AW1 Aimee Waltz Cell: 703-475-7175 Office: 703-466-4004 Email: aimee.waltz@lionbank.com NMLS: 166422 Cures for Common Borrower Issues Outline I Importance of Seeing a Lender First a. Run and Review Credit b. Review Finance (and Mortgage Insurance) Options c. Can Credit, Debt, or Loan be restructured to Borrower s Advantage a. Example of savings with improved Credit Score b. Resolving disputed or inaccurate accounts d. Review Income and Employment a. Accurate calculation of Borrower Income b. 4506T IRS confirmation of reported income, expenses, undisclosed information e. Assets Show me the Money! a. Mattress Money/Seasoning Requirements b. Source of Non Payroll Deposits f. Lender Requested Supporting Documentation g. Realtor Script Sample/Example 1
Slide 1 AW1 Aimee Waltz, 12/10/2015
Cures for Common Borrower Issues (Continued) II. III. IV Seller Contributions and Concessions Chattels (Personal Property) included in offer Condominium Purchases a. FHA/VA/Conventional Financing Warranting the Condominium b. 2 approvals Required (Borrower Credit and Condominium Project) V. Home Inspection Repairs a. Home Inspection Addendum b. Completing Repairs Timely and Inspect Early (Post TRID) c. Escrow Holdback VI. Trusts, Short Sales, Powers of Attorney, Relocations VII. Oh No House Appraised Low! Credit Meeting with a lender early in the process helps everyone determine: Debt Ratio and if there s excessive debt Whether the debt can be paid off or restructured Transferred to another party Paying down a debt could improve the credit score and thereby A. Improve the rate quote B. Improve the mortgage insurance costs (See Example) Variances with Credit Karma and Others Counsel Borrowers to not take on new debt while loan is in process. Credit is monitored up to closing. New debt may affect borrower s ratios or may delay closing as the lender verifies the new debt and includes on credit report. Credit Disputes. Consumers may dispute inaccurate or unfairly reported accounts. Disputing removes that information from the Credit Score calculation. However, lenders require disputed accounts be resolved prior to underwriting so credit scores may accurately reflect the borrower s credit history. This too may take time. 2
Credit Ex: Example: Sales Price = $500,000 Down Payment = $50,000 (10% of S. P.) Loan Amount = $450,000 If qualifying credit score was: 699 vs. 720 vs. 760 Monthly PMI premium: $274 $188 $154 One time Upfront Premium $13,275 $9,225 $7,425 2.95 points 2.05 points 1.65 points 09/14/2016 Income for Qualifying and Eligibility Accurate calculation of income is essential. Qualifying Income may be different from Eligible Income. (VHDA/FHLB) Government programs have strict guidelines for determining annual income (FHA requires 2 year average for hourly wage earners). VHDA, USDA, and FHLB are examples of programs with eligible income guidelines 1099 income is viewed differently from W 2 wages. 1099 generally indicates write offs or variable earnings that may have to be averaged. Ex. Gov t Contractor may be considered self employed. Verifying Income through the IRS may generate questions: A. Write offs B. Side businesses that may be losing money C. Undisclosed income or losses D. May affect qualifying 3
Assets Mattress Money/Seasoning requirements assets need to be seasoned 60 days (as a rule). On occasion lenders may request prior statements (ex: proving 12 month s rental history). That kind of request may cause a predicament. Sourcing Deposits.large non payroll deposits need to be verified. Are these gifts? Loans? These deposits may impact qualifying or meeting minimum borrower cash requirements. If funds are in a 401K, stocks, or bonds or otherwise need to be liquidated, the borrower may need time to request the funds, receive the funds, and have the funds available for closing Gift Funds.A gift letter needs to be completed by donor and borrower. Depending on the loan program, may need to prove donor s ability (copy of donor s bank statement), prove gift was made (copy of check), and prove borrower has funds available (updated bank statement). Lender Requested/Required Documents It s best for borrowers to pull their documentation together prior to purchasing. That way they know if items are missing (ex: W 2 s) or are illegible. Replacing or generating these items may take time. ALL PAGES of bank statements. Some banks print their statements 2 sided and we get pages 1 3 5, missing 2 4 6. Statements need to include identifiable information such as bank name, client name and account number. Insurance Policies. Borrowers should shop for this early. Lenders need the decided upon insurance policy and carrier a week to 10 days prior to closing. Need the exact amount to get Clear to Close status and for the closing department to prepare paperwork with the appropriate escrows. The CD can not be generated without the final insurance figures. 4
Realtor Script Importance of Seeing a Reputable Lender (As early in the process as possible) Question: Have you spoken with a Lender? YES.. NO. GREAT.Who did you speak with? It s not a bad idea to get additional opinions, or hear other suggestions. Could I have a lender that I trust give you a call? The Mortgage Process is very different these days. A good lender will help determine how much you can afford, review the home buying costs, go over loan programs and options, and most important offer suggestions that could save money. They ll answer your questions on the loan process and list what information and documents you ll need for application. Could I have a lender that I trust give you a call? 5
The Max Interested Party Contribution To Borrower s Closing Costs Can Vary Based on Loan Program, LTV and Occupancy Fannie Mae Freddie Mac FHA VA Owner Occupied 6% 4% for closing Loan to Value (LTV) Maximum costs + any for all loans points paid 90.01% or Greater 3% 75.01% to 90% 6% Plus to 4% 75% or less 9% Sales Concession Total 8% Non Owner Occupied 2% Max for all LTV's N/A N/A Exception to the Rule Important to know the difference between seller contribution and seller concession If seller contribution exceeds maximum allowable amount, lender considers the excess a seller concession. A seller concession requires lender to treat concession as a dollar for dollar reduction on sales price. 6
Seller concession, dollar for dollar reduction so what? Example 1: $100,000 Sales; $80,000 loan (80% LTV) $1,000 seller concession means lender considers sales price $99,000 $80,000 loan now becomes 80.8% LTV (less than 20% down payment) and mortgage insurance would be required. Example 2: $100,000 Sales; $72,000 loan (72% LTV). $1,000 seller concession means lender considers sales price $99,000 72% LTV changes to 72.7% LTV but not a problem. Change in LTV has no impact and you ve negotiated an extra $1,000 for your buyer! 7
Chattels (Personal Property) Personal Property that conveys with the sale, ex. pool table, swing set, pool equipment, lawn mower, tractor, cabinets and shelving in garage. A. Best to have a personal property sale outside of the real estate contract. B. If it s negotiated in the contract: a. Conveys at the convenience of the Seller b. Or a dollar value will be determined by appraiser It will be deemed a Seller Concession resulting in a $ for $ reduction of sales price which could require a greater down payment by borrower or impact LTV and increase costs. I Just Sold or Listed a Condo Business as Usual, Correct? For lenders, a mortgage secured by a condominium is really two approvals: 1.) approving the buyer s income/assets/credit as normal, and 2.) ensuring the condo is warrantable (warrantable is defined as meeting investor (Fannie Mae, Freddie Mac, VA or FHA, etc.) guidelines. Limited Review of Condo is Available when LTV is 75% or less. 8
Common issues when warranting condos: Currently, the largest issue is not having adequate budgets. Condos must have 10% of their budget (or more) as a line item for reserves to cover unforeseen repairs. One owner cannot own > 10% of the units. Pending litigation could be a problem. Delinquent condo dues can be an issue (cap is 15% of units in arrears) If an investment property, watch occupancy ratio More Common Issues When Warranting Condos: Sufficient insurance is also required: Project must carry guaranteed replacement cost insurance, Must have at least $1,000,000 liability coverage Must also have adequate Fidelity coverage If part of a Master Association, lender must verify the amount paid to the master association and will most likely need the insurance for the master association Example: Reston and Lansdowne have master associations and pay two assessments. Lender will most likely need master association insurance as well as the cluster/condo insurance. 9
Seller won t repair item on home inspection; we already have max seller closing costs contribution are there any other options? Consider an escrow holdback Funds are placed in escrow at closing to pay the contractor for repairs made after closing Writing addendums to protect all parties AND PLEASE THE LENDER What lenders DON T want to see In lieu of making repairs to damage in house found at: 1) roof blah blah blah 2) furnace blah blah blah 3) plumbing blah blah blah Sellers to credit $XXX towards purchaser s closing costs. What lenders DO want to see Home inspection contingency hereby removed. Seller to credit $XXXX towards purchasers closing costs. 10
Trusts, Short Sales, Powers of Attorney, Relocations Powers of Attorney are best generated by the title company conducting settlement and need review by the Lender prior to closing. Regarding Trusts Loans are made to PEOPLE, not Limited Liability Corporations (LLC). However, Title to the property can be held in a Revocable Trust. The lender will need to see the executed Trust agreement, all pages, with sufficient time to review prior to closing. Short Sales.A Short Sale requires short sale approval letters from the lender (s) that are involved. These letters will have deadlines which may not coincide with your contract necessitating new letter (s) which may cause delays. These lenders will want to see the CD 48 72 hours in advance of closing. Relocations.A Relocating Buyer may be offered relocation closing assistance by their employer. This assistance needs to be verified by the employer specifically, a copy of the relocation manual is not adequate. If funds are provided in ADVANCE of closing, the lender will need to document how much is being paid and prove the funds have been provided (wire to title company). The appraisal came in below sales price; how do I hold the contract together? Appeal the value to try for an increase. Reduce the price to equal the appraisal. Split the difference Hold firm at the original sales price 11