The Delayed Financing Rule

If you’ve purchased property within the past six months whether it was for investment purposes or as your primary residence, you are now eligible for a cash-out refinance. Prior to this program an applicant had to be on title of the subject property to be able to cash-out on any equity. Title seasoning has been waived!

Qualifying guidelines

• The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV, CLTV, and HCLTV ratios for the transaction). The LTV/ CLTV and HCLTV will be based off the lesser of the purchase price plus documented improvements or current appraised value.
• The purchase transaction was an arms-length transaction (Buyer and Seller must not have been related by any means)
• The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property.
• The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property), sourced and seasoned for two months. Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.
• All other cash-out refinance eligibility requirements are met and cash-out pricing is applied.

Note: The preliminary title search must not reflect any existing liens on the subject property. If the source of funds to acquire the property was an unsecured loan or HELOC (secured by another property), the new HUD-1 must reflect that source being paid off with the proceeds of the new refinance transaction.

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Who can use this program?

This program was designed for any borrower who paid cash for their property. For an investor, this program will enable them to cash-out the funds that were initially used to purchase the property to either expand their real estate portfolio by buying more property or to simply replenish their savings. For a homeowner who bought their home to live in, the ideal strategy is  used to increase their probablity of their offer being accepted; by submitting “cash offers” which are favored due to not having to go through the loan process. Once the home is theirs they can turn around and mortgage the property and cash out the funds.

Other notes about this program

• The max loan amount will be based on 75% of the value of the property, but no more than the initial funds that were used to buy the property plus closing costs, points, pre-paid fees.
• You must meet all regular Fanniemae guidelines including credit, assets, debt-to-income, collateral, etc…

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Are you currently renting a home or apartment?

It may be the best time to buy a home for the following reasons… When looking at the affordability index aging back to the early 1900′s, it has never been more affordable to own a home than now. The reason for this is said to stem from the damage of the boom of the early 2000′s brought upon the housing market. The end of the boom brought foreclosures and short sales to be the predominant type of sale in today’s market, thus flooding the housing market bringing down the median price range. On top of lower prices, the government is keeping the interest rates at an all time low making this housing market a “no brainer”. People can literally get “more bang for their buck” in this housing market.

Generally, when it becomes cheaper to own a home than to go out and rent buying a home should be the better alternative. The Rent vs. Own analysis will show you that if you pay $1,800 per month on rent you will be able to buy a home for around $250,000 to keep your payment the same (on the exterior). If you look deeper, you’ll notice that there are other benefits that come with buying a home such as tax benefits, principal being paid, and future appreciation. Therefore, the net payment would be approximately $700-800 lower than renting. Review the analysis and look for yourself.

Click on the image above or the link to access the analysis: http://mcedge.tv/16bgel

Relevant links (Videos) of experts talking about whether this is a good time to buy:

Donald Trump: Why Now Is A Good Time To Buy (Video)

7 Reasons Why Now’s a Good Time To Buy A Home

Is It Finally A Good Time To Buy Again?

Initially, only high-cost areas had the privilege of having their FHA loan limits restored to $729,750, but for case numbers issued on or after November 18th, 2011 the FHA loan limits in effect between January 1, 2011 to September 30, 2011 have been restored. This means that if you or somebody you know is applying to purchase a home and the loan amount is between $355,350 and $500,000 an FHA loan can be utilized. It’s almost imperative for these loan limits to be restored due to the affect that was noticed after seeing the negative impact that the October 1st loan limits had on the high-cost areas. It’s said by many economical experts that these higher loan limits is essential to helping the Inland Empire’s housing market regain stability by helping more buyers qualify for FHA financing.

It’s important to note that loan amounts between $417,000 and $500,000 (in San Bernardino and Riverside Counties) and up to $729,750 in high-cost areas, are considered High Balance which will trigger certain adjustments to the interest rate. These restored loan limits will be extended through December 13, 2013.

Max FHA Loan Limits for Local Counties

San Bernardino and Riverside County – $500,000

Los Angeles and Orange County – $729,750

Full charts listing all the county’s FHA loan limits

I will end this blog by saying that you do not have to be a first-time home buyer to qualify for an FHA loan. FHA requires a minimum of 3.5% down payment and it currently offers some of the lowest interest rates on the market. If you would like to compare an FHA loan with a low down payment Conventional loan call me today and I will prepare a detailed analysis that will show you everything you need to know to make an educated decision.

President Obama signed into law a bill that will reinstate higher limits on Friday for FHA insured mortgages in high-cost areas. The maximum limits had dropped to $625,500 from $729,750 on October 1, 2011 due to the expiration of the Economic Stimulus Act of 2008. As of November 18th, 2011 the loan limits of the Economic Stimulus Act of 2008 have been reinstated back to $729,750.

borrowers will be able to utilize FHA financing to purchase a home that is in a high cost area such as Los Angeles and Orange county.

In layman’s terms, borrowers will be able to utilize FHA financing to purchase a home that is in a high cost area such as Los Angeles and Orange county. Borrowers will be able to take advantage of a lower required down payment and lower interest rates (follow the link below to see an example) along with some of the flexible guidelines that come with FHA such as a higher debt-to-income ratio cap (more buying power).

To illustrate how different it would be if you were to purchase a home prior to November 18th, 2011 when FHA loan limits where $355,350 compared to the new loan limits of $729,750, I have prepared a detailed analysis for your viewing pleasure. First and foremost, I have to explain that when the loan limits were lower FHA financing could not be used due to guidelines, therefore; a Jumbo loan would be utilized and a higher down payment would be required. A jumbo loan requires a 25% down payment along with stricter guidelines and a higher interest rate of about 1% higher.

In summary, these new increased loan limits will allow a qualified buyer with good income who lacks the required funds for a 25% down payment to purchase a home that is above the prior loan limit of $355,350.

Click on the thumbnail below to be directed to the analysis.

This is a very common question. A question I get a lot from peers, past clients, and business partners on a weekly basis. I decided to put this blog together to inform people of the facts about the waiting periods required for buying after selling your home in a short sale. There are three major agencies that regulate the guidelines that banks follow when underwriting loans. These are Fannie Mae, Freddie Mac and FHA. Before I begin, It’s important to know that there aren’t any restrictions on buying a home, the following restrictions are for obtaining a new loan. If you purchase a home cash, the following guidelines/restrictions do not apply to you.

Fannie Mae/Freddie Mac

Borrowers willing and able to invest at least 20% down may purchase a home after 2 years of completing a short sale. Borrowers not able to invest a 20% down payment must wait a minimum of 4 years. Key points to know is that the transaction must be arms-length (any of the parties involved may not be related or have any type of relationship) and must meet all guidelines set forth by Fannie Mae and/or Freddie Mac including some of the basic guidelines listed below:

• Minimum FICO score of 620
• 50% max debt-to-income ratio (with compensating factors)
• No derogatory accounts listed on the credit report for the last 12 months

The rest of the guidelines will be determined by Fannie Mae or Freddie Mac’s automated underwriting system (AUS).

FHA

For FHA, it gets a little tricky because the actual guidelines state that there isn’t a restriction to re-purchasing given that the reason that you sold your house as a short sale was due to extenuating circumstances such as:

• Death
• Your employment relocated to a place too far for you to drive to
• Loss of job
• You have a balloon payment due and cannot afford the payment.

Also, If your current lender accepts a short sale without you being late on your mortgage payments, you can buy another home right away. Till this day, I haven’t seen a bank accept a short sale with out the borrower being late on their payments, but who knows… it could happen.

NOTE: Higher loan amounts for high-cost housing markets have been reinstated. Click here to read more…

The American Reinvestment and Recovery Act (ARRA) was signed into law in February of 2009, temporarily increasing the maximum conforming loan limits. On October 1st the following changes will occur that can negatively affect loan amounts in the mid $350,000 – $450,000 range including the amount of down payment you will be required to invest and an increase in your interest rate.

Prior to these changes the financial industry was entering its crisis and private mortgage lending had all but disappeared. Financing was scarce for both homeowners and home buyers for whom loan sizes exceeded Fannie Mae and Freddie Mac’s national $417,000 limit — even for those with excellent credit and income. In San Bernardino the conforming loan limit is $417,000, anything above that amount up to $500,000 is considered Conforming High Balance. These new higher conforming balances ensured that your down payment remain low and allowed you to use FHA financing. A loan amount above $500,000 enters in to the Jumbo category which requires a much larger down payment and an adjustment to your interest rate which hindered many home buyers from purchasing a home.

If you live in a high-cost area, or a former high cost area, mortgage rates may be low, but the amount of loan for which you qualify may be much less than you expect due to this change.  After October 1, 2011 through 2012, you may find yourself ineligible to use a low down payment FHA loan to purchase your home, thus requiring you to come up with a greater down payment using a conventional loan and abiding to less flexible guidelines including debt-to-income ratios.

WOW, WOW, WOW!!! We’ve had an amazing bond rally which puts us close to being at an all time high (shown in the graph above). The 10 year treasury is not far behind either. Virtually every piece of news that has come out in the last week has been bond friendly AND bad for our struggling economy that is now suffering from crack withdrawal as second quarter has ended.

All this news and bond rally should bring us to record low interest rates, but know that a large correction can occur anytime and put the bond back to what it was before the rally.

This week should be the time when you should lock in your interest rate and move forward with your purchase or refinance. If you would like to apply using our printable application click here to be directed. 

Screening a buyer’s offer may be one of the most important steps you can take before opening escrow. It will save you time and prevent headaches later in the process. For that reason, I’m listing a few points to look for when reviewing offers:

• First off, you should request a pre-approval letter, proof of credit, proof of funds, and proof of DU approval with every offer. List these as a requirement under the MLS Office comments.

• Debt-to-income (DTI): The pre-approval letter from the buyer’s lender should have the DTI listed somewhere on the letter. The absolute highest DTI ratio for an FHA loan is 56.9% back-end and 46.9% Front. A front-end ratio is the percentage of the total housing payment to the income. The back end ratio takes into account the housing payment plus all other debt listed on the credit report. For Conventional loans 50% is the max for the back end and 46% for front-end. Also, keep in mind that if their are two borrowers that are going on the loan as joint tenants (borrowers who are not married) the combination of debt and income from both borrowers will be used. It’s important to know that the front-end ratio takes precedence. If the buyer’s DTI is maxed you better believe that the underwriter will be looking for compensating factors. This would be a good time to review the proof of funds and credit to find out if they appear strong. If the debt-to-income ratios are not on the pre-approval request a copy of the DU findings, you’ll find them on the last page along with the co-borrower’s information.
• FICO Score: Both FHA and Conventional require a minimum of 620, but a lower credit score can still be approved. If there are multiple borrowers, the lowest mid FICO of all borrowers will be used to qualify, therefore; request proof of credit from all borrowers. If the buyer is showing a FICO score lower than 620, ALWAYS ask for the DU findings and credit report. Bad debt within 12 months will usually cause problems, therefore; you may want to pass on this buyer. If you decide to take this offer get a TBD approval from the actual lender. This is an underwritten approval of the buyer’s credit, assets, and income; the property is to be determined. This should have been obtained before the buyer submitted their offer, if they don’t have one, this is a good indication that the loan officer is inexperienced or doesn’t often work with this type of scenario.
• Assets: This is obvious, but I think I should mention it just to be thorough. Check the proof of funds to make sure they have sufficient funds to close. Be sure to find out how much of a down payment the buyer is planning on investing and account for any closing costs which range between 3-5% of the loan amount. The percentage depends on the sales price, therefore; the lower the sales price the higher the percentage of closing costs.
• Gifts: With FHA and Homepath, Gift funds are allowed. If you feel that the buyer is using gift funds request a copy of the gift letter plus the most recent bank statement from the bank account that the funds are coming from; to show that the donor has sufficient funds to close. This will also show if the loan officer has their “ducks in order”.
• AUS Findings: Remember, an approval from an Automated Underwriting System (AUS) is the beginning to every loan. If a loan can not be approved via an AUS the loan cannot be put through to the underwriter unless it’s to be manually underwritten. Manually underwritten loans are for certain scenarios and they have strict criteria. I would definitely recommend requiring a cross-qualification from your trusted lending partner for a situation like this. The two most common Automated Underwriting Systems are Fannie Mae’s Desktop Originator (DO) or (DU) and Freddie Mac’s Loan Prospector (LP).

A second opinion can also be obtained by requesting a cross-qualification. A cross-qual. entails a full review of the buyers credit, income documentation, full bank statements, and a full DU approval to make sure that buyer will be able to get full loan approval. As a free service to my partners, I am available to perform cross-qualification for any offers in which the buyer’s financing may seem “iffy”. I will give an unbiased, non-soliciting opinion of the buyer’s ability to obtain financing.