Underwriting!

Everyone will hear this term approx. 306,429 times their lives, true fact. What is underwriting or an underwriter? An underwriter is not a machine, or a entity of some kind. An underwriter is just a person, like you and me. This is their job title, they are hired by banks, insurance companies, etc to assess the risk a person or a business has.
How does this play in getting a loan for a home?
As for a bank, their concern is the person borrowing the money going to pay them back or is the borrower going to not pay on the home. And this where the underwriter comes in. The underwriter has a set of rules and guidelines to follow that come down from Fannie Mae, Freddie Mac, FHA, the government. And they also have the rules of the bank they work for. There is no way around these rules, they have to be followed.
In the process of getting a home loan, let me tell you where the underwriter comes in. The borrower finds a loan officer; the loan officer gathers the necessary information for the underwriter. Passes the file to the processor for the loan officer, and from there it goes to the underwriter. This part of the process takes the longest. Period. The underwriter will look at the borrower’s current income and in the past, look at the current assets, look at their credit. She will scrutinize the borrower’s history. The more issues that come up with the borrower, the more in depth they get. The less issues the underwriter finds, the faster the file gets done. When the underwriter goes through a file, they will want more information to back up what was handed to them. This is not a big deal, it happens a lot, and usually what they ask for is not a big deal. And sometimes what they ask for makes NO SENSE. But you can’t fight it. And if you try to fight it, the underwriter will think you are hiding something and look more in depth, and will want more information from you. It will seem at times that the underwrite is against you, but they are not, it is their job to make sure you will not walk away from this loan. They are now being held accountable for the bad loans that they pass through.

My advice to you, the borrower, is be completely honest and open when buying a home, because the underwriter will find it and want it. If they don’t get it, you don’t get a home.

HUD Homes

HUD homes...what?! HUD stands for Housing and Urban Development; it is one of the cabinets of our government. This department has many duties in dealing with our communities and neighborhoods, but one particular job is when HUD occasionally takes possession of homes when the bank it insures forecloses. Such properties are then generally sold on the open market. Buyers of HUD homes as their primary residences who make a full-price offer to HUD using FHA-insured mortgage financing receive seller concessions from HUD enabling them to use only $100 down payment. That is all one needs, is $100 down payment, most of the closing costs are covered by HUD and you have a home.

There are two catches, 1) when these homes come on the market, they go fast, find a realtor in your area that specializes in these homes. 2) Usually these homes are in a "beat up" condition, i.e. ripped out carpet, holes in the wall, missing appliances, etc. (This happens because people blame the bank for them being kicked out of their home and to get back at them, they trash the home.) But banks have a way to take care of that problem. There are two programs out there that allow you to roll in the cost of fixing up the home into the loan for the home. One is called a Escrow Hold Back. An escrow hold back allows up to $15,000 worth of work to be done on a home, but has to be completed within 10 to 15 business days. The other program is a FHA 203 (k) loan. This loan allows up to 35,000 to be done on a home, within in 6 months. The costs of this type of loan are higher though and very few lenders offer this program.

HUD homes can be a deal and can be a good starter home for first time home buyers. The money saved from putting only $100 down, will allow you to invest in the home and increase its value.

Condos!!!

Condos are a place that makes most loan officers cringe. Since the downfall of last year, banks have become very strict on lending to condos. They see them as a risky investment and require a lot to get into. But still, banks will still lend money out for condos, with a higher interest rate of course. When you start looking for a condo, there are two questions you need to ask.

1) What is the occupancy level of the condo? That doesn't translate to how many people are living there, but how many people own there condo and live in it. People who rent out a condo do not count in the occupancy level. If it is less than 50%, you are going to run into some major problems. Usually you have to come to the table with at least 40% down payment to let them consider loaning you any money to buy it.

2) Is the condo a warrantable condo? A warrantable condo is a condo with features that lenders view as favorable in terms of their risk exposure on loans secured by individual condo units. Fannie Mae or Freddie Mac will not be able to buy the loans of condos if they are non-warrantable. To be warrantable, a condo must fit in one of these three classes:

CLASS I

1. Developers control of the homeowners association has been turned over to the condo owners
2. Project is not subject to additional phasing or add-ons which have not yet been completed
3. All common elements and amenities must be fully installed, completed and in operation
4. 70% of all units in the entire development must have been sold and or legally obligated to close
5. 70% of all units in the entire development must have been sold to owner occupants

CLASS II

1. Recent or current condominium conversions (from apartments)
2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years
3. Project is not subject to phasing or add-ons which have not yet been completed
4. All common elements and amenities are fully installed, completed and in operation
5. 70% of the units in the entire development must have been sold and/or legally obligated to close
6. 70% of the units in the entire development must have been sold to owner occupants
7. No more than 15% of the current unit owners are more than one month delinquent in payment of homeowners dues or assessments

CLASS III

1. Homeowners Association has been controlled by unit owners (other than developer) for at least one year
2. Project is not subject to phasing or add-ons
3. All common amenities are fully installed, completed, and in operation
4. 90% of the units have been sold (owner-occupancy of at least 60%)

A CONDO QUESTIONNAIRE MUST BE COMPLETED BY THE MANAGEMENT TO DETERMINE PROJECT ELIGIBILITY

It's not a easy process, but when it's done, it will be more than worth it.

Closing Costs!!!!

Closing Costs!!!! The word, COST, alone is bad enough. Just hearing that word sends hate, fear, anxiety through our system. No one likes costs, is uses up our money. But they’re necessary sometimes and you just can’t get around it. What’s even worse than just cost…closing costs. Those words together can REALLY upset someone who is trying to buy a house. It’s hard enough just to come up with the down payment, but now you have to come up with more money to get in that house. Closing costs exist because everyone wants their share of the pie. The loan originator, the bank, the title company, etc. But most people don’t know what these costs are, or they don’t know if the fee should be there or not. Usually closing costs are usually between 2% to 4% of the purchase price. The list below is the usual costs associated with buying a home or refinancing your home (Some states differ on what can and cannot be charged. Always compare your lender).

• Title Policies
• Escrow or Reserves
• Notary
• Wire fees
• Courier / Delivery
• Attorney fees
• Endorsements
• Recording Fees
• State, County or City Transfer Taxes
• Home Protection Plans
• Natural Hazard Disclosures
• Home Inspection
• Loan origination points
• Lender/Bank Fees

Now not all of these fees are paid by the buyer, sometimes the seller will pay some of these costs (It all depends on the deal that is worked out). When it comes to refinancing, usually all of these costs can be rolled into the new loan. But don’t sweat it; it will be worth it once you get into your new home!

Mortgage Terminology

Welcome to the start of my home mortgage education, learning, and curiosity blog. As you are going through the home buying process, one comes across many words that no one understands except the loan officer and the real estate agent. So to start off my blog, I would like to educate some of you curious readers with the common terms associated with getting a home loan.

Closing Costs
-Expenses incurred by the buyer and seller in a real estate or mortgage transaction. (I will get more in depth on this in the next posting)

PITI
-Principal, Interest, Taxes, Insurance

Earnest Money
-A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow/title company.

Equity
-The market value of the property, minus the amount of any liens/loans. Equity is often expressed as a percentage of the property value.

Escrow Account
-An account setup through the lender (bank) to hold over monies received from the borrower (buyer) to pay for certain debts. Usually setup for insurance and taxes.

Good Faith Estimate (GFE)
-The form that lists all the charges the borrower must pay at closing. The lender or loan officer is obligated to provide the borrower this form within three business days of receiving the loan application.

LTV
-Loan To Value. The percentage of the amount of the loan to the value of the home or the appraised value of the home. This helps determine the equity in your home.

Mortgage Insurance
-Insurance that covers the lender (bank) incase the borrower (buyer) defaults on the loan. Given out to borrowers that have less than 20% equity in the their home.

Points
-Fees paid by the seller and/or buyer. They can either be origination and discount . 1 point = 1 percent of the loan amount. Example, on a $100,000 loan, 1 point is $1000. Origination is what the loan officer charges the buyer, which can range from 0 points to 1 point. Discount points is what the lender charges the buyer, which ranges from 1 to 3 points.

80-10-10
-Rule for financing a home, 80 is the percentage amount of the home value the lender (bank) will loan up, 10 is the percentage amount the 2nd lender will loan up and 10 is the last amount provided by the borrower (buyer).

80-15-5
-Rule for financing a home, 80 is the percentage amount of the home value the lender will loan up, 15 is the percentage amount the 2nd lender will loan up and 5 is the last amount provided by the borrower (buyer).

Underwriting
-The decision whether to make a loan to a potential home buyer based on credit, income, employment history, assets, etc. This part of the process is carried out by the bank.