Tuesday, October 11, 2011

Do's and Dont's During the Loan Process

The title of the article should really by "Dont's During the Loan Process" but it felt so depressing to only have things that you shouldn't do...kind of like a kid that has a list of things he/she can't do from their parent(s). That really stinks. In an effort to stay positive and leave you feeling good, I will give you the "do's" at the end.

Here is definitely what not to do:

Rule #1) No applying for or obtaining any new credit! It could ruin your closing.

  • Him: "We really should get a bigger TV for our new family room"

  • Her: "I also want to have lots of room for food so could we get a new refrigerator?"

  • Him: "Sounds great to me. Let's just go to Best Buy and get a new credit card with 0% interest. I am sure we will qualify...we just qualified for a new home."

  • Her: "I am so excited."

2 weeks later --

  • Loan Officer: "We pulled a limited review of your credit report and it came back with some new credit from Best Buy. What is that?"

  • Him: "We bought a bigger fridge for all our food and you have to come over after we close and we can watch the game on our new Flat Screen...it's awesome!"

  • Loan Officer: "What - did you finance those items?"

  • Him: "Sure did. It's great, we qualified for the house so we figured we would qualify for a new credit card so that's what we did."

  • Loan Officer: "You did PRE-qualify, but you hadn't closed and the new estimated payment on the debt is throwing the ratios off and so we can't close the loan."

  • Him: "What...no way, it's interest free...you have to help, we have to have this house...we love it."

  • Loan Officer: "Sorry, you shouldn't have extended yourself beyond your means...now we can't close on the new home. We will have to wait until you have those new items are paid off."

Okay, so the loan officer probably wouldn't be so dry when it came to their plight, but you can see the problem. They had tight ratios, extended more credit and the ratios went to high and the lender couldn't complete the loan. You can insert any form of credit extension or inquiry into the above scenario: Car loan, credit cards, and even applying for a new job, new bank account, or rental home (just in case the house falls through) could all result in inquiries on the credit report and those inquiries must be cleared prior to closing. The worse case would be above, where the borrower actually is extended credit and the situation changes on debt to income ratios thereby ruling the borrowers as ineligible for financing.

Rule #2) Don't quit your job.

I know what you are thinking...who would do that. Well, let me just tell you...it isn't always someone who just quits with no new job in mind. Some borrowers change jobs during the process, whether by choice or by necessity. Either way, any changes in employment will render the employment the lender used to qualify you as obsolete. They must re-qualify if there is a new job and it typically takes at least 2 pay-checks or 30 day's worth of earnings to be able to use any income. That could mean delays and potential loan denial.

Rule #3) Don't use funds from a different person at closing.

Some people have the funds for closing but "borrow" the money from family for closing. If you are going to do this, then they need to sign a gift letter saying they are giving the money. The money should come from the accounts that you used for underwriting so no person or underwriter can question the validity of the funds used for closing. Plus, it is illegal to falsify the use of funds for down payment and closing costs. Remember, the application is a binding legal document and so you must indicate correctly the assets to be used for closing.

If you can help it, don't change anything until the loan closes. How the file is underwritten is how the file should close...any changes could cause unneccesary delays and be a supreme hassle for all parties involved.

What to Do:

  • Nothing - at least not financially. Be patient. Work with a solid loan officer or mortgage consultant that will communicate effectively throughout the process so you aren't concerned about the stages of the loan process or anything that may come up. Allow the process to work itself out. If you chose a great Mortgage Consultant (like me), then you shouldn't worry, cause if I start a loan process...best be sure that I am going to work to get it done.

  • Anything the Loan Officer asks (as it pertains to the mortgage process) - With the difficulties inherent in qualifying for a home already prevelant...if the mortgage consultant asks you to jump...just ask how high. It's all about full disclosure and understanding that you are not innocent until proven guilty...you are guilty and not qualified for a home until you can prove otherwise. Assume it will be a Mount Everest climb and perhaps when it turns out to be Squaw Peak hike...it won't seem so bad. It's always a matter of perspective!

What is better than hearing that you don't need to do anything except what is asked of you. Do that and the process will work itself out nicely. Put up a fight or deviate from the path...well - let's just say it's your new home or refinance. I already have a home.

Wednesday, October 5, 2011

Luxury Home Market - AZ 2011

What does “Luxury Home” mean? Are we talking about home prices above $750K…above $1MM? Or are we talking somewhere between $250K - $750K? At the height of the market in 2006 the median home price rose to as high as $303,900 according to ARMLS, and the median home price hit a low of $120,475 in March of 2011. That is a staggering 61% drop in median price over the last 5 years. So how do we define “luxury home” in the ever changing market?

To start, luxury homes in the “lending” world would be considered any type of loan that exceeds the conventional loan limits set by Fannie Mae and Freddie Mac. Those conventional loan limits sit at $417K. This means that any loan that goes above $417K cannot be sold on the secondary market and are considered “jumbo” loans for the AZ marketplace. Though you can still get financing on Jumbo loans, it typically takes at least 20% down to secure a jumbo loan. In essence, the luxury home market could be defined as any home purchase price greater than $522,500 (20% down would be a loan amount of $418K and thus would exceed the conventional financing threshold).

Now that we have defined “luxury home” using the facts and hard numbers, let’s look at what the future holds for luxury homes. All indicators point to a “caution” while proceeding with the sale or purchase of a home in the luxury market. There needs to be a strong reason behind selling a home in the “luxury” market as well as a strong need to buy in the “luxury” market. But, if you are in the market to buy a home, the great news is there are an ever increasing number of options when it comes to financing. No longer is it a full requirement to put a minimum of 30% down. Now there are 25%, 20% and yes, even 10% down options depending on your price range. There are also excellent asset depletion programs for loans above $300K (use your asset reserves to increase your income numbers – a creative way to help self-employed borrowers that write off expenses for tax reporting purposes) and rates are so very low on the 5/1 and 7/1 ARMS that it is even cheaper to leverage your money. I say the future is bright as affordability increases on these “luxury” homes.

Regardless, of what price of home you are in the market for, the truth remains that financing is available, you just need to explore the options. Most importantly, the idea of what is “luxury” has changed a bit because what you would have paid $325 a square foot for in 2006, you may be able to get for $150 a square foot or less. Couple that with increase financing options it might just mean the opportunity of now may be knocking on your door.

Active Rain Site

You can find great local Scottsdale, Arizona real estate information on Localism.com Eric Murrietta is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.