Tag: mortgage

Zombie Foreclosures Present an Opportunity for Investors

~ Carolyn Warren ~ 4 Comments
Unoccupied house
Unoccupied house

Who can blame a home owner for thinking his or her house has been foreclosed upon after receiving more than 200 letters from the bank stating it is taking over the property for nonpayment? But here’s the surprise: many of those homes were never actually foreclosed upon. The bank, after reviewing the value and equity, decided it was not worth their time or effort to complete the foreclosure. In the meantime, the home owner moved out and into a rental.

These zombie foreclosures — vacant homes — are a “growing problem,” according to Consumer Financial Protection Bureau (CFPB). The government committee is now (finally) planning to have a little chat about this issue.

Some investors have already taken action. They’ve contacted the homeowners and have paid them cash to be added to the title. Armed with this status, they’ve done the clean-up work on the property and have turned the houses into rentals. So while the bank has been snoozing, the investors have been collecting rental income.

Of course, none of this would have happened if the home owners would have executed a smart strategy on their own: stay in the house and live free until they were officially evicted. Before you cry, “That’s not fair!” let me remind you that it is better for everyone in the neighborhood to have people living in a house and keeping up the property, including the yard. No one wins when zombie foreclosures turn into ugly, unsightly, broken-down blights on the street.

Are More Zombie Foreclosures Set to Flood the Market?

Two million home owners who received a loan modification (a temporary reduction in interest rate in order to prevent a foreclosure) are set to have their mortgages recast. This means their temporary low interest rate period is coming to an end, and they are about to get an increase in their payments.

40% of these home owners are still underwater and will not be able to refinance or sell. That is 800,000 properties that could come flooding onto the market at bargain prices (as in a short sale) or turn into abandoned houses (if the home owners flee).

But the numbers don’t stop there. Another 18% of these modified home owners have only 9% or less equity in their homes. Since it costs approximately 8% to 9% to sell a home, they would walk away with nothing in their pockets for the effort of selling. What will they do in this situation?

What Happens Next?

Will the CFPB force lenders to extend the loan modifications, thus kicking the can down into the future?

Will another wave of foreclosures hit the market?

Will a solution to found for the problematic zombies already setting in neighborhoods like haunted houses?

What do you think?

Statistical sources: Housing Wire, OriginationPro

 

 

 

 

Shopping for a Mortgage to Save Money

~ Carolyn Warren ~ Leave a comment

house in countryWould you believe it if a loan officer told you “there’s really not much to compare” and therefore you should take her loan without first seeing an  estimate?

That’s what happened to a home buyer named Nicole recently. She and her husband wanted to buy a house in the country, so she called a local lender and asked for an upfront cost estimate for a USDA loan.

Much to her surprise, the loan officer tried to dissuade her from looking at the price tag. The loan officer wanted her to proceed sight unseen — without seeing the lender fees, possible junk fees, appraisal cost, credit report fee, escrow closing fee, title insurance fee, recording fee, or interest rate and monthly payment.

“The lender doesn’t control the fees, so there’s not much to compare,” crooned the loan officer.

Wisely, Nicole sent me an email and asked, “Is this true?”

My answer was a big NO, it is not true. It is the home owner’s right and responsibility to look at the fees before deciding whether or not to make a full application, including getting the credit report pulled and sending in all your financial documents.

Never fall prey to a loan officer who refuses to disclose their fees upfront.

Ask for a cost estimate or estimate worksheet. This is the new upfront Good Faith Estimate, thanks to lending laws passed by federal government. What used to be a GFE is now called a cost estimate, initial fees worksheet, or estimate worksheet. It contains all the figures you need to compare loans and decide which lender offers the best pricing.

Never commit to a bank, direct lender, broker, or credit union without comparing two or three cost estimates first. No exceptions.

For more information on this topic, including the mortgage industry’s dirty little secrets on getting rich at your expense, please see Mortgage Rip-Offs and Money Savers. Find out what lenders don’t want you to know, how to shop and compare, what to say and how to say it. Save yourself stress, regret, and thousands of dollars on your home financing.

How to Buy a House with Bad Credit: The New Sub-prime Loan

~ Carolyn Warren ~ 1 Comment

mortgage%20documentBad credit? Late payments? Recent bankruptcy? Low credit score?

You might be able to buy a house even with bad credit, as long you have a sufficient down payment. Sub-prime loans and hard money loans are still alive and available.

These loans are designed to be temporary. The idea is that the borrower gets into the home they want now, before prices go up further, and then cleans up their credit so they can refinance into a good conventional loan within a couple years.

Here are a couple scenarios for today’s sub-prime loans:

Bad Credit Scenario #1
Credit score 550
Down payment required: 30%
Interest rate: 9.25% with 1 point

Bad Credit Scenario #2
Credit score 550 with a foreclosure one year ago.
Down payment required: 45%
Interest rate: 9.625% with 1.5 points

The New Breed of Sub-prime Mortgages

The big difference between these loans and the sub-prime loans of pre-2007 is that a large down payment is required. When it’s time to refinance, the home owner has the equity to do so. In the past, sub-prime loans were offered at low down or zero down, which made refinancing impossible — especially when values dropped and they found themselves owing more than their property was worth.

Are Sub-prime Loans a Good or Bad Idea?

Personally, I would not pay the high price for a sub-prime loan. I would rather wait until my derogatory credit was cleaned up and then buy. However, I love having options. This is America, the land of opportunity. And there are situations in which it makes sense for both borrower and lender to take a sub-prime loan.

As always, your comments are welcome. (To comment, see top of this article.)

New Lower Credit Score Requirements to Get a Mortgage and Buy a House

~ Carolyn Warren ~ Leave a comment

creditscore1If you don’t have perfect credit, if you’ve had a delinquency in the past, and if your score is below “A credit,” then new lower credit score requirements by some lenders might be just the luck you need to buy a house.

The executives at the Fair Isaac Corporation have the results in from new research on credit scores and lending risk. It shows that borrowers with a credit score down to 600 should be an acceptable risk to mortgage lenders. Interestingly, this is a change from previous statistics; and the reason for the change is that consumer spending habits evolve over time.

Credit scores range from about 300 to 850. In the early 2000s, people with a scores of 640 to 680 defaulted on their loans more often than expected. As a result, many lenders raised their credit score requirement for a conventional loan up to 720 or 740. But now things have changed.

Current studies show that consumers with scores in the low to mid 600s are paying their mortgages on time more often than before. So the risk to lend to these good folks has gone down.

One thing you should know about the mortgage industry is that lenders watch what’s going on with other lenders. They watch their underwriting rules and their profitability. When they see a lender making more money, they copy what that lender is doing. (Isn’t that the way it is with most businesses?)

So now that mortgage giant Wells Fargo has lowered their credit score requirements, we can expect other lenders to jump on board the leniency train when they see Wells Fargo raking in significantly more business   — business that proves profitable.

Not only that, but small lenders and brokers who have a correspondent lending relationship with Wells Fargo can also get folks with lower credit scores approved now. (Or, you can go directly to Wells Fargo.)

I am excited about Wells Fargo’s announcement that they will approve a conventional loan for a borrower with a 620 score. That is a full 100 points lower than many lenders! And for FHA (the 3.5% down payment loan), they’ll go down to a 600 score.

Don’t mistake this for sub-prime lending. Back in the days of easy money, sub-prime lenders were going down into the 500 score range, even for no money down. I don’t see that extreme leniency coming back.

Please feel free to share this with others who might find this news interesting or helpful. Comments are welcome. (You’ll see the comment click at the top of this post.) Thank you for stopping by.

 

More People Now Buying Houses to Rent Out

~ Carolyn Warren ~ 2 Comments

For-Rent New stats are out. More people are buying single family houses to rent out. In the past, buying apartments or a duplex was common. Now, it’s the single family house that investors are buying.

And by “investor,” I’m talking about your neighbor, the “average Joe.” Buying real estate for income is not just for the super wealthy any more.

For example, Ricky said, “I bought an REO for $120,000 which had previously sold for $320,000 in Northern California. Put $26K down, financed $94K at 5% on a 30 year fixed mortgage, payment is $515 and rent is $1,300/mo.”

“We’ve seen some pretty dramatic trends as of late in the market ,” said MBA Vice President of Commercial/Multifamily Research Jamie Woodwell, speaking to a conference about the increase of buying single family homes as rentals.

12% of American households are living in a rented house.

55% of American household are living in a house they own (or are buying).

Who Rents and Who Buys?

The largest group of renters are age 25 to 35. Then the race to own a home begins. Those in the age bracket 35 to 55 are quickly moving into home ownership.  They’re looking at the future and realizing they don’t want to pay for someone else’s mortgage forever.

“You’ll Always Need a Home,” said Suze Orman.

People who don’t opt to buy will be renting; and that is exactly why more people are buying a second house, to fill that need.

Mortgage Requirements to Buy an Investment Property

A quick summary of basic requirements for a mortgage on a non-owner occupied home:

* Down payment of at least 20%. But 25% gets you a significantly better interest rate.

* Six months’ reserves in savings (so you’re prepared for months without a renter).

* Excellent credit, usually a 740 score. Below 740 will cost you a higher interest rate.

A Word of Caution

Before buying a rental property, carefully consider the “rent-ability” of the property, your own financial stability, and your own tolerance for risk. It is wise to consult with a financial adviser. In addition, make sure the loan officer you choose is experienced in doing non-owner occupied loans. You don’t need a newbie making mistakes during your loan process as they learn the ropes for this type of mortgage.

 Source of statistics: Origination Pro

 

 

 

 

 

How to Shop for a Mortgage Loan

~ Carolyn Warren ~ Leave a comment

house beautiful back With lenders refusing to give out a Good Faith Estimate, how can you shop for a mortgage without submitting your W2s, tax returns, and social security number?

Easy. Call and ask for a cost estimate or fees worksheet. This is the new upfront GFE. They are happy to give you this without pulling your credit report, based on the verbal information you provide.

New lending laws say that the Good Faith Estimate is a contractually binding document. (Since when is an estimate a contract, right?) This has forced banks and mortgage lender to rename the upfront estimate. And here’s something that might surprise you…

I prefer the upfront cost estimate or initial fees worksheet over the new, convoluted, inefficient, three-page GFE designed by the Fed committee. So go ahead and use the same shopping method, including the scripts for what to say, in Mortgage Rip-Offs and Money Savers and in Homebuyers Beware–just substitute cost estimate for Good Faith Estimate.

Don’t Shop By Email

Notice that I recommend calling on the phone, not shopping by email. Why? Because it is important to listen to the loan officer’s response. Listen to the tone, to how he/she answers your questions. Listen for straightforward answers and for dancing around the topic. This will go a long way in determining if you are working with an honest, easy-to-communicate professional or a dishonest scammer. You cannot get that by email, so don’t be lazy when it comes to something this important.

Confused By the Worksheets?

As with the old GFE forms, the new worksheets come in different formats from different banks and lenders. They call their lender fees by various names, and they place them in various places throughout the forms. This makes it difficult to choose the best loan if you’re not an expert working in the business. This is where I can be of help.

I am not doing loans myself now, so I have no vested interest in any particular mortgage lender. I am truly an unbiased expert source. If you would like me to review your worksheets and/or GFEs, you can email them to me. I will check the interest rate, fees, missing information, bogus charges, etc. Then we will have a 20 to 30 minute telephone conversation. I will give you my opinion and answer all your questions so that you can proceed with confidence.

For details, please see the page at the top called Review My Estimate. I’ve saved folks many thousands of dollars and sleepless nights. It’s what I love to do.

As always, thank you for reading my blog.

 

Seller Financing Bypasses Bank Rules

~ Carolyn Warren ~ 1 Comment

????????????????????????Having trouble qualifying for a home loan with your bank or local lender? Getting frustrated with tight underwriting rules? If so, seller financing might be for you.

Seller financing is when the seller allows you to make payments directly to them, bypassing the bank and Fannie Mae. If the seller does not need all their cash immediately, they might be happy to let you make payments and collect the interest for themselves.

Here is how a typical seller-financed loan works:

1) Most sellers will carry the contract for five years. After that, they want to be cashed out. Thus, the loan is amortized for 30 years with a 5-year balloon payment. This gives you the lower payment a 30-year loan would have, but at the five-year mark (or sooner), you would refinance with a bank loan. This gives you plenty of time to get your credit and debt ratio in compliance with Fannie Mae underwriting.

2) Make sure there is no prepayment penalty so you can refinance sooner than five years, if you choose.

3) A typical interest rate for seller financing is 8% to 10%. Remember, the seller is taking a risk that the lender was not willing to accept, so you have to pay for that. This is also why you want to refinance out of seller financing as soon as you can, preferably after one year. On a short term loan, interest rate is not as significant as for a long term loan.

You should have a real estate attorney write up the contract. It should include the amount owed, the interest rate, the principal and interest payment, that it is a fixed rate, that there is no prepayment penalty, what day of the month the payment is due with a 15-day grace period, and what the late penalty is if you are late (typically 5%  of the payment). It should also spell out the terms of the 30-year amortization and 5-year balloon payment. Do not sign the documents unless you completely understand all the verbiage.

You should also hire an appraiser to verify the value of the home and a home inspector so you know exactly what the condition of the home is. Do not bypass these important steps.

Seller financing is not for everyone, but it has worked very well for others. One home buyer who could not qualify for bank financing, due to a bankruptcy that was less than two years old, was able to work out seller financing at only 5%. That enabled them to get into a home of their own sooner, and they were very happy as a result.

 

 

 

Using Money From Family for Your Down Payment

~ Carolyn Warren ~ 3 Comments

Money in hand Home buyers who are a little short on cash sometimes ask, “Can I get a loan from a family member to help with my down payment?”

Or, “Can I take a cash advance on my credit card to help with my down payment?”

The answer to both questions is no. Your down payment must be either your own money or gift money from family or grant money from an acceptable source. No part of your down payment can come from a loan, not even from your mom. No exceptions.

If a family member is providing cash toward your down payment, then they will need to sign a form letter stating it is a gift and no repayment is required. Usually, they also need to show the source of their gift money by providing a bank statement(s) or other document such as investment statement.

Why can’t you take a loan from your parents for a down payment? Because the lender thinks that if you get into financial trouble and have to make a choice between paying mom and dad or the mortgage bank, your family ties will be stronger and the bank will lose out. Therefore, it is an unacceptable risk to lending. The bank is not going to take “second position” behind your family.

Any other loan, such as a cash advance from a credit card, is also unacceptable. This would affect your debt ratio as well as put the bank at a higher risk for getting paid.

For a small down payment of only 3.5 percent of the purchase price, look at the FHA loan. FHA allows all of your down payment to be gift money from family.

If you are eligible for a VA loan, you may qualify for a zero down loan.

The no-down sub-prime loans of yesteryear are gone, and I think that’s a good thing. It takes time and discipline to save for a down payment and closing costs, and that’s not a bad thing either.

Do Lenders Go Too Far in Collecting Personal Data on Home Buyers?

~ Carolyn Warren ~ Leave a comment

underwear I once had a client ask me, “What does the underwriter want to do next, look in my underwear drawer?”

Interesting question! Especially since more data is collected nowadays than ever before. Here is a list of personal information that lenders collect and the reasons why.

   8 Things Your Lender Will Ask When You Apply for a Mortgage

1) Age. A person must be at least 18 years old to qualify for a mortgage. It is illegal to discriminate based on age. Thus, a 95-year old can get a 30-year loan. It is illegal to charge young borrowers or old borrowers more based solely on age.

2) Race/Ethnic origin. It is illegal to discriminate or charge certain races/ethnic groups more than others. In Mortgage Rip-Offs and Money Savers (p. 211), I tell how some lenders get around that regulation and why minorities often pay more–as well as how you can prevent that from happening to you.

On the loan application, there are boxes to check for your race/ethnicity. One of the boxes says you prefer not to give that information. However, if you check the non-reveal box, the loan officer is required by law to take a guess and check one of the boxes. For people who are of mixed race, loan officers often get it wrong. Or if the loan officer isn’t good at telling whether you are Italian, Hispanic, or a Pacific Islander, you could easily have incorrect personal information in your file. Maybe you don’t care; it is up to you to decide whether to let the loan officer take a guess or to state the information yourself.

3) Marital status. This information is required, because in community property states it is illegal for a married person to sign for a mortgage loan without the spouse knowing about it. The non-borrowing spouse must sign documents of acknowledgement and consent, even if he or she is not on the loan contract or title.

4) Sex. On the loan application, there is a box for male or female. The purpose is for government agencies to verify that lenders are not charging women more than men. Lenders do not ask or care whether you are straight, gay, or other. So when you see an ad that says, “All people accepted here,” that is not special to that institution. The law says all people are accepted at all lending institutions.

One of my coaching clients said his Realtor told him and his partner to go to a certain mortgage bank “because they accept gays.” The Good Faith Estimate he received was an over-priced loan. I told him that all lenders accept gays; and in fact, they don’t ask and they don’t care. Knowing this enabled him to go get a better priced mortgage.

5) Number of dependents. This refers to number of dependents under age 18. If you’re supporting an elderly relative or a 22-year old college student, you need not include that person as a dependent, because it is considered voluntary. On the other hand, children must be cared for, and the number of dependents you support is a factor is determining the allowed debt-to-income ratio. A family of ten needs more money for groceries than a family of three, so more disposable income is required.

6) Income Verification. You must show you have enough income to handle all your current obligations plus a new mortgage with taxes, insurance, and the monthly mortgage insurance fee, if applicable. The current guidelines say your debt-to-income ratio should be no more than 43%; however, there are exceptions.

7) Two-year employment history. Income stability is an issue. For self-employed people, your business license must be at least two years old. If you’re thinking of quitting your salary job and making a go of your own business, buy a home first or wait two years. It is acceptable to change jobs within that two-year period, so don’t pass up an opportunity for advancement. The “No Employment Required” loans of the sub-prime era are gone.

8) Asset Verification. Lenders require two to three months’ statements showing assets. You must verify where your down payment money is coming from. If it is gift money, that must be verified. No secret side loans for your down payment! No taking a cash advance on a credit card for your down payment! And, you’ll need to have some cash reserves left in your account after your loan closes, so you can’t use every last dollar you have.

In addition, a lender may ask for anything and everything else they believe they need. 

Sometimes borrowers ask, “Do they really need that?” And, “Why do they need that?” Or, “Can they ask for that?”

Those are valid questions, and you have the right to know. Feel free to ask your loan officer why. A good, experienced loan officer should be able to answer your questions. If they don’t know the answer, they should offer to ask the underwriter and then let you know. Underwriters don’t speak with borrowers directly; that is your loan officer’s job.

If you have more questions or comments on this topic, feel free to ask. I promise to answer. You’ll see the comment button at the top right of this column.

Where Are Mortgage Interest Rates Headed?

~ Carolyn Warren ~ Leave a comment

rate cutInterest rates are down today! In the past two months, we’ve seen rates go from 4.75% down to 4.375%. Some aggressive lenders might even offer 4.25% to their best borrowers with high scores and large down payments today. So what’s going on?

Why did economists predict higher rates for 2014 when we’ve seen this drop in January? Does this mean they were all wrong and that rates are headed down again?  There are good answers to those questions.

First, mortgage interest rates do not go up in a straight line. On a graph, rising rates will look like an upward zigzag. Right now, we have a dip. This does not mean rates won’t turn around and go up again. That could happen very fast on Friday, which I’ll explain in just a moment.

Second, there are many factors that go into interest rates. This recent rate drop is largely due to December’s weaker than expected jobs report that came out in January. Investors try to anticipate what will happen, so if the unemployment report ends up being worse than expected — even if it is improved over the previous month — then that is bad economic news and rates drop.

Will Mortgage Interest Rates Go Up or Down From Here?

Friday, February 7, the January Jobs Report will be released. The results will be influential in which direction rates go. On the days between now and Friday, investors will be speculating, so we could see some volatility in rates. If the report shows a stronger hiring economy than expected, rates will go up — and that could happen very quickly. On the other hand, if the report shows a weaker hiring economy than expected, rates will go down. No one can say with absolute certainty what will happen.

My philosophy on rate locking is this: Lock the dips and be happy. If you see a rate you like, lock it and be happy. Even if rates go lower after, you still got a rate you liked, so remain happy. Once you lock in, stop watching rates. Why drive yourself crazy? But until you lock, watch rates and keep in touch with your loan officer on a daily basis.

A Few Rules About Rate Locks

Once your interest rate is locked in, you don’t have to worry if rates go higher. You are locked. A rate lock is a commitment from an investor to give you a certain loan amount at a certain rate, with certain points (or no points).

The rate lock is tied to a property address, so you cannot lock in your rate before you have a purchase contract. If you are refinancing, then you can lock at any time.

Once your rate is locked in, you have a commitment. That commitment cannot be broken if rates go down the next day. That would be like a husband asking his wife for a divorce the day after the wedding because a more attractive girl came along. That said, there are some lenders that will compromise if rates go down significantly. For example, if rates drop by .5%, they are willing to drop your rate by .25%. But if rates go down by .125% or .25%, don’t expect to get a lower rate. That is not a change that is worthy of a compromise.

The loan officer should never decide when to lock in the interest rate. It is your financing and your decision. Don’t stick your head in a bag and expect your loan officer to predict the future of rates for you. You must be the one to tell your loan officer when to lock in your rate.

After your interest rate is locked, GET IT IN WRITING. Failure to do so is a mistake on your part. How do you know the loan officer actually locked in your rate if you don’t get it in writing? What about the many people who were told their rate was locked, but then, to their horror, found out later that the loan officer failed to do so, and now they were stuck with a higher rate? Learn from their mistake and get your rate lock in writing.

For other vital tips like this, see Mortgage Rip-Offs and Money Savers. I suggest the paperback over the Kindle version, because the Good Faith Estimates cannot be read on the Kindle version. In this book, I put at least eight different (actual, real) Good Faith Estimates from banks and brokers with my comments on their junk fees, hidden fees, lender credits, and more.

If you found this information on mortgage interest rates to be useful, please pass it on by clicking the social media icons and/or emailing the URL to those who might be interested. Thank you.