Home Buyer Seminar – Saturday, June 6th

This Saturday, June 6th I will be hosting  comprehensive home buyer seminar at Perl Mortgage’s main office located at 2936 West Belmont at 10am.  The seminar will provide all the inside information serious buyers need to know about purchasing a home in this crazy market. 

We will discuss everything from getting qualified for a mortgage to the details of the new $8000 tax credit for first time home buyers.   No question about buying a home will go unanswered!

RSVP is Required.  Please contact me directly at 312-651-5355 or russ@smartmortgageadvice.com. 

The seminar is free too!

Celebrity Foreclosure

Well, it looks like the rough economy is hitting T-Boz from 90’s R&B group TLC.   Mediatakeout.com is reporting that her house is being foreclosed…

You Are Your Spouse’s Credit

One of the situations I see often is when a person has great credit but their spouse does not.   With FICO scores taking and even more important role in qualifying for a mortgage today than even just six months ago, this can be a very big issue for potential home buyers and folks looking to refinance.

Most people assume that lenders go off the breadwinner’s FICO score which IS NOT the case.  Lenders take the lowest middle FICO score between both borrowers.    So if Joe has FICO scores of 775, 780, 740 and his wife has FICO scores of 720, 710, and 680; theFICO score used for qualification purposes is Joe’s wife’s middle score of 710.

In this example, Joe is likely to pay a higher interest rate because his wife does not have a 740 FICO score which is needed to qualify for the most competitive rate these days.    In most cases, I would just drop Joe’s wife from the loan application and only use Joe for qualifying purposes.    Joe’s wife would still be on the title to the property, but would not be responsible for the mortgage.

However, what do you do if you need both incomes to qualify for the mortgage?  In short, you are your spouses credit!  If you need both incomes to qualify for the mortgage and your spouse has bad credit, it means YOU have bad credit to.

So the next time you are picking up potential mates at a bar, instead of asking for a phone number you may want to ask for a FICO score instead.

4.5% Interest Rates

There has been a lot of buzz going around about a plan to reduce mortgage rates to 4.5%. While none of us knows what is going to be implemented, I can say that I don’t believe 4.5% interest rates are going to save the housing market because low rates do not address the root cause of the current housing market stagnation.

The housing market isn’t suffering from high interest rates. Rates have been at near historical lows for the past six years. The bottom line is that if you can’t afford to buy with 30 year rates at 6%, you can’t at 4.5% either.

The housing market is suffering the consequences of loose lending and an oversupply of homes. Over the past seven years or so, mortgage products allowed people to afford bigger mortgages due to a combination of low interest rates and less strict guidelines such as lower down payments and even lower credit scores. When money is falling off the trees, borrowers are not as price constrained as they would be in a normal market. This leads to ever increasing home prices.

In addition, developers turned every cornfield they could find into the hottest new development to meet the demand from consumers. Condo developments popped up on every street corner in urban areas. Not only were Joe Plumber consumers buying homes, but also Donald Trump wannabes which further inflated prices.

Eventually, supply begins to exceed demand. As any 10th grader taking economics will tell you, when that happens prices must come down. In the case of the housing market, supply begin to exceed demand and to make matters worse, the liquidity that fueled the demand also begin to dry up. In short, the housing market had the rug ripped out from under it. Banks drove home prices sky high with loose lending and then shut off the spigot abruptly with ever increasingly strict underwriting guidelines.

A 4.5% interest rate won’t help anyone if you still need a 40% down payment and a 800 FICO score to qualify or if there are still way too many houses on the market relative to the number of buyers.

If we want to get the housing market stabilized, we need a moratorium on building new homes so that the existing inventory can be worked through. In addition, the government needs to provide reasonable incentives to make buying an attractive alternative to renting for credit worthy borrowers. For instance, the government should consider providing down payment grants. We also need some incentives to encourage the purchase of foreclosed homes.

I don’t pretend to have all the answers, but I do know artificially lowering interest rates will not stop this train wreck.

Documentation Needed for a Mortgage

Many people have a phobia about the documentation needed to get approved for a mortgage. There really shouldn’t be any fear and the paperwork required really isn’t all that bad. When you apply for a mortgage, you should have the following documentation readily available as it will make the underwriting process smoother and faster. You will need to provide your lender with copies of the following documents:

Driver’s Licenses: This is to verify that you are who you say you are…

Proof of Citizenship: Yes, you have to be in the country legally to get a mortgage. If you are a permanent resident, we need your green card. If you are a non-permanent resident, we need the visa to show that you can legally work and live in the US.

Past two years w-2 statements: This corroborates income and work experience.

Most recent 30 day’s paystubs: Your paystubs should so year-to-date earnings and match your income claimed on the loan application. If you are self-employed or commissioned, in lieu of paystubs we will need your most recent two years of tax returns.

Most recent three months statements for savings and investment accounts: Funds available for down payment, closing costs, and reserves need to be verified. The banks will want to see all of your available liquid assets. Any large deposits on the accounts may also need to be explained. If you don’t get paper statements mailed to you, the online printouts are fine as long as your name and bank are clearly legible on the printout.

There may be other documents needed in certain circumstances, but the above is a good start.