South Bend Home Loan

Monday, December 16, 2013

How To Become a Real Estate Investor

I often have people contact me who are interested in purchasing an investment property.  They think that real estate could be a good investment for their futures and they want to wade into the arena while the home prices and interest rates are still low.

I couldn't agree with them more.  Owning investment homes has been a part of my financial plan for 10+ years.  It has provided my family with a higher net worth than we would have had otherwise and, if all goes according to plan, it should let me retire in my late 50's with a steady stream of rental income to cover our expenses so that I can spend my days reading great books and kayaking on the creek behind our home.  Ahhhh.....

But I digress.  Owning rental homes is a good option for you to consider.  Before progressing too far though, there are some things that you need to know....

You Gotta Have Some Money

When you're buying a home to live in, the financing terms are pretty flexible.  FHA will let you buy with 3.5% down and USDA with 0% down.  If your income is within the right range, you could even qualify for down payment help from the state.  If the seller is willing to cover your closing costs, you could potentially buy a home to live in right now with no personal investment from your savings.

Not so with an investment property.  If you're using the traditional structure where you get a mortgage from a bank for the purchase, you typically need 20% of the price down with an investment property (ie, $10k down on $50k purchase, $20k down on $100k purchase, etc.).  Unfortunately, many first time investors don't have that much available.

If you can find a home that you like that is a Homepath home, the down payment needed drops to 10%.   Homepath homes are homes that have been foreclosed on by Fannie Mae.  You can find eligible ones here: 

This 10% is still more than many first time investors have in liquid funds, though.  The only other real option, then, is to try buying with non-traditional financing.  Sometimes a seller will act as the bank for you (called a land contract sale or lease option).  Other times, you can find a partner who has the liquid money ready to invest. 

These scenarios can be hard to find though.  Most investors will need to wait to purchase their first investment property until they have saved the money needed for that 10% or 20% down payment.

Your Bills Need To Be Lower

Another thing that gets in the way for many first time investors is that their current bills are too high to qualify for the new mortgage.  When a bank is reviewing your finances for the mortgage approval on the investment property, they will add up your current bills (mortgage on primary home, car payments, student loans, credit cards, etc.) and then add the mortgage payment for the investment property to that amount.  Once they have that total, they will divide it by your gross monthly income.  Ideally, all of those monthly payments including the new mortgage should total less than 36% of your monthly gross income.  You may be approved up to 43% if your credit is good and you have strong savings, but 36% is the target. 

The bank typically won't give you any credit for the expected rental income on the home you are buying because you are new to the investment game, so your current income has to be high enough or your current bills have to be low enough to fit the new mortgage in as-is.  If the space isn't there, you may need to reduce your bills or increase your income before qualifying for this mortgage.

Your Savings Needs To Be Higher

The last hurdle most investors face is that their savings aren't high enough to be approved.  Many would-be investors already have a mortgage on the home they live in.  When the bank is looking to approve them for the new mortgage for the investment property, they are going to want the buyer to have six month's worth of mortgage payments for both their current home and the new home set aside in savings. 

This six months is in addition to the down payment money needed, which makes a hard savings target even harder to hit.  The good news on this is that these savings can be held in a retirement account.  If you have a 401k or IRA that has a larger balance, that investment can often be used to meet the requirement for savings.  If you don't though, you may need to save this six months of reserves before jumping into the investment property pool.

The Bottom Line

So what's the bottom line to all of this?  Many people want to invest in real estate, and they should.  It can be a great way to build current income and long-term wealth.  It's not an easy market to get into though.  By understanding the lender's requirements in terms of down payment, debt load and savings, you will be better equipped to plan for your future and step into this arena when the timing is right for you.

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Friday, December 6, 2013

So The Poo Can't Get Through

When someone is buying a new home, their thoughts are typically full of barbeques and decorations, holidays and new memories being made.  Some buyers might be more focused on the buying mechanics like inspections, appraisals and loan approvals.  Few homebuyers are thinking about sewage stuff though.  Few buyers are thinking about the poo.

Poo matters though, especially for homes with septic tanks.  This is a bit of an icky topic but it's one that home buyers should be educated on so let's take a couple of minutes to talk about what happens to poo in your new home and how it can impact you.

What is a septic tank?

For starters, let's talk about septic tanks.  If your new home is on city water and sewage, this doesn't impact you.  For many home buyers in Michiana, though, their new home has a well for water and a septic tank for waste.

A septic tank is simply a big concrete or steel tank that is buried in your yard.  The waste water from your sinks, toilets and tubs flows out of your house through piping and into the septic tank.  Once there, the heavy stuff (think food waste and heavy poo) settles to the bottom as a sludge layer, the lighter stuff (think TP and floating poo) goes to the surface as a scum layer.  In between those is a cleaner water layer.  This water layer isn't 'clean' clean though.  It has household chemicals and human-made chemicals in it that make it pretty gross still and definitely unfit for any form of drinking.

What is a drain field?

This is where the drain field comes in.  When new waste comes into your septic tank, it pushes old waste out.  That old waste flows through 4 inch perforated pipes that are buried in gravel about 4-6 feet down under the dirt in your yard. 

The old septic water slowly seeps out of those perforated holes in the pipes as it flows through them.  How fast it seeps out and how long those pipes need to be depend on the nature of the soil that they are buried in.  If it's clay or stone, the water will leak out slowly so the drain field needs to be larger to give it enough space.  If the soil is sandy, the water will vacate more quickly so the drain field can be shorter. 

All of this is powered by the magic of gravity.  Your house is higher than your septic tank and your septic tank is higher than the drain field pipes.  As you flush, wash, and do other household tasks involving water, this system automatically works to remove it and filter it for you.

What about the well?

Ah, now we're getting to the important question.  If you're on a well/septic system, your household water is coming from a well.  And where is that well water coming from?  Your yard.  And what water is found in your yard?  In addition to the God-given rain water, it's the water that is coming from your drain field.

It sounds gross in theory, but the system typically works great.  The water seeping out of your septic through the drain field is filtered by good old Mother Earth to the point where it is safe by the time it reaches your well. 

Where It Can Go Wrong

There is risk here though.  The septic system could be working incorrectly.  Your well water could be contaminated.  That's why St. Joseph County requires all septic systems to be inspected and all water to be tested at the time of a property transfer.  It's an important step to make sure your water is currently safe and is likely to continue being safe.

Typically these two tests are all that is needed when you're buying a home.  If you are buying a home with FHA financing, though, FHA requires more.  To protect the homebuyer, FHA requires that the well be at least 50 feet away from the septic tank, 100 feet away from the drain field and 10 feet away from the property line.  Click here to see the actual HUD Property Guidelines (see page 12, 3rd paragraph).  If the county's code is looser than this, HUD will allow the drain field distance to be reduced to 75 feet but that is the minimum. It doesn't matter if the water test passes and the septic system is fine.  FHA wants these distances met.

Here's where this is a problem.  In our neck of the woods, drain fields and wells are often less than 75 feet.  We have smaller lots in some areas and these pieces all have to fit into them.  Our county only requires a 50 foot distance between the well and drain field so many installers have installed septics based on this.  That means these homes don't meet FHA's guidelines.

Many times, a home won't meet FHA guidelines and the FHA financing will still go through.  If the appraiser says the home appears to meet FHA's guidelines for well/septic distances, the lender normally doesn't call for an inspection to verify it.  An appraiser may say this and be wrong though.  That happens.  A lot.

The appraiser may not say that it meets the requirements also and then the lender is going to need to have those distances measured to see if the 75 feet is met.  If it is not, the well will need moved, the buyer will need to convert to conventional financing or the sale will not be able to proceed.

If you're buying a home with a well and septic system, it's important that you understand the basics of how they work.  If you're buying that home with FHA financing, it's VERY important for you to understand FHA's rules on this.  It can prevent your financing from going through if the distance is shorter than allowed.  While a waiver can be obtained from FHA sometimes (typically if the soil is largely rock or clay), there's no guarantee.  FHA doesn't want the poo to get through, so they grant those waivers cautiously.

Working with an educated lender who understands the way septic systems work and how FHA judges them differently is going to be important to your overall home buying experience.  Be picky.  Work with an expert who can help make your home buying experience smooth so that you can forget about the poo and get back to planning that first barbeque.

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Tuesday, November 19, 2013

How to Save Money On Mortgage Insurance

If you are buying a home, you may have been told that you will pay for mortgage insurance as a part of your monthly payment.  You probably don't quite understand what that is though or, more importantly, how you can reduce the cost of it.  Let's dig into this topic to see if we can save you some money.

What Is Mortgage Insurance?

First, you need to know what mortgage insurance is.  Mortgage insurance (also called MI or PMI) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan.  In a nutshell, if you don't pay the loan back and the bank has to foreclose on you, it covers the shortage so that the bank doesn't take a loss.  The cost for this insurance is added into your payment each month, making you pay more for the home.

What Determines the Cost?

The cost for mortgage insurance is impacted by several factors.  The most important one is the type of loan you are using:
  1. VA Loan - a VA loan has no monthly mortgage insurance cost which is awesome.  Because this type of loan is only available to eligible Veterans, it isn't a fit for most buyers.  If you are a Veteran though, DEFINITELY look into this.  It's a significant savings.
  2. USDA Loan - a loan guaranteed by the USDA has a lower monthly cost for mortgage insurance (currently 0.4% of the loan amount per year).  This is normally one of the lower priced routes to go, but, like VA, this type of loan isn't for everyone.  It can only be used when buying in USDA eligible areas.  Your household income can't exceed a certain level also.  To look at the income and geographic limits that pertain to you, go here:  USDA Property and Income Eligibility.
  3. FHA Loan - For most FHA buyers, there is a big-old charge for mortgage insurance added into you payment.  Currently, it's 1.35% of the original loan amount annually (paid in 1/12th increments each month).  Typically FHA is the most expensive option so it should not be a buyers first choice unless other factors about FHA make it necessary.  FHA is more flexible with lower credit scores, lower down payments and higher debts so sometimes this higher charge for mortgage insurance is necessary to get these looser guidelines.
  4. Conventional Loan - If you're not a Veteran or buying in a USDA eligible area, this is the option you should be exploring more because it gives you more control over the mortgage insurance premium.  How's that, you say?  I'm glad you asked.....

Getting Cheaper Mortgage Insurance on Conventional Loans

There are reasons why conventional financing won't work for certain buyers (see FHA bullet above for a partial list).  If you don't need the increased flexibility offered by FHA financing, though, you can typically save money by using Conventional financing and getting savvy on the mortgage insurance.  Here's how to reduce the cost:
  • Increase your down payment - the cost for mortgage insurance is tiered based on the percentage of down payment you have.  It gets cheaper with every 5% threshold you hit.  These are the current rates with Radian (one of the top four MI providers):  For 5%-9.99% down - 0.59% per year.  For 10%-14.99% - 0.44% per year.  For 15%-19.99% down - 0.28% per year.  With down payments of 20% or more, mortgage insurance is no longer needed.
  • Increase your credit score - those rates mentioned above are assuming your credit score is 760 or higher.  What if it's 720 or 740 though?  That MI cost with 5% down increases from 0.59% to 0.67% per year.  If your score is 700 it goes up to 0.94%.  Given how much the premium can move with a relatively minor change in your credit score, it's worthwhile to try to get your score up as high as you can before buying a home.
  • Have your lender shop it around - the last important step is to make sure you're working with a lender who shops the mortgage insurance around to more than one provider.  Surprisingly, not all do this.  As a matter of fact, MANY don't.  Make sure the lender you pick does so that you're not paying more than you need to be.
Buying a home is more than just finding a new place to live.  It's an investment in your future.  Wise investors do the upfront homework needed to make sure they aren't overpaying on all aspects of the purchase, including the mortgage insurance. 

Wise home buyers also get wise counsel.  Make sure you are doing that by working with a mortgage lender who understands the nuances of mortgage insurance and will educate you on ways you can save money when buying your new home. 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Thursday, November 14, 2013

What You Need To Know About Collections

When I discuss credit report collections with my buyers, they are often confused by them.  Sometimes they were not aware that they existed at all.  Other times, they knew they were there but they're shocked that they're still reporting, often after many many years. 

Given the global confusion about collections, I thought I'd share a little information about how collections work and the timelines related to them.

Statute Of Limitations

There are two timelines to be aware of in terms of collections:  The credit reporting time limits and the state's statute of limitations. 

The statute of limitations is the time limit during which a creditor can sue someone for a debt.  The limit varies depending on the state and the type of debt in question.  For debts with written contracts or promissory notes attached, it's 10 years in Indiana.  For oral contracts or open ended accounts (credit cards, phone contracts, etc.), the limit is 6 years.

This statute only says that a creditor can no longer use the courts to force you to pay a debt after that window.  Here's what the statute of limitations does not do:
  • Keep a collector from filing a lawsuit against you anyhow - sadly, a creditor can still file a lawsuit.  You can use the statute as a basis to win that suit, but they could still bring you to court or, more likely, threaten to in the hopes of collecting from you.
  • Erase the debt - the debt doesn't go away after this window expires.  They just aren't supposed to sue you beyond that, but you still owe the money and they can still try to collect.
  • Stop credit reporting - this is where collections impact most people.  These often show up on the credit report and are factored into the credit score.  The statute of limitations doesn't stop a creditor from reporting the debt against you to the credit bureaus.
One important thing to know - you can reset the clock on the statute of limitations without being aware of it.  Simple things like agreeing to make a payment or even acknowledging that the debt is yours can restart that six or ten year window.  Given this, it's wise to be VERY cautious when talking to a creditor and volunteer nothing about the debt in question. 

Credit Reporting Time Limit

While it's good to know about the statute of limitations, what home buyers really need to understand is the rules for credit reporting time.  How a creditor reports your debt to the credit bureaus is what will impact your score and your ability to get a mortgage.

Here's the good news.  Creditors can only keep information about a delinquency, collection or charge off on your credit report for 7 years from the original default date.  They can not sell it or play other sneaky games to 're-age' the debt.  You can admit that it's yours all you want and it won't mess things up.  The law says that it can stay on your report seven years only.

That being said, creditors can do a lot of unpleasant things to mess up your score in those seven years.  A popular tactic recently has been to report old collections as if they are currently past due.  A person may have stopped paying AT&T in 2009 but AT&T (or, more typically, the collection agency that they sold it to) is reporting it as if it is a current bill that is past due right now.

Because the credit scoring model places higher weight on recent activity, these 'recent late payments' on an old debt can really pull down your credit score.  That's exactly why the creditors are doing it. They want to put pressure on you in hopes that you will pay them to make it go away and improve your credit score.

What You Should Do

Home buyers often ask me what they should do in situations like this.  Normally, my answer is 'Pay them.'  If you have open collections and an ability to pay them off, you should.  Even if a creditor is playing nice right now, there's no guarantee that they won't start reporting you as late down the road. The best way to keep them from doing something to pull down your score is to pay off the debt and be done with it once and for all.

If the creditor isn't reporting recent activity though and the debt is over five years old, sometimes it's wise to let it slowly fade away.  Paying it now could actually pull your score down temporarily because it would show as a recent activity on a collection account. 

The problem with leaving it alone, though, is that it's a gamble.  There is no guarantee that the creditor won't start getting creative once their time limit gets close to running out.

Really, the best route is to sit down with someone who has a strong working knowledge of credit scoring and can review your situation with you.  Together, you can work out a plan to handle the collections and get you in the right place to buy a home.  Do you think that you don't know anyone who understands credit reporting?  Sure you do (hint - it's me). 

Give me a call or drop me an e-mail.  We'll get a plan in place to get you into your home as soon as possible!

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Monday, November 11, 2013

What Lenders Hate Admitting To

I'm going to admit to something that lenders try their best to keep secret.  Sometimes sales fall apart and it's because of something on the lender's side.

GASP!  I know, you're shocked.  What a huge, unexpected surprise.

OK, probably not.  Most Realtors can tell you a horror story or two of sales that fell apart, often at the last hour, because of something that the lender uncovered.  If you asked a lender directly about their personal experience with a dead sale, though, they'd probably give the "Oh, that never happens on MY deals." type of answer.

Truth be told, it happens to ALL lenders and this week it happened to me.  A client had a bankruptcy that included his home in 2009 but for some reason the bank didn't process the sheriff's deed until 2012.  I didn't find this out until the CAIVRS was run which was a week into the contract.

The homebuyer was angry.  I was nauseous.  The Realtor was kind but disappointed.  All in all, it was a rotten situation for everyone (definitely worse for the homebuyer).  Hindsight being 20/20, we all wondered why I hadn't run CAIVRS before the offer was made.  Truth be told, the underwriter and I had both looked at the file before giving the preapproval letter.  Neither of us thought that taking that step earlier than normal was needed.

We were wrong and the purchase fell apart. 

So why do I share this?  I share it because it's time to be open and upfront about this topic.  Fall through happens.  It's such a standard part of this business, that banks track it constantly to judge the quality of the files being provide.  They want a low fall through ratio, of course, but they never expect 0% fall through.  Mortgages falling apart mid-contract is just  a painful part of this industry.

That doesn't mean that Realtors shouldn't hold their lenders up to a high standard.  Many lenders are more thorough upfront and this definitely help more sales make it smoothly to the closing table.  A Realtor should look at the lender's track record and reputation in the community.  If the lender has a strong reputation and is known for closing the loan, the rare fall through should be understood as a part of the business.  If sales seem to regularly fall apart though, that may be a sign that the lender is not as detailed on the front end as he should be.

All to say, Realtors - be picky.  Hold us lenders up to a high standard.  Don't hold us up to perfection though.  Try as we might, things will sometimes go wrong.  If it does, please know we'll learn from it and find ways to avoid that pitfall for the next buyer you send our way.

Friday, November 1, 2013

Mortgage 101 - Mortgage Types

A Realtor friend emailed me yesterday to ask if I had some basic mortgage information she could use.  She was teaching a pre-licensing class to potential future Realtors and wanted to have something to share with people who might know little to nothing about the mortgage side of home buying. 

Sadly, I didn't have anything to give her.  My material is typically written with the seasoned Realtor in mind.  What she needed was handy in my hyper little brain though, so I stopped what I was doing, put together a simple grid of options, and sent it over.

As I looked at the grid, I realized it could be good information for other Realtors and homebuyers as well so - fun fun! - I'm posting it here.  Let's take a minute to dive into Mortgage 101...

Mortgage Types

People who are new to the real estate industry don't always know that there are different types of mortgages.  While Realtors don't need to become experts on mortgage types, it's important for them to have a working knowledge of what mortgages options are out there and the pros and cons for each.  Here's a brief summary of the four most common ones:

What it is
This is your ‘plain vanilla’ mortgage made by a bank to a buyer with no third party involved
FHA loans are loans insured by the Federal Housing Administration (part of HUD).
·         Lower monthly mortgage insurance, making the overall payment lower
·         No mortgage insurance needed if 20% down
·         If mortgage insurance is needed, it can go away once buyer has 20% equity
·         property standards are not as picky
·         Less paperwork involved
·         More flexibility with bruised or newer credit, limited savings or tighter debt-to-income
·         Down payment can be gifted from a family member
·         Interest rate is often lower than that for a conventional loan
·         Lower minimum down payment needed than with conventional (3.5% vs. 5%)
·         Holds buyer to a higher standard in terms of credit, savings and debt-to-income
·         Larger down payment needed (5% minimum typically)
·         Interest rate and monthly mortgage insurance are more expensive with lower credit scores
·         Monthly mortgage insurance is typically more expensive and it normally stays for the life of the loan
·         FHA charges a 1.75% upfront fee (rolled into the loan balance)
·         The property needs to meet a higher standard than is needed for conventional loans
·         More paperwork is involved

What it is
USDA loans are guaranteed by USDA for homes in areas deemed ‘rural’
VA loans are guaranteed by the Department of Veteran Affairs for eligible Veterans
·         No down payment needed
·         Monthly mortgage insurance is less expensive, making the overall payment lower
·         In some situations, the cost for repairs can be rolled into the loan
·         Interest rate is often lower than for a conventional loan
·         No down payment needed
·         No monthly mortgage insurance, making the overall payment lower
·         VA Funding fee can be waived if Veteran has over 10% disability
·         Interest rate is often lower than for a conventional loan
·         Only homes in eligible areas can be financed with USDA mortgages
·         USDA needs to review all files which often delays the closing process
·         The home needs to meet minimum property standards set by USDA that can be more stringent than on some other loan types
·         Property needs to meet a slightly higher standard
·         Seller has to pay for certain fees that typically are paid for by buyer (termite inspection and title company closing fee)
·         More paperwork is involved

 Does this chart cover everything that needs to be known about these types of loans?  Absolutely not!  It's purely a high-level overview of some of the more important details.  It does help to give a working knowledge, though, of what options a buyer has. 

When your buyer is ready to dig into their options deeper and determine which one truly benefits them the most, call me.  I'll review their situation in depth to see where they're going to get the most bang for their buck. 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Wednesday, October 23, 2013

How Repair Negotiations Can Mess Up Closing

The mortgage lender is involved in most pieces of the home buying process but, thankfully, we get to stay out of the repair negotiations.  As long as the repairs are not required by the appraiser, we let the buyer, seller and Realtors work out what needs done between themselves.

There are some ways that the repair negotiations can keep the bank from closing on time, though.  Let's review the two most common tripwires and how to avoid them.

Post Closing Work

Realtors often ask if repair work can be done post closing.  In short, the answer is no.  This is just putting unnecessary risk in play for the buyer.  What if the trades person doesn't do the work as agreed?  What if they do the work but the cost ends up being more than planned?  No one wants to be dealing with these issues after the closing is done. 

While I know it sometimes happens where the trades person is paid at closing even though the work isn't done and the lender is none the wiser, it's a bad habit for Realtors to get into.  To protect your buyer's experience and your future referrals, get the work done before closing.

Seller Concessions

Many times the buyer and seller decide to let the buyer handle repairs in the future with the seller compensating them for that cost at closing with additional seller concessions.  This is problematic on three fronts:
  1. If there already are seller concessions in place, the additional amount may put total concessions above the maximum allowed.  This comes up the most with conventional loans.  Total seller concessions for conventional financing can't exceed 3% of the price, regardless of the reasoning for it. 
  2. The additional concession may cause the bank to need to re-disclose.  A seller concession is factored into the APR calculation.  If the APR is more than 0.125% more or less because of the change, the lender has to re-disclose and give the buyer at least three days to consider the new figures before closing.  That means the lender can't find out about this when the HUD is being drawn up.  It's too late then to re-disclose and close on time.
  3. Lastly, when additional concessions are added, the appraisal will need changed and re-approved by the lender.  Appraisers have to report any concessions in their report.  This updated report may take a couple of days to get back and another day or two to be reviewed. Again, if the lender learns about this additional concession days before closing, closing isn't going to happen as planned.
 Negotiating repairs is just one of the hundreds of important services that Realtors provide for their clients.  Lenders like me are grateful to our Realtor partners for doing it well and keeping the sale together when inspection issues arise.  If our Realtor partners can take the additional step of getting the work done before closing and informing the lender early of any changes to concessions, we'll be able to do our part better also to get the purchase closed on time. 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Wednesday, October 9, 2013

Why Your FHA Buyer's Maximum Price Just Dropped

Let's face it, not everyone was taught how to handle debt well in their youth.  Because of that, many of us get to our adult years with several collections scattered across our credit reports.

Those collections typically got in the way of someone using Conventional financing for a home purchase but FHA would normally give them a break on it.  If the overall credit picture was ok, FHA would ignore the collections and let the buyer purchase a home as if they didn't even exist.


Effective October 15, FHA is going to start requiring lenders to assume a monthly payment on those collections.  If non-medical collections total more than $2,000 combined, the buyer will have to pay them off, set up a payment plan with the creditor, or be held liable for a monthly payment equal to 5% of the balance as part of their approval.

What does this mean to you?

It means that the maximum price for your FHA buyer with open collections just dropped.  If they have $2,000 in open non-medical collections, they will now qualify for $100 less in monthly mortgage payments.  That's about a $14,000 drop in maximum home price at today's interest rate.  For every $1,000 more they have in collections, that maximum price would drop around $7,000.

So what should you do?

If you have active buyers who are using FHA financing, forward this to them.  Have them ask their lender if this is going to impact them.  If their lender doesn't know what they're talking about, get them to a lender who does, and feel free to make that lender me!  I'm always happy to help your buyers make informed financing decisions. 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Wednesday, October 2, 2013

How Is The Shutdown Going To Impact My Home Buyers?

No one is happy about this government shutdown.  Well, maybe some federal employees who are now having a bonus vacation, but the rest of society seems to be annoyed at best. 

For those of us in the real estate business, though, this can be more than a minor annoyance.  This can impact our income and the home buying experience of our clients.  While this is a highly fluid situation and the impacted functions will likely change as it goes on, here are the key effects on our industry at this stage:
  • FHA Buyers - HUD should not be significantly impacted as long as the shutdown is brief.  Lenders will still be able to get FHA case numbers and run loans through the approval system.  The key question to ask the lender for your FHA buyers is - "Do you underwrite the FHA loan yourself or do you send it to FHA to underwrite?".  Most FHA lenders underwrite themselves but not all.  FHA will have only a limited staff on hand (4% currently) so if they will be underwriting the file, expect a significant delay.
  • VA Buyers - VA financing should be largely un-impacted.  Lenders should still be able to originate VA loans and get Certificates of Eligibility online.
  • USDA Buyers -  God have mercy on the USDA buyer right now.  USDA in Indiana is already ridiculously behind.  Their usual 30 day review turn-time has ballooned up to 60 days in the last two months, making most USDA loans take up to 90 days to close.  During this shutdown, USDA's loan function is shut down so no new loans or guarantees will be made.  If you have a USDA buyer in contract, start talking about extensions now.
  • Conventional Buyers - No significant impact is expected here.  Whew!
There are certain government functions impacted by the shutdown that will impact all buyers, regardless of loan type.   They are summarized below:
  • IRS - lenders send tax transcript verification requests to the IRS for most buyers these days.  During the shutdown, the IRS will not be processing these requests.  If the shutdown is fairly short, this should have little impact, assuming your lender is the type who requests these verifications early on in the process.  HOWEVER - if your buyer is working with a lender who does this at the end of the process, it could create a problem.  You may want to have them ask their bank when they process this verification form (called a 4506-T, if you want to speak mortgageeze to them).
  • Social Security Administration - most lenders also verify a home buyer's social security numbers with the SSA.  This will have the same impact as the IRS verification.  If this is a short shutdown and the lender processes these early in the process, it should have no impact.  If the shutdown is long or the lender processes these at the end, it could be a problem.
  • Federal Reserve - thankfully, the federal reserve and reserve banks are not funded through the appropriations process so money wiring should be un-impacted.
So what should you do about this?  Truthfully, there is little we can actually DO.  We can COMMUNICATE though.  If we're worried about it, imagine how are buyers in contact are feeling?  Share this information with them.  Have them talk to their lender to further clarify.  If they're still looking for a  home or lender, connect them with someone who can educate and comfort them (hint hint - me).  I'd be honored to give them the information to make this a low-stress experience for them still, despite the shutdown. 

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Wednesday, September 18, 2013

3.5% for First Time Buyers

When someone is buying their first home, I encourage them to meet with me for a one hour homebuyer education meeting.  We spend that time together talking through the process of home buying, the costs involved and the various loan options available. 

Buyers always leave this meeting better equipped to proceed with a home purchase.  Surprisingly, many of them make an offer within days of the meeting, largely because they now feel knowledgeable and confident with the path they're taking.

Last night, I had some buyers in who had a common challenge - they had found a house they loved but the payment was out of their target range.  Let me share how that problem was fixed:

Monday, September 16, 2013

$20,000 more home for the same payment??

Anyone who knows me well knows that I'm a big-old nerd.  I love math.  LOVE IT.  Math is so much fun for me that, when I had a free afternoon last month, I spent it creating an Excel spreadsheet to quickly calculate home prices for various loan types given a targeted monthly payment.  Does that sound like FUN?????

What can I say?  It really was a blast.  Even more fun for me was what the spreadsheet showed.  When I got all of the calculates in place, I saw that the swing in home prices for different loan options was bigger than I'd expected. 

Let's say a buyer is comfortable with a monthly mortgage payment of $850.  Given the current interest rates and assuming typical property taxes and home insurance, The home prices for that payment currently range from $109,720 to $128,206. 

Really?  Almost a $20,000 difference in price for the same monthly payment?  Yep!  See my handy-dandy spreadsheet below for the details:

So what does this mean to you as a Realtor?  Well, as you know, the lender approves a buyer based on the monthly payment they can handle, not based on the price of the home.  If the buyer can get more home for the same payment that 1) makes the buyer happier; and 2) makes your job of finding them the right home easier.  Win-Win!

Of course, not all lenders love math like me, so they don't share this kind of options analysis with home buyers.  I do though.  If you want happier buyers and easier house hunting, share my name.  Let's put this awesome spreadsheet to the test :-). 

Friday, August 30, 2013

A Conventional Loan with No Down Payment? BOOYAH!!

Finally finally FINALLY we have a decent no down payment option for buyers again. 

For the last several years we've had VA financing for our Veterans and USDA for our rural friends, but no good 0% down loan for the rest.  Last year brought some hope when IHCDA rolled out their Next Home Program.  It offered down payment money to a wide range of buyers but the buyer had to be getting a FHA mortgage to qualify.  Seeing FHA has crazy-high monthly mortgage insurance and that mortgage insurance now stays on the loan FOREVER (ugh), Next Home was a step in the right direction but it still fell short for many buyers.

Effective 9/3/13, however, things are changing.  IHCDA will now allow buyers to use their Next Home down payment money along with a conventional loan.  Let's talk about what this means to Realtors and buyers alike:
  1. Down payment amount - starting in November, the minimum conventional mortgage down payment will be moving from 3% to 5%.  NOT WITH NEXT HOME THOUGH.  This one program will be allowed to keep the 3% down payment option (big win).
  2. Down payment source - IHCDA will give the 3% needed for the down payment to the qualified buyer.  It is technically a second mortgage but if they stay in the home at least two years, the mortgage is forgiven and released.
  3. Maximum Household Income - there are some requirements to qualify.  You can't make more than a certain amount (maximum set per county).  The chart is here: IHCDA Income Limits.  Use the two columns on the left hand side for 1 to 2 person or 3+ person households.  In St. Joseph County, a 1-2 person household can't currently make more than $59,400.  If they have 3+ people in the home, it jumps to $68,310.
  4. Not First Time Buyers Only - you don't have to be a first time buyer to get this money.  You can't own another home at the time of use though.  If you own a home now, you have to sell it first.  Closing can be on the same day as the purchase of the new home though.
  5. Liberal Credit Score Ranges - the credit score can be as low as 650.  The mortgage insurance will cost more at that score and it may be harder to get approved, but it is allowed. 
  6. Lower Monthly Mortgage Insurance - Conventional loans have lower mortgage insurance than FHA loans anyhow, but this program offers a further discount.  That being said, the interest rate will be higher.
  7. MCC Allowed - if the buyer is a first time buyer, they can use this program and the Mortgage Credit Certificate program at the same time.  This rocks big time.  To learn more about MCC, watch  this video:  MCC Education Video.

Negatives of Conventional Next Home

So what's not good about it?  A couple of things:
  1. Interest rate - we don't know what the interest rate will be yet seeing they don't roll it out until next week, but we know that it will be higher than non-Next Home rate.
  2. Higher Conventional Standards - the buyer has to qualify for a conventional loan and conventional loans are harder to qualify for than FHA loans.  For those who don't qualify though, they can still use Next Home money with FHA if desired. 
  3. Limited Seller Concessions/Higher Fees - sellers can only contribute 3% toward closing costs and prepaid items with conventional loans.  Next Home loans have higher closing costs, so this 3% won't be enough.  The buyer will need to bring some money to the purchase for the difference.  This money can come from a gift from a family member or a loan against an asset if desired (car, 401k, etc.)  If they can't come up with the money needed, they can still use this with FHA which lets the seller give 6%.
  4. Limited Sources - Most lenders are not approved through IHCDA to do these loans so the buyer can only work with a limited pool.  Luckily for me, I'm in that pool!  If your client wants to work with their 'home bank' though, they'll likely find out they can't get this assistance.

Bottom Line

So, bottom line?  This is a good option.  It's not perfect, but it's one of the best we've seen in awhile and will likely become very popular.  My team and I have done dozens and dozens of Next Home loans in the last year and we know how to navigate these smoothly and quickly.  Please call me with any questions you have on it.  I'm looking forward to helping many buyers buy now with this down payment assistance. 

Tuesday, August 27, 2013

BREAKING NEWS - 3% Convetional Going Away

Wouldn't you know it - as soon as I make a video blog talking about Fannie Mae's 3% down payment option, they send out a release saying they're taking it away.  Of all the luck!

The good news is that we have a little time.  Right now, Fannie Mae will allow buyers to put as little as 3% down on the purchase of a primary residence.  Effective November 16th, that will go away and the minimum down payment will increase to 5%.

What to do

Time moves fast, so talk to all of your conventional buyers now.  Tell them that the 3% option is going away so, if they want to use it, they need to get serious about their home shopping.  If the lender they are currently working with doesn't offer the 3% option, connect them with me.  As long as their file is started by that November 16th date, we can still use that lower down payment option. 

The Down Payment Dilemma

Hey Realtor friends, if you ever work with buyers who are eager to buy a home but can't figure out the down payment piece, then this video blog post is for you.  Enjoy!

After filming and posting this blog, Fannie Mae announced that it would be stopping its 3% down option after November 16th, 2013.  There's still time though!  Act quickly to take advantage of this lower down payment option. 

Monday, August 19, 2013

FHA Shrinks Post-Foreclosure Waiting Periods

In a surprising Mortgagee Letter, FHA announced last week that it will reduce it's two year bankruptcy waiting period and three year foreclosure waiting period to one year for buyers if the cause of the bankruptcy/foreclosure was a job loss.  Stating that buyers shouldn't be penalized for "Economic Events" beyond their control, FHA will consider buyers for financing we can document that:
  • certain credit impairments (foreclosures, short sale, bankruptcy, deed-in-lieu, etc.) were the result of a loss of employment or a significant loss of household income beyond the borrower's control;
  • the borrower has demonstrated full recovery from the event including at least 12 months of satisfactory credit; and
  • the borrower completes housing counseling.
 Calling it the "Back To Work - Extenuating Circumstances" program, this change will allow home purchases now for many individuals who were impacted by the high unemployment rates of the past few years.

There are some additional requirements to be aware of.  The borrower will have to show that:
  • they had satisfactory credit before the economic event;
  • the derogatory credit occurred after the economic event started;
  • they have re-established satisfactory credit for a minimum of 12 months. 
 They also will have to show that the job loss created at least a 20% drop in income for a 6+ month period.  If they can do this, though, and if they meet the rest of the normal FHA loan guidelines, they will be considered for FHA financing. 

THIS IS BIG FOR MICHIANA.  Unemployment hit us hard, and many in our community have been waiting for time to pass to be able to buy a home again.  If it's been at least a year and their payment history has been clean during that time, their wait may be over. 

Spread the news (and my phone number)!  FHA is back in the game. 

Friday, August 16, 2013

No Down Payment? No Problem!

We’ve all worked with buyers like this.  They have a good job.  They cover their bills easily.  They’re stable and ready to buy a home.  HOWEVER – they can’t seem to save up the down payment. 

Even with conventional financing needing
as little as 3% and FHA as little as 3.5%,
some buyers don't buy because they have no money to put down.
Well fear not!  Help is on the way.  Thanks to Indiana Housing and Community Development Authority’s Next Home program, many buyers don’t need a down payment. 


  • 4% assistance –buyers using this program gets 4% of the home’s price in down payment assistance.  This covers all of the 3.5% down payment while leaving a touch more to go toward closing costs.
  • Many qualify – the bar to qualify is within reach for many buyers.  The biggest hurdle is an income limit.  A two person household in St. Joseph County can’t have an annual household income of more than $59,400.  If there are 3+ members in the household, it jumps to $68,310 (current limits, can change at any time).  If they make less than this per year though, they’re good.
  • Not limited to first time buyers – gotta love this one.  Even if your client has owned a home before or owns one now that they are selling, they can still use this program.   
  • No delay  – If your buyer uses this program, it doesn’t slow the process down like some other 100% options do.  USDA offers 100% financing but the state is so backed up that you need 60 days to close one.  Not so with IHCDA - Next Home closes in the regular 30-45 days.


  • FHA loans only – this program has to be used with FHA financing.  If you read my posts regularly, you might remember one from June where I broke up with FHA (FHA - I'm Dumping You).  I’m not a huge FHA fan right now.  That being said, it does the job and might well be worth it for the right buyer.
  • Higher Interest rate – the interest rate for Next Home is higher than the regular FHA interest rate.  It varies day to day, but on average it seems to run about 0.5% higher.  On a $100,000 price home, that would work out to about $30 more that the buyer pays each month.  They would get $4,000 in down payment assistance though, so the extra $30 per month might well be worth it.
  • Points Charged – this program charges 2 points upfront.  This can be covered with seller concessions but that means we’re likely asking for 5-6% in concessions instead of the usual 3-4%.  That also means that the lower priced home (<$70,000) might still need some buyer investment seeing 6% in concessions likely wouldn’t cover the existing closing costs/prepaid items and these 2 additional points.


If your buyer is ready to buy a home but is unable or unwilling to wait until they can save a 3%-3.5% down payment, Next Home might fix their problem.  To learn more about it, check out my educational video (YouTube Video) or give me a call (574-234-5201).