He said, “there are ways that things are supposed to be done and then there are the ways that things really get done.” He further explained that as a loan officer if you have a loan applicant that falls outside of “boring and exact” loan requirements, it is up to you to show the underwriter why the loan makes sense - if in fact it makes sense.

I have written a lot of loans for my customers over the years where I have used this coaching, but it has always been up to me to figure out the angle. Now at least as far as Va loans (and as I looked the list - many other mortgage programs) thanks to this section I ran across on Compensating Factors I have some sort of reference point to start from if I need ideas about how to make sense of a loan that falls outside of the “requirement box.”

The “falling outside the requirement box” that I’m talking about is like the Gray Area. I gotta think that most people have heard of the term Gray Area. If you haven’t send me a note and we’ll talk about it. But, for what we’re talking about here - VA Loans - the Gray Area refers to an aspect of a VA loan applicant’s loan application that falls outside of the “boring and exact” mortgage underwriting requirements.

Let’s be real, very few people in life really fit perfectly into a box. Just about everyone I know has something going on - has some story - that makes either their income or credit situation just a little different from the next person. Yet, VA loan underwriting criteria as with all mortgage loan criteria are pretty cut and dry when it comes to what they accept.

Well it seems that the VA is pretty smart as they recognize that people have their “stuff” and have made some allowances for that stuff. Here is a list of the stuff that the VA calls: Compensating Factors which if make sense when presented with a loan application might just lead the applicant to an approval even though they don’t fit perfectly into the loan requirement qualification box.

• excellent credit history
• conservative use of consumer credit
• minimal consumer debt
• long-term employment
• significant liquid assets
• sizable downpayment
• the existence of equity in refinancing loans
• little or no increase in shelter expense
• military benefits
• satisfactory homeownership experience
• high residual income
• low debt to income ratio
• tax credits for child care, and
• tax benefits of home ownership.

So, if you are considering looking to buy a home using a VA loan, or any mortgage for that matter and you think that you have to be perfect and fit into a box, remember this list and this article and apply for your mortgage anyway. If it makes sense - you have a good shot at getting the mortgage and your home. What do you have to lose?

But that is just what is happening - and it is a great thing.

Recently, Sunstreet Mortgage announced that they are expanding by opening a Mesa office and one of my friends (and soon to be loan officer extraordinaire) Christoph Schweiger is planning on joining their team.

Christoph will be a great loan officer in my opinion because he has spent so many years in real estate - in fact, he was one of the first Realtors who had a blog here in Arizona. And if you are looking for help with your home financing or to refinance your current home, who better to help you than someone who understands both the financing side as well as the real estate side of the transaction?

In any case, here are a few company highlights that Christoph points out:

• The three principal partners have over 56 years of originating loans and over 20 years of experience in running a mortgage banking operation
• The branch has two managers to help their loan officers
• The company is based in Tucson with branch offices in Nogales, Arizona and Albuquerque, New Mexico
• Was founded by John E. Capp, Sarah J. Roads and Patrick W. Sniezek

They are planning on having a grand opening party, but until they are completely moved in, you can also feel free to stop by for a visit!

In this series, I’d like to focus on the differences in the title and escrow process for the two most common transactions in today’s market – Bank Owned (REO) and short sales. In Part 1, we will discuss REO (Real Estate Owned) transactions.

The first difference from a traditional escrow is the bank owning the property nearly always directs the transaction to their preferred title company. The banks have negotiated rates and developed relationships with specific companies, and they insist that the escrow be opened with their title company.

Another difference is the contract. More specifically, it’s the addendum that banks add to the purchase contract. A couple of major points addressed are:

1. The bank details which fees they will or will not pay
2. The bank insists on final approval before the transaction can record

These changes to the contract are significant and buyers need to be aware of them if purchasing a bank owned property.

Much of the time in these escrows, the title commitment and policy are issued through a national provider, not the local title company. Once again, this is because the banks have negotiated deals with title companies on a national level. This can delay receipt of the title commitment, and it also requires another layer of approval before the transaction can record.

As you can see, needing approval to record from the selling bank and an outside title company can create delays that can push back the close of escrow date. With the high volume of these types of transactions, some requests can take up to 72 hours to process. This is an important consideration when purchasing a bank owned property. For many people, however, the slight delay in closing is well worth the deeply discounted prices many are finding in this market.

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Big thanks to our friend, Bill Risser for writing this “guest post” for us.  Bill is a branch manager for Chicago Title in Gilbert and is a great resource for us. Watch for more posts from Bill in the near future.

To search for bank owned homes near light rail in Phoenix, feel free to contact us any time.

I don’t know — maybe.

Heck, there is even talk in Washington that the $8000 tax credit will not only be extended as far as timeframe - but also opened up to all people buying a house, not just the people who are buying their first home.

“H.R. 2801 (111th Congress) 2009-2010 Home Ownership Moves the Economy (HOME) Act of 2009, is a bill sponsored by Howard Coble, a U.S. Representative from North Carolina’s 6th District. Representative Coble’s bill’s goal is to extend the tax credit into 2010 as well as allow all home buyers take advantage of the tax credit.”

Even more interesting is the idea in the bill that would not only expand the credit into 2010 and open it up to all home buyers, not just first time home buyers — but it also would expand it to be a maximum of $15,000.

If - and I mean IF - this new bill passes in its current form, I suspect that it would have a huge impact on the market - and if it hadn’t already turned around, this would be the thing to turn it around.

Of course, we might all go broke trying to pay for it in the process, but heck - what is another couple of billion dollars on top of the trillions we are already spending?

Stay tuned.

It will be interesting to watch if it gets extended or not.

Which one is the “best” program?

It depends.

Start by asking these 2 simple questions:

1. Is the home currently owned by Fannie Mae? If yes, then the Fannie Mae HomePath mortgage program is probably the best bet.
2. Does the home need less than $35,000 of repairs and not owned by Fannie Mae? If yes, then the FHA 203k streamline program is probably the best bet.

The FHA 203k Streamline Program

Since many homes are not owned by Fannie Mae and most need less than $35,000 in repairs, the FHA 203k Streamline program is a popular option. Some of the highlights of the FHA 203k streamline program include:

• It works like a construction loan – you are able to buy a home that wouldn’t qualify for FHA financing and finance the repairs that will bring it up to FHA loan standards
• The total amount of the loan is the purchase price plus the amount needed for repairs
• FHA has limited the Streamline 203K program to a range between $5,000 and $35,000
• The requirements to qualify are the same as a traditional FHA loan
• The construction phase can’t begin until the loan closes. The funds to pay the contractor come from escrowed funds at the closing
• Up Front Mortgage Insurance Premium and Monthly mortgage insurance are paid to FHA just like a regular FHA loan
• Appraisal required

As with everything - the financing packages available when buying a bank-owned home will need to be weighed carefully. Be sure to ask multiple people and do your research… but in the end, you will find that by asking the 2 questions listed above, you will most likely get to the right answer.

Neighborhood Stabilization Program Overview

• The home you purchase must be your primary residence and you must agree to live in the property for a period of time (5,10,15 years) based on how much grant money you receive.
• Prior to writing an offer on the home, you must attend and complete an eight‐hour Homebuyer Education Class provided by one of the ADOH participating homebuyer counseling agencies. (A list will be provided by your lender once you begin the process.)
• You must have a maximum debt‐to‐income ratio of 31/43.
• You must have two months PITI reserves.
• You can use any type of financing with the NSP program – including paying cash. That means you can still get up to 22% of the purchase price even if you pay cash for the house.
• You must be approved and have your paperwork completed for the program prior to submitting an offer on a house.

The income limits for the program are based on family size - but for a family of 4 in Maricopa county, a family can have a maximum income of $79,100 in order to qualify. The property must be bank-owned (a Foreclosure) and only 1% of the down payment must come from the buyers own pocket — which means that the other 2.5% required by an FHA loan can be a gift from someone other than the seller or “interested party” (read: parents, relatives, etc.).

The Neighborhood Stabilization Program is a great program and will have money available for the next year or so, so be sure to act fast if you want to take advantage of  the NSP program and the $8000 tax credit.

Take a look at the following areas to see if any of these available homes fit your needs and feel free to contact us with questions or to set up a specific search that fits your needs.

This particular search is for foreclosure homes near the Thomas and Central light rail station.

With the large amounts of traffic in these areas, we hope to see economic development continue to improve. I am enclosing a sampling of homes for sale near this area for your review. To see a complete list or to see a search of more specific criteria, please feel free to contact us any time.

Not long after the $8000 tax credit was announced, there were people trying to figure out how to “monetize” the tax credit;  or, in other words - how to use some or all of the $8000 tax credit for closing costs rather than waiting for the IRS to issue the credit to you.

As of Friday, it became official mortgage news. HUD announced that people who were eligible for the $8000 tax credit could now “monetize” it and get the money fast from an FHA approved organization.

According to CNN Money:

On Friday, the U.S. Department of Housing and Urban Development (HUD) announced that first-time homebuyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs.

“We believe this is a real win for everyone,” said HUD secretary Shaun Donovan in a speech before the National Association of Homebuilders (NAHB). “Families will now be able to apply their anticipated tax credit toward their home purchase right away. What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

The $8000 tax credit is expected to help as many as 160,000 people buy a home in 2009 that may not have been able to without the credit - and monetizing the credit will probably increase those numbers slightly. While the 160,000 new home buyers is nationwide - there is no little doubt that a decent amount of those people will buy a home right here in Arizona.

According to Reuters:

The National Association of Home Builders estimates that the $8,000 first-time homebuyer credit will stimulate 160,000 home sales across the United States — 101,000 purchases from first-time buyers and another 59,000 purchases by existing homeowners who sold dwellings to first-time buyers.

Can You Use The Tax Credit For Your Down Payment?

Yes, — but you cannot use the tax credit to cover the first 3.5% of your down payment, you must come up with that on your own or have it gifted to you from a blood relative.

Once you come up with the initial 3.5% down payment that is required by FHA, if you would like to use the 8000 tax credit to add to that down payment, that is allowed.

How Much Does It Cost To Get “Monetize” The Tax Credit?

The costs to monetize the 8000 tax credit are pretty reasonable because HUD has given specific guidance regarding any fees charged. According to the Mortgagee Letter:

Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  (Example:  $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)

Most people still have at least one question about how the monetization of the 8000 tax credit works, so here are just a few more resources that are available to help you learn more.  Also, be sure to contact a loan officer who works for an FHA approved lender - they will also be a great help.

HUD Official Announcement

Official Mortgagee Letter 2009-15

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

8000 Tax Credit Questions and Answers

According to this REUTERS article , “One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process.” Obviously, this will be a big part of the market for quite some time.

When the market was in hyper-overdrive, people would buy anything that they could mortgage and the banks made it easy to do so.  Now, as lending guidelines change, prices adjust, investors and the average Joe try to recover, and a market looks to stabilize, people once again have the luxury of location, location, location.

Many of the real estate investors searching for property have different expectations today than in the “good old days” where homes would often appreciate $10k in a month.

This morning, I looked at a report of homes listed as a “short sale,” “lender owned” or a “pre-foreclosure” sale within 1/2 mile of the light rail line in Arizona. There were 180 homes fitting this criteria begining at just $23,000 which would have been unheard of during the market frenzy. The average time on the market for these homes within 1/2 mile of the light rail line is currently 90 days with an average list price of $120,350.

As investors look at a “sweet spot” in the low $100k range, there appears to be a tremendous number of homes near light rail for their choosing. We will continue to update different types of homes in this area to see if they make sense for your situation.