Q:
I am an honorably discharged veteran of the Iraq War and recently came home and wanted to buy a home. When I separated from the U.S. Army, they told me that I was eligible to buy a home for zero down. Now I have applied and they are telling me that my credit won't qualify even though I'm a veteran. How do I fix this?
A:
I too am a veteran and I remember when I was processing for separation, they said the exact same thing to me. Unfortunately, they don't explain that the veteran is eligible to apply for a home loan with zero down. The veteran still must qualify via income to debt ratios and credit history.
The Veterans Administration (VA) does provide 100% purchase and refinance financing for qualifying veterans. However, the lender is required to verify an acceptable credit history. This can be from normal sources such as credit cards, car loans, etc., but can also be built through a rental payment history as well as alternative credit ratings such as utilities, car insurance, etc. VA also requires that the veteran has had no excessive late payments, collections, etc., during the past 12 months.
In addition to this, the veteran must have a debt-to-income ratio that fits VA's guidelines. Typically this limit comes out to approximately 41%. This means that all of the veteran's monthly consumer debt, including any child support and the new house payment must amount to 41% or less of the veteran's gross monthly income. VA also requires that the veteran has specified amounts of "residual income". This is money that is basically left over after all of the monthly bills and an estimate for housing maintenance are paid. Please contact your local VA approved lender to determine whether your situation meets requirements.
Last, the lender must verify that the veteran is actually eligible. Basically a veteran that served in an armed conflict for at least 90 days will be eligible. Other than that, the veteran would be eligible if they had served 24 months in almost situations or 180 days at many other time periods.
VA loans are a huge benefit to the veteran. Nowhere else can a person qualify for 100% financing for either the purchase or the refinance (including cash-out) of real estate. However, they are a bit complicated. If you believe that you qualify for a VA loan, contact your local lender before you start looking for your new home. There are many pieces to the VA puzzle that can, with the help of an experience loan officer, be put in place ahead of time.
Tuesday, May 19, 2009
Wednesday, May 13, 2009
Q&A
Q:
I am self-employed and want to buy a home. Apparently I am not claiming enough income to qualify for a loan. What can I do to fix this situation?
A:
Loans for self-employed persons can be more difficult than for a normal wage-earner. In your situation, the lender will require two full years of federal tax returns to document your income.
This is where the problem arises. The only income they will count is what is being claimed to the Internal Revenue Service (IRS) as your Adjusted Gross Income (AGI). As almost all self-employed persons claim every possible deduction from their income to reduce their income tax burden, the AGI is typically not representative of the true income for any given year.
There are items that are typically claimed as deductions that can be added back to the AGI such as any depreciation that was claimed against real property, any mortgage interest paid on real property, and any property taxes paid and claimed as a deduction.
However, often these adjustments are simply not enough to qualify for the loan amount desired. In this situation, the only way to remedy it is to claim more income for the following year. In this case, the lender will be required to average the past two years to establish what they can consider "effective income".
Another problem that can arise for self-employed persons is if they have claimed less income this year than they did in the previous year (after all adjustments as outlined above). If the income has declined from one year to the next, most lenders will be forced to deny the application due to declining income for a self-employed borrower.
So the best approach to take should you find yourself in this situation is to speak with a mortgage lender prior to filing the current year's income tax return. There are often minor adjustments that can be made that will save you heartache when you decide to buy.
I am self-employed and want to buy a home. Apparently I am not claiming enough income to qualify for a loan. What can I do to fix this situation?
A:
Loans for self-employed persons can be more difficult than for a normal wage-earner. In your situation, the lender will require two full years of federal tax returns to document your income.
This is where the problem arises. The only income they will count is what is being claimed to the Internal Revenue Service (IRS) as your Adjusted Gross Income (AGI). As almost all self-employed persons claim every possible deduction from their income to reduce their income tax burden, the AGI is typically not representative of the true income for any given year.
There are items that are typically claimed as deductions that can be added back to the AGI such as any depreciation that was claimed against real property, any mortgage interest paid on real property, and any property taxes paid and claimed as a deduction.
However, often these adjustments are simply not enough to qualify for the loan amount desired. In this situation, the only way to remedy it is to claim more income for the following year. In this case, the lender will be required to average the past two years to establish what they can consider "effective income".
Another problem that can arise for self-employed persons is if they have claimed less income this year than they did in the previous year (after all adjustments as outlined above). If the income has declined from one year to the next, most lenders will be forced to deny the application due to declining income for a self-employed borrower.
So the best approach to take should you find yourself in this situation is to speak with a mortgage lender prior to filing the current year's income tax return. There are often minor adjustments that can be made that will save you heartache when you decide to buy.
Monday, May 11, 2009
Q&A
Q: When I bought my house, they told me it was a modular home. Now that I want to sell it, they are telling me that it is not a modular, it is a manufactured home. How is this possible and what exactly is the difference?
A: This is a common situation. The confusion comes from the terminology. Many people in the real estate business use the terms manufactured and modular interchangeably. They are not the same thing.
The simplest way to know for sure whether you have a manufactured or a modular home is to look in the basement or crawl space and see if there is a steel frame under the home. If this frame is there, then it is a manufactured home.
Another way to look at is, "is your home two halves stuck together?" If so, it is a manufactured home. A modular home is essentially "stick built" which is the same as if a builder came in and framed it from the ground up.
The problems surface when it comes time to finance the home. A modular home is treated in exactly the same way as any other home. Financing for a manufactured home has many more restrictions.
In the case of conventional loans, it has become very difficult to finance manufactured homes. They have increased down payment requirements and made the minimum credit score restrictions nearly unattainable.
On the other hand, FHA and VA will still approve financing on manufactured homes and treat them exactly the same as a stick-built home with the exception that the home must either have the original HUD tags affixed to the exterior or a Certificate of Origin must be obtained (normally from the originally dealer/builder if possible). A structural inspection must also be obtained to ensure that the builder secured the home to the foundation properly.
So if you wish to sell your manufactured home, you should plan ahead to make sure that the home meets FHA or VA standards, and check the exterior for those HUD tags.
As a last note, a mobile or manufactured home in a park will not qualify for either FHA or conventional financing. In order to finance these homes, you should check with the local mobile home park managers and ask who is being the most competitive on these programs.
A: This is a common situation. The confusion comes from the terminology. Many people in the real estate business use the terms manufactured and modular interchangeably. They are not the same thing.
The simplest way to know for sure whether you have a manufactured or a modular home is to look in the basement or crawl space and see if there is a steel frame under the home. If this frame is there, then it is a manufactured home.
Another way to look at is, "is your home two halves stuck together?" If so, it is a manufactured home. A modular home is essentially "stick built" which is the same as if a builder came in and framed it from the ground up.
The problems surface when it comes time to finance the home. A modular home is treated in exactly the same way as any other home. Financing for a manufactured home has many more restrictions.
In the case of conventional loans, it has become very difficult to finance manufactured homes. They have increased down payment requirements and made the minimum credit score restrictions nearly unattainable.
On the other hand, FHA and VA will still approve financing on manufactured homes and treat them exactly the same as a stick-built home with the exception that the home must either have the original HUD tags affixed to the exterior or a Certificate of Origin must be obtained (normally from the originally dealer/builder if possible). A structural inspection must also be obtained to ensure that the builder secured the home to the foundation properly.
So if you wish to sell your manufactured home, you should plan ahead to make sure that the home meets FHA or VA standards, and check the exterior for those HUD tags.
As a last note, a mobile or manufactured home in a park will not qualify for either FHA or conventional financing. In order to finance these homes, you should check with the local mobile home park managers and ask who is being the most competitive on these programs.
Friday, May 8, 2009
Q&A
Q:
I have been shopping for a home and, after I finally found the one I want, I was told by my bank that I don't have enough credit to get a mortgage loan. I explained to them that I have a great job and that I have saved up a decent down payment, but I have always paid for what I needed with cash. I was told years ago by my parents that I should never get into debt, but I guess that's not true anymore. Is there any way around this?
A:
The short answer is "yes," but there is more to this question than just the credit issue.
This first thing that I would like to address is more for the benefit of any other hopeful home buyers out there who may be reading this.
Before you spend a great deal of time looking for a house to buy, you must check with a trustworthy local lender to make sure that you can get a loan to purchase the home you will eventually find. Getting a negative answer after you have already found a house you love will be disturbing at best.
Check the financing first. It can avoid a lot of unnecessary heartache later.
Second is the credit issue. While conventional (bank) loans will almost always require an established credit history as well as a pre-determined credit score requirement, this is not true of loans obtained through the Federal Housing Administration (FHA).
While a bad credit history will almost always cause you problems until you deal with it, if you are in a situation where you have no credit whatsoever, FHA will accept what are called "alternative credit references". These can consist of anything that has been paid in a timely manner for at least 12 months. It could be a utility bill, cable bill, phone bill, or even a monthly or quarterly payment for car insurance. FHA's requirement is that you provide a minimum of two of these bills.
In addition to this, in a "no-credit" situation, FHA will also require that you provide a timely housing payment history for a minimum of 12 months also.
So if you have not established any good (or bad) credit, then don't believe someone when they tell you that you are not in the game; you are. Just contact one of our many excellent FHA lenders here in Michigan City for assistance.
I have been shopping for a home and, after I finally found the one I want, I was told by my bank that I don't have enough credit to get a mortgage loan. I explained to them that I have a great job and that I have saved up a decent down payment, but I have always paid for what I needed with cash. I was told years ago by my parents that I should never get into debt, but I guess that's not true anymore. Is there any way around this?
A:
The short answer is "yes," but there is more to this question than just the credit issue.
This first thing that I would like to address is more for the benefit of any other hopeful home buyers out there who may be reading this.
Before you spend a great deal of time looking for a house to buy, you must check with a trustworthy local lender to make sure that you can get a loan to purchase the home you will eventually find. Getting a negative answer after you have already found a house you love will be disturbing at best.
Check the financing first. It can avoid a lot of unnecessary heartache later.
Second is the credit issue. While conventional (bank) loans will almost always require an established credit history as well as a pre-determined credit score requirement, this is not true of loans obtained through the Federal Housing Administration (FHA).
While a bad credit history will almost always cause you problems until you deal with it, if you are in a situation where you have no credit whatsoever, FHA will accept what are called "alternative credit references". These can consist of anything that has been paid in a timely manner for at least 12 months. It could be a utility bill, cable bill, phone bill, or even a monthly or quarterly payment for car insurance. FHA's requirement is that you provide a minimum of two of these bills.
In addition to this, in a "no-credit" situation, FHA will also require that you provide a timely housing payment history for a minimum of 12 months also.
So if you have not established any good (or bad) credit, then don't believe someone when they tell you that you are not in the game; you are. Just contact one of our many excellent FHA lenders here in Michigan City for assistance.
Tuesday, May 5, 2009
Ask Mike
Q:
I just spoke to my credit union about getting an FHA loan to buy a home and they told me that FHA is no longer available. Is this true?
A:
Absolutely not. FHA is going just as strong as ever. I cannot speak to why they may have said this unless they are unable to offer it at that credit union and did not want to turn away business. There are currently reports out stating that FHA will likely have the largest producing year in their history this year. There are several local lenders who are doing FHA loans every day; give one of us a call.
Q:
I am trying to refinance my home and the title company is telling me that I have a large judgment against me which is stopping the loan from going through. However, I filed a Chapter 7 Bankruptcy three years ago and the judgment was included. I gave them a copy of the bankruptcy papers to them to prove this. Why are they saying I still owe it?
A:
The problem appears to be that your attorney did not file a "Motion to Avoid Lien" with your bankruptcy filing. If that is the case, then unfortunately there is little that can be done. While the bankruptcy does take care of the judgment for most purposes, it does not remove the lien form the real estate you owned when you filed the bankruptcy. The only way to resolve this is to have your attorney re-open the bankruptcy and file the motion that should have been filed in the first place. However, because it has been several years, this may not be possible. I would highly recommend speaking with your attorney about this unfortunate situation. Also, anyone else who owns their home and is considering filing a bankruptcy should keep this in mind; the motion to avoid lien is one of the most important, and most overlooked, parts of the bankruptcy filing.
Q:
I just spoke to my credit union about getting an FHA loan to buy a home and they told me that FHA is no longer available. Is this true?
A:
Absolutely not. FHA is going just as strong as ever. I cannot speak to why they may have said this unless they are unable to offer it at that credit union and did not want to turn away business. There are currently reports out stating that FHA will likely have the largest producing year in their history this year. There are several local lenders who are doing FHA loans every day; give one of us a call.
Q:
I am trying to refinance my home and the title company is telling me that I have a large judgment against me which is stopping the loan from going through. However, I filed a Chapter 7 Bankruptcy three years ago and the judgment was included. I gave them a copy of the bankruptcy papers to them to prove this. Why are they saying I still owe it?
A:
The problem appears to be that your attorney did not file a "Motion to Avoid Lien" with your bankruptcy filing. If that is the case, then unfortunately there is little that can be done. While the bankruptcy does take care of the judgment for most purposes, it does not remove the lien form the real estate you owned when you filed the bankruptcy. The only way to resolve this is to have your attorney re-open the bankruptcy and file the motion that should have been filed in the first place. However, because it has been several years, this may not be possible. I would highly recommend speaking with your attorney about this unfortunate situation. Also, anyone else who owns their home and is considering filing a bankruptcy should keep this in mind; the motion to avoid lien is one of the most important, and most overlooked, parts of the bankruptcy filing.
Sunday, May 3, 2009
Q:
I purchased my home 2 years ago here in Michigan City for $92,000. I just recently applied for a refinance with a local lender, and they informed me that my house is currently worth only $81,000. How is this possible? Doesn't what I paid for the house make a difference?
A:
Unfortunately, we are experiencing some of the downturn here in Michigan City also.
After some further research, it appears that we have a 4.5% decrease in values as an average.
The problem we are experiencing is not necessarily that homes are worth substantially less over the long-term. What we are seeing is that, due to the increased sales of foreclosed homes, and the typically lower sales prices, the comparable sold properties in many neighborhoods are justifying lower appraisal values than normal.
In the past, a foreclosed property or a property sold in conjunction with a "short sale" agreement with the existing lender, could be overlooked as it was considered a "distress sale" and was therefore not representative of true values. However, when the sales of foreclosed properties become a larger percentage of the sale activity they can no longer be considered an exception and be overlooked in a valuation analysis.
My personal opinion is that this is a short-term situation. As the market rebounds more normal sales will generate comparable sold properties at the level at which we have been for the past few years. The truly unusual situation in which we find ourselves can change in as little as a few months, so don't let it get to you. As soon as a few homes sell in your area that are not "distress sales," the values can rebound quickly.
So hang in there; your home is still your best investment but must be looked at as a long-term bet. In time we should all be back on track with real estate values.
I purchased my home 2 years ago here in Michigan City for $92,000. I just recently applied for a refinance with a local lender, and they informed me that my house is currently worth only $81,000. How is this possible? Doesn't what I paid for the house make a difference?
A:
Unfortunately, we are experiencing some of the downturn here in Michigan City also.
After some further research, it appears that we have a 4.5% decrease in values as an average.
The problem we are experiencing is not necessarily that homes are worth substantially less over the long-term. What we are seeing is that, due to the increased sales of foreclosed homes, and the typically lower sales prices, the comparable sold properties in many neighborhoods are justifying lower appraisal values than normal.
In the past, a foreclosed property or a property sold in conjunction with a "short sale" agreement with the existing lender, could be overlooked as it was considered a "distress sale" and was therefore not representative of true values. However, when the sales of foreclosed properties become a larger percentage of the sale activity they can no longer be considered an exception and be overlooked in a valuation analysis.
My personal opinion is that this is a short-term situation. As the market rebounds more normal sales will generate comparable sold properties at the level at which we have been for the past few years. The truly unusual situation in which we find ourselves can change in as little as a few months, so don't let it get to you. As soon as a few homes sell in your area that are not "distress sales," the values can rebound quickly.
So hang in there; your home is still your best investment but must be looked at as a long-term bet. In time we should all be back on track with real estate values.
Thursday, April 30, 2009
The News Dispatch is pleased to announce a new weekly feature. Michael Gowan of Hallmark Home Mortgage here in Michigan City will be here to answer your mortgage and real estate related questions.
Ask Mike
Mike,
I recently went through a nasty divorce and, as part of the property settlement, our joint debts were divided up between us. Afterward, I applied for a mortgage and was denied when they pulled my credit because my score was too low. I asked why this was; I always pay my bills on time. They informed me that I had many late payments on my report. They gave me a copy of the report and all of the late payments were on the debts that had been awarded to my ex-husband. When I informed them of this, they said that it didn't really help because the accounts were still affecting my credit score. How do I fix this?
J. in Trail Creek
Dear J.,
You are, unfortunately, in a not uncommon situation. The problem is, when a couple goes through a divorce, and the attorneys split up the marital debts, and then, eventually, a judge signed the property settlement agreement, everyone involved leaves the proceedings believing that the issues have been resolved.
However, no one throughout this process ever seems to remember to mention that not one of the creditors on any of the joint debts has been consulted, nor are they bound in any way by the decision rendered by the court.
What this boils down to is that, even though some of the debts were awarded to your ex-partner, you are still just as liable for the repayment of those debts as you were the day you signed for them. Also, the credit bureaus to which the creditors are reporting have no way of knowing that there has been any change unless the creditor supplies that information to them.
This is clearly a flaw in the system, both in practice and, primarily, in the disclosure requirements for the legal practitioners involved.
My recommendation is that you contact the creditors involved and either attempt to negotiate a settlement to retire (pay off) the debt, or re-negotiate the entire debt (or a determined portion of the debt) in your name only and begin to repay that portion in a timely manner. However, no matter which of these paths you choose, it is extremely important that you get all agreements in writing and that you follow up with the appropriate credit bureau(s) to ensure that the account is being reported correctly.
Please send your mortgage related questions directly to Mike at
mgowan@hallmarkhomemortgage.com.
Ask Mike
Mike,
I recently went through a nasty divorce and, as part of the property settlement, our joint debts were divided up between us. Afterward, I applied for a mortgage and was denied when they pulled my credit because my score was too low. I asked why this was; I always pay my bills on time. They informed me that I had many late payments on my report. They gave me a copy of the report and all of the late payments were on the debts that had been awarded to my ex-husband. When I informed them of this, they said that it didn't really help because the accounts were still affecting my credit score. How do I fix this?
J. in Trail Creek
Dear J.,
You are, unfortunately, in a not uncommon situation. The problem is, when a couple goes through a divorce, and the attorneys split up the marital debts, and then, eventually, a judge signed the property settlement agreement, everyone involved leaves the proceedings believing that the issues have been resolved.
However, no one throughout this process ever seems to remember to mention that not one of the creditors on any of the joint debts has been consulted, nor are they bound in any way by the decision rendered by the court.
What this boils down to is that, even though some of the debts were awarded to your ex-partner, you are still just as liable for the repayment of those debts as you were the day you signed for them. Also, the credit bureaus to which the creditors are reporting have no way of knowing that there has been any change unless the creditor supplies that information to them.
This is clearly a flaw in the system, both in practice and, primarily, in the disclosure requirements for the legal practitioners involved.
My recommendation is that you contact the creditors involved and either attempt to negotiate a settlement to retire (pay off) the debt, or re-negotiate the entire debt (or a determined portion of the debt) in your name only and begin to repay that portion in a timely manner. However, no matter which of these paths you choose, it is extremely important that you get all agreements in writing and that you follow up with the appropriate credit bureau(s) to ensure that the account is being reported correctly.
Please send your mortgage related questions directly to Mike at
mgowan@hallmarkhomemortgage.com.
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