left them and went back to heaven. The shepherds said to each other, “Let’s go to Bethlehem and see what the Lord has told us about.”
16 They went quickly and found Mary and Joseph with the baby, who was lying in a manger. 17 When they saw the child, they repeated what they had been told about him. 18 Everyone who heard the shepherds’ story was amazed.
19 Mary treasured all these things in her heart and always thought about them.
20 As the shepherds returned to their flock, they glorified and praised God for everything they had seen and heard. Everything happened the way the angel had told them.
Help is coming for people who are drowning in collections and debt. And for people working on fixing their credit.
The Consumer Financial Protection Bureau (CFPB) is going through certain proposals to overhaul the debt collection industry. The idea is to stop abuse and make sure collectors are following proper protocol. But in this overhaul, there is good news for folks who are suffering from charge offs or collections on their credit.
First, the CFPB is going to put a new limit on how often the collector can contact the person owing money. They want to stop the harassment that sometimes happens.
Second, they will be required to disclose more details, which will make it easier for people to dispute inaccuracies.
Third — and this is a big one — collectors will not be able to pursue collecting money during the dispute process without providing sufficient evidence.
Furthermore, these rules also apply if the account is sold or transferred to another collection company.
As I said, this is all being reviewed by the CFPB now. Stay tuned for more information as it becomes available by subscribing to this blog (on the right side). And please pass on this information to others who are struggling with debt, imperfect credit, or who are professionals in the mortgage or real estate industry.
Many thanks to photographer Ian Espinosa for the free use of his photo.
“Buy low, sell high.” We’ve all heard that stock market advice. So how does it apply to buying a home?
During the holidays, fewer home buyers are out there looking. People set aside this time for shopping, parties, travel, and celebration with family. They postpone their dream of becoming a home owner until after the New Year. Thus, December is the perfect time for YOU to make an offer on a home.
With less competition, you have a better chance of getting a Purchase Agreement at the seller’s best price.
My advice is to go for the home purchase now. You can set your closing date after Christmas when it is a convenient time for you to move.
First step: Get pre-approved for financing and obtain your pre-approval letter.
Second step: Contact your local real estate agent for help in locating a home and presenting the offer.
Best wishes and Merry Christmas!
Both Fannie Mae and Freddie Mac announced today that they are raising the loan amount for conventional loans for 2018. This means home buyers can borrow more money without having to take a jumbo loan (with a higher interest rate and tougher approval requirements).
For most of the U.S., the new loan limit is $453,100. For 2017, it is $424,100.
For “high cost areas” the new loan limit is $670,650. (These are areas in which 115 percent of the local median home value exceeds the baseline conforming loan limit. The calculation is 150% of $453,100.)
For a map showing the loan limits by county, click here.
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“Would you like to open a store credit card and save 10 percent on your purchase today?” asks the helpful clerk.
“No thank you, I don’t wish to lower my credit score today,” I say with a smile. I am ready for the question she will ask next: why?
But no, the clerk looks bored. She doesn’t care about credit scores or financial well being. She’s supposed to promote their store credit card by dangling the bait in front of every customer.
Holiday shopping is an optimal time for retailers to scoop in more debtors who will give in to temptation, overspend, and end up paying 20.99% interest.
Two Ways a New Credit Card Can Lower Your Score
1) A retail store credit inquiry is the most damaging inquiry you can have. It hurts more than an auto or mortgage inquiry, especially if you have several within a short time frame, like the month of December. It stays on your credit report for 24 months.
2) Opening a new score can lower your overall credit history and thus lower your score. For example, if you’ve had one credit card for five years and one for three years, your average credit history is four years. If you now open two new cards during the shopping season, you instantly lower your credit history to an average of 2 1/2 years. Bam! Your score is docked.
(36 months + 60 months + 1 month + 1 month = 98 months ÷ 4 = 24.5 months)
True Story of an Angry Shopper
A nice couple came to me for pre-approval to buy a home. “My wife’s score is 800,” the husband said proudly.
Unfortunately, he was mistaken. It had been 800 in the past, but it was not now. Her score had dropped to the mid-700s. Why? Because while shopping, she accepted a credit card to save 10 percent. When she learned it had lowered her score, she was mad–especially since she decided not to purchase the item after all. So, she’d saved no money and had lost her impressive credit score.
If You Already Have a Long and Varied Credit History…You Are the Exception
If you’ve had credit established for 10+ years and have a good mix of credit cards, auto financing, and a mortgage or two in your past, then you won’t be harmed by opening a new store card. If you really want that card, go ahead and get it. Just don’t go overboard by opening up half a dozen new cards or you will likely see a negative impact on your golden score.
Please pass on this information to other good folks via social media and email, because no one needs to have their credit score dropped over a needless store card--especially if they plan to apply for financing in 2018!
Five things I am thankful for this holiday season:
1) For all the good folks who took the time to email me their success stories after reading my books.
2) For living in a free country where all individuals can buy their own home without regard to race, color, religion, national origin, sex, marital status, age (as long as the legal age is met), or whether they receive public assistance.
3) For employment and the ability to shop wholesale lenders to find the best loan at the best price for my mortgage clients.
4) For friends and family, business associates, my sweet yet feisty kitty.
5) Most of all, for the grace of God and salvation through Jesus Christ our Lord.
Happy Thanksgiving to all!
Richard Cordray, the Director of the Consumer Financial Protection Bureau has announced he will resign at the end of this month. Cordray has been at the epicenter of controversy.
His official statement is below:
“It has been a joy of my life to have the opportunity to serve our country as the first director of the Consumer Bureau by working alongside all of you here,” he wrote. “Together we have made a real and lasting difference that has improved people’s lives.”
It has been the position of many that he used the lack of Congressional Oversight to abuse the power bestowed upon him. During a hearing in April, Rep. Jeb Hensarling, R-Texas, who chairs the House Financial Services Committee, called for Cordray to be fired.
“For conducting unlawful activities, abusing his authority, denying market participants due process, Richard Cordray should be dismissed by our president. Not only must Mr. Cordray go, but this CFPB must go as well,” Hensarling said.
Let’s hope the next representative represents the interests of American citizens in a fair and ethical manner.
If you’re a first-time home buyer (or haven’t owned real estate in the last three years), ask your loan officer about “The 97 Loan.” The down payment required is only 3%, and it’s a cheaper loan than FHA’s first-time home buyer loan.
Too often, banks and other lenders push the FHA loan, and here are two reasons why:
- The FHA loan is a big profit-maker for lenders.
- Loan officers think about the 5 percent down conventional loan and forget about The 97 for first-time buyers.
Compare FHA to “The 97”
FHA has an upfront mortgage insurance fee of 1.75 percent. The 97 has no upfront fee.
FHA’s monthly mortgage insurance fee lasts forever. The 97 Loan’s MI fee can get dropped when you have 20-22 percent equity.
FHA down payment is 3.5%. The 97 Loan is 3%.
How to Qualify for The 97 Conventional Loan
- Credit score must be at least 620. (Some lenders want 640.)
- Bankruptcy must be discharged for 24 months.
- Debt-to-income ratio should be 43% max, based on gross income (before deductions).
- Maximum loan amount is $424,100. Maximum price is $436,216.
Getting Together the Down Payment Money
The down payment money may be from your own verified funds or from family. Unverified cash is not allowed, meaning get that dough out of your safe into a bank account now.
You can also get creative and borrow money from your retirement account. Or, you can sell something like a car or motorbike, as long as you show the bill of sale and matching deposit receipt into your bank account.
Enough already! Pick up your phone. Tell your loan officer you want to get pre-approved, then call your real estate agent and go find a home to call your own!
If you’re in California or Washington, click here to reach me.
Please share this with others who want to become a home owner.