How much house do I qualify for?

Good question.   Here’s how to Pre-Qualify yourself.

***Important Note:  This is here to figure out how much you qualify for ON PAPER, not necessarily what you would feel comfortable with.  Don’t take on a monthly mortgage payment that is beyond your means!***

Step 1:

What do you pay now in rent (or mortgage), and what could you go up to?

Keep these numbers in mind.  Remember, DON’T GO BEYOND YOUR ABILITIES!

Step 2:

Add up both borrower’s income.  Ideally, both borrower’s need to work full-time, unless the part-time job has been consistent for a couple years.  This is TOTAL GROSS INCOME (ie: your annual salary divided by 12) and NOT what you bring home after taxes.

Step 3:

Add up both borrower’s long-term debts.  These are your monthly minimum payments on debts such as: Cars, credit cards, bank loans, student loans, child support with 6 or more months of payments remaining at closing.

Step 4:

Now we calculate the MONTHLY PAYMENT that you qualify for.  The “Rule of Thumb” states that you can qualify for the lesser of EITHER 33% of your gross monthly income OR 45% of your gross monthly income minus your monthly debts.

This is an estimate of the maximum monthly mortgage payment that you qualify for. If your debts are very low, you will likely be able to use the 45% calculation above.

Step 5: (RULE OF THUMB)

This is where it gets a little tougher to determine a total loan amount and purchase price. Unless you can make a pretty fancy Excel spreadsheet, the best method at this point is to use this Rule of Thumb. Take your maximum monthly payment that we just calculated and add 2 to the second digit in your monthly payment.  For example, if the payment was 1,300/mo, use 1500. Write it down. Now add two zeros to the end of that number. For example, that 1500 is now 150000 or $150,000. This is a very conservative estimate and you can start looking in the $150’s range.

Step 5: (GUESS & CHECK – COMPLICATED)

The other route is complicated and requires subtracting your monthly property taxes and insurance which gives you just your monthly “principle and interest”.  That part would be simple if you already knew the value of the property but that’s what we are trying to figure out!

To get around this “circular argument”, use the rule of thumb above and use that number as a property value.  Then, you could adjust from there. You can assume that your taxes and insurance will total about 3% to 3.5% of your property value per year.  So to use the example above:

Now we use the monthly principle and interest and divide it by the “mortgage factor” which is just a fancy number used in place of an interest rate.  It is based off the table below:

UPDATE: This is a very helpful article and it receives a lot of views and questions.  We suggest going to our partner’s Mortgage Problems and Solutions Message Board to get your questions answered by a group of highly qualified mortgage professionals.

Many homeowners have lost their home to foreclosure. They are definitely in a state of shock, embarrassment, and/or devastation. They are moving somewhere else now, but what can they take with them from the foreclosed home?

Some homeowners may be feeling so overwhelmed that they are not even thinking about taking some important personal items that they are more than entitled to take with them. Perhaps some are even very angry. Angry to the point that they are feeling compelled to be vengeful and remove some very essential items from the home before they actually vacate the property. You cannot just allow yourself to “strip the property clean” of all its fixtures, including copper pipes, furnaces, and faucets.

There are a few general rules and guidelines for homeowners to help them determine what items to take, without the fear of a lawsuit, and without causing damage to the property. You must first be able to determine between a fixture and personal property, even if that personal item has been affixed to the house.

It’s a fixture if:

There will be damage to the property (or would make the property unlivable) when the item is removed. If a cost will be involved to repair or replace the item.

• Most often furnaces, ovens, and air conditioners, copper pipes, faucets, doorknobs, keys, trees, landscape items, etc. are considered as fixtures because they relate to the property being functional and relates to the current use of the property.

Note: Please keep in mind the original intention for the item when it was originally installed into the home or attached to the property. Was it installed to be a permanent part of the house or not?

It’s personal property if:

It is an item that is not attached to the property. Or if it can safely be removed from the house without any damage and replaced with something comparable.

• Washing machines and dryers are usually considered a personal item.

And of course if it is your own actual personal property you take it with you.

Note: Homeowners may replace a fixture with one that is comparable. If you had bought a new oven, and still have the original old one, you may take the newer one with you and just reattach the older one in its place. The newer oven could be considered your personal property.

Having to leave the house itself is complicated and overwhelming. If you follow those general rules you should be able to move forward into your next step of your life after foreclosure.

Good luck.

Barbara Partaka
Home Buddies

UPDATE: This is a very helpful article and it receives a lot of views and questions.  We suggest going to our partner’s Mortgage Problems and Solutions Message Board to get your questions answered by a group of highly qualified mortgage professionals.

Deficiency Judgment. Those words alone can sound so harsh to a homeowner that is facing the loss of their home that has just been foreclosed on. They are worried about having to pay the difference to the mortgage company, and even the possibility of the lender going after their other assets.
Usually a homeowner is not sued for a deficiency judgment after they have lost their home to foreclosure. But because the credit and finance industry is so complex, it is often difficult for those homeowners to understand how mortgages really work and what happens with all the aspects of a foreclosure, including the debt.
The deficiency judgment is the amount remaining towards your total balance of your mortgage loan amount, minus the amount that the lender received from the foreclosure sale of the home. Each state has its own laws governing deficiency judgments. Be sure to check with your state to see if it is an anti deficiency state (no deficiency judgment is placed). If your state does not allow for deficiency judgments, then there usually is no reason to worry about having something repossessed or having your wages garnished.
So, what if there is a deficiency judgment placed upon that homeowner? Will the homeowner really owe the mortgage and judgment? Remember that the lender is trying to collect on a debt that is secured by real estate.
If there is no equity and the property goes to the foreclosure sale, and the lender receives less than what is owed, the lender can pursue the judgment or issue a 1099. This still holds true even if it is the lender who gets the property at the foreclosure sale, and ends up selling it later at a loss. At the foreclosure auction, sale proceeds are used to pay off any liens on the title. The homeowner’s debt just did not magically appear because their home foreclosed and was sold at auction. Their debt was already established as the original mortgage on the property. And because the homeowner has defaulted on that debt to the lender, the lender is trying to satisfy the debt that already exists as the mortgage. The judgment that the lender is usually granted against the homeowner is simply a judge’s decision that has recognized that the lender is owed a certain amount of money and that the owners have not paid it.
If your home foreclosed in the first place, it usually was the result of a financial situation that the homeowner was in, so the lender usually realizes that placing another financial judgment against the homeowner, will not help the lender recover any lost profits. The lender realizes that it would be a futile effort in attempting to pursue a deficiency judgment after foreclosure. They can understand how difficult it would be for them to try and collect payment from the homeowner, and how long it would take to accomplish. And they can realize how it will cost them more time and money to pursue the deficiency through all the legal aspects of the process. It would be more productive for the lender to spend that time and effort and money towards new loans and investments.
Basically a homeowner usually doesn’t need to worry about being sued for deficiency judgment after the foreclosure, even if the foreclosure laws allow it, because most lenders just don’t do it. But keep in mind, that they certainly can pursue it in some states. So always be prepared to seek legal advice as well.
NOTE: A deficiency judgment will affect the homeowner’s credit report just as any other judgment would.

Good luck.

Barbara Partaka

Home Buddies

For some homeowners, the worst has happened. They were not able, or did not attempt, to stop their home from being foreclosed on! This now creates a huge negative impact on all of their future endeavors emotionally and financially for quite a period of time to come, because this has now greatly affected their credit as well.

Going through the actual foreclosure process from the date of your foreclosure sale date notice, to the actual auction sale date, can be from 21 days to 9 months (depending on the state you live in) before you are ordered to move out of your home. If you really are not going to be able to keep your home, you should already be making plans financially and physically for a place to move to.

You didn’t get your foreclosure stopped, and the eviction process is starting. So now someone is delivering a notice to your property, which is telling you how much time you have to vacate the property (usually about 30 days, but in some cases it is more like only 2 weeks!) and remove all of your property in the house. Remember, the new owner, even if it is just your lender that bought back the property, now has the right to possession of the property! Let’s hope that you already have a place to move to.

What if you’re not ready to leave the property in time? Be warned – some Sheriffs do actually enter the property and go as far as to remove all of your items to the front lawn! Some damage may even be caused to your goods. And you may forcefully be evicted.

If you live in a state that has foreclosure laws that have a redemption period, you may be given some extra time after the foreclosure sale to pay back the whole amount of the mortgage and get back your property. However,  this is usually a rare possibility since most homeowners don’t have that amount of finances available to them. At least the redemption period gives some homeowners the chance to do so, or sell the property. And you definitely could use that time to save up money, pay off other debts, etc.

But , unfortunately, if your home ends up at the actual foreclosure auction sale, there is little chance for you to save it at that time. Some lenders may be willing to postpone the foreclosure sale or even accept a short sale, but once the foreclosure process is over the devastating eviction process begins.
Be sure to check with your state’s eviction laws and know your rights fully.

Now you may be asking, “what items can I actually keep and take with me when I vacate the property, and what happens to the mortgage debt?

Be sure to look for those answers in articles to come.

Good Luck.

Barbara Partaka
Home Buddies

By Ray Peña, Texas Loan Officer

Welcome back! This week we are going to continue our conversation on home loan processing. Keep in mind that the information provided is a quick glimpse into the detailed world of underwriting a home loan. We could go on with detailed conversations about each section, but for now, we have our hands full as it is. With the recent house bill changes affecting down payment assistance programs and the viability of the foreclosure lifeline in question, the mortgage industry is still making adjustments. However, one thing is for certain, for now at least, all files must under-go processing.

Section 4 – Clear to Close
Now that conditions are met, the underwriter will send the file to the closer. The closer will review the file, make sure conditions are cleared, and communicate with the title company. Once the closer feels the file is complete and meets the lender’s standards, the closer will issue a Clear to Close (CTC). Now that your (mortgage professional) MP has a CTC the MP will finalize documentation needed by the closer. Mind you, that while this is going on, your MP will have been updating all parties including the third party partners, and coordinating a closing date.

Section 5 – Closing Means Funding
You have a closing date set and you, your Realtor, and your MP meet at the title company for closing. Do not be alarmed, but be prepared. The escrow officer will walk in the room with a ream of paper for you to sign. Well, maybe not that much, but a significant amount. These documents will range from an updated loan application the deed of trust, promissory note, property tax info, etc. Once you have asked all your questions, gone over the information and signed the documents, the escrow officer will leave the room, make you copies and come back and congratulate you on your home purchase. Way to go!

Funding
Once you leave the title office, they will in turn notify the lender that all documents have been signed and release funds appropriately. Seller receives proceeds if any, third parties are paid, any liens the seller may have had are satisfied, as well as your MP’s compensation is finalized. Last but not least, your new mortgage will come into affect, making you a very happy person. Down the line, the title company will forward the signed deed of trust and promissory note to the county clerk’s office to be recorded and take care of the last few details to finalize the transaction.

So now that we have completed your behind the scenes pass to home loan processing, don’t feel too overwhelmed. Finding the right Mortgage Professional can help tremendously in the home buying process and the best route to take is to work with the best in the business. Mainly they will have determined who they work best with to get the job done, and two, they will know how to make the process as smooth as possible for the buyer. This is a business of relationships, so developing and maintaining those relationships is paramount.

Next week we will talk more about pricing and rates. The best way, in my humble opinion, to discuss this topic is to be very upfront about the costs associated with closing a home loan. There are negotiable costs and others that are the nature of the business. So come back next week and check it out. Oh, by the way, if you made this far down, feel free to drop a line or two – comments, topic suggestions, questions, thoughts, etc.

Ray Peña is a mortgage consultant for Nation’s Bankers Mortgage in Houston, TX. Ray is a native Houstonian whose office is located in the Houston Heights. Feel free to contact Ray at raympena@gmail.com

We were able to successfully get the homeowner’s scheduled Foreclosure Sale Date of November 6, 2007, to be put on hold while they are being reviewed for a loan modification. However, we know that a foreclosure can still be placed at any given time!

November 13, 2007
The November Foreclosure Sale date has passed, and the homeowner’s foreclosure is still on hold at this time. Our newest update on the status of the loan modification request is that the negotiator has found several liens on the property. This is going to cause a delay in the approval process.

November 14, 2007
The negotiator has called and informed us that we need the homeowner to confirm if the liens belong to them or not. They tell us that they are certain that the liens do not belong to them. So the negotiator decides to run a title search again.

November 27, 2007
We call to confirm that the Foreclosure is still on hold, because we are aware that another Texas Foreclosure Auction date is coming up on December 4, 2007. We do not want the homeowner to be placed in this Foreclosure date.

Several weeks have gone by now, and the negotiator is still finding a lien on the property over $40,000. This information shows several ‘names’ on the lien. So we will need the homeowner to verify and confirm who is who, because a different female name appears on the documents.

The negotiator faxes documents to get the client to review and turn back in that verifies that the lien DOES NOT belong to any of them, so she can approve the loan mod!! They will need to sign an affidavit if they truly believe this lien does not belong to any of them.

November 28, 2007
The homeowner has reviewed the documents and has signed an affidavit stating that the lien does not belong to the husband, the wife, or the daughter. It is at this time that we are informed by the homeowner that the daughter’s name is the one showing on the documents. No wonder things were getting so confusing again.

December 4, 2007
Today was another Texas Foreclosure Auction date, and our client’s Foreclosure is still on hold. We all can breathe a little easier for the moment. We know that the next Foreclosure Auction date will be on January 1, 2008.

We all are still waiting anxiously to get this loan modification approved. We call the negotiator and the newest update is that she is still waiting for the title report to come back. The foreclosure is still on hold.

December 11. 2007
We speak with the negotiator again, the title has not cleared. This is still the only obstacle that is keeping the loan modification from being approved. The foreclosure is still on hold.

December 28, 2007
We are still getting weekly updates on this file. The negotiator is still working through the title issue, so no loan modification has been approved yet. Foreclosure is still on hold.

Januray 1, 2008
We call and confirm that the homeowner’s Foreclosure is still on hold. We have successfully passed through another Foreclosure Auction. And we all are still waiting for the title issue to be resolved.

January 7, 2008
We call again for the newest update. They finally got their Loan Modification approved! The documents have been sent out today to the homeowner to sign and returned by January 11, 2008 with certified funds of $658.29.

We inform the homeowner, and of course they are certainly grateful and appreciative of all our time and effort.

Our Mortgage Resolution story is now closed.

Barbara Partaka
Home-Buddies

By Ray Peña, Texas Loan Officer

Once you have determined the type of loan program that suits your needs, the next step for your mortgage professional (MP) is to begin to secure documentation from the borrower and third party entities, coordinating inspections, appraisals, survey’s, etc. In the mortgage industry this is called “processing” of the loan. We will discuss what exactly is involved in the processing of the loan and break it down in to five sections. Three of which will be covered in this article.

An additional step that your mortgage professional will have taken is to have priced your loan and advise you on whether you should “lock-in” you interest rate. Since pricing and rate lock information are very important aspects of your loan, I will save this topic for another discussion. For the sake of this particular conversation, we will assume that your MP has provided you with a favorable rate, your loan has been locked, and the processing has begun.

Insight: What does a rate lock mean? When a rate is locked, it means that you are committed to that particular rate and you and your MP have the allotted days to close the loan. Your typical lock period is 30 days, but can go up to 45 days and as low as 15 days. Anything over the selected lock period will typically cause your rate to increase. As I mentioned, we will talk more at length about this topic and pricing in the articles to come.

Behind the Scene – On to processing
Now that your loan application has been signed and you have submitted the required documents, your MP begins the processing. Depending on the office set up, some loan officers turn the file over to a processor, someone designated to handle the file from that point on, or out source the processing to a company that specializes in mortgage processing, or they may process the file themselves.

Section 1 – File Submission
Your loan package is submitted to the lender. Here the lender will begin preliminary underwriting. In finance terms, underwriting means that the lender will analyze the credit risk of the borrower. By this time your MP should have requested your financial documents, identification information, supporting documentation regarding your financial stability, and all necessary loan apps and disclosure information related to the loan process. It is important to have all this info ready and submitted to your MP so there is no delay for the lender to review the file.

There are times when underwriters request additional information from the borrower depending on the situation. Since all loans and borrowers are different, the information that is requested, if any, will vary. This is called a condition, and we will discuss this is section three.

Section 2 – Third Party Documentation
In all home loan transactions there is third party involvement that must be coordinated through out the process. These parties include, but are not limited to appraisers, surveyors, insurance agents, Title Company, attorneys, inspectors, etc. These industry partners help with assuring the lender that the property meets the lending criteria. With a typical home loan transaction, all lenders will require this information before the lender will fund the closing of the property. Depending on how your MP organizes their work, and what lenders require at the time of file submission, will determine when these industry partners are contacted.

Section 3 – Conditions
Meeting conditions is another term used in the mortgage industry. A “condition” is a item of information that the underwriter feels they need in order to satisfy the risk level assessments. Conditions will vary. Sometimes there may be a lengthy list of conditions or just one that your MP may have already anticipated, for instance an updated appraisal or bank statement or contract. What ever it is, these conditions must be meet before the underwriter will sign off on the file and move it to the closer. There is much more to cover about conditions, so come back next week so we can finish this topic

Below is a list of documents your MP may request for loan submission.

W-2 Salaried/Wage Earners (Full Doc)
Two months pay stubs (last 60 days)
Three months bank statements (last 90 days, ALL pages)
Two years W-2s
Assets – 401K, IRA’s, Bonds, etc. (last statement all pages)
Copy of Driver’s License
Copy of Social Security Card or Passport

Stated Income (SIVA)
Twelve Month Bank Statements (all accounts all pages)
Copy of DBA or Business License
Copy of Articles of Incorporation
Letter from CPA establishing business relationship for 2 years
Two Years Tax Returns (all schedules)
Copy of Driver’s License
Copy of Social Security Card or Passport

Depending on the situation, other items that may be required for loan submission:
Certified Copy of Divorce decree
Certified Copy of Withholding Order of Child Support
Certified Copy of Release of Child Support Withholding
Bankruptcy Papers (all pages)
Bankruptcy Discharge/Release (all pages)

Third Party documentation
Other items that are required, but are part of the loan process:
Purchase agreement
Appraisal
Title work
Insurance agent/company information
Survey
Builder Contract, blue prints – if applicable

Wow, we have covered quite a bit in your behind the scenes tour of loan processing, but we still need to make sure the loan closes. So be sure to come back next week when we will continue our conversation on home loan processing.

Ray Peña is a mortgage consultant for Nation’s Bankers Mortgage in Houston, TX. Ray is a native Houstonian whose office is located in the Houston Heights. Feel free to contact Ray at raympena@gmail.com

Within our 3 years of business, we have helped hundreds of homeowners who were facing a foreclosure. No, we were not always successful at stopping the foreclosure and getting the client on a workout plan with their lender. But there were many times that we did succeed!

The following is a story about one of our successes and includes some of the difficulties that we often face when negotiating a workout plan with a lender.

October 17, 2007
One of our field agents has just spoken to a homeowner who is facing foreclosure. The Foreclosure Sale Date is scheduled for November 6, 2007. This gives us basically 14 business days to stop the foreclosure!

Some of the necessary/required documents are obtained from the homeowner at this time. (A list of required documents is available in our free step by step guide) We also get a general outline of what the homeowner’s situation is.

• We already know that their original monthly payment was $772.43.
• They are currently behind over 12 months.
• Their hardship is based on the fact that there has been a loss of income due to health and medical issues.
• They have about $20k equity in their home.
• They have been in foreclosure several times before and have been put on several previous workout plans, and they have defaulted on all of those plans.
• Their current re-instatement amount to bring the loan current is already at $14,368.79.
• They only have about $1000 available to put as down payment for a workout plan with the lender.

We fax the homeowner’s documents that we have available to the Customer Service and Loss Mitigation department at their mortgage company. We include our request for a loan modification, or any workout plan that the homeowner may qualify for. We do not have the hardship letter at this time. The hardship letter is very crucial. (example hardship letters)

We know that it will take at least 2 business days for our 3rd party authorization to be processed with the lender (and all of the documents we faxed) before the lender will be allowed to communicate with us at all on this file. The next several days, we are in contact with the homeowner trying to get the rest of the required documents (tax returns, bank statements, and their hardship letter).

October 24, 2007 – 9 business days left to Foreclosure
We have successfully received the rest of the documents from the homeowner and have faxed those to the same department as before.

We speak to someone within the Loss Mitigation department and we are told who the negotiator is that is assigned to this file. We then fax all documents to this particular negotiator. We know that it will take several days for the new negotiator to review this file.

We are told at this time that if the homeowner had been less than 12 months behind, that it would be easier to work this file because they would have already been able to be qualified for a repayment plan. And we were almost automatically denied for any workout plan because the homeowner does not have enough of a down payment for a plan with the lender.

October 29, 2007 – 6 business days left to Foreclosure
We do a follow up call directly to the assigned negotiator. She informs us that she has no update for us because she did not receive the documents. We fax everything directly to her again.

October 30, 2007 – 5 business days left to Foreclosure
We do a follow up call again directly to the negotiator. She needs several things from us ASAP:

• A better hardship letter from the homeowner that explains more specifically of why they were not able to keep up with the 3 different workout plans that they had in the past. They need to explain in more detail about the health and medical issues that they faced.

• The homeowner’s financial worksheet shows that they have a big surplus of income each month, which means that they should be able to afford to pay their monthly mortgage. Based on this information, they could be denied for any workout plan. Need to know what the real financial situation is.
• Need documents from the husband showing how much child support he pays out.
• Need documents from the husband showing a change in his income due to loss of work hours.
• Need a letter from the wife’s Doctor that states that she had to leave her job due to sickness and heart surgery.

The negotiator also lets us know, that she may try to set the homeowner up on a “temporary trial payment plan” because they have defaulted on too many workout plans in the past. This plan would be for only 3 months. The homeowner would have to show (prove) that they can and will make consistent payments. If they were to miss a payment, then the negotiator will Foreclose on the property.

We update the homeowner with all this new information and tell them how important it is for them to give us the extra documents that the negotiator needs.

November 1, 2007 – 3 business days left to Foreclosure
We fax the requested documents directly to the negotiator. She now informs us that she needs the following:

• A detailed explanation of who is who in the household. The new hardship letter has her confused about who the wife is, who the daughter is, who the 3 children belong to, etc.
• A letter from the wife and daughter that states that they give their permission for the lender to pull their credit.

We contact the homeowner and get the new requested documents from them and we fax them directly to the negotiator.

November 2, 2007 – 2 business days left to Foreclosure
We do a follow up call to the negotiator again. She tells us that the Foreclosure has been put on hold. This file is still in review for a loan modification.

November 5, 2007 -1 day left to Foreclosure
We call the Foreclosure Attorney and verify that the Foreclosure has been put on hold.
We call the negotiator and get confirmation that the file is still in review for a loan modification.

YES – we got the scheduled Foreclosure Sale Date stopped. But…
NO – our job is not over. We still need to follow through and get a workout plan approved, keeping in mind that a Foreclosure Sale Date can be reset at any time!

This story continues.

Barbara Partaka

Home-Buddies

By Ray Peña, Texas Loan Officer

Can anybody say damage control? Housing bill, H.R. 3221, which has passed both the House of Representatives and the Senate this very past week, has been signed by President Bush today. This bill is set up to stabilize the housing market and prevent as many foreclosures as possible. This has also set up the Federal Housing Administration (FHA) for a modernization of sorts. FHA is positioning itself to be the “silver lining” for housing professionals and consumers who are looking to help shore up the housing market.

So now this ties in with our follow up from last weeks article. Loan programs and down payment assistance programs are this week’s topic. There are still several loan programs in the market place to help borrowers with their mortgage needs. It is important for borrowers to have an initial consultation with a mortgage professional to determine their financial situation with regard to credit, income, assets and housing needs.

We condensed the different loans in to three categories with brief explanations. For more information about a specific product reply to this post and we can get you the information you need.
Government Loans

• FHA – Insured by the Federal Housing Administration, fixed rate, 3% down payment
• VA – Insured by the Office of Veterans Affairs, fixed rate, sometime no down payment
• RHS – Rural Housing Service guaranteed by the Department of Agriculture, low down payment

Conventional Loans

• Conforming and Non-Conforming Loans – conforming loans fall under Fannie Mae and Freddie Mac guidelines and requirements. Single family maximum loan amount $417,000
• Fixed Rate Mortgages – Interest rate locked for the term of the loan. Loan terms: 15, 20, 30, 40
• Jumbo – non-conforming loan type because does not follow Fannies Mae or Freddie Mac guidelines, higher rates
• Balloon Mortgage – Principle amount due at end of agreed term, 3, 5, 7, 10-20 year terms

Exotic Sub-prime

• Adjustable Rate Mortgage (ARM) – low rate to start then adjusts. Amortized for 30 year term
• Negative Amortization – this loan program adds un-paid interest to the principle to pay over the life of the loan.
• Option ARM – This type of loan gives borrower’s option to pay minimal interest payment or fully amortized payment. Can cause a negative amortization, but can free up cash, depending which payment borrower makes.

As you can see, there are many loan options in the market depending on the borrower’s needs. Some are sophisticated financial tools, that if understood and utilized correctly, benefit the borrower, but on the other hand can spiral out of control and lead to financial devastation – sub-prime.

Another part of the new housing bill that has come into questions is down payment assistance programs (DPAs). There is language in the new housing bill to terminate such programs, if so, after October 1, 2008; these programs will no longer be available.

DPAs were developed by nonprofit organizations to help low to middle-income families afford the down payment requirement for their home purchase. This is an explanation of how it works: The nonprofit wires funds to the title company before closing, and the buyer closes on the house. Then title company wires exact amount out of seller’s proceeds of the sale to nonprofit. Nonprofit then charges a fee for the transaction that goes into a pool of funds used to assist other families. Fannie and Freddie guidelines allow gift funds from a family member, local government, and qualified sources to assist buyers with down payment.

Here are the links to the programs typically used for down payment assistance:

Nehemiah – www.getdownpayment.com
AmeriDream – www.ameridream.org
The Genesis Program – www.thegenesisprogram.org

The issue with down payment assistance programs is based on studies cited by FHA Commissioner, Brian Montgomery, in a speech at the National Association of Realtors Regulatory Issues Forum in Washington, D.C. Tuesday, May 13, 2008, that families who rely on “seller-funded down payment assistance” go to foreclosure 3x the rate of borrowers who used their own funds. No doubt that this is or was a heated debate, however, more than ever, it is important for potential homebuyers to educate themselves on the home buying process.

Once again, come back next week when we will talk more about documents needed for loan and the loan process.

Ray Peña is a mortgage consultant for Nation’s Bankers Mortgage in Houston, TX. Ray is a native Houstonian whose office is located in the Houston Heights. Feel free to contact Ray at raympena@gmail.com

By Ray Peña, Texas Loan Officer

Today’s borrowers are headed for “a new day-in-time” when it comes to mortgage lending. Gone are the days of lax credit requirements/guidelines and the zero money out of pocket loans. From first-time homebuyers to real estate investors, they all have to come to the table with 3-20% down to close a deal these days. Preparation is the key factor. Whether you have excellent credit or need help with past credit issues, just knowing where you stand today can save you thousands tomorrow. In the articles to come, we will focus on how to qualify buyers for their purchase – starting with pre-qualification and going all the way through to closing.

Keep in mind that each borrower is different, just as every loan is different. However, the process for qualifying for a loan is relatively the same. Some may take longer than others to qualify, but the truly dedicated ones will achieve their goal of home ownership, if they make the sacrifice to do so.

Our first conversation will cover pre-qualification and credit scores. With good or bad credit, a potential homebuyer can successfully plan for their home purchase. Homebuyers should consult with their mortgage professional prior to looking for a home and talking to sellers. Once you know you qualify for a home loan, you know how much you can afford and then you can make better offers to sellers.

Pre-Qualification

Mortgage professionals want to know about your financial situation. This involves asking questions about your income, assets, liabilities, credit score, goal, i.e. purchase or refinance, and real estate owned, if any. To assess your situation even better, your loan officer will ask you to fill out a pre-qualification form to request your credit report from the three main credit repositories, Experian, Equifax, and TransUnion. This will start the pre-qualification process. After your initial consultation with your loan officer the information will help determine how serious you are about purchasing a home and guide the transaction as needed.

Credit

Your FICO score, A.K.A. credit rating, is one of the most important factors in lending; it determines whether you qualify for a loan, loan product/program, loan-to-value (LTV), and ultimately your interest rate. Do you know where your current credit score falls on the credit spectrum? This can mean the difference between thousands of dollars over the life of your loan. This is why it is important to be aware of you score and what affects your score, before you make one of the biggest investments of your life.

Insight: Property type, LTV, documentation type, occupancy, loan program and credit all determine interest rates.

It is safe to say that any homebuyer with good credit and some assets would qualify for a home loan. For those with “not so good credit” do not despair. It may mean you cannot buy a house today or next month, but it does not mean you cannot ever buy a house. With a little planning and direction, you can be well on your way to home ownership sooner than you think. Below are a few factors that affect your credit score, this information is provided by Credit Information Service Company (CISCO):

• Pay bills on time. Recent delinquents and late pays negatively affect scores more than negative info over two years old
• Keep balances low, high outstanding balances can affect score
• The amount of unsecured credit – only apply for credit you need
• Make sure the information on your report is correct
• Removing negative items from your report improves score

Insight: Lenders base their decisions on RISK. A higher risk borrower will pay more for a loan than a lower risk borrower will over time.

If your credit is an issue, your mortgage professional will have a referral partner that can assist you with your credit score goals. Improving your credit involves strategy, so be sure to consult with a reputable company when it comes to credit restoration. Removing negative items is not always the best way to achieve credit objectives. A credit coach who understands the credit scoring system can truly maximize your credit score potential. There are costs associated with these credit repair and coaching programs, however you must look at it as an investment into your financial future. The better your credit is, the less you will pay, in terms of interest, over your financial life.

Be sure to come back next week when we will talk more about loan programs and down payment assistance.

Ray Peña is a mortgage consultant for Nation’s Bankers Mortgage in Houston, TX. Ray is a native Houstonian whose office is located in the Houston Heights. Feel free to contact Ray at raympena@gmail.com