Nevada Real Estate >> Las Vegas Real Estate Specialist: Ken Cook, Web Dev, Brand Strategist 678-439-8683

This one kind of goes along with "When Can We Close?" from a couple of years ago and another "How Long Does It Take To Close Today?" from a few weeks ago. It is further inspired by feedback from many agents and clients over the last many years.

First it is important to understand the difference between a pre-approval, an approval and a clear-to-close. That explanation is given here at "Pre-Approval, Approval, Conditional, Cleared - What the ____?!" Let me augment that by saying you, the home buyer, have a lot of power over how certain your pre-approval is.

Pre-approvals are generally good for 30 days. This almost always depends on lender guidelines. To make sure you are getting a real pre-approval listen to how long it takes to get your pre-approval and to what you supply to the loan officer before you receive your pre-qualification letter.

Recently I received a call from one of the largest banks in the world and the phone call started by telling me I had been pre-approved for a very low interest rate to refinance my current home. When I asked the phone bank operator to send me the pre-qualification he said he would have to ask just a few questions first. There was probably only a pre-qualification based on my credit score and estimated property value. Worth nothing.

A real pre-qualification can take as little as a couple of hours and a seasoned loan professional can easily guide you through the process. Anyone who gives you a pre-qualification over the phone without having seen any evidence to prove what you have said is giving you a decision based on credit and payment history with your statements only. This type of pre-qualification is what gives loan officers a bad name.

If you are thinking about going shopping for a new home you should get pre-qualified before you even begin. Unless you have significant income, strong credit and payment history and plenty of cash you need to know what the lender is going to offer based on your specific qualifications. The loan officer will also be able to tell you which property types and costs are okay for which loan products.

To sum it up - get qualified first then start shopping. Otherwise you may be wasting your time and the time of others as well.

Here are the facts about FHA and foreclosures on credit:

If there is a foreclosure on the borrower's credit (any of the borrowers) it must be at least 36 months previous in most cases. There are a very limited number of instances which would allow a foreclosure to have been within less than 36 months (from application date) and the lender may continue to underwrite the application even though it may have not been approved by the Automated Underwriting System (AUS).

Those events are pretty much limited to:

Death or serious illness of a wage earner.

Yes, that's it. HUD 4155.1 REV-5, the guideline from HUD which governs this topic, states:

D. Previous Mortgage Foreclosure. A borrower whose previous principal residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area.

So, while it is possible to be qualified for an FHA mortgage with a foreclosure on the buyer's or refinancer's credit within the last 36 months the reasons for making that exception are very narrow. Meanwhile please don't try and qualify your clients yourself as there are many , many caveats which may be overlooked even by the most estudious.

As a seasoned loan officer I don't even deny an applicant just because I see a foreclosure without hearing the full story and submitting the information to the AUS. Then again I like my application to close ratio to stay as high as possible within the lending guidelines available to me.

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So you have the down payment - sourced and seasoned just like it needs to be. All saved up, stored away nicely in the bank for the last 60 days, and ready to be invested into a home. The closing costs are there, too, and all perfectly documented for the last two months. Great job! Your down payment and closing costs are in order. This is something to be proud of!

It's always something that needs to be covered right up front. When the loan officer is taking the application and they know what it requires for down payment and the approximate closing costs they also need to calculate in the speficied amount of reserves. What are reserves? Straightforward it is enough to conver the principal, interest, taxes, and insurance (at a minimum).

Most loans require two months of reserves on the purchase of a primary residence and as much as six months (PITIA) on investment property purchases. But it's not enough they be available they must also be sourced and seasoned just like the down payment and closing costs.

Here's a little good news, though: reserves don't have to be in cash form. In fact 100% of the following can be counted for reserves:

1. Stocks, bonds, mutual funds, U.S. government securities, and other securities that are traded on an exchange or marketplace general available to the public (such as NYSE, NASDAQ, Midwest SE, CBOT, or OTC) whose price can be readily verified through financial publications.
2. Cash-value life insurance (rather than face-value) that is verified. The borrower must be the owner of the policy and not the beneficiary.
3. Personal IRA and SEP-IRA accounts that are owned by the borrower and verified.
4. The borrower’s portion of undistributed trust funds.

Additionally a portion of the value of the following may be counted as reserves:

1. 401(k), KEOGH, 403(b) and other IRS-qualified employer plans may be counted as reserves; however, to account for withdrawal penalties and estimated taxes, 70% of the vested amount of the account should be used to determine the borrower’s available reserves. The borrower will be required to provide documentation that the funds are accessible for withdrawal. If the retirement account only allows for withdrawals in the event of the borrower’s employment termination, retirement, or death, these funds should not be considered as reserves.
2. Savings bonds may be counted at 100% of face value if mature. If the bonds are not mature, the amount counted towards reserves is based on the redeemable value at the time of underwriting.

Ask your Loan Officer about reserves. If you are an agent and want help understanding these please never hesitate to call me or have your client call me. I'm more than happy to help even if I do not have the ability to assist in your area.

By NOW! I mean if you have not called a loan officer to get qualified, found a property and made an offer you're dangerously close to missing the First Time Home Buyer's Tax Credit. I know what you hear in your mind, "it's good through the end of November." You would, of course, be correct in so saying. Your correctness would be equivalent to leaving New York City for a trip to Tokyo to see your best friend's wedding which happens at 5PM your time and you are getting on a jet at Noon your time the day of the event. In other words it's "possible" you can make it on time but not very likely with the available equipment.

I know there will be loan officers and others reading this who will say, "shoot man I can close a loan in 8 days". Well, so can I. But it's by far the exception and not the rule. If you are a first time home shopper and you are reading this pick up the phone right now and call your local loan officer. If you just have questions feel free to phone me at 678-439-8683 and I can answer some questions for you.

Here are some pointers to speed the process and hopefully close before the end of November:

• Get prequalified right now, today. Not in a minute RIGHT NOW.
• Once you are prequalified ask your loan officer for a list of "findings" this will likely include:
  • Last two years of tax returns all pages all schedules
  • Last two months of bank statements on all accounts all pages (ALL pages)
  • One month's worth of pays stubs (if you get paid weekly that's FOUR)
  • Name of your landlord and their contact information for rent verification
  • Explanation of any credit checks that have been done on you in the last 90 days
  • A clear (CLEAR) copy of your driver's license (photo ID) and Social Security Card
  • If your down payment is a gift a GIFT LETTER and supporting documentation (the giver's paper trail from their bank to you)
  • Name and contact information for your preferred home owner's insurance agent
• Be prepared to get more stuff and don't argue with the loan officer or processor - JUST GET IT

If your home purchase closes on or after December 1st, as it stands today and there is no reason to believe it is going to change, you will NOT be eligible for the tax credit. Trust me, there will be hundreds, if not thousands, of people nationwide who think they are going to qualify for the tax credit who do not get it because they started too late. Today is getting just about too late.

So what are you going to do right now? Right CALL A PROFESSIONAL, EXPERIENCED LOAN OFFICER!

I have seen a blog post and it has been reposted that gives the impression the federal First Time Home Buyer's Tax Credit has been extended for 12 months. Actually it has not yet been extended. Only the house has voted on a resolution titled "The Service Members Home Ownership Tax Act of 2009" which does provide for an extension of 12 months for veterans or service members who spent 90 or more overseas during calendar year 2009.

As everyone knows for a resolution to become a law it must also be passed by the Senate which sometimes adopts the House Resolution as their Senate Bill. I have not seen the Senate Bill which echoes this  but I have heard it calls for an extension of 6 months, not 12 months.

I just wanted to make sure you realize this is not a done deal and could face changes or not make it through the Senate. Guessing it will make it through the Senate with that modification is what most industry pundits are indicating.

Meanwhile if your buyer's are not already loan qualified and have made and had an offer accepted you're headed for a very bumpy ride at best.