This industry is constantly in flux. Regulation changes from the Government or Lenders are never far away. Keeping on top of these changes can be a daunting task, making it tricky to determine what will pertain to you and your clients.
Appraisals: As of 2014 (old to some, new to others) there is a new policy in place that allows borrowers a fair chance to review their appraisal before closing. Unfortunately, this can also cause quite a headache. Here’s how it works and what to plan for.
How it works: The borrower (homeowner or homebuyer) is required to have 3 business days to review their appraisal before closing on the loan. To account for mailing time, Lenders require 6 business days (3 for mailing and 3 for review). You cannot close on your loan until this takes place.
Complications: Each of the Lenders we work with have determined this to be based on the final appraisal, so if the appraiser needs to correct a typo or a new construction needs a completion certificate, the wait time will START when the Bank receives this appraisal. For Home Purchases, this can cause a delay in closing.
Shorten the wait time: Borrowers can sign a form waiving their rights to the 3 day review period. This will cut the wait time in half as lenders still require the 3 day time to mail.
Bottom line: In most cases, this will not be an issue as long as your Lender has been given enough time to complete the loan and the order for the appraisal is placed immediately.
That being said, there will be times when this will be an issue, most often with new construction and the need for a completion certificate. Knowing this is a potential hurdle beforehand and communicating that to everyone involved in the transaction is a great way to help ease stress for all parties involved and allow everyone to plan for the worst while expecting the best.
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Succinctly Put: NO! Now, let me tell you a story:
“Wally” and I are working to refinance a home he bought on Contract for Deed. He and his wife divorced in 2002 and over five years later, he purchased his current home on Contract for Deed (CD). When he signed the CD, it listed him and his wife as a married couple. He asked about it and was told to simply sign it to avoid from having his closing delayed.
If he didn’t sign, he would be stuck trying to find a place to live for 3-4 days as well as juggle scheduling the movers to name a few of the biggest stresses. So, he goes ahead and signs the form as-is and moves in that afternoon.
Flash forward to present and he is finally at a point to officially move this CD into a mortgage in his own name and own the home outright. Here’s the rub: A Contract for Deed is a legally filed and binding document. This means that his ex-wife, is now signed into title as his now current wife, giving her full ownership rights to the new home. HIS EX-WIFE NOW OWNS HALF OF HIS HOUSE!
In an amiable situation like this one, this can be resolved by having her sign a Quit Claim Deed that relinquishes her ownership rights. Fortunately for Wally, She was willing to sign a QCD. If she hadn’t, Wally would have a potential legal battle on his hands and I’m sure the topic of ‘Fraud’ would be brought up as well for knowingly signing a document he knew was not accurate.
Simply put, making moving arrangements or postponing them can be a huge hassle, but if there is something incorrect on your final mortgage documents, you need to take a step back and consider the long term issues that can end up being much more damaging.
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Many potential Home buyers already live in a house, the only difference is that they rent from a Landlord while they prepare for owning a home themselves. In many of these cases, the Lender for a new purchase will require a rental history, so what happens when your landlord refuses to provide it.
This was an issue that ‘Cathy’ was facing when we first spoke. Her husband, four kids and her wanted to move out of their rented home and finally buy a home of their own. Unfortunately, there had been some instances of poor communication and frustrations between her and her landlord. Because of this, he refused to provide a rental history for Lender.
On top of this, Cathy sometimes paid in cash, sometimes paid with checks and paid varying amounts over the course of the month due to income fluctuations.
If she had paid by check: We could get a copy of the cancelled checks to prove her payment history. With cash there are very few options.
My first thought was a personal plea to the Landlord. That went less than ideally. So I had Cathy get me every single check she had sent over the past 2 years along with each bank statement. When reviewing these I noticed a consistent withdrawal on the same day one of her checks were written out. Cathy then mentioned that the cash she paid with was always taken out at an ATM, on the same day each time.
Cathy now owns her new home, having provided the underwriter with her bank statements, check copies and a detailed explanation stating exactly when each payment was made and what source they were made from to prove she was never late on a payment in two full years of renting.
In a very rare situation, listening to the borrowers story can help put the pieces in place to get the evidence needed for a gap like this. Ideally, if you are renting…pay by check! It will make your life much easier when the next step comes and you take the leap to become a homeowner!
Have a great week!
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A while back I had a client walk into the office and ask me this very question. With a business based on referrals, it’s rare we see anyone walk into the office randomly and ask for a pre-approval but that’s exactly what “Nate” did.
You may have heard the term ‘Arms Length Transaction’ which is the term used for buyers and sellers that are not related. This is the most common type of home sale. When someone is buying from a relative, it’s referred to as a non-arms length transaction and Lenders (or banks) each have their own rules regarding what can and cannot be done in regards to financing. If this is the case, make sure you let your Lender know so they can take the appropriate steps and ensure what you will be allowed to do before making any promises. Not all Lenders are created equal, trust your gut.
In Nate’s case, I knew the Lender we were working with would suit his needs. There were several items that needed to be attended to: He didn’t have a down payment for buying the home, he didn’t want to use a Realtor to keep costs down and he wasn’t sure what price his mother would agree to. Okay…
Here’s how we managed these speed bumps: First, we decided that the sales price should be fair to both sides, so we had the appraisal done first and then each of them could decide it they wanted to buy/sell for that value or agree to lower terms. Second, we took that price and determined what Nate would need for a down payment and had his Mother generously give him a ‘Gift of Equity’ which was used in lieu of a down payment. Finally, I referred Nate and his mother to a good friend of mine who happens to be a great Real Estate Lawyer. He drew up the contract for them so we could proceed.
Bottom line: Nate walked into my office with a job and okay credit history with the hope of keeping his childhood home in the family. He walked out a month later with the keys to the home that was now his. Where is his Mother going to live now? I never got a straight answer?? I hope she treated him well as a kid!
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I can’t remember which food chain used the “Have it your way” tagline. However I do think it’s a quick and simple reminder for myself to work with clients the way they prefer to communicate.
An old friend of mine has purchased two homes over the past decade. The second one coming this past year for him, his wife and new daughter as they made the shift from Fargo, ND to the St. Paul area. There’s nothing special or significant about those details. The part that is significant is that in both cases, we never once spoke.
With “Bart’s” job, he spends a lot of time in front of the computer and when he’s done with work for the day, we’re both knee deep in parenting. Something we both place a very high priority on. With the nature of his job and our evening schedules, it made sense for both of us to communicate by email. I do spend a lot of time sending emails to almost all of my clients, but that usually coincides with personal visits or phone calls for a good portion of the process. The emails tend to be a supplemental communication system.
With Bart, not 1 phone call…not one word spoken. We went from start to finish and finally spoke face to face at the closing. It was great to see him again and spend the closing looking through the pictures of his budding family while he signed the final paperwork.
Oh, right. My point. I guess we can stop the rambling and move to that. Some clients live by email, some live by phone, some live by text and in any given scenario, using only one of these is never ideal. The goal is to cater to your client in the best way possible and communicate with them on their terms. When you find the right mix, it’s unforgettable for both you and your client.
With his permission, here’s a quote from our final email before the closing: “Thank you so much on getting me the deal you did. Isn’t trust a wonderful thing? We had just about the whole thing done before even having a phone conversation.”
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Savor your mistakes, let them shape you.
I’ve been thinking about my Dad the past couple days, most likely because my parents just watched our kids for a weekend. As my thoughts drifted from how fortunate I’ve been to grow up in a loving family it also made me realize that it isn’t the happiest of times that I’m going to remember as the years pass. Sure, I’ll remember those too but I’m more drawn toward the ‘tough’ love times and how they shaped who I am. The times where my normally gentle and lighthearted father was overwhelmed with frustration and anger. It’s those moments that resonated years later and took a foothold in my mind, leading me to shape how I wanted to act as an adult.
In the big scheme of things, how I conduct myself both personally and professionally and my views on life were directly affected by the mistakes of my youth and how I moved on from them.
As I continue in my profession for the 14th year I have realized something as well. The professional mistakes, just like those teenage acts of lunacy are the moments that irk me. I cringe when I think about something I’ve done that is stupid, overlooked or simply lacked forethought.
It may sound crazy, but I am thankful for these moments and love that they make me feel regretful. This emotion has been a great driver to help perfect my profession. In anything we spend time on, it should be worthwhile. In order to be worthwhile personally, I want to do everything in my power to improve day after day and with each interaction. If things always go smooth, there would be no catalyst to change or grow. I love taking a break like anyone else and simply enjoy doing nothing. Some of my favorite moments are exactly that!
My love of doing nothing helps me keep a running thought in my head. “If I choose to put energy into this, I want to give it 100%” When I work towards 100%, that includes improving. Thank goodness I’ve made enough mistakes to understand, there is always something more to work on.
I’ll never be perfect, but I can certainly try.
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There are many ways to sell a house and for most of them, I highly recommend a licensed Realtor. Every once in a while, a client of mine will bring up a situation that’s unique. I enjoy these one off situations because it’s a exercise in creativity as well as a chance to offer direction and education. “Cody and John” were very recently married when I first met them. They were also expecting their first baby soon and needed to move out of the tiny home that John owned. Here was the problem: John bought his home at the peak of the market. Three years later, he owed more than the home was worth and wanted to avoid a Short sale with the bank to protect his credit. Fortunately, Cody had a friend looking to buy a house but couldn’t get approved for a traditional mortgage with her credit history anyway. This left both sides with an obvious solution: Having Cody’s friend buy the house from John on Contract for Deed. This was when John called me to see how to go about this. I am not an expert on Contract for Deed’s. My expertise is in Mortgage’s themselves. Fortunately, I have worked with many different professions and situations over the past fourteen years and sent them to a former client of mine who specializes in real estate law. Scott could walk Cody and John through every portion of the Contract for Deed, ensure they had every legal protection in place that they would need and complete the transaction for them. This is when I got to do my job and walk them through buying a new home for their budding family. Cody, John and their little daughter are happily set in their new home. I still get to check in with each of them for pictures of their growing daughter and share parenting stories. It sounds like #2 won’t be too far off either… Have a great week! -Matt
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Like many clients I work with ‘Barbara’ wanted more than anything to be a homeowner. She had taken the time to save up a down payment and like many home shoppers, had started window shopping online in her spare time.
When I first spoke with her, she had a pre-approval from a large bank stating what price home she could buy. The question posed to me was what interest rate she could get and what the closing costs would be for the type of home she was shopping for. Important information that I was happy to provide.
I had one question for her: How much are you comfortable paying each month for a mortgage? I ask every home buyer this question before providing a pre-approval for a few reasons.
1. Your Budget is important! Home ownership comes with many expenses that renters aren’t accustomed to. Water bills, trash bills, higher energy bills. Recognizing these costs before buying will keep your budget in line and avoid any potential of being ‘house poor.’
2. Online Calculators don’t give you the full information. Many leave out Mortgage Insurance (required in most cases if you have less than a 20% down payment) as well as not estimating property taxes or homeowners insurance. This can lead to searching for a home that is really out of your comfort range.
3. Once we know this number, we can tailor the home search and mortgage process to meet your individual needs. This process is fluid and based in communication between you and your mortgage professional.
Barbara spent the greater part of year finding the house that fit her budget and her needs, we traded emails back and forth any time she had a question or wanted to know the exact payment of a property near the top of her budget and once we closed on her new home, the smile on her face was worth $3 Million Dollars. Our hard work and cooperation paid off by getting her a home that not only gave her everything she wanted but would keep her from worrying about making a payment each month!
I live to hear “I love my house!”
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Over the last several years, especially in the wake of what I like to term as the foreclosure crisis, many homeowners found themselves in a situation where selling their house for less than they owed on the mortgage was the only option.
This is commonly referred to as a short sale and this will show on your credit report. When Julie (name changed) was referred to me from her Realtor, she had been told so many different waiting periods before she could buy that she didn’t know what to believe anymore. I’ll agree with her, it can be confusing.
The time frame varies between programs, anywhere from no waiting period to 7 years! Julie was told that she would need to wait 3 years. In her case this was wrong and she moved into her new home less than one year after her short sale.
Here’s why: FHA, Conventional and VA programs all have different requirements. Julie was able to take advantage of the FHA program that allows immediate purchase of a new home as long as the mortgage on the prior home that was sold has a payment history that was on time for the prior 12 months.
Here are the programs and their timelines as of today:
- 7 years with a down payment <10%
- 4 years with 10% down.
- 2 years with 20% down.
- 3 years if the prior mortgage had any late payments.
- No wait if the prior mortgage was paid on time and the borrower can show specific hardship reasons for the short sale.
- 2 years in most cases.
- No wait if the prior mortgage was paid on time and the borrower can show specific hardship reasons for the short sale.
As always, talk to a professional to ensure that you meet all the guidelines in addition to this general synopsis. That’s what we are here for, to help you understand and walk through each part of this process!
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I wanted to take a break from some of the client stories I’ve been sharing the past few weeks and share my distant background as I feel it directly shaped how I see the world.
I grew up in Winnebago, MN. The census states a population of 1400 people, I’d guess it’s more accurately under 1000 within the city limits. It’s a tiny town smack dab in the middle of southern Minnesota. My grandparents still live there and my uncle runs the family business, a plumbing and heating shop over 55 years in the making.
All this to say that I grew up watching and learning how my family ran a business in such a small footprint successfully for so long and it’s taken the last 25 years to process and articulate what became an instinctive part of my personality.
To survive in a small town, it isn’t the flashy marketing that brings business in the door, it’s the individual relationships that you foster each day. It’s the reciprocity of kindness and help, education and teamwork. The proverb “It takes a village to raise a child” is the mentality of this town. A town this small only survives on the premise of each person aspiring to be a part of the whole and pitching where they can to boost everyone up. You don’t drive 15 miles to Wal-Mart to buy a birthday card when Nancy sells them at the grocery store. You support your friends and family and your town IS your family.
This is the same way I have built my business of 14 years. By helping my clients succeed, I succeed in kind. I always use the phrase, my clients are my family. I would do anything to help each and everyone of them whether it’s helping them set up a retirement account with a financial planner or referring other clients to their business. I also offer advice and ask advice about parenting with my two young kids.