OK, this ought to be the last post of the exhaustive review of why there is so much documentation required to get a mortgage these days.  We know about the Ability to Repay requirement and why it takes so long to process a mortgage  (Part 1 & 2),  also what the 8 factors are in contributing to Ability to Repay (Part 3) and 4 of the 8 the documents required to prove Ability to Repay (Part 4).  This will finish out the documentation requirement with the final 4 documentation requirements.

5.  Monthly Payment for Mortgage-Related Obligations - What this means is that your mortgage payment is made up of at least 5 different items - and possibly a 6th.  The lender wants to protect themselves against you defaulting on the payment, (see Part 1) so they need to take into account everything that involves the house that would affect the mortgage payment.  These items are:

•      Principle - The amount of principle you are paying back each month
•      Interest - The amount of interest you are paying each month.  Principle and Interest payments usually total the same amount each month.  At the beginning of a loan, not much goes to principle, but as the principle increases, the interest decreases, making the total of the principle and interest the same each month.
•      Taxes - Property taxes are usually placed in escrow.  The amount of yearly taxes are estimated, and 1/12 of the yearly taxes are collected each month.  Then, the mortgage company pays the taxes from the escrow account at the appropriate times of the year.
•      Insurance - Homeowner's insurance is required by all mortgage companies.  They want to be sure that if a calamity strikes the house, the house will be put back in reasonable condition.  Who you get your homeowner's insurance through is up to you.  Once again, 1/12 of the insurance requirement is collected each month.
•      PMI or MIP - This is your Private Mortgage Insurance, also known as a Mortgage Insurance Premium.  1/12 of the annual fee is collected each month.  This fee protects the mortgage company against you defaulting on the first 20% of the mortgage.  Once 20% of your mortgage is paid off, you can have the mortgage company drop the additional insurance.  HOWEVER, they will not do it on their own - you have to ASK for it!
•      HOA fees - Homeowner's association fees generally run between $45 and $70 each month, unless there is something special about your neighborhood.  If your neighborhood is in a gated community or has a swimming pool, chances are that your HOA fees are much higher.  Also, in a townhome or condo community with recreation areas or pools, it could be higher.  Since the HOA can attach a lien to your home as a result of non-payment of HOA fees, these fees will also be considered part of your annual payment, even though they are paid directly by you, and are not placed in escrow.
•      CFD Fees (in certain areas) - In some of the newer communities, the cities actually paid for the installation of sewers and roads, and allowed the builders to just build the homes instead of installing everything.  In these areas, there is typically a Community Facilities District established that essentially taxes each individual residence a certain amount to pay for the roads and sewers. The taxes usually expire after 20 years, although they can be paid off earlier if desired.  These taxes are paid by you to the city, and are not put into escrow, but they still count against the requirements of your mortgage!

6)  Your Current Debt Obligations -  This is essentially anything and everything that you have to pay to anyone.  Alimony, Child Support, judgements, credit cards, RV loans, Car Loans, and anything else that you owe.

7)  Your Debt-to-Income Ratio - This takes into account your income each month, and your debt obligations each month.  The ratio is:  How much money do you owe on a monthly basis divided by the amount of money that you make on a monthly basis.  Generally, the ratio needs to be below 45%.  If you have income from alimony and child support or a judgement, you can probably include it in your monthly income.  Interestingly, Medical Collections are often excluded from this calculation.

8) Your Credit History - This is an entire topic in itself.  Your lender will "pull your credit" from all the the 3 credit reporting agencies.  If you have any recent credit issues, you will be asked to explain them in writing.  Of course, recent bankruptcies and foreclosures will preclude you from obtaining a loan except in certain circumstances that can be documented.  I had a client who had a foreclosure and was able to document the circumstances, and then obtained a mortgage within a year of the foreclosure.

OK, so to sum everything up, documentation is the root of all mortgages!

#RealEstate #Avondale , #Goodyear , #Buckeye , #Glendale,  #Phoenix, #Surprise, #Peoria, #Tolleson, #Laveen, #Waddell , #Wittman

Lender Conundrum - Documentation Requirements - Part 4

After making the decision to own a new home, getting in touch with a mortgage person, finding a Realtor, and maybe even seeing a few homes, it is time to start documenting your current financial situation.  You don't have to decide what is needed for documentation - your lender will provide an initial list for you, but then you might have to provide additional documentation to back up the documentation that you provided for your lender initially.  That's right - you may have to document your documentation!  Here are some thing to look out for so you can be prepared:

1. Bank Statements - This would read better if it said FINANCIAL STATEMENTS.  Plan on giving up all your financial statements - IRAs, 401Ks, Retirement Accounts, Stock Accounts, Savings accounts, and Checking Accounts for everyone who will be involved in the loan.  Also, a statement isn't complete unless you have all the pages - even the pages at the end that you always throw away.  If the pages of your statement say 1 of 5, 2 of 5, etc., you better have 5 pages of statements.
2. Your Current Employment Status - First, let's hope that you have two solid years in with the same employer.  Second, if you have changed employers in the last two years, it needs to be documented.  Did you change for a pay raise?  Did you get a degree and take a better job?  Did your last employer go out of business?  Maybe you changed because this employer was closer to where you live.  Any way you cut it, the reason behind changing jobs should have some positive impact on your life.  If that is the case, you will be ok.  If you changed jobs more than twice, and it wasn't for a promotion, more money or some other convenience, you might have a problem.  This is also where you identify multiple income streams.  For example, if you have child support or alimony and the income from a job.  Both of these incomes can be added together for income.  Of course, you will have to prove that the income from the child support is steady.  Simply providing a divorce decree will not be enough.
3. Your Monthly Payment for the New Mortgage - This is primarily a function for the Lender.  They will check the current taxes, HOA fees, down payment amount, mortgage amount, possible ongoing assessments on the property and the payment for homeowner's insurance to make sure that they have a breakdown of all the items you will be responsible for paying in conjunction with owning the property.  Then, they will come up with a payment that you will be responsible for making.
4. Your Monthly Payment for Any Other Loan or HELOC - Here is where they look at what you are currently paying on your car (if anything), the credit cards, the alimony or child support, the boat loan, the loan for your two ATVs, etc.

We will tackle the other items that your lender checks next time.  Until then, Have a great Day!

#RealEstate #Avondale , #Goodyear , #Buckeye , #Glendale,  #Phoenix, #Surprise, #Peoria, #Tolleson, #Laveen, #Waddell , #Wittman

Lender Conundrum - ATR Factors - Part 3

OK, so you have decided to take the plunge and own a new home.  You have braced yourself for the ordeal of digging through files to find your tax returns from the past two year, pay stubs and auto loan history.  This shouldn't be real bad, right?

And then it starts...

You need bank statements - complete bank statements.  Meaning that the last page full of boilerplate language that you always throw away suddenly becomes important.  What's going on?

Your lender is now liable - both as a company and personally - to make sure that you don't default on this loan, because if you do, then you can sue them!  So here are the items that they have to document to make sure that they can justify their decisions in court:

·         Your current or reasonably expected income or assets, excluding the value of your current house (if you have one)

·         Your current employment status;

·         Your monthly payment for the new mortgage;

·         Your monthly payment for any other loan or HELOC (Home Equity Line Of Credit)

·         Your monthly payment for mortgage-related obligations (such as property taxes and certain insurance premiums);

·         Your current debt obligations, alimony and child support;

·         Your monthly debt-to-income (DTI) ratio or residual income; and

·         Your credit history.

The last one is the kicker!  The first 7 items have to do with what you are currently paying out, and what you are taking in as income - which makes sense.  It is the HISTORY that is the problem.

Your HISTORY on each item also has to be detailed.  It isn't enough to have a great-paying job.  How long have you had it?  What did you do before that?  How secure is it?

It isn't enough to have no late payments on your mortgage - have you ever had a late payment?  When was it?  Why did it happen?

The NICE part about this, is YOU DON'T HAVE TO BE PERFECT - YOU JUST HAVE TO HAVE AN EXPLANATION.

Next Up - What it take to document these things!

#RealEstate #Avondale , #Goodyear , #Buckeye , #Glendale,  #Phoenix, #Surprise, #Peoria, #Tolleson, #Laveen, #Waddell , #Wittman

Lender Conundrum - Part 2 - Documentation Dynasty

OK, so you know that getting a mortgage is going to require that you do some paperwork.  But OMG!  Where does it end?  The answer is "when it ends".

Just like a detective follows clues to find a perpetrator, loan officers are now being forced to "follow the money" back to its source.

In evaluating a borrower’s ability to repay, a lender cannot rely solely on information told to them by the borrower.  To properly validate the consumer’s ability the lender must use reasonably reliable third-party records.  This is the primary cause of Borrower Frustration and Lender Angst.

The lender is compelled by the Ability to Repay (ATR) rule to fully document all sources of income and align that income with assets in to make the ability-to-repay determination.  In effect, the lender has to make a road map of all your income and expenditures so that they can stay in compliance with the rules.  So, the gift that you got to help with the down payment?  It was income to you, so its origin has to be mapped back to the source, just like your pay stub maps back to your employer.

The lenders are doing this because deep within the legislation, it says that a borrower can potentially sue the lender - including every single person who ever touched the loan - if they ever default on it!  Lenders aren't dummies, so they look as far ahead as possible.  If a lender has to defend against a lawsuit like this, they will have to prove that they considered each of eight ATR factors.  As a result, loan files are being documented detail; not only to provide a mortgage, but to the extent that they could stand up to litigation as well.

Next up - the eight ATR Factors

#RealEstate #Avondale , #Goodyear , #Buckeye , #Glendale,  #Phoenix, #Surprise, #Peoria, #Tolleson, #Laveen, #Waddell , #Wittman

Sales Rate Down - Rental Price Up!

Below you will find the Rent Check statistics published by ARMLS, and after that, a comment on sales rates from the Cromford Report.  Both reports have come out within the last 4 days.

Average rents are now over $1,300/month, and the sales rate is down to 2000 levels.

From the Cromford Report:

August 3 - The annual sales rate continues to decline with no sign of any deceleration. Here are some examples for the single family market:

• Phoenix - 14,544 per year, lower than any year since 2000 except 2007-2008
• Mesa - 5,855 per year - lower than any year since 2000 except 2007- 2009
• Scottsdale - 4,471 per year - lower than any year since 2000 except 2007-2010
• Glendale - 3,329 per year - lower than any year since 2000 except 2007-2008
• Chandler - 3,743 per year - lower than any year since 2000 except 2007-2009
• Gilbert - 4,447 per year - higher than 2001-2003 and 2006-2009
• Surprise - 3,053 - higher than 2001-2004 and 2007-2008
• Peoria - 2,762 - higher than 2001-2002 and 2007-2009
• Queen Creek - 3,081 - higher than 2001-2008
• Paradise Valley - 357 - higher than 2006-2010

The annual sales rate will stabilize and then start to rise once demand starts to recover from the slump that started this time last year. The only cities where this may possibly be starting to happen are Cave Creek, Eloy and Florence.


#RealEstate #Avondale , #Goodyear , #Buckeye , #Glendale,  #Phoenix, #Surprise, #Peoria, #Tolleson, #Laveen, #Waddell , #Wittman

Lender Conundrum - Part 1 - Lender Circumstances

By and Large, people who buy homes require a mortgage to do so.  Right now, the mortgage business is going through a slack time, so I went to visit a lender to find out what they actually do, why things take so long, and why they are continually asking for more information.

I don't know that I got satisfactory answers to my questions, but I did get some answers.  These answers make sense from the lender's perspective, but some of them leave common sense behind.

The first thing you have to realize is that lenders have come "under the microscope" lately in terms of governmental regulation and public opinion.  The combination of these two things makes the creation of legislation "for the public good" far too tempting for congress to "do something" about.  In this case, the road to lender purgatory was paved with good intentions.

According to the Consumer Protection Financial Bureau, legislation enacted this year "generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for “qualified mortgages.”"

The key phrase in this, and a recurring theme across the legislation, is "ability to repay".  It used to be that ability to repay was left to the lender.  If a person was a risky prospect to make a loan to, and the lender did it anyway, then the lender was left with the problems if the buyer couldn't repay the loan.  That is no longer the case!  It is rare now for a lender to keep the loan that they create.  This will be the topic of an entire blog later in the series.

What "ability to repay" translates to in the real world, is agonizingly minute oversight of lenders that requires them to go over a file - every page - at least 5 times in their process:

1) loan officer reviews docs as they come in
2) loan officer assistant reviews docs as they are placed in file
3) loan processor reviews docs to prepare them for underwriter
4) Underwriter reviews docs
5) Compliance department reviews doc

With all the touching of documents - by the way, these are physical documents - it is no wonder how long it takes to do a loan.  Next up - Reaping of Documents!


#RealEstate #Avondale , #Goodyear , #Buckeye , #Glendale,  #Phoenix, #Surprise, #Peoria, #Tolleson, #Laveen, #Waddell , #Wittman