ULC Divas Team

During a loan application, clients are asked questions in order to determine their eligibility to receive a loan. As a loan officer, it is essential to listen carefully and ask additional questions that could solve common problems on a loan before they occur. Obtaining the right documentation in the beginning will allow for a smoother process for all parties involved.

1. Divorce Decree & Separation Agreement

The 1003 Loan Application asks whether a client is married, unmarried or separated. If a client has been divorced, no matter the length of time of the divorce, it is necessary to request the divorce decree and separation agreement. How is this done since it is unlawful to ask if the client has been divorced? Regardless if the client marks married, unmarried, or separated, during every loan application appointment be sure to say, “If you have ever been divorced, I will need to have the divorce decree and separation agreement.”

The divorce decree and separation agreement indicate which party is responsible for liabilities incurred during that marriage. If the client is listed on the liability, but the ex-spouse is indicated as responsible for payment of the liability it is possible that the liability will be excluded from the client’s debt. This occurs as long as the ex-spouse has been paying the liability on time.

2. Child Support, Alimony, Separate Maintenance Documentation

There are two areas on the 1003 that talk about child support, alimony and separate maintenance. If a client receives any of these as part of their income, they may list it under part V, Monthly Income and Combined Housing Expense Information. The second area where a client may input that he/she pays child support, alimony, or separate maintenance is on question g in section VIII, Declarations.

If the client has either of these sections completed as noted above, be sure to request the court ordered documentation. In order to use the income for qualification, it’s necessary to determine if the income will be consistent for 3 years or more, the court ordered paperwork will show that information. If there is a payment of any of these, the court order will determine the exact amount and how long it will continue.

3. Letters of Explanation for Gaps in Employment or Housing

Often, loan officers find out later in the approval process that a client lived in a dwelling for 1 year and 10 months not a full 2 years. The client may have estimated dates; especially, if filling an application online. This also happens in the employment section. It is best practice to be specific and ask “Did you live at this address for exactly 2 years, or was it less than that? Do you know the exact dates?” The same goes for determining employment.

Another best practice is to ask, “Do you have any gaps in employment over the last two years?” and “Are there any dates where you did not have housing or were living rent free?” If there is a gap in employment or paid housing, request from the client a letter of explanation as to why this occurred and place it in the file for underwriting purposes.

Another way to determine if there is a gap in employment or housing is to request the client’s resume, which should have employment dates. Compare the resume to the loan application to determine correct information. W-2’s can help determine both employment and housing issues that may come up. Do the W-2’s have the same address during the period of time noted on the loan application? If not, this may be an indication that there is a gap in housing.

4. Last Two Months of Bank Statements

Bank statements indicate both expenses and income for a client. If a client has a deposit listed on the bank statement that is not the normal payroll deposit, it must be documented through a letter of explanation. If these deposits are not documented, they are not eligible to be used as part of the funds in the account. This must be done for any and all deposits not previously accounted for, no matter the amount of the deposit. It is a good idea to tell the client that if he/she will be making any deposits during the approval process, the client should take a copy of the deposit and note why the money was deposited.

If the bank statement indicates a Non-Sufficient Funds (NSF) occurrence, the client must write a letter saying why this occurred. A NSF is considered derogatory credit to the underwriter and may affect loan approval in light of all other aspects of the file. It is best to request from the client several additional months of bank statements in order to prove that the NSF was an isolated event.

5. Documentation of Gift Funds

Certain loans allow for gift funds to be used for the down payment. These gift funds must be from a family member or someone where there is a strong established relationship. By documenting these gift funds accordingly, they can be utilized for the down payment.

Solving Problems Before They Occur: Obtaining the Right Documentation was written by ULCDivas at www.ulcdivas.wordpress.com

The Colorado Housing Finance Authority (CHFA) increases home buyers’ purchasing power through the Mortgage Credit Certificate (MCC) Program. This program allows home buyers to claim up to 20% of the paid mortgage interest each year as a tax credit, while still allowing the other 80% as an itemized deduction. There are two ways a home buyer can utilize this program. The first is to take the credit when filing taxes. The second is to utilize it to boost the home buyers’ monthly income when qualifying for a purchase.

Example 1: On a $200,000 home purchase at a 5% interest rate, the home buyer will pay $10,000 a year in interest. The MCC allows 20% of that interest, $2000, to be a tax credit at the end of the year. This is a dollar for dollar tax credit. If at the end of the year, $2100 is due to the IRS, with this tax credit scenario, the amount owed to the IRS would reduce to $100. Utilizing the MCC at the end of each year as a tax credit, the MCC can be used every year the owner occupies the house as a primary residence.

Example 2: Using the same figures from example 1, the MCC would allow $2000 to boost monthly income when qualifying for a home purchase. The $2000 is spread over 12 months which equals $166.67. Since income is increased by this, the maximum mortgage payment can also be increased by the same amount. What does this mean for the home buyer? By raising the qualifying payment by $166.67 per month, the client would be able to look at a house that is priced up to $33,000 more than without utilizing the MCC. By using the MCC this way, a tax credit at the end of each year is not available.

Eligibility requirements are based on home prices, income levels and other aspects. Please contact Marilyn Mottershaw to see if you or someone you know is eligible for the MCC program through CHFA.

Why consider a 203K Streamline loan?

When looking for a home, many people want to make improvements on potential purchases. However, the out-of-pocket costs to complete the desired improvements can place extra financial strain on the buyer, even if the repairs are minimal. The 203K Streamline loan is a product that finances the cost of repairs and improvements along with the original purchase or refinanced loan amount. This is a great opportunity for buyers to make the improvements needed and desired without taking out another loan or using their liquid assets.

What types of repairs/improvements are allowed?

· Repair/Replacement of roofs, gutters and downspouts

· Repair/Replacement/Upgrade of existing HVAC systems

· Repair/Replacement/Upgrade of plumbing and electrical systems

· Repair/Replacement of flooring

· Minor remodeling that does not include structural repairs

· Painting, both exterior and interior

· Weatherization

· Purchasing and installation of appliances

· Accessibility improvements for persons with disabilities

· Lead-based pain stabilization or abatement of lead-based paint hazards

· Repair/Replace/Add exterior decks, patios or porches

· Basement finishing and remodeling without structural repairs

· Basement waterproofing

· Window/door replacements

· Exterior wall re-siding

· Septic system and/or well repair or replacement

How much money can be financed for the repairs and improvements?

For a 203K Streamline loan there is no minimum that can be financed, however the maximum is $35,000 which includes additional costs associated with the loan type. Depending on the bank investor who purchases the loan, the maximum allowable mortgage ranges from 103% to 110% plus closing costs. For repairs under $5,000 it may be a good idea to talk to your loan originator about setting up a repair escrow instead.

Who hires the contractors?

It is the responsibility of the borrower to hire the contractors. Only one bid is required, but the contractors must be insured and licensed if a permit is required. A maximum of three contractors can be utilized which includes retailers like Home Depot and Lowes.

How do the contractors get paid?

Checks are written out to both the contractor and the buyer to ensure that the buyer is happy with the work that is completed. The repairs are paid in two payments. Depending on the bank investor the first payment may range from 35% to 50% of the total cost of repairs. The remaining payment occurs once work has been finished.

What are the costs of a 203K Streamline loan?

In addition to the normal FHA loan costs, a 203K Streamline loan may include:

· A 2^nd appraisal fee

· Contractor and/or consultant fees

· A slightly higher interest rate (generally 1/8% to 1/2% more than a normal FHA loan)

Can investors use this type of loan?

Though consideration is going into allowing investors to utilize this, as of July 1, 2011 investors are not eligible for this loan type.

How long does it take to close?

Once the property is under contract and the loan application has been completed, it is suggested to allow 45 days to close. This may become shorter depending on the extent of repairs, number of contractors and the promptness of all parties involved collecting paperwork.

Universal Lending Corporation has been in business for 30 years and is one of the largest 203K lenders in Colorado. For more information on 203K loans contact Marilyn at 303-956-0060 or by email at mmottershaw@ulc.com

Potential Homes that Need Repair: The 203K Streamline Loan was written by ULC Divas at http://ulcdivas.wordpress.com/

Condominiums are beneficial for people with limited income, but who still want to build equity and own their home. However, there are several aspects one must consider prior to investing in a condo.

Homeowner's Associations (HOAs)

Condo projects have a homeowner's association that collect dues from residents in order to maintain the property and featured amenities. These dues are for the upkeep of the exterior of the property and do not cover the interior of the condo purchased. Therefore, it is important to ensure one has adequate homeowner's insurance to cover interior damage and repairs, which may be caused from events in one's personal condo or a neighbor's.

Another aspect of the HOA to look into is the percentage of dues it has in reserves. If the HOA has less than 15% in reserves, banks will not purchase the loan, which means the condo cannot be sold, unless the purchaser pays cash.

Since condos sometimes have a high turnover rate from foreclosures and moving, the HOA dues may not be paid regularly, the HOA may have to raise monthly dues to maintain the property. This affects buyers who originally qualified based on the monthly payment with set HOA dues. If dues go up, there is a higher chance that some people will no longer be able to make the payment, creating a cycle of problems within the complex.

With all these considerations and more regarding HOAs, it is suggested to investigate the HOA before considering a condo in that particular project. Your contract with your professional does allow you to review all condominium documents. Please take the opportunity to review those documents and ask questions.

Occupancy

Occupancy is a topic of concern to bank investors. For conventional loans at least 50% of the units in the condo project must be owner occupied. In FHA loans this number goes up to 51%. Though the percentage rate is only 1% difference, this may impinge a buyer from purchasing with a FHA loan. Conventional and FHA loans vary on percentage of money put down at closing and on qualifying rates.

Condos have many factors to contemplate. If you are looking for a condo, please make sure those you are working with are knowledgeable about condo specifics.

If you or anyone you know is interested in purchasing or refinancing a home, please feel free to contact the office at 303-759-7396.

What to Consider When Purchasing a Condo was written by ULC Divas at http://ulcdivas.wordpress.com/