FHA is Changing
March 9, 2010
 
Question:
“I need your advice. I am really in a bind here and at this point do not even trust my attorney. I was issued a mortgage commitment for an FHA mortgage on a condo (new construction). Now I come to find out that the condo project was not approved by HUD and the complex is only about 85% sold and they do not turn over the control of the HOA until they are 95% sold. The bank has not closed the loan yet; they tell me that they sell the loan to investors, and that they cannot get spot approval on the purchase because of these two factors even though they keep telling me they are working on it. I went past my "time of the essence” date in the contract and now the developer is trying to charge me $150 per day penalty for not closing.

My attorney tells me that I have to close because I have been approved and have a commitment. What good is a commitment if the bank won't close?  Am I going to lose my down payment? How do I protect myself? Please help. I am desperate.”

Answer:
I know in your state you use attorneys for real estate transactions.  In this instance, it seems you certainly have the wrong one.  Read your purchase agreement very, very carefully.  Most are “subject to mortgage financing” or mortgage approval.  If the bank you have chosen cannot close your loan, get documentation of that fact and you will surely have cause for cancelling the transaction without loss of your money. 

Not all lenders are alike, especially when it comes to FHA financing.  Choose one that is very experienced and well versed in the latest regulations.  FHA has changed and is changing many of its requirements and regulations, which we will speak of in future columns.  In your particular case, note that January 31, 2010 was the last day FHA allowed processing of spot condominium approvals.  The procedure no longer exists.  All condo projects must be on the HUD-approved list.  New projects under construction can be submitted for its approval with required documentation. Good luck.

"Taking Over House Payments in the Wrong Way"
January 26, 2010

Question:
“My husband and I were looking to buy a home when our lease expired on our apartment in July. We then found out his sister had fallen behind in her mortgage payments, and her home was about to be foreclosed on. She informed us that we could take over the payments and finish paying for it. Since my credit was not good, but my husband's was, we jumped at the deal.  Well, we paid nearly $15,000 upfront to make up the delinquent payments to stop the foreclosure, and we started paying the payments the next month.  We were told my husband's name would be added to the deed until he could qualify to get the house financed in his name. That has not happened, and we have done repairs to the house and are paying a very high mortgage payment.  We do not want to continue this if we are not going to be the owners, and are just renting. Can a name be added to the deed? Should we pursue this, or just get out now?”

Answer:
His sister should have quitclaimed her interest to him before you paid the dollars it took to bring the loan current and certainly before you started making repairs.  It is rather easy to be added to title, but not to the mortgage.  Possibly negotiations with the lender could have had your husband added to the mortgage.  It was certainly worth pursuing at that time, when the lender might have allowed an assumption due to the circumstances.

I suggest you get legal advice immediately, and you might consult with your local title company for assistance with the necessary forms for his sister to sign and have them properly recorded.  Really, such a big step should never be taken without the proper legal assistance.  The minor cost involved can save you so very much in the future.  Now that you have spent so much in dollars and effort, I urge you to stay with it, but get the proper paperwork done so you are protected.  Good luck.

Copyright © 2010 Roxanne Carr
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"Needs Cosigning Help?"
January 18, 2010

Question:
“I'm very interested in a townhome and unfortunately I would need a cosigner. My parents have bad credit.  My fiancé does not show income (he works off the books) and we are getting 20% down as a gift.  What can I do in order to get this house with out a cosigner??? Please advise!”

Answer:
You are truly lucky that you are getting 20% down as a gift.  Beyond that, you certainly need help.  Are you positive you cannot qualify alone?  First, check with an experienced FHA lender in your area, one highly recommended to you and see how far you are from qualification.  FHA only requires a 3.5% down payment, and 20% down is considered a very strong compensating factor for high debt ratios, if all else is in order.

Hopefully, your parents are working diligently on their credit cleanup.  Most programs do require that any cosignor be related, and of course you must consider the responsibilities of cosigning for the person or persons doing it. 
 
If it is accurate that you cannot qualify alone and you have no other close family person able or willing to cosign, your best alternative is to wait, be frugal, save your money and get rid of any debt you have.  There will be other properties you are interested in and opportunities will come along at the right time.  Build your credit and maintain a good work history, and work closely with that experienced mortgage lender.
 
Of course, if at all possible, your fiancé should be declaring his income and establishing a work and income profile.  He will definitely need it in the future; working for cash can hurt one in many ways.  Good luck.

Copyright © 2010 Roxanne Carr
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"Cosiging or Coborrowing"
January 11, 2010

The most frequent letters I get, from all across the nation, are with questions about cosigning or coborrowing for family or friends.  Here are a few of the latest:

Question 1:
“My sister wants me to cosign on her mortgage for her house. Will this affect my credit in any way? Will this lower my credit score? And would this affect me if I want to get my own mortgage in the future?”

Answer:
Cosigning will definitely affect you.  The loan will appear on your credit report - all well and good if payments are always made on time and you don’t need to apply for any further large credit!  It can help or hurt your credit score, depending on the scope of your other debt and of course how the payments are made.  It is a serious step.  And yes, it could adversely affect you if you go to get a mortgage of your own; most lenders would count it against you as a liability.  As I always suggest, if you do move forward with it, get a legal contract prepared between you to cover all possible future contingencies.

Question 2:
“If you co-sign for someone, do you automatically become part owner of the property? What if they want to sell? Can you collect on the profits of the property?”

Answer:
If you cosign for someone, you take on the debt; you are responsible for it the same as the other person.  You co-own the property if you are joined on title.  And then you must both agree as to future transactions.  Legal assistance would be most highly recommended. 

Question 3:
“I am a retired teacher on a fixed income. My son wants me to be a co-borrower for a home. He would make all the payments. My home is worth about $900,000, and I have no other assets. If he was to default on the loan, could my house be at risk of being taken to pay off his house mortgage? Or could it just hurt my credit rating? I wouldn't want that, but it's better than losing my personal house.”

Answer:
As a cosignor, you take on the debt the same as the primary borrower; it will show on your credit report and affect your credit score.  However, your house would not be in jeopardy because of it unless you signed a cross-collateralization agreement.  The security for the loan would be his house.  Even with close family members, it is best to have a side legal agreement covering any foreseeable future events. 

Copyright © 2010 Roxanne Carr
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"Buying After a Bankruptcy but Credit Still Not Great"
December 21, 2009

There are way too many complications if someone buys a property "for you" and puts you on title later.  Yes, that family member would have many responsibilities; possibly the most important is in signing for a mortgage you are going to be liable for its payment.  If the other person (you) defaults on their part of the arrangement, the one left holding the bag will be the one that signed for the mortgage and would be equally liable for all facets of keeping the property up, paid for, and in good condition.  Generally, they won’t be able to come off the mortgage without a refinance.
 
I strongly suggest you continue working on your credit, bring it up to Excellent, and keep saving as much as you can.  The rules do keep changing and are becoming more stringent, but many of the changes are good sense and we learn to deal with them.   Generally now you need three to four years after a Bankruptcy before you can borrow again and five or six after a Foreclosure, depending on all the circumstances.  And you will need to re-establish credit after the date of the Bankruptcy Discharge (new credit, paid as agreed).
 
Find a good, reputable, experienced lender in your area, one that will work with you over time, counseling you as to what to do as you move forward with your plans for the future.  FHA will probably be your best choice.  Good luck.

Copyright © 2009 Roxanne Carr
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"Co-Owning and Co-Borrowing Can be Complicated"
December 17, 2009

Question:
“About 5-1/2 years ago I bought a house with a good friend of mine. We split everything 50/50 and are both on the title and mortgage. I recently got engaged and want to be taken off the title and mortgage. We are not able to refinance because the house is no longer worth what we paid for it. What do I need to do? Also, my fiancé said he would add my name to his title. Is this a good idea? Please help! I'm so confused.”

Answer:
Hi - I suggest you read thru the FAQs on my website.  Generally you cannot come off the mortgage without a refinance because mortgages are now bundled in quantity and sold on Wall Street.  Check with your servicing lender to see if your loan was traded or is held in “their portfolio” where they could accommodate you if the person to remain on the mortgage qualifies alone.  Also, if you happen to have an FHA mortgage, check with your lender as to a “streamline refinance” where an appraisal is not required.

Title can be changed rather easily with a Quitclaim Deed, signed by your friend and recorded in the county where the property is located. 

If you cannot refinance or get yourself off the mortgage, I strongly suggest a legal contract between the two of you for your protection in the future.  This should always be done, in any event, when co-owning or co-borrowing and not married.
 
It may be a good idea to be added to title with your husband-to-be as long as you want the possible burden of co-owning the home with him.  Remember the responsibilities and, again, I strongly urge legal agreements to cover all your understandings.  Good luck.

Copyright © 2009 Roxanne Carr
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"Is it Really a Good Time to Buy?"
December 9, 2009

Question:
“We have been grappling for a long time about whether to buy our first home or not.  Is this a good time, what with the economic downturn and values seeming to drop in many areas?”

Answer:
IF you are truly ready for home ownership, a big question in itself, then I would say it is a very good time to buy.  In many areas, people are getting deals they never thought possible.  Homes that sold for $500,000 two years ago may be selling for $300,000 or less!  Housing markets, like all markets, have ups and downs, as do interest rates, but this one has been the most extreme ever seen. If you are in the right position and ready for the responsibilities of home ownership, you can take advantage of the downturn in sale prices and interest rates.

Real estate has been and can be an excellent investment, but that should not be your primary reason for buying.  Analyze your situation carefully and set up an appointment with a trusted, experienced mortgage advisor to see what options are open to you.  Always get loan preapproval before shopping.  And remember, the rules and guidelines have changed drastically in the last 18 to 24 months, tightening dramatically in many respects.  Maybe now is better than it will be in the foreseeable future; you might want to catch it now while you can, if you can.

Be aware that credit scores are King and Queen.  Many programs require at least 620 or above.  The lower down payment conventional programs may demand 720 or above.  Pay attention to your credit, work on it diligently if you have had problems; keep paying down consumer debt and save regularly.  These are just a few of the things looked when you are being evaluated for mortgage approval.

Usually you will be asked to supply proof of income for the last two years, proof of cash assets to close and to remain in reserves after closing, explanations for any serious credit issues or lapses in employment, and valid proof of name, address and birthdates.  If you think you are being asked for too much paperwork, just realize what the country has been through and how mortgage lending has changed because of it.  Good luck.

Copyright © 2009 Roxanne Carr
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"What Tax Write-offs Are Available for Homeowners?"
November 24, 2009

Question:
"My wife and I purchased our first home in July.  We would like to know what additional paperwork are we going to need when preparing for our income tax returns.  What are some of the additional tax write offs now that we are home owners?   We put $7,000.00 toward our landscaping; is this a write off?”

Answer:
All you will need is your “HUD-1 Settlement Statement,” which shows what you paid for the new mortgage in "points" (loan fees), interest per day to closing, and property taxes.  “Points” are considered in a purchase transaction as Interest and allowable as a deduction in an itemized return if you are an owner-occupant of the property. 

Also, other allowable deductions will include your mortgage interest (the interest you paid to date of closing) and whatever property taxes you were charged.  In future, you will be claiming the mortgage interest and property taxes you pay each year.
 
Keep a record and receipts for all capital improvements you make to the property, which may or may not include landscaping (speak to your accountant).  This may help when you sell it, in case you go over the allowable non-taxable Capital Gains limit at that date.  Capital improvements are not deductible for your owner-occupied residence at this point in time.  Congratulations on your purchase, and good luck.

Copyright © 2009 Roxanne Carr
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"Title and Gifting Can Get Complicated"
November 16, 2009

Question:
“My grandmother has a summer house (not her primary residence) in NC that she would like to sell to my sisters and myself to ensure that the property stays in our family. My two sisters also live in NC while I live in CT. I have two questions: 1) We are all 3 married, but would like the property to pass from ourselves to our children rather than to our husbands in the event of death. 2) The condo unofficially appraised for $900K - $1M, but was purchased for $20K. The price that we are paying to purchase the property is $150K. We would like to understand more about the tax implications of her Gift of Equity (which I understand to be the difference between the appraised value and our purchase price?) as well as the capital gains taxes.  How do we structure the purchase to pay the least amount of gift taxes and capital gains taxes?”

Answer:
First part is easy - When you take title to the property, the three of you can do it in a couple different ways: as Married, Sole & Separate (each of you) with each husband executing a Quitclaim Deed so it only belongs to the three of you, then you bequeath it to your children in your Will; or, all of the three couples can go on title as Tenants in Common or Community Property, putting your wishes into a Will (the husband bequeathing to the sisters, you all to your children).  I definitely urge legal advice in these matters.
 
Second part - It is my understanding the Gift of Equity is the difference between the sale price to you and the owner’s equity handed over in the transaction, determined by the appraisal. Talk to your CPA to clarify; it will certainly be important in the Capital Gains aspect also.  The current exclusion for gains up to $250,000 ($500,000 for a married couple) only applies to a primary residence occupied two of the last five years.  The gift will only come into play above what I believe is the current $12,000 per person (double for married) in a Federal Gift Tax Return, but does not get assessed until the person gifting passes away, in the settlement of their estate.
 
I am neither a CPA nor an Attorney, and I believe you need both for the best results.  Good luck.

Copyright © 2009 Roxanne Carr
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"Must I Provide Old-Old Bankruptcy Papers?"
November 7, 2009

Question:
“We are refinancing our mortgage with our existing company.  We are ready to close, and now they are requesting our BK discharge papers from 11 years ago!  The BK hasn't shown on any credit reports for three years.  How could this possibly have anything to do with the new loan at this time?  We live in San Diego County CA and the main office for refi is in Missouri.”
 
Answer:
It does sound odd that any lender would ask for Bankruptcy papers from that long ago.  I might guess that because you are dealing with your existing company, they have knowledge of the old BK on file, and they do not keep old loan packaging materials from previous approvals.  A Bankruptcy and other legal derogatory items, such as tax liens, will appear on your credit reports for ten years; standard items stay on for seven years.  The credit will show from the date of your Bankruptcy Discharge, not the date of filing.  Possibly it was discharged ten years ago or less?  You can ask for a copy of your current credit report from them to see if it is still showing on your records.
 
In any event, a lender can ask for whatever it feels is necessary for prudent underwriting of a loan application.  Most lenders require the complete documentation to support your reasons for a Bankruptcy.  If you don’t have it in your files anymore, you can get a copy from your County Recorder.

I suggest you ask for an explanation of this closing condition...talk to a supervisor if necessary.  Unfortunately, often it is difficult when dealing with a company long-distance.  Good luck.

Copyright © 2009 Roxanne Carr
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"Can First Time Homebuyer Buy Home With Poor Credit and High Debt to Income Ratios?"
November 3, 2009

Question:
“We have not met yet but a close friend and a co-worker told me that The Mortgage House in general and you in particular are the people to talk to. I have a simple question and your response will determine if I waste any more time on this. I will briefly tell you where I am coming from so that you can advise me where to go.
 
My wife and I will be moving to the Paso Robles area soon because of my job transfer.  We need a place to live of course and have been looking at the rental market, but I am tired of renting and want to have our own place. My problem is my credit is not good, and we have a pretty high debt to income ratio.
 
My question is: Is it possible, or likely, that a 10-year state employee, a veteran, and a first-time homebuyer married for 15 years, with high value life insurance policies, can get financed to buy into a short sale or foreclosure and also get a consolidation loan on top of that to clean up our credit report?
 
Last year's W-2 said I made a little over $95k. We do not have any children, just pets. My most serious vice is Starbucks; my wife’s is our Yorkies. My pick-up is paid for and our car will be in November, I think.  So what do you think with your experience in the business, do we have a chance or are we out of luck because of our debt?”

Answer:
Without the benefit of a full loan application and your credit report, I cannot completely respond to your question, though it is a very good one – and a fairly frequent one.  If your FICO credit scores are at least 620, an FHA loan might be possible; if 580 or more, a VA loan may work.  With the VA, you may be able to pay some debt prior to closing if you have any savings; there is no down payment required if you qualify.  Being a first-time homebuyer signifies you still have your full eligibility. For an FHA loan, you need a minimum 3.5% down, but a family gift is allowed if possible.  Also, in your purchase negotiations, you might be able to secure seller-financed closing costs, which would help. 

The nature of the debts may play a role as well.   Your income is very good and if you cannot qualify for a purchase right now, I would certainly suggest you live as frugally as possible and pay those debts off as soon as you can.  Of course, mortgage counselors are always available for further discussion and individual advice.  Good luck.

Copyright © 2009 Roxanne Carr
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"Not Enough Credit, but Can We Use a Gift?"
October 27, 2009

Question:
“My boyfriend and I are trying to take out a mortgage on a house and they said I don’t have enough credit. They said that I would be on the title and that was it, but we are having a little trouble funding the money for the down payment. I asked my family for the money because his family is unable to help, and I was told that I could not use the money from my family that it had to be from one of his blood related family members. Why does it matter where the money comes from? Why can't my family help?”

Answer:
Almost all mortgage programs do require that any gift monies come from related family members.  This is because lenders are extremely wary of borrowed down payment monies.  They want to be assured you have a cash investment in the property yourself, and a gift from family is felt to be as important to you as your own funds.

If you are on title, having it coming from your family could be sufficient.  However, you should be able to also go on the mortgage, even if you don't have a lot of credit.  FHA financing might be your best choice, maybe your only choice because of your lack of a sufficient credit history, and the required minimum down payment is only 3.5%.  Most mortgage guidelines do require that you have at least three to five seasoned credit references.  I think you need a different lender, with more experience.  Especially in today’s mortgage lending world, it is critical to deal with experienced advisors and  those that offer a wide range of programs. 

Please follow my frequent advice to have a proper legal contract drawn up between you – you and your boyfriend, that is – before proceeding with this large financial obligation.  You need to document your understandings as to who is responsible for what and what the arrangement would be for the future should you ever part company, among other important things.  Good luck.

Copyright © 2009 Roxanne Carr
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"What is the Latest on the VA Loan Program?"
October 17, 2009

Question:
“I have just finished my term in Iraq and my husband and I have saved a little money and think it is time to buy our first home.  However, we are very confused by the different answers we are receiving from lenders in our area.  We want to make an offer for $500,000 on a home that previously was worth over $750,000.  Will we need a down payment?”

Answer:
Congratulations on your safe return and thank you for your service to our country.  Yes, you may get different answers from various lenders.  It all depends on whether they are making no-down VA loans above the old maximum $417,000 and also on what the loan limits are in your area.

ON October 10, 2008, the President signed Public Law 110-389, the Veterans’ Benefits Improvement Act of 2008.  It upgraded many veterans’ benefits, including providing an increase in the guaranty amounts that VA issues for home loans.  First understand that the guaranty amount is the percentage of the loan amount that VA will guaranty in the event of default and foreclosure, and this is the incentive that moves lenders to make no-down VA loans.  The guaranty is based on each veteran’s entitlement from service.

In the past, VA guaranteed 25% of the original loan amount on purchases up to $417,000 for someone with full entitlement.  This new law now allows for loan guarantees above the standard $417,000 up to 125% of the area median price for a single-family residence (as published by the Federal Housing Administration).  You will need to search out the maximum loan limits for your county and see if it is sufficient for the house you want to buy.  They can differ greatly; for example, the VA loan limit in San Luis Obispo County is $610,000 while the limit in Santa Barbara County is $656,250.

If not, you can take the amount of your eligibility and add a cash down payment to it to equal 25% of the purchase price.  You will, however, need a lender that participates in offering VA loans above the old conforming limit of $417,000.  The Veterans Administration itself does not set a maximum allowable loan amount.  It is the lenders that want to have the benefit of the 25% guaranty. 

The maximum guaranty amounts are likely to change every year as new median data is published.  The current amounts are good for all loans closed in 2009.

This Veterans’ Benefits Improvement Act also extended its adjustable rate authority up through September 30, 2012, and you may wish to also consider a VA ARM loan.  It is wise to look at all possible choices open to you.  There are many quirks in the program, and you may find further answers for your benefits online at www.va.gov.  Good luck.

Copyright © 2009 Roxanne Carr
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"Complications When Buying a New House and Keeping the Old One"
October 11, 2009

Question:
“We were trying to get prequalified for a home and are having a little trouble. We own a home and just wanted to rent it - can you not use rental income anymore (when you don't have 30% equity)?”

Answer:
Oh yes, as with nearly everything else in today’s lending guidelines, there have been a lot of changes in the approval requirements for a new mortgage when you are going to retain your current home.  Most of the tightening was due to a flood of people buying a new principal residence just because the value of their current one had gone down so dramatically.  They retained the old and then just walked away from their obligations on it as soon as they received the new house and the new mortgage. 
 
FannieMae issued some very stiff, new rules several months ago stating that if a borrower wished to keep a present home and rent it out:

• 2 months' minimum reserves of mortgage payment plus taxes and insurance would be required at closing for the new home and the existing single-family (6 months for 2-4 units);
• 30% equity would be required in the current property if rental income was to be used for it - and rental income must be documented with a fully executed lease agreement and receipt of the tenant's security deposit.  (If the 30% equity could not be documented, rental income could not be used to offset the debt -- and then also 6 months’ reserves of PITI for both properties would be necessary.)

Note that when I say rental income, lenders use 75% of the gross rent less any PITI payable (principal and interest, taxes and insurance), but this has been in existence for a long time.
 
If you are lucky enough to qualify for the new loan without rental income from the existing property, such as when you retain the house as a second home, that is good, but even then the 6 months' reserves are required for both properties if you are applying for a standard conventional mortgage subject to Fannie Mae rules.
 
Blame the stiffening of these regulations and many others on abuse by unethical people messing with the system.  Hopefully it will ease up as things improve.  Good luck.

Copyright © 2009 Roxanne Carr
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"Can Cosignors Help on My FHA Loan?"
October 4, 2009

Question:
“Our mortgage broker has advised that we need cosignors in order to qualify for our purchase with an FHA loan.  The loan officer says they will not average my income over the last two years because I am a financial planner and my income decreased last year.  Is this true and what are the complications?  We have excellent credit scores and good job history.”    

Answer:
I will assume you need an FHA loan for a particular reason, possibly for the 3.5% minimum down payment.  In this case, you might check with another mortgage lender.  FHA guidelines allow the averaging of self-employment income over the last two years or even three when advisable.   Only if it was a very dramatic drop in net income would this not apply.

If your income went down last year, that is to be expected in this economic environment, but most lenders will allow a more lengthy averaging, knowing that self-employment income does fluctuate.  This decision depends on the FHA underwriter involved and the particular company’s rules.  Each lender may have its own qualifying guidelines, often different and more stringent than actual FHA program requirements.

As to the cosignors, if they are relatives, the standard maximum allowable loan still applies.  Cosignors who are not related will reduce the allowable loan to 75% of loan-to-value.  For this purpose, relatives are defined as borrowers related by blood,  marriage or law (such as parents, siblings, stepchildren, aunts, uncles, nieces, nephews or unrelated individuals who can document evidence of longstanding, family-type, substantial relationships).

Of course, your cosignors should be fully aware of the obligations they undertake when they become coborrowers.  And I always strongly recommend legal advice and contracts between you that will set forth your future agreements.  Good luck.

Copyright © 2009 Roxanne Carr
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