How Can I Get Declined Because the HOA’s Fire Insurance Isn’t Sufficient??

A lot of consumers are not aware that when you are purchasing a condo/townhome that the Underwriters approve you AND the HOA. So, you could be the perfect borrower, the appraisal came-in at the correct value and still not get the loan??

We just ran into a situation that may be the start of new guideline changes! The file was sent to a major lender and they were getting ready to decline the deal since the master fire insurance policy did NOT read: “100% Replacement Cost” or “Guaranteed Replacement Cost”. YIKES… I’m not sure if insurance companies will write policies with this type of language!

Since we have multiple lending sources, we checked with another major lender and to our surprise, they just recently changed their guidelines in a similar manner! Not good news. We did find a solution BUT it was a very difficult set of action items. Consumers beware!

So… A) Is this another new trend in tightening guidelines? B) Most Loan Officers simply would not have been able to solve this problem. Pick your Loan Officer wisely! C) Has anyone else found this to be the case or am I the lucky person who ran into this first?

Ken

Multiple Offers! How Do I Get A Quick Pre-Approval For A House in Santa Barbara?

I’ve been doing Santa Barbara home loans for many years and this happens almost on a weekly basis. Here’s the story: The Buyers have been looking for many weeks..maybe even months AND bingo!!!!....They find the perfect property but there are 2 or 3 other offers. ….Now they need a pre-approval letter ASAP!

A friend of mine said something to me that I wanted to share with everyone (Realtors and Consumers). He said, “I wanted to get this done ASAP. I was willing to do anything to make sure my file stayed on-top-of-the-stack!”

I thought to myself…..”How true! The Santa Barbara home loan applications that get the most attention are those where the consumer is being VERY attentive to my staff’s requests.”

My friend proudly said, “I would turnaround the Loan Officer’s request within 2 hours. It didn’t matter what the request. I would just do it!” He kinda giggled, “My poor wife would say, ‘You’re pushing me! You’re pushing me!’ Sorry honey but we got to keep this Loan Officer focused on our file.”

Wow… here’s a consumer that “get’s it”. We all know that the mortgage process is way more difficult than it needs to be. We all know that the Federal Government has over-reacted to the "Mortgage Meltdown" and implemented some new “silly” rules. Nonetheless, “dragging your feet” or saying, “I’ll get that next week” doesn’t really help. It actually hurts your situation.

Sooooooo…. You need a quick pre-approval? You have a short escrow? Your best chances to get this done are like my friend said, “I would turnaround any request within 2 hours!”

Happy House Hunting!

I'm Self-Employed. I Can't Buy a House in Santa Barbara.

NOT !– This is simply not true! I hear this from consumers every week and there is some serious misinformation out there.

In Santa Barbara, most people live in our area due to the “lifestyle” (i.e., surfing, outdoors, etc.). Therefore, I would say 60% to 70% of my applications have some form of self-employment income. Therefore, compared to the national average we see a higher percentage of these types of consumers. I can guarantee to you that consumers don’t get declined because they are self-employed. This is an unfortunate misconception.

The mortgage industry has standard rules pertaining to the type of documentation which is necessary for a self-employed Borrower. These are the same “full documentation“ rules that have been in existence since I started in the business in 1991.

Here’s the “rub”….. There are 2 main reasons that the self-employed Borrowers have a more difficult time getting a mortgage loan.

1) For the most part, Loan Officers and Processors don’t have the proper experience in handling this type of borrower profile. Not only do these Borrowers have cumbersome partnership/corporate tax returns but they are usually is conducting numerous business transactions simultaneously. This complexity usually leads to an improper evaluation of the consumer’s situation and results in a decline of the loan request. Therefore, consumers need to select a Loan Officer that has vast experience with the self-employed Borrower.

2) Most self-employed Borrowers try to take MAXIMUM advantage of the deductions allowed by the IRS. Unfortunately, a high percentage of these consumers simply get overzealous with this idea. Sure, you might be able to write-off the Dodger tickets since your brother in-law is a “customer” but was that a “real” expense? No! Therefore, if this is done too frequently, the “expenses” are overstated. This mistake leads to an income stream which is usually insufficient for the loan request!!

There you have it! I’ve been able to finance many self-employed Borrowers over the years and a lot of those files were not that the difficult.

The main problem for those who didn’t qualify is that they simply got “crazy” with their deductions (Dodger tickets. Really??). Also, during the “no doc” loan era, this type of Borrower seemed be more of a “risk taker” and happily took-out huge loans or large HELOC’s. Therefore, a lot of these Borrowers are simply “over leveraged” as it relates to their “true” income.

Happy House Hunting!

Ken Doss
Community West Bank
Santa Barbara, CA
kdoss@communitywestbank.com

How Long Do I Need To Pay My Mortgage Insurance?

If you are buying your new Santa Barbara home with less than 20% down payment, this is for you!

How long are you required to pay mortgage insurance?

The short answer is….. when the loan-to-value ratio (LTV) is 75% to 80% of the current value and if you have a Fannie Mae or Freddie Mac mortgage.

The long answer is…..

There are a number of exceptions (late mortgage payments, type of mortgage, etc.) to this “rule of thumb”. Also, investors/servicers may have an overlay to these rules such as paying a minimum of 2 years or the LTV percentage (75% vs. 80%). The only way to know for sure is to read your lender’s servicing agreement.

Nonetheless, for the most part, when your property value increases enough, you can get an appraisal and request that the mortgage insurance to be removed. The current appraised value needs to be high enough where the LTV is 75% or lower. There is a way to request the removal at 80% LTV but it is usually for those who have been paying their mortgage insurance for a minimum of 5 years. Once again, the 75% or 80% figures are determined by the lender’s servicing agreements.

Your property needs to increase by only 12.5%-20% before you can request the removal. When things start to recover and values “bounce off-of-the-bottom”, the up-swing in prices for homes in some of the better neighborhoods might not take all that long! We all could look back someday and be surprised.

Just a word of warning: Even though you might have 25% equity, the holder of the mortgage may require that you pay the insurance for a minimum of 2 years. FHA loans have a 5 year minimum payment requirement!!

Here are some links that I suggest that you study for the details. There are a number of rules that pertain to things such as principal pay-downs, subordinate financing (aka: HELOC’s), adjustable rate mortgages and other “one-off” scenarios.

http://www.privatemi.com/toolsresources/faqs.cfm

Homeowners Protection ACT of 1998

Happy House Hunting!!

Ken Doss
Community West Bank
Santa Barbara, CA
kdoss@communitywestbank.com

“How Much Income Do I Need to Buy a House in Santa Barbara?”

Here’s my “rule of thumb”: People can qualify for a loan which is between 4 and 5 times their gross income. I’ve been doing loans for almost 20 years and I use this simple formula throughout the day. It’s really easy. No silly 40% income-to-debt ratios. No PITI calculations!

Here’s an example:

Let’s assume you have 2 people earning $45,000/year each ($90,000 total). The maximum mortgage would be 4.5 X $90,000 = $405,000! There, that’s it. Wasn’t that easy?

At this stage, you simply put the amount of money that you’ve saved (yes, you need to save money!) on top of this loan amount and you’ll have the approximate purchase price. So, let’s assume you have $45,000 for the downpayment, here are the numbers:

4.5 X $90,000 = $405,000 + $45,000 = New home price of $450,000.

Now, there are a many variables which will make the above formula NOT work. High credit card debt, numerous educational loans and car loans are examples of how someone’s debt load can really affect your ability to buy a new home. Also, Fannie Mae and Freddie Mac have strict rules regarding income so my “rule of thumb” is overly simplistic but it will give you a general idea.

You can use my formula in reverse if you ask: “How much income do I need to buy that $600,000 house?”

Assume a 10% downpayment of $60,000. Here are the numbers:

$600,000 - $60,000 = $540,000 (new mortgage amount)/4.5 (my rule of thumb) = $120,000 income per year. So, you need about $120,000 of annual income to buy a $600,000 house with 10% down.

If you have a lot of monthly debt payments, you’ll need to use the lower end of my “rule of thumb”. The qualifying usually falls between 4 and 5 but use the lower range if you have a lot of debt.

There you go…. You now have the “secret” formula for figuring what you can afford in a new house. As I said above, there are many different elements to qualifying so this only a “ball park” estimate. It’s best to sit down with a mortgage professional so they can run some numbers specific to your situation.

Ken Doss
Community West Bank
Santa Barbara, CA

kdoss@communitywestbank.com

BEWARE – Disputed credit items are a “show stopper”!

We just had a transaction where Fannie Mae declined a file because of a “disputed” item on a credit report!

The Fannie Mae computer model (aka: DU) is now calling-out items on the credit report which have been classified as “Disputed”. You may say, “So why is this such a big deal? This account was settled years ago?”…. Ha! Don’t be so quick to discount this as a minor issue.

Just this last week, I had 2 loan applications where this actually happened and it caused serious problems. One application was a purchase and they will NOT be able to close their transaction. It’s a bummer for the agent since she spent so much time with these clients. I just hate to see agents who are 100% commission waste time on something that could have been avoided!

Here’s what happened……

For the most part, every loan application is submitted through the Fannie Mae or Freddie Mac underwriting software programs. These programs analyze the consumer’s credit scores, income, job history, etc., etc. Of course, one of the main elements of this analysis is a consumer’s credit score. When a consumer reports an account as “disputed”, then the credit bureaus set aside this item from the credit score calculations. The theory is that if the consumer says there is a problem with this account, then obviously it needs to be expunged from the scores. Great idea?!

Not so fast… this is where things get “tricky”. Fannie/Freddie say, “OK. Let’s just have the bureaus finalize this issue and move-on.” To get the bureaus to do this is like getting your brother in-law to admit he drinks too much! It can be a very thorny process.

In my recent transaction, these Borrowers had an erroneous $75 bill from a radiologist back in 2008. This bill went to collection and now was being reported by a collection agency. To get this cleared off of ALL three bureaus, we needed to get a letter from the radiologist AND then the collection agency! This is a very lengthy process and most consumers are not aware of the potential time delay.

So what do most people do, when they think they are wrongly charged for something? File a DISPUTE! “I’ll show those idiots!” Well, you might have just lost the opportunity to buy a property.

There is a solution but it takes a seasoned financial person to help (vs. a salesman!).

AGENTS: Before you start investing a lot of time with your prospects, get them to a good Loan Officer. This doesn’t mean you let the consumer randomly get some easy approval letter. You need to have them get “signed-off” by a real pro.

CONSUMERS: Some buyers (actually most) just want to get a quick/easy pre-approval letter. That’s like thinking that if you don’t floss your teeth that it won’t matter. As we all know, that will come back to “haunt” you later. Spend quality time on this issue. Be mentally ready to unload ALL of your income/asset paperwork. Help the Loan Officer give you a complete financial check-up. No one likes this process but a helpful consumer goes a long way in getting the pre-approval done properly.

Remember….. “An informed consumer is a happy consumer!”

Ken Doss
Community West Bank
Santa Barbara, CA
805/692-4382
kdoss@communitywestbank.com

"Catch Me if You Can!” - A Loan Officer's Motto?

We caught a loan officer trying to trick a consumer into a loan! Protect yourself and see how it’s done.

This last week, I was helping a past client here in Santa Barbara to determine if a quote from a major lender was competitive. I couldn’t do the loan since her property was a rented condominium with special HOA concerns. I suggested that she consider her current lender because they may waive rules pertaining to the HOA.

Here’s an ugly but, unfortunately, all too common series of events where the lender was trying to “trick” a consumer into selecting a loan. If you can learn from the below, maybe you can avoid the same situation. If this was Sixty Minutes, the person being interviewed would have their face is in the shadows with a garbled voice!

Here’s what happened……

The original email had a rate that was somewhat on the high side. This loan officer was most likely “fishing” to see if someone would respond to such a high rate.

In the second round of emails, the rate magically dropped about .375% but the spreadsheet didn’t show any points, I told my past client, “Ask them if this is a ‘zero point’ loan?” Hmmm….. I was guessing that there must be points but they simply “forgot” to put this on the spreadsheet.

Did this loan “professional” sense that they had a “fish on the hook?” The updated spreadsheet (3rdemail) now stated the points. What happened? How did this cost now magically appear? Why wasn’t this in the initial email? At this juncture, I started to take a closer look at the quote and it didn’t seem too bad. My bank had better rates/points but the existing lender might be the only option anyway (i.e., rental/HOA). It wasn’t the best but it was close.

I’ve been a Loan Officer for almost 20 years and have closed over 1,000 escrows. Even with all of this experience, I almost missed an important item! Just as I was getting ready to hit the “send” button to tell my past client “close enough”, I noticed something! I said to myself, “What a minute. This doesn’t look right.” I realized that the manner in-which the spreadsheet was formatted (Lots of numbers. Easy to get lost) made one assume there wasn’t any 3rd party costs. So I said to my past client, “Ask them to confirm that these are the only costs. No 3rd party items such as appraisal, escrow/title, credit, flood, recording, etc., etc.”

Well this question sure did get an interesting “curt” response! Did you ever see the crime movie, “Catch Me If You Can!” with DiCapio? Well, we caught them “red-handed”. This loan officer said something like, “Of course there are other fees. I mentioned that in our phone conversation.” Ha!.. Initially, the loan officer sends out some high rate just to see what may happen. Then, they “forgot” the points. Lastly, they deliberately didn’t show the 3rdparty costs. You’ve got to be kidding me!! I told my past client, “We caught them. They are done. I’ll introduce to you a friend of mine who is a great loan professional here in Santa Barbara.”

Here’s what everyone needs to think about….. It is very difficult to get the “best deal”. “Shopping” for a mortgage should be easier. There are so many “tricks” that it really makes it almost impossible. Here’s the solution: Go with a local lender who was recommended by a friend, CPA, Realtor or attorney. There are very good and honest loan professionals in every community.

Remember… some banks can “shop” the rates for you through multiple sources. Brokers do the same type of shopping but their processing can be a little more burdensome. Caution, the smooth processing of a loan application can vary. To insure a timely closing, select a veteran loan officer who has attention to detail!

“Shoppers” beware… call a friend!

Ken Doss
Community West Bank
Santa Barbara, CA
805-692-4382
kdoss@communitywestbank.com