Deanna Valeo
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More FHA Rules Changes - amount of seller paid closing costs changes and more November 1, 2010

"I never think of the future - it comes soon enough. Albert Einstein

FHA financing rules will make loans harder to get and require more upfront cash; here are a few of the changes headed our way.

CHANGE 1: SELLER-PAID CLOSING COSTS

Sellers will no longer be able to pay up to 6 percent of the buyer's closing costs to help purchase the home. New rules will roll back seller's contributions to 3 percent maximum, similar to Fannie Mae or Freddie Mac conventional financing guidelines.

For example, on a $100,000home loan, sellers can currently contribute up to $6,000 (6 percent) toward buyers' closing costs, reserves and repairs, as long as the buyers have 3.5 percent of their own funds for the down payment.

Under new rules, only $3,000 (3 percent) would be allowed, requiring a buyer to have more upfront cash at closing. This change reduces the lender's risk that seller concessions could artificially inflate property values, and FHA would start out by insuring a home already under water.

CHANGE 2: MORTGAGE INSURANCE PREMIUMS – (these changes are in place now)

Mortgage insurance is a capital reserve fund that protects lenders if the buyer defaults. Buyers pay into this reserve with an up-front fee at closing and in each monthly mortgage payment. With our recent foreclosure crisis, this reserve has been strained. Effective beginning this month, FHA can make the following fee changes:

• Reduce the upfront fee from 2.25 percent to 1 percent of the loan amount. At first glance this reduction would seem a beneficial step. However, you will notice this change in the monthly payments.

• For loans with 5 percent to 20 percent down, the annual mortgage insurance premium increases from 0.5 percent to 0.85 percent. For loans with less than 5 percent down, the premium increases from 0.55 percent to 0.9 percent.

For the average buyer, this charge will continue as part of the monthly mortgage payment until the loan-to-value reaches 78 percent and mortgage payments have been made for at least five years.

CHANGE 3: CREDIT SCORES (our last day to lock at 620 score is Nov 15th for now)

FHA's lenient rules previously let buyers with low credit scores qualify for a home loan without an overt penalty. Now FHA will mirror other conventional financing. FHA will increase the interest rate for buyers with low credit scores. Additionally the major banks have added overlays requiring a minimum 640 FICO score (some will require a 660 FICO score)

Additionally, your credit score will not only affect your interest rate, but it could increase the amount of the down payment required by your lender up to 10 percent. On a $200,000 loan, the minimum 3.5 percent down payment of $7,000 would increase to $20,000.

CHANGE 3: CONDOMINIUM APPROVALS (some grandfathered condo projects will expire this December)

A national requirement for more intensive reviews of individual condo projects is under way and could hold up your purchase if an association is not proactive before new requirements are put in place. FHA Condo approvals can take up to 6-weeks after approval of all the necessary documents. These must be submitted by an approved lender to the FHA HOC – they will then issue an approval. If the condo community does not have approval no FHA loan can be used.

A couple of the must-have criteria include that at least 70 percent of the units be owner-occupied and less than 15 percent of the units in foreclosure. Without financing approval for a condo project, the only real sale possible is with seller- financing or cash.

EVEN WITH THE CHANGES BUYING NOW IS A GREAT STRATEGY

So those are just a few of the risks of inaction. Once the real estate market bottoms out, look for interest rates to start rising. Because most people focus on what their monthly payment is, you will find yourself purchasing fewer homes to keep the same monthly payment. For every 1 percent increase in interest rates, you lose 10 percent in borrowing power.

So in essence the longer you wait, the less you will be able to borrow if you want to keep the same monthly payment.

The times when virtually anyone could obtain a home loan are gone. As these and other FHA changes take effect, your ability to obtain a home loan could get even more difficult in the future.


@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team -  (704) 366-7711

Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings                              
 
Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878

The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 11/01/2010


Due Diligence – the New 2011 NC Real Estate Contract from the Lender’s Side: November 15, 2010

"No person who is enthusiastic about his work has anything to fear from life." Samuel Goldwyn

The new NC Purchase contract which will go into effect January 1, 2011 requires a buyer’s Realtor to name a period of time for the buyer to get fully approved for a loan, inspect the house, and make sure there is clean title. This is called the “due diligence” period for the buyer. The consequences of any failure such as: low appraisal value, unable to qualify for financing, large inspection issues, and title defects found after this negotiated time will result in the buyer losing their earnest money to the seller (at a minimum). 

The addition of the due diligence period will spark a campaign to “educate” Realtors on the appropriate time needed to get through loan approval. Many big-box lenders will be quoting longer period of times to accommodate their processes and mortgage brokers really will have issues as they do not have control over their lenders’ processes.

This is where a mortgage banker will have an advantage. Since we table fund our loans, have our own underwriting staff, processing staff, and closing department we have the necessary knowledge to get your client through the due diligence period without surprises. We feel very comfortable with 30-days on most borrowers – with the right buyer we may even be able to accommodate faster turn times.

Many listing agents I have spoken to state they are uncomfortable giving more than a 30-day due diligence period. Most also state they will not be asking for a due diligence deposit, rather they will be staying with earnest money deposit (of course the agents I spoke to expect this to change as the market flips from a buyers’ market to sellers’ market.).

The simple fact is that the client can walk away for any reason during the due diligence period. Therefore, the shorter the due diligence period the better for the buyer’s agent .

Faster due diligence periods should mean a competitive advantage for your buyer.

One strategy to help your buyer be more attractive to sellers ,and perhaps get a better negotiated price, will involve getting your buyer in with the lender for a face to face meeting earlier for a full pre-qualification. This means getting income documentation in house early in the process along with assets; additionally we can save 2-3 days by having all disclosures signed that day.

A true pre-qualification will allow us to shorten the due diligence period for your buyer – making them more attractive to the seller of the property.

(Excerpt from the new NC contract: Page 3)

4. BUYER'S DUE DILIGENCE PROCESS:

(a) Loan: During-the Due Diligence Period, Buyer, at Buyer's expense, shall be entitled to pursue qualification for and approval of the Loan if any.

(NOTE: Buyer is advised to consult with Buyer's lender prior to signing this offer to assure that the Due Diligence Period allows sufficient time for the appraisal to be completed and for Buyer's lender to provide Buyer sufficient information to decide whether to proceed with or terminate the transaction.)

Something to consider: If you are in the process of buying the house and issues arise such as back-ups with House Charlotte or USDA underwriting, you can always re-negotiate the due diligence period.

FHA and VA loans: if the appraisal does not come in at value the buyer will still be due a refund of their earnest money even if the due diligence period is expired. This is per Federal Law and per the new contract cannot be superseded by NC Law.

Please know that the Valeo-Croy Team has the expertise to help guide your buyer through the process of getting approved prior to the expiration of the due diligence period.

With our communication and expertise in programs we can also help to guide you and your client if extensions are warranted due to back-ups in loan processing beyond our control. Our goal always is to have an on time closings. This now means an on-time approval for our clients to meet the expectations of the new NC real estate contract.

All our best for the upcoming week. 

@ The Valeo-Croy Team, we are here for you.

 

The Valeo-Croy Team -  (704) 366-7711

Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings                              
 
Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878

The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 11/15/2010


A second mortgage or HELOC can hurt your chances to refinance November 16, 2010

A second mortgage or HELOC can hurt your chances to refinance your first mortgage. Here are five things you need to know:

1. Many people took out second mortgages or HELOC loans to consolidate debt or do home improvement after they purchased a home. If the loan was taken out after closing and you want to refinance the first and second mortgages and consolidate them into one loan payment, the second will be considered “cash out” as if it was a credit card being paid off. The lender guidelines are different for “cash out” mortgages in that they require certain FICO scores and loan to values and in order to qualify for the loan. You might not qualify for a new mortgage under the new guidelines, so have your mortgage loan officer run the numbers before you begin.

2. If you took out two mortgages to buy a home, you may now be looking to refinance and consolidate them both into one payment while the rates are still low. For purchase 2nd mortgages that are combined into a new first mortgage these are considered "rate and term" refinances and are done similarly to refinancing a single loan. Home value is the only challenge.
Note: If you modified that “purchase money” second mortgage in anyway after you bought the house, it would be considered a “new” loan and considered cash out when you refinance (see the above).

3. If your new first mortgage is over 80% of the value of your home you may still benefit using Lender Paid Mortgage Insurance (LPMI). This entails using a higher rate to pay for a single paid mortgage insurance provided by the lender for your benefit. This is limited to 85% for “cash out” and 95% for rate and term (if your 2nd was used to buy the house and was not changed).

4. You might choose to refinance only the first mortgage and subordinate the existing second mortgage again. Many people choose to do this if they still want the same terms for the second mortgage or if the value is not there to consolidate them. Two things you need to know before you get started with this. One, the new lender will have certain requirements to keep the second mortgage in place. Typically lenders will not allow the both mortgages to be greater than 85-90% of the home. Two, the existing lender who holds the second mortgage must agree to allow the mortgage to be in second position behind a new first mortgage. Call the service department on your 2nd mortgage and find out what the parameter are for the process and cost of doing so. It just might not work or be worth it (this also can take up to 6-weeks). We can help with this process. Please note some lenders will require you change the terms of your loan as well.

5. You very well might have to continue with a first and second mortgage, either by taking out a new loan or subordinating your existing second. This would be in cases, where the value does not work, your new loan amount is over the conforming loan limits of $417,000 or the loan to value does not work. The loan officer would suggest this based on the current value of your home and other factors. Getting new seconds is more difficult however they are still possible. The terms are not as attractive as they were in the past.

Mortgage interest rates a great now, but getting a loan is a different story. If you need two mortgages, this makes it even harder. Things to consider before you get started:

Make sure you have a good loan officer can that offer you choices, options and the best advice before you get started. The process is long, so find out how much time you need and what the options are a list below can help your loan officer do a case study for you to determine if a refinance makes sense.
Know what the terms of your second mortgage are and find out if you ever modified it – did you change it from a variable to a fixed rate?

If you used the second to buy the home, find the original note and closing statements, the lender will want to see them – this can make your rate better and your LPMI options better.

Call your Realtor to ballpark your current value – Zillow and other sites are only good if similar homes sold in the past three months and are easily identified. Your Realtor will have a much better feel for what you home would sell for now. Remember they are there for you even now.

Know your FICO score

Figure out how much your new loan would need to be based on the existing first and second mortgage

Think about if you want to come up with some cash to make up the difference or pay for your own closing costs if need be

@ The Valeo-Croy Team, we are here for you.

The Valeo-Croy Team - (704) 366-7711

Todd Croy - NMLO license #91428

Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings

Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878 Please link and "like" our page

The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply. Date: 11/08/2010


Why Time Changes Consumers' Credit Scores November 29, 2010

Deanna and I read the following article over the weekend. I thought it did a great job outlining the intricacies associated with calculating a FICO score. Deanna and I have always tried to explain that a score represents a snapshot in time. The following will add more to credibility to this explanation. Have a great week and use this as a great reference regarding credit scores.

Why Time Changes Consumers' Credit Scores

Article from: Origination News
Article date: November 1, 2010
Byline: Lew Sichelman

Here is a scenario that happens all too frequently: A would-be homebuyer applies online to obtain his all-important credit score. It comes back at a healthy 720, good enough to qualify for the best rate in the mortgage market. But then, when he applies for a loan with a local lender, his score is much lower. So low, in fact, that he might not qualify, even at less favorable terms. What gives? How can a homebuyer's credit score be one number on one day and a completely different figure the next? And why is a homebuyer's score different from one company to another?

Well, a lot of things could be at play here. So let's start with the basics.

A credit score is a three-digit number that is considered an accurate predictor of whether or not borrowers will make their house payments on time each and every month. The higher the number, the safer the bet that a borrower will repay.

But borrowers' scores are based on the information contained in their credit record. And because what's in their file is fluid, so is their score.

"Credit is dynamic information," says Greg Holmes, national director of sales and marketing at Credit Plus, a Salisbury, Md., company that serves the mortgage business. "It's constantly changing. It's up and down and constantly moving."

Borrowers' records change every time the company that has their car loan reports an on-time payment-or more important, a missed payment that's now more than 30 days late. It changes each time their credit-card balance changes. It changes every time they apply for new credit. And it changes when that age-old bankruptcy finally falls into the abyss, never to be reported again.
Because borrowers' credit record is a moving target, shifting on a daily or even hourly basis, depending on the time of day information is imported into their file, their credit score is nothing more than a numerical snapshot of their file at the moment it is calculated. As such, it, too, can change from one moment to the next.

"It depends on how much information is coming and going in and out of that credit report," Holmes says.

"It's whatever time of day and month you pull the report. There's even a difference between an account that's less than six months old and one that's older."

If borrowers asked someone to pull their credit score today, exactly six months and 29 days after they closed a department-store account, for example, the number would be different than if they asked tomorrow, when it has been seven months since the account was shut down. Maybe not by much, but perhaps enough to alter their chances to obtain financing.

But there's more to borrowers' files-and, therefore, their score-than what's in it. In fact, another big factor is what's not in it. That is, not every creditor reports information to each of the three main credit repositories.

Say a borrower's auto lender is a local bank that reports only to Experian because Experian has a bigger presence in his state. In that case, neither TransUnion nor Equifax will know whether he is current on his car payments or if he is late. They wouldn't even know about his car loan at all. As a result, a credit score based on the borrower's Experian file will be different than one based on the records maintained by the other two big bureaus.

But wait, there's more. Each repository has its own credit-scoring formula. A Minneapolis-based analytics company known as FICO (formerly Fair, Isaac and Co.), from which the generic term "FICO score" comes, created all the formulas. But the algorithm used by each credit bureau is slightly different based on factors that each believes to be a more or less important component of risk.

So not only is TransUnion's score different than Equifax and Experian's because it is based on only information in its records; it's also different because it uses a different analytical model. And even if each depository maintained the exact same files, their scores would be different because they use different formulas.

Next, it's important to know that the mortgage industry isn't the only business to use credit scoring to rate potential borrowers. Actually, housing finance came somewhat late to the technique. The insurance business has been grading potential customers for decades, and now auto lenders, finance companies, banks, employers and dozens of others use credit scoring to make decisions.
The key is that each business has its own scoring formula. And a score that may be acceptable to, say, the finance company offering to lend borrowers $5,000 for a new roof probably won't be acceptable to a mortgage company trying to decide whether to lend them $500,000 to buy a new house.

So if borrowers received their score from one of the Internet sites that provide a free score-but try to hook them into paying a monthly fee to monitor their credit file-it's a safe bet that that number, accurate or not, won't be worth diddly if they are in the market to buy a house.

Indeed, if borrowers are buying a house, they'll want an industry-specific mortgage score. No other score will do.

"Anybody can calculate a score," says Holmes. "Who accepts it is what really matters. Even the scores used in the mortgage industry wouldn't mean anything if Fannie Mae or Freddie Mac didn't accept them. Or if JPMorgan Chase or Wells Fargo or Bank of America didn't accept them."
Borrowers can obtain a free copy of their credit record from each of the three major credit bureaus at www.annualcreditreport.com. The law entitles them to one free report every 12 months from each repository, but there's nowhere I know of to obtain a free credit score.
Many outfits offer "free" credit scores, but in most cases, borrowers have to sign up-for a monthly fee-for a credit-monitoring service.

"Once you apply," says FICO representative Craig Watts, "you have to get in up to your elbows before you reach the point where you can get a score."

Borrowers usually can opt out of the service after a trial period. But the companies are hoping they won't, or that they'll forget and won't pay much attention to their credit card bill when it arrives in the mail.

But remember, not every score is acceptable to mortgage lenders. I'm aware of only one online service that fits the bill, www.myfico.com. But even then, borrowers will have to sign up for the Score Watch monitoring service that FICO offers in conjunction with Equifax. They'll just have to remember to cancel the service before the "free" trial period runs out.

Beyond that, would-be homebuyers can obtain meaningful credit scores by applying for a mortgage, either directly with a lender or with a broker who deals with several different lenders. Once borrowers apply, lenders are obligated by law to share the score they used as a basis to decide whether they qualify or not.

And once borrowers obtain a satisfactory credit score, make sure that they don't do anything credit-wise that will change it, at least not until after the loan closes.

Remember, a credit score is a moving target, so if borrowers run out and buy new furniture on time, their score will suffer, and they may no longer qualify for a mortgage to buy their house.

http://www.highbeam.com/doc/1G1-240969760.html?key=01-42160D517E1A10691A0C0B18006E4B2E224E324D3417295C30420B61651B617F137019731B7B1D6B39

All our best for the upcoming week.

@ The Valeo-Croy Team, we are here for you.


The Valeo-Croy Team - (704) 366-7711
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421
Accessible | Program Expertise | On-Time Closings

Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878

The Valeo-Croy Team and Cunningham and Company Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for Cunningham and Company to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply. Date: 11/29/2010