The Dreaded “D” Word

Sometimes it happens, no matter how hard we try or how little we want our marriage to end, but sometimes the route taken ends up in divorce. When it comes to real estate, there are many challenges that can result from a divorce. Especially when it comes to the disposition of the said real estate. During this hard time, here are a couple of pointers that I hope you will find helpful:

  • If title passes to the vacating spouse by way of “Quit Claim Deed” or ‘ Grant Deen”, these deeds only affect the actual title to the prodivorce-law-imageperty and it does not transfer the loan to the remaining spouse.
  • If you change title by a “Quit Claim Deed” or “Grant Deed”, that both parties who originally signed the loan are still liable for the repayment of the loan. Those same people can be harmed by a future foreclosure, a non-payment of the mortgage, or even a late payment. Both of the original signers of the note are still wholly and separately responsible for the repayment of the existing mortgage, even though title has been passed by way of either the “Quit Claim Deed” or “Grant Deed”.
  • If you refinance the property, the person who is leaving the property will be removed from the current mortgage obligation and can even be removed from title during the same transaction. Refinancing allows the party leaving to be completely freed, not only of the real estate, but also of the loan.

Financing Your Home Purchase

Lender, banks, and other loan sources take into consideration a combination of items when determining whether or not to loan you money:

  • Current income
  • Length of time at your current job
  • Debt-to-income ratio
  • Past rent or mortgage payment history
  • Your credit report
  • Tax returns
  • Down payment amount
  • Months of reserve money

Your income level, debt and credit information will be used to pre-qualify you for an amount the lender thinks you can afford. A pre-approval takes into account your credit report, the debt-to-income ration and a more in-depth analysis of your financial situation. Once pre-approved, you will receive a pre-approval letter that can be provided to a seller with an offer.

A pre-approval can provide a more definitive price range for your search and is best completed as a first step.

There are benefits to obtaining a mortgage on your home. These benefits can help you decide if it is the right time for you to buy, and provide other values such as the mortgage interest deduction to offset income against your taxes or making mortgage payments as an investment into building your wealth.

Once you have identified a property for purchase, and have an accepted offer, the lender will begin processing your loan. They will take into account other factors impacting an approval:

  • The preliminary title report
  • Any homeowners association dues
  • An appraisal report
  • Homeowner insurance payments
  • Property taxes

The combination of your financial profile and the property gives the lender a complete picture of the risks and benefits of providing you with the loan. Once all these items are reviewed and approved through the escrow process you will be in the home stretch for closing on your new home.

Is It The Right Time to Buy?

Deciding when to buy a home is a personal, financial, and emotional decision. Exploring the idea, stages and requirements involved in home buying is a good first step to making the right decision.

RENTING VS. BUYING. It is important for your mortgage or rent payment to be manageable, but take into consideration the mortgage interest deduction, or the emotional comfort of having your own home.

CURRENT INTERET RATES AND HOME PRICES. The market is cyclical and the value of owning a home isn’t just in the equity you build, but also in the memories you build.

YOUR FINANCIAL STATUS. You should consider all costs involved: Down payment requirements, mortgage payment, homeowners insurance, property taxes, association dues, etc.

FUTURE PLANS. There are options of what to do with your property in the short or long term, like living in it, renting it or selling it. These options will depend on future market values and if you are planning to expand your family, or eventually move.

BUILDING WEALTH AND INVESTING IN YOUR FUTURE. You will build equity in your home over the long run by paying down your mortgage or realizing an increase in value when you sell.

THE COMFORT OF A HOME. It is a place to create a comfortable environment, a place for family and friends, and a place to create memories.

Fifteen Contract Contingencies You Should Be Aware Of

Following is a list of fifteen contract contingencies that any seller should be aware of in regards to a purchase contract for their home. Many of these contingencies can make or break any transaction.

  1. Building inspection contingency
  2. Survey and flood plain contingency
  3. Stigmatized property contingency
  4. Accountant review and approval contingency
  5. Environmental hazards contingency
  6. Planning department approval contingency
  7. Lead paint contingency
  8. Loan approval contingency
  9. Attorney review and approval contingency
  10. Title inspection contingency
  11. Occupancy permit contingency
  12. Sale and/or closing of current home contingency
  13. Appraisal contingency
  14. Termite/pest inspection contingency
  15. Subject to someone else’s signature contingency

The Appraisers Twenty

There are twenty things that a professional appraiser may need to know about the property when determining its value. These twenty are:

  1. The comparable on the date of the sale and future market trend
  2. Its value based on location
  3. The site/view both looing at the property and looking from the property out
  4. The design and appeal of the dwellings floor plan and amenities
  5. The quality of construction
  6. The age of the property and any improvements
  7. The status of permits on all improvements
  8. Condition of the property
  9. Total number of rooms and square footage of each
  10. Number and types of rooms (i.e. bedrooms, bathrooms, etc.)
  11. Square footage (gross livable area)
  12. If there is a basement or attic
  13. If there is a basement, if it is finished. If it is a finished basement, the number and the type of rooms and if it is a walkout
  14. If the property is functional (good, average, fair poor) and if there are any obsolescence
  15. If there is central air conditioning and the kind of heat available
  16. Amount of car spaces (i.e. garage, carport, etc.)
  17. Any special features that the property has to offer (i.e. porches, patios, pool, fireplaces, skylights, solar power, etc.)
  18. If there has been any special financing or special sales considerations that might have impacted value for the comparable properties, and if there are any offered on the subject property
  19. If the money market is affecting value and, if so, how (present value analysis)
  20. If there are any out of the ordinary motives of the seller on comparable properties

FHA Changes, Post September 14 (Continued)

  • (rental income continued) If there is available history of rental income, it is necessary to calculate the rental income by averaging the amounts shown on the Schedule E. Depreciation, mortgage interest, t axes, insurance, and any HOA dues shown on the Schedule e may be added back to the net income or loss. If the property has been owned for less than two years, it is necessary to annualize the rental income for the length of time the property has been owned. Finally, if the rental income is being derived from the property being vacated by the borrower, the borrower must be relocating to an area ore than 100 miles from their current principal residence; 25 % of the equity in the property must be verified with a full appraisal. The appraisal does not have to be completed by a FHA roster appraiser; a lease must be obtained of at least one year’s duration from closing, and obtain evidence of the payment o the security deposit or first month’s rent. As for the requirements to document income (if there is limited or no history of rental income) an appraisal evidencing market rest is needed, along with the borrower having at least 25% equity in the property: Two-to-four units – verify and document the proposed rental income by obtaining an appraisal showing fair market rent and the prospective leases; one-unit – verify and document the proposed rental income by obtaining a FNMA Form 1004/FHLMC Form 70, Uniform residential Appraisal Report; FNMA Form 1007/FHLMC Form 1000, Single Family Comparable Rent Schedule; FHLMC Form 998 (Operating Income Statement, showing fair market rent); and the prospective lease; history of rental income – obtain the most recent two-years tax returns including Schedule E. In conclusion, the calculation requirements are as follows: Limited or no history of rental income – to calculate the rental income from real estate other than the subject property where there is no history of rental income since the previous tax filing, deduct the principal, interest, taxes, and insurance (PITI) from the lessor of the monthly operating income report on FHLMC Form 998, or 75% of the lesser of the fair market rent reported by the appraiser, or the rent reflected in the lease or other rental agreement. History of net rental income- calculate the net rental income by averaging the amount shown on the Schedule E provided the borrower continues to on all properties included on the Schedule E (depreciation shown on Schedule E may be added back to the net income or loss; if the property has been owned for less than two years, annualize the rental income for the length of time the property has been owned; for properties with less than two years of rental history, document the date acquired by providing the deed, settlement statement or similar legal documents; positive net rental income is added to the borrower’s effective income. Negative rental income must be included as a debt/liability).

FHA Changes, Post September 14 (Continued)

  • Non-borrowing spouse, community property – more restrictive and more defined policy. The additional  have been added to this policy: (1) An authorization from a non-borrowing spouse must be obtained to verify information needed for the application processing which includes consent to verify their SSN with the SSA; (2) the credit report must indicate the non-borrowing spouse’s SSN where an SSN exists, was matched wit4h the SSA, or the file must contain separate documentation indicating the SSN was match with SSA or provide a statement that non-borrowing spouse does not have an SSN. When SSN does not exist, a manual credit report must be provided and contain at minimum the NBS full name, DOB, and previous two-year address history.
  • Definition of family member – is a more defined policy, based on the following: Family member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status: (1) Child, parent, or grandparent where a child is defined as a son, stepson, daughter, or stepdaughter and a parent/grandparent includes a step-parent/grandparent or foster parent/grandparent; (2) spouse or domestic partner; (3) legally adopted son or daughter, including child who is placed with the borrower by an authorized agency for legal adoption; (4) foster child; (5) brother, step-brother; (6) sister, step-sister; (7) Uncle; (8) Aunt; or (9) son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the borrower.
  • Secondary financing. refinance – relaxed policy. A new subordinate financing is permitted under the same terms as a purchase, except in the case of a streamline -which does have restrictions.
  • Secondary financing purchase, family member – it is a more defined policy as to where there is a CLTV ratio if the base loan amount and secondary financing can not exceed 100%.
  • Secondary financing purchase, institutional or private – policy is more defined because (1) the CLTV ratio of the base loan amount and secondary financing must not exceed the applicable FHA limit, and (2) the base loan amount and secondary financing amount must not exceed the Nationwide Mortgage limits.
  • Rental income – the policy has not only become a more restrictive policy, but also a more defined police and in quite a long list of ways. When it comes to rental income from the subject property, for a two to four family dwelling unit, and there is limited or no history of recent income, it is necessary to verify and document the proposed rental income from the appraisal showing fair market rent. With small residential income property, that has an appraisal report and the prospective leases, if the borrower has a history of rental income for the subject property since the precious tax filing, verifying the existing rental income by obtaining the most recent tax returns, including a Schedule E, from the previous two years will work. For properties with les than two years of rental income history, documentation of the date the property was acquired is necessary, by providing the deed, settlement statement, or similar legal documents, As for the calculation requirements: The net subject property rental income must be an adjustment to the borrower’s gross monthly income. The borrower’s total mortgage payment can not be reduced by the net subject properties rental income. Further, if there is limited to no rental income history verification, the lesser of the following must be used: 75% of the lesser of (1) the fair market rent reported by the appraiser or (2) the rent reflect in the lease or rental agreement.

To be continued…….

FHA Changes, Post September 14 (Continued)

  • Income calculation, hourly – it is now a more defined policy. For those employees who are paid hourly: (1) Hours do not vary – the borrower’s current hourly rate is used to calculate effective income; (2) hours vary – the income must be average over the previous two years. If an increase in pay rate is documented, then the most recent 12-month average of hours may be used at the current pay rate; (3) total-document per AUS; (4) manual – copies of paystubs covering most recent consecutive 30 days (if paid weekly or bi-weekly), paystubs must cover a minimum of 28 consecutive days showing YTD earnings; (5) copies of IRS W-2 forms from previous two years.
  • Project income – relaxed policy. There is a need to verify and document the amount of the expected income with the employer, it must begin within 60 days of closing: (1) Verify sufficient income of funds to support obligations until income received; (2) VOE’s to document two-year work history; (3) paystub from current job; (4) new job must be in same line of work; (5) FAMC to confirm start date; (6) SSI-retirement income may be used if it is guaranteed to begin within 60 days of closing.
  • Re-verification of employment – Became a more restrictive policy, where an initial verbal VOE (or written VOE) must be in the file at time of submission to FAMC, and FAMC is to complete verbal re-verification within ten calendar days of closing.
  • Zoning – the policy is not only more restrictive, but also more defined. If a property does not comply with the current zoning, but is accepted by the “local zoning authority, the appraiser must report the property as “Legal-Non-Conforming.” All properties stated as such must meet the following elements: (1) Appraiser must proved a brief explanation and include a statement whether the property can be rebuilt in the event of full or partial destruction; (2) the appraiser ends up stating  that the property cannot be rebuilt, the property is ineligible for FHA financing.
  • VA disability – it has become a more defined policy in that there is a need to obtain VA Form 26-8937, showing the amount of assistance and any of the following: (1) Federal tax returns, and (2) the most recent bank statement showing funds received from VA.
  • Significant derogatory credit (i.e. bankruptcy, foreclosure, deed in lieu, short sale) – more defined policy. The applicable waiting period must have elapsed since the date of the derogatory event of the time of case number assignment.
  • Living rent free, manual underwrite – policy has become more restrictive and more defined. The policy required for the borrowers who indicate they are living rent-free, provide verification from the property owner where they are living. It must indicate the amount of time borrower has been living rent free.
  • Building on own land – Became a more restrictive and a more defined policy due to additional requirements being added: (1) Eligible if the land is already owned by the borrower for greater than six months from the case number assignment; (2) the borrower must have contracted with a builder to construct the improvements; (3) the builder must be a licensed contractor; (4) the borrower may act as the general contractor, only if the borrower is a licensed contractor.

To be continued………

FHA Changes, Post September 14 (Continued)

  • Donor requirements, gift documentation – more restrictive policy. Donor’s bank statement is required in all cases, either prior to closing o at closing.
  • Reserves, total scorecard – a more defined policy with the policy staying the same as the previous and that all assets must be submitted to AUS – with it being documented and verified.
  • Occupancy, active duty – not only a more restrictive, but also more defined policy. Someone on active duty is till considered an owner occupant if a family member will occupy the subject property as their primary residence, or the borrower intends to occupy the subject property upon discharge. The following are required, if applicable: (1) A letter from the borrower stating their intent to occupy the subject property upon discharge from military service of a family member will not occupy the subject property as their principal residence; (2) a copy of the borrower’s military orders evidencing the borrower’s active duty status and that the duty station is more than 100 miles from the subject property.
  • Age of credit documents – More restrictive policy. 120 days for both existing homes and new construction.
  • Boarder income – This is both more relaxed and a more defined policy. Boarder income can be defined s the borrower’s dwelling unit. This type of income can only be considered if the borrower has a two-year history of receiving income from boarders – shown on their most recent tax returns – and the borrower is currently receiving the income. Following are the requirements: (1) Obtain the most recent two years tax returns, evidencing the income; (2) copy of the current boarder lease; (3) the income is calculated by using the lesser of the two year average or the current boarder lease.
  • Swimming pools – more restrictive policy in where a lender must confirm all swimming pools meet local ordinances.
  • Inquiries – more defined policy. All inquired within the past 90- days must be reviewed to ensure that all debts, including any new debt payments resulting from material inquired listed on the credit report, are used to calculate the debt ratios. If nay inquire results in a debt, regardless of the amount of time passed since the inquiry was made, the payment must be included and the loan must be manually downgraded. If t he credit report contains inquired beyond 90 days, those must be reviewed an considered. Also, the underwriter must determine that nay recent debts were not incurred to obtain any part of the borrower’s required funds to close the subject property.
  • Energy efficient mortgages – both relaxed and more defined. In regards to this policy, the maximum amount of the financeable energy package is the lesser of: (1) the dollar amount of the cost-effective energy package as determined by the home energy audit, or (2) the lesser of 5% of the adjusted value, 115% of the median area price of a single family dwelling, or 150% of the national conforming mortgage limit.
  • Self-employed borrowers, manually underwritten – a more restrictive policy due to there needing to be a completed signed business tax returns for most recent two years and a business credit report is required.

To be continued………

FHA Changes, Post September 14

Recently FHA had some changes in policy, some becoming more restrictive, some more defined, and some relaxed. Over the next few days we will give a brief breakdown for these FHA guideline changes.

  • Student loan/deferred debt – more restrictive policy in which deferred obligations must be included; an actual payment must be used for repayment (even if the payment is zero); if payment is deferred, they have to calculate 2% if the payment is either unavailable or is zero.
  • Acceptable credit history, manual – more defined policy. The underwriter can now consider a borrower to have acceptable credit history if: (1) All housing and installment debt payments made on time for the previous 12 months; (2) no more than 2 x 30 day late mortgage installment payments in the previous 24 months; (3) no revolving account payments more than 90 days late in the previous 12 months, or three or more revolving payments made more than 60 days late.
  • Refinancing options, FHA to FHA – more defined policy for a simple refinance (appraisal always required), a streamline refinance (no appraisal – an option), rate/term, and cash-out.
  • Streamline refinance, fund to close – a relaxed policy. The funds that are needed to close, in excess of the total new mortgage payment, can be verified with: (1) VOD and most recent bank statement; (2) a statement showing previous month’s ending balance for the most recent month required (if the previous month’s balance is not shown, then the most recent two-months statements).
  • Net tangible benefit, streamline – relaxed policy, when it comes to Fixed-to-Fixed, Fixed-to-ARM, ARM-to-Fixed, ARM-to-ARM, and reduction in term. Fixed-to-Fixed: New combined rate must be at least 0.5% below the prior interest rate plus MIP rate. Fixed-to-ARM: New combined rate must be at least 2% below the prior interest rate plus MIP rate. ARM-to-Fixed: New combined rate must be at least 2% above the prior interest rate plus MIP rate. ARM-to-ARM: New combined rate must be at least 1% below the prior interest rate plus MIP rate. Reduction in term: (1)The mortgage term is reduced; (2) the new interest rate does not exceed the current interest rate; (3) the combined principle, interest, and MIP payment of the new mortgage does not exceed the combined principle, interest, and MIP of the refinanced mortgage by more than $50.
  • Net tangible benefit rate/term – relaxed policy in that it is no longer required.
  • Grossing up non-taxable income – it is a more restrictive policy. The percentage of non-taxable income that can be added cannot exceed the greater of 15% or the appropriate tax rate for the income amount, based on the borrower’s tax rate for the previous year. If the borrower was not required to file a federal tax return for the previous tax reporting period, the non-taxable income may be grossed by 15%.
  • Relocation policy eligibility to obtain additional FHA insured mortgage – not only is it a more restrictive policy, but also a more defined policy in that a borrower may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property secured by an FHA insured loan, if the borrower (1) relocated or has relocated for an employment related reason and (2) establishes or has established a new principle residence in an area more than 100 miles from the borrower’s current residence. If the borrower moves back to the original area, the borrower is not required to live in the original house and may obtain a new FHA-insured mortgage on a new principal residence provided the two above requirements are met.

To be continued…..