FHA Lowers Wait Period After Foreclosure / Short Sale To 12 Months

The Federal Housing Administration has issued guidance for its new “Back to Work” program that could open the door for borrowers who lost their jobs and their homes during the recession to qualify for a FHA-insured mortgage.

“Borrowers that may be otherwise ineligible for an FHA-insured mortgage due to FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu and short sales, as well as delinquencies and/or indications of derogatory credit, including collections and judgments, may be eligible for a FHA-insured mortgage,” according to Mortgagee Letter 2013-26.

Lenders must document that the borrower lost their job or suffered a significant reduction in income due to circumstances “beyond their control” and the borrower has demonstrated a full recovery from the event,” the Aug. 15 Mortgagee Letter says.

President Obama unveiled the new FHA program during a housing policy speech in Phoenix recently.

The Back to Work initiative will provide “creditworthy re-employed borrowers with strong recent pay histories” access to FHA financing. “We should give well-qualified Americans who lost their jobs during the crisis a fair chance to get a loan if they’ve worked hard to repair their credit,” the president said.

Extenuating Circumstances

Extenuating circumstance exceptions are typically very vague and rarely granted. The “Back to Work” loan program provides lenders a very clear definition for qualifying borrowers.

Who Qualifies? Former homeowners who lost their homes due to

a) a loss in employment or drop in income (20% drop in income to qualify) and suffered a bankruptcy, foreclosure, short sale or a deed in lieu as a result.

b) Excluded from this program will be borrowers who have previously defaulted on a FHA loan.

Buying A Car During The Home Loan Process, What Can It Hurt?

 

One of quickest ways to get “Unapproved” for the loan on your dream home is to do something that negatively effects your credit score during the home loan process. One of the first conversations we have with all clients (good or not so good credit) is notifying them to NOT make any major purchases while building or buying a home. That means NO new car, new boat, furniture, electronics, etc… until the loan is closed.

To better understand why or how this will effect you, I will give you an example of a client with good credit that buys a new car during the home loan process and the real cost of buying that new car. Oh, and the “Cost” I am referring to is not just the new payment.

Client’s situation before buying the new car:

• 700 credit score – You should target to minimally have a credit score of 680. Ideally 740+.
• 37% back-end debt-to-income ratio – Back-end ratio is the new house payment plus all current liabilities divided by monthly income. The target is 38% or less for conventional lending.
• Current car payment is $315 with original balance of $18,016 and current balance of $7,206. This is a great trade line that is helping the credit score.

*Note- Something to remember for each line of credit – Your credit score will climb once you are 50% or less of the original balance or high limit. There is also another tier that will jump the credit score even more at 30% or less.

Client’s situation with the new car:

• 670 credit score – Now they are below the 680 mark (New credit can cause your credit score to drop 30+)
• 45% back-end debt-to-income ratio. Now they are above the target 38% or less for conventional lending
• The new car payment is $634 with new balance of $36,261

This one new credit line has caused their credit score to drop below the minimum target of 680 and caused their back-end ratio to climb above the target 38% or less for conventional lending.

In a scenario like this, even though this may only hurt our ‘good credit’ clients by an additional .25% to .50% to the rate, now you would no longer qualify for the original program that requires less than 38% debt-to-income and 680 credit score. This small rate increase could equate to thousands and thousands of dollars over the life of the loan. Plus, if you were looking for 100% financing then this might even take you out of that option and now you have to put 3% to 5% down.

If that wasn’t bad enough, your home owner’s insurance may be higher since many companies use your credit score to determine which tier put you under.

For the ‘less than perfect’ credit, you may see an additional .5% to 1%+ increase in rate or even worse, no longer qualifying for your new home.

No matter what the credit situation is for you, please DO NOT go out and make any major purchases. I would even recommend that you do not make any new purchases on current credit cards. Remember, if you climb over the 50% balance vs. high limit then your score will drop.

This is a lot to absorb and understand so please feel free to contact one of our preferred lenders today to discuss your current financial position and how to best position yourself for the future.

Refi Programs Give Underwater Owners a Lift

Refi Programs Give Underwater Owners a Lift.

10 Steps To Improve Your Credit Score

 

1. Check your credit report at all three agencies- Equifax, Experian and Trans Union (checking your own credit is called a “soft-pull” and will not negatively affect your credit). Look for errors that may appear on your report. Each agency offers a place on their website to submit online disputes. They have 30 days to verify the information is correct or they will remove it.
2. Do NOT open new credit cards that you don’t need just to increase your available credit. This approach often backfires and will lower your score.
3. Keep your current account balances as low as possible. High outstanding debt will negatively affect your score since you will have a greater chance at missing a payment.
4. If you have old credit accounts that are paid off, don’t close them, simply cut up the cards. This will show a longer history of good credit and will help your score.
5. If you cannot make a payment due to illness, losing your job or another serious issue, write a letter to your credit companies explaining the situation and requesting a work out payment plan. You would be surprised how willing they are to work with you before it becomes a problem. After there’s a problem is another matter… they can get nasty
6. Pay all of your accounts ON TIME! Accounts over 30 days past due will show up on your credit report. If you are late, make that payment as well as the one currently due or every month will show 30 days past due until you are caught up and can ugly quickly.
7. If you do not have any 10 Steps To Improve Your Credit Score credit cards and cannot get approved, consider getting a Secured Card. This is a credit card secured by money you already have and will improve your credit by reestablishing a credit history.
8. Keep a small balance on your accounts (small is the keyword). A small balance is better than a zero balance for improving your score- but a zero balance is better than a big balance so lean to the conservative side.
9. Do not let a lot of companies check your credit. Each time your credit report is pulled from an outside company, your credit score will go down slightly. Five companies pulling your credit can be the difference between that new home and renting for another year.
10. Stay on top of your credit and check your report at least once a year which is provided free upon request from each of the Credit Agencies.

 

Housing Trends eNewsletter- Cynthia Mayes

Housing Trends eNewsletter- Cynthia Mayes.

Housing Recovery: The Pieces Are There, But the Certainty Isn’t

Housing Recovery: The Pieces Are There, But the Certainty Isn’t.

Cynthia has joined Fathom Realty!

Visit my website: http://www.findingamazinghomes.com

Understand Your Credit Score And Then Improve It

I have had the pleasure of working with a lot of home buyers looking to buy their first home or even their second or third home. I can’t tell you how many times I meet people who are ready and willing but not able. They have a steady job with a good income and by all accounts should be able to buy that new home. There is just one little 3 digit number getting in the way. Their credit score!

It breaks my heart to tell them that they will have to wait on reaching their dream but I will never leave it there. I love to encourage my home buyers to take control of their credit score and make it work for them. It can be a 6 month process to get it under control but it’s worth it in so many ways.

Your credit score is calculated based on the information on your credit report. Their are three credit reporting companies in the United States- Equifax, Experian and Trans Union. Each maintains info about you and your credit history. This information is received on a constant basis from the different companies that have extended you credit. Your score is a number that ranges between 300-900 and based on your history of borrowing and repaying money. Employers, lenders, landlords, and other service providers will buy this information (your credit report) to help them decide if you are credit trustworthy.

Your Credit Score (FICO) is made up of the following:

• 35% is based on your history of making payments on time
• 30% is based on the total debt you have with how much is still available to you
• 15% is based on the age of your credit lines, the longer, the better
• 10% is based on how often you apply for credit
• 10% is based on miscellaneous factors like type of credit

The higher the score, the more attractive you are to lenders. Your score may be high enough to get the credit, but the higher the score the lower the interest rate will be! Here’s your opportunity to improve your credit score. This can be done on your own or through a reputable credit counseling company.

*Note: Please keep in mind, there are many companies taking advantage of people who are interested in improving their credit. They may promise perfect credit in 30 days or the ability to remove legitimate negative items from your credit report. There are NO legal ways to remove legitimate items from your credit and your score cannot jump dramatically in 30 days unless you have a lot of false information on your credit report. Please stay away from these companies or you could find yourself in more hot water!

Improving your credit takes time and hard work but when done right will make all the difference.

3 Questions You Must Answer When Buying a Home

If you are thinking about purchasing a home right now, you are surely getting a lot of advice. And some of that advice is probably negative. Why buy now with prices still falling? Don’t you realize real estate is no

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Buying a Home? The COST Is More Important Than the PRICE

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