Moms-to-Be CAN Qualify for a Mortgage

July 23, 2010 by Leave a Comment

My Mom and Me Recently the New York Times published an article stating that expectant mothers were being denied mortgages partially due to guidelines such as Fannie Mae's Lender's Quality Initiative.  I'm not sure if this was a case of bad reporting or a bit of fear from the lenders part of LQI, where loans may possibly be denied at closing if the loan application changes.   HUD has announced they are investigating this as discrimination against expectant mothers and new parents.

From HUD's Press Release:

"…FHA requires its approved lenders to review a borrower's income to determine whether they can reasonably be expected to continue paying their mortgage for the first three years of the loan.  FHA-insured lenders cannot, however, inquire about the future maternity leave.  If a borrower is on maternity leave at the time of closing, lenders must document the borrower's intent to return to work, that the borrower has the right to return to work, and that the borrower qualifies for the loan taking into account any reduction of income due to their leave.  Meanwhile, HUD is currently reviewing Fannie Mae and Freddie Mac's underwriting guidelines to determine if they satisfy the Fair Housing Act, including income verification of persons taking parental or disability leave…"

The New York Times article references a mother from Washington State who's mortgage was almost denied due to her maternity leave:

Elizabeth Budde, a 33-year-old oncologist who lives in Kenmore, Wash. She nearly lost her mortgage after a loan officer learned she was home with her newborn.

With stellar credit and a solid job, Dr. Budde said she had been notified via e-mail that she was approved for a loan on June 15. But that note prompted an automatic, “out of the office” e-mail reply from Dr. Budde’s work account, which said she was out on maternity leave.

The next day, Dr. Budde received a second e-mail message from the lender, this time denying her loan approval. Since “maternity leave is classified as paid via short-term or temporary disability income,” the e-mail message said, it could not be used because it would not continue for three years.

The message also said the lender could not consider her regular, salaried income because she was not on the job. “I was really shocked,” Dr. Budde said. “At the time, they didn’t know how I was getting paid for my leave.”

In the case of this new mom, her base salary would have sufficed for her loan approval to not be in jeopardy had she disclosed this to the mortgage originator assuming this mortgage originator knew their underwriting guidelines.  (Sounds like this mortgage originator either didn't know her guidelines or her lender has very strict underwriting overlays, in my opinion).

It's assumed there are no changes to your loan application between the time of application and closing.  If you have changes to your employment, income, assets or credit during your transaction, you need to let your mortgage originator know as soon as possible.  Verification of employment (VOE's) are performed prior to closing (funding) and in some cases, credit may be re-verified.   LQI (Loan Quality Initiative) requires that lenders do pre-funding reviews to make sure that the loan application is accurate prior to funding.  Per Fannie Mae:

The pre-funding review process should include controls or checks that test the accuracy of the loan data to ensure the information obtained is correct (e.g. borrower identity, employment, financial information, property information).

Anyone, man or woman, planning on taking any leave from their employment during their loan transaction should let their mortgage originator know. 

Photo: My brand new Mom (with me). 

Filed Under: Underwriting and Qualifying

Paying Alimony? You May Want to Consider an FHA Insured Mortgage

July 15, 2010 by 3 Comments

UPDATE: You no longer have to FHA if you’re paying alimony... Fannie Mae and Freddie Mac have updated their guidelines. Check it out here!

Most mortgage originators know that if you have less than 10 payments remaining with alimony or child support payments, it may not have to be factored into your qualifying ratios (debt to income) as long as the payment doesn’t impact your ability to pay the mortgage following closing.  A borrower needs to be well qualified with plenty of savings for an underwriter to support this guideline. [Read more…]

Filed Under: FHA, Underwriting and Qualifying Tagged With: , , , ,

Can I Convert My Existing Home to an Investment Property to Buy My Next Home?

April 27, 2010 by 13 Comments

EDITORS NOTE: These guidelines have changed. If you’re buying a home in Washington state, please contact me for current guidelines.

This is a common question I’m asked these days…mostly because many home owners don’t have as much equity as they would need in order to sell their current residence.  With home prices being at their lowest in years, many want to take advantage and buy their next home and simply rent out their current residence.

[Read more…]

Filed Under: Fannie, Freddie and FHFA, FHA, Investment Property, Residential Purchase, Underwriting and Qualifying, USDA Tagged With: ,

More Changes Coming to FHA Insured Mortgages

March 5, 2010 by Leave a Comment

Federal Housing Commissioner David Stevens has released a letter confirming that the upfront mortgage insurance premiums on FHA insured loans will increase effective on case numbers issued on April 5, 2010 and after.  Most FHA transactions will see an increase of 50 basis points to 2.25%.  Currently the upfront mortgage insurance premium (which is typically financed–added to the loan) is 1.75% of the loan amount.  This was issued in a Mortgagee Letter in late January and is "old news". 

His letter also provides notice that other changes that were discussed by HUD earlier (but not included in that mortgagee letter) will be posted in the Federal Register soon and will go into effect this summer.

What will impact most FHA borrowers this summer is the decrease in allowed seller concessions.   Currently FHA allows sellers to pay up to 6% of the sales price towards allowable closing costs.  In a few months, this will be reduced to 3%.  

Also this summer, FHA will require borrowers with a credit score of less than 580 to have a 10% down payment.  Most lenders, including Mortgage Master, have a minimum credit score of 620 currently for FHA loans.

Commissioner Stevens also addresses a recent announcement:

FHA has waived the regulation that prohibits the use of FHA financing to purchase properties that are being resold within 90 days of previous acquisition.  The waiver of regulation took effect for all sales contracts executed on or after February 1, 2010.

A Mortgagee Letter which will have more details, will follow and there are certain conditions that must be met for a property to be eligible for the property waiver.

As you can see, mortgage guidelines are still very much in a tightening mode.  It's hard to say just how long this trend will continue or how long it will last.

Filed Under: Credit Scores and Reporting, FHA, Underwriting and Qualifying

FHA Making Good on their Word for a Tougher 2010

January 20, 2010 by Leave a Comment

Late last year, HUD gave us all a warning that they were going to toughen up on FHA guidelines in January.  I'm still waiting for the Mortgage Letter with all the nitty-gritty details to be issued which will be issued tomorrow, January 21, 2010.  The changes to FHA are said to go into effect this Spring (wonder if it will be after the home buyer tax credit has expired).

FHA is going is going to increase the upfront mortgage insurance premium from 1.75% of the loan amount to 2.25%.   I'm currently helping some home buyers relocate to Des Moines, Washington.  They're buying a home with a sales price of $395,000 and the (currently available) minimum 3.5% down payment.  Here's how this would impact their mortgage scenario based on:

  • this morning's FHA rate for a 30 year fixed (as of 8:00 a.m.) at 4.875% (5.515% APR)
  • base loan amount of $381,150

UFMIP (upfront mortgage insurance premium) rate of 1.75% = $6670 (base loan amount x 1.75%).  381,150 + 6670 (since it is being financed) = $387,820.  Amortized for 30 years at 4.875% = principal and interest payment of $2,052.38. 

UFMIP rate of 2.25% = $8575 (381,150 x 2.25%).  Base loan amount plus 8575 = $389,725.  Amortized for 30 years at 4.875% = principal and interest payment of $2062.46.

With this scenario, based on a purchase price of $395,000, the difference in payment is ten bucks. 

FHA is increasing the minimum credit score to 580.  Now before you get in a dither, please know that most lenders, including Mortgage Master, will not go lower than 620 for a mid-credit score with FHA because of bank underwriting "overlays". 

FHA is also decreasing the allowable Seller Concessions from 6% to 3% of the sales price.  This will have little impact on my transactions–typcially 3% of the sales price is more than enough since the contribution can only go towards actual closing costs, prepaids and reserves.   Unless the seller was going to pay for the upfront mortgage insurance premium too…

It's my understanding that FHA is requesting to increase the annual mortgage insurance as well.  They actually had risked based pricing of mortgage insurance approved back in the summer of 2008 which was then put under a moratorium which quietly expired October 2009.  I'm sure they need to revamp the levels of risk since back in the summer of 2008, FHA was insuring loans with much lower mid-credit scores than what they (or lenders) would accept today.

HUD's Press Release from this morning.

So take a deep breath as the FHA belt continues to tighten and stay tuned to the Mortgage Porter…I'll keep you posted.

Filed Under: FHA, Underwriting and Qualifying

Do I Really Have to Provide All Pages of My Bank Statements?

October 29, 2009 by 1 Comment
A fisheye image of a mid-30's business woman pouting and looking angry.

A fisheye image of a mid-30’s business woman pouting and looking angry.

When assets are being used for down payment of a new home, towards closing costs on a refinance or even to document that the borrower has enough reserves (typically a couple months of mortgage payments) in the bank after closing; they need to be documented.

[Read more…]

Filed Under: Underwriting and Qualifying Tagged With: , , ,

Don’t Delay Your FHA Streamline Refi

September 29, 2009 by Leave a Comment

HUD has announced revised guidelines for FHA streamline refinances that will go into

Piggybankbelt

effect with case numbers issued on or after November 18, 2009 (60 days following September 18, 2009 the date of the Mortgagee Letter).   FHA streamline refinances take place when an existing mortgage is insured by FHA and is refinanced to a new FHA insured loan. 

Here are a few of the changes:

  • Employment and income will now be verified.
  • Credit scores will be disclosed.
  • Funds for closing must be verified.
  • The borrower must have made at least six payments on the FHA insured mortgage.
  • There must be a "net tangible benefit".  This can be:
    • a reduction in total mortgage payment of at least 5%;  
    • refinancing from an adjustable rate mortgage to a fixed rate; or
    • reducing the term of the mortgage (from a 30 to a 15 year amortization, for example).
  • Streamline refi's without an appraisal loan amounts will be limited to the outstanding principal balance minus the UFMIP (upfront mortgage insurance premium) refund plus the new UFMIP.  In order to have closing costs rolled into the mortgage, you will need an appraisal.
  • Streamline refi's with an appraisalare still up to a 97.75% loan to value and closing costs can be rolled into the new mortgage except for discount points.  Discount points must be paid for by the borrower's assets (which must be verified) as any closing costs that exceed the 97.75% LTV limit.
  • If there is subordinate financing (second mortgage) the total allowed combined loan to value is 125%.

The underwriting belt keeps getting tighter which is one reason why if you are considering refinancing, you may want to do so sooner rather than later. 

Mortgage Master is a Direct Endorsed HUD lender and I have been helping Washington State home owners with FHA mortgages for over nine years.  PS…rates are also very attractive right now!

Filed Under: FHA, Refinance, Underwriting and Qualifying

More Upcoming Changes to Underwriting

August 29, 2009 by 2 Comments

I originally wrote this post at Rain City Guide back in June of this year.  Fannie Maes tougher guidelines will go into effect in just a few days on September 1, 2009.  You can read the original post and comments by clicking here. 

Fannie Mae issued Announcement 09-19 amending some very basic underwriting guidelines that will not only impact conventional financing; it will apply to FHA insured loans that are underwriting using Fannie Mae’s DU.   You can read the entire announcement by clicking  here.

Here are some of the changes:

  • Credit documents will be valid for 90 days instead of the current 120 for existing construction.   The age of the document is measured from the date of the document to the date the Note is signed.
  • IRS Forms 4506 or 4506-T is required at application and at closing.  This is due to fraud (misrepresentation of income).
  • Age of appraisal is reduced from 6 months to 4 months.
  • Trailing Secondary Wage Earner Income is eliminated.   Now with a relocation, only the income of the spouse with actual employment may be considered.  Previously, it was possible to use the relocating spouse’s income from their employment prior to the relo without having an actual job.
  • Verbal Verification of Employment required within 10 days of signing the Note for employment income and within 30 days for self-employed income.  (Our company has always performed a verbal VOE prior to funding).
  • Stocks, bonds and mutual funds now valued at 70% instead of 100% to be used as reserves.   Due to market volatility, Fannie Mae is devaluing your portfolio.   This means that if you provide your mortgage originator with a stock, bond or mutual fund statement showing an ending balance of $10,000; the figure used for qualifying and on the application will be $7,000 (70% of the value).   Stock options and non-vested restricted stocks are no longer eligible to use as reserves.
  • Retirement accounts valued at 60% instead of 70% to be used as reserves.  

Fannie Mae’s effective dates are to follow…if the loan is manually underwritten, this applies to applications dated on or after September 1, 2009.   However, expect to see lenders and banks to adopt these guidelines early.

Filed Under: Fannie, Freddie and FHFA, Underwriting and Qualifying
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