What Documentation Is Needed When Applying For A Loan?

Many times borrowers that are doing a refinance or home purchase don’t realize all the documentation that is needed when applying for a loan. It’s not that the mortgage broker wants to irritate you to see if you know where you social security card is located, or if have your tax returns on hand and in order. These items are crucial and required for all home loans. In fact, most home loans could be completed much faster if all the documentation is provided in a timely manner when requested.

The idea behind this blog post today, is to share valuable information to borrowers about how to create the perfect loan file. We share an article by Mark Greene with our clients when we process their loan because it perfectly explains why so much documentation is needed to process a loan.

What things can you expect a mortgage broker to ask you for?

Be prepared to have the following:

1. Most recent one month of pay stubs
2. Most recent 2 years of W2’s
3. Most recent 2 years of tax returns
4. Most recent 2 months bank statements for ALL your bank accounts
5. Your driver’s license and social security card

These are the items needed for a basic loan approval. More complicated files depending on the borrower’s history have to include:

6. Divorce decrees
7. Child support documentation
8. Self-employed borrowers need profit & loss statements
9. Real Estate owned documentation

The list can go on and on depending on each borrower’s credit profile and history, but this is just to give you an idea of what is necessary.

Why is all this documentation needed?

Well, the lender is giving you a hefty loan and they need to be 100% sure that you are a person that will pay the loan back on time. They need to make sure you have the assets on hand and make enough income to support the payment.

Mark Greene makes a perfect statement stating, “If the lender asks for a specific document, give them exactly what they are asking for, not what “should be OK,” – because it won’t be.”

We couldn’t have said it better ourselves. This is so true in this industry. Lenders are very specific about what they request, and won’t approve your loan until you provide exactly what they asked for.

This isn’t to intimidate you in purchasing or refinancing a home, it’s meant to prepare you. Work with your mortgage consultant and loan processor and provide the documentation they request. If you aren’t sure what something is, it’s better to ASK than to ASSUME; it will help you from doing things twice. Hoping this information will prepare you and give you a better understanding of what documentation is needed when applying for a loan.

Mortgage Forgiveness Debt Relief Act Extended Through 2013

It’s the first week into the new year, and many financial changes have already occurred that will affect many households. However, one change did not take affect that could have devastated struggling homeowners. The Mortgage Forgiveness Debt Relief Act was extended for another year.

Before the end of 2012, we had discussed in previous blog postings, the negative implications this could have caused for many struggling homeowners. This Mortgage Forgiveness Debt Relief Act waived forgiveness of mortgage debt from being counted as taxable income from homeowners who had a short sale or mortgage loan modification. The Mortgage Forgiveness Debt Relief Act was implemented in 2007 and was set to expire Dec. 31, 2012. It was recently reported to be extended to the end of 2013.

How does this Mortgage Forgiveness Debt Relief work? Well as a simple example, many homeowners are struggling with having an “underwater mortgage.” This meaning, they owe more on their home that what it is currently worth in today’s market. In many instances, homeowners are agreeing to short sell their home which gets a bank to agree that they can sell their home for less than what they owe on it.

Example: A homeowner owes $250,000 on their mortgage. They bank agrees they can short sell their home for $200,000. This Mortgage Forgiveness Debt Relief waives them from having to pay taxes on the $50,000 difference.

If this act didn’t pass, many homeowners would be paying taxes on debt that would not have been considered forgiven. Thankfully, for the year 2013, homeowners do not need to worry about this tax affecting them because the Mortgage Forgiveness Debt Relief Act was extended.

Short Sales Increase As 2012 Closes

We are quickly closing out the fourth quarter of the year with only 14 days left. With that being said, we are seeing short sales on the rise as this year comes to a close.

According to a recent article published on CNN Money, the number for short sales that have occurred this year have drastically jumped in comparison to last year’s numbers. CNN article states, “During the three months ended Sept. 30, short sales in which homeowners had fallen behind on mortgage payments soared 22% over last year, according to a report released Thursday by online marketing company RealtyTrac. By comparison, short sales by people current on their payments went up 17%.”

Why is there such a drastic increase in the amount of short sales that are closing?

Well the main reason is due to a tax break for homeowners that could possibly be expiring come the end of this year. The tax break that has the potential of expiring, currently helps homeowners who have unpaid mortgage debt not get taxed on the money. This tax break is called the Mortgage Debt Forgiveness Act. However, this act expires Dec 31.

What will happen if the act is not extended?

Homeowners that have unpaid mortgage debt will have to begin getting taxed on the debt. According to Blomquist, the average amount of forgiven debt in a short sale is approximately $95,000.

Because this can really affect homeowners who are experiencing a short sale, many real estate agents are pushing to close as many short sales as possible by the end of the year, to help their clients avoid this tax. As a result, we will most likely see a large jump in the amount of short sales that will occur in this fourth quarter.

However, those that will not be affected are California, Arizona and 10 other states. According to CNN Money, “ One group left out of the benefits of the tax break are homeowners in California, Arizona and 10 other states in which the IRS does not tax forgiven debt because of those states’ laws.”

Mortgage Forgiveness Tax Break To Expire

With the election over, and President Obama serving another four years, there is discussion now about whether a certain tax break will be extended in order to help homeowners who have experienced a short sale or foreclosure.  

In 2007, the Mortgage Forgiveness Debt Relief Act was implemented to forgive the debt of tax payers who experience foreclosures, short sales, or principal reduction. As stated by the IRS, “The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

When is this act expiring? The Mortgage Forgiveness Debt Relief Act is set to expire at the end of this year. If this should happen, there will be many homeowners who will be paying a tax on their unforgiven debt. For example, if you short sale your home for $100,000 and you owe $200,000, you would be required to pay a tax on the $100,000 difference of what you owe.

According to CNNMoney, there are about half a million short sales occurring each year, and 50,000 foreclosures each month. This is a great deal of borrowers that will be affected if this relief act is not extended after 2012.

Now, what would it cost to extend this relief act through the end of 2013? According to the office of Sen. Max Baucus, the estimated cost is $1.3 billion. The original bill was $25 billion in order for banks to forgive homeowners mortgage debt.

However, back in August 2012, the bill made it through the senate finance committee, as a bipartisan bill was passed to extend the act through the end of 2013. Now we just have to wait and see if it continues to pass through government.

Now, if the act is not extended there are certain homeowners that may be protected from paying the tax such as Californians. According to CNNMoney, California borrowers would be protected from paying the tax due to how California handles foreclosures.

Hopefully we will know more about the Mortgage Forgiveness Debt Relief Act as the year comes to a close.

What Percent Is The Best Down Payment?

Deciding what down payment to put on a home is one the first decisions to decide when choosing a home loan. This determines the amount of money the borrower will have to part with, how much house a borrower can afford, and it also determines whether the borrower will have to pay monthly mortgage insurance, or upfront mortgage insurance.

Of course, your financial situation will be a big determining factor for which scenario you can choose.

A 3.5% down payment is the most common, especially among first time home buyers. It’s the smallest amount a borrower has to part with. However, when doing a 3.5% down payment with a FHA loan, the borrower will have added costs consisting of upfront mortgage insurance, which is added to the loan balance, as well as monthly mortgage insurance. This ultimately increases the monthly mortgage payment.

The other option is to go the conventional home loan route and parting with a minimum of 5% down. In order for this scenario, credit scores must be good and the home loan has to be under $417,000 according to Fannie Mae and Freddie Mac guidelines. Monthly mortgage insurance is still added to the loan, but it is significantly less than the 3.5% down payment.

A borrower can also put 10%-20% down with a conventional loan in order to avoid mortgage insurance altogether.

Now, keep in mind there is not “wrong” down payment. It is all based on your financial situation, what is available in your savings for a down payment, and how much house you can afford. The main goal is for the borrowers to understand the different loan options available and choosing what works best for their circumstances. Discuss these options with a mortgage broker for more personalized assistance based on your financial situation.

Making The Home Buying Process Easier

Here is an article we would like to share, courtesy of By Referral Only. These are 5 great tips to help any home buyer make the process easier and less stressful.

In reality, there are only five things you need to know and do to make your home buying experience as simple as possible.

1.  Get pre-approved for your loan.

If possible, get “pre-approved” for a loan in the amount you’re willing to borrow.

With this pre-approval, you’re in a stronger position to buy a home when you’re ready – rather than finding your dream home, only to lose it to another buyer because you were waiting on the approval.

2.  Find a great real estate consultant.

Once you’ve decided to buy a home, find a great real estate consultant.  What you’re looking for is a Buyer’s Agent.

This means that the consultant represents YOU as the buyer, rather than the person selling the home. They will have YOUR best interests at heart.  Really good consultants know their markets, and will help you find the best match for your needs and wants. They can also recommend mortgage brokers with whom they’ve worked in the past.

3.  Look before you leap.

Drive around the neighborhood at different times of day.  Get out and walk around and chat with neighbors.  Some people like friendly neighbors, others think of them as nosy. Drive to the local grocery store, laundry, anywhere that you frequent.

Visit nearby schools and see for yourself how the kids behave and how the grounds look.  The point is to see if this is really the type of neighborhood you want to live in BEFORE you make an offer.

4.  Be prepared.

Make sure your contract has reasonable contingencies included to protect you as a buyer.  Reasonable can be things like approval by a home inspector, and title clearance. For the long-term investment, make sure that you buy homeowner’s insurance, and upgrade it as the value of your new home and its contents increase.

5.  Be reasonable.

No home will be without flaws.  Many times it’s these flaws that lend character to older homes, but nonetheless, it will take SOME work to personalize any home.

Preparing yourself with these five simple things – loan pre-approval, a great broker, getting to know the neighborhood, protecting yourself, and being reasonable – will help make the home buying process easier for you and your family.

Huge Savings With FHA Streamline Refinance

Own a FHA Loan? This may be the perfect time for you to refinance if you are stuck with a high interest rate. Rates are still at historic lows, and are providing great opportunities for homeowners to refinance and save a great deal of money.

We have many clients in line to benefit from this program. There are borrowers saving anywhere from $100-$600. The savings is amazing, and truly beneficial to homeowners.

There are many benefits to refinancing your FHA loan to the low interest rates. If you are comfortable with your monthly payment then consider refinancing to lower your rate,  but continue making the same payments and pay off your mortgage early!

If you are not comfortable with your payment and want to lower it, then you can do that as well.

If your current loan is a FHA loan, the refinance transaction is one of the most simple and hassle free processes. There is good news to those who owe more on their home than what it is worth– no equity is required. If you have lost equity in your home due to the housing down turn that has taken place, the FHA Streamline is still a possibility to save you money.  With a FHA Streamline Refinance, no appraisal is required. The purpose of the FHA Streamline is to reduce your interest rate.

The process is even simple in regards to  income verification — there is none. With a FHA Streamline Refinance, we actually leave the income section blank on the application because it is not required to refinance your loan.

Even better, this refinance program is no cost. A true FHA Streamline should be no cost to the borrower.

Right now is a great time to refinance. The word needs to spread to borrowers who feel stuck with a high interest rate and a high monthly payment. There are opportunities to refinance, and you should take advantage of them today.

If you are interested in a FHA Streamline you can contact our mortgage office, Stateline Funding Corp., to get started right away.

How To Get A Yes When You Borrow

Ever wonder if you will get approved to borrow money when buying a home? Well this information is meant to give you the tips and tools to prepare yourself in getting a “YES” from your lender when buying a home.  These great tips are provided by By Referral Only.

Lenders approve loans based on their impression of your ability and INTENT to pay it back.  To figure this out, they look at five things:  creditworthiness, income, job longevity, job stability, and future income prospects.  We’ll tell you how to make sure you look good in each of these things, so that you’ll get a “YES” when you want to borrow money for your new home.

1.  Creditworthiness

Creditworthiness is your history of borrowing and repaying against things like loans, credit cards, rent, and whether you’ve ever filed for bankruptcy.  Find out what credit bureau the Lender uses, then call or visit that same bureau for a copy of your credit report.  Some are even available online.

This is to make sure that there are no errors or surprises that you’ll have to explain to the Lender.  If there are mistakes, it can take a few months to resolve, so it’s good to have a compelling explanation ready when the Lender sees it!  The best way to demonstrate that you are “creditworthy” is to pay your bills in full and on time, particularly for the year or two before you want to get a loan.

2.  Income

Lenders want to know that you have a history of sufficient and consistent income – so that you’ll be able to repay the loan.  So, when you submit your paperwork to a Lender, make sure to take a letter verifying your employment (how long and what your salary is), your last couple of paychecks, and your last couple of W-2 forms.

3.  Job Longevity

Lenders are looking for borrowers who have a stable source of income.  If you can show that you’ve been employed at least a year in the same company, you should be fine.

4.  Job Stability

Again, lenders like stability – they tend to think that your loan payment behavior will reflect your employment behavior.  So, don’t make lateral moves between companies just for the sake of change.  If you make moves, do it for promotion, or to earn more money.

5.  Future Income Prospects

Because most loans are paid back in 15 to 30 years, Lenders are interested in people who will have income for that amount of time.  Young professionals, or those with high-demand skills, are the most appealing to Lenders because their income will only increase over time.  If you can demonstrate that you have a career plan that only gets better over time, you’ll be in a strong position to borrow.

So essentially, pay your bills on time, stay with an employer, have a career path that shows potential, and you’ll be sure to get a “YES” when you borrow.

Lenders are required to tell you what the APR is on any loan that they’re offering to you so you’ll know what the real interest rate is, including all of the additional costs.

So, when you’re calling around looking for the best rates, make sure and ask what the APR is on each loan you’re being told about!

 

Avoid The Shock of Property Taxes

When buying  a home, especially your first home, there is one big factor to take in to consideration before placing an offer.

The BIG factor is property taxes. Not many people discuss property taxes, especially when browsing for homes. However, this factor can really increase your monthly payment if you are not careful.

When you are working with a mortgage broker and your realtor, discuss with them what your ideal monthly payment with EVERYTHING combined.

This meaning, not just the principal and interest, but also the hazard insurance, taxes and HOA fee if applicable.

These factors all add up to your total monthly payment. Here’s an example of how you could be affected by property taxes:

Let’s say you have a budget of only having a $1,500 house payment including taxes and hazard insurance. Well with taxes (about 1.5% = $200/month), the house that you could afford would be approximately $200,000 with a 3.5% down payment. This would give you a $1,500 house payment with everything combined.

Now the opposite example would be buying  a home without the concern of property taxes included. To get a $1,500 house payment you could afford a home in the range of $250,000. That’s a big difference, but once you receive your property tax bill, your monthly payment could jump up to about $1,800 on the low end.

The main goal of this example is to provide wisdom to the buyers, especially first time buyers, to be aware of what makes up your total mortgage payment. Ask questions during the process and ask about property taxes. You don’t want to move into your new home, just to find out your monthly payment is nothing you expected, or worse yet, prepared for.

Buying a Home When Self Employed

In this economy, many people have taken the turn of events to pursue building their own line of work, and becoming self-employed. Being self-employed is great, but if you are just starting out and trying to buy a home, you need to be aware of the few extra factors that you will need in order to qualify.

Tax Returns

First off, if you are self-employed and wanting to use your income to qualify for the loan, then you will be required to provide 2 years of self-employed tax returns. Without the 2 years of self-employed tax returns, a lender cannot use your income to qualify for the loan.

As a self-employed individual, your income is determined based on what is stated on your tax return. If you reduce your income for deduction purposes, then keep in mind that your income will be whatever is stated on your tax returns.

Another thing that many people don’t know is that when your income is averaged, a lender must subtract your unreimbursed employee expenses that are stated on your tax returns. This unreimbursed category is averaged and subtracted from your monthly income. Keep this in mind when filing your taxes if you are trying to purchase a home a need the extra income.

Change Professions

Similar to being self-employed, if you switch professions ex) teacher to fire fighter, you will need 2 years of tax returns before your income can be used to qualify for a home loan. The reason for this is you need to be in the same line of work for 2 years.

Now, if you switch employers but are still performing the same line of work, then you should not run into problems if you are hourly or salary paid. Commission is more complicated, as it varies month to month.

Profit and Loss

If you are self-employed, there will be other documents that you may be required to provide during your loan. One of the documents would be a quarterly profit and loss statement for your business to show you have sufficient income to pay your mortgage payment.

These are just a few of the main important factors to keep in mind when trying to purchase a home under self-employed. As always, good credit, sufficient assets and reserves are needed in order to qualify for a home loan.