Archive for the 'New Home Loan' Category

Why is it so hard to get a home loan if you have bad credit? Blame the government behemoths that control 90 percent of American mortgage financing.

Fannie Mae and Freddie Mac enacted a policy that can force lenders who sell mortgages to them to eat the loans if the borrowers default. Tiny mistakes in loan processing or underwriting can put lenders on the hook, even if the cause of default is completely unrelated to the lender's practices -- for example, a medical catastrophe or job loss on the part of the borrower. That has scared the pants off of many lenders, so now they'll only lend to the lowest-risk applicants.

The exit of all subprime and Alt-A lenders from the market left a huge void in mortgage financing, and it was only a matter of time before someone moved in to exploit that opportunity.

Subprime mortgages are back

Premier Mortgage Lending in Las Vegas, Nev., is offering "Another Chance" home loans for people with bad credit, short sales or foreclosures in their history. Other companies may soon follow.

Another Chance loans carry higher-than-typical mortgage rates (8.99 percent as of this writing) to compensate their investors for the added risk they're taking. Borrowers may close within 30 days of loan approval.

The new breed of bad-credit loans

The new subprime mortgages are not the sort that sucked the life out of America's housing markets a few years ago -- mortgages for people with the triple whammy of bad credit, no down payment and no income. To get one of these new bad-credit mortgages, you'll need at least 20 percent down and enough documented income to afford your mortgage plus other expenses.

Here are some of the key requirements for Another Chance loans, which may reflect what similar mortgages will require:

• History of bankruptcy is acceptable. Chapter 7 bankruptcies must be fully discharged. If you have a Chapter 13 bankruptcy, you must have proof of 12 months of timely payments plus court approval to purchase property.
• History of foreclosure or short sale is acceptable. In fact, borrowers with a foreclosure or short sale are acceptable one day after the transfer of ownership.
• Maximum debt-to-income ratio is 45 percent. You may qualify for a higher debt-to-income ratio if you have a bigger down payment or other compensating factors.
• Reserves for three payments. You must have enough money to make three mortgage payments (principal, interest, taxes and insurance) after closing.
• Documentation of income. You'll need to provide two years of tax returns with W-2s and schedules, plus pay stubs covering the most recent 30 days.

Don't live in Nevada? Don't give up

The most exciting thing about this reentry into subprime lending is that, if successful, Premier's business model may be repeated nationwide. Investors wanting a healthy rate of return may trigger an intelligent return to bad credit or subprime mortgage lending.

If your credit report is not ready for prime time, you're probably applying with FHA mortgage lenders to buy or refinance your house. FHA's guidelines are more flexible than those of conventional mortgage lenders.

However, the FHA mortgage is not a bad credit or subprime home loan. Your income and assets must be thoroughly documented, your down payment must be sourced and tracked, any bad credit must be explained and the underwriter must be convinced to approve your loan. That's not a job for just any loan officer or mortgage broker, and you should not trust your mortgage application to a loan agent who's been in the business about five minutes.

If you have bad credit, it's even more important for you to have a loan officer with a lot of experience. Don't trust your mortgage refinance or new home loan to your neighbor's nephew's wife or your Realtor's best bud without making sure these folks know what they're doing.

Why a professional FHA lender matters

Good loan officers who work frequently with FHA mortgages keep up with FHA guidelines and program changes by taking continuing education classes -- and they've had their work cut out for them lately.

There have been over 500 changes to FHA mortgage programs in the last three years. These changes are often dictated by government officials, so they're not always logical or easy to understand. The highly trained FHA loan pro knows this and takes the time to learn about program adjustments and how they affect you, the borrower.

Finding and interviewing FHA lenders

To find FHA lenders, you can start by completing a form on this site to get mortgage quotes from licensed lenders that do business in your area. When you get your quotes and speak to the loan officers, ask them about FHA mortgages. Their next move should be to ask you questions, not start a hard sell. Be very careful of anyone who tries to talk you out of an FHA mortgage without understanding your situation first. They might not know how to do FHA loans or may not be licensed to do them.

Next, run through the list of questions you'll probably have about the process. For example:

• I've been at my job for 1 1/2 years. Is that enough?
• How much money should I have in savings to get approved for my loan?
• Can I finance home improvements along with my purchase or refinance?
• Is there anything I can do to get approved for a larger loan? (The answer should be yes.)
• Is there anything I can do to improve my credit score right away? (The answer: maybe.)

Dealing with related issues

In addition, people who deal in FHA home loans all the time understand other issues that often also come up for borrowers -- for example, if you're a first-time home buyer, you might be eligible for down payment assistance, mortgage credit certificates or other help. The wrong loan agent, though, will never think to tell you about this.

Experienced pros also know how to flesh out a "thin file" for people who haven't used much credit, explain credit problems to underwriters and verify a down payment that came from your Dad -- in cash, from the sale of his baseball card collection. (Hey, I didn't make that up -- that's a real issue I had to deal with as a loan officer.)

There are so many good lenders and smart loan officers. Don't waste your time or money on those that are not.

The latest Fannie Mae survey found that only 23 percent of renters living in single-family homes think renting makes more sense than owning a home. So why are so many people still renting?

Credit problems inhibit home sales

Unfortunately, bad credit and other problems keep 53 percent of renters surveyed from buying a home. Nearly three-quarters of single-family renters say it would be difficult for them to get approved for a home loan, and one-third of renters say it's their bad credit that keeps them from buying a home.

You're not alone: Most Americans have mortgage credit problems today

Renters have been hit harder than homeowners: the survey also found that most Americans believe they'd have a hard time getting a home mortgage today (53 percent), a figure that increases to 71 percent among renters.

Younger people anticipate difficulty getting mortgages ...

While 51 percent of Generation X Americans (age 35-44) expect that it would be difficult for them to get a home mortgage today, the number increases to 59 percent among Generation Y (age 18-34).

... but are more optimistic about their fiscal future

On the other hand, 57 percent of Generation Y Americans expect their personal situation to improve over the next year, compared to only 42 percent among Generation X and 35 percent among Baby Boomers (age 45-64).

If you think home ownership is a smart investment, you're right

A recent Harvard study found that renters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600, about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.

Need a bad credit new home loan? It can't hurt to try

If you haven't applied for a home loan because of bad credit, you should. Get your free credit report from www.annualcreditreport.com and purchase your scores. Then, start contacting lenders--the form on this site is an easy way to get started.

Make a plan

 You might be pleasantly surprised with an approval. If not, ask your loan officer what you should do to get approved. For example, you might be able to get an FHA loan if you put 10 percent down instead of 3.5 percent. You may need more time at your job before your income is considered stable enough. You may need to look for a cheaper home or save up an emergency fund. You may have to add 20 points to your credit score, which means paying bills on time and reducing balances. Whatever it is you need to address, put yourself on a plan and try again in six months.

On average, the origination and title fees for a $200,000 mortgage run about $4,070 in the United States, an increase of nearly nine percent over the previous year. the most expensive mortgages are found in New York, averaging $6,183 for a $200,000 loan. The cheapest state to purchase or refinance a home in is Arkansas, with closing costs of $3,378.

What drives the difference in closing costs between states?

Of that $4,070 charged for the average American mortgage, $1,614 is devoted to origination fees, which are up 10.3 percent from last year. Origination fees also include lender charges for underwriting, processing and other services. Much of the increase, according to analysts, is due to the added costs lenders face to deal with audits from Fannie Mae and Freddie Mac.

For example, most mortgage originates pull a second credit report and recheck the borrower's employment just prior to closing. Failure to do so could cause the originator to eat any default-related losses. States with the highest rates of mortgage fraud therefore become the most expensive to do business in, and lenders are passing that cost along to their borrowers.

How can you get lower fees?

We've said it before, we'll say it again: Comparison shop for your mortgage!

Even mortgages for people with bad credit vary in price from one lender to another within each state. For example, mortgage origination fees in New York state varied from as little as $700 to over $4,000, depending on the lender chosen, and averaged $2,210 for the same $200,000 mortgage. With shopping for a mortgage online being so easy, there is little reason to pay more than necessary--unless it just makes you all warm and fuzzy to give your mortgage lender a big tip!

Shopping for your mortgage is not rocket science

It's not even hard. Just give every lender you contact the same information--your credit score, your home's value, and your loan amount--and try to get all the quotes within a short time frame because mortgage rates change all day, almost like stock prices do. Insist on Good Faith Estimates rather than "worksheets" because worksheets don't make the lender accountable. Without a GFE all you have is air--probably hot air!

Finally, don't give lenders permission to pull your credit report until you have decided who you want to work with--the last thing you need is a zillion loan agents pulling your credit. All they need to give you a binding quote is your score, which you can get on www.annualcreditreport.com. Once you start an application, your mortgage lender will need to verify the score by pulling its own copy of your credit history.

Push me, Pull you

According to Bloomberg, the government's hamstringing itself when it comes to tackling the economic recovery. On one hand, the Treasury Department's Quantitative Easing (QEII) program used over $1 trillion in taxpayer dollars to buy up mortgage bonds, keeping mortgage rates low, and the Treasury spent another $16.2 billion on the home buyer tax credits to inject demand into the housing market.

On the other hand, Fannie Mae and Freddie Mac have tightened up underwriting standards and increased costs to the point that many people who could have been successful homeowners a few years ago don't qualify today. FHA, VA and USDA mortgages also became harder to qualify for and they cost more.

Housing leads the way--off a cliff!

At last month's meeting of the Federal Reserve, Chairman Ben Bernanke stated that housing is "a big reason that the current recovery is less vigorous than we would like." The Mortgage Bankers Association (MBA) predicts that purchase-money mortgages will drop to $432 billion this year from $473 billion in 2010.

While no one is saying that mortgages for people with bad credit should be easy to get, the current environment of backlash against mortgage applicants is an overreaction that will do nobody good.

With liberty and foreclosure for all.

Fannie Mae and Freddie Mac mortgage-qualification rules have lowered debt limits, increased down payments and put in new restrictions on condominium loans. Minimum credit scores were raised and risk-based pricing adjustments make financing more expensive, further limiting who can afford homes. FHA lenders have chosen to tighten even more than required by the agency, and the average credit scores of FHA borrowers have increased from 621 seven years ago to over 700 today.

By shrinking the pool of buyers who can close on home purchases, lenders are dragging out the recovery, increasing downward pressure on home prices and upping the odds of foreclosure.

What should home buyers with bad credit do?

People with past credit problems won't find an abundance of bad credit new home loans out there. You'll need a history of at least one year of paying bills on time and a credit score of 620 or higher to have a realistic chance of getting approved. You'll also need a stable income--at least two years of work experience, preferably with promotions or raises in there.

If you don't have that, you could try buying an owner-financed home or if you can put up a big enough down payment, there are private (hard money) groups and individuals who make home loans and bad credit is okay. You'll pay several points upfront and a high rate though, so don't consider that until you've checked with lenders on this site and seen what they are willing to offer you.

Home loans for people with bad credit can be expensive, but that doesn't mean you have to come up with the money yourself. In today's market, sellers may be happy to help you out.

If I told you that you could get a mortgage with 3 percent down, no mortgage insurance and no appraisal costs, would you want to know more? Of course you would!