Why get preapproval?

I would say that despite the abundance of information on this subject, realtors telling people to get preapproved first, and every loan officer I know doing the same thing, this still seems to be a question that comes up regularly. So here is a basic list of why:

  1. You don’t want to waste your own time.  There is nothing worse than desiring something that you can’t have, or can’t afford.  The far better way is to make sure that you can first.  That is in essence what preapproval does.
  2. You don’t want to waste the realtors time or all of the many others involved in scheduling and finding the right home such as the homeowners and their realtors.
  3. You don’t want to be looking for $500,000 houses if you can only afford $250,000.  It doesn’t do anyone any good.
  4. Sometimes there are very specific loan requirements, such as no defects in the home, or not inside the city limits, or not in a certain area to qualify for a particular home.  USDA rocks!
  5. Sometimes there are some small things that you need to do first.  This might be credit wise, such as payoff some bills, make payments on time, etc.  Or it might be save more, get some assets showing in the bank, etc.  All of these you need to know BEFORE making an offer on a home.
  6. Maybe there are some more options that you haven’t considered.  These could be a couple putting the loan in just one person’s name, getting a cosigner, or simply the timing of when to make an offer.  All of this is best to find out ahead of time rather than afterwards.

Looking forward to helping you get in a new home

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USDA rocks!

I am often asked for 100% financing.  If someone is not an eligible veteran, one of the best ways to get there is USDA Rural Housing home mortgage loans.

Why is USDA so great?

  1. 100% financing
  2. Technically, you can roll in closing costs if the home appraises for more money
  3. There is a 1% fee (compare that to VA and FHA!) that can be financed
  4. There is .35% mortgage insurance (compare that to FHA and conventional!)
  5. Up to 6% seller concessions (AKA they pay closing costs, prepaids, etc.)

Why doesn’t everyone get a USDA 100% loan?

  1. The eligibility area restrictions (Check here for the map)
  2. The income limitations (Check here for the limits)
  3. Primary residence only
  4. In general, no multi-family, sorry.
  5. Generally speaking, a little stricter on credit history (compared to FHA for instance) and borrowers eligible.
  6. Not all lenders are USDA lenders (What’s the difference between a mortgage banker and a mortgage loan officer at your local bank?)

So if you are looking for a home outside the city limits, it pays to check out USDA as an option for you.  Get started here

Vacation rental purchase

Occasionally, an inspired entrepreneur comes to me looking to buy a vacation home in Florida, or some other popular vacation spot. While they may use it, the main focus is to rent it out.

What can you do to prepare for a vacation rental purchase?

1) Prepare for sticker shock.  Many times you fixate on what a house cost where you are from, but a vacation rental is automatically going to cost more for its size because of the location and the earnings potential.  Prepare mentally and financially for that ahead of time.

2) prepare for a bigger downpayment.  A lot of people are shocked to hear of needing more than usual.  While you can call it a second home, and maybe get closer to a normal downpayment, the reality is that there is probably no $0 down program.  A true rental property is 15-25% down, and that gets a higher rate than your home as well.  So it costs more all the way around than your home.

3) Don’t forget prep costs.  There are towels, decorations, furniture, etc. That you need for a vacation rental.  It is basically a furnished home is the expectation of your renters so dishes, utensils, appliances, etc. Have to be up to the level of the rental.  If you are charging top dollar, they may not appreciate plastic silverware for example.  All of this adds up significantly.

4) prepare for ongoing maintenance costs.  From mowing the lawn to cleaning after each guest leaves, you have to have someone to monitor things and provide those services.  This is often forgotten or at least under budgeted in the equation of how

much you could make from a rental property.

5) Prepare for higher property taxes and insurance as a rental property.  This can affect the payment if escrowed and if not, should be budgeted as the yearly cost could easily add up to several months’ gross rents! So whether the lender or you budgets for it, it still must be paid.  The insurance is higher for a temporary rental as the guests are generally not that concerned about their temporary home and it sits empty at times as well.

If you count all the costs, and budget for them, it will help you see what the minimum rent should be set for as well as what it will take to truly make a profit…

Co-sign is so yesterday…

I often hear regarding a mortgage loan application, “can I get a co-signer?”  This is usually to make up for bad credit, not enough down payment, or not enough income.  Well, let me tell you now, it doesn’t work for bad credit.  BUT it could work for everything else, but it’s called something very different: non-occupant co-borrower.  Wait, what is that?

That is a person who signs for a principal residence of another person.  That borrower does not occupy the residence, so is usually not on the title, although they can be, does have joint liability with the borrower(s) on the note, and signs in the transaction.

One other thing, they can’t be a beneficial party like the seller, builder, or real estate broker (or loan officer, so please don’t ask)…

So if you have someone close to you who would like to see you in your own home, let’s get started now.  They will need to provide everything document wise just like the borrower.  It’s a heavy responsibility that can last the entire note, or at least until they sell or refinance it.

VA loans rock!

So, the other day, someone actually asked me, what’s better than a VA loan for a veteran? “NOTHING!” was my quick response.  Why?

  1. 100% financing
  2. No mortgage insurance (save hundreds, maybe even a month!)
  3. 1-4 units, same great options!
  4. You can refinance back up to 100% even for cash out!
  5. They will even do a 100% condo!
  6. They will even do a 100% manufactured home!
  7. You can reuse the benefit!

I could go on and on, like the fact the VA is willing to step in and help you if you get behind on your payments, or that the fees charged the veteran can be limited, or that surviving spouses can also get this benefit!  Get started here…

The shed of your dreams…

As an FHA 203k lender, I find myself telling a lot of people, “no, sorry, you can’t do that…”   The simple reason is that 203k doesn’t allow a lot of luxury items, including outbuildings as part of it’s financed options for that program.

Enter Fannie Mae and Home Style Renovations:

  1. They allow luxury items. How do I finance a pool?
  2. They allow outbuildings.
  3. They allow rental properties!
  4. They allow for a bigger budget (hypothetically) than FHA.

Where has this practically helped a customer?

  1. I had a customer finish a 203k project and realize she needed something else.  Her insurance actually came back on her and threatened cancellation!  This project was done by a contractor, not a consultant, by the way.  FHA would not refinance within 6 months, but she could get a conventional loan for it using Fannie Mae’s Home Style Renovation product!  Happy customer, happy insurance agent, happy loan officer!  Remodel or rehab loan?
  2. I had a customer who always used FIX N FLIP lending (high interest, high points, short terms) to get his rental properties purchased and remodeled, then having to refinance afterwards if he kept it.  Enter Fannie Mae’s Home Style to the rescue.  Now he doesn’t have to refinance later, he can Fix and Keep his rental property.

So the next time you have something out of the box, look up an out of the box lender!  Get started here

Reserves, it’s all about the assets…

Sometimes in lending you hear about “reserves.”  Just what are reserves and why is it important in getting a loan?

Many loans calculate two things based on how much money you have:

  1. For your down payment money
  2. For the first payment(s) of the loan, up to and including all mortgage related payments combined.

The second is what is commonly known as “reserves,” the amount of money after all closing costs that you still have in reserve for future payments.  This can be money in the bank in accounts or even retirement accounts that can be withdrawn.

Why is this so important?

  1. It shows financial stability to then have the wherewithal to endure future hardships and still have money to make payments.  Think of it as a “rainy day” or emergency savings ready for future needs.
  2. Some loans require one or more payments in reserve.  It is common in FHA and owner occupied to require one or more payments in reserve.  The idea is that you don’t spend every last penny getting into a home and the moving and setup expenses that then you don’t have enough for the first payment!
  3. Rental property loans require some reserves in place to continue making a variety of payments on time.  In other words, it allows you to have another rental property loan, but only if you have the money necessary to make the ongoing payments.
  4. There are actually asset depletion loans.  They use the income (or potential income) that you can derive from savings and retirement funds to show the ability to repay the loan.   While a rare form of lending, it does show just how important assets or reserves are.

So maybe reserves aren’t everything, but they definitely are important, so don’t forget to get what you need saved up (or a gift is allowed for owner occupied purchases).  And remember that 401k, IRA, and other forms of retirement savings can be used as reserves if you can withdraw them.

Don’t let closing costs stop you!