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Documenting Assets for Closing on a New Home and Deposits

When I talk about documenting assets with new borrowers, I often get questions like: “why do I need to document funds for closing” or “why do I need to show where this deposit into my account came from?” It is required of borrowers to source all deposits into documented asset accounts over a certain amount or cumulative amount, depending on the loan program guidelines.

How long do I need to document assets?

Generally, we only document the last 60 days’ period of the asset statements (last two months’ bank statements). Deposits not only need to be explained, but they need to be sourced as well.

What kinds of deposits should I document?

For example, if I see a deposit into a bank account for $1,200 it is required that we have a copy of the check and proof of the source. If the funds came from a relative, it is considered gift funds and must be eligible under loan program guidelines. If it is from the sale of an asset, it is required to provide a bill of sale and copy of the check. If the funds are wired in, the source needs to be documented (letter from the company explaining why they sent funds).

Many times funds wired to an account show where they are coming from (IRS, company payroll, etc) and then we don’t need any further documentation. Sometimes the deposit can be “backed out” of the statement ending balance if the source cannot be documented (cash, for example, cannot be traced/sourced), other times that asset account can be deemed ineligible as a source for closing funds.

Bottom Line: use caution

Bottom line, if you plan to purchase a home, be careful about the money going into your account for 2 months leading up to the underwriting. Mortgage investors have strict guidelines in regards to documenting funds for closing as this is an area where fraud has frequently occurred in the past.

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Fannie Mae and Freddie Mac 3% Down Payment

Fannie Mae and Freddie Mac have recently reintroduced the 3% down payment conventional programs. Many benefits are available for home buyers with these programs including reduced rates, reduced mortgage insurance and, of course, a lower down payment!

Some differences between Fannie Mae and Freddie Mac are as follows:

Fannie Mae 3% Down Payment:

  • Purchase or rate/term refinancing only
  • Homebuyer education is required
  • At least one buyer must be a first time homebuyer
  • Single family, primary residence only
  • Down payment assistance loans allowed (must be a Community Second)

Freddie Mac Home Possible 3% Down Payment:

  • 680 minimum credit score
  • Homebuyer education is required
  • None of the buyers are required to be first time buyers

Watch our informative overview video here:

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FHA Streamline Refinance Program

The FHA Streamline Refinance program waives the requirement for an appraisal, allows for the new, lower FHA mortgage insurance rates, and can save homeowners a lot of interest and insurance fees over the life of the loan. Not to mention, your payment will be reduced without needing to add additional time onto your loan term!

Request a Quote

From http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins/streamline:

FHA has permitted streamline refinances on insured mortgages since the early 1980s. “Streamline refinance” refers only to the amount of documentation and underwriting that the lender must perform, and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:

  • The mortgage to be refinanced must already be FHA insured.
  • The mortgage to be refinanced should be current (not delinquent).
  • The refinance results in a lowering of the borrower’s monthly principal and interest payments, or, under certain circumstances, the conversion of an adjustable rate mortgage (ARM) to a fixed-rate mortgage.
  • No cash may be taken out on mortgages refinanced using the streamline refinance process.

Lenders may offer streamline refinances in several ways. Some lenders offer “no cost” refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the lender pays any closing costs that are incurred on the transaction. FHA does not allow lenders to include closing costs in the new mortgage amount of a streamline refinance. Investment properties (properties which the borrower does not occupy as his or her principal residence) may only be refinanced without an appraisal.

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Conventional Mortgage Insurance Options

About Mortgage Insurance

Private mortgage insurance is required for borrowers of conventional loans with a down payment of less than 20% of the purchase price. Mortgage insurance is an insurance policy for the lender that provides coverage to the lender in the event that the borrower is unable to repay their mortgage.

There are several options for paying the premium:

  • Monthly Premium: The borrower pays the same amount every month until the loan balance is paid down to 78% of the initial property value, at which point the mortgage insurance payments end. There is no initial premium at closing.
  • Single Premium (Refundable): The borrower makes one lump sum payment at closing, but receives a partial refund if the loan is terminated within 5 years. There are no monthly payments.
  • Single Premium (Non-Refundable): The borrower makes one lump sum payment at closing. There are no monthly payments.
  • Single Premium (Lender Paid): The one-time lump sum payment is paid by the lender through a higher interest rate for the borrower.
  • Split Premium: The borrower pays a portion of the premium upfront and a portion in monthly payments.
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Mortgages Unlimited 2014 Holiday Toy Drive for Cornerstone

As a company, we find a variety of causes to get behind and help, from Habitat for Humanity to Spare Key. This year we made an extra push to collect some holiday gifts for those who don’t have the means on their own. Each of our offices piled up things for kids, dads, moms and families to help make their home just a little bit happier over the holidays!

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FHA Back to Work

The FHA Back to Work program allows home buyers to obtain financing if they had a bankruptcy, foreclosure or short sale at least 12 months ago. This timeline is shorter than the standard FHA guidelines of 24 months with extenuating circumstances or 36 months otherwise. The primary requirements for the FHA Back to Work program are that a 20% decrease in income led to the “economic event”, or bankrupcy, foreclosure or short sale. A divorce situation where the household income decreased as a result does not count. The other requirement is to have completed the Back to Work counseling at least 30 days prior to entering into a purchase agreement or submitting a formal loan application.

From FHA:

“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income were unable to make their monthly mortgage payments and ultimately were forced to give up their home. Some borrowers were left with no choice but to file for bankruptcy or short sale their home due to the inability to afford the mortgage payment. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has also been negatively affected. FHA recognizes the hardships faced by these borrowers and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

We can work with you to determine your ability to be approved and guide you to the counselors to become eligible for the program.

See the FHA Mortgagee Letter Here
Get your HUD approved counseling certificate from Springboard

Do You Qualify?

FHA will consider you for eligibility if you had a financial hardship in the past but can now document the following circumstances about yourself:

  • You can document the mortgage or credit problems resulted from a financial hardship
  • You have re-established a responsible credit history
  • You have completed HUD-approved housing counseling
  • You meet FHA loan requirements
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Foreclosure? Deed-in-lieu?

Fannie Mae/Freddie Mac requirements regarding past foreclosure

A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.

Exceptions for Extenuating Circumstances:
A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include:

  • Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV, CLTV, or HCLTV ratios for the transaction per the Eligibility Matrix.
  • The purchase of a principal residence is permitted.

Extenuating circumstances do not include divorce, only death or what I call “dismemberment” where extended hospitalization or serious medical issue arises.

Fannie/Freddie requirements regarding past deed-in-lieu transfers

These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. A pre-foreclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.

The following waiting period requirements apply:

Waiting Periods

  • Two years, 20% down required.
  • Four years, 10% down required.
  • Seven years LTV ratios per the Eligibility Matrix

FHA requirements regarding past foreclosure:

  • 3 years, except under extenuating circumstances. See above.
  • 12 months is possible under the FHA “Back to work” program which is only applicable if the borrowers’ income decreased by 20% leading up to the foreclosure.

FHA requirements regarding past deed-in-lieu transfers:

Same as past foreclosure

The only other option to finance a new home with a foreclosure or deed-in-lieu sooner than these timelines is with private financing/contract for deed, which generally require a 20% or greater down payment and unfavorable terms.

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Removing Disputes On Credit Report

The latest hurdle in getting mortgage approval is to have all disputes on credit removed. Since a tradeline (account) dispute removes that account history from the credit scoring models, the investors have become wise to inaccurate credit scores due to disputes. Often times when a dispute is removed a credit score will go down (especially if the tradeline has a negative history, excessive balance or is recently opened). You will want to have all the disputes on your credit report removed prior to submitting a mortgage application. First, review your credit information by visiting www.annualcreditreport.com and retrieving your free reports (note – it will not give you scores for free and you can only access the information once per year, so make it count!).

Through annualcreditreport.com you can remove disputes, or you can also call the bureaus direct here:

TransUnion

312-985-2000
It has a machine greeting buy just stay on the line and you are transferred to a live person, tell them you need to speak with someone in the Special Handling Department.
Tell the representative “I need to dispute the compliance condition remarks code of “AID” (Account In Dispute) because I am no longer disputing the account”. The representative was able to take care of this over the phone and will issue a email conformation within 72 hours.
Alternatve Transunion: 800-916-8800

Equifax

404-885-8300
Answered by a representative, tell them you need to speak with someone in the Executive Customer Service department. Tell them the same phrase above. I received email conformation within 24 hours that it was removed.
Alternate Equifax: 800-203-7843

Experian

888-397-3742
You need to access your credit report from annualcreditreport.com first. You will need to 10 digit number on top of your credit report. Speak with someone in the National Customer Service Center. Tell them you want the dispute removed. They will issue a email response within 48 hours

Alternate Experian: 714-830-7000 press “3” and ask for customer service

Don’t make any selections from the automated system and just hold for a representative. Ask for “consumer affairs” and explain they you have a loan pending and you need all disputes removed. Once they indicate they will remove the disputes, ask when it will be updated for your lender to request a new report.

Additional resources if any of the above do not yield results:

Experian

  1. Call 714-830-7000
  2. Press 0 to talk to a representative.
  3. They will require the last 4 digits of your social security number and other identifying information.
  4. You will also need a 10 digit Experian report number. Advanced Credit Solutions
  5. Clients can contact us for this number. Other clients can get this number from a free Experian credit report from www.annualcreditreport.com

Trans Union

  1. Call 800-916-8800
  2. Press 3 to talk to a representative.
  3. They will require the last 4 digits of your social security number and other identifying information.

Equifax

  1. Call 800-846-5279
  2. This number is a direct line to a live operator
  3. They will require the last 4 digits of your social security number and other identifying information.
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Evolution of the Mortgage Industry

Remember when we could close loans without a paystub, bank statement or even a completed appraisal report? Mortgage companies were filled with twenty-something go-getters, resembling something off the stock exchange floor; anyone that could dial a phone could be hired to originate loans. Thankfully, those days came to a blissful end years ago. It seems that the after effects of the damage done by that period are slowly dissolving into history and what has emerged is a different looking industry.

Consider all the changes that have affected our industry during the past five years. Dodd-Frank, the CFPB, ATR, QM, NMLS licensing, and compensation requirements are just the beginning. We could spend hours discussing all of the challenges during this period, but why dwell on the past? Where would we be if not for the burst of the bubble? Right back where we were six years ago, continuing down a path of an inevitable, even greater, self-destruction. Mom always said “everything happens for a reason.”

Now what?

The mortgage headlines this last summer were of huge layoffs and multi-million dollar lawsuits from Uncle Sam: retribution for wrongdoing the country. Tens of thousands of mortgage industry participants no longer had a place in our business, the mortgage shop down the street either closed its doors, or was issued a cease and desist, and the decade-long refi boom abruptly dissipated. We were routed, a thorough “cleaning out” if you will, shaved down to the bones, and leveled to a pile of rubble. The machine was degreased, point made.

So, where does that leave us?

With a great opportunity – to rebuild, retool, and regroup, but to do it the right way by learning from our past transgressions. It’s a chance for us to look out at the horizon and see a sense of pride in our industry. It’s a chance to go back to our roots and consider the role we as Mortgage Professionals play in growing our society.

We hold an amazing responsibility in each of our communities providing what is now a growing central role in helping people achieve the dream of homeownership. We can all feel the effects of the changes above in regards to how our marketplace looks to us for assistance. Gone are the days of the professional Mortgage Loan Officer being a commodity. We are now specialists, experts in our field, and becoming increasingly relied upon by the real estate industry, home buyers and the general public to provide expertise. Let us not leave this opportunity by the wayside as we forge ahead, but remember our core responsibility as key holders of the American Dream.

The future of our industry is dependent upon the people that lead it and those who govern it, both from within and externally. Our industry’s horizon will be shaped by our perseverance and desire to build something that others can admire and respect. With a little luck it might become one of interest to highly competent newcomers that will continue to shape our industry. Our ability to attract and retain high quality, ethical, and motivated people seems to be diminishing due to the lack of perceived opportunities our industry provides.

Ask any educated, finance-focused, successful-to-be college graduate what their top 20 industries of choice are and you will not hear the mortgage industry. Graduates talk about corporate finance or financial consulting in the health care, energy, construction, communications, agriculture, banking and government sectors.

To outsiders, the mortgage industry seems to present too many barriers to entry, and aspect to which we as an industry should pay close attention. Some might say: why hire new people when there’s barely enough business to go around as it is? The simple reason is this: a service industry like ours that fails to attract high-quality talent is destined for a horizon of disappointment when we are once again represented by the boiler room call centers instead of the highly sought-after professionals that we have worked so hard to be.

Consider the requirements for entry into our business. Twenty hours of education, pass two tests and a background check and you’re in – well, almost. Next you need to find someone to train you, be willing to wait for a paycheck somewhere above minimum wage for two to three months, and manage the pressure of being told to either find business on your own or you’re out. Layer on top of that what our true role is: to help people with the most significant financial decision of their lives.

What qualifies a person to be in that role? And at what point do the barriers become too great, and yet stay high enough to keep our horizon looking the way we want it? Our industry has to maintain a fine balance to preserve the new requirements and yet still offer the realistic opportunity for newcomers to succeed.

So how do we as an industry attract new talent that is willing to overlook the challenges our industry presents and see the same horizon of opportunity? The age-old model of apprenticeships comes to mind. Take blacksmiths from the Renaissance period, for example. They taught their apprentices to craft fine horseshoes, which required a great deal of experience and understanding of how to work with the various elements, much like our industry. Using the wrong metal (selecting the wrong loan program) and you’re bound to have a bum horse. Overworking the elements (applying too much pressure to your support staff and rushing closings) and the shoe is likely to break. Spilling the molten metal on your boot (violating RESPA) will stop you from doing your work in a hurry. What a highly skilled blacksmith was back in those days is much like what a highly skilled Mortgage Loan Officer is today. We spend years learning our trade and constantly perfecting it while overcoming challenges and occasionally getting burned a little.

Perhaps the best way to learn our business is to observe it first-hand from the true professionals that remain in our industry today. We can take this opportunity to show newcomers all the wonderful opportunities our business offers, show them how to be successful and how to do the job the right way. Most of all – we can show them the difference they can make in peoples’ lives for the better, all the while building a career for themselves they wouldn’t have had working in some corporate finance job.

Steve Furlong, MBA
MN Mortgage Loan Originator, NMLS 275939

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Why no affordable new construction in the Twin Cities?

Home builders have had a tough go the last 5 years. Part of the issue now is finding the labor source to do the construction. Many small home builders tell us that their laborers are all in North Dakota working on the oil pipeline. The other difficulty is in available land for development. You would think that we have plenty of places to build new houses, but consider the infrastructure needed for a new housing development in the suburbs. It takes time and resources to create a space for a home to be built, and up until 18 months ago we had very little demand for new homes.

Most of the new construction you might be seeing around the Minneapolis/St. Paul urban areas is well in excess of $300,000 as available land is scarce inside the 494/694 loop, and the costs of removing the previous structure drive the final price up. Demand in this market is also strong, which pushes prices up as well.

If you are looking for an affordable new construction home, are you willing to expand your geographic area beyond the metro? Many new construction homes closer to $200,000 are available if geographic areas further from downtown Minneapolis/St. Paul are an option.

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