Ron Brown FHA & VA Home Loan Specialist

Puyallup & Pierce County First Time Home buyer Guide - Part IV

The fourth and final requirement for home loan approval is an adequate housing history. Once you have proven acceptable Credit, Employment, and Income, you still have one last hurdle to clear - an acceptable housing history. This can be as simple to verify as a single phone call followed up with a fax, or it can mean coming up with two years worth of canceled checks, and hoping your landlord cashed them in a timely manner.

When buying a Puyallup, or Pierce County home with an FHA loan, the underwriter will almost always require proof that the rent was paid on time over the last 24 months. FHA considers a timely rental payment history a good indicator that the borrower will continue to be smart enough to make their housing payment a priority. Remember, mortgage payments are typically the most significant factor of a person's credit score because it is normally the highest monthly payment as well as the longest-term loan on your credit record. Rent is similar for many people in that there are seldom any borrowers who have something showing in their credit with a higher monthly payment although it does not show on the credit report.

So how is this timely payment verified? If the borrower either has a 24-month history of living in apartments, or homes under the control of a property management company, it is merely a matter of contacting that company for a signed verification. The property manager traditionally has no interest in losing a tenant so their independent verification is acceptable.

The same is not true for a private party. If you have been living in a home or apartment where the rent is paid directly to an individual, further verification is typically necessary. This is because there is no way of knowing whether that individual has any relationship to either the buyer or the seller. While the landlord, or proprietor of the property might not have any personal relationship with either buyer, or seller, there is no way of knowing for sure. They could easily be friends, or business partners with either party, and often are. Because of this, it is not uncommon for the underwriter to ask for proof of payment by means of canceled checks, or bank statements showing the transfer of funds on a regular basis. This can be difficult if the landlord is not diligent about depositing the rent checks. If the check does not clear the bank until the 20^th of the month, there is no way to know if the check was simply back dated to the 1^st of the month, and turned in to the landlord on the 19th, or if the landlord simply held it in his wallet for 3 weeks.

The bottom line is if you are renting from a private party, you should be saving copies of your canceled checks to verify your rental payment, and making sure your landlord is cashing those checks in a timely manner.

I just wanted to write a quick Thank You blog to the wonderful local service personnel of Pierce County Washington, many of whom have been gracious enough to allow me to serve them in procuring a VA Home Loan. For many decades, the greater Tacoma, and Pierce County area have had the honor of hosting 2 of the finest military installations in the United States: the Army base at Fort Lewis, and the Air Force's Air Base McChord. We have know for quite some time that these two installations were to be combined into one Joint, or Super Base, and that day has finally arrived.

"We've served side-by-side with the Air Force around the world -- and now we are going to live and work together at Joint Base Lewis-McChord. In the process, we're going to become more efficient and effective. We absolutely think that the sum is going to be greater than the parts" - Col. Thomas Brittain garrison commander of what was formerly known as Fort Lewis.

I have had the pleasure of serving many of the men & women from both Fort Lewis, and Air Base McChord in approving their VA Loans as they buy homes in Tacoma, Puyallup, Lacey, Olympia, Dupont, Yelm, Roy, and all the cities throughout Western Washington. I look forward to the opportunity to provide this service to another generation of heroes continuing their role defending America.

Welcome once again to the Puyallup First Time Home Buyer education forum. Parts I & II of this series focused on Credit, and Employment, so now it is time to go over Income, which is really something of a subset of employment. The issue of Income for the purpose of getting a home loan, centers on what are referred to as Debt to Income ratios. There are two ratios that need to make sense; the Housing Ratio, and the Total Household Debt to Income ratio.

Keep in mind, the housing payment used for calculating any of the ratios is a "full" payment, meaning it contains the Principal & Interest payment for the loan, the monthly portion of property Taxes, and homeowners Insurance (PITI). There can also be monthly Home Owner's Association dues if you buy in a Planned Unit Development where there are common assets requiring maintenance, such as neighborhood playgrounds.

The traditional target for the Housing payment for my Puyallup & Pierce County home buyers is 28% or less of a persons Gross Income (total wages before taxes). In other words if your total gross income were $2,000/Mth the traditional target payment would be $560, or less. Remember, Gross income is not what you receive on your paycheck, but the total earned before deducting for income taxes, social security taxes, insurance, and any other items such as union dues. If you get paid by the hour, and work full time, you can calculate your monthly gross income by multiplying the hourly rate by 2080, and then dividing by 12 (this is the equivalent of 40 hours x 52 weeks divided by 12 months). Multiply that gross income times 0.28 to figure the target payment. If you routinely get overtime, you may be able to use that income for qualifying, but not typically.

Once that is calculated, we need to look at the total household debt situation. This is the sum of adding your prospective housing payment to all the debts shown on your credit report. This is NOT the true total of your monthly household debts, only what shows on a credit report. For example, if you have a $200/Mth car payment, plus a credit card with a $1000 balance that you pay $100/Mth on we will not calculate your ratio on $300 in payments per month. The credit report will only show the minimum acceptable monthly payment amount which might be just $35 so your monthly bills would be $235 plus the projected payment for the loan. The target for the combined amount of these payments is 41%, but with good credit, 45% and even 50% can be acceptable. This higher allowable percentage goes for both the Housing Ratio, and the Total Debt ratio. If you have really good credit, underwriting approval is more lenient because they assume you know what you're doing because you have good credit.

Another aspect to keep in mind is that many regularly recurring monthly bills do not appear on your credit report. Along with the car payment comes a fuel bill, and insurance. There is also Food, Clothing, Utilities, daycare, Water, Sewer, Garbage, etc. that are not shown on your credit, but still need to be paid each month. My Fort Lewis, and Air base McChord (now Joint Base Lewis-McChord) VA loan buyers will find that VA also takes into account an amount they expect necessary for the home's monthly maintenance, and utilities expense. While these other expenses are not part of the underwriter's approval process, they need to be addressed by both you, and your loan officer to give yourself the best chance for long term success.

Puyallup First Time Home Buyer Seminar - Part II Employment

Now that we have covered the area of credit, we need to look at the remaining factors of a home loan Pre Approval for my Puyallup, Tacoma, and Pierce County homebuyers. Part II covers Employment requirements. I am sure that the majority of those reading this would find it to be just plain common sense that steady employment or income is a standard requirement for approval on any kind of mortgage loan. The only real issue is the definition of "steady."

Typical programs (VA loans, FHA loans, USDA loans, and most conventional loans) are looking for a two-year work history in a given field of employment. This does not necessarily mean two years with the same employer, or job title.

For example, someone could hold a job as sales person in a Tacoma retail store specializing in clothing for six months before taking a job in Puyallup at the car lot selling cars over the last 18 months. Together, we have 24 consecutive months of employment in the field of "sales." While selling cars and selling clothes are very dissimilar, it is still considered "sales." On the other hand, perhaps someone worked as a laborer for a Pierce County construction company for a year and a half before being promoted to an equipment operator. The two jobs are very different, with very different pay scales, but they are still in the Construction industry - even if they were two different employers.

The construction industry is also where we can demonstrate another aspect of what is considered steady. Many types of construction are dependent on weather, and I often see long-term employees who are "laid off" seasonally due to lack of work. Sometimes these layoffs can be counted in weeks, sometimes months, but either way they have a job to go back to as soon as work picks up. Another example of this might be a commercial fisherman. Obviously, fishing is regulated by season, and there is a lot of down time in between where the fisherman can collect unemployment benefits. As long as the employer says there is a job to come back to when another season begins this is considered steady. In addition, the unemployment income received can be used as qualifying income in many circumstances.

Income can also come from non-employment sources such as annuities, retirement funds, or disability payments. Often I find myself helping someone who is not employed due to a situation that has resulted in long-term disability payments. In this case, we are not as concerned about the history so much as the future. Most programs are looking for verification that the benefit payments will continue for at least the next three years. For this, we generally get documentation from Social Security, or in the case of an annuity payout, we will need something from the firm handling the accounting, and taxes on that annuity.

If you feel you are ready, and wish to check out Tacoma homes for sale or perhaps some other Pierce County Real Estate these are some great sites.

As I was perusing the blogs on Active Rain the other day I saw a blog with a picture of David Stevens the current Commissioner of the FHA on the side. It did not click at first, I just thought someone had used his picture to promote their blog. Then today I saw the same photo, but actually took the time to read the blog because I had posted a blog earlier on the newly released policy changes requested by FHA.

What a surprise when it actually sunk in that this was indeed the FHA commissioner blogging on Active Rain about the very same subjects I had quoted him on earlier! Who would have ever thought a few years ago when the very first Active Rain blog post went out (Thank you Brett Tousley for being the first one out of the chute!) that one day AR would be able to claim such a high ranking public official as a member.

Congratulations Active Rain, and Welcome Mr David H. Stevens. I'm sure we are all very glad to have you here with us!

http://activerain.com/davidhstevens