How to use TRID to help you buy a home

By Todd Abelson NMLS #180858 on .

TRID_rules

OK – TRID IS HERE AND GUESS WHAT? THE SUN ROSE THIS MORNING!

How to use TRID to help you buy a home

Now what?

First, what IS TRID? It stands for Truth-in-Lending RESPA Integrated Disclosure

What does is do? It provides two key features:

1) a newly designed, easy to understand pair of multi-page disclosures … called the “Loan Estimate” and the “Closing Disclosure” which replace the traditional HUD-1 (settlement statement), Good Faith Estimate, and Truth-in-Lending Disclosures.

2) provides the consumer with guaranteed time-frames in which to shop service providers AND have their fees guaranteed (within certain tolerances).

How does it work? Using the maximum time allowed, once a Buyer is under contract they have 10-days to shop for their Lender by formally applying for a loan. Each Lender then has up to 3-days to send a “Loan Estimate” thereby totaling 13-days which could be CONSUMED by shopping. At the conclusion of the loan process the Lender must submit a “Closing Disclosure” to the Buyers with final figures at least 3-days prior to when a Buyer can sign loan documents. Assuming no additional delays, this process CAN add up to a total of 16-days NOT INCLUDING SUNDAYS!!!

The question which has been posed to me by Buyer/Consumer & Realtor alike is “HOW THE HECK DO WE CLOSE A PURCHASE IN THE TRADITIONAL 30-DAY TIME-FRAME?” The answer below is EASY!

1. PLAN TO SHOP FOR LENDERS BEFORE SHOPPING FOR YOUR HOME. Select your finalists (if you end up with more than 1)

2. ELECT TO VOLUNTARILY PROVIDE YOUR SELECTED LENDERS WITH ALL FINANCIAL DOCUMENTS UP-FRONT. While Federal law prevents a Lender from REQUIRING documentation prior to issuing the up-front “Loan Estimate”, doing so will not only strengthen your Offer but will make the loan process proceed faster.

3. ACKNOWLEDGE RECEIPT OF ALL DISCLOSURES IMMEDIATELY. Remember that all of the “clocks” in TRID begin once the Borrower acknowledges receipt.

4. PICK A SOLID RECORDING DATE AND STICK WITH IT. With the new requirement for a 3-day waiting period prior-to-signing final loan documents after receipt of the “Closing Disclosure” has been acknowledged, any last minute changes moving up the recordation date could be problematic.

5. MAKE SURE YOUR LENDER HAS ALL ADDENDUM’S CONTAINING PRICE CHANGES AND/OR SELLER CONCESSIONS. Doing so will expedite issuing the final “Closing Disclosure” and eliminate the need for subsequent versions (which will reset the 3-day clock).

Remember – solid teamwork with your Knowledgeable Mortgage Professional will result is smooth closings and happy people. WE PROMISE!!

If you’re a Consumer check out the Consumer Financial Protection Bureau’s ‘know before your owe’ website for more info.

If you’re a Real Estate Professional check the Consumer Financial Protection Bureau’s Recommendations for more info.

New Loan Disclosures and Settlement Statement

By Todd Abelson NMLS #180858 on .

CFPB-LogoAs part of its continuing overhaul of residential mortgage rules, the Consumer Financial Protection Bureau (CFPB) is replacing the long standing HUD-1 Settlement Statement with a new Closing Disclosure. The new version, which goes into effect on August 1, 2015, is designed to provide disclosures to help consumers better understand all of the costs associated with their transaction. A sample of this document, to be provided to consumers three business days before they close on their mortgage loan, is particularly helpful in understanding what the Closing Disclosure will look like upon completion.

Additionally on August 1, 2015, the current Good Faith Estimate and Truth in Lending Disclosures will be replaced by a new Loan Estimate. This form, which will be provided to consumers within three days after they submit a mortgage loan application, is designed to provide disclosures that will help borrowers understand the key features, costs and risks of the mortgage loan for which they are applying. Click to see a sample of the PURCHASE version or the REFINANCE version. Click to see a COMPARISON of the existing forms vs. the forms that will take effect on August 1, 2015.

One of the more helpful & concise guides which is easy to understand is titled Final Rule on Simplified and Improved Mortgage Disclosures, can be found HERE. This 7-page guide, issued on November 20, 2013, provides a broad overview of the upcoming changes. A more detailed guide is the bureau’s TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide found HERE (although more recent, it’s 91 pages long and addresses detailed and complex topics! Not for the faint-of-heart).

Call Todd Abelson at Sunstreet Mortgage, LLC (520) 331-LEND (5363) for all your mortgage needs!

Private Mortgage Insurance

By Todd Abelson NMLS #180858 on .

PMIWhile private mortgage insurance can be costly, it does allow a potential homeowner the option of buying a home with less than a 20% down payment. But like most things there are variations on how this can be handled and there’s no one-size-fits-all option, so let’s see how each works as well as their advantages.

Monthly Premiums: as the name suggests, a monthly “Factor” is used to determine the cost. This cost is included in your monthly mortgage payment and is charged until your loan balance reaches 78% of the initial purchase price of the house. The advantage of this option is that no up-front expense is incurred and you only pay as long as you keep the mortgage in place.

Borrower-Paid Singles: With this plan, you prepay the entire cost of the mortgage insurance premium in one lump sum at closing thereby eliminating the need for monthly payments. Depending on your individual situation, you may be able to finance the premium into the loan amount, thereby reducing your cash requirements at closing. The advantage of this option is if you are able to negotiate the cost (premium) as a Seller Concession, you can reduce your monthly mortgage payment. A disadvantage of this option: since it’s prepaid there’s nothing to cancel when your loan balance reaches 78% of the initial purchase price of the house.

Split Premiums: as this name suggests, you pay a portion of the premium up-front at closing, resulting in a lower monthly “Factor” thereby lowering your monthly mortgage payment. Like Borrower-Paid Singles, you may be able to finance the up-front amount. The advantages of this plan are similar to the Borrower-Paid Single, but this plan is also cancellable once the loan balance reaches 78% of the initial purchase price of the house.

Lender-Paid: As the name suggests, the Lender pays the “Factor” on your behalf. However, to cover the cost either the Lender will increase your interest rate and use the rebate generated to pay the cost, or it can be paid through a Seller Concession (like any other closing cost). The advantage of this option is typically a lower overall payment vs. paying a separate monthly premium. The disadvantage is that there’s nothing to cancel when your loan balance reaches 78% of the initial purchase price of the house.

Here’s a typical example comparing the options, but first some background:

  • Assume the purchase of a $200,000 Primary Residencewith a 5% down payment.
  • Loan amount = $190,000
  • Using a 30-year fixed rate loan @4.25% the monthly Principle & Interest = $934.68
  1. Monthly Premium: Factor with 760 FICO score = 0.54%, monthly payment = $85.50. Approximate # months payment will be required = 108
  2. Borrower-Paid Single: Factor with 760 FICO score = 2.15% = $4,085. Break even time period vs. A = 48 months
  3. Split Premium: Factor with 760 FICO score: Up front = 0.75% = $1,425, monthly factor = 0.47 = $74.42. Approximate # months payment will be required = 108
  4. Lender Paid: Factor with 760 FICO = 1.95% which represents approx 0.375 INCREASE in mortgage rate. Monthly payment would thereby increase by $42.19 to $976.86

Depending on your down payment (5%-19%), your FICO scores, your loan type (30-year, 15-year, ARM, other), who’s paying the closing costs (you? The Seller? The Lender via a higher interest rate?) your results along with YOUR best option will vary.

This is another reason why working with a knowledgeable, experienced, COMPASSIONATE, Licensed Mortgage Professional is your best plan!

Call me, Todd Abelson, at (520)-331-LEND for all your mortgage needs!

Loan Prequalification vs. Preapproval

By Todd Abelson NMLS #180858 on .

Loan Approval

Daily I’m asked “what’s the difference between loan prequalification vs. preapproval“?

No wonder why when we in the Real Estate Industry have used these phrases interchangeably!

In a nutshell: prequalification is a statement of opinion from a Loan Originator while a preapproval is the statement of fact as a result of a formal analysis and review by an Underwriter – HUGE difference. Let’s drill down a bit and see what goes into these.

First, after an in depth consultation with a potential Buyer, a Loan Originator (LO) should be reviewing:

  • Credit Report
  • Paycheck Stubs
  • Tax returns with W2’s, 1099’s, K-1’s, etc.
  • Asset statements (referencing the funds to be used for down payment, closing costs, prepaid items and reserves)
  • Any additional financial documentation unique and/or specific to this person or their intended transaction.

Once completed the LO should be in the position of issuing a Prequalification letter = STATEMENT OF OPINION

Here’s where it gets a little tricky – having spoken with maybe 10,000 people over my career, most potential homebuyers are reluctant to provide the above documentation BEFORE they’re under contract. The reasons vary, but the bottom line is: at best any prequalification letter, a STATEMENT OF OPINION, is a “loose” document to begin with; a prequalification letter issued WITHOUT reference to the supporting documents (listed above) is tantamount to saying “the prospective homebuyer told me a story and I believed them”. Fairly useless in most SELLER’S eyes. So…

RULE #1 – to have the best shot at getting your offer accepted, provide your LO with EVERYTHING up front.

Getting back to the prequalification form, it should contain at a minimum the following information:

  • The offer price
  • The loan amount
  • An expiration date
  • Names of all buyers
  • Percent of the down payment
  • Loan type (Conventional, Jumbo, USDA, FHA, VA, etc.)
  • Loan term (fixed or adjustable, 30 years or 15 years, etc.)
  • Whether or not the offer is contingent upon the sale or lease of another property
  • Whether or not the offer is contingent upon a Seller Concession
  • Contact and legal information for the LO including company name, address and license plus his/her Nationwide Mortgage License System (NMLS) number

Next, let’s look into the Preapproval. Also called a “Credit Approval” this is where a complete loan file, including ALL supporting financial documentation, is submitted to an Underwriter for a formal review. At the end of the review a “Loan Approval” is issued and signed by an Underwriter. Of course since there’s no reference to a property that component of the transaction still needs to be addressed… but that’s why its called loan PREapproval = STATEMENT OF FACT. Furthermore, since this is signed by an Underwriter is, in effect, a commitment on behalf of the mortgage lender to “make that loan” with caveats such as “no change in financial position”, an acceptable property & appraisal, the loan program remaining, etc. But you get the idea.

Putting yourself in the position of the SELLER, which would want to see:

  1. Prequalification letter showing that no supporting documentation was provided by the Buyers
  2. Prequalification letter showing that all documentation was provided by the Buyers
  3. Preapproval letter showing that the funds will be committed as soon as a viable property is selected

Of course #3 is best, but #2 is still very adequate in most cases.

Guess what MOST LO’s deliver – you guessed it: #1

Armed with this information –

  • If you’re a Buyer PLEASE insist on the highest level your Lender will provide and be prepared to supply all pertinent supporting documents.
  • If you’re the Buyer’s Agent PLEASE insist that your clients select their Lender early in the process and provide all supporting documentation as soon as possible.
  • If you’re the Listing Agent PLEASE insist that the Buyers provide all supporting documentation to their lender-of-choice within 24-hours of contract acceptance.

Armed with this information – Happy Shopping!!!

Call Todd Abelson at Sunstreet Mortgage for all your mortgage needs: (520) 331-LEND (5363)

The BIG 3 Indicators that drive mortgage rates

By Todd Abelson NMLS #180858 on .

Stay ahead of the rate game. Here are the BIG 3 Indicators that drive mortgage rates:

  1. Economic Growth – GDP is the widest measure of the economy and is the aggregated monetary value of ALL goods and services. The GDP report is released at 8:30 am EST on the last day of each quarter.
  2. Unemployment – also called Non-Farm Payroll, this represents the total number of US paid workers. Farm payroll is excluded because it is seasonal. The report is released at 8:30 am EST on the first Friday of each month.
  3. Inflation – the increase in the costs of goods and services over time. There are two measurements: CORE PCE, which measures the prices paid by consumers without including food and energy, and CORE CPI, which measures the change in prices over time for goods and services (again without food and energy). CORE PCE is released around the first business day of the month; CORE CPI is released around the middle of the month.

Call Todd Abelson at Sunstreet Mortgage, LLC in Tucson Arizona for all your mortgage needs! (520) 331-LEND (5363)

3_Indicators_Infographic

 

How To Select The Right Mortgage

By Todd Abelson NMLS #180858 on .

mortgage-tucson-arizona

INTRODUCTION

As you start to consider your mortgage options, you may quickly find yourself overwhelmed by the sheer number of choices. Give the number of bells and whistles that most mortgages can come with, the number or possible combinations means that literally hundreds of choices available.

Talk about mortgage migraine!

There are three questions you need to ask yourself to help you pick the right mortgage:

  1. How long do you plan to keep your mortgage in place?
  2. How much financial risk can you accept?
  3. How much money do you need to borrow?

HOW LONG DO YOU PLAN TO KEEP YOUR HOME?

Many home buyers don’t expect to stay in their current homes for a long period of time. If a person intends to keep a residence for 5 years or less, you should consider an adjustable-rate mortgage (ARM) and/or a “No Point” mortgage (no discount or origination points).tucson mortgage

 

 

Why an ARM?  Because and ARM guarantees a rate for a short period of time, there’s less risk to the lender. As a result, the starting rate is lower than a fixed rate loan.

A mortgage lender takes more risk when lending money at a fixed rate of interest for a long period of time. Thus, compared with an ARM, where the lender is committing to the initial interest rate for a relatively short period of time, lenders charge a premium interest rate for a fixed-rate loan.

The interest rates used to determine most ARMs are short-term interest rates, whereas long-term interest rates dictate the terms of fixed-rate mortgages. During most time periods, longer-term rates are higher because of the greater risk the lender accepts in committing to a longer-term rate.

The down side to an ARM, however, is that if interest rates rise, you may find yourself paying more interest in future years than you would be paying had you taken out a fixed-rate loan from the get-go. If you’re reasonably certain you’ll hold onto your home for five or fewer years, you should come out ahead with an adjustable.

Why a No Point Mortgage? If you are not comfortable accepting the risk associated with an ARM but still do not expect to keep your mortgage in place for more than 5 to 7 years, then a fixed rate loan with reduced fees makes more sense. This is accomplished by accepting a higher than market rate with reduced fees. As the chart below shows, the break-even point for accepting an increased of .25% in rate is less than 6 years. So, for example, if you sold your home in 4 years you would save $603.

how to select right mortgage

 HOW MUCH FINANCIAL RISK CAN YOU ACCEPT?

Many homebuyers, particularly first-timers, take an adjustable-rate mortgage (ARM) because doing so allows them to stretch and buy a more expensive home. We Americans are not known for our delayed gratification discipline!

If you’re considering an ARM, you must understand what rising interest rates and a rising monthly mortgage payment could do to your personal finances. Only consider taking an ARM if you can answer “yes” to all of the following questions:

  • Is your monthly budget such that you can afford higher mortgage payments later on and still accomplish other financial goals?
  • Do you have an emergency reserve, equal to at least three to six months of living expenses, that you can tap into to make higher monthly mortgage payments?
  • Can you afford the highest payment allowed on the adjustable-rate mortgage?
  • Can you handle the psychological stress of changing interest rates and mortgage payments?

If you are fiscally positioned to take on the financial risks inherent to an ARM, by all means consider one. Even if interest rates do rise, as they inevitably and eventually will, they will come back down. If you can stick with your ARM through times of high and low interest rates, you are still likely to come out ahead.

HOW MUCH MONEY DO YOU NEED TO BORROW?

One factor that distinguishes the best mortgage from an inferior loan is that the best mortgage is the best deal you can get. Why waste your hard-earned money on the second-best mortgage? The amount of money you borrow can greatly affect your interest rate. You need to carefully consider how much money you need to borrow.

Conventional mortgages that stay within Fannie Mae and Freddie Mac loan limits established each year by Congress are called conforming loans. Mortgages that exceed the maximum permissible loan amounts are referred to either as nonconforming loans or jumbo loans. Mortgage interest rates for conforming loans typically run 0.25 percent to 0.50 percent lower. Keeping the amount of money you borrow under that all-important loan limit will save you big bucks over the life of your loan.

If your mortgage slightly surpasses Fannie Mae and Freddie Mac’s loan limit, here are two ways to bring it into conformity:

  • Buy a less expensive home.
  • Increase your down payment to reduce the mortgage.

In conclusion, there are many mortgage options people can use to save money and live within their financial means.

Call Todd Abelson at Sunstreet Mortgage in Tucson Arizona for all your mortgage needs! (520) 331-LEND (5363)

Bad Mortgage Behavior: Things To Avoid While Your Mortgage Application Is In-Process

By Todd Abelson NMLS #180858 on .

Your mortgage lender just called with great news! They have pulled your credit, reviewed your income documents, and checked out your assets. Your loan has been pre-approved, and they promise you will close on your purchase or refinance within 30 days!

You are officially in the clear now. There is nothing else you have to do except count down the days until closing, right?

Wrong.

The first thing to understand is the difference between an “pre-approval” and a “clear to close.” A pre-approval is what a lender gives you after an initial review. It simply means that based on your credit history and scores, monthly debts, income, employment, and estimated home value, and you meet their program guidelines. A clear to close comes after an underwriter conducts a much more thorough review of your qualifications and documentation. It is the magic ticket to closing your loan.

Unfortunately, there are several ways that a borrower can keep his “approved” loan from ever closing. Here are the most common:

Taking On Additional Debt. Your credit is actually pulled twice when you apply for a mortgage. Once for the initial pre-approval and once immediately before closing. If the underwriter sees additional debt on the second pull, that is a huge red flag which can kill your deal. Don’t buy a new car, sign up for a department store card, or buy new furniture on buy-now-pay-later 0% interest terms no matter how good the deal sounds.

Changing Your Employment Status. Remember that your loan was pre-approved based upon your current employment and pay status. If you quit your job or change your compensation structure before closing, not only does it render your initial approval meaningless, but it makes your employment situation appear unstable to the underwriter. Save any career changes for after closing.

Missing Bill Payments. If a late payment shows up on your credit report right before closing, the underwriter will justifiably wonder how you will pay your mortgage when you can’t make your car or credit card payment on time.

Not Sourcing Bank Deposits. Underwriters want to be able to document where every penny in your bank account came from. Between approval and closing is not the time to finally deposit that $2,000 in emergency cash you’ve had stashed under your rug. The reasons? They want to make sure there are no new debts which need to be accounted for, or that the funds did not come from a party to the transaction.

Need guidance through the complicated world of mortgage and real estate? Don’t hesitate to contact Todd Abelson at Tucson Mortgages, the experts on Tucson mortgage rates.

Waiting time after derogatory financial events

By Todd Abelson NMLS #180858 on .

Over the past several years, I find myself being asked “how long do I need to wait after ______ (enter bad situation) occurred before I can qualify for a new home loan?” Given the loan type and derogatory financial event the answer varies… but here’s a simple cheat-sheet to try and make heads-and-tails out of the topic.

Please note that these time periods are suggested and typical but “your mileage may vary” based upon situation, extenuating circumstances, down payment amount, yada, yada.

 

Event                                                  Conventional       FHA            VA             USDA

Foreclosure                                         3-7 years            3-years      2-years       3-years

Deed-in-Lieu of Foreclosure               2-7 years            3-years      2-years       3-years

Short Sale                                           2-7 years            3-years      2-years      3-years

Bankruptcy (Chapter 7)                      2-4 years            2-years      2-years      3-years

Bankruptcy (Chapter 13)                    2-4 years            1-year        1-year         1-year

 

Want more details about required Waiting time after derogatory financial events? Call me! Todd Abelson at Sunstreet Mortgage (520) 331-LEND (5363)

Adding kids as “Authorized Users” on your accounts

By Todd Abelson NMLS #180858 on .

Adding your children on as “authorized users” of your credit cards can help them establish credit history and will serve them well.

But be aware that this is not always the best option and certainly not intended to be long term.

Click here to read a fine article on this topic, created by Advantage Credit of Colorado.

Call Todd Abelson at (520) 331-LEND (5363) for all your mortgage needs!

MANY changes to Gov’t insured loans effective 10/1/2011

By Todd Abelson NMLS #180858 on .

The following bears repeating so you’re not caught off guard – changes to all Government Insured loan programs take effect October 1, 2011:

VA LOANS – Up Front VA Funding Fee is reduced on PURCHASE transactions. Click here to see complete chart for details

FHA LOANS – Temporary increased loan limits are eliminated; Pima County is back down to $271,050

USDA LOANS – Up Front Loan Guarantee Fee is being reduced from 3.5% to 2.0% BUT they are adding monthly mortgage insurance of 0.30% annually.

Be aware and don’t get “caught short”.

Call Todd Abelson, Licensed Mortgage Professional, at (520) 331-LEND (5363) for all your mortgage needs!