Patrick Randles

A crucial part of your home buying experience as a buyer or your ability to close more deals as a realtor is your lender. The ability to place and close loans is determined by some factors such as experience, creativity, persistence and the ability to package or present the loan to the investor (lender). Assuming your loan officer has all of these traits, an understanding of guidelines is imperative.

Various agencies issue underwriting guidelines. These include Fannie Mae and Freddie Mac, the VA and HUD. From there, individual investors (lenders) add their own overlays. Here are some examples:

1. Down Payment Requirements: Fannie Mae might purchase loans from investors on 2nd homes with 10% down. There are lots of individual lenders still requiring 20% down on such purchases.

2. Reserves: Often on FHA loans, the buyers has received their down payment as a gift from a relative. Under FHA rules, the borrower is not required to have additional funds. Some lender overlays now require a few months worth of savings in a checking/savings account.

3. Tax Returns: While Fannie Mae may only require 1 tax return for self employed borrowers, almost all lenders require the last two returns. Having a source that only requires one can be a big plus for a borrower who had a tough time in 2008 but turned it around in 2009.

4. Ratios: As a rule, Fannie Mae will allow a total debt load of 45%. Some lenders have a number around 2-4% lower in order to be a little bit more conservative.

5. Appraisal: This is a big one. Fannie Mae guidelines recognize that there aren't always good comparables within 1 mile of the subject property and sold within the last 90 days. There is some lenience built in for a lack of good, ewcent comparables. Some lenders, to remain nameless, will either not accept the appraisal or adjust (lower) the value to suit themseleves, thus destroying an otherwise good tranaction.

These are just a few examples of overlays and they can be dealbreakers. In my opinion, the best way around this is to work with a lender that has more than one source of funds. A correspondent lender with 8-12 national sources should fit the bill. That way, if your scenario doesn't fit in at Bank of America or Wells Fargo, we can look at Citimortgage, Chase, GMAC or Franklin American.

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Patrick Randles

Sunstreet Mortgage, LLC

Tucson, AZ 85718

(520)850-7485

As we work in 2010, we all recognize that the market has changed. It seems like a month of Sundays since a deal was simple and the sellers were people, not some amorphous blob called FNMA or HUD or Bank of America. There are lots of things we want to convey to our current and future clients so I will put the "pen to paper."

1st Time Homebuyers:

There are a multitude of reasons to buy now. Here are some highlights:

1. Pricing- home prices have dropped 20-40% from the peak in 2006.
2. Rates- Some people just don't understand that 5% is "cheap money".

While the Federal Government has been nice enough to invest heavily in Mortgage Backed Securities, they will begin to withdraw from the market before summer. This will drive rates higher.

3. 1st Time Buyer's Tax Credt of $8,000. This will be going away soon. Buyers must be under contract by the end of April and close by the end of June.

It is unknown if this will be extended, but it does leave us wondering how long the government can

subsidize the housing market.

4. Down Payments- FHA loans are the product of choice for first time buyers. At this time, 3.5% down payment is required. As of this summer, 5% will be required for folks with higher credit scores and as much as 10% down will be required for lower scores. Also, seller contributions will be limited to 3% of the purchase price. Previously, up to 6% was allowed. Lastly, Upfront Mortgage Insurance will go from 1.75% of the loan amount to 2.25%.

In summary, these changes will impact the number of buyers in the market. If you are a first time homebuyer, I would not wait one day to get started on my search. Homes in this sector of the market are already in high demand. It is quite common for a home under $200,000 to be on the market for one or two days maximum if it is priced properly. As we get closer to the deadline, more and more buyers will be hitting the streets in search of a place to call home. Don't get left behind or buy a home you don't love just to get the tax credit.

Move up Buyers:

In my opinion, people in this category are in the best position. The market is not inundated with buyers and there are plenty of nice properties that are priced very attractively. This buyer can take their time looking for their dream home and make an aggressive offer on a property. If you can qualify (lots of self employed folks can't at this time), I would strongly urge you to consider getting into the market. Between tax credits, inventory, pricing and interest rates, there may never be a better time to purchase the home you will live in for the rest of your life.

Investors:

Depending on your cash position and ability to take risks, now may or may not be the time to be buying. If you have lots of cash, purchasing foreclosures on the steps of the courthouse may never have looked better as HUD has eliminated the 90 day anti-flipping rule. This investor will purchase multiple homes for cash with lots of upside but plenty of risk as well as the properties may require large and costly repairs that were not apparent at time of purchase. From what I understand, you do not get to inspect the property to any real degree.

If you are the position to purchase one property for cash, look to the foreclosure market. There are tons of homes with enough damage that a buyer can't get financing. This removes most of the competition. If you are willing to deal with repairs ranging from electrical to flooring to drywall to roofing, you may come out in a very nice position.

Investors looking to purchase a property that will require a mortgage: My recommendation is that you wait until the FHA changes take place and the tax credits have expired. There will be a lot of new inventory and a reduced pool of buyers in the market. This should allow you to make agressive offers on nice properties.

Moving forward, there are plenty of concerns in the market. I would hope that the govenrment would have the sense to not hit us with everything at once. By this, I mean pulling out of the bond market, eliminating tax credits and requiring larger downpayments for borrowers. I would also hope that lenders and Fannie Mae would be very careful in releasing properties to market. The "shadow inventory" has a whole lot of people scared. This means there are households that are majorly delinquent on the mortgage and are still in the house. Lenders are hesitant to foreclose because they don't want to flood the market with inventory. Lastly, I would want lenders to figure out a way to do repairs so that properties could be financed. When a property becomes a "cash only" type of deal, the property sells for a reduced amount. This hurts the entire neighborhood.

Happy Hunting!

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Patrick Randles

Sunstreet Mortgage, LLC

Tucson, AZ 85718

(520)850-7485

Sometime in November, friends told us they were going to take the kids on "The Polar Express". Naturally, curiousity got the best of us. We quickly found out (www.thetrain.com) that the Grand Canyon Railway in Williams, Arizona offers a theme ride to the "North Pole" for the entire month of December. The more we checked it out, the more excited we were for our four and six year old children. We made reservations and 3 weeks later, we piled in the truck for the 5 hour drive to Williams, Arizona.

We went from Tucson through Phoenix to Flagstaff. The drive was pleasant other than a bit of construction and the seven or eight roadside cameras we encountered that were looking for speeders. Hopefully, we won't be getting any pictures in the mail. After about an hour, the chorus of "Are we there yet?" had worn us out. We broke out the portable DVD player so the kids could be entertained.

We stopped for lunch and visited with some friends at their new home in Flagstaff. Flagstaff is quite different from Phoenix and Tucson in that it is located at 7000 feet elevation. There is quite a forest of Ponderosa Pines. It was around 40 degrees and there were patches of snow on the ground. It looked like the San Francisco Peaks were just about ready for some skiing (elevation 12,600 feet).

We jumped back in the truck and zoomed down Interstate 40 for about 25 more minutes. Williams, Arizona is a tiny town of less than 5000 people and home to the Polar Express otherwise known as the Grand Canyon Railway the remainder of the year.

The excitement was mounting as we checked into our room at the Grand Canyon Railway Hotel. We explored the area to find beautiful Christmas trees, lights and horse rides on beautiful Belgiun horses.

At 7:45 we got in line for the train. There must have nearly a thousand people with the same plan as us. Pajamas, hot cocoa, cookies and a train ride to the North Pole!

It was very cold and the wind was biting at us as we boarded. The kids settled in as we went through the "magic tunnel" and the onboard chef read the story of the Polar Expess as we raced northward. Cookies and Hot Cocoa were quite a treat for the little ones. Shortly, we saw lights up ahead and the next thing we knew, Santa was waving at us from his sleigh. We saw the well lit buildings of the North Pole as our train slowed to a stop.

(Cameras don't work well through windows.)

The train reversed direction and we zoomed back toward civilization. When we saw the sleigh, Santa was missing. Where could he be? A few minutes later, he snuck through the door and handed out gifts to all of the children. Our kids were thrilled!

Santa moved through the car quickly and was gone before we knew it. The kids were excited for the rest of the evening. Needless to say, we didn't get to sleep until after midnight. As we pulled out of the parking lot the next morning, snow flurries were starting to come down. What a great finish to a fun holiday road trip!

Conventional Mortgage- We are all familiar with the term. Most American homeowners have one. In this market, I would ask borrowers to consider some other options such as USDA Rural or an FHA insured mortgage.

Why?

1. Flexibility on down payment
2. Better interest rates for credit scores between 660 and 720.

In Arizona, a conventional mortgage requires 10% down with very few exceptions. If you have a credit score below 700, your interest rate will be substantially higher than if you have a 740 credit score (on a conventional loan).

Here are a few other options:

USDA Rural Loan: Zero down payment mortgage designed for lower to middle income buyers.

Plusses:

1. Zero Down
2. No Mortgage Insurance
3. Competitive Rates

Caveats:

1. Income restrictions
2. In lieu of mortgage insurance, there is a funding fee (roughly 2% of the loan amount) to offset losses. This amount can be "rolled" into the loan.
3. House must be in an outlying area. Here is a link to USDA's website to determine if a property is eligible. http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=rbs

FHA Insured loan: Mortgages intended to allow an affordable option to a conventional loan. These mortgages are insured by the Federal Government.

Plusses:

1. 3.5% Down Payment
2. No sliding scale on interest rates as long as the credit score exceeds 659
3. No restrictions on where the home is located in the U.S.

Caveats:

1. Loan limit in Pima County is $316,250
2. Mortgage Insurance has two parts: An upfront portion (which is "rolled" into the loan) and a monthly portion which is included in the payment.

These loan products are alternatives to conventional financing for the purchase of a primary residence only. There has been some sort of stigma attached to loans that are not "Fannie" or Freddie" (Conventional) loans, but in this market, I think these are two fantastic options. They are not limited to first time homebuyers. For more information, please call me.

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Patrick Randles

(520)850-7485

Sunstreet Mortgage LLC

Tucson, AZ 85718

On 5/14/2008, I took an application, ran credit and did a pre-qualification. Great news. The customer qualified for an FHA home up to $150,000. Here it is November 2009. 18 months later, the buyer is ready to make an offer on a house. According to the agent, Staci has looked at over 100 homes in the past 18 months and this is the one she wants. I went to the assessor's website to check the taxes on the property and noticed that it was owned by a company. The flag went up in my head to ask the agent how long since the last sale of the property. 61 days.

61 Days! I started reading the HUD manual to see what exceptions, if any, existed in regards to the "90 day flipping rule". There are some exceptions such as a bank owned (REO) property or a house owned by a relocation company but none applied to this scenario. Under this rule, we can't even write a contract until the 91st day.

The buyer's agent called the listing agent (who was also the owner) to discuss the situation. "Can you take it off the market for 30 days? ""No" was the reply. The listing agent suggested we write a contract stipulating a conventional loan and establish a 35 day inspection period. On the day the property becomes FHA eligible, you cancel the contract and present a new one with an FHA loan. That was the essence of the discussion.

The buyer's agent (relatively new to the business) then called me. She told me what the other agent had suggested and we agreed that this was not in the best interest of anyone on our side of the table. Besides that, it was fraudulent. We agreed that since we couldn't deliver a conventional loan, we wouldn't make an offer proposing just that. Her broker agreed wholeheartedly.

We would like to tie this property up for the next 30 days, but we can't see a way to do it. Unfortunately, we feel fairly confident that someone else will purchase or write a contract on this property, no ifs, ands or buts...

What have we learned here? For the listing agent: please put it in the listing that the property is not FHA eligible until a specific date. Buyer's agent: Call your lender to discuss anything that might be a potential red flag. In this market we need everyone to be upfront about the situation. Having our buyer fall in love with a property, only to find out that she can't make an offer, is really lousy!

And after all of this, as of February 1st, 2010, the flipping rule has been suspended for one year.

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Patrick Randles

Sunstreet Mortgage, LLC

Tucson, AZ 85718

(520)850-7485