AL and FL Mortgage News

PART I of IV – Can I use my land equity and how much will be counted?

After writing tens of millions of dollars in construction-to-permanent loans for over 15 years we continue to find that a clear majority of consumers do not know if they can use lot or land equity towards a down payment on their construction loan.  This topic is directly associated with down payment requirements for construction-to-perm loans, which we will address in separate article.  For those who even know to ask, many are confused about the rules of using the equity (the “how to”) and most importantly of all why being able to maximize that equity is important even if you have a healthy down payment.   To clear-up these very muddy waters in the mortgage world, we are going to answer to answer the “can I use it” question to see where you fit into this picture and end this post on how we would calculate and apply it to your new loan.  We will follow-up with a second post about why it matters, a third on how to maximize it, and a forth for those who don’t own but are planning long term.    

For ease of discussion, let’s use the word “land” to represent a vacant residential lot or plot of land up to say 10 acres (see here for land size restrictions).  Also, let’s assume that you and/or a co-borrower are the current owner of record with a recorded deed in place.  With all this being said, if you want to know if can use your land equity and want to calculate how to apply that equity to your construction-to-permanent you must know the answers to three simple questions 1) when did you buy or have the lot/land gifted to you? 2) how much did you pay? 3) what is owed on the lot/land? 

Lot/Land Purchases

In the mortgage world we first look the time frame one or more borrowers have been on a recorded deed to land to calculate equity.  The industry jargon is “seasoning” of your ownership.  If you purchased your lot/land inside of four months for conventional loans, six months for FHA, or twelve months for VA we will use the original purchase price of the land as a best-case baseline to determine any equity regardless if it appraises for double or triple what you paid for it.  This seasoning time frame is calculated from the courthouse recording date on your deed to the day you sign your loan application.  The appraised value of the land if any exists is then determined with a construction-to-permanent appraisal. 

For example, if you paid $50,000 one month ago, you owe $40,000 today but it appraises for $60,000 we in the industry would only count $10,000 in equity towards your down payment in lot equity.  If you are going conventional and can wait a few months until you reach the four-month threshold before you sign your loan application the full $20,000 can be counted toward your down payment.  The truth is the construction planning process takes several months to start so if you are going conventional or FHA waiting to reach the time frame required is inherently easy.

Lot/Land Gifts

Meeting these land seasoning requirements to count land equity towards a down payment is most significant for borrowers who have land given to them or potentially acquire land at a substantial discount.  Using the same logic above, if a family member deeds you land, or you buy it for many thousands below what it is actually worth, we (the industry) can only count what the deed reflects it was sold inside the seasoning time frame.  This means that if someone sold you land a deep discount one month ago for $5,000, you owe $0 today, and it appraises for $60,000 we can only count $5,000 in seasoned equity unless you wait 4 months for conventional, 6 months for FHA, or 12 months for VA to apply for your construction-to-permanent loan.  Once you wait the required seasoning times the full $60,000 of equity per the appraisal would be counted towards your down payment.

Probably the most common scenario is where a family member deeds land to another family where the consideration or price is $0 because it was a gift. Just as in the above examples before none ($0) of the equity can be applied until you or a co-borrower are seasoned on title beyond the four, six, or twelve-month windows respectively.

If you want to speak with us about your land equity scenario as it relates to your construction-to-permanent project please feel free to email us or call us at 888-269-8335.


Posted by Devin Murray on October 3rd, 2018 10:46 AM
 

Last Updated August 2018

With real estate markets all over Florida and Alabama recovering (and yes booming in many markets) homeowners are more interested in home values and potential equity options than they have been in over a decade.  Some owners are selling to capture their equity and move on while others are staying put and borrowing against their newfound equity while rates are still relatively low.  While we will save how cash-out loans differ from other options for future discussion, knowing general options available to you in the mortgage credit market today can give you a great starting point in smarter decision making.

As a rule of thumb, the market for fixed rate second mortgages and HELOCs with banks and credit unions will allow you to capture up to 90% of the current market value of your primary home.  Most lenders will want to see a 680 or 700 score as a benchmark to allow the full 90% and even with great to excellent credit most will stop at 85% for second homes and 80% for investment properties.  Currently we do not offer junior lien products for cash-out refinances but either product can be very helpful depending on your scenario and what your purpose is for the equity.  Since there is no blanket answer to all possible scenarios, know that second mortgages and HELOCs traditionally have lower closing costs and can close in a handful of days compared to traditional cash-out refinances especially with small loan amounts say below $50,000.  One negative effect of this speed is borrowers not getting the most accurate valuations because most of the appraisals for seconds and HELOCs are completed via drive by appraisals.  Most lenders for these products will still pay for this service on your behalf even if you don’t close so in most cases you aren’t spending $400 dollars to explore these options, so this is a good starting point even if you never close the loan.

On primary cash-out refinance mortgages there is some greater flexibility compared to doing a second mortgage or HELOC with respect to credit scores and maximums.  If you are VA eligible, right now you can take cash-out up to 100% of the appraised value of your primary residence and 85% FHA loans with credit scores as low as 580.   While conventional loans allow investors and owners of second homes to take just 75% they do allow another 5% on primary residences with the maximum being 80% with a 620 score as a minimum benchmark.  You will likely be required to pay for your appraisal up front but as stated previously the valuation is more thorough which can help you maximize all potential equity.

While it is good for our country that we avoid another 2008-2009 real estate meltdown, conventional cash-out maximums will likely never see 2007 levels again.  The positive side for you is that if you bought a house using a conventional loan within the last 10 years or as soon as 12 months ago, chances are you put at least 3-5% down.  Standard down payments and regular monthly balance reduction coupled with faster than normal market appreciation may make a cash-out refi of your first mortgage a sensible option.  To discuss your scenario or a free quote email us, call us at 888-269-8335  or apply online 24 hours a day.

Loan Purpose Disclaimer:  If you are looking to do renovations and are thinking of doing a cash-out refinance, ask about the benefits of renovation loans first.  Renovation loans use future improved value and are not considered cash-out so they allow maximums such as 95% (Conventional) or 96.5% (FHA) with a 640 score on a primary residence.

Blog Disclaimer 

Posted by Devin Murray on August 20th, 2018 9:53 AM


In the fall of 2017 we posted major updates regarding jumbo loans which highlighted important factors such as credit score, down payment, and income requirements for owners and buyers of primary, secondary, and investment properties.  We announced this because these improvements are unlike anything we have seen since before 2008 for jumbo borrowers.  Now there is one other major exception in 2018 that is yet again changing the market for buyers and existing owners of primary and second homes with balances above $453,100 which is the maximum conforming limit in most of our markets.

Starting March 2018 anybody in Florida or Alabama with a 680 credit score who needs to borrow between $453,101-$679,650 might be eligible for financing with 20% down and avoid meeting the more stringent requirements in place for jumbo loans.  This exception to jumbo is a conventional product called the High Balance Loan.

High Balance For Buyers
If you are buying a primary or second home priced from say $566,375 to $849,000 this means you can put 20% down but get one loan with conventional rates, closing costs, underwriting guidelines, and turn times as long as your loan amount stays below $679,650.  This conventional loan jumbo exception creates a shelter from jumbo rate and cost adjustment factors most notable for hindering those in the 680-719 score range.  There are also "elite status" benefits for those with scores 720 and above so please ask your loan officer to see if you qualify and compare jumbo vs. High Balance rates and costs. 

Aside from rate and costs improvements, the second biggest High Balance advantage are much lower asset and reserve requirements.  Where jumbo loans can require 3 to 9 months in reserves, this conventional option typically only requires zero to a few months per automated findings.  Lower asset requirements mean easier qualifying and more importantly using your money where it counts the most for you. 

While we did not directly mention it previously, most all jumbo loans are manually underwritten meaning that they can be a little more difficult to obtain and take a little longer in underwriting.  (This is not new or a secret in our industry.)  By comparison high balance loans, like any other conventional loan, are underwritten using an automated system and therefore can be closed in about half the amount of time as jumbo loans.  With respect to time automated underwriting means streamlined loan conditions, less hassle, and a potential competitive edge with faster closings than other competing jumbo offers.  

High Balance for Owners
If you have never attempted it before, refinancing a jumbo loan can prove to be far more difficult than obtaining purchase financing.  There are many additional pitfalls too numerous to describe here.  Aside from requirements described with getting jumbo purchase money, finding a lender than is familiar with various jumbo offerings is an important step towards knowing your options.  Secondly receiving a good valuation with an appraisal that is accurate and using fair market comparables is sometimes challenging for properties above $500,000 due to availability in your area.  So, if you owe from $453,100 to $679,650 on your first mortgage and even if you have a second mortgage with a balance up to $84,956 on your primary residence you owe it to yourself to ask about High Balance Refinance Options.   

To find out about these and other options not mentioned here that a High Balance loan may offer you for your scenario do not hesitate to email us.  To find out what the requirements are or to inquire about qualifying call us 888-269-8835 or apply online 24 hours a day.



Posted by Devin Murray on April 9th, 2018 1:32 PM

 

All throughout the country finding affordable housing continues to be a growing challenge not unique to people in metropolitan areas, first-time home buyers or retirees.  We talk to hundreds of buyers each year who face this challenge across many markets in Florida and Alabama and ultimately finding a solution very often results in waiting-out the market until something affordable comes available.  If waiting many months on end is not an option, the question we are asked most usually is “what other types of properties can I qualify for?”

While no universal answer exists for all markets the default answer to this question regardless of location is usually condos, mobile homes, and new construction when the traditional single family homes are not available.  Condos are an excellent solution for many scenarios but for some financing can be tricky and condos can carry large homeowner’s association fees ("HOA fees" and related assessments) that offset and frequently outweigh any advantage in lower price.  A different set of financing challenges apply to mobile homes on top of concerns of safety and depreciation.  Traditional construction can be an excellent option for many but the process of finding plans, a builder, and a lot to build can be unrealistic or unfeasible considering the average build time of 9-12 months.

Recognizing these and other shortcomings combined with the demand short and long-term demand for affordable housing a very different answer named Little Custom Homes of Alabama has emerged with a highly unique single family solution.  In a category truly of their own LCH builds craftsman style stick-built single family homes using high quality, traditional materials in a non-traditional ways. Instead of building houses on site and experiencing delays due to weather LCH builds to your specifications and installs your turn-key home on a permanent foundation wherever you desire in approximately 60 days.  This can be done with regular end financing if you own the land or construction financing if you are purchasing a lot simultaneously.
 
As a company that finances properties of every kind, what stands-out the most about this company to us is that literally nobody else offers anything similar in any of our markets.  LCH has created the ability to provide housing in a short window of time without sacrificing safety, quality, options, or cost.  All LCH products are carefully built in a controlled environment set on a permanent foundation and are built to exceed the strictest county and municipal codes.  Designed to withstand wind ratings of 180mph, these homes are designed to be safe and durable for many decades even  in the most harsh coastal and tornado prone environments. 



Unlike most affordable homes with stripped down amenities and the inability to make even the smallest of design changes, the list of standard features in these homes is high and you can use existing designs or choose your own.  A few of the many standard desirable features include vaulted ceilings, stainless appliances, oak cabinets, and crown molding.  If adding custom touches is important add-ons include items like custom cedar closets, granite or marble counter-top options, Hardie-board siding, gutters, and metal or architectural single roofs.  Large scale options include expandable and wrap-around porches, attached or detached car-ports and garages.

So far we have not addressed cost which is LCH’s best feature when it comes to affordability.  Compared to traditional construction the typical cost for a completed LCH ranges from around $70-$110 per square foot depending on lot/site costs, location, design, and custom options selection.  In terms of affordability this can translate into a 1500 square foot with a median cost of around $130,000.    

All of LCH homes greater than 700 square feet are eligible for Conventional, FHA, and VA financing.  If you would like to learn how to get pre-approved to finance an LCH home in Alabama or Florida please feel free to Apply Online, send us an email, or call us today at 888-269-8335.  

If you are already pre-approved and would like more information on sales please contact Alisha Hileman by email or by phone at at 251-609-4434.




Posted by Devin Murray on March 15th, 2018 9:07 AM
 

Congratulations to our new customers on their spectacular half-acre waterfront lot purchase on John’s Lake/John’s Cove in Winter Garden, FL for $235,000.  They found one of the last remaining lots $15,000 below market but were not quite sure on the design for their dream home to start construction.  As an option to passing up this beauty, we were able to secure and close on the lot financing while the builder and architect fine-tuned the design that matched exactly what the customer needed and envisioned for his family.  With the plans near completion a few months later we will roll this lot loan into a construction loan and help break ground on their one-of-a-kind 8200 square foot build which includes some really unique features like a media room, cabana, and man-cave.  We are so fortunate for the trust and relationships we have with of all our customers and we can’t wait to watch this design come to life for you.  

Are you buying a lot or planning to build?  Want to know if you can?  Give us a call at 888-269-8335 or email us at service@gulfstatesfinancial.com to speak with a licensed professional about your scenario. 

Posted by Devin Murray on January 28th, 2018 2:37 PM
In mid-2017 both Fannie Mae and Freddie Mac re-branded and released their own versions of a loan program which allow borrowers to finance homes with just 3% down for people with credit scores as low as 640.  For those who qualify this still is a huge development in real estate finance as an alternative to FHA financing which requires 3.5% down not necessarily because of the 0.5% down payment difference but because of PMI options not available on FHA loans.  FHA still has many advantages like allowing some with scores between 580-640 to get low down payment financing with relatively but recently Fannie Mae really is trying to prove it is a worthy competitor for your loan.

We are not sure how long it will last but Fannie Mae is currently allowing borrowers with a 720 or better credit score to do 1% down conventional financing and this is HUGE.  You would need to speak to a licensed originator to determine if you qualify but the key to this program is knowing if the property you are wanting to buy has income limitations.  What excites us about this is just what the limits are and which areas have “NO LIMIT”.  You can easily visit their website here to find out for your area.   

Compared to say USDA loans, it is noteworthy to say that this income limitation is not a total household income figure but applies to just whoever is on the loan.  For example if you make $60,000/year and your spouse makes say $45,000/year you might be able to meet the income limit by just putting your spouse on the loan if the limit is say $49,000.

For those who simply exceed the income limit and still want conventional financing, it is important to point out that Freddie Mac has much greater flexibility with income limits compared to Fannie Mae on their 3% program.  If you are interested, you can search Freddie Mac’s income limits here.  

So if you think you qualify for either the 3% or 1% down conventional programs or want more information you really need to ask your loan officer about PMI options on these loans.  Ultimately PMI on these loans automatically comes at a reduced rate compared to PMI rates on regular conventional loans which if nothing else can mean big savings for you.  For those with higher credit scores it may make sense to discuss lender paid PMI where your lender pays a single premium on your behalf thereby eliminating monthly PMI built into your payment. 

If you are buying in Florida or Alabama and want to discuss your scenario with a licensed loan officer you can call 888-269-8335, email us or apply online 24 hours a day

Posted by Devin Murray on December 3rd, 2017 6:14 AM


Over the years we have seen thousands of credit reports from the best to the very worst-case scenarios and the most commonly asked question when discussing scores is something to the effect of, “How can I get my credit scores higher to buy a house, refinance, build, renovate, etc.?” No, this is not a sexy topic but what is sexy are the relatively fast results for people who dedicate a little effort to understanding a few basics and then start building, rebuilding, and maintaining their credit.  The good news is you don’t need to understand credit algorithms or what those words mean to achieve results.  Our intent here is not to answer all things credit nor is it to offer you credit counseling services* but we do want to shed light on some proven best practices, let you discover where you are in that path towards better credit, and ultimately act towards making credit the excellent resource it can be for your future.   

Get Added as an Authorized User
If you don’t know your credit scores you can get your scores from various online companies like FreeScoreOnline.com but we frequently recommend going directly to the 3 major credit bureaus Equifax, Experian, Transunion who determine your credit scores.  Credit scores commonly report in a range around 450 to 820 with a higher number being "better" than lower.  If you find you don’t have a score for all three bureaus, maybe you have only one or two scores due to lack of credit or your middle of the 3 scores are below 640, one of the single fastest ways to re-establish and build new credit is to use someone’s else’s credit.  Yes this is legal if you have permission.  Yes this has risks involved you need to look into.  Do you have a parent, sibling, or significant other who has had a credit card that has been open for at least 12-24+ months, who keeps balance is kept below 50% of the limit, and always pays it on time religiously?  If the answer is yes and they agree to let you, the owner of that account can add you as authorized user with a quick phone call and as soon as the creditor reports that next month’s data it can dramatically and immediately impact your score inside of 30 days. 

Be careful if that person and anyone else on the account decides to take up gambling, rack up the bill at Christmas, or make a late payment because getting added as authorized user can cause just as much damage to your credit history and scores as it can good.  Also there are other implications regarding access to this person’s credit you need to research and discuss but this is why we recommend using family over a friend to do this.  Once you follow the steps below and have several (at least two if not three) of your own credit accounts that are in good standing, it would be a good idea to remove yourself as a user within a year or two to eliminate any potential bad data being reported.

Secured Lines of Credit -  The Stepping Stones
In the early stages of credit building or rebuilding, getting added as an authorized user might be your starting point or If you don’t have this luxury, there are alternatives.  We don’t want to tell you how to live your life but if you can stop eating out for a few weeks, pick-up a few extra hours at work, do Uber or Lyft, or curb your online shopping could you find a way to save $500?  With the first $500 you save you need to open at least one secured line of credit that reports to at least two major bureaus.  A secured credit card is secured because of the collateral you put forth to open it.  Regular unsecured credit is extended because of your good scores already established.

It is really important to know that many providers of secured lines claim to “report information about your account to the major bureaus” but frequently take many months to report, don’t ever report, only report to a single bureau, have high rates and/or high fees, and have poor customer service but also know the name of this game with secured lines is reporting to at least two bureaus quickly so do your research here. Credit Karma has just two cards with First Progress claim to report to all three.  NerdWallet has a similar pros and cons review but doesn’t make bureau reporting a focus.  Magnify Money’s review focuses on those with low annual fees.  Wallet Hub has a very detailed review that is also worth checking into.

After nearly 7 years of repeatedly recommending mutual customers and positive results, we have found PNC Bank (888-370-7344) offers a nearly hassle free $500 secured line of credit with competitive terms and fees.  You fill-out an application online or in a branch, deposit the $500, and then they report the usage data to two bureaus in 45 days or less. We have no affiliation with PNC Bank but we have seen customers open a $500 line of credit, pay it on time monthly, keep the balance below $100, and see 60+ point increases inside of a few short months people with little credit from just a single account which is massive.  Your personal results in a similar time frame may vary based on your credit profile.

Multiple Secured Lines of Credit
Keeping in mind the potential gains of opening a single account, if you can open a second secured line with this same or a different provider do so as soon as possible.  If you can, consider a larger limit if possible because it looks more favorable when a human is making a credit decision in the future.  If you can’t afford it, a second for another $500 is fine.  The goal with respect to scores is to have more than one account reporting positive information so it is better to have two $500 secured lines reporting compared to say one single line of $1,000.   Secured lines are essential stepping stones for credit building and should be kept open for as long as possible.  Once you build a credit profile within say 24 months by opening other accounts like unsecured cards, installment loans, and other types of credit you may only then want to consider closing them.  

The Credit Union - Getting a Third “Major” Trade-line
Keeping all else equal, everything described so far can and usually does build/improve existing credit within a 6-month time frame for an investment of around $1,000. (We say investment because when you close the secured line and it is paid in full you can get your money back.)   Around this 6-month mark with one or two secured lines, make a credit goal to get a third “major” trade-line established.  Some would argue the figure to be higher but have a goal of at least $2,500.  You can open a third secured line as previously described but at this point you may want to purchase something using the credit you are building even if you have the cash to buy it outright.  Find out what is best for you.   

To take this next step we most frequently recommend checking first with a local credit union over any bank big or small on what they offer.  We aren’t bank haters but credit unions by design will lend to people with scores below 600 with a minimal down payment and in many cases, offer better terms to those with higher scores like 700-760. Regardless of who you choose, “major” credit accounts like auto loans are secured by the collateral (less risk) and are therefore typically easier to get approved for than say opening a credit card which is unsecured (greater risk).  We are not suggesting you have to go into debt to get better credit because you do not but having a third account/trade-line is a worthy benchmark in the credit world.  

Inquiries 
So far we have talked about things that will increase your scores so we also need to talk about things to avoid.  It would be pointless to follow this or any similar path for credit building and let potential creditors hammer your credit with inquiries.  We see even people with "good" credit do this all the time.  As a rule moving forward from today only authorize a few potential creditors pull your credit per year.  Tell your friends and family this information.  You can increase your chances of obtaining new credit by using credit unions who have more flexible guidelines which will naturally lead to less inquires. Multiple inquires, which we will label six or more per year, very frequently causes damage to credit scores without consumers even knowing.  You can always pull your own credit as mentioned previously without an inquiry “counting” against you so before you authorize anyone at all, go online to a local credit union and see what the minimum score requirements are before ever applying and save yourself time.  Note that credit unions also typically publish this information openly while banks do not.  

Dealer Inquiries
Not all car dealerships are evil but NEVER let a car dealership of any kind pull your credit.  Hands down.  Know your score and get credit pre-approved to purchase a car or truck at your credit union or bank first and then go car shopping knowing what you can do.  This same concept applies to mortgages.

New vs. Old Gear
How you use your credit will affect what you can afford today and in the future so a quick discussion about new versus used is highly relevant.  New cars, boats, four-wheelers, Wave-Runners, and other similar personal recreational merchandise can be tons of fun and might impress others but the shine eventually fades.  Most importantly the new stuff also loses significant value rapidly and ultimately getting rid of this stuff to buy more new stuff will cost you more and may not be possible when you are ready if you find yourself in a negative equity position.  The value of pre-owned and certified cars, trucks, and the like is literally better than ever and can be a huge value to you because the other person who bought it first took the massive depreciation hit for you.  This most certainly holds true for gently used luxury items. 
     
Rent
If you can’t get a third tradeline as mentioned above you may need to wait for your score to heal with time or try some other methods below.  Another helpful tip that doesn’t impact your credit score but is a valuable tip is making sure you pay your rent via online bill-pay or use a check.  For mortgage credit, FHA will allow proof of 12 months canceled rent checks as a third tradeline.  In some cases, if you apply for a loan and have a 640 credit score, they will sometimes require 12 months proof of rent so if your score is lower than this point now form a paper trail now.  It is impossible to form said paper trail if you pay with cash.    

Ramping Up Scores – Debt-to-Limit
How you use credit is what really determines your score.  Aside from making on-time monthly payments, a factor largely unknown to the public is something called a debt-to-limit ratio which is expressed in a percentage.  Do you have a credit card or other revolving account where your balance is 50%, 75%, 90% or more of your limit?  If your answer is yes, work on reducing the balances on the account(s) with the highest debt-to-limit ratio immediately.  This sounds backwards because you may be paying more interest on a card with a higher balance but addressing debt-to-limit issues with your credit is more relevant to credit scores versus the cost of the debt.  

Limit Increases
If you have “good” credit (say 680-700+), have any single account that has been opened for 6-12 months with a balance less than 50% of the limit? Most creditors will allow you to increase your limit on these types of account just by clicking a button.  Most of the times it does not result in a harmful credit inquiry and the results are almost always automated.  If granted this results in an immediate reduction of your debt-to-limit ratio for that account and effortless credit score building on your part.  In most cases if you have paid the bill by the due date each month out of the last 12 they will allow it.  If you are denied you have not lost anything and try again in a few months of satisfactory usage.

Balance Transfers
If you have established credit with more than 3 or 4 credit cards you need to research information about balance transfers to decrease higher interest cards and to continue to hammer down your debt-to-limit percentages.  Know that most unsecured credit card offers with balance transfer incentives have a threshold of 700+.  For example some credit card providers offer 0% interest on transfers with credit above 720+ for 12 months or might give you 18 months if your score is above 740.

Low and Bad Credit
We have talked about several ways to add positive credit, skills to better manage it, and easy tips to boost credit but we haven’t talked about dealing with existing negative information impacting your credit today.  This is no better way to say WAKE-UP.  Realize the past is the past, take ownership of your credit, and stop hiding.  Contact any open accounts that you have any late payments still owed on and establish a dialog as quickly as possible to bring any late payments current.  Explain your circumstances and ask if they will work out an agreement to help you do this.  Even if they decline, have terrible customer service or were somehow rude to you at any point you not living up to your part of the agreement is not their fault. Their job is to collect money for their company so the bottom line is be ready to clean up your mess.  If you are still pointing fingers, you are not ready.

Old vs. New Collections
If you have a late account(s) that was not paid after 120 days many creditors “charge-off” the bad debt and sell your debt to a third party collector to get it off their balance sheet.  Yes, collections can be tough to deal with but if you have any collections added to your credit within the last 12 months these are what the credit world considers as “newer” collections and you should try to pay them off in full as quickly as possible.  Having these kinds of collections reporting has already harmed your credit but is likely still being reported in recent activity.  

Newer collections have less side effects on credit when compared to “older” collections that have been on your credit for a year and beyond and/or haven’t updated reporting for many months.  Many people avoid paying off old, higher balance collections because the balance is so high they still don’t have the money to pay them back or ignore the small, old accounts but they all matter.  For credit rebuilding old collections need to be resolved just as the new but it is important to know that resolving old collections will unfortunately harm your credit more in the short term when you pay them off or settle for less than what you owe.  

Third party debt consolidation is a multi-billion dollar industry that you should probably avoid getting involved yes even if you owe thousands in old collections.  These companies contact your creditors, negotiate a settlement balance and corresponding payment plan and charge you a monthly fee for this service meaning it will take you longer to actually pay off the debt compared to doing it yourself.  What the masses don’t know you can do this yourself if you want to and skip the fees but a payment plan is not the best idea for credit score improvement.  Think of a payment plan on collections like a long/drawn-out breakup or slowly ripping off a Band-Aid on a wound that might not be that bad to begin with. 

As a payment plan alternative, a settlement and single lump sum payment will improve your credit quicker especially if you are building new credit simultaneously and you should be.  As scary as a settlement sounds most people don’t know that collectors are most always pre-authorized to settle their accounts for about 10%-50% of the final charge off balance if you simply call and negotiate it.  Note that if you settle with either method your credit report will most likely be marked accordingly.  Also know that your collectors will typically require the settlement payment within 10-30 days so don't call them to negotiate if you aren't ready to do something.  You will need to demand the terms of the settlement in writing and make sure it indicates that whatever you end up settling for will "satisfy" and "close" the account.  If they say they can’t give it to you in writing or they will mail it to you, tell them you can’t pay until they actually do.

Lump sum settlements on old collections are more harmful to your credit in the short term but are better in the long term when compared to a settlement with monthly payments over 12-60 months that debt consolidation companies prefer.  A payment plan omay be the only alternative for you and would be preferable to doing nothing.

Bankruptcy
Despite what is portrayed online and via TV, Chapter 13 and 7 personal bankruptcy are not the end of the world for your credit.  In fact many people are probably good candidates and don't take use of these tools which offer protection and a much-needed fresh start when they can’t possibly settle a large amount of derogatory accounts with respect to available income or assets.  If you have a discharged bankruptcy within the last few years or as soon as the last few months, you need a request a copy of discharge paperwork from your attorney, keep it on file for at least 7 years and pull a copy of your credit report.  You can your scores from companies like FreeScoreOnline.com but once again we recommend going directly to the bureaus Equifax, Experian,  Transunion so you can question/request their report directly from them as well as submit corrections online.   

With your bankruptcy discharge paperwork and credit report in hand, make sure all debts that were discharged in the bankruptcy show a $0 balance and/or are marked as discharged by the bankruptcy.  By law the bureaus have 30 days to respond to your request to any corrections and you can supply the discharge directly to the bureau if needed.  In many cases most people do not take this final step after the bankruptcy ultimately find their credit scores suppressed for no reason other than lack of understanding and due diligence.  For those who are on the ball, it is common to see 700 credit scores in just a few months after bankruptcy.

Foreclosures

If you are facing foreclosure, attempting to negotiate a short sale with your lender or attempting a deed-in-lieu by surrendering the title to the home is better (with respect to mortgage credit guidelines) with regards to a regular full foreclosure.  If you are facing foreclosure, it might be wise to contact a licensed attorney to discuss including the option of including foreclosure inside of the bankruptcy because this has less wait times with respect to future home buying/financing in some cases.

If you have had a foreclosure and or bankruptcy in the past both are termed recent “derogatory events” with respect to credit.  In 2017 the general trend is that you can establish new credit using methods described here and even get mortgage financing literally within days after these kinds of events rather than 4-7 year wait times required by FHA and conventional loans. To qualify on mortgages after a derogatory even you will typically need 10-20% down to qualify.

Disputes
Credit disputes in light of credit scores are largely intended to be used to resolve false/incorrect information or fraud within a relatively short window of time.  Typically, any bad data on a disputed account keeps that data from impacting the score while the account is in a dispute status but by no means is opening a dispute any kind of long term solution for improving your credit score nor settling a debt.  Many creditors will require you to take any and all accounts out of disputed status in order to extend new credit.  If you are worried about fraud and someone stealing your identity you might want to look into products like LifeLock or MyIdCare.com

Liens/Judgements
Liens and judgments can sometimes be settled if the other party agrees to a settlement but are not as easily handled like a collection because the government is involved requiring payment before new credit can be established.  Liens and judgements in the credit world do impact credit and are a higher priority than collections of any kind so they too should be dealt with as soon as possible.  If you have one or more of these you may want to inquire with a secured card provider to see if these will cause an issue.   

Summary 
Building and maintaining credit is cyclical rather than linear path.  Good credit can be a reality if you first take responsibility and take steps like those mentioned here in establishing new credit, make timely regular payments, keep revolving balances low, pay-off/settle collections and charge-offs quickly, and monitor your credit annually.

If you want to inquire about guidelines regarding various types of mortgages and credit requirements you can check our other blog posts, email, or call us at 888-269-8335 during normal business hours.  As always you can apply online 24 hours a day.

*The viewpoint of the post is the solely the opinion and experience of the author and not Gulf States Financial, LLC.  Gulf States Financial nor the author is in any way a licensed credit counselor or bankruptcy attorneys and your scenario might warrant a consultation with a licensed professional.  We do not offer this information for any form of direct compensation, so do your research and verify what we are saying and what might be best for you.  This information is subject to change at any time.

 

Posted by Devin Murray on October 24th, 2017 10:34 AM
The principal and interest payment on a $200,000 30-year Fixed Rate Loan at 4.25% and 95% loan-to-value (LTV) is $998.57 with 0 points due at closing.  The Annual Percentage Rate (APR) is 4.535%.  The principal and interest payment does not include taxes and home insurance premiums which will result in a higher actual monthly payment.  Rates Current as of 10/3/2017.  Gulf States Financial, LLC NMLS # 835698.  Equal Opportunity Housing Lender.

Posted in:General
Posted by Devin Murray on October 5th, 2017 11:57 AM


Depending on what county you are financing in Florida or Alabama if you want to borrow more than $424,100 to purchase, renovate, refinance, take cash-out or build the type of mortgage you are likely* inquiring about is often called a “jumbo loan” or in some cases “high balance” because you are borrowing more than your Conventional county loan limit allows.  Click here to verify your county limit if you are unsure for your area or you can see the general limits for 2-4 unit dwellings on the main page click here.  

If you think you need a jumbo loan it is important that you understand that even if you easily qualify for a jumbo loan with an 820 credit score, high income/low debt and plenty of assets having this designation has very different restrictions that few lenders ever mention and very few consumers understand.  The information herein omits discussion of how to qualify for jumbo loans over a general discussion of what the jumbo market is offering for single unit residential properties.  This information is subject to change and most likely will at any time.

Credit Score and Loan-to-Value (LTV)
While several exceptions exist, most jumbo lenders offer the greatest flexibility/rates/pricing/costs for loans with a 760 or greater score and most all if not all stop lending below a 660 score.  Inside of this big range you can typically borrow up to 90% on a primary purchase or rate/term refi with as little as a 680 score or 80% between 679-660 including cash out refinances.  Second home LTVs are capped at 80% with as little as a 680 score while investment jumbo loans are capped at 70% at 680.  Many lenders set a benchmark of either 720 or 700 for jumbo loans and adjust heavily to the rates/pricing/costs and will decrease flexibility for anything below this range.
Two notable exceptions to this are VA and non-QM loans.  On VA loans you can typically borrow up to 100% of the VA max guarantee allowable with just a 660 score.  Non-QM jumbo loans are loans that fall outside of traditional jumbo requirements where LTVs typically start at a peak of 80% with a 660 score and the LTV is reduced accordingly.  It is possible to borrow to jumbo money with scores down into the middle 500s with a Non-QM loan.

Maximum Loan Amounts
For jumbo loans most lenders have a benchmark up to 90% up to $1 million but have higher score and asset requirements and/or tighter LTV requirements above this dollar mark.  It is common that many jumbo lenders and banks will cap jumbo loan amounts up to $2.5 million but that does not mean finding a loan higher than this amount is difficult.  There a quite a few nationwide lenders who specialize loans above $2.5 million but again the requirements and limitations described here are typically a bit more strict.

Debt Ratios
With the VA as the exception which can allow up to a 60% back end debt-to-income ratio at times (which is extremely high by comparison), most traditional jumbo loans have a limit as high as 43% depending on the scenario.  It is most common that on any jumbo loan above an 80% LTV that this ratio is reduced to 38% and even sometimes to 36%. Exceptions are sometimes made if the borrower has double or triple the asset requirements, higher credit score, or possibly other compensating factors.

It is noteworthy to mention that stated income loans, Jumbo or otherwise, for the most part no longer exist due to various regulations passed regarding ATR which is the requirement of the lender to verify a borrower has the “Ability to Repay”.  This is regulation that is good for our industry.  On the flip side some non-QM lenders have 12 to 24 month bank statement programs as an alternative.  On VA loans some IRRL loans are more basically loan modifications that do not require re-verification of income.  Also for non-jumbo conventional loans there are reduced income documentation requirements for non-self employed borrowers.

Asset Requirements
Over and above cash required to close, jumbo underwriters typically want to a see few to several months of  “reserves” remaining in the bank after closing.  Reserves are calculated in months of equivalent proposed PITIA (principal, interest, taxes, insurance, and HOA fees) payment on the subject property.  In many cases this is as low as 3 months and can be as high as 9 months for primary residences and investment properties.  It is important to note that for second homes the range can be anywhere from 6 to 12 months. 

Property Specific Limitations
  • Acreage - Many jumbo lenders will restrict land size up to 10 acres and stop at 20 acres but options for jumbo mortgages on land of this size do exist.  With most jumbo loans restrictions on land-to-house value are common above 10 acres (i.e. a lender might state that land value can’t exceed 35% for an 15 acre property).
  • Condos - Warrantable condos types R&S in AL, type S only in FL.  If you are unsure if a condo is warrantable, you can read more about this here or you should speak to a loan officer about what a full project review for warrantability entails.  The Florida condo market has similar restrictions for even non jumbo.
  • Miscellaneous Property Types - As a rule one unit properties typically have the least restrictions with Jumbo loans, followed closely by two unit properties. It is important to mention that 3 and 4 unit properties do have significant reductions to LTV, increased score and asset requirements which is too much information to list here.  Condotels, Log-homes, co-ops, mixed-use, and unique properties are typically ineligible for jumbo and conventional financing alike.

Appraisals
Some lenders can and do require two appraisals on loans typically above $1.5 million.  Appraisal waivers common on conventional loans do not apply to Jumbo loans.  On LTVs less than 50% in some instances lenders will use the tax assessed value in place of an appraisal but this is strictly on a case by case basis and occurs mostly at the local lender level.

Terms
Loan Terms offered are typically 30 or 15 Year Fixed Rate and 5/1, 7/1, and 10/1 Libor ARMS.  While it is not a practice we advertise or endorse in any way, it is very common for lenders to offer very attractive ARM rates and incentives for jumbo loans.  ARMs are typically less risky for lenders but riskier for borrowers.

Jumbo Construction and Renovation Loans
Construction-to-Permanent and Renovation Loans for Conventional, FHA, VA and jumbo-sized VA loans do exist and are readily available now.  Unfortunately, this is not the case for Jumbo loans but there are alternatives.  Unless you use your own cash or have significant equity in the property in its as in condition that you can take cash-out from to cover renovations, you will likely be getting what resembles a standard construction product with a 6-12 month term that you will have to refinance out of.  This product is the same for new construction.  With sufficient assets and higher credit scores (above 700 or 720) you can typically borrow up to 90% on traditional construction products for jumbo loans and refinance out into a regular end loan after the project is finished.

If you want to get pre-approved or discuss how to qualify for a Jumbo mortgage you can call us at 888-269-8835 or apply online 24 hours a day.

*It is important to note that if you are borrowing more than your county limit, there are ways to avoid having to go with a jumbo product if needed. 

Disclaimer
Posted by Devin Murray on October 3rd, 2017 12:48 PM

Recently we highlighted some benefits of renovation loans (a.k.a. rehabilitation or rehab loans) to owner occupied borrowers but without mentioning how this specifically applies to real estate investors.  If you are a first-time real estate investor or a seasoned veteran with a large portfolio in multiple markets, you should be familiar with how a renovation loan differs from regular mortgages and as well as the recent guideline improvements which could make you more competitive on new acquisitions, drastically maximize your property values, increase rental cash flow and/or improve overall profitability on both a buy and hold situation or a quick flip.   

Updates for "Regular" Conventional Loans 
As of August 15, 2017 conventional investment purchase or rate and term refinance mortgage guidelines require a 15% down payment or equity position on one unit properties and this grows to 25% for 2-4 unit properties for credit scores 620 and above.  This is no doubt a big improvement over the 20%-30% restrictions put in place after 2009 but the assumption is that no repairs are needed or wanted because in either case financing repairs or improvements is not allowed.

When it comes to repairs and knowing if a renovation loan could help, ask yourself two questions:   Does the property in question need any kind of repairs or improvements in order be to eligible for traditional mortgage financing in its as is condition?  If the property is eligible, could the property produce significantly more rental income and/or command a higher sale price at sale time with some level of improvement(s)?  If your answer is yes or you are unsure to either question, keep reading.  

Existing Properties: For investors who want to repair/improve an investment property they currently own, you are limited on a traditional cash-out refinance to 75% of the current value on fixed rate loans, 65% on ARMs with a 5% reduction to both scenarios for  2-4 units. For some that equity position might be reasonable if you have owned the property for 10+ years, your original equity position was 50% or lower, and/or the value has increased significantly in recent years.  For many investors however this is not so and leads to issues like avoiding repairs, quick but repeated repairs, code violation, borrowing money at double digit interest rates to do repairs correctly and/or depleting much needed cash reserves.  It is important to note that cash-out mortgages for the purpose of home improvement do not in any way factor-in planned repairs because the value is based on how the home sits currently.

New Properties:  Aside from repairing/improving properties you already own, a large issue when acquiring the next property is the house not being eligible for financing in its “as is condition”.  If you use a traditional mortgage you are not allowed to finance repairs so you typically lose bargaining power if the seller is required and possibly unwilling to fix the issue(s) prior to.  Otherwise you have to find and utilize additional capital to do the improvements on top of the down payment and closing costs required at the time of purchase but even if you have those funds repairs have to be done prior to closing and you should never repair something on a property you do not own.  For new and small portfolio investors, this is a huge (if not the single largest) barrier to entry in not being able to “afford” that “best deal” on a property solely because it needed work or it needed “too much” work.  The end result is most investors who are not as fluid simply can't compete with those who are.       

The good news for all investors is that the power of a renovation loans can help level the playing field and is available to you today.  Unlike any time in recent years investors can use a rehab loan to finance 85% of the improved future value of a new property they wish to buy which means you get to finance 85% of the purchase price plus all renovation costs.  For existing properties investors are eligible for 75% of the future value so it is imperative to note that the renovation loan is 10% more powerful at the time of purchase, not after.  In either case with renovation loans you can tap into future equity that only a construction loan or hard money loans can access but you get better interest rates that are locked before closing and you don't have to refinance out of a renovation loan which translates to much lower overall closing costs and zero rate uncertainty.  

If you are interested in learning more about how future value works or how a renovation product might be helpful for an investment property you have in mind you can call us at 888-269-8335, email us at service@gulfstatesfinancial.com or apply online 24 hours a day.

We are licensed in Florida and Alabama

NMLS # 835698

Disclaimer


Posted by Devin Murray on August 15th, 2017 7:00 PM

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