Being Active in Your Profession

As part of the Arizona Mortgage Lenders Assoc. (AMLA) leadership group I had the priviledge of participating in a meeting with the Arizona Commissioners of Financial Institutions and Real Estate on Tuesday.

There were many questions and policies discussed.  We covered MARS and how that impacts the realtors participating in short sales, loan officer licensing, real estate and mortgage fraud and the new loan officer compensation rules.  There was a lot of information and clairification of rules and guidelines.

It's very important that whatever industry or profession you have chosen that you allot the time to participate in your local and national professional organizations to help construct solutions to issues rather than react to changes after the fact.

We can finance Manufactured Homes

Peoples Mortgage has Financing Options on Manufactured Housing 

• Manufactured Housing is defined as any dwelling unit built on permanent chassis and attached to a permanent foundation system
• 80% loan to value
• 640 Minimum Credit Score  
• 1 Unit Primary Residence or 2nd Home...NO single width homes allowed and no investment properties
• Fully Amortized 30 or 15 Year Fixed Rate Products  
• Purchase or Rate & Term Refinances...no cash out refinances allowed
• Foundation must be inspected by a licensed professional engineer validating that the foundation meets all the FHA/HUD codes for Manufactured Housing transactions

Mortgage lending requirements for free and clear property

The buyer owns their current home free and clear, not a problem right?  Not so fast red rider.  The banks are now requiring the mortgage company run a Property Profile, a service available from title companies.  This means an additional closing fee of up to $150 to your buyer.

This fee is not considered a title fee, it is a lender fee and will be included in block #1 of the GFE.

The Property Profile will indicate any recorded liens on the property.  This includes private money or seller carrybacks.  With this just going into effect some deals are likely to get kicked back due to non-disclosure by the buyer on the application.  Often times the buyer doesn't consider it a mortgage on the property unless held by a bank.  Private money and seller carrybacks don't show up on credit reports and this is a way for the banks to protect themselves and be sure they have underwritten the file properly with due diligence.

Just one more change in the ever changing landscape of mortgage lending.

What is APR? Should this be used to compare costs of loans?

This is a relatively simple question with a very complicated answer. The true definition of this one even puzzles some very experienced loan officers. There is a generally accepted brief version of the answer that even experts use. The bad news is that, in order to truly understand, let alone be able to explain the calculation for APR, a truly long and complicated answer is the only option.

For those of you not interested in long and complicated, here is a very serviceable and very brief definition: APR is the true cost of money over time.

In other words, your mortgage has a NOTE rate, or the interest rate on your loan, but it also has closing costs, prepaid interest, and other finance charges. The APR is the cost of your normal interest and those finance charges over time expressed as an interest rate relative to the rate you are paying on your mortgage.. got it?  

APR is commonly used to compare the costs of loans.

You can compare two loans by looking at the APR, right? Only if you compare apples to apples – which is a challenge.

Lenders have some wiggle room when they calculate APR for you. They may or may not include some of the costs you’ll pay. For example, the credit report fee, appraisal fees, and inspection fees may not be included in your APR quote. Since different lenders can charge different credit report fees, the APR comparison becomes less valuable.

An honest lender will include more fees that accurately reflect your circumstances, which makes their APR appear higher.  Don't just dismiss what appears at first glance to be the more expensive loan.  It could be you're turning away the lender who was more conservative in their estimates of fees.  Always ask for the breakdown of fees used to calculate the APR before making a decision based on the APR.

Use of Anticipated Tax Refunds for Down Payment/Closing Costs

It's that time of year where questions arise concerning tax refund loans and whether or not they are acceptable funds for use as qualifying assets in the loan transaction. Upon checking into this, following is some information you may find useful.

1. Bank Deposit products.

      a. These are considered the borrower’s funds and can be used for down payment and closing costs etc  
          just like normal borrower funds.

     b. An example of this is the H&R Block Refund Anticipation Check.

2. Unsecured Refund Loan Products

    a. These are unsecured loans which are not eligible for use in our transaction.

    b. An example of this is the Jackson Hewitt/Republic Bankcorp Anticipation loan.


Generally we must have paperwork from the borrower that they received from their preparer to determine if the funds can be used or not. Scenario 1 is acceptable, scenario 2 is not.

There is confusion on this because sometimes option 2, the refund loan, is represented as a secured loan, but it is not always a secured loan.  We make this determination by getting a copy of the paperwork. If the loan documents say “secured loan”, the funds can be used. If they say “signature loan”, “Line of Credit”, “unsecured loan” or anything similar, the funds cannot be used. 


Fannie/Freddie and FHA guidelines do not allow for the use of unsecured funds.

Selling Personal Property with Real Estate

Sometimes when real estate is sold, it involves more than the real estate. Things physically attached to buildings are generally considered “real property”  anything else is not real estate. It’s “personal property.” In residential sales, it is customary for most free-standing appliances, carpeting and window treatments in the property to convey to the buyer, even though they are generally personal property items. Sometimes, specific pieces of furniture are also included in the sale.  As a general rule in real estate transactions, for a sales contract to convey anything other than just the real property (i.e. the land, the structures and the attached fixtures), the agreement must specifically include, by name or description, any accompanying personal property items. In the absence of such specific provisions, personal property items do not convey to the buyer. In a mortgage transaction the mortgage is based solely on the value of the real property.  That being said, if you have personal property included in the transaction the appraiser and underwriter will deduct the assigned value noted in the real estate contract from the purchase price or may assign value to the items and deduct it from the purchase price. The mortgage company will loan money based solely on the value of the real property. Keep this in mind when writing purchase contracts if you're using a mortgage company.

The Devil's in the Details

When providing information for the loan process the details are very important.  These days everything is double and triple checked.

For example, I'm currently involved in a loan where the borrower says he's worked for a company 2 years.  The letter from the employer states he has been employed since Jan. 2010... Hmmmmm. I also have a W-2 from the employer from 2009.  Now obviously something isn't matching up.  Upon further investigation it turns out the borrower has indeed worked for the company for the last 2 years but transferred divisions within the company in Jan. 2010. The individual that prepared the letter from the employer only included the time the borrower has been in their division, not total time with the company.

This type of incongruousness can lead to big headaches when under the microscope of an underwriter.  At this point the entire process would be suspended until this is clarified.  The best practice is to be proactive and address these issues of up front before underwriting.  Be certain all details and documentation provided support information you provide.

An experienced, licensed loan professional can help you through this process and help you avoid these landmines.

Changes are coming to the USDA loan on October 1st

I just received word from the USDA the upfront guarantee fee for the USDA Rural home loans will be going down from the current 3.5% to 2% on October 1, 2011.  The USDA will also institute an annual  fee of .3% of the loan amount.  This fee is new and similar to to the mortgage insurance fee currently in place by FHA (although USDA's fee is much lower).

USDA loans are one of the few products left that provide 100% financing. The guidelines are more restrictive than FHA in regards to debt to income qualifying ratios.

The USDA loan requires income eligibility since it is for modest and low income borrowers.  However, they allow adjustments to the income for the number of people residing in the home and for child care expenses.

The property also must be in an area approved for USDA financing.  You can go to this website to enter the address of the property to see if it qualifies for USDA financing.

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

USDA loans are underwritten by the lender and then sent to the USDA for approval.  Keep this in mind when calculating closing dates.  Allow for a 45 day close.

Always use a licensed loan originator experienced in USDA loans.