Obsessives Have Cracked the Perfect FICO Credit Score of 850 – Bloomberg

Kudos to Suzanne Woolley for authoring an article which accurately portrays how one can improve their credit.

Source: Obsessives Have Cracked the Perfect FICO Credit Score of 850 – Bloomberg

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.

Reverse Mortgage Primer: A Realtor’s Notes

For Homeowners Over 62, a Reverse Mortgage Could Address Some Financial Needs

Jim Smith Golden RE Logo

Recently our agents and I received training on Home Equity Conversion Mortgages (HECM), better known a “reverse mortgages.” These loans can be taken out on your current home or used to purchase a new home. What makes them particularly attractive is how they can turn your home from an expense (if you have a mortgage currently) into a source of money for the rest of your life after age 62.

In a normal mortgage, you have monthly payments of PITI—principal plus interest plus taxes and insurance. With a reverse mortgage, the principal increases instead of decreases because the principal and interest is being drawn from the equity you have in your house.

If you have longevity in your genes and don’t need to leave the value of your house to your heirs, this can be a good solution because no matter how long you live, as long as you continue to live in your house, you will never be “upside down.” The mortgage continues to be paid even after your equity is used up.  When you die and the house is sold by the lender, any shortage in payoff is covered by the mortgage insurance which is built into the loan.

This scenario is not for everyone, but it has enough advantages that it is worth speaking with a reverse mortgage specialist who can study your financial situation and help you decide if a reverse mortgage is right for you.

We had such a specialist — James Spray of MilestoneMtg.net, dba The Mortgage Company — speak to us and answer such questions as:

What happens if both husband and wife are on the mortgage and one of them dies? The surviving spouse can stay in the house until he or she dies.

What if you go into assisted living? Once all borrowers on the loan no longer live in the house, the loan must be paid. If there’s still equity in the house, it can be listed and sold just like any other house, and the loan is paid off.  If the equity has been exhausted and you’re “under water,” then you deed the home over to the lender and walk away not owing anything.

What if a son or daughter wants to buy the house? They can buy the house, with the loan paid off at closing, but if the house has negative equity, they can buy the house from the lender for 95% of its appraised value, regardless of how large the principal had grown.

Are property taxes and insurance escrowed? No, you must pay those directly, along with any HOA dues.

Can you take cash out when you refinance with a reverse mortgage? Yes, depending on your age, you can take out half or more of your home’s appraised value when you refinance into a reverse mortgage. The older you are, the more you can take out, based on actuarial tables. That’s why I say that if you have longevity in your genes, you could take out your full equity in your home before you die and continue to live in the house until all borrowers die without making any mortgage payments again—just taxes, insurance and HOA dues.

Can I sell my house and downsize? You should do that before you take out a reverse mortgage. Sell your house now, buy your perfect “forever” home, and finance it with the reverse mortgage, putting down only the minimum down payment based on the actuarial tables.  Keep the other proceeds from the sale of your current home as cash to spend, save or invest as you wish.

What about Social Security?  As you know, you get a much higher Social Security payment if you wait until age 70 to start drawing it.  Refinancing or purchasing with a reverse mortgage at age 62 could make it possible by lowering your living costs for you to wait until age 70 to start drawing Social Security.

What if my credit isn’t very good? Unlike with a regular mortgage, credit is not a factor in approving a reverse mortgage, barring recent bankruptcy or other derogatory factors. You need only prove that you’ll be able to keep paying the taxes, insurance and HOA fees (if any) on your home. Not doing so risks foreclosure.

You probably have many other questions.  If I can’t answer them for you, I’d be happy to connect you with Jim Spray or another specialist.

Jim Smiths Sig for blog

Read my weekly Real Estate Today column as published in the Denver Post at www.JimSmithColumns.com

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The above article is to be/was published in the Denver Post on September 8, 2016 by Realtor Jim Smith of Golden Real Estate, Inc. His office is located in Jefferson County, Colorado. It is reprinted here with permission/blessings of the author.

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 |September 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.

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.

Residential Appraisal Costs and Regulations

Illustration depicting a roadsign with ahow much concept. Abstract background.

Sticker shock is not uncommon for those who have not purchased or refinanced a home loan in the last 4-5 years. This post is to update the reader on the current market.

As background, the cost of an appraisal in the Denver-Metro area historically ranged from $300-$350. Typically, the appraisal was performed by a sole-practitioner, state licensed appraiser. That business model has all but disappeared for residential appraisals for lending purposes.

Given the myriad of new regulations throughout the mortgage industry, $450 $475 is now the going price for an appraisal in the Denver-Metro market.

A combination of market conditions, along with a shortage of approved appraisers, coupled with how soon one needs an appraisal, translates to a rush appraisal. A rush appraisal is defined as an appraisal report completed in less than three weeks. The cost of a rush appraisal may jump to $650.

If one lives in the mountains, let’s say Evergreen or Black Hawk, and needs a rush appraisal, expect to pay even more.

As a matter of practice, in this market, the Appraisal Management Company (AMC) gets a sizeable portion of the fee you must pay for an appraisal. In fact, the appraiser may now be paid less per appraisal than prior to the regulatory reforms. In fairness, the appraiser now gets paid for every transaction, which was not always the case prior to the enactment of Dodd-Frank and the boom of the AMCs.

The market has fewer sole-practitioner appraisers as most now work for an AMC. The AMC model has been around for decades, but due to the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, commonly referenced as the Dodd-Frank Act, the AMC is more the norm than the exception.

There are those, whose sentiment is expressed by Sam Heskel from a recent post in the Origination News, who believe consumers would be well served by seeing a breakdown of the fees, for the appraiser and the AMC, as separate line items on the closing document.

Regarding the sticker shock, this is an entirely new mortgage lending environment. You may notice many changes, some of them very good, as you go through the process of obtaining your new mortgage.

For suggestions on what to do to prepare for an appraisal, see: Preparing for The Appraisal – Selling or Refinancing.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | September 27, 2015 | Update 8/28/16

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.

The Basics of Mortgage Lending and Mortgage Servicing

The following is not written as an extensive discussion about the roles of mortgage lenders or mortgage servicers. Rather it is written to provide a brief and very general overview of these two different and separate functions within the residential mortgage industry.

Quoting from the CFPB, “Your mortgage lender is the financial institution that loaned you the money. Your mortgage servicer handles the day-to-day tasks of managing your loan. Your loan servicer typically processes your loan payments, responds to borrower inquiries, keeps track of principal and interest paid, manages your escrow account, and may initiate foreclosure if you miss too many loan payments. Your servicer may or may not be the same company that gave you your loan.” In other words, the mortgage lender may also be the mortgage servicer.

How does the mortgage lender get paid? The mortgage lender may get paid with a combination of an origination fee and the spread between the interest rate paid for the funds it lends and the interest rate charged to the borrower for those funds. Or the mortgage lender may just get paid on the spread between the interest rate paid for the funds and the interest charged to the borrower for those funds.

How does the mortgage servicer get paid? Generally speaking, there are four streams of income for the servicing function.

First, the servicer gets a servicing fee.  The servicing fee is typically calculated as a percentage of the outstanding principal balance of the loans serviced. Generally speaking, it is interest on the principal which ranges between one-eighth (0.125) and one-half (0.50) percent and which is retained by the servicer.

Second, the servicer is entitled to keep the “float” on the mortgage payments received. To illustrate: the borrowers remit payments to the servicer on the first of the month, however the servicer is not be required to remit the funds to the lender/mortgagee until the end of the month.  The result is that the servicer gets use of the funds for the most of the year with the exception of the few days each month when the servicer must remit to the lender/mortgagee.

Third, the servicer retains any supplementary fees it collects. The promissory note of the mortgage specifies the amount and payment of late fees as well as any other fees or costs related to the collection of late fees.

Finally, the servicer earns revenue from the fees and interest generated by funding mortgage servicing advances.

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

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.