True?  Maybe, but in general not so much. A good, knowledgeable realtor could be a good referral source in finding a good loan officer.  The key word is good. Check.

Having a “decent” salary and good credit is pretty relative.  And it’s relative to the other risk factors when a loan officer considers your ability to qualify for a loan: income, assets and reserves, credit score and history, appraisal, loan to value, etc. He is correct, though, that you will have to provide documentation to verify the various factors that will qualify you:  pay stubs, W-2s, tax returns (maybe), full, complete statements of your assets accounts, and maybe more. I cover all this in my book.

In the end, it’s not a big deal. For some, I know, who may not be as organized with their current statements and records, it may be a little frustrating.  Nevertheless, it’s all required.

The mortgage process is not a five paragraph process.  Take your time. Think about what’s important. And seek qualified help.

When a loan officer reviews a borrower’s history, the first, and most important, factor is credit. I recently read an article that focused on this question. Even if a borrower had no credit cards, no automobile payment history, and/or other history regarding credit that would appear on a credit report, there are loans still available.

Basically, the loan officer would build a credit history, with items like rental history, utilities, cell phone, etc, and would send the documents to a credit report company that would confirm the positive payment history. Then, the credit report company would complete a report, without credit scores, and send it back to the loan officer to review.

Several lenders, per Fannie Mae and Freddie Mac guidelines, and including FHA guidelines, still allow a manual review of credit history.

So those who are afraid of not being able to obtain a loan because of a lack of credit history should simply collect documentation,  for the monthly payments that they do make,  and set an appointment with a qualified loan officer. You may be qualified.

First, to make an offer to purchase a property, the listing agent (or homeowner if it’s a FSBO) will likely want a pre-approval letter. In order for the loan officer to write the letter, he or she must have all of the borrower’s information.  And believe it or not, the information needs to be correct. What?

So really the first step is for the borrower to give the loan officer all of the relevant personal information (name, address, employment, income, credit history, etc.) and then for the loan officer to verify this information by reviewing the actual documents (paystubs, W-2s, asset statements, etc.).  Then, and most importantly, the borrower and loan officer should review all of this information as it now appears on the application.

The industry has moved away from personal consultations and reviews.  And this has caused borrowers to unintentionally misrepresent information that is critical for loan program availability and which could, down the road, cause an issue for underwriting. The information has to be correct before a loan officer can confirm mortgage program availability, and the program availability will determine the kind of preapproval that the loan officer can write.

 In the end:  without accurate application and credit information, that preapproval really doesn’t mean that much now, does it?

The good news is that the limits for lending have increased for many areas. As outlined in the Allregs guide:

“The Act provides that the mortgage limit for any given area shall be set at 125% of the median house price in that area, as determined by the Department of Housing and Urban Development, except that the FHA mortgage limit in any given area cannot exceed 175% of the 2008 Freddie Mac conforming loan limit of $417,000, nor be lower than 65% of the same 2008 Freddie Mac conforming loan limit for a residence of applicable size.

Thus, in areas where 125% of the median house price is less than 65% of the Freddie Mac limit, the FHA limits are set at the 65% limit, i.e., the “floor,” as follows:

          1 Unit:  $271,050

          2 Units: $347,000

          3 Units: $419,400

          4 Units: $521,250

In areas where 125% of the median house price exceeds the 175% limit of $729,750 for a 1-unit property, the mortgage limits are set at the 175% amount, i.e., the “ceiling,” as follows:

          1 Unit:  $729,750

          2 Units: $934,200

          3 Units: $1,129,250

          4 Units: $1,403,400

For all other areas, i.e., those where 125% of the median home price for the area is in between the floor and the ceiling, the limit shall be at 125% of the median home price.”

So the news, for a change, is good for everyone. Buyers who need a more liberal mortgage program (i.e. have little down payment, not spectacular credit scores/history, little money in reserves, etc.), FHA is a great way to go. Sellers will have more opportunity to sell their homes, as there may be more buyers available, particularly for higher priced homes.

Here’s my thought though: I looked up the word “limit,” and the definitions point to the idea of boundary or restraint. I think we should keep this in mind.

Yes, the new FHA limits allow more people to buy “more home.” Sound familiar? Remember all those programs, in the last four years, that were able to “buy more home” buy offering high LTV (low down payment), interest only, and negative amortization programs? No income or assets required? No job, no problem? Remember those programs and remind ourselves of all the heartbreak that has spread not only throughout the country but also throughout the world.

Let’s make sure we do the right thing. Budget. Limit ourselves. Just because the limit is $729,750, doesn’t mean that we have to take a loan for that much.

Still, this is great news for the beginning of the spring season.

Homebuyers who see 666 on their credit report shouldn’t be fearful, but they should be concerned.  As this post states, those with bad credit may run the risk of working with bad lenders who specialize in lending money to borrowers with average to poor credit. Still, just because you have poor credit doesn’t mean you have to work with a bad (i.e. unethical, manipulative, or dishonest) lender.

My point is that 666 is, in my opinion, a lower than average credit score. I like to see credit scores higher than 700, and higher than 720 or 730 is preferable.  Remember:  the higher the credit score, the lower the (potential) risk. And (in general) the higher the score, the more programs and lower interest rates.  Not always, but most of the time.

It’s so important to pay attention to your credit history. Try not to ‘max out’ credit cards.

If you have a collection, it is very important to clear this up immediately either by paying the amount or investigating and, if the collection is not valid, have the collection agency report the error to the credit bureaus. Even if you have a collection for only $1.00, by leaving it on your credit report your credit scores will go down.

Any incorrect late payment? Again, have them corrected. Don’t wait.

Paying attention to every single item on your credit report will help you maintain strong credit. The devil is in the details.

I’ve always wondered, if the fake diamond looks as good as the real one,  well, you know where I am going with this….

This article spells out some of the problems with our current credit score system. For better or worse, credit score is the most important risk factor when a loan officer evaluates a borrower’s loan availability. In the last several years, as lenders undervalued other factors (down payment, assets and reserves, etc.), credit score became more important. Yet if the credit score system could be manipulated and thus became less legitimate and reliable and more “faux,” borrowers, one could say, were getting fake gems. Though borrowers went to closings and signed papers and got their houses, the strength of their loans was quite flimsy. And now we have all the foreclosures.

Your loan officer offers programs. You either accept or not. You should know how strong your application for a loan approval will be and if you should accept certain loan programs and if the mortgage program is in your best interests.

When you are buying jewelry you are certainly going to decide if you want real jewels or fakes.  Please do the same with your loan.

We need to turn off the television. Here’s why.

This post describes a few situations, of people losing their homes,  which probably should not have happened for several reasons. (Please read the article before reading the rest of my post.)

First, whether we like it or not, our credit reports (our credit histories) determine so much of our financial stability. There is nothing more important for a homebuyer when obtaining a residential mortgage. Nothing. We must maintain and monitor our credit. And when there is any issue, we must address that issue and clear up the problem immediately. The worst thing to do is ignore it. Read Rhonda Porter’s recent post. The website that she cites is heartbreaking. I think her post is extremely important.

The associated press article suggests that people “…who otherwise couldn’t buy houses because they had weak credit or little money for a down payment” could not obtain conventional loans. Sometimes true. Though the article is misleading. There are many programs for borrowers who have average or below-average credit and/or who have little or no money for down payment. So, contrary to what the article points out, these borrowers would not necessarily need a subprime loan.

Regarding the homebuyers whom the article cites, let’s look at the information that is provided:

Mr. Rodriguez: His (almost 100% financed) loan gave him a debt-to-income ratio of 44%. This ratio does not include his other monthly debt. So he has very little if not no room to save money. And so yes, he was lucky to refinance and find renters. But what if he couldn’t do these two things?

Mr. Beattie’s daughter: The debt-to-income is astronomical. Basically, her principal and interest payment alone (not including tax and insurance and her other monthly debts) is just over $5,000 and her monthly gross income is $1,666. Her payment is over 3 times higher than her gross (before tax!) monthly income. The article doesn’t give us other information.

My most recent post emphasized the necessity to budget. Before doing anything. My guess is that Mr. Rodriguez and Mr. Beattie’s daughter may have thought about their budgets, but they probably got bad advice from several sources and, more importantly, did not look in the mirror and ask themselves if what they were going to do was the right and best thing for them. For the present and for the future.

We need to turn off the television. We cannot live fantasy lives.  (Some people can live those lives, but they are a small percentage of the population.) Yes, there are many reasons for the subprime implosion and for many people to lose their homes. The freedom to make our own decisions, however, obviously falls on our own shoulders.

Please please please: when the television is off and the empty black screen, illuminated by a faint source of lamp light, reflects a face somewhat blurred yet still recognizably yours, look at it and ask what kind of future you want for this person. Then budget. Then write down and commit to this budget. Then start the process to buy a home.

She just chose the colors for her kitchen and dining rooms in her new apartment. (As I mention in my new book, one of the advantages of owning versus renting is that you don’t have to ask the landlord to paint the walls pink.)

For many young people who want to purchase a condo–their first home–there is the perception that the lack of credit history and/or lower scores, insufficent assets for downpayment, lower income, and a short period of employment will prevent them from buying a home. Usually this is not true.

There are many programs for young buyers with any or all of these risk factors. Surprisingly, most borrowers find that they do qualify for loans. For some people, though, they need help, and there are programs–usually called “kiddie condo” programs–where a close relative, usually a parent or parents, co-sign the loan and help the “kiddie” qualify.

The main downside for the parents is that they too are responsible for the payment, and so if there is a late mortgage payment, this will be reflected on all credit reports.  Also, the only way for the parents to get removed from this obligation is for the child to refinance the loan without the parents on the loan. Overall, this is a fabulous way for a young homeowner to start their life-long dreams of home ownership.

The loan officer should present these programs and explain how they will be structured, detailing the pros and cons, just as they would with any other loan.

 Did I say paint the walls pink?

Many people seem to feel the same way regarding their eligibility for loan programs.  I often hear, “Am I only available for a subprime loan?”  Subprime lenders, in general, do offer programs to borrowers with less than perfect credit (and usually very poor credit) scores and history. And sometimes these programs help first time buyers. In general, most people, though they may not have “perfect” credit (scores) or history, adequate reserves, or down payment, will have several other options before looking at subprime lending programs. 

Now that there has been extensive news of subprime lenders possibly going out of business, many uninformed buyers are becoming even more nervous.

You don’t have to be perfect to get a loan.