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.

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:

	Conventional	FHA
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).
Pros	·         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%)
Cons	·         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

  

	USDA	VA
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
Pros	·         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
Cons	·         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.

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.

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.

NOT ANYMORE

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.

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.

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:

$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 :-).