Timeline: Bankruptcy to Mortgage Chart

Experiencing a severe credit event such as foreclosure, short-sale, deed-in-lieu of foreclosure or bankruptcy does not mean you will never be eligible to get a home loan. This chart provides the time-out periods required by event. The assumptions are that you have established acceptable credit scores and meet underwriting guidelines. In certain circumstances, one may qualify for a mortgage upon discharge of a Chapter 7 or during a Chapter 13.

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Originally published in 2010 and updated regularly | September 19, 2017 Contact me to obtain a pdf copy of this chart.

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

Do you prefer a ReLOC or HELOC? – Tools for Retirement Planning

Tom Davidson has written and illustrated another great article which I know you will enjoy reading. Here are the first few paragraphs which lead into the link to his wonderful presentation:

“HELOCs (Home Equity Lines of Credit) are widely used. Simply having one makes many people more comfortable. My wife and I had a standby HELOC for many years – ready to use as a convenience or in an emergency. Luckily that emergency never happened, but we felt well prepared knowing we had ready access to a substantial amount of cash that could be used for anything we needed. When I was a financial advisor, a HELOC was on my checklist to discuss with every client – at least those who were prudent with their money.

ReLOC: A Retirees Line of Credit

Is there a better alternative for homeowners over age 62?  A ReLOC may be a far better choice for many retirees. ReLOC is a nickname that stands for either Retirees Line oCredit or Reverse Mortgage Line of Credit. While ReLOCs share many features with HELOCs, three unique features make a ReLOC a line of credit designed for retirees:

  1. The amount you can access grows every month
  2. You don’t have to make payments until you permanently leave your home
  3. The loan can’t be canceled, reduced, or frozen as long as you keep up with basic mortgage obligations (property tax, homeowner’s insurance, basic maintenance, and Homeowner’s Association dues).

Here’s the borrowing limits for a ReLOC and a HELOC for a 63-year-old in a $400,000 house who lives to age 99:”

Source: Do you prefer a ReLOC or HELOC? – Tools for Retirement Planning

Realtors: 2 Deals In 1 – The Purchase Reverse Mortgage

Back to Back Closings

Back to Back Closings

Realtors: 2 Deals In 1 – The Purchase Reverse Mortgage

The Home Equity Conversion Mortgage for Purchase (HECM) is known in the industry as the H4P. The H4P is an FHA Insured reverse mortgage which is guaranteed by the Department of Housing and Urban Development.

In writing this post I recall a specific H4P transaction where I was privileged to originate a purchase reverse mortgage for a delightful fellow Colorado native. This transaction closed in July 2013. The purchaser, age 63, sold her townhome in Parker for $115,000.00 and in conjunction with the H4P used the combined proceeds to purchase a townhome in Castle Rock for $227,600.00.

The financial details of that transaction are as follows: The buyer’s cash to close requirement was $96,400.00 plus her earnest money of $2,000.00. This sum of $98,600.00 included pro-rata property taxes, insurance and HOA fees.  The H4P proceeds to close were $129,200.00. In addition, the FHA UFMIP, origination fee and allowed closing costs totaling $11,400.00 were financed. All figures have been rounded to the nearest $50.00.

Purchase Price $227,600.00
Buyer Cash to Close + Earnest Money     98,400.00
H4P Cash at Closing $129,200.00
Financed Closing Costs     11,400.00

She found it most desirable to purchase her new home and not have to make mortgage payments ever again. Of course, she may make periodic payments or payoff the loan at any time but only if she wishes. It bears observing that she made this decision with the blessing of her children, one of whom is a CPA. Going forward, she simply pays the taxes, insurance and HOA dues. She does not need to pay monthly mortgage payments again for so long as she lives in her home.

On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.

Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.

On qualifying, for all intents and purposes, this was a Stated Income loan. As a matter of responsible underwriting, it was merely confirmed she had sufficient income to pay real estate taxes, insurance and HOA dues.

Due to adjustments* which FHA made to the HECM program in September 2013, an identical transaction as described in this post would presently require cash to close from the buyer of approximately $114,950.00.

For additional facts on the FHA Reverse Mortgage program (HECM), you may wish to click on this link: Reverse Mortgage Facts. Further discussion and illustration on the H4P is available on this link: What Is A Purchase Reverse Mortgage?

TIPS: There are no concessions allowed by sellers, builders or agents; this includes any personal property (such as appliances). In addition, the buyer must pay for the title insurance. There can be no repair set-asides; all repairs, where major property deficiencies threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property, must be completed by the seller prior to closing. Another unique feature of this program is to set your closings for about 10:00 AM and not later than 11:00 AM to help make sure the H4P funds the same day as the closing. On the closer, few are experienced with the H4P, most are experienced with the traditional reverse mortgage and think the H4P is the same. It is not. Given the buyer is paying for the title insurance, I suggest we use a closer well-trained in the HP. I have such a closer.

Finally, although a rare circumstance, should a buyer have two FHA Case Numbers open, the non-purchase case number must be cancelled prior to final loan approval. As of this post, FHA will not allow an application to be taken until the Certificate of Occupancy has been issued.

If a non-borrowing spouse is involved in the transaction, the non-borrowing spouse (NBS) may not be a party to the real estate purchase contract. For more information on the NBS you may wish to read: Reverse Mortgages and the Under-Age 62 Spouse.

[*HUD Mortgagee Letter 2013-27]

Update: There are market and borrower favorable changes pending application to the H4P on September 19, 2017. When they go into effect, this posting will be updated to reflect the changes.

Notice: The information provided is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.

Disclaimer: This article does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.

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 Financially Speaking  James Spray, RMLOCNE, FICO Pro |CO LMO 100008715 / NMLS 257365 |Published: April 3, 2014 ~ Updated: February 6, 2017

 Notice: The information on this blog is opinion and information. While I have made every effort to compose and link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Romance and Credit Scores

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In addition to getting the best employment and the lowest interest rate on everything financed, including credit cards, home and auto loans, the prime potential partners in the dating pool are quickly thinned of those with inferior credit.

This is clearly highlighted in a post made by the Credit Slips summary of a Washington Post article which examines the working paper recently published by the Federal Reserve titled Credit Scores and Committed Relationships.

Barron’s Market Watch recently published an article titled, Nearly 40% of Americans want to know your credit score before dating. In part, this phenomena was summarized by University of Kansas Communications Professor Jeffrey Hall who stated,

By showing an interest in these three digits, people are probably being smart rather than shallow, says Jeffrey Hall, associate professor of communications at the University of Kansas. “Finances, education, and job prospects all factor into the value of a potential mate,” he says. “Assuming that people can actually interpret a credit score meaningfully, it makes sense they would think a credit score is useful in evaluating mate value.”

“…In fact, the higher your credit score, the less likely you’ll separate from your partner — and a lower score often means you’ll be less lucky in love, researchers at the Federal Reserve Board, the Brookings Institution and UCLA recently concluded.”

Your credit score has become such a popular character-meter that there are dating services based on them. A 2015 academic study found that “quality in credit scores, measured at the time of relationship formation, are highly predictive of subsequent separations.” The research suggested “credit scores reveal an individual’s relationship skill and level of commitment.” How More Americans Are Getting a Perfect Credit Score Bloomberg Suzanne Woolley, August 14, 2017.

I think it’s safe to predict that more and more people in the dating pool will become savvy to the benefit of checking one’s credit score before entertaining the possibility of a committed relationship.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Published November 13, 2015 – Updated August 16, 2017

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

The NEW Reverse Mortgage

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It is my pleasure to specialize in the origination of Home Equity Conversion Mortgages (HECM) for the benefit of our clients. These are best known as Reverse Mortgages. The type of Reverse Mortgage we offer, and the most utilized product available in Colorado, is the one insured by the Federal Housing Administration (FHA) of the US Department of Housing and Urban Development (HUD) as further discussed by the Federal Deposit Insurance Corporation (FDIC) and as discussed by the Consumer Financial Protection Bureau (CFPB).

  • The minimum age for a borrower is 62.
  • A non-borrowing spouse under age 62 gets to be on the deed.
  • Reverse mortgages are extremely well protected. Guaranteed by HUD; Insured by FHA.
  • One of the protections is the requirement that borrowers receive counseling from a third-party HUD Certified Housing Counselor – often at no cost to the prospective borrower.
  • No monthly out-of-pocket mortgage payments required.
  • The reverse mortgage is due once the home is no longer the primary residence of the borrower(s) or the non-borrowing spouse.
  • Out of pocket expenses are limited to property taxes, insurance and HOA fees (when applicable).
  • The property is to be kept in good condition.
  • The interest rate is not determined by income or credit score.
  • The interest rate is based on the program chosen (FRM, Monthly/Annual ARM, and Low-cost Annual).
    • Flexibility on how funds are received (traditional):
    • In an interest bearing line of credit and/or;
    • As monthly payments and/or;
    • In a lump sum payment and/or;
    • In any combination of the above methods.
  • There are no restrictions on how the funds may be used.
  • The title remains in the borrower’s name. The bank does not own your home. You may sell at any time.
  • There is no equity sharing. Your equity is your equity.
  • Credit review – The credit review is minimal providing there have been no serious derogatory credit issues, such as bankruptcy or unpaid credit obligations, in the past two years.
  • There is no minimum credit score requirement.
  • Financial Assessment (FA) – The financial underwriting is minimal. The lender must be assured the borrower has the income and will to pay real estate taxes and property insurance.
  • Under FA, a full or partial set aside account may be required to pay taxes and insurance.
  • Closing costs are comparable to other FHA insured home loans.
  • There are no mark-up or “junk” fees allowed.
  • One may still receive Social Security and Medicare benifits with a reverse mortgage.
  • The reverse mortgage is a loan so the proceeds are not treated as income.
  • There is no prepayment penalty; the borrower may pay-off the reverse mortgage at any time with no penalty.
    • Reverse mortgages are non-recoursable; if more is owed than the value of the property, the lender may not collect the deficient amount from either the borrower or the estate.
    • Heirs may sell the property and pay off the mortgage. In the event more is owed on the property than the value of the property, the heirs may purchase the property for 95% of the market value as opposed to paying the full amount of the mortgage.
  • Reverses Mortgages are also used for Purchase Money. Click here to learn more.
  • Security is provided for the under age 62 spouse. Click here for more information.

DISCLAIMER: This publication does not represent that any of the information provided is approved by HUD or FHA or any US Government Agency.

DISCLOSURE: The information provided herein is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | November 2, 2016

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

Purchase or Refinance During a Chapter 13 Bankruptcy

Chapter 13 Plan

Chapter 13 Plan

This post is written both for those contemplating a Chapter 13 (repayment plan) bankruptcy as well as for those currently in a Chapter 13 Plan. A Mortgage refinance or a home purchase, while still in a Chapter 13 bankruptcy, is possible; it is also a complicated financial and, legal transaction. To do this requires a highly specialized mortgage professional experienced with both FHA lending rules and Chapter 13 bankruptcy as well as local court rules.  Such an individual must know how the Chapter 13 Trustee in your Federal Bankruptcy District deals with this process. It is helpful if your attorney respects the reputation of your mortgage professional.

The Chapter 13 Payment

One of the most important things to understand is how important on-time Chapter 13 Payments are to the mortgage underwriting process. I strongly encourage you to read this: The Chapter 13 Payment. Your Chapter 13 Trustee payment is given the exact consideration as your mortgage payment by the rules of mortgage underwriting. From the underwriting perspective, one thirty-day late payment of either the mortgage or Chapter 13 Trustee payment will sink your prospects of getting mortgage loan approval. Mail your payment early or set your on-line bill pay or direct payment to the Trustee so that you always know your payment has had time to get to the Trustee’s office and be posted by the staff at that office. Too many times, on review of the Chapter 13 Payment history, we find a payment was posted on the 2nd day of the month. One day counts as a late payment. Your experienced mortgage lender can help you check your Chapter 13 payment history in real time.

Mortgage Choices for Chapter 13 Debtors (purchase or refinance)

The only mortgages available, either for refinance or purchase, for those in a Chapter 13 Plan are those which are insured or guaranteed by the Federal government. These mortgages are either: insured by FHA or guaranteed by VA or, the USDA.

Providing you qualify you may get a Government Insured Mortgage: FHA, VA or Rural (USDA) while in Chapter 13 Bankruptcy.

While there are distinct differences within these three programs, they are alike in their Chapter 13 Bankruptcy underwriting guidelines*.  A significant factor is that the only choice is a 30-year fixed rate mortgage priced at the current market rate. To be clear, there are no conventional mortgages available for potential borrowers. One should understand sub-prime mortgages have not been available in the US since 2008. For additional information regarding adverse credit events timelines and mortgage timeout rules click here.

There are now non-Qualified Residential Mortgages (QRM) which may allow a borrower to purchase or refinance once the Chapter 13 case has been Closed following the Discharge. The rate in this type of loan is higher than any other mortgage product available. The costs are also higher.

How does a bankruptcy affect a borrower’s eligibility for an FHA mortgage? A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction. The exception is that most underwriters will consider the Chapter 13 Trustee’s approval as acceptable permission from the court.

What are some of the factors that will keep you from getting approved?

If there are still balances showing as unpaid on your credit report, even if the debts are listed in your bankruptcy, the debt will need to be paid OR the underwriter will need proof that the base of your Plan will be paid off with the refinance. If there are balances showing and you are unable to pay-off the base of your Plan, you may be unable to refinance until after you receive your Discharge and the case has been closed.

If a second mortgage is being stripped or crammed down in your Plan, the Chapter 13 must be Discharged and the deed removed from the property or the mortgage servicer must agree to a subordination. If there are judgment liens against the property which are being stripped from the property, your bankruptcy must be Discharged. Depending on how the Plan is written this can be simultaneous if the Title Insurance company legal department understands Chapter 13 with a Strip on Discharge.

The Application to Incur New Debt

To get underwriting approval for a Chapter 13 Debtor to refinance, the Chapter 13 Trustee (Colorado) or Court must approve your application to incur new debt. Talk with your attorney to determine how and when to best proceed, or not. This is a process which you can only do with the assistance of your attorney. Your attorney must prepare the financial statements to submit to the Trustee in order for authority to be granted for a lender to offer new credit. Your mortgage loan originator should be able to assist your attorney in completing the Application to Incur New Debt. If your mortgage loan originator does not know how to prepare such, you should find someone with more experience to help minimize your legal costs.

This is a Great Time to Refinance

Now is, without a doubt, continues to the best time in over sixty years to purchase a home or, refinance a home loan. As this is written fixed rate 30 year FHA mortgages are still at historic lows.  For those with an Adjustable Rate, Option ARM or a Balloon Mortgage this is an excellent time to refinance. This process typically will take planning and action prior to refinancing. This is not a run of the mill refinance and not every mortgage lender is qualified to do this complex transaction.

Mortgage Refinance After Chapter 13 Discharge?

Yes, one may refinance after the bankruptcy case has been Discharged the Court and then Closed by the Trustee. However, because of the new rules for virtually all mortgage financing in the USA, once the Chapter 13 Plan has been successfully completed and Discharged, getting a mortgage refinance can be difficult. This is because a manual underwrite is mandated* and few lenders are willing to take the risk of not having the safe harbor provided by the Qualified Residential Mortgage rules. Begin reestablishing good credit while your case is still open so by the time your Discharge enters, you have solidly reestablished good credit. There are numerous posts in my blog on rebuilding credit, even while in Chapter 13.

Preliminary Requirements for Purchase or Refinance While in Chapter 13

  • Twenty-four months of current housing payments with no 30-day late payments and, the likelihood of the income continuing for at least three years.
  •  Two years IRS Returns showing your income is sufficient to pay the mortgage as well as your Chapter 13 payment and any debt not included in the bankruptcy payment.
  • Minimum middle FICO Score of 680 . Most will need to practice what I’ve previously posted as FICO  101a, 101b and 101c for several months prior to making a successful application for mortgage credit.
  • For anyone with a fear of having credit make time to read both Credit: Use It to Build It (Part 1) and Credit: Use It to Build It (Part 2).
  • Begin rebuilding your credit as soon as your Chapter 13 Plan is Confirmed/Court Approved; this is when your property has been revested to you.
  • The maximum no-cash out loan to value on an FHA appraisal is presently 95% – Refinance.
  • The minimum down payment is 3.5% of the purchase contract or appraised value whichever is less. – Purchase
  • The maximum Debt to Income Ratio is 42.99% and this is pushing the envelope to the extreme.While in Chapter 13, it is mandatory to have Court approval (in Colorado, generally the Trustee approval suffices) to obtain a mortgage, go to this URL FHA Handbook 4000.1 II.A. 5.a.iii (H)(2)(3).
  • There is more detail to this process but this is the essence of purchasing or refinancing while in Chapter 13.

There is more detail to this process than can reasonably be discussed herein but this is the essence of purchasing or refinancing while in Chapter 13.

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Financially Speaking™ James Spray, RMLO, CNEFICO Pro
CO LMO 100008715 | NMLS 257365 | November 1, 2010 – Revised May 20, 2017
 
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Reverse Mortgages and the Under-Age 62 Spouse

The-Good-News

New Rule on Reverse Mortgages

A new rule has been issued which allows that a reverse mortgage (HECM) shall protect borrowers even when one spouse is younger than 62. Both the  purchase or traditional reverse mortgage amount will be based on the younger spouse’s age. Given the number of variables, and the complexity with how these new factors work please contact your trusted reverse mortgage loan originator.

For all FHA case numbers issued on or after August 4, 2014 this revolutionary new rule becomes effective. This rule will allow younger spouses of borrowers that no longer live in their home to stay in their home without the threat of foreclosure. In a nutshell, the requirements are this:

  • They must have been married when the mortgage was taken,
  • Have remained married,
  • The surviving spouse shall continue to pay taxes, insurance, and HOA fees (if applicable).

Prior to August 4, 2014, the full repayment of the reverse mortgage was due and payable following the death of the borrower, leaving the surviving spouse whose name was not on the mortgage in the lurch for the debt or forced to sell the home. This change defers that settlement until after the surviving spouse’s death.

This new rule comes at a cost. Lenders factor in the age of the younger spouse when calculating the reverse mortgage payout; in a nutshell, the younger the spouse the longer the loan will be outstanding resulting in the lesser payout.

Reference: FHA Mortgagee Letter: ML 2014-07

Readers of this blog may also wish to read: What Is A Purchase Reverse Mortgage? as well as The New Reverse Mortgage.

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Notice: The information provided is not intended to be an indication of loan approval or a commitment to lend. Additional program guidelines may apply. Information is subject to change without notice.
DISCLAIMER – This post does not represent that any of the information provided herein is approved by HUD or FHA or any US Government Agency or Department.
Financially Speaking™  James Spray, MLO, CNE, FICO Pro 
CO LMO 100008715 / NMLS 257365 | August 2, 2014

 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.