Archives for July 2008

Documenting Alternative Credit with FHA Loans

EDITORS NOTE 12/13/2012: This post was written in 2008 and currently, our company (and many others) will not consider “alternative credit”. We now have a minimum credit score of 640 required.

FHA insured loans, which are quickly becoming the mortgage of choice unless you have 20% down payment and 720 credit scores, allows people to obtain mortgage financing if they are shy on an established credit history reported to the credit bureaus.  Typically, a borrower needs to the following shown on their credit report for it to be considered “established”: 

  • At least three trade lines (credit accounts) in good standing.
  • Two of the three trade lines must be at least 12 months old.
  • One trade line must be at least 24 months old.
  • Three credit scores per borrower.

Sometimes, if someone does not have established credit that is reported to the credit bureaus, they need to use “alternative credit” or “non traditional” credit, which may be acceptable with FHA financing.   Proving you have credit that is not reported to the bureaus requires that you obtain documentation from three different sources that you have made on time payments to during the last 12 months.   

Possible types of non-traditional credit (preferred–at least one of these types of sources are required):

  • rent payments
  • utilities (telephone, electricity, gas, water, garbage, cable, etc.)–not included in housing payment.

Other acceptable sources of non-traditional credit are (two out of three sources may come here):

  • insurance (medical, auto, life, renter’s, etc).
  • payment to child care providers
  • internet/cell phone service
  • personal loan with terms in writing supported with canceled checks
  • department, furniture, rent-to-own stores, etc.
  • a documented 12 month history of saving by regular deposits (at least quarterly) that are not payroll (automatic) deducted.

Note:  Debts that are paid automatically from your payroll are not allowed to be used in documenting non-traditional credit.  Lenders want to make sure that you are able to make timely payments “voluntary”.

The “form of proof” can be:

  • canceled checks for the last 12 months, or
  • written letter from creditor which is written on their letterhead, includes your name and account number stating the you have made on-time payments during the last twelve months.   The letter should include what the payment amount is and the total amount due.

In order to qualify for a non-traditional credit approval with FHA, over the last 12 months, there must be:

  • No late payments for housing.
  • No collections or court records reporting (with the exception of medical).
  • No more than one 30 day delinquency on payments due to other creditors.

Qualifying ratios are restricted to 31% for the payment to income ratio and 43% for the total debt to income ratio.   Two months reserves (two months mortgage payments in savings after closing) is also required.  When non-traditional credit is used, the mortgage is a “manual underwrite” meaning that you need to allow for more time during the underwriting process as a real live human is underwriting your transaction.   

Last but not least, do make sure that you are working with a Mortgage Professional who is qualified to provide FHA mortgage loans.  Not all mortgage companies are approved and, with many products no longer available, they may try to illegally provide an FHA mortgage with hopes of finding another lender to broker it to.  Ask your Mortgage Professional if they have provided FHA loans before, how long and how long their company has been approved for FHA loans.  By the way, I cut my mortgage teeth on FHA 8 years ago and our company has been providing FHA loans since our inception.  (We are a Direct Endorsed HUD lender).  You can always check out HUD’s site to confirm whether or not your lender is approved.

Questions or concerns about FHA (or any) mortgages for Washington State properties?  Contact me.

Great Roundtable Conversation about Appraisal Changes

I was just part of the latest 4realz Roundtable hosted by Dustin Luther and featuring Jonathan J. Miller, an appraiser from New York.   This discussion is about the upcoming changes with how conforming appraisals will be ordered, which I wrote about earlier this year at Rain City Guide.  I was planning to be a fly on the wall…but Dustin wouldn’t have that!   Jessie B. from was also active on the panel.

This will impact any conforming (Fannie/Freddie) mortgage and I really don’t see ANY benefit to this new procedure that is scheduled to begin on January 1, 2009.   If this goes into effect, appraisals will be ordered from an "appraisal management company" instead of from a mortgage broker/loan originator.   It’s my understanding that even though this change has come about from NY’s Attorney General Coumo suing Washington Mutual and eAppraisal, banks like WaMU will not be impacted.  (Am I the only one who finds this ironic?).

My take on this is that appraisals will take longer and will have less quality if they are ordered via a pool (very similar to VA appraisals).

Listen and learn! Just click the green arrow above.

June’s Magnificent 7 Consumer Articles

Nommag72008_2Larry Cragun is at it again…reading thousands of posts and determining which one’s cut the mustard to be nominated for his monthly Magnificent 7.   At the end of the year, he has the gynormous task of reviewing his monthly nominees from 2008 and narrowing all 84 post down to the Magnificent 7 of 2008.   I’m thankful he does this because, as much reading as I do, Larry always seems to find important consumer focused articles that I’ve missed.

It’s always an honor to be considered one of the Magnificent 7 and for June Have You Co-Signed For a Mortgage? was recognized.

Do check out my fellow nominees by visiting Real Estate Undressed…and please thank Larry for his dedication.

Have Your Credit Monitored for FREE

Recently, one of the big three credit bureaus, Transunion, settled on a class action lawsuit for re-selling consumers private information.  The settlement includes providing consumers with free credit monitoring or a possible cash payment…but you must apply for this benefit by September 24, 2008.  You are eligible if you have obtained credit from January 1, 1987 to May 28, 2008–including mortgages, car loans, credit cards, etc.

For more information, or to apply, visit

I encourage you to take advantage of this opportunity.  It just takes a few minutes to sign up!    This is especially important as banks are cutting back credit limits for credit cards and home equity lines of credit which may greatly impact your credit score.  More on that to follow.

A Sunday Cruise–in the Puget Sound

I went on my first trip on our new boat, a 17 foot Arima.  Let me begin by saying, I’m not really into boating–I can barely dog-paddle and have a fear of water.   My hubby knows this (and I know I married a man who loves the water).   Anyhow…it was time for me to "face a fear" and take a Sunday cruise.  I thought I my first trip would be a quick hour tour just to get familiar with the boat…we stayed out four hours and I loved it!   

We left West Seattle and headed over to Blake Island to cruise by Tillacum Village.  All our kids have managed to go there via field trips–I have yet to experience it.

From there we went north towards Bainbridge Island.  (I was only equipped with my life jacket and my flip video camera–so the pictures aren’t as nice as I would like them to be).   The homes along the waterfront are incredible.   My husband wanted to show me this salmon fish farm. 

We passed the Walla Walla ferry on our way to Bremerton.

At Bremerton’s Navel Ship Yard, we noticed a couple subs along with other naval ships, including the USS Stennis (CVN 74). 

On our way back home to West Seattle, we passed the "back side" of Blake Island

Next time…I’ll bring a "real" camera (and a picnic basket)!

Independence Day


In observance of Indepenence Day, Mortgage Master will be closing at 2:00 pm today, July 3, 2008,  and will re-open for business as usual on Monday, July 7, 2008.   Should you need assistance with a mortgage for a property in Washington State, please give me a call or email…I’ll be around this weekend.     

As the bond markets will be closed tomorrow, I will be posting rates this morning (not Friday).

I hope you and yours have a safe, sane and FUN fourth of July!

This photo is from the Statue of Liberty at Alki, West Seattle.    

A Question Regarding Mortgage Rates for Investment Property

One of my clients contacted me with this question:

"We’re in the early stages of thinking about buying a rental house.  If we were to buy a house for $260,000, how  much would we have to put down and what would the payments be like for a 30 year mortgage?"

Mortgage interest rates for investment properties are priced based on loan to value (how much money the investor is putting into the property) and the lowest mid-credit score of the borrower(s).   The price breaks are based at 70, 75 and 80% loan to value (LTV).   Based on a sales price of $260,000; here is what current rates would look like using a 30 year fixed rate mortgage and a mid-credit score of 720.

Non Owner Occupied with 20% Down — Loan amount of $208,000 with a rate of 6.875% (APR 7.074%).  Principal and Interest (P&I) = $1366.41 plus taxes and insurance (on all payments shown).

Non Owner Occupied with 25% Down — Loan amount of $195,000 with a rate of 6.750% (APR 6.952%). P&I = $1264.77.

Non Owner Occupied (NOO) with 30 % Down — Loan amount of $182,000 with a rate of  6.625% (APR 6.830%).  P&I = $1165.37.

Another option to consider may be a 30 Year Fixed Rate with the 10 Year Interest Only payments.  You must qualify at the fully amortized rate and after 10 years, assuming you still have retained the mortgage, the mortgage balance at that time will be amortized for 20 years.  If you never pay additional towards your principal during the first 10 years, your mortgage balance will be the same as when the mortgage was originated.  Here are rates based on the same scenario above with the interest only feature.

NOO with 20% Down — Loan amount of $208,000 with a rate of 7.250% (APR 7.439%). Interest only payment of $1248.00.

NOO with 25% Down — Loan amount of $195,000 with a rate of 7.000% (APR 7.188%).  Interest only payment of $1137.50.

NOO with 30% Down –Loan amount of $182,000 with a rate of 6.875% (APR 7.066%). Interest only payment of $1042.71.

I’ve written more about about financing investment properties here.

Do you have a mortgage question for me?  Send me an email, I’m happy to help and your question may help others.