Bankruptcy – don’t let it stop you!

BANKRUPTCY

Don’t let A chapter 7 bankruptcy stop you from getting a home mortgage!  Yes, I know, I worked for big banks (who taught us that 7 years waiting was the absolute “law”), little banks (scared of any “b” word), and now I have finally been properly informed, so I want to pass that on to you.

There are 2-4 options (depending on how you count them):

  1. Just 1 day out of bankruptcy discharge – this is a bit of a catch22.  These lenders require rebuilt credit (a decent credit score), reserves (extra money or 2-6 months of payments left over after you make your down payment), and a large down payment (15% minimum for the best credit scores and it goes up to the 35% range from there).   Good news, you can get a gift from family for the down payment, but the reserves have to be yours.
  2. Just 2 years from bankruptcy discharge – plan ahead, because this is a great plan.  FHA and VA allows 2 years after discharge!  A good idea is to rebuild credit (for score) and save up for down payment, closing costs, and reserves.  But with 2 years, this is a great way to get back into a home with a normal down payment (as low as 3.5% or 0% for VA) and a competitive “government loan” rate.
  3. Just 3 years from bankruptcy discharge – USDA rural housing allows 3 years from discharge and also up to 100% financing!  Again, a competitive “government loan” rate.  This is a great option.
  4. Just 4 years from bankruptcy discharge – conventional lending is available again, including both Fannie and Freddie’s programs for low to moderate income with down payment as low as 3%!

Life happens!  Don’t let bankruptcy hold you back from getting back in the home loan game.  Prepare ahead by saving money, rebuilding credit, and getting ready for 1 day to 4 years after discharge, and even better, lookup a lender with all the above options:

Your favorite lender here

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How to move into your new home in 2019!

This is not an exhaustive list, but wanted to put together a simple roadmap of what a prospective homebuyer needs to do:

Get pre-approval – the most important step.  There is nothing like showing a home to someone who can’t buy it, or worse, who thinks they can but hasn’t even taken the first step.  The first step?  Get pre-approved from your favorite lender: Preapproval starts here.

Search for homes in your price range.  You can certainly start on your own, but to truly get a feel for the market, a licensed professional real estate agent can help you negotiate the pitfalls of buying a home and find the right one.   Your lender may have suggestions on who to use or you can choose one on your own.

Make an offer – this step is perhaps the most important negotiating point.  Do you offer list price, higher, lower without offending them?  Do you ask for the picture on the wall, a piece of furniture, closing costs, etc.?  Do you ask for a certain date, inspection period, or home warranty?  There are so many things to think about before you write and sign the offer, again, a professional real estate agent will help you with the process.

Crunch time – after the offer is accepted, it’s time to get serious with your lender.  Anything you forgot to give them up front, and every single request for documentation afterwards, needs to be responded to immediately.  You also need to ask for quotes on homeowner’s insurance and make sure you have everything ready for your move.

Closing – time to pay up the down payment or any other costs involved.  Also, time to coordinate the move, so you leave your place and move to the new one in a timely fashion.  This is the exciting moment you have been waiting for, the moment of getting the keys to your brand new home!

Do you want to make the process easier?  Try to be a responsive buyer, willing to put what you need to into the process at every step.  This will make everything run smoother and easier for you…

Closing cost woes?

I am often asked about options for down payments, closing costs, and how much you actually need to bring to the table.  Since “down payment” to the lender may be different from “total money I have to bring to closing” that you as a buyer are thinking, I just want to give you a couple thoughts of what makes up all those costs you see at the table.

Down payment – the percentage required (or voluntary) by your loan for your portion of the investment in the home.

Title fees – this is a big one, and quite frankly, a substantial one.  If you are buying from another party, not only is the lender going to require that your transaction be an insured closing at a title company, but there may be some very specific requirements placed by the state at additional costs.

Lender fees – it costs something to process your application and documents.  There are a number of behind the scenes checks going on to make sure that everything received was verified.  All of these things cost money.  While you may negotiate some of these, it tends to be pretty standard at one lender to have certain fees, perhaps varying by the loan option chosen, or the state.

Other people fees – appraisals cost money and while some lenders collect that up front, it is still shown on your settlement statement as a cost of doing business.

Government fees – recording, document stamps, the lingo differs by state, but it’s pretty standard.

Escrow reserves – deposit towards property taxes, homeowner’s insurance, etc. for the coming year.

Payoffs to various parties – first year of homeowner’s insurance, property inspections, sometimes home repairs required during the process, appraisals, etc.

As you can see, closing costs is very different from cash to close.  You have the power to negotiate some of them, shop for homeowner’s insurance, and negotiate the seller’s portion of closing costs.  All of these things can help you reduce your cash to close!

 

Feeling squeezed into a mold by your loan officer?

I saw this picture and thought first, I think I would rather snore. Then I thought about you and the hoops you have to jump through to get to a mortgage approval.

Does it feel like do this, do that, oops! Not enough. Do this more, do that differently, etc.

Often you just don’t have the taxable income, length of employment, credit, or you want to take advantage of gifted equity, a contract sale, or a unique property.

The majority of customers are unique and need a unique solution, not a cookie cutter, force you into their mold lender. Go where there is more than a handful of Options...

Options for self employed, rental properties, manufactured homes, and renovations, just to name a few.

Explosion of credit can be destructive!

At times a client will come to me with a large number of new credit accounts, usually maxxed out, and with no previous history.  It appears that they believe that the abundance of credit lines, or getting a lot of heavily used credit accounts, equates to good credit.

Why is that simply not true?

Credit score is heavily dependent on the history of paid on time payments.   You can’t short cut your way to that.  The best way to even consider a short cut is to make sure that every payment is made on time for one full year, not for one month, and it can be actually detrimental to open a number of accounts within a short period of time.

Why can it actually be bad?

Well, let’s try to think about it from the identity thief perspective.  The thief would now be opening as many accounts as possible and maximizing the debt in order to take as much as they could as quickly as they could.  Do you begin to see the reason this is so detrimental to your score when you do a similar thing?   The next creditor is asking themselves if they are being had…

Worse still, a trade line without a history actually can have a negative effect on score, and that is multiplied when the balance on a credit card is over 50% usage (some say 30%)!  So instead of helping your credit, you could be doing the exact opposite.

So the concept of opening as many cards as possible and using them to the full makes you look like an identity thief, can hurt your credit, and make it unlikely that the next creditor would accept you!  It’s best to avoid an explosion of credit.  For advice on your situation, look me up.

100% financing rocks!

I am often asked about 100% financing.  It’s okay to ask, but qualifying, whew!  Some have minimum scores, some have minimum rules, and lots have income limitations, location limitation, even employment (veteran) or worse.

So what is it that makes 100% financing so attractive to so many, that it’s often our first question?

Well, let’s face it, it’s a lot like rent.  I can put a minimum amount of money into this and then I can move in and have a payment just like a rental.   This could open up the American Dream of home ownership to so many.

Why, then, is it so hard to get?

Well, as you can expect, the default rates (late payments and eventually foreclosures) are unfortunately higher when you simply don’t put any money into it.  This does not excite investors, lenders, etc.  The entire risk of the entire transaction would fall back on the lender, as someone could enter the property, never make a payment, and live there “rent free” for quite some time before the lender could respond and foreclose.

So lenders, even USDA, have strict criteria.  3 C’s of credit explained here  Simply put, if you don’t have a lot of down payment to cover collateral, the credit and capacity requirements are probably going to be stricter.

What are some of the requirements to get 100% financing on a new home?

VA – you have to be an eligible veteran or a family member of an eligible veteran.  This happens to be the BEST option for a mortgage!

USDA RHS – you have to be in a rural area.  Check here for an easy to use eligibility guide.

Housing assistance – you have to be low to moderate income usually.  Sometimes there is also a credit score limit.    This is a forgivable second mortgage for the down payment or even the closing costs sometimes.  Here’s a nice article on the subject.

Combination packages with 80% Loan to Value on a 1st mortgage and then a 20% second mortgage.  This also has a lot of fine print and may simply be a way to give those with higher credit scores yet another option to get to 100% financing…

It’s worth looking into your next home mortgage loan at 100% financing!

 

Below 620 score, there is still hope!

I am often asked, “but my credit score is not 620, can I still get a home mortgage loan?”

YES!!!  I want to shout it from the rooftops.  But instead, I will just write this blog…

600-619 credit scores:  there are manually underwritten VA, FHA, and USDA loans.  These are not bad options, in fact, they can be great options (low down payment and still a good competitive interest rate).

580+ allows for a manually underwritten FHA loan.  Again, a great option.

580+ also allows for a bank statement program and a number of other options.

500-580 scores: with a little more down payment (20-35% down), there are a lot of options available from individual investors (lenders).

NO score: this is really surprising to a lot of people, but both conventional and FHA loans both have no credit score options.  You have to show alternative credit, but the list is quite extensive and generally easy to find something that fits.

Do you have no credit score, a low credit score, or some other factor weighing on your score?  There are still options made for you with a mortgage banker with more home mortgage loan options.