Kathy Hoare

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Home Financing After A Short Sale, Foreclosure or Modification

Current guidelines - Spring 2011

It is said in our industry that FHA is the new subprime. FHA allows a low credit score without the substantial risk adjustments to the rate with conventional lending. It is true that credit scores can go quite low and credit history is negotiable, but in this conservative lending environment even FHA has restrictions. New guidelines have been defined for clients with historic foreclosures, short sales and even loan modifications.

The question I ask when approving a client for a home loan is “Will homeownership be the best move for this client with their financial management history?” Hard to admit, but SOME clients should remain renters. Here are details on current credit requirements for the credit challenged, addressing credit scores, former home histories and down payments. Print it out and keep it handy for those prospects with “issues”.

FICO

· Minimum credit score 620.

· All borrowers must have credit score.

Credit Report

· No mortgage late payments in the last 12 months allowed.

· Non-borrowing spouse's debt obligations will be counted in to debt-to-income even though the spouse is not on loan.

· Past due account may be required to pay off prior to financing.

Short Sales/Foreclosure/Modification/Bankruptcy Wait Periods

· Short sale, foreclosure and loan modifications require 3 year seasoning from finalization date.

· Bankruptcy - Chapter 7 requires 24 months seasoning and Chapter 13 requires 12 months of repayment.

· Non-purchasing spouse must adhere to same time frame even if they are not on the loan.

Down Payments

· 3.5% down for FHA

· 1% down using CalFHA (income limits apply and needs 45 day escrow)

· no down payment on VA loans

· 3% down, no MI for Cal Teachers

· Down payments can come from gifts from employer or family

Closing Costs

· Total home buying costs run about $7,000 for a $250,000 home purchase

· can be paid by seller concession up to 6% of sale price

· can be paid by lender as "no cost" loan using higher interest rate

If you are working with a buyer with credit or home mortgage issues, please have them consult a mortgage broker BEFORE you spend your valuable time with them. Some prospective buyers who short sold their home or modified their mortgage can be guided to being lendable over the long term so you can work with them in the future because they are not lendable now.

For more information, visit my website www.SonomaCountyHomeLoans.info.

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Five Things First Time Home Buyers Don’t Know

Being in our industry for so long, we forget that clients new to the home buying process really don’t know how things work. That is why Realtors and lenders working with first time home buyers must be willing and able to provide patient and generous education to these home dreamers along the way. I have found that by providing trusted guidance to first time home buyers, I create a lifelong client as their home needs change over the years.

Here are five things that, surprisingly, first time home buyers don’t know when they start the process. It’s up to us to prepare them…

1) Who Pays the Realtor?

When a new first time home buyer comes to see me, and they don’t already have a Realtor, they are reluctant to take the first step in calling one because they don’t understand how and when a Realtor gets paid. In my first meeting with first time home buyers I let them know that the Realtor’s services are paid for by the seller and the Realtor’s job is to represent and protect the buyer. After hearing this, they are much more willing to make that first call to a Realtor. I also let them know that I, as a lender, get paid at close of a transaction and receive no payment prior to that.

2) When Do I Own the House?

First time home buyers are often confused as to when they actually own the home. I always review the whole escrow process with them when they sign their application package. They get the keys upon confirmation of the transaction being recorded at the county. This usually occurs the day after funding which happens 2-4 days after the escrow signing takes place. I counsel my clients not to give departure notice at their rental homes until conditional loan approval and appraisal review is complete.

3) What Needs to Be Paid For Now?

An earnest money deposit check will have to be written to make and offer and first time home buyers generally don't know this. Then when escrow is open, they will have to pay for appraisal and inspections from their pocket. Even if there is a seller concession covering all closing costs, buyers will still have to come up with $1,200 to $2,000 in inspections/appraisal fees. At closing, these can be reimbursed to buyer from seller concessions. But buyers need to know that even if they had 100% financing and seller concessions for closing costs, they would still need some cash to conduct the home buying transaction.

4) Closing Costs?

Often first time home buyers set a goal of amassing their down payment but forget that there will be closing costs that have to be paid. These can be from zero (a “no-cost” loan with higher rate) to $15,000 or more if buying down the rate. Buyers have the option of paying them out of pocket, asking for seller concessions to pay them, taking a higher interest rate for a “no-cost” loan, or a combination of all these options. Seller concessions are limited to 6% of the sale price for first time home buyers who will occupy the property. How closing costs are paid is an individualized decision is based on the home buyers’ assets, the offer price/concession and current rates. The Realtor and lender should communicate about the buyers’ needs in covering closing costs as it affects the strategy of the offer price.

5) Why Do I Have to Provide This Document?

Lenders are scrutinizing loan files and demanding full details of divorce agreements, bank statements and deposits found on those statements, source of down payment, and verification of employment and forms of income among other demands. The investors that will buy these loans are the source of the demands since a loan file not fully documented may be rejected for loan purchase by an investor after the loan closes. Home buyers, and not just first timers, are surprised to learn that prior to funding their credit and mortgage history will be rechecked for any changes. And every sizeable (over $100) deposit to their bank accounts that is not regular income will have to be documented. Updated bank statements and paystubs will be required as the process progresses.

The home buying process has gotten daunting with increased regulation and lender paranoia. First time home buyers need education, direction and hand holding throughout the process to ensure a closed transaction with satisfied clients.

For more information on the home buying process visit www.SonomaCountyHomeLoans.info.

      Many homeowners I meet do not have their home and investment property assets in a living trust.  A trust facilitates a smooth transition in the future when you are no 
            longer around to manage these important assets. Your pre-designated trustee can 
            manage your assets immediately upon your incapacity without the delay, confusion
             and frustration of court action.  One day every single one of us will no longer
            manage the assets that outlive us.  You can protect your home and family through estate planning.

    Setting up a living trust is an inexpensive way to make tomorrow's decisions 
            today, insuring a smooth transition in a future time of crisis for those around 
            you by estate planning now. Make it an early New Year Resolution to prepare or update your trust.
            A full trust package includes all anticipated estate planning needs; A trust, a 
            pet  trust (if applicale) A will, A durable power of attorney for finances,  advanced
            healthcare directive and all asset transfer paperwork. Domestic partners especially
            need this protection since State and Federal family law varies on dissolution of assets without estate planning.

    Below are excerpts from Santa Rosa Attorney Lisa Graetz's FAQ's on her website www.graetzlaw.com
            Lisa is knowledgeable, passionate and compassionate about Estate Planning and protecting your home and family.  Call
            her at 707.849.1532 for a complementary introduction on how planning can benefit
            you and protect your assets.

What does "Estate Planning" mean?
               Estate Planning simply means to plan out what you want done with  your assets when
            you die.  There are a multitude of things that can be  done with proper estate planning,
            such as taking advantage of the  current tax law to lessen your tax obligation upon
            your death. You will have control of how the  money/assets are distributed, ensure
            your pets are taken care of, and indicate end of life choices.
            

What constitutes an Estate?
               Everything you own.  Anything you are making payments on, have  in retirement, have
            in the bank, or any business you own, any life  insurance policy, stocks, bonds,
             real estate, and all your "stuff" are  part of your estate.
            

What is the difference between a will and a trust ?
               A will  takes effect only at death.  Once you die the person who you choose to  handle your
            will (the Executor) will carry out the instructions you set  forth in your will.
               A trust takes effect once it is created and assets are transferred into it. Should  you become
            incapacitated, the trustee (the person you choose to manage  the trust when you 
            can't) can step in and pay bills, run businesses,  manage assets etc., on your behalf
            until you are back on your feet  again.  When you die, this person will carry out
            the instructions you  set forth in the trust regarding management of the assets 
            and  distribution of assets and money.
            

Why do I need a trust when "I don't have anything?"
               Most of us don't realize that a home, life insurance, assets,  and bank accounts
            add up to quite a bit, and in fact, is a lot of  "something."  With the changing
            tax laws, it is practical tax planning to use the tax shelters to keep the government
            from taking your hard  earned money and assets versus leaving it to someone or some
            thing that  you care about.
            

I don't have anyone to leave anything to, why do I need a will or a trust?
               The county where you die will end up administering your estate  when you expire.
            The officers of the court who are assigned to manage  your estate will attempt
            to find your distant relatives and when found,  divide the estate according to 
            that particular state's law of  inheritance.  A large portion of the estate will
            go to pay the court  officers to handle this and the remainder will go to the long
            lost  relatives you either didn't know or didn't like.  If no one is found,  the
            money goes to the state after the officers of the court are paid.  Wouldn't you
            rather have a good friend(s) or your favorite charity get your home and/or assets?

Establish a living trust today and protect your most valuable assets for your most valuable loved ones.

Looking out for your best interest,
Kathy Hoare
Home Loan Navigator

www.sonomacountyhomeloans.com

April 30, 2010 is the last day USDA Rural Development Home Loans will be committing to funding loans in Sonoma County. This is a result of temporarily depleting funds. Temporary halts in funding occur each year until Congress approves new funding for the program. Expect to see funds again available in Sonoma County in October of 2010.

Some lenders like Wells Fargo and Freedom Mortgage have stopped taking USDA loan applicaitons using the program. Mountain West Financial is still accepting applicaitons through the beginning of April.

Remember, this is excellent 100% financing for areas of Sonoma County outside metro cities. Areas served include Larkfield, Windsor, Cloverdale, Sebastopol, Healdsburg, Russian River, and Sonoma.

For more about the USDA Rural Home Loans 100% financing, go to http://activerain.com/blogsview/1271709/100-usda-rural-home-loans-in-sonoma-county.

Lenders have very specific guidelines and rules for a homebuyer who will be retaining their old home. In lendspeak “departing property” is the property a home buyer is moving out of, but will retain, as they buy a new home to upgrade, downgrade or relocate. In this tumultuous market of valuations and “walk aways”, lenders have very particular rules about ‘departing properties’ as a liability for a home buyer.

If the buyer can easily qualify to carry both mortgage PITI payments, and can show they have 2 months reserves after closing the new home purchase, a lender will comfortable financing an additional new home. But many home buyers may intend to rent out their old home instead of selling in such a down market. And the home buyer may need to show that rental income in order to qualify for the new mortgage, especially in the environment of more conservation DTIs (debt-to-income-ratios). Lenders set the departing property rules according to what they consider conservative enough to be safe.

To use departing residence income, the lender will require 4 things to be documented in the file.

1. A letter of explanation as to why the home buyer is purchasing the new home if they already have a home.
2. An executed rental agreement on the departing property for the time period soon after close of escrow on the new purchase.
3. A copy of the security deposit check from the new tenant.
4. A bank statement of the home buyer showing the rental security deposit check deposited to their account.

Lender rules allow a departing property to be in the process of short sale as long as the mortgage payments history doesn’t contain more than 1 x 30day late in the last 12 months.

WARNING. If the departing residence was refinanced in the last 12 months as an owner occupied home, the new lender may not accept the loan as a new owner occupied mortgage since the previous home refi paperwork sometimes states that the home owner intended to live in the property for at least 12 months. I hit that problem recently as Bank of America was the mortgage bank’s investor for the new loan and also the holder of the former home’s refi. Luckily as a broker, I could change course to a new lender who doesn’t use Bank of America as the investor purchasing the new loan.

Up to the minute interest rates at www.sonomacountyhomeloans.com