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. 

WHY I LOVE THIS PROGRAM

• 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.

WHAT I COULD LIVE WITHOUT

• 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.

BOTTOM LINE

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).

 

 

How Appraisal Data Verification Can Stop Your Sale

If you're a Realtor, you've had a sale or two before where you were nervous about how your client's home would appraise.  You likely didn't stop worrying about it until you got the mortgage lender's call telling you the report was in and the value was fine.  Once you got that call though, you probably crossed the appraisal off of your list of things to worry about, believing all was good with it. 

THINK AGAIN!  What Realtors don’t realize is that most loan underwriters conduct a data verification process after an appraisal is received that could take that nice, clean appraisal and make it a deal breaker in the financing of the home.

What is Data Verification?

Banks rely heavily on the value showing in the appraisal report, but that value is only as good as the appraiser who put the report together.  Sometimes appraisers have off days.  Sometimes they miss things.  Sometimes they even deliberately try to make a value work, thinking they’re helping the buyer out.  For whatever reason, the value they put on the appraisal report is not always right.

How will a lender know that though?  They’ll know because they run the appraisal through an online data verification system.  These online systems have been created to do fast value assessments based on MLS data and property tax records.  Companies like DataVerify, Collateral DNA and Corelogic are all extensively used by the mortgage industry to provide a quick ‘second look’ at the appraised value of a home.

How does this impact the loan?

Most of the time, this doesn’t impact the loan.  The data check comes back close to the appraised value and everything moves forward.  Sometimes, though, the data check value is significantly lower than the appraised value.  The lender may then try running it through a second or third data check system, hoping to find one that supports the value.  If none do though, they have a problem.

How is the problem fixed?

A failed data check does not automatically cancel out the original appraisal.  Lenders understand that a lower automated value could be wrong.  The lender doesn’t want to waste the buyer’s time or money, so they will verify the accuracy of the information though assessor records to ensure the sales indicated are actually legitimate sales before taking the next step. 

If there is still concern after that, though, another appraiser is hired to do a desk review of the original report.  They will review it along with the MLS data to say whether they feel that the original appraiser was accurate on value or whether they agree with the computers and think he was stretching.

If the second appraiser says the value is ok, all is good.  The bank can proceed.  If he does not, they get the value that the second appraiser feels is accurate and, assuming it works with the data check figures, they proceed with that lower value.

What should a Realtor do then?

Well, first, if your lender says that a desk review of your appraisal is needed, don’t freak out.  There’s a good chance that the second appraiser will support the first appraiser’s findings. 

They may not, though, so you’ll want to start talking to your buyer about how you will proceed if the appraisal is cut.  Just like with other cut appraisals, the home buyer can request that it be disputed.  Just like with other cut appraisals, though, those disputes are hard to win.  Recent comparable sales in the subject property’s immediate marketing area (PUD/subdivision/neighborhood) carry the most weight and should be the area of focus in any value dispute. 

You also have to be open to the reality that the current value of the home might be lower than the price.  If it is and if the seller won’t drop the price, maybe this isn’t the right home for your buyer to purchase.   Lenders are protecting themselves when they verify the value of a home, but they’re protecting the buyer too.  We’ve all seen homeowners who have suffered from owing more on their home then it’s worth.  Keeping them from over paying upfront is one way to help avoid that for your client in the future.

1,000 Mortgages - Two Lessons

This month I closed my 1,000^th mortgage.  During that time, you would think I would have learned hundreds and hundreds of things - and I hopefully have – but there are two  lessons that I’ve learned along the way that have changed not just how I work but who I am.  Let me share them with you.

Lesson #1 - These Are People’s Lives

When someone buys a home, it’s not a small thing to them.  It’s not a whim.  It’s not a casual event.  BUYING A HOME IS HUGE.  Life changing.  The home they buy will become the place where their story happens, where their memories are made.  It will house their joys and tears.   Even though they don’t know what their future will hold when they buy it, they know that this home will hold their future.

It’s easy for a mortgage lender like me to get so caught up in the day to day activity of her work that each loan becomes ‘just another loan’.  Through my 1,000 mortgages, I have learned that each loan is NOT just another loan, at least not to my clients.  It’s the start of a new chapter in their lives.

Knowing this, I treat my client’s differently now than I did in my early years.  Yes, I still concentrate on getting their loan approved.  That’s just one piece of my job now, though.  I also find ways to share in their excitement.  I look for opportunities to reduce the increased stress that goes with such a foreign experience.  I understand that uncertainty can lead to anxiety, so I err on over-communicating so that they can feel safe that all is as it should be with their purchase.  My job is not just to get them to closing.  As much as I am able, my job is to help them love the experience of buying their home. 

Lesson #2 - It Takes A Village

As the loan originator, I get to be the person that the homebuyer talks to and interacts with during the loan process.  My part is such a small piece of the puzzle though.  Managing a person’s loan application from start to finish takes a multitude of people.  Case openers, processors, loan assistants, underwriters, manager, closers…… the list goes on and on.

Every one of these people play an integral part in the mortgage process.  Each of their roles is a place where things could go wrong if the person doing it didn’t care.  These people do care though, very much, and they work hard day-in and day-out to make someone else’s dream come true. 

These ‘behind the scene’ players typically don’t get any praise for what they’re doing. They’re not at the closing table, seeing the tears of joy and getting the grateful hugs from the buyer.  They’re back at the office, getting the job done. 

In my early years, I soaked up the closing hugs and congratulated myself on what I had accomplished.  Over time, though, I’ve learned that I accomplished little.  My phenomenal team of committed mortgage professionals accomplished the most.  I’m a friendly smile and a great starter, but not much more.  They’re the ones that see it through to the end and make the dream of home ownership really happen. 

So…..that’s what I’ve learned.  Bottom line, these 1,000 loans have taught me gratitude.  Gratitude to my clients for entrusting me with their stories and gratitude to my team for letting me represent their committed efforts to our clients.  Thank you all for the privilege of it.  Here’s to another 1,000!

 

FHA, I'm Dumping You

Dear FHA,

As you know from the many clients I’ve sent your way, I have long been enamored with you.  Yes, you are more cumbersome and paperwork-heavy for me and my team, but your flexible loan terms, attractive interest rates and reduced down payment made you a loan choice that I proudly shared - even though it meant everyone had to jump through hoops to make you happy.  I believed you were worth it. 

I’m sorry to say this, FHA, but I no longer feel that way about you. Our love affair is over.  You have broken my heart too many times and I can’t defend you any longer. 

Let me share the ways you have let me down, in the hopes that you can find it in your heart to change your ways:

Higher Mortgage Insurance

Oh FHA, you have really done me wrong here.  Not only have you increased the mortgage insurance to 1.35% per year (WAY higher than the conventional rates), you have made monthly mortgage insurance a permanent part of the loan.  Permanent.  As in – FOREVER. 

Really FHA?  If my buyers have their loan all 30 years, in year 29 you’re still going to be charging them the same overly-high monthly mortgage insurance premium that you charged them in year one?  And it’s not like you decrease the cost each year as the balance decreases.  Oh no, you’re going to charge the same initial monthly amount all 30 years.  And you feel this is the right way to treat loyal, long term customers?

Flip Rules

OK, FHA, I get why you had property flipping rules back in 2003.  Tons of big dreamers watched “Flip This House”, bought a dump, put fresh paint and flooring in it and sold it for more than they should have.  Naive buyers got fooled by the nice staging and neutral colors and overpaid, so you stepped in to protect them.  You were only looking out for their good, so I defended your ‘big brother’ ways.

This isn’t 2003 anymore though, and buyers don’t need this protection today.  If a real estate investor wants to buy a distressed home, improve it and sell it for a profit, making them jump through extra hoops if their buyer uses FHA financing is just wrong.  Let it go already, FHA. It’s time to move on.

Higher Priced Mortgage Loans

Maybe I could have tolerated your ‘quirks’ with higher mortgage insurance and outdated flipping rules, but this new twist with higher priced mortgage loans is my last straw.  In case you’ve forgotten what you’ve done, let me link you to a letter put out by HUD’s Assistant Secretary for Housing- HUD HPML Letter.  In a nutshell, now that mortgage insurance goes on FOREVER, I have to calculate the APR differently which is making many FHA loans in my reasonably-priced community trigger the HPML limit. 

What this means in ‘regular people’ terms is that I can’t give these buyers their FHA loan, even if they want it, because you got greedy with your monthly mortgage insurance and now my hands are tied.  Way to go, FHA.  That sets a new bar in pushing away those that love you.

All To Say...

So…..I’m out, FHA.  If my buyer really needs to work with you because of credit challenges, needing a non-occupying co-signer, or some other unique little thing that only you accommodate, then I’ll play nice and give you their loan.  For the rest of my buyers who have average or better credit and at least 3% down, though, I’m heading straight to my new sweetie, the conventional loan. 

    Sincerely,

 

 

Beware The Repair

I pride myself on smooth, on-time closings for my clients but this week seems to be a ‘pride goes before a fall’ kind of week for me.  Of the seven closings I have scheduled for this week, five of them were delayed, rushed, or cancelled because of repairs.

Sigh.

So why is this happening?  And how can we prevent it?

Sometimes, a buyer knows they want something fixed on the house from the very beginning so they write this into the purchase agreement.  I love it when buyers do this.  It lets all parties know at the very beginning of the process exactly what is wanted so they can plan accordingly.

The problems come up when the repair is delayed.  Sellers will often wait on doing them until they know that all other open issues related to the purchase are done.  Understandably, they don’t want to pay for repairs only to then find out that the appraisal came back low, the loan got declined or the septic failed.

Why is this a problem? 

If a buyer writes a repair into the purchase agreement, the lender sees it as a condition of the sale so it also becomes a condition of the loan approval.  Most lenders need to have all open conditions in hand at least a week before closing to finish out the final steps.  That means the repair needs to be done and verified as done by the appraiser 7+ days before the closing.

How can we keep this from delaying the closing? 

To keep this from delaying your loan, put a timeline for the seller in the purchase agreement.  Don’t just say “deck to be stained”  say “deck to stained by June 27^th”, leaving enough time for the appraiser to verify that it’s done and get their report back to the lender at least a week before closing.

Another option is to write up an addendum and remove the condition from the purchase agreement once the buyer feels that the work has been properly done.  I like this option better because it doesn’t require an appraiser to go back out which is an added cost and time delay.  The bank will still need that 7+ days to finish the approval and close smoothly, but they won’t need the 3-4 days on top of that to have the appraiser go back out.

What if the repair came up mid-contract?

Sometimes all parties don’t know about the repair upfront.  They become aware that it’s needed when the home inspection or appraisal come back. 

When the repair came up as a part of the home inspection, this typically won’t delay the loan process because the bank is not normally involved in that piece.  Some lenders do require copies of inspections, but not most, so these repairs can be done right up to closing if needed.

The Realtor still needs to allow extra time, though.  We’re in a busy season and trades people are backed up.  The work done is also not always up to the buyer’s expectations.  If the Realtor is thinking the work can be finished the morning of closing and things will go smoothly, their risking a closing nightmare and a very unhappy client.

When the repair comes up because of the appraisal, we’re back to the “7+ Days” thing.  That means either the seller needs to get the repair done fast, an extension needs done or – sometimes – both.

Hope for the Best…

Bottom line - when repairs are on the radar, the Realtor needs to hope for the best but plan for the worst.  Repairs take times.  They’re not always done right.  The bank may need to verify that the work is done.  To keep a happy homebuyer and to reduce the stress levels for all parties, expect delays from the repair and allow extra time for things to be done as needed.

It’s The Loan Officer’s Fault – 3 Reasons Deals Die

Get around any crowd of Realtors today and you will quickly start hearing stories about home sales that fell apart in the last hour.  It feels like an epidemic.  Yes, sales are increasing but, sadly, so are fall throughs. 

With all the stress in getting a buyer from the first showing to the week of closing, it’s incredibly painful for the Realtors when things fall apart at the last minute (not to mention for the sellers and buyers).  Sadly, many times it’s the loan officer’s fault.  Here are the top three things loan officers don’t do that can kill a sale:

They Don’t Ask

There’s a huge list of things that some loan officers don’t ask the buyer up-front that can make or break the sale.  Some aren’t asked because the loan officer feels like they’re prying by asking and it makes them uncomfortable (things like if the buyer pays child support or if they are a US Citizen).  Sometimes they don’t ask because they’re not paying attention.  For example, the loan officer may not review the paystub before sending it to the underwriter so they don’t see the garnishment withdrawal and don’t ask the question to find out what it is. 

Whether from awkwardness or sloppiness, questions are missed upfront that are critical to whether the loan gets approved or not.  Yes, the questions may seem invasive.  Yes, the questions may be uncomfortable.  However, it’s much more uncomfortable to call a buyer the day before closing and telling him he can’t buy his home after all.  Bottom line - Loan officers need to ask the questions that need to be asked, in full and upfront. 

 

They Don’t Know

Other times, the deal dies because the loan officer just didn’t know what they should have known.  You’ve likely heard this sentence in a Realtor’s horror story “But the loan officer knew about that the whole time!  It wasn’t something new, they knew about it from day one!”  Many times a deal dies because of a situation that the loan originator knew about.  What the loan originator didn’t know was that the situation mattered. 

Perfect example – a Realtor friend of mine had a deal die last week because the home her client was buying as a primary residence is a 2.5 hour drive from where he works.  The underwriter declined it saying that this was too far of a commute to believe it would really be his primary home.  Did the distance from the house to his office change from start to finish?  Of course not.  The loan originator just didn’t know that the distance mattered so they didn’t address it upfront and instead left it for an underwriter to notice and decline the loan over.

They Don’t Tell

This one kills me, because it happens too often and it’s so unnecessary.  There are times when the loan officer asks the questions, they know there’s a problem with the loan approval, but they don’t tell anyone.  They’re afraid of the confrontation so they keep it to themselves, hoping they can find a way to fix it or that a miracle will happen and the problem will go away.

Do miracles happen sometimes for buyers?  Absolutely.  I often joke about my ‘great loan karma’.  Things really do just seem to go right for my clients with the loan approval process, even when it seems like the odds are against us. 

I’m not against trying for the Hail Mary and believing that a solution can be found.  I AM against keeping the other parties involved in the dark.  If there is a problem with the approval, the buyer(s) and selling agent need to know.  The loan officer and selling agent need to jointly decide how to keep the listing agent in the loop as well.  No one wants to scare the seller, but they have a right to know about problems too, especially when repairs are in process.

Conclusion

So….why do I share all of this with you?  Do I really want to point out how loan officers mess up and break hearts of home buyers and Realtors alike?  Of course not – it’s not fun pointing out the failings of people.  Fact of the matter is, though, this stuff happens.  It happens a lot – BUT IT DOESN’T HAVE TO. 

Selecting the right loan originator will help prevent problems like these.  Everyone makes mistakes sometimes, but some people make a whole lot fewer than others.  There really are very good, high quality loan officers out there who DO ask the right questions upfront, who DO know what the potential problems are so that they can address them at the beginning, and who DO man-up and tell the buyer and Realtor if a problem arises that may impact the loan. 

The choice in loan officer matters in getting smoothly to closing – choose wisely. 

 

 

Three Mortgage Migraine Makers

Sometimes the mortgage approval process is easy and smooth for the home buyer.  Sometimes it is not.  When it is not, there is typically one of three culprits that is causing the headache.  

Culprit #1 - Show Me The Money

“Why does it matter where the money came from if I have the money??”  Countless home buyers have asked me this, and it’s a valid question.  Unfortunately, when it comes to getting a mortgage loan approved, the bank not only wants to know THAT you have the money, they want to know where that money came from.

 Your lender is typically going to ask for your last two months’ bank statements.  She will then look at every deposit showing on that statement to see what it is.  If it is the direct deposit of your payroll, no problem.  If it is a smaller deposit (typically under $250), that’s fine.  If you have deposits that are not small or are not a direct deposit of pay though, the lender will want a signed letter from you explaining what the deposit is and a copy of the deposited item or some other documentation to show the source (a check stub, expense report, etc.).

These items are typically obtainable by the home buyer but it can be a hassle.  Odds are you didn’t keep a copy of the check that your bother gave you two months ago for his half of dad’s birthday gift, right?  Your bank can likely print those items out for you if needed (some charge a fee).  If you’re lucky, your bank will automatically scan all your deposited items in and have them available online as a part of their online banking, making it easy for you to print them out.  Easy or hard, though, you will have to get those for your lender so be prepared for that and keep copies as you go if possible.

Culprit #2 - A Little Me Time 

It’s not uncommon for people to take unpaid time off.  Vacations, family situations, or even just a little ‘I need a break’ time is all a part of the rhythm of work and life.  When the bank is looking at your pay stubs, though, they’re looking for consistent hours.  If you’ve had unpaid time off in the last month, the lender is going to need to find out if this happens often so that she can calculate your income correctly.

To verify this, the banker will probably need to send a form to your employer to fill out.  You also might need to write a letter explaining the unpaid time off and clarifying if it is a repetitive thing. If your employer doesn’t return the form promptly, you may need to get involved to encourage them to get it back to your lender.

All of this is more work for you and your lender.  As best you can, try to avoid unpaid time off in the months leading up to a home purchase.  You’ll likely want to save that type of time for once you’re a home owner anyhow, because there’s ALWAYS stuff that needs done then!

Culprit #3 - 'Close Enough'

Your lender is going to ask you for a lot of paperwork.  You might go through the list, gather up most of it and then decide “That's close enough”. 

'Close enough' is not good enough.  The lender needs everything she asked for.  If she asked for all pages of your bank statements and one page is completely blank, she needs that blank page.  If the lender asked for your full federal tax returns and you think the first two pages provide enough information, it doesn't.  She asked for it all because she needs it all.  Giving the lender just part of what she asked for will just make the process more frustrating for you because she will come back and ask for the rest.  Make life easier for you and your lender – give her everything she requested upfront instead of hoping that 'close enough' will work.

In Summary

Buying a home is an exciting time but the fun can evaporate if you're constantly dealing with stress from the mortgage process.  Knowing these top three mortgage migraine makers and how to avoid them, though, should help keep the enjoyment in the experience of home buying.  Good luck!