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Beware of the rules of Lending, 5 of 12 Overdrafting
DON’T OVERDRAFT — I’m not talking about drafting Ryan Tannehill with the 8th overall pick either. Let’s talk about nasty little subject that we call BTDs or Bank Transmitted Diseases. As much as we don’t want to admit, we have all gotten lazy, had 1 too many drinks at the bar… BAM! The next morning you check your account and there is a fresh overdraft… Before you know it, you have shamed yourself into transferring money from your savings or other banks to cover it up… a real downward spiral, but I digress.
Mel Kiper Jr. Hates Overdrafting!!
During the loan process is NOT the time to miscalculate how much money you have in your account and use your overdraft protection (OP). The underwriter does NOT look kindly on people who can’t balance their checking account. You’re trying to convince the lender that you are a low credit risk and worthy of borrowing hundreds of thousands of dollars and paying it back on time.
Imagine how the underwriter would view your ability to manage your money if that $5 footlong from Subway showed up under OVERDRAFT PROTECTION. Worse yet, your checking account statement shows you have a history of using your OP in months past, and might even give a dollar amount that you have racked up in those fees. That alone could deny you the loan, please practice safe banking and protect yourself.
May 17, 2012 by Elise Groves · Leave a Comment
Beware of the rules of Lending, 4 of 12 Shredding
DON’T SHRED YOUR PAY-STUBS & BANK STATEMENTS— I run into clients all the time who get their bank statements and pay-stubs in the mail, then they verify the information and balance their own accounts, and promptly shred the statements. There is absolutely nothing wrong with this… unless you are in the process of getting a mortgage!
Please hang on to them during the entire loan process. The underwriter is going to want at least one actual bank statement and 30 days worth of pay stubs, so keep them on hand.
But wait, I can hear it now,”Elise I don’t get paper statements or pay-stubs in the mail ever since I opted for E-Statements” well good for you… I hope you know how to print and scan or email those to us, and if you don’t you better learn fast.
Kidding aside, we all work in an electronically dominated world now a days and it is very important to be able to protect ourselves from identity theft. The Groves Team takes any and all sensitive material seriously and have all non-record keeping papers shredded after the completion of your deal.
May 14, 2012 by Elise Groves · Leave a Comment
Beware of the rules of Lending, 3 of 12 New Credit
DON’T APPLY FOR ANY NEW CREDIT—Resist that new set of knives or the 15% discount you will get if you open a new account!! The lender will refresh your credit report right before they fund the loan and Lord help you if new credit inquiries show up on that report! 
You are going to have to jump through hoop after hoop to convince the lender you didn’t just take on a whole new monthly debt that will disqualify you. Even if you are well qualified the lender will want to know why you are trying to aquire new credit durring perhaps the largest financial process of your life.
Just wait…. It’s the credit inquiry that could kill your deal, so stay out of Best Buy, Home Depot and the car dealers’ showroom please… IT’s A TRAP!!!
May 10, 2012 by Elise Groves · Leave a Comment
Beware of the rules of Lending, 2 of 12 Moving Money
DON’T TRANSFER MONEY FROM ACCOUNT TO ACCOUNT— Please put your money for your down payment and closing costs in ONE account and leave it there, and the sooner the better please. DO NOT keep transferring back and forth between checking and savings, this is especially true if it is two separate banks.
The lender is going to make you verify every single deposit, transfer, wire, etc. over a two month or longer period, so just be prepared to fully document every little financial detail going in and out of those accounts. The lender really is going to turn over every rock and make sure you don’t have money just ‘show up’ that can’t be properly accounted for and ‘papertrailed’… and no, we can not use the old “we had a garage sale” deposit excuse any more.
If you are going to be getting a Gift from family or cashing out various investments to help build your asset account for this transaction, please consult with us before you even think about it!
both of these scenarios are very common, completely within the rules of lending and totally botched all the time because of poor Lender to Client education. Help me help you… we don’t want to chew up valuable time half way through the loan process.
Heed my warning on this, please. You can do transfers, but they better be backed up with the correct paperwork, including DNA and blood samples, or else. (No, you won’t really have to give blood, but seriously… its crazy out there). Keep copies of every check, every deposit and be prepared to produce them quickly. If you don’t know how to do online banking, now would be a good time to learn that as you may periodically have to update information between statements.
May 8, 2012 by Elise Groves · Leave a Comment
Beware of the rules of Lending, 1 of 12 Jobs.
They may be ridiculous, irritating and challenging,
but if you don’t heed these warnings and you break the rules,
your loan could be DENIED AT THE LAST MINUTE!
Check in every Tuesday and Thursday for this 12 part series geared towards the
DOs and DON’Ts During The Loan Process
1. DON’T CHANGE JOBS …or even worse…QUIT!! The lender is going to verbally verify your employment about a day before they fund your loan and if you have changed or quit you might be screwed. So stay at the same job throughout the loan process. Your loan is based on your ability to make the payments, and your job stability is a big factor. So hold on a little longer… and don’t you dare consider quitting and starting your own business until AFTER the escrow closes and you have moved into your new home. That could be a deal killer right there.
Speaking of jobs… PLEASE deposit your ENTIRE paycheck, THEN take a cash draw. DON’T go cash your check, keep your spending money for the week, then deposit the rest. It creates a paper trailing nightmare you don’t want to be a part of.
May 3, 2012 by Elise Groves · Leave a Comment
Your First Mortgage Approval: What Your Agent Needs To Know
While many experienced real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.
New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing.
With today’s volatile lending environment, it’s obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer’s scenario prior to spending any time looking at new homes with an agent.
Either way, we’ve listed a few of the top things your agent should keep in mind while showing you new properties:
Caution – Agents Beware:
Property Type –
High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House… all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.
Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city? What if I’m buying a home for my children to live in, it is still considered an investment property?
These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.
Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders. Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.
A 1% increase in rate could literally mean the difference between an approval or denial.
Underwriters watch the news as well. Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.
Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.
Title / Property Flip –
A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period. Generally, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.
While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.
These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.
Homeowner’s Association Insurance –
Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.
It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.
Appraisal Ordering Procedures –
Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.
Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.
VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated delays in the purchase contract.
For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn’t smart to write a purchase contract with a four week close of escrow.
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Related Articles – Home Buying Process:
- Home Buying Process
- First-Time Home Buyer Credit Checklist
- Assembling Your Home Buying Team – Knowing The Players
- Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction
- Where Does My Earnest Money Go?
- HOA Hurdles to be Aware of When Looking at New Properties
- What You Need To Know About The Home Inspection Process
April 1, 2010 by Elise Groves · Leave a Comment
Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?
Although every situation is unique, it is not uncommon for homebuyers to qualify for a mortgage on a new home while still living in their primary residence.
Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer? Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:
So, Do I Have To Sell?
Yes. No. Maybe. It depends.
Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.
If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!
Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.
What If I Rent My Current Property?
This scenario presents the “maybe” and the “it depends” answers to the question.
If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.
In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.
So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.
Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.
Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.
Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.
For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.
Keep in mind, this reserve requirement is incremental to your down payment on the new property.
What If I Can’t Qualify Based On Both Mortgage Payments?
This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.
If you are in this situation, then you will have to sell your current home before buying a new one.
If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in your neighborhood.
…..
As you can tell, purchasing one home while living in another can be a very complicated transaction. Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.
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Related Articles – Mortgage Approval Process:
- Basic Mortgage Terms
- How Much Can I Afford?
- Common Documents Required For A Mortgage Pre-Approval
- Top 8 Questions To Ask Your Lender During Application Process
- What’s The Difference Between An Investment Property, Second Home and Primary Residence?
- Seven Items Real Estate Agents Need To Know About Your Mortgage Approval
April 1, 2010 by Elise Groves · Leave a Comment
What Do Appraisers Look For When Determining A Property’s Value?
Most people are surprised to learn what appraisers actually look at when determining the value of a real estate property.
A common misconception homeowners generally have is that the value of their home is determined after the appraiser has completed their physical property inspection.
However, the appraiser actually already has a good idea of the property’s value by the time they have scheduled an appointment to stop by the property.
The good news is that you don’t have to worry so much about pushing back an appointment a few days just to “clean things up” in order to help influence the value of your property.
While a clean house will certainly make it easier for the appraiser to notice improvements, the only time you should be concerned about “clutter” is if it is damaging to the dwelling.
The Key Components Addressed In An Appraisal
The Site:
Location, view, topography, lot size, utilities, zoning, external factors, highest and best use, landscaping features…
Design:
Quality of construction, finish work, fixed appliances and any defining features
Condition:
Age, deterioration, renovations, upgrades, added features
Health & Safety:
Structural integrity, code compliance
Size:
Above grade and below grade improvements
Neighborhood:
Is the property conforming to the neighborhood?
Functional Utility:
Is the property functional as built – style and use?
Parking:
Garages, Carports, Shops, etc..
Other:
Curb appeal, lot size, & conforming to the neighborhood are obvious to the appraiser when they drive down into the neighborhood pull up in front of your home.
When entering your home, they are going to look at the overall design, condition, finish work, upgrades, any defining features, functional utility, square footage, number of rooms and health and safety items.
Be sure to have all carbon monoxide and smoke detectors in working condition.
Since the appraisal provides half the weight in any credit decision involving the security of real estate, the appraisal should be done by a qualified, licensed appraiser whom is familiar with your neighborhood, and the type of home you are buying, selling or refinancing.
If you’re interested in what specifically appraisers are looking for, here is a copy of the blank 1040 URAR form that is used by every appraiser in the country.
Related Update on HVCC:
Appraisers hired for a mortgage transaction on a conforming loan are chosen from a pool of qualified appraisers at random. Neither you nor your lender has the flexibility of deciding which appraiser will inspect your home.
This recent change was brought on with the Home Valuation Code of Conduct HVCC, and is effective with conventional loans originated on or after May 1, 2009.
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Related Appraisal Articles:
- Mortgage 101 – Appraisal Basics
- Five Myths About Home Values
- Understanding The Difference Between An Appraisal vs Neighborhood Comp
- How Do Mortgage Companies Value A Property That Hasn’t Been Built Yet?
March 29, 2010 by Elise Groves · Leave a Comment
Buying A Santa Rosa House? What’s Earnest Money?
Hey, I gave my real estate agent a $5000 Earnest Money Deposit check… Where does that money go?
A basic and very obvious question that most First-Time home Buyers ask once their purchase contract gets accepted.
According to Wikipedia:
Earnest Money – an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.
When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.
An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.
For example, there may be a contingency period for appraisal, loan approval, property inspection or approval of HOA documents.
In most cases, the Earnest Money held by the escrow company is credited towards the home buyer’s down payment and/or closing costs.
*It’s important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.
The Process:
- Earnest Money is submitted to an escrow company with the accepted purchase contract
- At the close of escrow, the EMD is credited towards the down payment and / or closing costs
- If there are no closing costs or down payment, the EMD is refunded back to the buyer
Who Doesn’t Get Your Earnest Money:
- Selling Real Estate Agent – A conflict of interest
- Sellers – Too risky
- Buying Agent – They shouldn’t have your money in their account
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Related Articles – Closing Process / Costs
- Closing Process – Overview
- Closing Costs – Overview
- Talk the Talk – Know the Mortgage Lingo at Closing
- Making Sure Your Cash-To-Close Comes From The Proper Source
March 28, 2010 by Elise Groves · Leave a Comment
Renting vs Buying A Home
Buying a home versus renting is a big decision that takes careful consideration.
While there are several biased sources that can make arguments for or against owning a home, we’ve found that most home buyers base their ultimate decision on emotion.
Yes, there are some tax advantages of owning real estate, as well as the potential to earn equity or pay a mortgage note off after several years.
However, let’s address some of the more obvious topics of discussion first.
Benefits Of Renting:
Lower Acquisition Cost –
Unless you’re able to qualify for your Santa Rosa mortgage with zero down and have your closing costs paid for by the seller, a typical investment to purchase a home is around 3.5% – 7% of the purchase price for down payment and closing costs on an FHA mortgage, and an average of 5% – 20% for a home secured by conventional financing.
Compared to the cost of about 1-3 month’s rent payment, it’s obvious that renting a home makes financial sense in the short-term.
Lower Qualifying Standards –
While the FHA and other government insured mortgage programs have more flexible credit / qualifying guidelines than most traditional home loan programs, there is certainly a lot less paperwork and personally invasive probing required by most landlords and property management companies.
Generally proof of employment / income and a decent credit history (or a good explanation) is needed to rent a home.
Freedom To Move –
It’s easy to find housing in Santa Rosa through a reputable property management company, move in that weekend and then leave a year later when the rental contract expires. Not being tied down by a long-term mortgage liability is ideal for people new to a community, in a career that keeps them on the go or for parents with children that prefer a certain school district.
Plus, if you’re planning on moving in the next 3-5 years, then it may become cost-prohibitive due to the amount of equity you’ll have to gain in the short-run just to cover the cost of paying an agent, buyer closing costs, transfer taxes…. so that you can at least break even at closing.
Less Maintenance and Cost –
If something breaks, a simple call to the property management company will generally solve the issue in 48 hours or less. Plus, renters don’t have to carry expensive homeowners insurance, pay property taxes or worry about interest rates adjusting.
Benefits of Owning:
Pets Are Allowed –
Well, according to the rules and regulations of your Santa Rosa, Sonoma County or neighborhood HOA, you can pretty much have as many domestic and exotic pets without having to pay extra deposits.
It may seem like a funny benefit to mention first, but the millions of dog and cat lovers would definitely rank this towards the top of their list. I know that when we first moved to Sonoma County in 1986, and we were shopping for homes in Santa Rosa, we first had to find a rental. It proved challenging with three Golden Retrievers we had, and it just strengthened our resolve to buy our first home in Santa Rosa.
Pink and Purple Walls –
Yep, you can paint the inside of your house any color you choose. And depending on whether or not there is an HOA in place, you could probably do the same thing on the home’s exterior. Landscaping, flooring, built-in shelving… it’s your property to renovate and grow in.
Peace-of-Mind and Security –
The only way you would be forced to move is if the bank forecloses on your property due to a default in your Santa Rosa mortgage payments.
So basically, you don’t have to worry about a landlord’s financial ability to make mortgage payments on time. Plus, you can stay in your own Santa Rosa home as long as you wish.
Tax Benefits -
The US government has created certain tax incentives making it possible for many homeowners to exceed the standard yearly deduction.
*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*
The following three components of your home mortgage may be tax deductible:
a) Interest on your home mortgage
b) Property Taxes
c) Origination / Discount Points
Stability -
Remaining in one neighborhood for several years lets you and your family establish lasting friendships, as well as offers your children the benefit of educational continuity.
Historically, even with other periods of declining value, home prices have exceeded consumer inflation. From 1972 through 2005, home prices increased on average 6.5%, according to the National Association of Realtors®.
Forced Saving -
The monthly payment helps in repayment of the principal amount. Also when you sell you can generally take up to $250,000 ($500,000 for married couple) as gain without owing any federal income tax.
*Disclosure – Check with your CPA or Tax Attorney to verify your own unique filing scenario*
Increased Net Worth
Few things have a greater impact on net worth than owning a home. In a comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.
While the available tax advantages and potential for earned equity are generally highlighted by most industry professionals as the top reasons to own real estate, it’s important to remember that markets go through cycles.
However, owning real estate that appreciates more than the rate of inflation may help contribute towards your overall investment portfolio, provided your maintenance and mortgage costs are kept low.
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Related Articles – Home Buying Process:
- Home Buying Process
- First-Time Home Buyer Credit Checklist
- Assembling Your Home Buying Team – Knowing The Players
- Seven Things Your Agent Should Know About Your Mortgage Approval
- Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction
- Where Does My Earnest Money Go?
- HOA Hurdles to be Aware of When Looking at New Properties
- What You Need To Know About The Home Inspection Process
March 28, 2010 by Elise Groves · Leave a Comment
