IMPERFECT CREDIT MORTGAGE PROCESS

Knowledge Will Save You Money and Frustrations

The biggest driver for every mortgage, in particular sub-prime or less than great credit mortgages is your credit scores. Lenders generate elaborate rate sheets for brokers to determine what LTV (Loan to Value) a prospective borrower will qualify for. However, even with a credit score high enough to qualify for 100%, an ever- changing number in today’s volatile mortgage market, there are other factors that will enter into the picture. These will effect the LTV, rate, and how much house you can finance. Lets take a look at each factor.

Credit Score – There are numerous lenders that will lend you 100% if you have a mid-score (middle of 3 bureaus) of 600 or 620 or above. This only recently changed from 580. However, a few words of caution are in order –
· Many brokers will only pull a single credit bureau to give them an idea what you qualify for to save money. This can sometimes be misleading. So no matter who pulls your credit (yourself or a broker), be sure you find out all three scores.
· If you pull your credit, you will probably get a different (could be higher or lower) set of scores. The reason for this is a mortgage lender or broker gets scores through a mortgage credit model and a consumer pulling their own gets consumer model credit scores.
· Many lenders don’t use the credit score that a broker gets when they pull credit and none will use what you as an individual have pulled. Those that don’t use the brokers credit report will usually wait until a “file” is sent in, usually with the appraisal, application, income docs, etc. So if you think your score may drop be sure the broker goes to a lender who will use his report or pull a report early in the process. This avoids nasty surprises.

Bankruptcy – Many lenders require a bankruptcy to have been discharged for 2 years before they will do a 100% home loan. For foreclosures, all that I know require 3 years for 100%.

DTI or Debt to Income Requirements –This is calculated by dividing all your monthly debt payments including your proposed mortgage with insurance and taxes by your gross monthly pay. Most lenders require your DTI to be below 50% of your income.

Income Documentation – Once you are pre-approved for a mortgage, ask what income documents will be required. This usually means a computer generated pay stub within the last 30 days and W-2s for the previous year. Overtime and bonuses may not be used to qualify you depending on the consistency of the extra income and the lenders underwriting guidelines. For self-employed individuals, lenders want tax returns showing the required income. Aggressive tax planning can result in not having enough “income” to qualify for the loan you want. You may need to go the “stated” income route but your credit score will need to be around 40 points higher for the same LTV and the rate will also be higher. A few lenders will let you use bank deposits (routine only) as the same as w-2 income documentation. Oh, don’t forget that child support, unless it will be ending in under 10 months will count as a debt. Child support can often have a huge impact on Debt to Income ratios.

Job History – Lenders want to see a stable job history over the previous two years. It’s OK to change jobs if you stay in the same type job or industry and don’t change too much. Also, if you’re thinking about changing jobs wait until after your loan closes. Most lenders will do a verbal verification of employment the day of or before closing.

Rent History – While there are one or two lenders that do not check to see how timely you have been in paying your rent, most lenders check. They generally want to see between 0 and 2 “30-day late payments” in the last 12 months. Some lenders will want the rent verification to be cancelled checks unless you are renting from an apartment complex. A few will allow private landlord letters unless you are buying the home you’ve been renting.

Mortgage Payment History – As with rent history, most lenders want to see no mortgage lates for the last 12 months. There is one lender I know of that doesn’t care if you have had any mortgage lates except for any mortgage lates over 90 days. Many lenders consider 90 day mortgage lates as a foreclosure. Also, keep in mind that for credit reporting purposes, no late payments of any kind show up unless you are 30 days or more late.

The Appraisal – The Appraised Value should be equal to or higher than the purchase price. Also, you can not finance more than the purchase price. 1 exception to this is USDA loans. Some people are under the misconception that if a home appraises for more than the purchase price, they can borrow a higher amount for repairs, appliances, etc. Unfortunately, this is not the case.

Rural Property – Buying that dream piece of land and home out in the country can cause significant complications. Lenders don’t like to lend money on rural property as they tend to take a lot longer to sell if they end up with the home from a foreclosure. Some lenders won’t do rural at all. Some will lower the LTV by 5% or 10%. Of those that will do rural loans, most will charge a higher rate.

Credit or Trade Lines – The rules on these can vary significantly by lender, but the bottom line is the less established lines of credit you have, the less lender options you have even if you’re lucky enough to have been scored by the credit bureaus. Actually, no credit scores (usually due to lack of trade lines) is tougher to get a mortgage with than poor scores except for government loans (FHA, VA, USDA).

With the above information, you will know exactly what’s to expect in the sub-prime loan process. Good luck.

Real Estate’s Most Misunderstood Rule - Location, Location, Location

Home ownership can truly be one of the most satisfying experiences you can have today. However, in today's financially strained world, getting great value is critical. I am much savvier about buying and selling homes than I was when we bought our first of many houses. The knowledge I acquired as a Realtor and black-belt corporate mover (seven relocations) has provided me with a real world education about buying a home that is a good value and that will sell quickly when I am ready to move again.

In my experience, the highly quoted rule of “Location, location, location” is not quite so hard and fast. While very important, there are other factors as important. My real world experience says 1) Street Appeal, 2) Interior Appeal and 3) Price are equally important. Sure, if you buy in the most exclusive neighborhood with the best schools you probably won't have a lot of difficulty selling your home, but will you make money and will it sell fast? Maybe it will and maybe it won’t.

A home's street appeal is by far the most important factor. If the house doesn’t lure prospective buyers inside, they'll never get a chance to see your beautiful interior. Of the seven homes we have sold, five had great street appeal. They all sold vary quickly and for top dollar. This is the only test that’s really important. Our other two homes were beautiful on the inside and in good locations but pretty undistinguished looking from the street. Neither one resold quickly or for top dollar.

When it comes to interior appeal, the kitchen & family rooms are by far the most important. Also, if numerous prospective buyers express concerns about a particular element, fix it. We bought a house that had been for sale for over a year. That fact alone put us in a good bargaining position. The style was Cape Cod outside but with contemporary kitchen cabinets. The den/breakfast was traditional and in the same big space. I had a cabinet-maker make new traditional paneled doors. My husband and I painted and hung them. When it came time to move again, we placed an ad in the local paper and sold and closed the house in 60 days without the help of a realtor. I priced the renovations with the pros as high as $20,000. We did it for under $2,000.

The master suite is next in importance. You want neutral backgrounds and fixtures. What you are trying to achieve with potential buyers is a feeling or belief of “My stuff will look great in here.” Don’t spend big money on window treatments either. Floor to ceiling side panels and understated top treatments will do nicely and cost a lot less. That way you won’t leave a lot of money behind when you sell your home.

Lastly, let's talk about the price you set for your home? What determines good value? I look for a house that is on the low end of prices in an area. To determine your price, you can get data on houses that have sold near by from the web, the tax office or Multilist. Homes near your home that have resold in the last sixty days are most relevant. Make adjustments (Add and subtract) for individual differences. Never buy the highest priced house in the neighborhood or it will come back to haunt you at resale. Donald Trump makes most of his money on the front end. You should too.

Lastly, review your credit months before you apply plan on applying for a mortgage. That way you’ll have time to fix anything wrong before you apply for your mortgage. Credit issues will cost you in higher interest payments every month for the entire term of your loan. A word of caution on 100% mortgages, if you buy a house that is a fixer upper or one that needs work to give it street appeal, it may be years before you can afford to make any improvements. If you’re good at fixing up, buy a home with the potential for street appeal and create it.

9 STEPS TO BUYING A HOME WITH LESS THAN PERFECT CREDIT

1. Get a copy of your credit report. Whether you pull your own credit or have a broker pull it, remember there are three bureaus, so check all three. Some Brokers will only pull one bureau unless you ask for three. Your “ Credit Score” is the middle of the three or the bottom of two if you only have two. The three bureaus web addresses are http://www.equifax.com http://www.experian.com, and http://www.transunion.com They may charge a fee or offer a report as part of a credit monitoring service, which you may like to have as you rebuild your credit. Each bureau will be able to pull all three credit bureaus for you.

2. Review the report for accuracy and correct any errors. You can do this through each of the three bureau’s website. There may be a charge, but it’s well worth it. Correcting derogatory items on a report can quickly raise your credit score, qualifying you for higher LTV loans and lower your interest rate. This could save you tens of thousands of dollars over the life of the loan. A Broker’s credit reporting agency can also help through credit supplements. They can be pricey though as most charge around $25 per item per bureau so this may not be a good value if you need a lot corrected.

3. Start building better credit scores today. You want to improve your scores as much as possible so as to refinance as soon as possible. You might even see your score improve before you find just the right house and the lender pulls your credit. Sometimes just a few points improvement will put you into a better category with a higher LTV or a lower rate. Ask the Broker what the lender used as your score for the loan at the time of underwriting and if that qualifies you for a lower rate. If you’ve done your research and found an honest, qualified Broker they will try to lower your rate.

4. To find the right broker, get referrals. You want to find a Mortgage Broker that specializes in less than perfect credit mortgages that you feel comfortable with. If you don’t intend to pull your own credit, this will now become your first step in the mortgage application process.

5. Be open and honest in discussing your situation with the broker. I can’t count the number of times a customer held something back that came back to haunt us both. Items you should discuss should include:
a. Your credit
b. Your Rental payment history and proof of payments
c. Your Employment situation and history including documentation of income
d. The fact that you want a zero down loan (seller 2nd or gift of equity) with closing costs financed into the loan
e. How much house do you qualify for and at what rate
f. The type property you are looking for, i.e. rural, condo, single family home, mobile, etc.
g. What estimated closing costs will be through a GFE or Good Faith Estimate
h. Obtain a Pre-Approval letter to enhance your negotiating

6. You will want a Realtor who understands the issues when someone who wants to do a 100% loan with closing costs financed into the loan. Your Broker may know one. If the Realtor balks or seem hesitant, go find another.

7. Research the market. Be sure the realtor is showing you homes where the seller’s situation fits with your needs. This might include 1) Low Mortgage balance for a possible seller held second mortgage, 2) Good value so the appraised value will be above their asking price making it easier to build in closing costs into the loan and 3) A motivated seller.

8. Don’t fall in love with one particular home. Be prepared to make an offer (multiples if needed) on a home on your terms until you get one accepted and close your home as soon as possible before rates increase.

9. While you are enjoying your new life as a homeowner, make all those little improvements that will build equity by improving your home’s value for the future appraisal relating to a sale or refinance, all the while continuing to work on improving your credit score.

HOW NOT TO BUY A HOUSE

Buy or build your home outside the flood plain.

How can insure you never have a water moccasin in the house?

As a child that was a very compelling question to me. I still don’t take it casually.

The recent floods and storms have served to remind me of one of my personal real estate rules.

I won’t buy real estate in or near a flood plain.

So, what’s the answer to the question? You remember…the one about SNAKES!

One of my high school teachers had water in her beautiful home by the river MANY TIMES. That lazy, picturesque stream would regularly turn in to a raging torrent. The cleanups were awful. Mud, ruined furniture and belongings, snakes and other critters, sewer effluence and other major yucks had to be cleaned up on a regular basis. She would have bad dreams about waking up next to a SNAKE(!) or getting some dread disease.

Suppose it’s happened to you. The next varmint you’d have to contend with is an insurance adjuster whose job is to pay you as little as possible for your loss. He doesn’t care whether it bankrupts you. He’s trained by his company to be hardhearted. Have you ever noticed that insurance salesman and insurance adjusters are never the same people? They send the adjusters to grouch school and the salesmen to charm school. Insurance companies make money by not having to deliver on those promises.

So now we’re back to the compelling SNAKE question. How do you keep water moccasins out of your house?

If you don’t live in the SE you probably don’t have to worry about water moccasins, but every area has its own scary critters we all want to avoid.

The obvious answer is…

Don’t build or buy a house in or near a flood plain. What’s a flood plain? It’s any land area that is likely to flood during heavy rain or storms. Topographical maps show flood plains on them. If you are looking for a house, ask the question. Does this area flood or experience mudslides? Most people don’t have much interest in topography, but I do. You could save yourself lots of heartache by being interested, too. The only problem with topographical maps is they only show history. Development and changing weather patterns can create new floods and flood plains.

And then there’s the beach. You know. It’s right there by the water. HELLO!!!

They have lots of hurricanes in the Caribbean. Years ago only the poorer people lived on the beach. Beachfront property was not considered desirable real estate the way it is in the US. Any house built on the beach was structured of concrete and concrete blocks to withstand water, including the roof. As an alternative the houses might be built of expendable materials like recycled cans, salvaged wood or packing crates, risking little financial loss. Boaters know that they have to move north of the islands by a certain date or risk their lives, boats and insurance coverage. A nice yacht is way more expensive than a nice home of the same size.

Needless to say MY dream home is NOT on the beach. I love to go there in pleasant weather, BUT I don’t want my family, pets, treasured photos and antiques in a house there. If it’s storming, I’m somewhere else. Barrier islands can disappear of the face of the earth in a bad storm, along with your house and life. Should people live on them? I wouldn’t. I surely wouldn’t pay some ignorant, money hungry developer millions to live there. Historically there is a good reason those islands had few permanent residences on them. They got blown away with some regularity.

Even desert locations can and do experience flooding and mudslides if they get enough rain. People die in flash floods, storms, tornadoes, mudslides, hurricanes and other weather events every year.

When did we forget that you don’t build your house in a spot the might end up under water? Assume and plan for the worst and don’t risk your life and financial well being for a house that is at risk. Build storm shelters for tornadoes, stay out of flood plains and beaches where hurricanes can blow storm surge up YOUR butt, and get way up the hill in case the creek rises.

TIPS FOR SELLING YOUR HOME FOR MORE

So how do you do it? You start with a walk through of your house and look at it as if you were a potential buyer. What needs fixing? Is anything broken? Is the paint worn? Is the décor dated? Is there a lot of clutter? Does the house look good from the street? Is the landscaping nice?

Fix whatever needs fixing before any potential buyers see your property.

If you need a good factual idea of how much you can sell your home for, you can hire a professional appraiser. They will do a Comparative Appraisal of your property to get a good idea of the values in your immediate area. For three to four hundred dollars the appraiser will give you a realistic value to base selling your home off of. Additionally, the buyer will need an appraisal to get a loan so it can be easily updated if necessary.

Remember when you're selling your home, a potential buyer will open every door and cabinet if they are really serious. Then they will probably hire a professional inspector, too. He’ll try every switch, faucet and appliance as well as check the structural integrity of the building. You want your house to be able to withstand this close scrutiny.

The key is to make your older home look new. New in the way a model home in a new subdivision would look. That takes new paint, windows that work, and everything in good repair.

In the modern world one bath is the kiss of death for selling a home. Even singles will want two baths. A second bath will help your home resell faster and for more money and it will cost less than you think.

Your largest cost will be plumbing. I once met an oilman who said he didn’t believe in geology for finding oil. He said he believed in “CLOSE OLOGY”. If there was oil close by, there was probably oil where he wanted to drill. Well the same is true of plumbing. The toilet fixture is the biggest and most expensive to install. So if you have a half bath that already has a toilet and a sink, you’re in good shape. You can add a space for a tub/shower in a five’ X 32” addition. If you want and are willing to pay for more it’s your call. A small full bath will fit in a 5’ X 8’ space (not counting outside walls). A ¾ bath, one with a small shower, toilet and sink will fit in 6’X 6’ or 4’X8’. (All these are interior measurements. This type of addition should make selling your home faster and make you a good bit more money.

Kitchens are the next big stumbling block. If your kitchen is old, dark and small, it’s a problem. The easiest fix is paint. New appliances are important, especially to ‘foodies’. There are lots of us out here in the world. Cooking is one of those hobbies that help people connect, which is why we all tend to gather in the kitchen. A good way to bring light to an old kitchen is to remove the upper cabinets between the kitchen and dining area. Suddenly you have the elusive “open floor plan” without spending a lot of money. Taking out walls can be risky if you don’t know the difference between a load bearing wall and a regular wall, but even that can be done with an engineered beam and some posts. Another good strategy for older ranches is to raise the ceiling and go whole hog mid century modern. Wall partitions can still carry loads and open the floor plan at the same time.

If you’re short of kitchen storage a four inch deep wall of shelf storage, full height with doors on it can add storage, wall interest, and insulation in a space only twelve inches wide. If you have more space, add more shelving. The doors make it look less messy, which is always a problem in kitchens.

Needless to say these options cost more and are more work. Do yourself a favor and do them soon enough for you to enjoy them, too.

Make sure all the work you do meets or exceeds building code in your area. Your local inspection office can tell you what these codes are.

DOS AND DONT'S BEFORE YOU BUY A HOME

Before you start looking for a home to buy, there are some steps you need to take to avoid frustration and heartbreak down the road. Following are some steps that could save you tens of thousands of dollars or even mean the difference in whether you can buy your dream home or not.

1. Pull your Credit from all 3 Bureaus and review it for accuracy. Be sure and look at any public records like judgments, bankruptcies and tax liens. Also on late payments if you have had a good history with a creditor, ask if they will do a courtesy removal of a late payment. Sadly, many companies are quick to add negative items to your credit report but are slow to reflect the fact that you have satisfied them.

2. Dispute and have any errors corrected on your report on ALL 3 bureaus. You can do this through the three bureau’s websites. They are www.transunion.com, www.equifax.com, and www.experian.com.

3. Put together a budget to figure out how much house payment you can afford. Be sure and include 1/12th of your annual taxes and property insurance. Also, be sure and consider how you would cope if you had a drop in income such as one spouse loosing a job. Just because a lender or mortgage broker says you qualify for a certain price home does not mean you should buy a home at this price.

4. Establish (even write down) your needs and don’t get caught up in buying a home just to impress other people. As a part of this evaluation be sure and consider 1) School systems, 2) Commute time, 3) How quickly the home would sell if you had to sell it quickly, and 4) Any money needed to fix up the home to suit your needs, particularly if you borrow all or nearly all of the purchase price.

5. Do not Borrow significant money right before you buy a home. This includes cars, credit cards and personal loans. If you just have to buy a car, wait until after you buy the home. The extra debt can cause you to qualify for less home than you would without the debt. I can’t tell you how many people that could not qualify for the price home they wanted because of a recent car purchase. Deciding to buy a cheaper car after you bought a new home is far better than the other way around as a car depreciates dramatically and most homes increase in value. Plus you should get a tax deduction on the interest.

6. Don’t change from being salaried (W2) to being self employed at least a year and in most cases 2 years before trying to get a mortgage to buy a home.

7. Don’t pay off old judgments or old collections to try to improve your credit score. Often times this will LOWER your scores. If the lender requires you to pay these off or you just want to pay them off, you can do it during or just before or after closing on your home.

Following these simple steps prior to starting the home buying process can make the process much smoother, less stressful and save you a lot of money.

REMODELING FOR MONEY

Profiting big at resale with the right kind of kitchen remodel.

You see it all the time. People say you can get 70 % of what you spend on a new kitchen back at resale.

To me that means you just suffered a 30 % LOSS!!!

On a $60,000 kitchen that’s $20,000.

NO! NO! NO!

I want remodeling to bring ALL the money back at resale and then make MORE $$$. An investment by definition is supposed to make money. YES!!!

I want to see the $$$.

The other part of remodeling is to make resale faster. People want great, functional kitchens and top quality appliances.

An interior designer I know told me I know all the cheap ways to decorate and remodel. But where designers often go wrong is in over decorating and making choices that don’t work well for resale. The bonus of good brisk resale is my goal. A really decorated space may actually hurt resale. A real estate appraiser once told me that relo companies hate to see the phrase “designer colors”. It usually means they will have to paint the whole house before they can sell it.

Say you are working on a kitchen. What do you do? The following hints can apply to your whole remodeling project, not just kitchens.

First, think paint. In any room it’s the one single step that can clean it up and make it look NEW and PRISTINE. An expensive custom paint treatment may turn many buyers off.

What is the other thing a potential buyer wants to see regarding paint color?

“Oh, this will go with my stuff,” they say as they look at your hard work. Have you seen their stuff? No, you haven’t, so how are you going to insure it goes with their stuff?

If it’s going to go with their stuff IT HAS TO BE NEUTRAL IN COLOR! It’s also good if the walls are a warm neutral somewhere in the cream, pale yellow, tan or khaki range with white trim. Your own treasures can bring in accent color and your own personality, but exercise restraint.

Cabinets can look architectural. Architecture can bring design strength and enduring beauty to a space more effectively than decorative items. Think Shaker. It’s almost Zen in its level of restraint. It’s also classic design without a lot of decoration and it’s easy on the eye. How will your cabinets look if you trim them out with a nice crown detail and under cabinet trim and lighting? That serenity is great for resale. For resale, less is more.

In the important task of remodeling kitchens for resale, there are five ways to make money when you sell.

1. Reuse the cabinets if possible. There are LOTS of creative ways to update cabinets, most involving paint. If you really hate the doors, just replace them, and reuse the cabinets. For resale it’s better to have them in good repair and clutter free. New cabinets may cost as much as $50,000 and may only be MDF. Good old wood cabinets like the ones in many older houses can be functional. They often need some repair, but the work you do will make you thousands of dollars.
2. Leave the sink, fridge, and stove where they are, but get new ones. Many buyers will view the stove as an ego item like a luxury car. This is the place to spend the money, not too much. Just enough.
3. Replace counter tops with a high quality material like granite in strategic locations. Use something cheaper, but still nice in other areas.
4. Make the floors work with the look of the house. Like cork for mid century modern, black and white tile for Victorian, or slate or wood floors for country. Ceramic tiles are great and less expensive than other materials. They’re great value.
5. Pulls and handles for cabinets and sinks can be updated to current style and expectations. It’s like changing your hair so you avoid looking your age.

There it is. Get a great look that doesn’t cost $60,000 and require major construction. If you are handy you can do a lot of the work yourself. If you feel you can’t, hire a professional. Many vendors of appliances and sinks and fixtures will do installations and deliveries for free or a small fee.

You don’t want a potential buyer to think DIY, but if you do it yourself, it’s really going to save BIG $$$ and make you feel proud. I have gotten better at doing the work than many people who claim to be pros. You can too.

HURRICANE ROULETTE

So you’re thinking of buying a house on the beach. It’ll be fun to live there and you just luv storms. It will be great!

Ask yourself one question. Have you ever actually experienced a big storm or any of the other really big disasters Mother Nature can dish out to the world?

Maybe you should study a little science before you decide what you want to do.

There are beach houses in Florida which have been storm damaged and repaired (or not) multiple times in recent years. Standard stick built or modular houses in the US are not able to withstand these storms. Coastal communities have seen insurance rates increase outrageously just because these houses are sitting ducks…as are the people living in them…every time a storm hits.

And then the storm passes and the insurance adjuster shows up. His job is to make sure the insurance company only pays the minimum on your loss. It’s not his job to be nice or fair to you. It’s his job to make sure his employer loses as little as possible. Many residents of New Orleans and the gulf coast are STILL waiting for the insurance companies to pay off or have accepted payments of a fraction of what they paid for their properties. Many got nothing and have little hope for anything. Oh, and that great mortgage you had, you still owe it.

You might as well paint a big old bull’s eye on your house and get ready to lose everything…including your life and a good portion of you net worth.

In the islands people don’t want to be living on the beach except when the weather is peaceful. The wealthier residents live up the hill and offer shelter to their fellow islanders when the weather gets bad. Those disposable grass huts and concrete block buildings on the beach are abandoned to the ravages of Mother Nature.

So why are Americans building fragile, expensive stick built houses in salt flats, on beaches and in flood plains all over this country?

Our mountain location has had an influx storm refugees from Florida. These new residents have had the experience of living in a collapsing structure during a hurricane. One woman told me about leaning on a load-bearing wall that was shaking in the wind while she prayed it would hold through the storm. Her house was a pile of rubble when the storm passed. She was grateful to be alive.

When hurricanes hit they tend to kick off tornadoes which have even stronger winds than the hurricanes that spawn them. Tornadoes turn ordinary materials like 2 by 4’s into missiles that punch right through cars and ordinary brick walls. Even brick veneer over concrete block won’t stop them. Then your garage doors collapse, your windows fail, your roof starts to blow away and the water is rising around your knees. You ask yourself, “Why didn’t I leave when I had the chance?”

Some things are better to learn about without the actual experience…like VD, tornadoes, storm surge and hurricanes.

If you really want to live on the beach build a building that has at least a decent chance of surviving the storm and the water. Just be sure that you understand that building won’t be a standard stick built house like the ones most developers build. It might also cost a lot more depending oh the type structure.

If you can afford that type of building MAYBE you can to stay at the beach when the storm hits. If you can’t afford it be sure and drive inland and kiss your net worth goodbye. At least you’ll be alive when the storm passes.

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