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Speak with a loan professional before you start to shop for a home!
It's important to know how much home you can afford, obtain a written pre-approval letter, and provide yourself with a superior negotiating position once you find the right property.
Know about Sub-Prime changes !!!!!
As you are all probably well aware, there has been sweeping changes in the sub-prime market.
· Fremont investors publicly announced they were leaving sub-prime.
· Several Lenders announced they were eliminating 100% , 80/20 and interest only financing.
· Stated income loans are becoming harder to obtain.
Make sure your mortgage broker or banker is well-educated, experienced, and is on top of recent guideline changes with the banks and investors he deals with.
Pre-approvals are more complex today than they were even a month ago!!!!!
Recently, one of my lenders forwarded me memo from one of the most well-known and largest mortgage companies announcing their new guideline changes.
Some of these changes included:
• The elimination of 100% non-owner occupied investor loans
• No longer accepting private party verifications of previous rental history. This means if an apartment complex or a professional management company can verify your rental activity, the verification of your payment history is acceptable. If you rent from an individual, the verification of your payment history is not unless you can provide 12 month’s of cancelled checks to your private party landlord.
• Limiting first-time homebuyers who don’t have a verifiable rental history to 90% financing. See the example above.
• Limiting payment shock to 200%. This means if you currently pay $800/month in rent, the most mortgage payment you can qualify for is $1600/mo.
• Requiring 2 appraisals on all loans over $650,000.
• Increasing the reserve requirement to four months from two months. This means if your new house payment is projected at $2,000 per month,
you must show seasoned and easily sourced assets of at least $8,000. Standard today is $4,000.
Don’t assumeYOU are qualified because
YOU have a decent credit score.
YOU may be able to get a mortgage today but YOU may be facing a higher rate than YOU are expecting.
Simply running YOUR credit may not be enough. Make sure lender discuss your previous housing history as well.
Here are some questions lender should asks today before determining the buyer’s qualification to purchase:
• Do you currently rent from a management company or an individual homeowner?
• Do you have cancelled rent checks if it becomes necessary to show them?
• How much do you currently pay in rent or on their mortgage?
• How much money do you have in liquid assets?
• Do you have money saved for down payment? How about reserves?
• If you have bought before and are buying a new house, how was you mortgage history in the last 12 months?
• Do you have any mortgage or rental lates in the last 12 months? How about in the last three years?
Lenders have tightened their guidelines because they have to. Foreclosures on mainland are up dramatically. When the housing market was booming, banks relaxed their guidelines so that more people than ever were able to purchase a new home. Loans were made to people who, quite possibly, should never have been given loans. Today, many of those loans are going into default.
A 580 credit score was recently the standard for a sub-prime borrower to get 100% financing on a purchase. Today, many investors require a 600. Some are even going higher. Stated income loans and 100% investor loans have also seen an increase in required qualifying credit scores. The minimum credit score for a 100% stated income loan is usually 620 or higher.
Below you will find name and contact information of the reliable lenders I work with. If you wish you are welcome to contact them to learn more about Hawaii Financing options and your pre-approval needs:
- Jessica Rocho- Wells Fargo Home Mortgage Consultant (808) 372.0415
e-mail: Jessica.J.Rocho@wellsfargo.com
visit Jessica’s website: www.homeloans.com/rocho-jessica
- Nadia Hilkert Loan Consultant with a Better Mortgage cell (808) 343-1113
e-mail: nhilkert@abettermortgageinc.com ;
visit Nadia’s website: http://www.selecte-loan.com/
- Corey Shimabuku, - Hawaii Lending Services cell (808) 375-9118 or (808) 589-2042 e-mail: coreyshimabuku@gmail.com
Pre-Approval vs. Pre-Qualification
Pre-qualification typically means that a buyer has told a loan officer how much income the buyer earns, how much money the buyer has in the bank, and the state of the buyer’s credit. Based on this information, the loan officer can calculate the approximate price range a buyer might be able to afford. However, just because the buyer is pre-qualified for a certain amount does not mean that the buyer is guaranteed to be able to purchase a home for that amount. For example, a buyer gets pre-qualified for $165,000. That buyer places an offer on a home for $163,000. When the loan officer delves deeper into the buyer’s credit and the buyer’s ability to pay, it may be determined that the buyer really only qualifies for $152,000. This problem can be avoided by getting pre-approved before shopping for a home.
Getting pre-approved is the best way to know what you can purchase. By providing the items needed to get pre-approved you can rest assured there will not be any surprises later in your transaction.
How to get Pre-Approved
The following items are needed for pre-approval:
- Past two years W2’s
- Past two pay stubs
- Past two months bank statements
- Past two statements on any retirement accounts or other financial accounts
- Copy of award letter if receiving social security or a pension
- For a veteran wishing to do a VA loan please provide the DD214 and certificate of eligibility
- Explanation of any late payments or collections in the past two years
- Bankruptcy discharge papers if a bankruptcy occurred in the past seven years
- Court documents for alimony or child support if applicable, and proof of receipt
Once these items are collected, the loan officer will have a complete file to turn in to an Underwriter.
Pre-Approval vs. Pre-Qualification
Benefits of Pre-Approval
One of the main benefits of pre-approval regards your credit report and determining its accuracy. Your credit report will be pulled to make sure your credit is acceptable to the loan program you are applying for. 70% of the time a credit report has inaccurate information that could hurt your chances of approval. Because of this it is very important to get your credit pulled quickly. As long as there is time to fix the inaccurate information before your closing there is not much concern. However, there can be surprises that you were unaware of such as:
- You co-signed and that person has been late, thus reflecting a late payment on your report.
- Your medical insurance did not cover the full cost of a visit and there is a $50 medical collection on your report.
- The last time you moved, the cable company did not account for picking up your cable box. Now they are showing a $400 collection (this happens a lot).
Another benefit to pre-approval is clarification of employment. If you tell your loan officer that you make $30,000 annually, but not that $5,000 of that is from overtime and $2,000 was from a bonus, there could be an issue. Typically there needs to be a two year history in order to count overtime and bonuses. The same is true for commissions. However, even if there is not a two year history the amount you have received can be divided over a two year period and the figure averaged. Lets pretend you pick up the phone and tell the loan officer, “I make $50,000 a year and I only have a $100 monthly credit card debt.” The loan officer is likely to tell you that you are pre-qualified for $185,000 home. However, what if that $50,000 is from commission and not salary and you have only been on the job for a year? Now there is a problem because there is no two year history of making $50,000. So maybe the Underwriter (the person with final say over your loan) allows us to divide the $50,000 over two years and now we have $25,000 in income. Now you are pre-qualified for a home priced around $100,000. Big difference from what you were originally pre-qualified for!
Based on the fact that a pre-qualification leaves too much room for error it is important to get pre-approved before looking for a home. Pre-approval will analyze your documents and assure you that you are looking at what your budget will truly allow!
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