Mike’s Real Estate Show

Updates in underwriting as of July 24, 2008 Industry wide General Loan guidelines of the Secondary market   ( some variance with specific Lenders)

1. With Foreclosures , reestablished credit history now 3 yrs  after event before a new loan given, FHA is still just 2 yrs with re-established credit however.
2. No 60 plus mortgage lates within the last 12 months
3. Authorized users of credit trade lines will no longer be considered in credit decisions. .  Can’t piggyback on someone’s good history. FICO now is “not using” card holders good scores for the authorized user  to improve their own scores
4. On interest only loans, borrowers have to be qualified on the full principal and interest payment
5. Min. credit scores 640 for 1 to 2 unit properties , 680for three to four units . . .620 if LTV less than 75% of property value .  If lower then its FHA loan time (read on as Pete as many, many more new underwriting alerts!!)
6. Borrowers typically need 3 tradelines open on their credit report to get a conventional loan, otherwise it’s a FHA alternative credit situation
7. Delinquent student loans or a past history  of them ,usually means a borrower can’t get a  new FHA loan . . .its a Federally insured program too. The borrower gets on a “list”
8. Stated income loans max. 80% ltv for w-2 wage earners and   self employed or commissioned borrowers, or combinations of salaried and commissioned.  Usually 700 middle ficos required.  Cash out? 75% ltv’s is usual max
9. With FHA loans ,580 and above FICOs still ok with alternative credit documentation and “good” credit explanations , look for “add ons” to make up for lower fico scores however
10.  A 60% end ratio for total debts is generally max , regardless of “left over income” or assets ( 50% with FHA loans) or  low ltvs  . . . need  good scores if a high debt ratio.  Above 700

TwentyOne more reasons to read the rest of this fine post written by our lender guy, Peter Phillippee!
11.   If the loan is 80% LTV or less , there is not an automatic 5% reduction in maximum loan amount , even if the appraiser states that the property is in a declining market  . . . above 80% ltvs however , there is still the 5% possible reduction by the underwriter in max. financing ( pmi companies are enforcing  this as well)
12.    With a FHA loan , regardless of the LTV, there is not a automatic 5% reduction in “declining markets’ as determined by appraiser
13.     For a new cash out refinance , lenders are looking to see if you did a cash out refinance within the last two years  and sometimes then declining to do a new loan  other than a rate and term .  We don’t want a borrower to keep pulling $ out of the home  and losing equity
14.   On FHA loans you can still have a non-occupant co-borrower and add their income  ( but debts too)  to help in qualifying  . . .on Conventional programs the limit is 90% ltvs and they need to be a relative, with 5% of down pmt to come from occupying borrower . The owner occupant is still looked at as the primary “payer” of the loan .  Co-borrowers just help with the ratios
15.   Can still do 90%  ltv’s on refinances with pmi approval  . . . rate and term only  . . cash out to 80% ltv’s full documents only .
16.    90% ltv on second homes ok and investment properties  . . . but 680 middle fico scores .Max seller contribution on 2’d homes is 2% of purchase price regardless of LTVs
17.   Generally , there are program and loan restrictions if there is more than 20 acres with a home  and if the borrower has more than 10 financed properties .  Other than the acreage issue, if the new property is owner occupied , not restrictions on # of other financed properties
18.   Borrower generally needs two years of employment history in the same field or self employment .  Or graduated in the same field that they are currently working in
19.    If the property has a value of over $1,000,000 there will be an appraisal review and sometimes a second appraisal required . . lower of two “value wise” will be taken
20.   Permanent and Non-permanent resident aliens need to have a social security #  or an individual tax identification # .  No restrictions for loans on Permanent Aliens .  Non-permanent aliens need to show employment in the U.S. and hold a INS document that permits a original term of residency of at least 1 year, and there are some program restrictions  with impound accounts generally required
21.   Revocable  and living trusts are still ok, non-revocable are not  . . .individuals are qualified for the loan and purchase not trusts or Corporations or partnerships
22. Buying out a partner or spouse’s interest in a home is consider a non-cash out refinance with lines of credit being ok to pay off too , as long as there were no draws within the last 12 months . Otherwise, if there has been a draw ,  it’s considered cash out which has more lending restrictions on ltv’s
23.  A loan is considered” cash out “,with the paying off of any other non  property specific lien debt including tax liens and  property tax delinquencies , judgements
24.  Properties listed for sale within the last six months will be considered for refinancing, with proof it’s “off the market” and max. value being no more than the listed price
25.   Temporary buydowns are permitted on fixed rate loans with the “bought down rate “ used  for qualifying purposes  , 2-1 and 3-2-1 buydowns available
26.  Maximum allowable financing concessions are 9% of purchase price for ltvs of 75% of less, 6% with ltvs from 75 to 90% and 3% on ltvs greater than 90% . . .  for non-reoccurring closing costs . For Investment properties max is 2% regardless of ltvs.. FHA loans are 6%
27.    General guidelines for ratios are 33/36 for a 90 to 95% loan,  36 /40 for an 80% loan . . . .  40/45 for a loan that’s less than 80% of home’s value. . . . and this assumes full doc with 680 ficos at least , otherwise expect a higher interest rate to make up for the “greater risk”or more pts.
28.  Loans can be done with trustees in “living Trusts” but individual loan applications will have to be taken on the trustees and at least one of the trustee’s will need to live in the property for a owner occupied rate
29.  Borrowers have to be qualified on their existing payment even though their intention is to “rent it out as they buy a new home “.  People are walking away from their existing home and letting is “go” while their credit is still “good” and buying a new home at a reduced price
30.    FHA allows 6% max of sales price for re-occurring and non-reoccurring closing costs . Conventional programs just for non-re-occurring closing costs
31.    A FHA appraisal is still more extensive then a conventional loan appraisal, crawl and attic spaces are looked at for dry rot and water damage, appliances are checked  to see if they work, electrical box has to be 110 volts at least

It’s important to remember these are general guidelines with exceptions possible with every lender and are constantly being reviewed and changed in this volatile market.   Things have become more conservative the last two years  . . .  two year and three year fixed loans and options arms have disappeared.  Fico score requirements have gone from 660 to 700 for the best rate on full doc transactions and stated income loans.  100% financing has vanished and if you want to do a loan above 95% ltv, it’s got to be a FHA/VA loan.  Very few lenders offer second loans anymore in back of firsts , so if you are borrowing more than 80% of the homes value, you will need to get PMI which is currently deductible for tax purposes, but very conservative in underwriting.  More people using FHA loans now due to their “liberality”
By Pete Phillippe  Prospect Mortgage  707-535-1263