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Orange County Mortgage PreApproval - FHA and Conventional Loans

12-02-08
Tim Storm

What is the difference between getting a PreQualification versus PreApproval? Why do I need either? I hear these questions quite a bit. There are very good reasons why a potential home buyer would want to get PreApproved, and there are important differences between a PreQualification and a PreApproval.

PreQualification

A PreQualification is based on verbal information received from a borrower, many times just over the phone. Answers to questions such as:

  • What do you do for work?
  • How long have you worked for your current employer?
  • Are you paid hourly or on salary? Full time, 40 hours per week? Overtime or bonuses?
  • How much do you currently pay for rent?
  • How much of a mortgage payment are you comfortable with?
  • How is your credit? Any idea of your current FICO score?
  • Do you have any car payments, student loans, credit card debt, judgements, collections?
  • What about alimony or child support?
  • How much money do you have in the bank? 401K? Potential gift and source?

With this information a good loan officer will be able to prepare a detailed loan scenariofor the borrower that will give them a good idea of what they can qualify for, provided the information proves to be as discussed. For many borrowers, the information given even over the phone will prove to be fairly accurate, provided the questioning has been thorough. But problems can arise, especially in the case of a self employed borrower with a Schedule C on the tax returns. Also, a borrower in a sales profession who is able to write off business expenses (2106 Expenses - unreimbursed employee expenses) may end up having less income after expenses than discussed over the phone. For this reason, along with a few others, nothing beats going through with PreApproval BEFORE making an offer on a home.

A PreApproval involves the following:

  • Verification of all income, assets, and job history.
  • Collection of 2 years W2's and in many cases 1040's.
  • Pay stubs for the most recent 30 day time period.
  • Copies of 2 months bank statements, all pages, including 401K and investment accounts.
  • A complete loan application.
  • Credit report is run.
  • Automated loan approval is run and received same day.
  • Additional verifications are ordered if required, depending on circumstances of file.

Getting a borrower PreApproved is actually not as difficult as it may sound. I can typically complete a loan application over the phone in 10 minutes or less, run credit and have automated approval within minutes. From there is it just a matter of letting the borrower know what is needed for verification purposes.

Once a borrower is PreApproved they are able to confidently go out and look for a home that not only fits their needs, but will fit their budget. Also, the seller will be more willing to accept an offer from a buyer who has already been PreApproved, especially if the PreApproval is from a Direct Lender.

For more information on Mortgage PreApproval, contact Tim Storm with Frost Mortgage. Frost Mortgage is an FHA Direct Endorsed lender located in Irvine, CA.

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The FHA 203K Streamline is a Great Loan Program for Orange County, CA Home Buyers

11-27-08
Tim Storm

The 203K program has been around for a while, but a few years ago the "Streamline" version of the program was released by HUD. The 203K is a Rehab loan program. The more popular "Streamline K" program is good for up to $35,000 in improvements. When this is combined with the fact that you can buy a home with an FHA loan with only 3% down (will be 3.5% in 2009) and then get an additional $35,000 to improve the home, the program really stands out as something to be considered.

This program is not just for purchasing a home. It can also be used as part of a refinance to make improvements to a home. Borrowers who want to improve their home instead of move. To see a video I put together on this program, click here.

The Best Deals are on the Damaged Bank REO's

In Orange County, CA home buyers are finding that although it is a buyers market, there are a lot of buyers out there. A nice home in a good location will get multiple offers. Meanwhile, a Bank REO that was damaged by the previous owners, or even by squatters or thieves, can be a diamond in the rough. But first you need to have a little vision, and a Realtor and Loan Officer who know more than just the basic loan programs.

Typical Improvements Allowed on the Streamline 203K program

  • Kitchen or bath remodels
  • Patios, decks or terraces
  • Roofing
  • Safety, energy efficient and electrical upgrades
  • Flooring
  • Windows and doors, siding
  • Paint
  • Appliances - Yes, that's correct. You can buy new appliances as part of this program.
  • Minor remodels that don't require structural repairs
  • Heating and air conditioning

Luxury items are not permitted, such as swimming pools, hot tubs, tennis courts (but wouldn't that be fun), saunas or alterations to support commercial use.

How Does the FHA 203K Streamline Program Work?

When the loan is funded, 50% of the rehab funds are disbursed immediately. Included with the initial disbursement is an instruction letter with details regarding the 2nd (final) disbursement. The final disbursement is issued only when all of the work is completed. If the work is $15,000 or more then a final inspection by an FHA appraiser is required. If the work is less than $15,000, then no final inspection is required. This would be perfect if appliances were the primary reason for using a 203K.

Is Qualifying Difficult?

No. The process for getting PreQualified for this program is the same as a normal FHA loan. Down payment is still only 3%, credit is flexible, and the initial approval can be, and in most cases is, Automated.

Once PreQualified, and then PreApproved, the next step is to go find a house. Home buyers will find there is not as much competition for a damaged home. Most people will shy away from these homes, leaving them for investors looking to make money by flipping the property.

Once a property is found, the borrower needs to determine improvements needed and schedules an inspection with a cost consultant. The cost consultant (or borrower in some situations) then completes the work write-up and prepares contractor bid packages to obtain cost estimates. The appraiser will use the work write-up to determine "as is" and "improved value."

The Loan Officer and/or Realtor will be able to guide the home buyer through this part of the transaction. It is helpful to work with a Loan Officer who works with a lender who is a Direct Endorsed FHA lender and can fund the loan "in-house" rather than broker it out. Control of the loan process is very important and can also save money for the buyer.

This program will be very popular in 2009. Foreclosed properties are not known for being in pristine condition, and the banks selling the properties typically are unwilling to fix repairs. The FHA 203K Streamline program will be an important tool for any home buyer to have when beginning to home buying process.

Authored by Tim Storm, CMPS, Sr. Loan Officer with Frost Mortgage, a Direct Endorsed FHA Lender located in Irvine, CA.

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Two Great Reasons to Purchase an Orange County, CA Home Before January 1

11-26-08
Tim Storm

It's that time of the year once again. Time to decide if you will put that home purchase you've been planning off until after the holidays, or try to close escrow on a home before the end of the year. This year there are a few things to consider that may push you to take action now.

  1. The Jumbo FHA limits are going away. The good news for many Orange County home buyers is that the new FHA limit will still be fairly high at $625,500, but the temporary limit of $729,750 is about to expire. Any buyer who is shopping in a price range between $660,000 to $800,000, and was planning to put either a minimum down payment of 3.5%, or even between 5% and 10% down, needs to act quickly if they are to take advantage of the temporary limits. Many lenders have already cut off the temporary limits, but Frost Mortgage is still closing them, and will be through the end of December. Actually, even into the beginning of January. But we need to get the approval soon, Once the temporary FHA limits are gone, buyers will have limited options for a loan unless they have 20% for down payment.
  2. $7,500 tax credit for First Time Buyers. This tax credit will is available for homes purchased all the way to July 1, 2009. But that means you won't actually receive the credit until you file your 2009 Federal Tax returns in 2010. If escrow is closed by December 31, 2008, you could be getting that tax credit when you file your taxes at the beginning of 2008. Why wait a year when you can take advantage now.

I actually have a client right now who is making an offer on a home valued at $750,000 and will be coming in with 3.5% down. Hopefully his offer will get accepted so he can beat the clock. Homes in Irvine, Tustin, Orange, and even Newport Beach can still benefit from these high temporary limits. It's time to get serious. If you are interested in finding out more information, or need to get prequalified, please contact Tim Storm with Frost Mortgage 877-786-4243 x7

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