Dan Polimino's Blog

As always, accurate information is critical to help you manage your finances. While we all know the importance of a good credit score, the many factors that determine a good credit score are often not understandable to the average consumer. When questions come up about what happens when a person gets married or divorced, I see a lot of myths and inaccurate information.

The experts at Advantage credit have done a great job addressing this subject. The best explanation I have seen on this is at http://www.advcredit.com/ under Yours, Mine and Ours: Marriage, divorce and credit.

Your questions and comments are always welcome.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                   

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

While obtaining a mortgage to purchase a condominium may present an interesting challenge because of the required project approval on the Home Owners Association (HOA), refinancing a condo could be easier than you would think.

If you have an existing government loan, either FHA or VA, project approval is not required for either a Federal Housing Administration (FHA) "streamline" refinance or VA Internal Rate Reduction Refinancing Loan (IRRRL). Both loans are designed to help people refinance to either a lower interest rate or change from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage. These loans do not allow for taking cash out. While both FHA and VA mortgages do have programs to provide for cash out, the standards are higher, and will include project approval and other criteria such as an appraisal, full income documentation, etc.

In addition to not requiring project approval for a VA or FHA rate reduction refinance, an appraisal is usually not required. Credit score requirements are reasonable, and debt to income ratios are not a factor in qualifying. In most mortgages, closing costs may be rolled into the new mortgage. A caveat I must mention is that borrowers should closely examine how much is being rolled into the loan. I have seen predatory lenders roll costs into a mortgage that would take the borrower over 15 years to recapture. The borrowers were so focused on rate that they forgot that the interest rate is only half of the equation. Rate and fees are what counts.

Next week I will discuss refinancing a condo that has an existing conventional mortgage. Your comments and questions are always welcome.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                   

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

A divorce mortgage is a refinance transaction that removes the departing spouse from the current debt secured by the home or other real estate. The spouse retaining the property refinances the loan that is currently in both parties name with a loan in their name alone. A common misconception is that the departing spouse is no longer liable for the mortgage if they sign a Quit (not quick) Claim Deed to surrender their interest in the property. Even if the departing spouse no longer has an ownership interest in the property they are still liable for the mortgage unless the mortgage holder agrees to release them from liability, or the loan is paid off.

In a divorce mortgage the departing spouse may receive cash for their portion of any equity in the home, or simply benefit by being relieved of future financial obligations on the property. Future financial obligations include: potential damage to their credit scores if the remaining spouse does not pay on time, difficulty qualifying for new debt because they are still liable for the old mortgage, etc. The remaining spouse benefits because they now control the property and do not have to rely on the departing spouse if they want to sell or refinance. Yes, I know this is often addressed in the divorce papers compelling one of the parties to perform. In the real world, I see departing spouses who ignore what they are supposed to do, or even worse die, thereby complicating things even further.

Experience has taught me that this should be accomplished as soon as possible. While both parties benefit from a divorce mortgage, we should not assume a departing spouse will be reasonable or follow the conditions in a divorce decree. A sad example of this is the couple who divorced and the departing spouse was supposed to quit claim her interest in the property to her husband. The balance on the mortgage was over $30,000 higher than the value of the property. Despite the orders of the court, the ex-wife refused to sign the quit claim unless she received an additional $5,000! In this case, the remaining spouse, the husband, is stuck with a high interest rate loan that cannot be refinanced.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life! 

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

When our automobile needs a tune-up, it provides us with plenty of clues: hard to start, rough running, poor gas mileage, etc. But when a mortgage needs a tune-up it gives no warning. It motors along silently, not telling us that we are wasting money every month. Chances are, if you have not refinanced recently, you are losing money that could be put to a better use. While qualifying for a mortgage is harder than it was in the past, it is not as hopeless as the media and urban legends would have you believe. I am amazed at the number of people who have been declined for a mortgage by a bank, who easily qualified for a new mortgage that saved them hundreds every month.

Upfront applications fees should never be paid to have a mortgage professional take a look at your situation. A small fee for a credit report is acceptable. FHA and VA mortgages often do not require an appraisal for a rate reduction refinance. If an appraisal is required, the borrower should verify, in writing, that the loan is approved contingent upon an acceptable appraisal. The reason I mention this is that I have seen borrowers ripped-off when they spent hundreds of dollars for an appraisal only to be told they did not qualify because of credit scores, debt to income ratios, etc. An ethical mortgage originator (really, this is NOT an oxymoron), who cares about the client, will do a reasonable amount of due diligence on the front end to make sure the borrower has a good chance of qualifying.

A borrower should always remember that rate AND fees are what matter, and not just the rate. Make sure you will recapture any fees within a reasonable time frame and you plan on owning the property at the end of the recapture period. I talked to one borrower who had just refinanced and had forgotten to consider this. While his monthly payment did drop, it will take him almost seven years to recapture his closing costs. Since he is planning on retiring in three years and selling his home to move out of state, this was not a provident mortgage plan.

As always, your mortgage consultant should do the numbers to see what is best for your unique situation.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life! 

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

About half of the mortgages I will close in December are for people who have an existing FHA mortgage and thought they could not refinance because of all the misinformation floating around about the current mortgage environment. The borrowers will be getting a nice Christmas present in terms of monthly savings for years to come. The most common misbelieves I encounter is that people with a FHA mortgage could not refinance because: 

1. I owe more than my home is worth.

2. I do not have perfect credit.

3. I do not have an FHA mortgage.

4. I have an FHA mortgage, but the property is now a rental. 

The FHA streamline refinance program is a thing of beauty that allows borrowers who currently have an FHA mortgage to refinance with a minimum of hassle. An appraisal is usually not required unless the borrower is rolling in a lot of costs, which is a bad idea anyway. A credit score of 640, which is far from perfect credit, is usually acceptable. Check your monthly mortgage statement to see if it specifies what type of mortgage you have. Unless your statement clearly states that you have a conventional or VA loan, have it reviewed by a mortgage professional. Their should not be any fees to review your current mortgage OR to apply for a mortgage. An application fee is a warning sign to prospective borrowers that they will be on a runaway stagecoach with high rates and fees, bad service, as fellow passengers. 

The misconception that you may not refinance an FHA mortgage when the property is now a rental comes up often. While FHA does not permit you to originate an FHA mortgage for purchase, you may refinance an FHA mortgage for a property that is now a rental. A word to the wise: do not even think about claiming your investment property is a primary residence. While various real estate "gurus" advocate this, it is very bad advice because they are encouraging you to commit mortgage fraud. Whenever I hear the phrase "real estate guru", I wonder if the speaker is trying to sell you something expensive and worthless, such as training to show you the "hidden tricks that will make you rich overnight". 

What you should do with the monthly savings depends on your unique situation. I have one astute client who took the money from her escrow refund, the monthly payment that she skipped, and applied this to principal reduction on the first payment of her refinance. A perfect example of long term planning and financial discipline. 

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret.

Freddie Mac reported last week that the average on the 30-year fixed mortgage rose sharply from 3.94% to 4.12%, which according to the National Bureau of Economic Research was the lowest rate ever.  

When looking at this rate it is important to remember that it is an AVERAGE rate. If we measured two people, and one person was 5 feet 8 inches tall and weighed 150 pounds and the other person was 6 feet 4 inches tall and weighed 260 pounds, the average height and weight would be six feet and 205 pounds. Clearly, while this average is accurate, it is worthless. The same thing applies to mortgages. Loan amount, purpose and type of a mortgage, loan to value, CREDIT SCORE, etc. are some of the many factors that determine the final interest rate. Two of the loans I closed last month illustrate this perfectly. While both loans were thirty year fixed rate mortgages, one loan was at 3.75% and the other loan was at 4.25%. Which client got a better deal? Both of them. The 3.75% loan was an FHA purchase for $360,000, and the other mortgage was a $200,00 VA refinance. The FHA borrower was not a veteran, and the VA loan was a superior option for the veteran who wanted to refinance over a FHA mortgage. 

While the VA borrower could have received a 3.75% mortgage, he wisely figured that paying an additional $4,200 in closing costs to save $58 per month did not make sense. Each borrower had the best mortgage for their unique personal situation. Always remember that rate is irrelevant. Rate PLUS fees are what matters. The annual percentage rate (APR) is defined as a total of all costs imposed on the borrower to obtain a loan. A borrower should always focus on the APR, and not just the rate on the mortgage. When I went shopping last week for new tires, the base price of the tires did not matter. What mattered was the final price I would incur for four tires. The company that had the lowest initial price per tire had the highest price when mounting and balance, disposal of old tires, etc, was included. This reminded me of the sleazy practice of baiting a borrower in with a low rate and then pounding them with fees.  

Next week: What is the "Ratchet Effect"? 

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                     

Direct: 303.947.2109 

Fax: 303.987.0676

Loanchip@hotmail.com

Colorado Mortgage Broker License # 100019831

NMLS# 378621 

Your Lender for Life! 

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret. 

Has it become easier to get a mortgage in the last three years? Not from what I am seeing. Whether it is a conventional, FHA, or VA mortgage, in most instances, it is harder to obtain a mortgage than it was just three years ago. The good old bad days are gone forever, and the mortgages must meet higher standards with increased documentation for verification. A mortgage must fit precisely into the box with very little wiggle room. Policy and procedure always reflects the worst abuses in the past and we are seeing that now. It is vital to understand how the process works. Underwriters are in essence referees who make sure that a mortgage conforms to a set of guidelines so that the investor will purchase the loan. The investor package loans into bundles that meet these specifications. This enables them to sell the mortgages, in bulk, to institutions and individuals who purchase mortgage backed securities. Those who purchase mortgage backed securities naturally want to know they are investing in a product where they can have a reasonable expectation of repayment.

While some of the standards such as down payment, debt to income, have been fairly constant, other components of the mortgage process have become more stringent. Examples of higher criteria would be credit score, type of property, and stability of income. An example of higher credit score requirements would be that while HUD may say a credit score of 580 is acceptable, most of the investors who buy mortgages want a minimum of 640 or they will not purchase the loan. When it comes to the property we see increased scrutiny on the condition, especially if unpermitted work is involved. If it is a condo it really starts to get fun. The status of the Home Owners Association (HOA) will be more closely examined than ever before. While the owner occupancy ratio for a condo project (defined as the number of owner occupants in a project versus the number of rental properties) has been a factor for a number of years, current standards for some types of mortgages call for a higher percentage of owner occupants. Another recent example of raising the bar is the number of owners within a project who are delinquent on their HOA dues. Stability of income, particularly for self employed borrowers, is another challenge. If a borrower's income has declined from 2009 to 2010, a reasonable question is will it keep declining? The response that the economy is down is typical, but it does not address the question.

What about the void created by borrowers who do not fit into the box for a conventional, FHA, or VA mortgage? A possible answer is portfolio loan products or "hard money" (also known as private money) loans. More on this next time.

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret.