Important Facts You Should Know About Lending

1. If I put down a certain amount of money on a house, I won’t need to show any income in order to qualify for a mortgage. FALSE

In the state of Pennsylvania, in March 2011, the governor of Pennsylvania outlawed “no income or stated income loans.” All mortgages in the state of Pennsylvania require income verification going back 24 months.

2. If I put down 30% or 40%, my credit score and credit history do not matter. FALSE

Although the interest rate will not increase if a down payment of 40% or more is provided, an underwriter for a lending institution will still scrutinize the payment history and usage of credit in determining a borrower’s ability to pay a mortgage.

3. It only takes two months to establish credit. FALSE

If alternative sources of credit are not used in determining a borrower’s ability to repay a debt, it takes seven months on a credit card or any other type of installment debt that is newly established, to create a score on our credit bureau system. It may show a payment history but not enough to generate a score.

4. Is it true that no credit is better than bad credit? FALSE

It is required to have a credit score in order to purchase a house and obtain a mortgage. There are some exceptions where they will allow alternative sources of credit such as rental references, utilities and cell phone bills to determine a borrower’s willingness to repay a loan. If not, a buyer must show a positive history.

5. Shouldn’t I charge up the new card and pay it off to show a good credit history? FALSE

When we pull credit reports, we see the final balance on the last billing cycle. If you charge it up and pay it off, all we see is the card appears maxed out. This brings the scores down. The proper way to get the highest score possible is to use the card for a small item once per month. This shows minimal use of consumer debt, which brings the scores higher.

6. Is my Credit Karma score the same as the one you pull? SOMETIMES

What most people don’t realize is that Credit Karma shows consumers what their score will be when they are applying for credit cards.  That system shows a different algorithm which is used in determining a borrowers credit profile.  Most consumers don’t have access to the same scoring system used for mortgages. It doesn’t mean that we lowered your score when running your credit, it just means that the scores aren’t the same in the two systems.

Could This Be Another Housing Bubble on the Horizon?

Source: Google Images (Pinterest)

We all remember 2008, but do you know what events led to the housing crash? There were a few fundamental issues that caused the sudden housing market correction. The first issue was that there was an oil rise per barrel. This raised the cost of gasoline as a trickle-down effect causing a consumer scare or fear of gas prices increasing to upwards of $5 per gallon. The gas price scare caused long distance commuters to rethink their plans of moving into neighboring states, particularly New Yorkers and North Jersey residents from moving to Pennsylvania. As this phenomenon occurred, homeowners weren’t able to sell their homes. This caused demand for housing to fall, and thus house prices started to decrease.

With the initial need for housing years earlier, and rising home prices, lenders came up with creative types of financing to keep up with the strong consumer demand. Adjustable-Rate Mortgages with rising rates, No Doc loans (where buyers didn’t have to provide income documents to qualify), and low credit scores loans. Sometimes requiring little to no money from potential borrowers made home ownership affordable to almost anyone. Although, this influx of new buyers impacted the market and fueled the frenzy of ownership, these loans proved to be unsound. Initially, these unconventional types of financing didn’t have a negative effect. As new buyers were finding it difficult to keep up with the monthly payments, most were able to sell their homes quickly to get out of their debt, and some even made a profit. The increase in prices masked certain hidden fundamental issues. In particular, those who had questionable mortgages, were the first ones affected by the diminishing demand for housing. With a sudden lack of buyer demand, home values started to decrease. The house of cards collapsed and there was a flood of foreclosures entering the market when consumers couldn’t keep up with the payments. The current housing market going into 2021 seems similar in some ways but is yet quite different.

Due to many changes in lending, all loans require sound lending decisions, with more conservative underwriting standards. This has increased the high quality buyers in today’s market. The interest rates are at an all time low with many mortgages below 3%. (Rates were over 6% in 2008). Oil and gas prices are on the lower side, and the US Government has put stop gap measures in place to keep the economy stable. With no unforeseen catalyst changing in the near future, this housing market doesn’t appear to have a looming bubble to cause it to collapse.

Ask the “Mortgage Man”

Grant Money for First Time Home Buyers!

Is it possible to have another incentive better than what is currently available? We have a program called the First Front Door. This grant is offered to first time home buyers ( buyers who haven’t owned a home in the past 3 years), under certain income limits, to be used to enhance their down payment. For every $1 down payment paid by the buyers, this program offers an additional grant of $3 to a maximum grant of $5,000. This may or may not have to be paid back. There are certain income limits and restrictions, but you don’t have to pay anything back if the property is occupied for the first 5 years of ownership. It is a nice way to minimize the savings required to buy a home.

In addition to this grant, the normal incentives of seller assist can be applied to the closing costs, making this program affordable to may different first time home buyers. The grant funds are limited and are given on a first come first serve basis, until the funds are depleted. They anticipate that they will be exhausted sometime in April.

It is a great program for anyone that needs that extra cash, especially on properties that won’t meet USDA or FHA property requirements. Perhaps the well and septic don’t meet the minimum property requirements, or repairs necessary to pass the property for FHA/USDA financing. This is a fantastic alternative while monies last.

Andy Williams

President

(484)-695-5972

NMLS #118317

3 Day Mandatory Buyer Review of Hud-1

Is this another way of slowing down our turnaround times? It is bad enough that the government enacted so many lending changes in the past few years, much too late to avoid the kinds of loan fraud which were prevalent in the mid 2000’s. Now they are continuing to find more red tape that slows down the lending process. They changed the good faith estimate, requiring that the lenders would have to eat any fees being over charged to the buyers at settlement. This was a novel idea which kept the predatory lenders from using bait and switch tactics to take advantage of consumers. They required licensing for individual loan officers, mandatory continuing education, testing, criminal background and credit checks. All of these have been effective in eliminating the less than desirable loan officers from continuing to originate loans. Why are they requiring a minimum of a 3 business day review of the HUD-1? As of August 1, 2015, there is a mandatory 3 business day review in which a buyer can cancel their contract to buy a home after receiving a copy of the HUD-1. This is an example of an overkill. Any discrepancies at closing fall within the 10% tolerance, meaning that the lender or loan officer will have to absorb any additional lender charges incurred by the buyer. Since the fees cannot be changed from what the borrower was shown at the time of application and/or within 3 business days from the date of application, there is no need to delay the closings an additional 3 business days. Many lenders take until the day of closing to do the final preparations of closing papers. They wire the monies needed, and email the papers to the title company within 24 hours of the closing. With these changes, they will have to have everything to the title company at least 4 business days before the closing so that the title company will have the time they need to complete the final HUD-1 and get it to the borrower. This is doing nothing to help anyone, because the culprits who changed the fees at closing are long gone, and only the remaining experienced and reputable loan officers remain. All this does is provide another reason why the government agencies are too late to act, and often overreact to problems. Tack on another 3 days to your real estate contracts!