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Mortgage – Simplified and Explained

Following the 2008 financial crisis, mortgage lending ground to a halt for all but the most perfect of borrowers, and largely stayed that way until recently. Two years ago, lenders began to ease mortgage standards, and today, it’s easier for most homebuyers to get a mortgage than it has been in years.

Updated guidelines from mortgage investment giants Freddie Mac and Fannie Mae relaxed credit score requirements and streamlined the application process, while also creating new programs to help first-time buyers and those with low-to-moderate incomes.

But this doesn’t mean we’ve returned to the lax lending days of the early aughts. Any borrower will need to prove her ability to repay the loan, and provide documentation detailing her debt-to-income ratio. Still, homeownership doesn’t have to be an impossible dream when you understand what’s required to get approved. Here, experts outline the basic standards for getting a mortgage.

Credit score limits

The credit score limit for loans backed by Fannie Mae and Freddie Mac is 620, but many lenders like to see a score of at least 640 for conventional loans. Ginger Wilcox, chief industry officer at Sindeo, says that the best situation for a borrower is to have a 780-plus credit score.

Kevin W. Hardin, senior loan officer at HomeStreet Bank, says, “If you have a credit score over 720, you are going to have very few questions and very few problems.”

That’s not to say you can’t get a mortgage with a lesser credit score. Some loan programs for first-time buyers, like those insured by the Federal Housing Administration (FHA), allow credit scores as low as 500. But the downside is that you’ll have a higher down payment and interest rates.

Another big part of the borrower’s FICO score is determining how much they owe, which calculates as a percentage of the available credit, adds Wilcox. To increase their chances of approval, some borrowers pay off credit card debt or even close out credit cards. Wilcox warns against this because it could have a negative impact by lowering the percentages, which FICO uses to calculate scores.

Income qualifications

One of the main feature of new mortgage standards is that borrowers have to be able to prove that they’ll be able to repay the loan with sufficient income documentation. Lenders generally like to see two years of consistent income.

“We usually like to see one year of payments, deposits, and bank statements and in some instances the probability of it continuing for three years,” says Hardin. “Furthermore, we would like to see two-year employment history and one year of income.”

What qualifies as income? There are categories for non-occupying co-borrowers to co-sign for new borrowers. There’s also something called “roommate rent” that allows a borrower to claim the income from a tenant or family member, to qualify for a mortgage. The borrower must show documentation that proves a roommate arrangement.

Standards for the self-employed

Self-employed individuals have the same loan programs available to them as traditionally employed individuals. As long as income gets reported to the Internal Revenue Service, it can be used to qualify for a loan.

In terms of getting a mortgage, there’s a substantial difference between cash flow and income.

If you brought in $100,000 in cash flow, but wrote off the entire $100,000, then you didn’t make any money in the eyes of the IRS, and therefore a mortgage lender. Because borrowers want to keep more money in their pockets by showing a loss, they take themselves out of the homeownership process.

Hardin says that in the past, stated income or no income loans, allowed self-employed borrowers to simply state that they had $300,000 in cash without proof. Laws passed in 2010 essentially made these types of loans illegal, and today, the Consumer Financial Protection Bureau requires borrowers to demonstrate their ability to repay the loan. (However, stated income loans are starting to reappear for certain types of borrowers.)

Downpayment requirements

One of the common questions among first-time homebuyers is how much do I need to put down on a home? The answer has typically been to pay the industry standard of 20 percent. First-time buyers often find themselves in one of these scenarios: lots of savings and low annual income or sizable annual income and not enough cash reserves.

According to Wilcox, there are plenty of options available to borrowers who don’t have 20 percent to put down on a home. For instance, Veteran Loans (VA) has always been an affordable loan program for veterans. VA loans have always been zero down, had higher debt ratio and greater flexibility, says Hardin. Many states also offer financial assistance programs for downpayments and closing costs, so having substantial savings isn’t always necessary.

Different loans have different standards

As a first-time homebuyer, you want to understand the different options available. Some examples are adjustable rate mortgages and 30-year fixed options. Many borrowers think that the 30-year fix is their only choice, says Wilcox.

“It’s a great option for people who are planning on owning their home for ten-plus years, but for most people, this is not the case,” she says. But, for first-time buyers who know they’ll be upgrading in a few years because they are starting a family, an adjustable rate may provide them with more purchasing power down the road.

The initial steps that first-time buyers take will determine how smoothly the process will be. A borrower’s “first step isn’t a real estate agent,” says Hardin. “Get with a mortgage loan officer and find out what the rules in the game are first. Get qualified first. Get approved for the loan first, then find your realtor and move forward.” Finding a lender that understands affordable housing programs and your financial literacy and picture, will make the loan process less stressful.

When Will The Fed Raise Rates?

mortgage informationAsk any loan office will the Feds raise interest rates and they’ll tell you the real question isn’t will they, but when will the rates be raised? That’s the million dollar question. The rates haven’t increased in almost 10 years so we know the time will come for the Feds to raise the rates. It would have seemed that moment had arrived this past fall with low unemployment numbers and reduced oil prices. However, the Syrian refugee crisis that escalated over the summer and the Chinese stock market crash created a reason to remain cautious. Seems Fed Chair Janet Yellen’s crystal ball was correct to advise her not to raise the rates in September (while the rest of the country hyperventilated expecting to see the increase) because shortly thereafter the correction for unemployment numbers gave proof the time to raise rates still had not arrived yet.
So does anyone have the answer? My prediction is it will occur at the end of the first quarter 2016. My reasoning is no one wants to be known as the Fed who raised rates just in time for holiday shopping. The only caveat is the unemployment number will be inflated due to seasonal hiring creating a ‘false positive’.
What’s the message for buyers and sellers sitting on the fence waiting for the Fed to decide on when rates will be raised before making a decision to buy or sell? Considering the Feds haven’t raised rates in almost 10 years, waiting for a decision from the Federal government would be the epitome of procrastination.

By Kamili Allen Samms

October 26, 2015

Buy A Home Only One Year After Foreclosure!

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Buy A Home Only One Year After Foreclosure!

Facing Foreclosure

Some of you may have already heard about the new announcement FHA made last month allowing for a new purchase after only one year when the buyer has experienced a financial hardship. The key to this program is the buyer must have used the past year to overcome their hardship and the result of their derogatory credit was a due to a loss of employment or significant loss of household income.

The positive point of this new guideline is the derogatory credit may consist of foreclosure sale, deed-in-lieu, short sale, and bankruptcy.

Fannie Mae has also improved their restrictions on buyers with short sale history by reducing the wait time to 2 years compared to 4 years previously.

 

This is exciting news because Golden Coast Finance can now offer your clients more options to buy even if they have experienced hardship in their recent past.

Call Me For More Information 818-630-7800!

Get Your Pre-Approvals Updated Today!

Remember that interest rates have risen a full point just since May so if your client was pre-approved more than 30-days ago be sure to have them call me for an updated approval. We offer same day pre-approval letters and It’s FREE!

This Week’s Fun Fact:

baby smilingYou use 14 muscles to smile and 43 to frown. Keep Smiling!

Click here to view our low interest rates!

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Finance Up To 10 Properties!

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Finance Up To 10 Properties!

Row housesIf you have multiple investment properties plus a primary residence we can finance a new investment property or second home loan with as many as 10 existing mortgages. Many other lenders have restrictions on no more than 4 or 6 financed properties (including the subject property) but Golden Coast Finance can now help you increase your investment portfolio.

Even better, if you are buying a new primary resident and have other financed investment properties – there is no restriction on the number of financed properties owned!

 Call Me Today For More Information!

 

Get your pre-approval letters updated!

With the increase in interest rates over the past few months, the amount of purchase price you may have been qualified for previously, may not be the same based on the higher interest rates.

Don’t forget to get pre-approved for a new mortgage loan before viewing properties. Know in advance what the qualifying terms and amounts are before searching for a new home.  We offer Same Day Pre-Approval letters! 

 

 This Week’s Fun Fact:

A chef’s hat is shaped the way it is for a reason:

its shape allows air to circulate around the scalp, keeping the head cool in a hot kitchen.

chef's hat

Check Out Today’s Low Rates!

 

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100% Rental Income Credit

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A For Rent sign in the window of a residence100% Rental Income Credit!

Other lenders typically only give up to 75% of the rental income credit but Golden Coast Finance will use the entire 100%!  This can be the difference between your buyers being qualified and disqualified based on rental income credit.  If you have a client who currently receives rental income on their investment property and is working towards purchasing new property, GCF will help them maximize their purchasing opportunities. We can also lend on more than 4 financed properties.

Call Me Today For More Information!

 

 

 

house

Don’t forget to get pre-approved for a new mortgage loan before viewing properties. Know in advance what the qualifying terms and amounts are before searching for a new home.  We offer Same Day Pre-Approval letters! 

 

This Week’s Fun Fact:

Solid structures (parking lots, roads, buildings) in the United States cover an area the size of Ohio.

parking lots

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Teaching Children The Value of Money

Teaching Children The Value of Money

piggy bankMy kids think that each time I tell them that doing a special activity or going out to dinner costs too much money, that the solution is to simply drive up to the ATM and get more money to satisfy their wants. Helping children understand the value of money will help them realize the money taken out of cash machines are from the funds you deposit – not just an endless cash flow (don’t we all wish!). Continue reading Teaching Children The Value of Money

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Why Choosing a Licensed Loan Officer Over a Bank Home Loan Officer Can Be Financially Beneficial

Why Choosing a Licensed Loan Officer Over a
Bank Home Loan Officer Can Be Financially Beneficial
mortgage calculator money savings

Often, the average consumer is curious about the difference between the loan officer who sits in your bank’s lobby versus the mortgage broker your agent or next door neighbor recommends. The bank’s loan officer will readily have your deposited assets at their fingertips and you may be more comfortable speaking to someone you have cordially smiled at over the years when you walked into the bank. However, this ‘comfortable convenience’ may limit your options. Continue reading Why Choosing a Licensed Loan Officer Over a Bank Home Loan Officer Can Be Financially Beneficial

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Mortgage Interest Deduction: Is it really crucial for American home buyers?

 Mortgage Interest Tax Deduction: Is it really crucial for American home buyers?mortgage interest rate tax deduction

by Guest Contributor Gabriel Knight

The average home buyer can save thousands of dollars on taxes due to the benefit of home mortgage interest deduction. Therefore, American home buyers can afford to purchase homes as the deduction reduces the amount they pay in taxes. According to the latest research, the 37% of US home buyers spent a considerable part of their income on their mortgage. Therefore it goes without saying that consumers generally have more money in their pockets when they pay less on their mortgage

Continue reading Mortgage Interest Deduction: Is it really crucial for American home buyers?

glendale, ca refinance options

Refinancing: Got Land? Grow Something With It!

glendale, ca refinance options

Interest Rates…  This article should end here, but alas we will elaborate for those of you who may be hiding under a rock somewhere reading this magazine and are cut off from the outside world! 

Over the past 30 years we have witnessed a gradual decline from the highest interest rates in US history to the lowest interest rates in US history.  So what do we do?  Buy. Buy. Buy. Right?  Absolutely, but what if your rich uncle didn’t just pass away, and growing your real estate portfolio just isn’t in the cards right now?  Well, I am happy to report that you are not out of luck.  While we do subscribe to the “buy land, God isn’t making any more of it” philosophy, the transcendentalist in us says that we can live by more than one saying.  In fact we created a saying that fits this situation perfectly:  “Got Land? Grow Something With It!” (No, we are not referring to starting a farm in Glendale, CA). Continue reading Refinancing: Got Land? Grow Something With It!

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The FHA Streamline Refinance Program: What it is & Why you want it!

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Mortgage News – The FHA Streamline Refinance Program

On June 11, 2012, the launch of the new FHA Streamline Refinance Program is going to blow all the other refinance programs out of the water. The benefits of this new program and its easy requirements seem like getting a refinance on a loan is going to be a breeze.  Here are the reasons why! Continue reading The FHA Streamline Refinance Program: What it is & Why you want it!