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Buyers Should Be Careful About Credit Use Prior to Closing

Tue, 22 Jun 2010 11:04:00 -0500

Buyers Should Be Careful About Credit Use Prior to Closing

by Bob Hunt

Buyers and their agents need to be aware that it is a very bad idea for buyers to increase their credit balances or to open new lines of credit shortly before they close escrow on their new home. More specifically, they should avoid such activity during the period of time between loan application and closing. This is because policies under Fannie Mae's Loan Quality Initiative, effective June 1, 2010, requires lenders to "refresh" a borrower's credit report just prior to closing.

Here's what happens: Bill and Betty Buyer are excited to make an offer on a home they just love. They realized that they are stretching, but the loan officer has pre-qualified them and is confident that they will receive full loan approval. When formal loan approval comes, then, they are ecstatic. In eager anticipation of closing, they visit their favorite furniture store and purchase (that is, charge) a new bedroom set, dining room furniture, and a sectional that will be perfect for the family room. It all adds up to a pretty penny, but they are confident that they will be able to pay it off in a timely manner. Things are going well at work. What could go wrong?

Well, here's one thing that could go wrong: Following FNMA's guidelines, the lender runs an updated credit report on Bill and Betty just before closing. With their newly-acquired credit balance, Bill and Betty no longer meet the required debt-to-income (DTI) ratio in order to qualify for their loan. The loan is pulled. Sadness reigns.

Fannie Mae's Loan Quality Initiative was introduced in a lender letter February 26, 2010. The letter noted that, during the past three years, the need had been highlighted "for an improved approach for working with lenders to deliver loans that meet Fannie Mae's underwriting and eligibility guidelines." In other words, the loans that had been delivered to Fannie Mae turned out too often not to meet Fannie Mae guidelines. Regrettably, this tended to be discovered well after Fannie Mae had purchased the loan. The idea of the Loan Quality Initiative, which was to become effective June 1, 2010, was to focus "on capturing critical loan data earlier in the process and validating it before, during, and immediately after loan delivery."

Borrower qualification was not the only issue of concern. Among others were determining owner occupancy, verification of social security numbers, a new policy on excluding certain entities from Fannie Mae loans, and updated quality-control requirements.

Technically speaking, the Fannie Mae guidelines do not require that updated ("refreshed") credit checks be performed for borrowers. Fannie Mae states that "It is the lender's responsibility to develop and implement its own business processes to support compliance with Fannie Mae's requirements on loans delivered to [Fannie Mae]." But, in the same memo, Fannie Mae does provide "tips for lenders to consider." One of those tips is "Refreshing a credit report just prior to closing … ."

Does anyone think that a lender who sells its loans to Fannie Mae is going to ignore such tips? Hardly.

The tips point out that not only might a refreshed credit report show newly-acquired debt (as in the example), but also that it may show new credit inquiries. "Credit inquiries listed on the credit report should be investigated to determine whether the borrower did in fact open additional credit resulting in repayment obligations." Don't go buy a new car until after you close.

Given recent history, it would be unreasonable to fault Fannie Mae for tightening up its procedures in every way possible. Buyers just need to remember that loan approval is based on statements of income and liabilities at the time of the loan application. If those factors change materially prior to closing, it is likely to be discovered and it could undo a deal.

Congratulations on your new home, and go ahead and buy new furniture; but wait until after escrow has closed.

Make your Your House FHA Friendly

Sun, 06 Jun 2010 07:41:00 -0500

Make Your House FHA-Loan Friendly

By: Terry Sheridan

Published 2010-06-02 08:37:43

Make your house FHA-friendly, and it will appeal to more homebuyers. Why? Because the Federal Housing Administration is insuring the mortgage loans used by about 30% of today’s homebuyers.

If your house passes the FHA rules, it will appeal to buyers who plan to use an FHA-insured mortgage. If your house doesn’t qualify for an FHA loan, you’re cutting out 30% of potential buyers.

FHA is especially important to first-time homebuyers and those with small downpayments because it allows borrowers with good credit to make a downpayment as low as 3.5% of the purchase price.

Here’s how to make your home appealing to FHA borrowers:

Know the FHA loan limits in your area

Start by checking to see if your home’s listed price falls within FHA lending limits for your area. FHA mortgage limits vary a lot. In San Francisco, FHA will insure a mortgage of up to $729,750 on a single-family home. In the White Mountains of New Hampshire, the loan limit is $271,050.

Home inspections

Most buyers will ask for a home inspection, whether or not they’re using an FHA loan to buy the home. You must give FHA buyers a form explaining what home inspections can reveal, and how inspections differ from appraisals.

How much do you have to repair?

If the home inspection reveals problems, FHA will not give the okay to buy the home until you repair serious defects like roof leaks, mold, structural damage, and pre-1978 interior or exterior paint that could contain lead.

Dealing with FHA appraisers

Help the lender’s appraiser by providing easy access to attics and crawl spaces, which usually must be photographed, says appraiser Frank Gregoire in St. Petersburg, Fla.

Your buyer can hire his own appraiser to evaluate your home. But FHA only relies on reports by its approved appraisers. If the two appraisals conflict, the FHA appraisal preempts the buyer’s appraisal.

Help with FHA closing costs

Most FHA buyers need help with closing costs, says mortgage banker Susan Herman of First Equity Mortgage Bankers in Miami. So a prime way to make your house FHA-friendly is to help with those costs.

FHA currently allows sellers to pay up to 6% of the sales price to help cover closing costs, but is considering lowering that limit to 3% in the fall of 2010.

If you’re selling a condo

FHA also has to approve your condo before a buyer uses an FHA loan to purchase your unit. Be sure your condo is FHA-approved for mortgages. The list has been updated, so if your association was approved a year ago, check again to make sure it’s still on the approved list.

FHA generally won’t insure loans in condo associations if more than 15% percent of the unit owners are late on association fees. Ask your property manager or board of directors for your association’s delinquency rate.

Other rules cover insurances, cash reserves and how many units are owner-occupied and the types of condos that can be purchased with an FHA mortgage.

FHA sometimes issues waivers for healthy condominiums that don’t meet the regular rules. If your condo isn’t FHA-approved, it doesn’t necessarily have to meet every single rule to gain approval. Ask your REALTOR® to consult with local lenders about getting an FHA waiver for your condo if it doesn’t meet all the requirements.

FHA also limits its mortgage exposure in homeowners associations. With some limited exceptions, no more than 50% of the units in an association can be FHA-insured.

FHA loans for planned-unit developments

FHA no longer requires lenders to review budgets and legal documents for planned-unit developments.

www.houselogic.com

Wed, 24 Feb 2010 14:56:00 -0500

Here's a cool new website from the National Association of Realtors:

www.houselogic.com

Houselogic is a free source of information and tools that can help you make smart and timely decisions for your home. Content includes home improvement, maintenance, taxes, finances, insurance and even ways to get involved and enrich your community.

I hope you find time to take a look at this site and gain valuable information. Let me know what you think of it.

Lisa

Get A Green Mortgage

Wed, 20 Jan 2010 10:24:00 -0500

Save $1000 on closing costs & increase your home's value by 5%.

EEMs (Energy Efficient Mortgages) are available as part of the federal program to help homebuyers finance energy efficiency upgrades and purchase energy-efficient homes. With an EEM, you take out a bigger loan in order to buy a greener home, or a line of credit for upgrades & improvements.

The idea is simple; An energy efficient home costs less to operate. With cheaper utility bills, the bank knows you can afford a larger mortgage.

To learn more or find out if you are eligible for an EEM, go to: www.hud.gov/offices.hgs, click on Single Family, and then on, FHA Insured Loans, then Energy-Efficient Mortgage Program.

C&H Building History

Tue, 13 Oct 2009 09:56:00 -0500

We're looking for any history about our new building at 22 1st St NE. Most people know this building as the "C & H Building." I think these initials stand for Charles Hagen. Please correct me if I'm wrong.

Get Involved

Mon, 12 Oct 2009 14:36:00 -0500

Take time to enjoy the fun activities that only happen in the fall.

Creative Pumpkin Contest: Bring your "Pretty Punkins" to the Le Mars Library on Oct. 28 for judging.

Lots of Ghosts and Goblins for sure at the Halloween Parade on Oct. 31: 1:00 Le Mars Public Library.

Boo!

Factors that Do Net Affect Real Estate

Fri, 07 Aug 2009 11:07:00 -0500

An article from RealtyTimes, by David Fialk points out many things to consider as a seller. 1. All owners would like to get the price they feel they should get for their home when they choose to sell. The reality is, their home is worth what it is worth, and that is the price a buyer is willing to pay. A buyer will not pay more for a home than what they would have to pay for another home with similar features and amenities in a similar location, this is the "Principle of Substitution." 2. Whether a home was purchased 25 years ago or 3 years ago the purchase price was the value when it was purchased and has nothing to do with it's current market value when being sold. Obviously, homeowners with long term ownership and substantial equity can make selling decisions easier than owners selling their home without the benefit of real estate appreciation. 3. While it is true that the condition of a home has a definite affect on its market value, and that a well maintained home will sell for more than a home in need of updating and repairs, the actual cost of a making repairs and improvements may not be equal to the increase in market value. Why? Cost does not necessarily equal value in real estate. 4. How much the seller needs whether a home owner has owned their home for 30 years and has no mortgage, or is one who has owned for only a few years with a mortgage balance, the market value of their home is what it is; and has nothing to do with mortgage balance or what an owner needs to purchase another home.

Creative Financing

Tue, 07 Jul 2009 12:56:00 -0500

In today's market "Creative Financing" has been the norm. With tighter lending guidelines and homes in other markets not selling, I have experienced the need for other ways to finance. In the past two months, I have sold two homes on a "rent-to-own" basis. In both cases, buyers have a home to sell and have re-located here; sellers have vacant homes on the market here...although this prolongs the closing for the seller, it is a win-win situation for all. Buyer's have a place to stay and are on the their way to purchasing, sellers have their mortgage payment covered and a deal in the works. Need more details?

First Time Buyers

Mon, 01 Jun 2009 16:33:00 -0500

Many people do not understand the significance between a tax deduction and a tax credit. A tax deduction reduces income subject to tax, but a tax credit is a dollar for dollar reduction in tax liability. An $8000 tax deduction would result in 2,240 tax savings for a 28 percent taxpayer. Whereas, an $8000 tax credit would result in $8000 in tax savings for the same 28 percent taxpayer.

Investors: Now is the time!

Mon, 11 May 2009 14:45:00 -0500

We often don't see ourselves as the investors, however, if you are looking for a secure investment; Real Estate. Remember in a "Down" market, there's an "Up" side. Prices are down, therefore there are many buying opportunities, especially investment properties. The other "Up" to this is that the rental market is in high demand right now. In both Le Mars & Sioux City I am receiving calls with people needing temporary housing. Many of these people are relocating and have a house to sell; some can no longer qualify for loan due to the new lending programs. This doesn't mean that they can't afford their rent, it means they can't get a mortgage. Something to consider....

March 2009 Market Stats

Wed, 08 Apr 2009 11:28:00 -0500

Le Mars Residential Stats: 7 Listings Sold; 66 Days on Market; Average Sold Price: #108,557 Types of Financing: Conventional: 4; 1 FHA; 1: Farmers Home: 1 Cash Sioux City MLS: Residential Stats: 133 Listings Sold: 315 Active Listings 154 Days on Market $147,195 Average List Price

Iowa Property Owners Alliance

Mon, 16 Mar 2009 11:50:00 -0500

Iowa Property Owners Alliance is an organization developed by the Iowa Association of Realtors. The purpose of this organization is to be a resource for property owners, to keep them better informed regarding legislative issues affecting property rights. The site is: www.iowapropertyownersalliance.com. Check it out to see what issues are being considered. One issue of great importance is the attempt by the Iowa Legislature to increase the real estate transfer tax. This change will increase the cost to sell a home significantly. Please get informed and contact your representatives.

Sioux City MLS February 2009 Stats

Mon, 09 Mar 2009 10:49:00 -0500

Residential Information for Sioux City, Iowa: February 2008: Active Listings: 416; Days on Market: 187; Avg. List Price: $135,841 February 2009: Active Listings: 375; Days on Market: 174; Avg. List Price: $141,685 January 2009: Active listings: 380; Days on Market: 179; Avg. List Price: $137,484 Residential Le Mars: Units sold: 9 Days on Market: 144 Avg. Sold Price: $115, 333 Although we have fewer listings than a year ago, days on the market and average list price is improved. Over all, the market is sitting better than a year ago.

Short Sale: What is it? By Rochelle Lundy

Fri, 06 Mar 2009 16:36:00 -0500

Have you heard the words, "Short Sale?" Are you wondering what that means? Here it is: When you sell a property and it sells for less than what is owed; you are short the amount needed to pay off the mortgage loan.

Jan 2009 Market Stats

Tue, 24 Feb 2009 14:07:00 -0500

The one thing to remember about real estate is that it is cyclical and local. What is meant by that is 'what goes down, must come up,' and the real estate market is based on the local economy. Here in Northwest Iowa, our real estate market is not nearly as bad as what is shown in other parts of the United States. Yes our stats are down, but not to the degree as what you hear about on the news. The following are the markets stats for Le Mars and Sioux City MLS: Residential info for Sioux City and Surrounding: Active Listings: 1/31/09: 798 Days on Market: 201 Avg. List Price: $160,658 Residential info Sioux City only: Active Listings: 1/31/09: 380 Days on Market: 179 Avg. List Price: $137,484 Le Mars MLS; Le Mars Residential Only: Active Listings: 2/24/09: 48 Days on Market: 172 Avg. List Price: $167,012