In today’s competitive real estate market, potential home-buyers need every advantage they can get.
One way to differentiate your offer from the myriad of others is a true “TBD underwritten” loan approval.
I’m not talking about the typical pre-qualification letter that is a cursory overview of a borrower’s ability to gain an approval, but a fully underwritten approval that is only waiting for a contract.
This process is for the home-buyer who wants a
solid, iron clad pre-approval that has been fully underwritten and signed off
by mortgage underwriters.
How does that work?
Well, it
works very similarly to a full-fledged underwrite – except the address is left
blank – or “TBD” (to be determined). The
underwriter analyzes the file as if it was a true loan – and provides the
actual loan conditions that the borrower must meet.
What’s the downside?
The only real
downside is time. This process could
take as long as a few weeks, because all documentation needs to be gathered
(tax returns, W2s, pay stubs, bank statements, etc.) and then analyzed by the
underwriter.
What’s the advantage?
There are a multitude of advantages. First and foremost, the borrower will know the exact size of the mortgage that they will be able to qualify for. They will have a very good idea of the monthly payment and be assured that the loan will go through.
Equally important, the offer you submit will essentially be like a cash offer. The real estate agent presenting the offer will share with the seller’s agent that the mortgage approval is actually confirmed – not pre-qualified. This will make your offer much more attractive to the sellers, as they don’t have to be concerned about mortgage approval.
Finally, the closing can take place more quickly than standard
financed transactions. Essentially all
that’s needed is an appraisal to confirm the value of the property. Instead of a 30 to 45 day close, these can be
done in less than 20!
In Conclusion
If you know that you will be purchasing a home in the near future,
ask your mortgage lender about a “TBD approval” to see if that’s an
option. If so, I highly recommend that
you go through the process early – and in that way you will be miles ahead of
your buying competition!
Please do reach out to me for more information, as I can absolutely help you with a “TBD” underwrite!
Self-employed mortgage applicants must prove stability of
employment and income, traditionally going back at least two years. This
regulation is a bit tougher than it is for regular salaried employees.
Traditionally, mortgage lenders have required two years federal
income tax returns in securing a mortgage for purchasing or refinancing real
estate.
Fortunately, there is a way to use just one year of tax returns to qualify for a mortgage.
This can help newer business owners, as well as those who experienced a down year in the past.
Introducing Two-X Flex 1-Year
Finance of America Mortgage has a new, proprietary product that drastically reduces the amount of documents and simplifies qualification.
Two-X Flex 1-year requires only one year of income documentation and offers borrowers more flexibility in qualifying for a mortgage.
Product Details
1-year of income documentation used for qualifying
Wage earner and self-employed borrowers
Up to 90% loan-to-value with no mortgage insurance
As low as 640 minimum FICO
$100,000 minimum loan amount
Up to $3,000,000 maximum loan amount
30 year fixed
5/1, 7/1 and 10/1 ARM –fully amortizing and interest only
Primary Residence, Second Homes, Investment Properties
Up to 50% debt-to-income ratio
1-2 units, PUD and warrantable condos
In order to utilize this one-year requirement, it’s important to
understand that your tax return must reflect a full year of
self-employment income.
For example, if you became self-employed in April 2017, that
year’s tax returns are not going to reflect a full year. If you
started your business in November 2016, then your 2018 tax returns will
demonstrate a full year of experience running your business.
Give me a call to find out more – as there are multiple alternatives that we can examine!
Believe it or not, most potential borrowers with a reliable job, that have regular income, and average credit can most likely qualify for a mortgage. Of course, there are specific regulations that must be met, but qualification isn’t as tough as many might think.
Interestingly, many potential buyers
willing to own a home don’t even try to qualify for a mortgage. Many believe
that rigid mortgage requirements will disqualify them.
Per Martin’s article: “new research indicates that consumers think it’s harder to qualify for a mortgage loan than it actually is. And many lack the facts and know-how to properly pursue home financing.”
He continues: “don’t rule out buying a home because you think you’re ineligible for a loan. Chances are that, armed with knowledge and the right guidance, you can buy that home you’ve been thinking about.”
Report: Consumers
believe guidelines are tougher than they really are
Martin references the study from Fannie Mae that
recently polled 3,000 consumers about their understanding of mortgage
requirement rules. Some findings were surprising:
Only 11 percent were aware that the minimum FICO credit score needed to obtain a
mortgage is 580. Most thought it was 650.
Over 40 percent didn’t know their own credit score.
Most people think you need to put down at least 10 percent for a
down payment. The truth is, the median is 3 percent; some programs don’t even require a down payment.
Only 23 percent of respondents were aware that low down payment programs are available.
Over three in five didn’t know that the debt-to-income ratio lenders don’t want
total debt payments to exceed is 50 percent.
Only 12 percent of homeowners and 9 percent of renters were able
to identify the correct credit score range needed to qualify for a mortgage.
The top five reasons cited for expected difficulty in getting a
mortgage were
Insufficient income
(chosen by 23% of respondents)
Too much debt (17%)
Insufficient credit
score/credit history (15%)
Affording the down
payment or closing costs (14%)
Lack of job
security/stability (9%)
One more thing regarding those who would rather rent than buy…the report intimates that these are the people are most unclear about mortgage requirements.
My guess is that this uncertainty is holding them back from learning more details or reaching for a goal that seems to difficult.
Give it a Try!
More often than not, there are two things get in the way of buyers seeking a mortgage: their own fears and lack of info about mortgage requirements.
There are many things potential borrowers can do – one of the first is finding out your FICO credit score. You can find more on that here….
Most importantly, reach out to a trustworthy lender and go through the mortgage application process.
When talking with your lender, make sure to ask about different loan options – and find out what you qualify for. Learn what your minimum down payment and credit score need to be.
Determine how much you’ll pay monthly and over the course of a given loan. Your lender can also talk with you about the particular requirements for that particular loan.
Please do reach out to me, as it would be my pleasure to help!
Saving for a down payment can be one of the most important and most challenging facets of buying a home. The larger the down payment, the lower your loan amount – and that results in a lower monthly payment, a lower interest rate in many cases, and it could help you to avoid mortgage insurance.
But, there are some out there that can get around bringing in a large down payment. Many have family members or others who are willing to help them out – and that’s when “gifting” comes into play.
The Gift Letter
Borrowers
can get help from parents or other people that care about them, but they will
need to get a signed statement from that giver that the money is, in fact, a
gift and not a third-party loan.
The
mortgage gift letter must include the giver’s name, address and contact
information, as well as the banking information of that particular account, as
well as the recipient’s name and relationships to the giver and the dollar
amount.
In most
cases the lender will have a template letter that will help you with this step.
A Key Piece – Documenting the Gift
When putting
together the gift letter, the giver needs to include documentation of where
that gift is coming from – this is extremely important
For instance,
the lender will most likely need to see a bank statement or other form of proof
verifying that the donor has the money to provide that gift and/or paperwork
showing an electronic transfer between the donor’s account and yours.
If the person
gifting the funds is selling shares of stock or other investments to provide
the cash for a down payment, the giver will need a statement from their brokerage account showing that
transaction.
Most
importantly, as a borrower, you don’t want to add the gift funds with any of
your other finances. Doing so could complicate the paper trail and cause the
lender to reject the gift altogether.
It’s easiest
to have the giver wire the money straight to escrow at closing – that way there
are no issues with documenting the gift.
Rules and Limits On Gifts
You might assume that you can just use
whatever financial gifts your loved ones give you for a down payment,
but using gift money is not as simple as you might think. The source of the
funds in your bank account, and the givers, will matter just as much as how
much money you actually have.
Secondly, the amount of down payment funds that can be gifted depends on the type of mortgage loan involved. If you’re getting an FHA loan with a 3.5% down payment, for instance, the entire down payment can be a gift.
On the other hand, if you’re using a conventional Fannie Mae or Freddie Mac loan, the entire down payment can only be a gift if you’re putting down 20% or more of the home’s purchase price. If your down payment is less than 20%, some of the money has to come from the borrower.
These rules are subject to change based on lending regulations,
so check with your mortgage lender to make sure that you transaction qualifies
for the use of gift funds.
Primary Residences
If a borrower is purchasing a primary residence, they can use
gift funds for their down payment. These following regulations apply:
If it’s a single-family home, you can use gift funds without
having to contribute any of your own money to your down payment.
If it’s a multi-family home, you can get a home without having
to contribute to the down payment as long as the down payment is 20% or more.
If the down payment is 20% or less on a multi-unit home, you have to contribute
at least 5% of your own funds to your down payment.
Second Homes
For a second home purchase, the following regulations apply
regarding gifts and gift limits:
If you’re making a down payment of 20% or more, all funding for
the down payment can come from the gift.
If it’s less than 20%, then 5% of your down payment must come
from your own funds.
Investment Properties
Gift funds cannot be used toward the down payment on any
investment property.
Who Can Gift a Down Payment?
Depending on the type of loan, there are different regulations
on who may give a down payment gift.
Conventional Loans (Fannie Mae/Freddie Mac)
A conventional loan through Fannie Mae or Freddie Mac means the
gift must to come from a family member. Per their regulations, family is
defined as:
Spouse
Parent (including step and foster)
Grandparent (including great, step and foster)
Aunt/uncle (including great and step)
Niece/nephew (including step)
Cousin (including step and adopted)
In-laws (including parents, grandparents, aunt/uncle, brother-
and sister-in-law)
Child (including step, foster and adopted)
Sibling (including step, foster and adopted)
Domestic partner
Fiancé
FHA Loans
With FHA loans, the list is nearly identical to the conventional
rules, including future in-laws. But, some restrictions do apply – so do check
with your lender for details.
While cousins, nieces and nephews aren’t able to give your gift
under normal family guidelines with an FHA loan, the FHA does allow for gifts
from close friends who have a clear interest in your life. This can include
extended family like cousins, nieces and nephews and even former spouses.
In addition to the ‘close friend’ guideline, the FHA also allows
for gifts from the following:
Employer
Labor union
Charitable organization
Finally, you can receive funds from a government agency or
public entity that provides homeownership assistance to low-to-moderate income
or first-time home buyers.
In Conclusion
Please reach out to me for more information on gifts and mortgage qualification, as it would be my pleasure to help you!
Let’s get this straight and right up front: every real estate transaction will have closing costs – title fees, origination fees for a loan (if you need to finance the property), and recording fees, just to name a few.
So, how can a buyer purchase a house without actually paying those closing costs? Well, read on for more!
What this really means is that the closing charges are folded into the loan balance — if the house can appraise for the selling price plus the closing costs.
And there are pros and cons to doing this, as will be highlight later.
It’s also likely that not every single closing cost can be rolled into your loan. The buyer will most likely still be required to pay some fees at the settlement table. Those specifics will vary by lender.
“Closing costs” is a
collective term for the various fees and charges you’ll encounter when buying a
home. Some of these fees come from the lender and others come from third
parties that are involved in the transaction, like home appraisers, homeowner
associations (HOAs), and title companies.
How much are closing costs
usually?
On average, homebuyers pay closing costs ranging from 2% to 5% of the purchase price. Unfortunately, this is only a ballpark figure, as there are many variables in each individual transaction. You can find out more specifics on closing costs here…
Many lenders will require that you apply for a loan prior to receiving a more precise estimate of closing costs; however, some lenders are more transparent with their available options and will do the necessary legwork to provide you a better idea of those costs.
Can you buy a house with no
closing costs?
The reality is that closing
costs have to be paid one way or the other – and by some or all parties in the
transaction. Your decision will be whether you pay them with cash when you sign
your loan, or as an added expense in each monthly mortgage payment.
How a no closing cost purchase
works – it’s all in the financing
Per Bundrick in his article: “lenders can structure no closing cost loans in two ways. The differences between them are subtle, yet the result is the same.”
You
finance the closing costs. In
this case, the lender will add your closing costs to your total loan balance.
Your monthly payments will be slightly higher, and you’ll be paying these
closing costs, with interest, for the full term of your loan — so, for example,
over a period of 15 or 30 years.
The
lender will absorb the closing costs in exchange for a higher interest rate. Again, you’ll pay a bit more each
month, and your total interest cost will be greater over the life of the loan.
Either way, your
monthly payment rises slightly. You’ll pay less at the closing table, but more
over the long term.
Is a no closing cost
mortgage a good idea?
The answer is….it
depends!
If you are a little low on cash and have found your dream home, then yes – rolling $4,000 to $8,000 into your mortgage is a good idea. It won’t increase your monthly payment by much and generally doesn’t impact qualification.
Also, if you plan on
moving, selling, or refinancing in the short term, wrapping your closing costs
into the balance can be a good strategy.
However, if you’re
going to live in your new home for the long-term, you will pay more over the
life of the loan by financing your closing costs or accepting a higher interest
rate.
So if this is your forever home and you plan on keeping the mortgage for 7+ years, it’s probably best to pay the closing costs up front.
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
