Home Purchases After A Bankruptcy-Foreclosure-Short Sale
March 16, 2011 by Mark Estermyer · 8 Comments
Purchasing a home for Inland Empire residents after a bankruptcy, foreclosure or short sale can be a very frustrating. The experience a first time home buyer and previous home owners can depend on how prepared they are in providing all the necessary documentation.
The rule of thumb on this topic should be the same for documenting anything that is of any importance; keep all documents ready and available for your loan officer. Divorce papers, satisfied judgements and lien releases are other sets of documents needed to get a loan approved.
The most common question I get pertaining to bankruptcy, foreclosure or short sale is how long do I need to wait before I can qualify to buy a house. Each loan program has a different answer, but the following charts should answer most of your questions.
| CONVENTIONAL LOAN PROGRAMS | ||
| Bankruptcy | Forclosure | Pre-Foreclosure and Short Sale |
| Chapter 7 – 4 years from discharge or dismissal | 7 years from | 2 Years – 80% Max LTV/CLTV |
| Chapter 13 – 2 years from discharge | completion on | 4 Years – 90% Max LTV/CLTV |
| – 4 years from dismissal | credit report | 7 Years – Max LTV/CLTV per standard |
| Multiple BK’s – 5 years from most recent dismissal or | elegibility guidelines | |
| discharge date | ||
| FHA LOAN PROGRAM | |
| Bankruptcy | Foreclosure/Pre-Foreclosure/Short Sale |
| Chapter 7 – 2 years from discharge or dismissl | 3 years since completion |
| Chapter 13 – 1 year of payout period has elapsed with | |
| payments made on time, must have written | |
| consent for the court appointed Trustee. |
| VA LOAN PROGRAM | |
| Bankruptcy | Foreclosure/Pre-Foreclosure/Short Sale |
| Chapter 7 – 2 years from discharge | 2 years since completion-Because a borrower has |
| Chapter 13 – 1 year of payout period has elapsed with | filed foreclosure does not disqualify the borrower. |
| payments made on time, must have written | Provide complete information on the facts and |
| consent for the court appointed Trustee | circumstances for the foreclosure |
| Exceptions | |
| Between 1-2 years from discharge: reasons beyond the borrowers control-Unemployment, prolonged strikes, | |
| medical bills not covered by insurance. Divorce is not considered beyond the borrower’s control. | |
Requirements for Re-Establishing Credit
After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or pre-foreclosure or short sale, the borrower’s credit will be considered re-established if all of the following are met:
- The waiting period and the related requirements are met.
- The loan receives a recommendation from Desktop Underwriter (DU) thaat is acceptable for delivery to Fannie Mae or, if manually underwritten, meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.
- The borrower has traditional credit history. Nontraditional credit or “thin files” are not acceptable.
There are several more exceptions that pertain to business owners and other criteria that can affect the approvability of the loan. Only a seasoned loan officer can truly help navigate through the added documentation needed to achieve an approved loan application. For more information on this topic and any other, please do not hesitate to contact me.
Ten Credit Do’s and Don’ts To Bear In Mind Prior To Getting Your Mortgage Loan
April 1, 2010 by Mark Estermyer · Leave a Comment
How can a fully approved loan get denied for funding after the borrower has signed loan docs?
Simple, the underwriter pulls an updated credit report to verify that there hasn’t been any new activity since original approval was issued, and the new findings kill the loan. This procedure has been mandated by Fannie Mae and Freddie Mac as part of their loan quality assurance plan.
This generally won’t happen in a 30 day time-frame, but Inland Empire borrowers should anticipate a new credit report being pulled if the time from an original credit report to funding is more than 60 days.
Purchase transactions in the Riverside and San Bernardino counties involving short sales or foreclosures tend to drag on for several months, so this approval / denial scenario is common.
It’s An Ugly Cycle:
- First-Time Home Buyer receives an approval
- Thinks everything is OK
- Makes a credit impacting decision (new car, furniture, run up credit card balance)
- Funder pulls new credit report and denies the loan
In the hopes of stemming the senseless slaughter of perfectly acceptable approvals, we’ve developed a “Ten credit do’s and don’ts” list to help ensure a smoother loan process.
These tips don’t encompass everything a borrower can do prior to and after the Pre-Approval process, however they’re a good representation of the things most likely to help and hurt an approval.
Ten Credit Do’s and Don’ts:
DO continue making your mortgage or rent payments
Remember, you’re trying to buy or refinance your home – one of the first things a lender looks for is responsible payment patterns on your current housing situation.
Even if you plan on closing in the middle of the month, or if you’ve already given notice, continue paying that rent until you’ve signed your final loan documents.
It’s always better to be safe than sorry.
DO stay current on all accounts
Much like the first item, the same goes for your other types of accounts (student loans, credit cards, etc).
Nothing can derail a loan approval faster than a late payment coming in the middle of the loan process.
DON’T make a major purchase (car, boat, big-screen TV, etc…)
This one gets borrowers in trouble more than any other item.
A simple tip: wait until the loan is closed before buying that new car, boat, or TV.
DON’T buy any furniture
This is similar to the previous, but deserves it’s own category as it gets many borrowers in trouble (especially First-Time Home Buyers).
Remember, you’ll have plenty of time to decorate your new home (or spend on your line of credit) AFTER the loan closes.
DON’T open a new credit card
Opening a new credit card dings your credit by adding an additional inquiry to your score, and it may change the mix of credit types within your report (i.e. credit cards, student loans, etc).
Both of these can have a negative impact on your score, and could result in a denial if things are already tight.
DON’T close any credit card accounts
The reverse of the previous item is also true. Closing accounts can have a negative impact on your score (for one – it decreases your capacity which accounts for 30% of your score).
DON’T open a new cell phone account
Cell phone companies pull your credit when you open a new account. If you’re on the border credit-wise, that inquiry could drop your score enough to impact your rate or cause a denial.
DON’T consolidate your debt onto 1 or 2 cards
We’ve already established that additional credit inquiries will hurt your score, but consolidating your credit will also diminish your capacity (the amount of credit you have available), resulting in another hit to your credit.
DON’T pay off collections
Sometimes a lender will require you to pay of a collection prior to closing your loan; other times they will not.
The best rule of thumb is to only pay off collections if absolutely necessary to ensure a loan approval. Otherwise, needlessly paying off collections could have a negative impact on your score.
Consult your loan professional prior to paying off any accounts.
DON’T take out a new loan
This goes for car loans, student loans, additional credit cards, lines of credit, and any other type of loan.
Taking out a new loan can have a negative impact on your credit, but also looks bad to underwriters and investors alike.
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Follow these Do’s and Don’ts for a smoother mortgage approval and funding process.
Just remember the simple tip: wait until AFTER the loan closes for any major purchases, loans, consolidations, and new accounts.
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Related Credit / Identity Articles:
Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?
April 1, 2010 by Mark Estermyer · Leave a Comment
Although every situation is unique, it is not uncommon for homebuyers in the Inland Empire to qualify for a mortgage on a new home while still living in their primary residence.
Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer? Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:
So, Do I Have To Sell?
Yes. No. Maybe. It depends.
Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.
If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!
Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.
What If I Rent My Current Property?
This scenario presents the “maybe” and the “it depends” answers to the question.
If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.
In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.
So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.
Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.
Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.
Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.
For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.
Keep in mind, this reserve requirement is incremental to your down payment on the new property.
What If I Can’t Qualify Based On Both Mortgage Payments?
This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.
If you are in this situation, then you will have to sell your current home before buying a new one.
If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in San Bernardino, Yucaipa, Banning, Beaumont, Loma Linda, Calimesa, Riverside, Redlands, Highland or anywhere in the Inland Empire.
…..
As you can tell, purchasing one home while living in another can be a very complicated transaction. Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.
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Related Articles – Mortgage Approval Process:
- Basic Mortgage Terms
- How Much Can I Afford?
- Common Documents Required For A Mortgage Pre-Approval
- Top 8 Questions To Ask Your Lender During Application Process
- What’s The Difference Between An Investment Property, Second Home and Primary Residence?
- Seven Items Real Estate Agents Need To Know About Your Mortgage Approval
Ten Things You Can Do To Protect Your Identity
March 28, 2010 by Mark Estermyer · Leave a Comment
Facts About Identity Theft:
It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen. Riverside and San Bernardino counties are no different than the rest of the country.
The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).
And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.
What Is Identity Theft?
According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”
Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.
Victims of identity theft can spend months trying to restore their good name. And most victims do not realize it has happened until they get denied for a mortgage or a credit card.
Ten Ways to Protect Your Identity:
1. Dumpster Diving –
Avoid “dumpster diving” by shredding all papers that contain any personal information.
Criminals sift through trash looking for the following:
-Bank Statements
-ATM Receipts
-Canceled Checks
-Credit Card Statements
-Credit Card Purchase Receipts
-Credit Card Solicitations (unopened “pre-approval” solicitations)
-Pay Stubs
-Tax Documents
-Utility Bills
-Expired Identification Cards (Drivers License, Passports…)
-Expired Credit Cards
-Medical Statements
-Insurance Documents
2. Personal Info / Phone Calls -
Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.
If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.
You should then call the company using the customer service number the company provides with your account statement. Do NOT call the number you were given by the caller.
To reduce the number of solicitations you receive, you can sign up at the do not call registry:
web: http://www.donotcall.gov
call: (888) 382-1222
3. Look Over Your Shoulder –
Avoid “Skimming and shoulder surfing” (Never let your credit card out of your sight).
Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.
According to Wikipedia:
“Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.”
Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card. They may also be listening for your credit card number.
4. Secure Your Mail –
Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.
Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.
-Get a P.O. Box.
-Lock Your Mail Box
Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.
5. Read Credit Card Statements -
Review account statements to make sure you recognize the purchases listed before paying the bill.
If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.
The quicker you spot any unauthorized activity, the sooner you can notify the creditor.
6. Monitor Credit Report -
Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately. There are a number of online companies that offer free credit reports, however your mortgage professional should be more than willing to provide this service for you.
7. Email Links –
Never click on a link provided in an email if you believe it to be fraudulent.
Keep in mind, no financial institution will ask you to verify your information via email.
Criminals may link you to phony “official-looking” web site to confirm your personal information. This is known as “phishing”.
According to Wikipedia:
“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.
8. Opt Out –
Opt out of credit card solicitations. (Take your name off marketers’ hit lists)
You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.
You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:
9. Safeguard Your Social Security Number -
Protect your Social Security number.
Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.
Do not put your Social Security number or driver’s license number on any checks you may write.
Only give out your Social Security number when absolutely necessary.
10. Read Privacy Policies –
Find out what company privacy policies are (know who you are dealing with).
When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy is.
Inquire as to why it is being asked for.
Ask who has access to your number.
Ask if you can arrange for them not to share your information with anyone else.
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Related Credit / Identity Articles:
Is There A Rule-of-Thumb Regarding The Number Of Credit Lines To Have Open?
March 28, 2010 by Mark Estermyer · Leave a Comment
While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.
Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.
However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.
A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.
Credit Trade Line / Approval Bullets:
- Banks usually won’t count a trade line that is less than 12 months old.
- The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
- Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.
Exceptions to Trade Line Rules:
Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:
Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’
Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.
Another exception to this rule is if you have no FICO score, and no negative trade lines.
In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.
Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors. A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.
*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof. Lenders will need canceled checks and / or copies of bank statements to start out with.
Since not all companies report to credit bureaus, it’s possible to get a free credit report at AnnualCreditReport.com to verify your total reported trade lines.
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