It’s Time to Get Fiscally Fit
Navigating A Mortgage In Today’s Market
Bill Starrels • June 2, 2011
Mortgage underwriting rules have gone from a bad extreme of four or so years ago to an equally bad extreme today.
In order to obtain a mortgage, you basically need to be prepared to go into a full documentation loan. You will need pay stubs, W-2’s, asset statements for a couple of months. If you’re self-employed add to the pile your tax returns. All pages will be necessary. (If your accountant sends you them in a PDF, send the PDF). If you own a business or are a partner in a law firm, be prepared to include business returns including K-1’s.
If the income of the applicant has fallen over the last year, then be prepared for a letter of explanation so the underwriter gets comfortable with your income. For self-employed income from tax returns, it is generally averaged for the last couple of years.
For assets, one needs to start with bank statements for sixty days, all pages, even if the last page is an advertisement for other bank products. Next are stock and 401K statements for sixty days. If there are deposits on the bank and or stock statements, the underwriter is likely to ask for explanations for those deposits. Even small deposits of one or two hundred dollars will be scrutinized.
With all the introspection of assets these days, it makes sense to plan ahead on what monies one wants to use for an eventual home purchase. For starters, try using direct deposit for paystubs. Do not cash and then redeposit paychecks. Otherwise one is making a simple transaction more involved then necessary.
If a consumer is getting gift money, it is a good idea to know ahead of time what is going to be asked. First, the person who is gifting the money will need to produce a bank statement showing where the money is coming from. (If the account has a lot of recent deposits, the underwriter may ask questions). Next, the recipient has to show the money going into their account. Proof of deposit will be asked for. The bank will provide a form that the donor will have to fill out along with the recipient. Keep in mind the donor has to be a relative of the applicant.
Credit reports and scores are more important today than ever before. If you know you are going to be in the market for a new mortgage in the next several months, pull a credit report. If there are problems, it gives one time to correct them.
It is also important to have enough lines of credit to qualify for a mortgage in today’s market. Three lines of credit used for at least twelve months are required. Even if you don’t believe in credit cards, maintain at least a few and charge a few items and pay them off each month. This will help satisfy the credit requirements.
Knowledge is power and will help make the process a little easier to handle.
Bill Starrels is a mortgage loan officer who lives in Georgetown. Bill specializes in purchase and refinances. He can be reached at 703 625 7355 or Bill.Starrels@gmail.com.
The Difficulties for the Self-Employed Borrower
Gregg Busch • March 25, 2011
As all of us are aware by now, after the largest housing bust since the great depression, getting a mortgage is far from the pre-bubble days where just filling out an application gave you an over 70% chance of getting a loan if you had good credit. Everything you can think of involving your financial picture now needs to be disclosed and reviewed by a lender. For those of you that are self-employed or own your own business, getting a loan can be even more toilsome.
Pre-housing bubble days allowed the “self-employed” to just state their income and put a decent amount down in cash. We, the lenders, just focused on the borrowers’ credit scores, the value of the property, and in most cases savings in the bank. As the housing market nationally started to crash, so did more of these stated income loans, referred to these days as “liar loans.” Not all self-employed borrowers that used stated income loans were lying about their income, but since the program was abused it went “pop” with the bubble.
Here is what you need to know about getting approved as a self-employed borrower:
1) You must have a 2-year history of being self-employed with reported 1040s to qualify for a mortgage. There are some exceptions, so e-mail me if you have any questions.
2) Lenders are looking for several months of “cash reserves,” which are total mortgage payments in liquid assets. Many mortgage programs, especially if the loans are over the Fannie Mae/Freddie Mac loan limits, are looking for as little as 6 months or up to 12 months of cash reserves, depending on the loan size and down payment.
3) Lenders are now using income reported to the IRS as taxable income to qualify for a loan. If you are writing-off a lot of deductions then you are going to have a harder time qualifying for a loan. You have to be more conservative in your business deductions, which is hard in this economic climate. Bottom line: pay more in taxes to qualify for a larger loan.
4) Declining income is a red flag for an underwriter. If your business is still reeling from the economic tsunami of 2009, getting a loan can be even more difficult. Lenders will only use the lower of the two years of income to qualify you if, for example, 2010’s income is lower than 2009’s. We can make exceptions for declining income for a health issue or call to active duty, for example.
5) The higher your credit scores are, the better chance you have of getting a higher loan and qualifying for more. Reducing credit card debt is one of the easiest ways to improve your credit score, since credit card debt has an immediate impact on your score. Work with a credit repair company to get rid of any inaccurate information and make sure you check your credit scores regularly.
Gregg Busch is Vice President of First Savings Mortgage Corporation. For more information or a free pre-approval contact him at GBusch@FSavings.com or 202-256-7777.
Bill Starrels • March 9, 2011
Interest rates continue to be in a narrow range, being pulled in different directions depending on the events of the week. Generally speaking, turmoil and unrest in the world create anxiety. Anxiety causes the markets to gravitate to bonds, which tends to help rates go down. When the markets highlight the strengths in the economy, rates tick up. When the markets concentrate on political instability, then bonds and rates gain favor.
When events in Egypt quieted down and Libya, although far from settled, seemed manageable, the events painted a picture of relative stability for investors. This triggered a flight to stocks and money came out of the bond markets. So rates started to move higher again.
The housing markets continue to sputter. House prices are stable to moving slightly higher in the Washington, DC marketplace. Once outside of the DC metropolitan area, the housing markets tend to be less stable, with prices stable to declining.
Condominium pricing is still trying to find stability. One trouble spot for condos these days are the strict rules Fannie Mae and Freddie Mac have on approving condominiums. When owners have a difficult time selling their unit, many owners turn their condos into investment/rental units. If too many apartments turn into rental units then the investor ratio can get out of whack. If this happens it can be difficult for Fannie Mae or Freddie Mac to write mortgages on the property. Another item one has to keep in mind is the budget for the condominium can be put at risk if there are any delinquencies in the property. This can temporarily wreck condominiums reserves.
Underwriting standards remain strict. Full documentation is required on almost all loans these days and account for most of the mortgages being underrated today. Standards do remain strict.
Credit standards remain high. In order to get the back rates on conventional loans it takes a credit score of 770 or higher to get the best rates. When credit scores get significantly lower then the fees and ultimately the pricing is more expensive. This is why it is a good idea for a homeowner to get a copy of their credit report every couple of years or so. If there is a problem with the credit report, a consumer can get it repaired. If problems are left alone the credit scores will continue to stay low or go lower.
Housing continues to lag. The Federal Reserve noted that the real estate markets showed “some gains from still weak levels”.
Oil prices may prove to be a drag on the overall strength of the economic recovery. It will be interesting to see how the spike in oil will affect interest rates. Stay tuned.
Bill Starrels lives in Georgetown. He is a mortgage banker who specializes in purchase and refinance money. He can be reached at 703 625 7355, Bill.Starrels@gmail.com
Georgetowner • November 17, 2010
A couple of years ago, if a homeowner was offered a jumbo-sized mortgage for a home in Washington for 4.375% they would beg for the loan to be locked. In fact, the customer would probably think the mortgage loan officer was misquoting his or her rate sheet. But that was 2009. Today clients sometimes let greed take over. A lot of borrowers are taking their time in making the decision to move forward in anticipation of even lower rates.
Remember 2008 – 2009? The sky was falling. Banks were failing by the hundreds. The Treasury Department headed by Henry Paulson, formerly of Goldman Sachs, launched the TARP program under President George W. Bush in order to stabilize the financial system.
Fast forward to the recent midterm elections. Democrats lost the House to the Republicans because many voters believed that among other things that the Democrats were the architects of TARP and that TARP did not work. TARP did pass with the help of Democrats and TARP did salvage the banking system. In fact the Government may make a profit from TARP.
The country is climbing out of the deep recession slowly. The recovery is proving to be a slow one that will take time. In reaction to the slow pace of the recovery, the Federal Reserve Bank announced “Quantitative Easing 2,” or “QE2,” which entails the buying of $600 billion dollars of Treasury bills in order to stimulate the economy by keeping Treasury prices at lower levels. With the stimulus program, the Feds also are attempting to keep interest rates down.
In early November, before the Treasury started its pre-announced buyback, rates reached the lowest levels that the markets have seen since the 1950s.
Unfortunately, even when interest rates hit new lows, perspective mortgage clients can let greed take over. Some folks are always hoping for still lower rates. There are a few reasons why rates have moved higher since the Treasury buyback was announced.
First, everyone on Wall Street and elsewhere knew what the Federal Reserve and its Chairman Ben Bernanke were planning on doing. The prices of the 10-year Treasuries and those of the mortgage market reflected the anticipated program. Others are talking about the potential inflationary effects of a devalued dollar.
Since the buy back program was announced, the rate on the 10-Year Treasures has gone up and interest rates have also ticked up.
Interest rates should stay in a relatively narrow range for the near term. If you can save hundreds
of dollars now, go ahead and pull the interest rate trigger. Your next worry will be how to spend the money you will be saving.
Bill Starrels lives in Georgetown and is a mortgage loan officer. He can be reached at 703 625 7355 or by email, bill.Starrels@gmail.com