18 Sep 2015

Home Buying Process

Home Buying Process

Home Buying Steps / Process:

Step 1 – Getting Pre-Approved Prior to Shopping for a Home

It’s obviously important to know how much home you can afford, what type of down payment to budget for, monthly mortgage payment as well as what type of loan program you’ll be using to finance the new property.

Certain mortgage loans have residence type, HOA, appraisal or insurance restrictions that your agent needs to be aware of prior to showing you listings.

A personalized strategy session with a trusted mortgage professional should address all of your initial loan approval questions, as well as uncover any potential challenges that can complicate the entire transaction.

Step 2 – Assembling Your Home Buying Team – Knowing The Players

The home buying process has many steps, participating parties and potential challenges that can be overcome with the right team on your side.

Your agent, attorney, title company, insurance agent and lender all have important roles to play.

Buying a new home is literally a team sport since there are so many tasks, important timelines, documents and responsibilities that all need special care and attention.

Besides working with a professional team that you trust, it’s important that the individual players have the ability to effectively communicate and execute on important decisions together as well.

Step 3 – Purchase Offer Submitted

Assuming that you’ve already been given a mortgage approval and have a firm understanding of the type of property you are qualified to purchase, your agent will submit your purchase offer to a listing agent or seller.

Once you receive an accepted offer, the due-diligence period starts a series of timelines for final mortgage approval, appraisal, inspections and other requirements which would be spelled out in the terms of the contract.

Step 4 – Conditions and Paperwork

It comes in from all angles at this point, lenders, processors, insurance agents, sellers, real estate agents…. and the list can go on.

Step 5 – Closing

A successful closing requires all of the team players to come together at the same time, with the same agenda, on the same date…. with numbers and figures that match.

Related Home Buying Process Articles:

Renting vs Buying

Buying a home versus renting is a big decision that takes careful consideration.

While there are several biased sources that can make arguments for or against owning a home, we’ve found that most home buyers base their ultimate decision on emotion.

Cost, Qualifying, Freedom, Maintenance and Security are some of the main reasons for renting, as well as owning.

…….(read more about Renting vs Buying)

Seven Things Your Agent Should Know About Your Approval

While many experienced real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.

New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing.

…….(read more about Your Approval)

Important Factors To Consider When Purchasing A Foreclosure or Short Sale

Short sales, foreclosures and new construction homes all have caveats that need to be considered when pursuing financing.

If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or potentially even a denied loan.

Property Condition, Timing Challenges, New Construction Appraisal Process… are a few issues that your agent will need to have experience paying attention to in order to ensure a smooth mortgage funding and closing process.

…….(read more about Purchasing A Foreclosure or Short Sale)

First-Time Home Buyer Credit Checklist

Getting a new mortgage for a First-Time Home Buyer can be a little overwhelming with all of the important details, guidelines and potential speed bumps.

Since there are so many rules and steps to follow, we’ve put together a simple list of Do’s and Don’ts to keep in mind throughout the mortgage approval and closing process.

Consolidating credit cards, paying off collections and multiple inquiries on your credit report are a few things that could have a negative impact on an approval.

…….(read more about First-Time Home Buyer Credit Checklist)

…..

Frequently Asked Questions:

Q:  What Is The Difference Between A “Buyer’s” and “Seller’s” Market?

Simple economics is the rule of thumb here.

Everyone wants to “buy low and sell high,” but the truth of the matter is there is no way that can happen for everyone, every time.

Seller’s Market = More buyers than sellers

Buyers Market = More sellers than buyers

Q:  Where Does My Earnest Money Go?

The Earnest Money Deposit is credited back towards the buyer’s closing costs and/or down payment.

Any additional funds are given back to the buyer from the escrow company.

Q:  Do I Need A Home Inspection?

Some mortgage programs require a borrower to get a home inspection if it is mentioned in the purchase contract.

Either way, there are several reasons why it is important for a home buyer to have a licensed professional take a closer look at a property before the transaction is finalized.

…….(read more about home inspections)

Q:  Does it matter if I buy a home that is part of a Home Owner’s Association?

A Home Owner Association may have the power to determine the color of your home, the number of pets you have and the type of grass you have to plant.

They also may have the power to levy assessments, dues and fines.

Or, they may be as simple as collecting a few dollars per year to make sure the grass is cut in the common areas.

18 Sep 2015

Do I Need To Make Mortgage Payments If My Lender Goes Bankrupt?

Do I Need To Make Mortgage Payments If My Lender Goes Bankrupt?

When mortgage lenders go out of business and are essentially taken over by the FDIC, homeowners are left wondering if they still need to make a monthly payment.

Great thought, and a very common question for many borrowers in the 2006-2010 timeframe.

The short answer is YES, you still have to continue making mortgage payments if your current lender files for bankruptcy or disappears over the weekend.

In order to give a more thorough answer to this popular topic, we’ll need to address the relationship between mortgage loans as liens and mortgage servicers who make money by handling payments.

To put this topic in perspective, 381 banks actually filed bankruptcy between 2006 and 2010 forcing them to cease their mortgage lending activities. And a common misconception borrowers have about their mortgage company is that their agreement should become obsolete once the lender files for bankruptcy or goes out of business.

Based on the way mortgage money is made, packaged and sold on the secondary market as a mortgage backed security, the promissory note (agreement) is actually spread between many investors who rely on a servicing company to collect and manage the monthly payments.

A mortgage is considered a secured asset, where the collateral is real estate.  And, the mortgage note has a separate value to investors and servicers based on the interest and servicing fees they have wrapped up in the monthly payments.

This is why many mortgage notes get sold to other servicers who pay for the rights to service your loan. So basically, even if a mortgage company is bankrupt, someone else is willing to take on the job of collecting payments.

Also, by signing a mortgage note, the borrower is committing to continue making the required payments, regardless of what happens to the mortgage company servicing your loan.

Bullets:

  • Your house is an asset
  • The mortgage note has a separate value to investors
  • Regardless what happens to your mortgage company, you need to make your payments

Also, it’s important to continue making your mortgage payments on time, regardless of which servicing company is sending a monthly statement.  Obviously, keep a good paper trail of those mortgage payments in case there is a mix-up between transitions.

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Related Articles – Mortgage Payments:

18 Sep 2015

Shopping For A Hazard Insurance Policy

Shopping For A Hazard Insurance Policy

When shopping for a hazard insurance policy, something called “bundling” can actually save you quite a bit of money that most people aren’t aware of.

Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their hazard insurance policies to attract homeowners who need to insure not only their homes with hazard insurance, but also their cars with car insurance and lives with life insurance.

The big insurance companies want customers who will stay with them for years vs shopping around for a better deal every six months.  So, to give customers an incentive to stick with them, they offer discounts if you use the company for all three (hazard, auto, life) lines of insurance.

Companies offer “multiline discounts” to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure both your house and car than if you insured each one separately at different companies.

The same goes if you add a second car or a life insurance policy – the discounts keep adding up.

…..

Frequently Asked Questions:

Q. How much can you actually save when you combine insurance policies with one company?

It varies by company, but with some of the large insurance companies, it will save you up to 40%.

Q. Why are the large companies sometime so far off when it comes to price on my hazard insurance?

Large companies often give significant discounts if you have your hazard, auto and life insurance with them – and they actually *want* to be higher in price if you only have one line. People with only one line of insurance switch more often according to the statistics.

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Related Articles – Mortgage Payments:

18 Sep 2015

Who Owns My Home If I Have A Mortgage?

Who Owns My Home If I Have A Mortgage?

Many borrowers believe that when they purchase a property by obtaining mortgage financing, they also own their home.

Technically speaking, full ownership on a property only happens once the mortgage loan amount has been paid in full.

To break this down in more detail, there are a few components of a mortgage:

A Promissory Note is a document signed by the borrower acknowledging their commitment to pay the mortgage back with interest in a specific period of time.

In addition to the terms of repayment, the Note also contains provisions concerning the rights of both parties involved in the agreement.

In some states, a Deed of Trust is used instead of a Mortgage Note. The main difference is that on a Deed of Trust there is a Trustee, which the legal title is vested to in order to secure the repayment of the loan.

There are three parties involved with a Deed of Trust:

1) Trustor – This is the borrower

2) Trustee – This is the entity that holds “bare or legal” title, and is usually the title company which holds the Power of Sale in the event of default and reconveys the property once the Deed of Trust is paid in full.

3) Beneficiary – This is the lender that is getting repaid

Deeds of Trust are easier for lenders to foreclose on than a mortgage because there is no need for a judicial proceeding.

Mortgages on the other hand, have to go through judicial proceedings, which can be expensive and time consuming.

In summary, until you have your promissory note paid in full, you are not the only one with an ownership interest in your property.

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Related Articles – Mortgage Payments:

18 Sep 2015

Alternate Sources For Establishing Credit

Alternate Sources For Establishing Credit

While the basic Rule-of-Thumb for acceptable credit history is a minimum of four trade lines documented on a credit report, there are alternative methods of building a credit picture that an underwriter can use to make a decision for a loan approval.

For potential home buyers with little or no credit history, keeping records for 12 months of paying bills on time is essential for mortgage loan approval. In fact, loan officers will appreciate receiving proof that you have paid a variety of accounts regularly and on time. Even if you do not have a credit history, or your credit report isn’t as good as it could be, this may enable you to get a mortgage.

The industry term for this is “thin credit.”

Some loan types, namely FHA and USDA, will accept alternative credit sources in order to establish proof of financial responsibility.

Alternative credit is unreported to the bureaus, but will still be verified and can be instrumental in a home loan approval.

Those with thin credit don’t usually have bad credit, but have just not had an opportunity to build enough traditional credit, such as bank/store credit cards, auto loans, etc.

Alternative Sources for Building Credit:

  • Rental History – Canceled checks and letter from property management company
  • Medical Bills – 12 months of statements from medical billing company showing paid as agreed
  • Utilities – power, gas, water, cable, cell phone
  • Auto Insurance
  • Health / Life Insurance – as long as it’s not auto-deducted from pay check

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Related Credit / Identity Articles:

18 Sep 2015

Rule-of-Thumb Regarding The Number Of Credit Lines

Rule-of-Thumb Regarding The Number Of Credit Lines

While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.

Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.

However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.

A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.

Credit Trade Line / Approval Bullets:

  • Banks usually won’t count a trade line that is less than 12 months old.
  • The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
  • Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.

Exceptions to Trade Line Rules:

Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:

Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’

Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.

Another exception to this rule is if you have no FICO score, and no negative trade lines.

In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.

Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors.  A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.

*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof.  Lenders will need canceled checks and / or copies of bank statements to start out with.

Since not all companies report to credit bureaus, it’s possible to get a complimentary credit report at AnnualCreditReport.com to verify your total reported trade lines.

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Related Credit / Identity Articles:

18 Sep 2015

Ten Things You Can Do To Protect Your Identity

Ten Things You Can Do To Protect Your Identity

Facts About Identity Theft:

It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen.

The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).

And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.

What Is Identity Theft?

According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.

Victims of identity theft can spend months trying to restore their good name. And most victims do not realize it has happened until they get denied for a mortgage or a credit card.

Ten Ways to Protect Your Identity:

1.  Dumpster Diving –

Avoid “dumpster diving” by shredding all papers that contain any personal information.

Criminals sift through trash looking for the following:

-Bank Statements
-ATM Receipts
-Canceled Checks
-Credit Card Statements
-Credit Card Purchase Receipts
-Credit Card Solicitations (unopened “pre-approval” solicitations)
-Pay Stubs
-Tax Documents
-Utility Bills
-Expired Identification Cards (Drivers License, Passports…)
-Expired Credit Cards
-Medical Statements
-Insurance Documents

2. Personal Info / Phone Calls -

Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.

If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.

You should then call the company using the customer service number the company provides with your account statement. Do NOT call the number you were given by the caller.

To reduce the number of solicitations you receive, you can sign up at the do not call registry:

web: http://www.donotcall.gov
call: (888) 382-1222

3. Look Over Your Shoulder –

Avoid “Skimming and shoulder surfing” (Never let your credit card out of your sight).

Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.

According to Wikipedia:

“Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.”

Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card. They may also be listening for your credit card number.

4. Secure Your Mail –

Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.

Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.

-Get a P.O. Box.
-Lock Your Mail Box

Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.

5. Read Credit Card Statements -

Review account statements to make sure you recognize the purchases listed before paying the bill.

If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.

The quicker you spot any unauthorized activity, the sooner you can notify the creditor.

6. Monitor Credit Report -

Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately.

7. Email Links –

Never click on a link provided in an email if you believe it to be fraudulent.

Keep in mind, no financial institution will ask you to verify your information via email.

Criminals may link you to phony “official-looking” web site to confirm your personal information. This is known as “phishing”.

According to Wikipedia:

“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.

8. Opt Out –

Opt out of credit card solicitations. (Take your name off marketers’ hit lists)

You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.

You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:

Experian
Equifax
Trans Union

9. Safeguard Your Social Security Number -

Protect your Social Security number.

Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.

Do not put your Social Security number or driver’s license number on any checks you may write.

Only give out your Social Security number when absolutely necessary.

10. Read Privacy Policies –

Find out what company privacy policies are (know who you are dealing with).

When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy is.

Inquire as to why it is being asked for.

Ask who has access to your number.

Ask if you can arrange for them not to share your information with anyone else.

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Related Credit / Identity Articles:

18 Sep 2015

Closing Process

Closing Process

The home buying process is full of paperwork, important dates, contracts, market movements and checklists that can even overwhelm seasoned real estate investors.

One of the main reasons to make sure you’re working with a professional real estate buying team is the fact that you get to lean on their combined experience to ensure a smooth and painless closing.

Some agents and loan officers can close upwards of 20+ transactions a month.  Compared to the 5-7 homes an adult may purchase in his/her lifetime, you can obviously see where it helps to have a few trusted professionals in your corner.

Helpful Link: Talk The Talk – Know The Mortgage Lingo At Closing

The closing process can be argued as the most critical part of a real estate transaction where the most amount of things can go extremely wrong.  This is where that professional team will really prove their value.

If all of the initial questions, concerns, documents and contingencies were addressed early in the mortgage approval and home shopping process, then you should feel confident about walking into the closing with all bases covered.

However, we’ve listed a few bullets, links and frequently asked questions on this page to help highlight a few important topics you may want to be aware of during the closing process.

Six Prior-To-Closing Conditions That Can Delay Your Escrow:

Even though your lender may have provided a Pre-Approval and/or Mortgage Commitment Letter, there may still be several conditions that could delay a closing.

Sometimes buyers and agents let their guard down with the relief of getting closing documents to title, and they forget that there may still be a bunch of work to be done.

Prior-to-Closing conditions are items that an underwriter would require after reviewing your file, which could simply be an updated pay-stub, a letter of explanation of recent credit inquiries or more clarification on information found in a tax return.

Here is a list of a few Prior-to-Closing conditions you should be aware of:

1. Updated Income/Asset Documentation-

You may have supplied your lender with a mountain of documentation, but make sure you continue to save all of your new paystubs and financial statements as you move through the process. Chances are your lender will want updated documents as you get closer to closing.

2. Credit Inquires

If you have had recent inquires on your credit report, a lender may check to see if any new credit has been extended that may not yet actually appear on your report.

An inquiry could be for something minor such as a new cell phone, but can also be something that will impact your ability to qualify for the loan such as a car payment or another loan that you co-signed to help out a family member.

……(read more on Credit Inquires)

3. Employment Verification-

Your lender will be making sure you are still actively employed in the position that is listed on your loan application, and they will do this more than once in the process.

So make sure regular life events, such as maternity leave or a scheduled surgery, have been brought to your loan officer’s attention ahead of time.

Once an underwriter starts to uncover surprises, they may hold a file up for a while to do a bunch of unnecessary digging to find out if there are any other issues that the borrower failed to mention.

4. Funds for Closing-

Lenders will want to source where every dollar for the transaction is coming from and verify that it has been deposited into your bank account. If funds need to be liquidated from a retirement account or home equity line start the process sooner rather than later.

Sometimes lenders will not release all of the funds immediately after a large deposit so it is important to have these in place well ahead of your closing date. The same applies for Gift Funds-make sure the donor is aware of your time frame and is willing to supply the required documentation to your lender.

……(read more on Making Sure Your Cash To Close Comes From Proper Source)

5. Title and Judgment Searches

Typically, title and judgment searches are performed farther along in the mortgage process because they are not ordered until after you receive your mortgage commitment. These searches could reveal judgments against your name or the sellers along with liens against the property you are buying or selling.

Sometimes, even an old mortgage appears against the property since it was never properly discharged, or if you have a common name items could appear that are really not yours.

Either way, the underwriter and title company will want to be sure that these are cleared up before the closing.

……(read more on Title and Judgment Searches)

6. Homeowners and Flood Insurance Coverage

Lenders want to review your policy several days prior to closing to make sure coverage is sufficient and accurately account for it in your monthly payment.

Insurance coverage can sometimes be difficult to obtain depending on your past history with claims, credit, location and type of the property.

……(read more on Homeowners and Flood Insurance Coverage)

Items to Bring to Closing Appointment:

Your real estate agent and/or mortgage loan officer should be providing you with a final list of documents that need signatures or updated verifications, so the general list of items needed at closing is quite basic:

1.  Funds To Close –

If you are required to bring in a down payment and/or pay for closing costs to finalize the transaction, you’ll need to bring a certified check from a bank.  The escrow company, your agent and loan officer should provide you with a full breakdown of all fees / costs involved in the transaction.

While these final numbers may be more accurate than the initial Good Faith Estimated which was provided at the beginning of the application process, there will still be a small buffer amount added by escrow to cover any prepaid interest or other minor changes.

If you don’t have to bring in any funds to close, then you might actually be getting a portion of the Earnest Money Deposit back.

Keep in mind, it is important to make sure these funds to close come from the proper sources.

2.  Proof of Identification –

Official Drivers License or State ID card.  Passports will work as well.

……

Frequently Asked Questions:

Q:  Does It Matter Which Day of the Month I Close?

The date of your closing is all about how you view the money being applied. Pay now or pay later, but it will always be collected.

Let’s first look at how mortgage payments are broken down:

When you pay your rent for the month, you are actually paying for the right to live in the house for the upcoming month.

However, your mortgage payment is broken into four separate components; principle, interest, taxes and insurance (PITI).

The principle is paid towards the upcoming month, interest is paid towards the previous month and the taxes and insurance are deposited into an impound account.

As far as closing on a particular day of the month to save money on interest payments, it depends on the type of loan program you are using.

If you’re more concerned about successfully closing with the least amount of stress, then early to mid month is usually the best time to close.

Q:  I am refinancing an FHA loan, will it benefit me to close in the beginning of the month?

No, in fact FHA refinances should always close at the end of the month because you are responsible for the entire month’s interest.

Q:  Should I be concerned about the closing date on a conventional loan refinance?

Not really, however you can save a couple dollars by closing early in the month, just avoid closing on a Friday because you could be responsible for the interest on two loans over the weekend.

18 Sep 2015

Getting Financing On A Foreclosure, Short Sale or New Construction

Getting Financing On A Foreclosure, Short Sale or New Construction

Short sales, foreclosures and new construction homes all have caveats that need to be considered when pursuing financing.

If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or potentially even a denied loan.

Short Sales & Foreclosures -

Short sales and foreclosures are everywhere. They often represent great value when looking to by a new home.

However, they also present a unique set of problems that homebuyers need to be aware of and plan for.

1.) Property Condition

Typically, when homeowners are facing foreclosure or looking to short sell their house, it means they lack the financial means to pay the mortgage or maintain the property.

A property in poor health can cause many financing issues for traditional financing.  FHA loans have specific rules requiring that the property is move-in-ready, unless you’re using a 203(k) Rehab Loan.

2.) Timing Challenges

Short sales typically come with awkward timeframes for purchase contract approval and loan closing.

Each bank is different, but approval can take anywhere between a week to 120 days.  As a general rule, the larger the bank the longer it takes to get short sale approval.

The lack of a set timeframe for short sale approval makes the timing of loan submission, rate locks and closing very challenging. You have your approval conditions cleared to close on time, just to find out that new appraisals, income, employment and asset verifications need to be updated by an underwriter to cover the most recent 30 days. Worst case, purchase contracts and legal documents may have to be re-submitted to a bank for an updated approval.

Either way, be prepared for a lot of redundant paperwork when purchasing a short sale property.

New Construction -

Home buyers looking to purchase new construction using FHA financing will have more hoops to jump through than those purchasing through conventional (Fannie Mae / Freddie Mac) financing.

If you want to use FHA financing to purchase new construction then you need to be aware of a number of issues that can trip you up.

First, you MUST have a certificate of occupancy (C.O.) certifying that the property is complete and move-in-ready. If you do not have this then you typically CANNOT go FHA. You’ll need a renovation loan, but a FHA 203K WILL NOT work.

You’ll need to employ the Fannie Mae HomeStyle for a property without a C.O.

In addition to the C.O. you’ll need some combination of the following documents as dictated by your lender and your unique situation:

  • Builder’s Certification
  • One Year Builder Warranty (10 YR Warranty may be required)
  • Termite Inspection (when applicable)
  • Septic Inspection (when applicable)
  • Well Test (when applicable)
  • Construction Permits

There are a number of factors which go into exactly what combination of documentation will be required to satisfy your lender and FHA, so it is best to work with an experienced loan officer when purchasing new construction with FHA financing.

If you plan on using conventional Fannie Mae / Freddie Mac financing you’ll still have hoops to jump through, just not as many as FHA. You’ll also have a higher down payment requirement and the credit qualification guidelines tend to be stricter.

Whether it be FHA financing, conventional financing or renovation financing, it’s important to have a qualified home buying team in place that can lead you through the maze of paperwork and negotiations.

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Related Articles – Home Buying Process:

18 Sep 2015

Seven Things Your Agent Should Know About Your Mortgage Approval

Seven Things Your Agent Should Know About Your Mortgage Approval

While many experienced real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.

New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing.

With today’s volatile lending environment, it’s obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer’s scenario prior to spending any time looking at new homes with an agent.

Either way, we’ve listed a few of the top things your agent should keep in mind while showing you new properties:

Caution – Agents Beware:

Property Type –

High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House… all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.

Residence Type

Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city?  What if I’m buying a home for my children to live in, it is still considered an investment property?

These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.

Rates / Locks

Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders.  Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.

A 1% increase in rate could literally mean the difference between an approval or denial.

Headline News / Employment

Underwriters watch the news as well.  Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.

Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.

Title / Property Flip –

A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period.  Generally, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.

While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.

These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.

Homeowner’s Association Insurance

Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.

It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.

Appraisal Ordering Procedures

Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.

Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.

VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated delays in the purchase contract.

For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn’t smart to write a purchase contract with a four week close of escrow.

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