Chris Thomas

If a couple wants to buy a new primary residence and keep their current house as a rental, but are worried about qualifying based on the payments for both houses, here's a way to do things that sometimes makes it easier.

If only one spouse owns the couple's current house, and the other spouse can qualify on their own for the new house, then FHA will allow it, as long as the new house is more expensive or larger than their current primary residence. Here's an example: A husband and wife live in a house that only the husband owns (only the husband is on the title and the note). The couple wants to buy a new primary residence. If the wife can qualify for the new loan by herself, then the husband's debt does not have to be counted. Neither the husband's housing payments nor his other debt needs to be considered.

This won't work for everyone because only one person can own the current house, and only that person can be on the note for the current house. Remember that quit claiming someone off a deed does not release them from the responsibility of paying the note. The only way to get off a note is to sell or refinance.

Despite that limitation, though, there are plenty of couples who fall within the parameters of this type of deal. We have closed four of these loans in the past few months.

As of today, about half of the mortgage brokers in Colorado are no longer allowed to sell loans. We were told over a year ago that we needed to take classes and pass a test, but only half of us did it.

And we wonder why there are so many foreclosures!

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****NEWS ALERT****

The Colorado General Assembly passed House Bill 1085 in 2009. This bill became effective August 5th, 2009. House Bill 1085 defines circumstances in which the Director may inactivate a mortgage loan originator license if they have failed to comply with the education and testing requirements.

· As a result, the Director inactivated 4,560 licenses on August 31, 2009.

· Individuals whose licenses are inactive are prohibited from practicing as a mortgage loan originator or in any other capacity which requires a license.

· Individuals who continue to practice with an inactive license are subject to all forms of discipline prescribed in the Mortgage Loan Originator Licensing Act, including permanent revocation and fines.

· Direct managers of individuals with inactive licenses are also subject to disciplinary action if they allow such individuals to continue to practice.

Thank you,

The Colorado Division of Real Estate

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We are often asked what the maximum allowable debt-to-income (DTI) ratio is for the various types of loans. Here you go:

• For FHA loans, the maximum allowable DTI is 43% if the loan is manually underwritten and it is unlimited if the loan is underwritten through FHA's online underwriting software. We routinely get approvals with DTI's in the 50% - 60% range if the borrower has good credit.
• For VA loans, the maximum DTI is 41% if the loan is manually underwritten and it is unlimited if the loan is underwritten through VA's online underwriting software. Again, we routinely get approvals with DTI's in the 50% - 60% range if the borrower has good credit.
• For conventional (non-government) loans, the maximum allowable DTI is 38% if the loan is manually underwritten and it is unlimited if the loan is underwritten through Fannie Mae's or Freddie Mac's online underwriting software. We routinely get approvals with DTI's in the 55% - 65% range if the borrower has good credit.

We calculate your DTI by adding up all of your new mortgage expenses - principal, interest, property taxes, homeowner's insurance, mortgage insurance, and homeowner's association (HOA) fees. We then add all the monthly expenses that are on your credit report, and divide that total number by your gross monthly income (income before taxes or any other deductions). Example: if your mortgage expenses are $1,000 each month and the total of all the monthly payments that show up on your credit report are $900, then your total expenses are $1,900 a month. If you make $3,800 a month, we divide 1,900 by 3,800 and get your DTI of 50%.

Don't lose out on a deal because your buyer's loan is being underwritten manually and the DTI is being restricted. Always use a mortgage broker who uses the online underwriting systems.

If a borrower does not have enough money to pay for the required down payment, it is permissible to have a relative give the borrower the money for the down payment.

With an FHA loan, the entire down payment amount can come from a relative. The gift donor must sign a letter stating that the funds do not have to be paid back. The donor must be able to show that they are able to provide the funds (a bank statement showing the money has not just recently been deposited into their account is sufficient), and the borrower must show receipt of the funds (a bank statement or deposit ticket is needed).

With a conventional loan, the rules are slightly different. A relative can give a gift to the borrower for the down payment, but the borrower must contribute the minimum required down payment themselves (usually 5%). The exception to this is if the gift is for at least 20% of the purchase price. Then, the relative can give the borrower the entire down payment and the borrower doesn't have to contribute any money at all. The documentation requirements are slightly different, too. The donor does not have to show that they are able to afford the gift - they just need to show that they have given it to the borrower. The borrower still needs to show that they have received the gift, and the gift letter still needs to be signed.

There is much news these days about an extension to the $8,000 first-time homebuyer tax credit. There is also talk that it might be expanded to include second homes and investment properties. PLEASE don't believe it. The tax credit is set to expire on November 30, 2009. Under the current IRS rules, if the closing is after that date, then the buyer does not get the credit.

Congress might extend the credit, but they might not. They might expand it to include second homes and investment properties, but they might not. If there is one piece of advice that we can pass on to anyone, it is this: It is extremely foolish to assume that something will happen in the housing or mortgage industries just because we all want it to happen. Remember stated income loans? 100% financing? Houses that went up in value? Everyone in America loved all of those things and they still went away.

At the moment, it is best to assume that the $8,000 tax credit for first-time homebuyers will end on November 30, 2009. If it doesn't, that's great, but assuming that it will be extended could very easily shatter the trust you have built with your clients.