Here’s How The Government Shutdown May Delay Your Home Purchase

 

The last time the U.S. government shut down was in October 2013. What we learned back then is that mortgage loan processing hit a roadblock in the loan verification process. When nonessential workers from the Internal Revenue Service and the Social Security Administration were sent on furlough, there were no workers with the IRS who could verify that your tax returns had been filed, nor were there workers in the Social Security Administration to verify the validity of your social security number. While some lenders decided to close loans without these security measures, some thought the risk was too high and opted to delay loan closings.

The Department of Housing and Urban Development (HUD) has local and regional offices throughout the country that offer guidance on FHA loans. With an extremely limited staff on-site, lenders will see delays in getting answers to their questions. Lenders do have another option with FHA’s Resource Center and National Servicing Center’s (NSC) Call Center that will be available to answer their questions. If the questions need to be elevated to HUD staff, the questions may not be answered until the staff returns to work. With the shut down in effect, FHA will still be able to endorse single-family home loans, but not Home Equity Conversion Mortgages, or Title I loans.  FHA Connection will remain accessible to assign case numbers.

The Credit Alert Interactive Voice Response System (CAIVRS) will be available ,however FHA may not be able to ensure that the information contained in the system is up-to-date. Because the purpose behind the CAIVRS verification is to ensure that no borrower with delinquent, Federal, non-tax debt is given a new FHA-insured loan in accordance with the Debt Collection Improvement Act, lenders may decide to delay loan funding.

The decision to close a loan, or not, will be decided by each individual lender, so you should contact your lender to review how their decision will impact your loan closing and interest rate lock period.

A protracted shutdown could see a decline in home sales, reversing the trend toward a strengthening market that we’ve been experiencing.

Sylvia M. Gutiérrez is author of Mortgage Matters: Demystifying the Loan Approval Maze. RealWorks Press: 2015. Available at Amazon, Barnes & Noble, iTunes, and independent booksellers everywhere. Distributed by Ingram.Licensed
Registered mortgage loan officer with NMLS id: 372427
2018 Vice President, South Florida Mortgage Bankers Association
Associate Member, National Association of Real Estate Editors
2014 thru 2017 Diversity & Inclusion Co-chair, NAMB – Association of Mortgage Professionals

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5 Financial Benefits of Owning Your Home

Home calls to mind family, community, friends, relationships, and a shared history. Where we live affects our self-esteem, the control we have over our environment, and our perceptions over financial security. Being a homeowner is seen by most as a sign of accomplishment and success. Buying a home takes a lot of thought, hard work, and sacrifice.

Whether you are a single person or have a family, you need to decide whether or not owning a home is right for you. There are many things to consider, including where you want to live, how much you can reasonably afford, and what you are willing to do to make sure your new home maintains its value.   Aside from the important psychological benefits of homeownership, there are many financial benefits to consider:

(1) Mortgage payments are a sort of forced savings with a portion of your monthly payment going to reduce the principal balance,

(2) The U.S. tax code allows homeowners to reduce mortgage interest from tax obligations (limits apply),

(3) Real estate property taxes paid are also fully deductible from tax obligations,

(4) If you live in the home for more than two years and then decide to sell it, up to $250,000 of the profit gained from the sale is excluded from capital gains taxes for single persons and up to $500,000 for married persons, and

(5) Price appreciation helps build home equity, which is the difference between the market price of the house and the remaining mortgage payments.

Careful consideration of all applicable benefits to your particular situation can be reviewed with a certified public accountant.

 

Sylvia M. Gutiérrez is author of Mortgage Matters: Demystifying the Loan Approval Maze. RealWorks Press: 2015. Available at Amazon, Barnes & Noble, iTunes, and independent booksellers everywhere. Distributed by Ingram.
Licensed and registered mortgage loan officer with NMLS id: 372427
Diversity & Inclusion Co-chair, NAMB – Association of Mortgage Professionals
Government Affairs Chair, South Florida Mortgage Bankers Association
Associate Member, National Association of Real Estate Editors

Under TRID, Can A Lender Review Loan Documents Prior to Issuing a Loan Estimate?

As part of the implementation of the final rules of the Dodd-Frank Act, one of the most contested issues regarding the changes under the Truth-In-Lending and Real Estate Settlement and Procedures Act  Integration Disclosure (aka TRID) is the question of whether or not a lender can review loan documents prior to issuing a Loan Estimate. The Consumer Financial Protection Bureau has issued clarification on this and many other questions that lenders, realtors, closing agents, and borrowers have through the Federal Reserve System’s audio conference series on consumer compliance issues that can be found here:  Index of TRID Questions Addressed During Webinars-2.

The short answer to the above question is yes.  A lender CAN review loan documents prior to issuing a Loan Estimate if the borrower volunteers the information.

Borrowers:  When shopping for a home loan, ask your loan officer for a Pre-Application Cost Estimate for any loan program you wish to consider.  This is non-binding to the lender and allows you to view different options prior to deciding which loan program, rate, and terms are best for you.  Information quoted is based on many assumptions including:  loan amount, intended occupancy, credit score, property type, valuation, timing of rate lock, and whether or not your debt-to-income ratio falls under 43%.  Changes to any of these assumptions may result in changes to quoted terms or access to loan programs.

Lenders:  If you haven’t programmed Pre-Application Cost Estimates for your loan officers to assist borrowers in their selection process, you’re behind the 8-ball and may be exposing yourself to unnecessary compliance and fair lending risks.   Also, take a moment and remember when you were buying your first home.  Didn’t you want to see all the closing costs in writing before you made your buying decision?  Before you gave a stranger your social security number?   Allow your LOs to provide the proper tools for borrower decisioning and train your LOs to go over the above mentioned assumptions.  With a clear explanation of risks, an educated borrower will appreciate the lesson and identify you’ve earned their business.

Sylvia M. Gutiérrez is author of Mortgage Matters: Demystifying the Loan Approval Maze. RealWorks Press: 2015. Available at Amazon, Barnes & Noble, iTunes, and independent booksellers everywhere. Distributed by Ingram.
Licensed and registered mortgage loan officer with NMLS id: 372427
Diversity & Inclusion Co-chair, NAMB – Association of Mortgage Professionals
Government Affairs Chair, South Florida Mortgage Bankers Association
Associate Member, National Association of Real Estate Editors

6 Basic Steps to Mortgage Approval

Has this ever happened to you? You are pre-qualified with a lender for a certain loan amount and spend the next few weeks with a Realtor searching neighborhoods until you find the perfect place and negotiate a contract. You are through the moon excited because it’s the right price in the right location. You tell your parents. You tell your friends. You tell your co-workers. You tell your book club members. You tell everyone you know that you’ve finally found your dream home and that you’ll be moving in a few weeks. Then, three weeks down the road, you get the call, “I’m sorry Mr. Smith, but we are unable to approve your loan request.” Your stomach sinks to the floor.  Everything had seemed to be going along perfectly. You gave everything that was asked of you, time and again. What happened?

That experience can be both embarrassing and hurtful to you and your family. Whether you are a first-time homebuyer or a long time real estate investor, understanding and preparing for each step of the loan approval process can avoid delays due to missteps, miscalculations, misunderstandings, and unintentional misrepresentations.  Too many times, buyers simply go off the estimations given with a pre-qualification and commit to a property only to learn later on that something about the initial data listed on their loan application was significantly different from verified data.

The process of mortgage approval is basic, but it consists of six steps. In the above scenario, you probably started with step three, skipped over steps four and five and then expected to land on step six. The first two steps are completed without the involvement of your lender and will require a significant investment of your time, attention to detail, and effort in making corrections where necessary. The remaining four will have you working closely with your lender.

Step 1: Credit Report

Knowing your credit profile is key in determining loan program eligibility. Get a copy of your credit report and dissect it looking for errors and confirming accuracy.  You can obtain a free copy of your credit history annually at Annualcreditreport.com. While this is a good place to start, it doesn’t provide your FICO score that loan officers will need as a guide to prepare cost estimates and have discussions around loan program eligibility. Service providers such as Identity Guard provide you with access to your scores from all three credit repositories (TransUnion, Equifax and Experian) for a monthly fee and have options to help you monitor credit activity, prevent identity theft and model the impact of changes to your credit profile.

Step 2: Supporting Documentation

Gather all documentation as listed on the Comprehensive Mortgage Documentation Checklist.

Step 3: Pre-Qualification

Sometimes people use the words pre-qualification and pre-approval interchangeably, but as they apply to mortgage financing, they turn out to mean quite different things. In the pre-qualification phase, we take a look at your loan program options. You’ll likely have a discussion with a loan officer where you’ll share the amount of monies you have available for down payment and closing costs, your monthly income, recurring debts and offer an estimate of  your credit score. Quick calculations are performed that suggest how much home you can afford and discussions are had over which loan programs you may be eligible.  You’ll also learn what documentation is needed and have a general expectation of the timeline for when you should make formal application and the application fees that will be required.

While pre-qualification is an important step in the process, if all you have is a pre-qualification letter, you essentially don’t have a solid commitment to lend from a creditor.  A creditor is the entity that funds your loan. It could be a bank, a nonbank mortgage company, or a private investor. Within each of these classifications, there are hundreds of entities providing different loan product options, adhering to different underwriting guidelines, lending on only certain types of housing, and pricing their loans based on assessed risk and desired profit margins.  I use the term “loan officer” throughout for reader clarity, but you can make application directly with a representative of any of these creditors or you can engage with a mortgage broker who searches for a creditor that matches your specific needs.

Step 4: Pre-Approval

The US government has decided that a lender cannot “require” that you provide supporting documentation before it issues loan disclosures. That said, it doesn’t disallow a lender from collecting supporting documentation.  This post isn’t about what a lender needs to do to stay compliant with government regulations.  This post is about how you can successfully navigate the mortgage approval process.  Bring your supporting documentation to your lender meeting so that you can have a meaningful conversation over program eligibility, identify areas of concern and list accurate data on your loan application.  Gathering documentation is time-consuming.  If you’re someone who struggles with organization, put your financial house in order right now in preparation of homeownership by following the instructions in Step 2.

Your lender will obtain a copy of your credit report using one of their vendors.   Program eligibility is once again reviewed and pricing is re-calculated based on your now verified representative credit score.  At this point, you may need to reconsider loan programs or down payment options if your credit score varies significantly from your initially estimated score. When you make loan application, you can only select one loan program for lender consideration.

With a program selected, the data on your loan application is run through an Automated Underwriting System (AUS). A lender will typically use Desktop Underwriter (DU) or Loan Prospector (LP) that are the proprietary underwriting systems for the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac, respectively.  Sometimes a lender will use their own proprietary AUS system to accommodate for their specific portfolio lending programs or additional overlays (restrictions) to GSE guidelines. Based on the initial AUS findings, the loan officer will receive a recommendation and a list of loan conditions.

While a pre-approval is significantly better than a pre-qualification because credit history is reviewed and a recommendation of approval is received, an underwriter (decision maker) has still not reviewed your supporting documentation.  A pre-approval just sits with the loan officer until you receive and review loan disclosures and issue your Consent to Proceed with the loan application.

Step 5: Conditional Loan Commitment

You may be thinking that you don’t have to go through the trouble of a “formal” review of your loan application but you should because rarely is the income you disclose at application the qualifying income that a lender can actually use. Once consent is recorded and application fees are collected, only then is your loan file submitted to an underwriter for review.  This process can take as little as two days or as long as four weeks, depending on lender turnaround times.  Having submitted all necessary loan documentation, you should expect this initial conditional loan commitment to be issued subject only to acceptable appraisal, clear title and property insurance.  

Now you can begin shopping for a home.

Step 6: Final Loan Commitment

With a purchase contract in hand, a lender then orders a property appraisal and a title request is sent to your selected settlement agent. When the appraisal comes in, you are given a copy and you will begin working with your insurance agent to secure adequate property insurance coverage and provide evidence of that coverage through a Certificate of Insurance.

When the lender receives all documentation complying with the preliminary loan conditions and the appraisal is in, the file goes back to the underwriter with the hopes that the documentation submitted complies with the requirements to satisfy loan conditions and a Final Loan Commitment is issued.  The Final Loan Commitment will show that all preliminary funding conditions are cleared and will list any pre-funding conditions that must be satisfied. Most pre-funding conditions can usually only be satisfied at the closing table or within ten days of closing, so you’ll never receive a final loan commitment that is completely free of conditions.

It’s important for you to follow the steps in the process. While its good to know where you stand, don’t make the mistake of the homebuyers in the above example by pausing at pre-qualification and jumping into contract negotiations. Know your credit, gather your supporting documentation, research lending programs, and shop pricing and loan eligibility with different lenders.

Sylvia M. Gutiérrez is the author of Mortgage Matters: Demystifying the Loan Approval Maze.  Miami: RealWorks Press, 2015.  Print and eBook.

 

A New Way to Improve Your Credit Score

For those seeking a loan, credit scores are the number one factor that affect cost of credit and loan eligibility. For this reason, ensuring that your credit report accurately reflects your payment history is a top priority. In a 2012 study by the Federal Trade Commission at least one in five people found an error on their credit reports. At least 20% of those who identified and corrected the error experienced an increase in their credit score, which increased the likelihood of being offered a lower interest rate on a loan.

Many people struggle with the often intimidating process of disputing inaccurate information that is disclosed on their credit report. The Federal Trade Commission has issued a follow-up study of credit report accuracy that recommends that credit reporting agencies improve the process they use to notify consumers about the results of dispute investigations, and that they better educate consumers regarding their rights to review and dispute inaccurate information.

In response to the study findings, the three nationwide credit bureaus – Equifax, Experian and TransUnion – announced today a National Consumer Assistance Plan that will provide you with more transparency and a better interactive experience when disputing incorrect data. The credit reporting agencies have collaborated in an unprecedented manner to share industry best practices and develop a meaningful plan to improve consumer interaction and enhance data accuracy and quality. Here are a few highlights from the National Consumer Assistance Plan:

Consumer experience:
• Consumers visiting www.annualcreditreport.com, will receive a free credit report once a year and will see expanded educational material.
• Consumers who dispute information and resolve errors will be able to obtain another free annual report without waiting a year.
• Consumers who dispute items will receive the results and a description of what they can do if they are not satisfied with the outcome.
• Enhanced dispute resolution processes are available for consumers that are proven victims of identity theft and fraud, as well as those involved in mixed file situations.

Data accuracy and quality:
• Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The agencies have agreed to remove from credit reports previously reported medical collections that have been or are being paid by insurance.
• Data furnishers will be prohibited from reporting authorized users without a date of birth and the agencies will reject data that does not comply with this requirement.
• The agencies will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as tickets or fines.
• A multi-company working group will be formed to regularly review and ensure uniformity in the data submitted in a consumer’s credit report.

The FTC has a wide range of general information for consumers on credit reporting issues, including Free Credit ReportsDisputing Errors on Credit Reports, and It Pays to Check Your Credit Report. It also has information available on how credit scores affect the price of credit and insurance and what consumers need to know about their credit reports when looking for a job.

To learn additional information about nationwide credit repositories visit:
Equifax: www.equifax.com.
Experian: http://www.experianplc.com.
TransUnion: www.transunion.com/business


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