The facts about getting a mortgage today.
There seems to be a lot of discussion about money not being available now for borrowers. Yes, the pendulum has swung from one extreme to the other.....typical these days. Americans can't seem to be moderate and make minor adjustments when something needs adjusting, we knee-jerk and go in the opposite direction. BUT, there is money to lend, so take care of your credit, know what you need to plan for your purchase, and with help from good professionals (lenders, realtors, inspectors, real estate esquires) you should be able to determine what your lifestyle needs are, what is a viable goal, and make that purchase a reality.
What you need for a traditional mortgage:
You must usually meet four criteria in order to get a mortgage backed by Fannie Mae or Freddie Mac, the two government run mortgage agencies:
• The ability to make a 20% down payment, plus closing costs (Closing cost amounts vary depending on your location and the cost of the home you are purchasing, but keep in mind this isn't hundreds you'll need, it is several thousand. Lenders won't allow any of your downpayment to be assistance from the seller, but sometimes you can still request up to approximately 3%—varies by loan type—of the purchase price be paid for you by the seller.)
• Credit Score: Usually you need a minimum score of 620.
• Enough income to afford your payment. A general rule of thumb is no more than 28% of your gross income should go toward your housing costs.
• A loan-to value ration of 80%. Lenders now want the home value to far exceed the mortgage balance because if a borrower defaults, the banks sells the home to recoup the loss. (More on this later.)
What you need for an FHA loan:
• The ability to make a down payment. If your credit score is 580+ you can obatin an FHA loan with 3.5% down, if your credit score is above 500 but below 580, you'll need 10% down... and note some banks will impose a higher standard, many lenders feel they need to be better protected for the loan, so for example you will need a credit score of 640 to obtain an FHA loan with only 3.5% down.
• You'll also need to pay closing costs. (Closing cost amounts vary depending on your location and the cost of the home you are purchasing, but keep in mind this isn't hundreds you'll need, it is several thousand. Lenders won't allow any of your downpayment to be assistance from the seller, but sometimes you can still request up to approximately 3%—varies by loan type—of the purchase price be paid for you by the seller.)
Often FHA is willing to overlook a blemish on a credit report if all of the other factors are favorable. If you've had a bankruptcy or short-sale, it can be tough to get back into your home, but not impossible. Again planning makes it possible. So don't despair. If you have favorable factors going for you but one obstacle, let's review and remove it. You'll have a timeline for when you'll be able to borrow, and in the meantime can be saving and planning for when you can make that purchase.
Please don't hesitate to contact me at any time with questions.
Recourse versus Non-Recourse States....what is this? (Ohio IS a Recourse State)
This refers to how a state's laws handle the foreclosure process between you and your lender when you are defaulting on your primary home loan. Ohio
IS A recourse state. This means if you let your mortgage go into default, the foreclosure process begins and if you don't contact your lender to work out a loan modification or short sale, you can be sued for the amount of money the lender spends to foreclose on your property
AND for the difference that you owe them on the note versus what they obtain from selling your property. In some cases, they can attach to your current wages and be paid from your paycheck. When properties were increasing in value this wasn't necessary as the lender could recoup the investment by selling the home. But in the current market......my advice is if you are having difficulty making your mortgage payment contact your lender (some require you to be a few months in default to discuss loan modification or short sale, but not all). Talk to your lender, share your hardship and financial information to find a solution. If you cannot obtain a loan modification and the lender suggests, or you ask for a short sale, this is the better option over foreclosure. During a short sale, you work with the bank, a realtor, and you negotiate the amount that you'll be repaying them after the sale of your home is complete. This negotiation occurs once an offer is accepted by you, and the bank reviews a preliminary HUD 1 Settlement Statement. The lender reviews their loss, and your hardship case, and then works out a payment you'll continue to make to them until your
agreed upon debt is repaid. You need a good realtor that can analyze the market and strategically price your home to sell, this requires a realtor that is willing to show you the sold comps and what your home is worth, even if it isn't the news you want to hear. Your agent also needs to be persistent and diligent in contacting the lender and obtaining approvals. Listing your home for what you
need or
wish for will result in no sale and you'll find yourself back in the position of being foreclosed upon. So it is best to be realistic on the price to get it sold, and have the opportunity to negotiate with the lender for the amount you'll repay and move forward.
In a non-recourse mortgage state, borrowers are not held personally liable for more than the home’s value at the time that the loan is repaid. The lender may recoup some of its loss through foreclosure (taking title back from you and selling the home). However, the lender may not sue the borrower for additional funds. If the foreclosure sale does not generate enough money to satisfy the loan, the lender must accept the loss.
Each non-recourse state has its own anti-deficiency statutes that prohibit lenders from seeking judgments. In a few cases, anti-deficiency statues do allow lenders to collect a limited amount of money from the borrower (such as the difference between the debt and the fair market value of the property).
Note that in some states (such as California) non-recourse laws apply only to “purchase money” loans (i.e. original home loans that are used to purchase property). Almost all HELOCs and home equity loans are considered recourse loans and lenders for these loans may sue borrowers to recoup loss. (Except in some cases where the second mortgage lender forces the foreclosure.). There has been some speculation that mortgage refinances do not constitute “purchase money” loans. However, there have been no cases to determine this issue one way or the other.
Non-Recourse States
Alaska
Arizona
California
Connecticut
Florida
Idaho
Minnesota
North Carolina
North Dakota
Texas
Utah
Washington
(My Note: Florida and California are among these, and they are two of the highest foreclosure states. If you can just walk away people think "why not?")
One Action States
In some states, lenders are only permitted a single lawsuit to collect mortgage debt. Laws vary by state.
California
Idaho
Montana
Nevada
New York
Utah
Contact me anytime with questions....I'm always happy to help. I can also refer you to a real estate attorney that I trust if you need one.
Information obtained from helocbasics.com, loansafe.org, continuing educations classes I've taken, and short sales I've performed.
