With thirty percent of housing underwater (payoff higher than the value) and people dropping their ethics enough to simply stop paying the mortgage and enter into a “strategic default” the recovery could be a decade away. Hear the comments from the CEO of FICO on how this is affecting credit risk decisions and even lending policy which will reverberate through the housing industry for years if not decades.

I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site

Soon will come the day in the lives of most readers when purchasing a new home will be a desire realized or a necessity placed on them by the demands of life. Even those who already own a home may be faced with the decision or necessity to refinance a current home loan. Sadly most home buyers and owners plan more for their next vacation or even a family picnic than they do an upcoming mortgage.

Mortgage planning really is a science because it is based on numbers instead of emotions. While the buying process itself may be driven by more than numbers the actual financing of that property, or even the decision to purchase with cash, is primarily a series of numeric calculations. As such there are ways for anyone to plan for their next mortgage in order to receive the best possible rate and terms available.

The four sins

Negative impacts on the applicant’s ability to borrow loans are not always of their own doing yet some are. Clearing one’s history of these three sins, if they exist, will greatly improve their likelihood of not only being approved for a home mortgage but getting the best rate and terms.

1. Foreclosure/pre-foreclosure – this one is the worst. If the applicant has had a foreclosure (outside of bankruptcy) within the last seven years there is a greatly decreased likelihood of being approved for a home loan. Even if the loan approval is granted there may be a higher interest rate due to the risk factor based on historical data. Applicants may be able to challenge with a well written story of financial hardship submitted to the underwriter yet even with the most appreciable of stories the waver may not be granted. In the majority of cases only time can overcome this.

2. Bankruptcy – when completing a standard Uniform Residential Loan Application (URLA) the applicant must also answer the question “Have you been declared bankrupt within the past 7 years?” Although the question gives the impression this would be an automated denial that is not the case. In fact with a good explanation letter from the borrower an underwriter can approve a loan after as little as 12 months from the date of discharge. If you have any doubts find a direct lender who can give you an underwiter’s determination on the bankruptcy history prior to submitting everything.

3. Judgments and liens – in the public records section of all major mortgage credit reports there will be information about any public records including judgments against the borrower or liens against the borrower. At times liens and judgments exist but do not appear on the credit report. Judgments must be satisfied before underwriters will approve the loan an only a few liens may be subordinated to the new mortgage agreement. One such lien is a federal tax lien which is in a repayment period and evidence of the repayment schedule being satisfied can be provided.

4. Late payments – during the last 12 to 24 months any payments that have been made more than 30 days after their due date are referred to as simply “lates”. They can be late payments on any consumer debt which is reported to the credit bureaus including autom loans, school loans, credit cards, revolving store accounts, mortgages, or any other payments. Some loan programs will allow a couple of lates in the last 12 months and others will not. For conventional loans these lates can either prevent the loan from being approved or result in a higher interest rate for the applicant.

Those four items are often “deal killers” and more difficult to overcome than some smaller “sins”. Planning ahead for a mortgage by knowing just these four things which can result in a negative outcome should help you if you are affected by them. As always, with any mortgage advice, the best thing to do is to speak with a trusted mortgage professional who will take responsibility for their answers to you.

Related articles by Zemanta

• Bankruptcy can save your house from foreclosure (money.cnn.com)
• More homeowners get help outside of federal program (usatoday.com)
• Mortgage numbers fall during June (channel4.com)
• ConsumerMan: Beware of reverse mortgages (msnbc.msn.com)

Sounds easy to ask, doesn’t it? “When can we close?”

Sure, everyone would like to hear, “Oh, just whenever you’re ready!”

The truth? Whether you are a real estate investor looking for a mortgage for acquisition, rehab or construction or you are a homeowner just looking to purchase a home there are a couple of points you need to be aware of when it comes to closing speed and dates for any mortgage loan.

Closings are not demandable even by your real estate agent – a common fallicy among inexperienced agents. Many moving parts are involved in closing on a purchase or a refinance. Pay special attention to the list of items at the end of this article which can cause delays. Take special note to how many of those are under your control or within the control of the lender/broker. The person who will actually be making the final scheduling of your closing will be the lender who will pass that information to the processor who will pass it to the attorney. Real estate agents do not control or have the ability to affect closing dates and times (although some want to force the issue around their schedule it’s actually up to the lender first and you second – I don’t care when you close so long as you close!)

Here is an average sampling of how this works. You’ve already called us and been prequalified – since you know that’s the correct order of things – and now you’re shopping and you’ve found a house.

1. We know the most often required documents so we gather those from you ahead of time.
2. You make an offer on a house.
3. A couple of days later that offer is accepted.
4. Generally, the offer is going to show a closing date 30 days from the day the offer was made. Not from the day it was accepted.
5. You tell us the offer was accepted so we start “start the ball rolling”.
6. An appraisal must be done and this requires an executed sales contract. Sometimes we get that in our office right away, sometimes – for one reason or another – it is delayed. Appraisals take 2 days to a week as a general rule.
7. While we’re waiting on the appraisal we’ll “update your docs” which means we’ll ask for current pay stubs, bank statements, and any other documentation to prove income and assets. If you get those back to us right away there’s no delay. If you drag your feet – there is a delay!
8. We’ll need insurance documentation – this is entirely dependent on the co-operation of your insurance company. As I am writing this our processing department is “having fits” with an insurance company who has held up a closing for over 5 days while we wait on proper documentation. That’s rare, most insurance companies are prompt and professional.
9. Once we have all the required documentation we send the “package” to the underwriter. Underwriting can take as little as one hour and as much as several days. The deciding factor is underwriter workload.
10. The underwriter may ask for additional documentation. If they do you can (a) argue with the processor about having to provide it and end up sending it anyway or (b) get it back in as quickly as possible.
11. Once the underwriter has issued a “Clear To Close” with no further conditions you’re good to go.

Average closing time from application to close? About 14 days industry wide. It can happen in as little as 48 hours but that is rare [edit: since this article was originally published in 2006 new federal regulations have been passed requiring a minimum of 3 business days for the borrower to contemplate the mortgage offer before the lender can proceed which adds a little time to closing].

Lenders and brokers who advertise 24 hour closings are omitting the first 10 steps from above. NOBODY can close a purchase loan in 24 hours from the time your offer was accepted.

Delays in closing can be caused by many things. More often than not delays are caused by one or more of the following:

1. Fully executed contract delayed. This happens more often on foreclosures where the seller is a bank and it takes them a few days to sign the contract and return it.
2. Appraisal coming back with a value lower than the sales price. Very rare but it has happened.
3. Appraisal coming back with “subject to repair” comments which exceed those allowable by the lender.
4. Lack of co-operation from the insurance company. Loss-Payee Clauses are requested in writing and are generally returned within 24 hours. Anything longer is considered a delay.
5. Lack of co-operation from current mortgage company in returning pay-offs or Verification of Mortgage (VOM).
6. Lack of co-operation from employer in returning Verification of Employment (VOE).
7. Income and/or assets on application used for pre-qualification being overstated and not supportable by documentation.
8. Borrower’s earnest money check not being deposited into the Real Estate Broker’s escrow account.
9. Problems with the title to the property – discovery of liens or multiple title changes in short succession.

These are just a few “hiccups” that are fairly commonplace on my side of the desk. The most important thing to remember is that the staff at your mortgage broker or lender is working for you. They don’t get paid unless and until your loan closes. So guess what? That’s right! They really want your loan to close.

It takes dozens, often hundreds, of man-hours to take a loan from application to closing. There are many people involved in the process that you never know exist. Some of them work on commission and only get paid if your loan closes. Others are on salary and of that group some just don’t care.

Most broker’s are very committed to you. I can speak for my own staff and say they definitely take it personally … the good and the bad.

Ken Cook – Georgia – FHA, USDA, VA and Conventional Home Loans (678) 439-8683 NMLS ID 208452 – Originally published in Active Rain on July 24, 2006.