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6 must-haves for mortgage approval

by Allison Simson

Even trade-up buyers, owners of multiple properties hit roadblocks

Question:  Allison, we’re looking at trading up from our condo in Wildernest to a single family home in Silverthorne, CO, but we’ve heard that it’s impossible to get a loan.  Any suggestions?

Answer: Despite what you may have heard, the lending business  in Summit County is alive and well!  Is it as easy to get any type of loan under the sun like it was during the boom days? No.  Are there some great options out there?  Absolutely!  According to Diane Hymer at Inman News, interest rates fell to new lows in October. Low interest rates increase affordability and should make it easier for buyers to qualify. Yet stories of buyers waiting months to gain loan approval and home purchase transactions not closing on time due to lender's strict underwriting are all too common.

Some buyers are turned down for illogical reasons. For instance, if you have investments -- even if they're performing well -- an underwriter might deny the mortgage because your portfolio doesn't fall into the underwriter's risk assessment model.

One couple was turned down because the husband had worked at his current job for less than a year -- even though he was making more money at the new job than he was before.

These buyers were well-qualified. The wife had worked several years for one employer and was able to qualify for the loan on her own. So, the transaction closed, although two months late.

Generally, it's more difficult to qualify now than it was a year ago- but don’t be discouraged! Most conventional lenders require a 20-25 percent down payment. For the lowest interest rates, your credit scores need to be in the 700 range. You need to have verifiable income and cash reserves in addition to your down payment and closing costs.

You could run into underwriting problems if you're self-employed, as W-2 income is much easier to verify. Other hurdles are lapses in employment and owning a lot of property. Some lenders won't lend to buyers who have more than three or four residential properties.

If you're buying a new home before selling your current home, you'll need to have 30 percent equity in your current home. This needs to be verified by the lender's appraiser. Also, the lender will want to see a copy of the cashed check from the tenant for the first month's rent to verify rental income if needed to qualify.

HOUSE HUNTING TIP: As soon as you're serious about buying a home, find the best mortgage broker or loan agent you can to assist you. Don't make your selection based on interest rates alone. A good track record counts for a lot.  A local lender familiar with doing loans in Summit County is your best bet.

Closing the deal should be your primary goal. If you have to pay 0.25 percent more to assure your transaction closes on time and that you're not turned down at the last minute, it's worth it.

Be candid with your loan professional about anything in your financial picture that might impact loan qualification. A good loan agent or broker will be able to assess your financial situation and anticipate what you'll need to do to satisfy the underwriter.

Be aware that appraisal issues can impact your loan approval. For example, if a previous owner added square footage without a building permit, the additional square footage probably won't be included as livable square feet.

If the appraisal comes in for less than the purchase price, the lender might not lend you enough to close the deal. Include an appraisal contingency in your contract.

As of Oct. 1, the conforming jumbo mortgage limit for expensive housing markets like New York City and San Francisco dropped from $729,750 to $625,500. In some cases, conforming jumbo lenders have moved into the market to pick up some slack. You can expect to pay about 0.25 percent more for a 30-year fixed-rate conventional jumbo loan, in some cases. However, today's lower interest rates will help boost affordability.

There are more jumbo financing options available now. Adjustable-rate mortgages that are fixed for 10 years and then revert to an adjustable have a starting rate about 0.25 percent less than a 30-year fixed jumbo. A five-year fixed starts about 0.5 percent to 0.75 percent lower, but is riskier.

We have some of the finest mortgage brokers and lenders around right here in Summit County.  If you’d like a list of our preferred lenders,  just ask.

 

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com  

What do you mean I'm approved, but the condo isn't???

by Allison Simson

What do you mean I'm approved, but the condo isn't???

I'm sure you've heard that financing is next to impossible here in the mountains -NOT TRUE!  It is possible, and we do have some addtional hurdles to jump!  For some good info on the situation and what lenders are looking for in condo lending click here

Whether you enjoyed the day off in honor of Martin Luther King Jr. day or were hard at work, take just a moment to think about your dreams.  "I have a dream" is a phrase that most people can identify in an instant due to the impact Martin Luther King Jr. had on our entire civilization.
 
I'd be happy to have an impact on those people that are near and dear to me.  Having dreams, setting goals, and living with intention are the things I try do to make a difference in my life and theirs.
 
In honor of the late, great Dr. Martin Luther King, here are a few excerpts from his "I Dream" speech delivered August 29, 1963.   He was assassinated on April 4, 1968 and will always be revered as the leader of the American Civil Rights movement.
 
“...I have a dream that one day this nation will rise up and live out the true meaning of its creed: "We hold these truths to be self-evident, that all men are created equal."
I have a dream that one day on the red hills of Georgia, the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood.

I have a dream that one day even the state of Mississippi, a state sweltering with the heat of injustice, sweltering with the heat of oppression, will be transformed into an oasis of freedom and justice.

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.

I have a dream today!

I have a dream that one day, down in Alabama, with its vicious racists, with its governor having his lips dripping with the words of "interposition" and "nullification" -- one day right there in Alabama little black boys and black girls will be able to join hands with little white boys and white girls as sisters and brothers.

I have a dream today!...

 
If you'd like to view his entire speech, I've attached a youtube clip:
 
I have a Dream!

And Here's Your Morning Coffee!

Tough lending in Summit County

by Allison Simson

Unless you have been living in a cave in the hills, you have heard about the credit crunch and tight lending practices borrowers are encountering today.  In Summit County, buyers of condos and townhomes are having an even tougher time since the lending pendulum has swung so radically in the other direction.  I've sent this letter to some folks in Washington to keep us on their radar.  Thought you might find it interesting.

"As lending practices continues to tighten, it has become exceedingly apparent how this affects our economy in Summit County.
 
Current Fannie Mae Guidelines indicate perfectly sound and warrantable condominium projects in Summit  County may be denied any financing possibilities simply because they are located in a "resort" area or because individual unit owners may rent their units on a nightly basis. Furthermore large banks are adding additional cumbersome barriers restricting financing  because many condominiums do not have individual meters for gas and electric services or because the word "lodge" is in the name.  These are examples of unreasonable and unfounded restrictions that are severely hindering buyers trying to purchase condos in our area.
 
If lenders had the ability to loan judiciously to a fireman or a teacher or other permanent residents who's main option for housing is a condominium, we would see more building, more jobs and a good beginning of economic recovery.  Second homeowners are also hurt by these restrictions and are finding it increasingly difficult to purchase property in Summit County. Healthy resort areas are one of the major heartbeats of Colorado.   
 
When people think of Colorado, they think of mountains and fishing and snow and skiing. Tourism is the second largest economic driver in Colorado.We also rely on tourists to buy  second homes in Summit County furthering jobs and promoting a healthy economy.
 
We need your help and strongly urge you to help reopen the financing doors from FNMA and FHLMC.
 
Thank you in advance for your consideration and help!"


Certainly, the lending practices had gotten far too lax, but to penalize strong, stable complexes with few to no foreclosures on their books seems irresponsible in the other direction!  

We do have a few great lenders who are able to finance condos in Summit County- up to 90%.  Please call if you'd like more info.

 

When banks won't lend: seller financing

by Allison Simson & Joyce Nenninger

Question:   I live in here in Frisco, Colorado. I was talking to one of my friends who lives in California. He has been hearing about "private" sales out there, especially in the higher price ranges where financing is hard to obtain. What is a "private" sale and are these legal?  

Answer: I suspect what your friend is referring to is something called a "land contract" or "land sales contract." Given the lack of financing in the jumbo loan market, this may a viable option for some sellers in this market. Land contracts were used extensively in the early 1980s, when home mortgage rates jumped to over 18 percent.

All land contracts involve having the seller carry part of the financing. Since 35 percent of all homeowners own their property free and clear, seller financing can be an attractive option for those who must sell.

When the seller finances the sale, there are normally no points or fees. This saves the buyer money. The deeds and other documents work in the same manner as in a transaction where there is bank financing.

Unlike other types of financing, though, in a land contract the title normally does not transfer to the new buyer until the purchase price is paid in full. (Some states require the title to transfer after a certain percentage of payments have been made.) The deed transferring the title doesn't record until this payment threshold has been reached.

When the rates went sky high in the early '80s, creative financing became the order of the day. Many sellers had low-interest-rate loans. It was common practice for buyers to assume the existing financing. This could be through a direct assumption that the lender approved or it could be through what was known as a "wraparound" or "all inclusive deed of trust" (AITD).

Here's how wraparound mortgages work: Assume that a property sold for $200,000 and there were two loans on the property -- a $100,000 first mortgage at 5 percent and a $20,000 second mortgage at 8 percent. The buyer puts down $20,000. The seller could wrap the existing mortgages and give the buyer an AITD.

If the current bank interest rate was 14 percent, the seller might charge 12 percent for the AITD. This was a great deal for both the buyer and the seller. The buyer gets an interest rate that is 2 percent less than the current market rate.

The seller would make an additional 7 percent annual interest on the $100,000 first mortgage, 4 percent on the $20,000 second, and 12 percent on the additional $60,000. Since the seller was only loaning $60,000 out of his pocket, the total interest of $15,000 per year represented a 25 percent return on the actual amount borrowed.

Needless to say, the banks weren't thrilled with this situation. Congress passed regulations so that the banks could stop borrowers from assuming or wrapping a loan without the lender's permission. If the seller wrapped the loan without the bank's consent, the bank could enforce the "due on sale" provisions by foreclosing.

To avoid the due on sale provisions, the next wave of creative financing involved land contracts. Since the original owner is still on the title and is continuing to make payments, there was no way for the bank to know that a sale had taken place. The normal structure was to have the buyer make payments directly into an escrow account. The escrow then made the payments to the lender on the original seller's behalf.

The lenders eventually caught on to this strategy and started checking to see whose names were on the utilities. Many sellers then opted to keep the utilities in their name and simply increased the monthly payment.

So is this still a viable option today? Land contracts are legal in most states. For sellers in today's market who own their property free and clear, a land sale contract could be a desirable way to sell their property. The reason is that if the buyer defaults, the buyer forfeits the right to purchase the property.

There are definitely pitfalls to land contract sales, though, as it may be challenging to remove a defaulting buyer from the property. And buyers may have trouble receiving a marketable title even after making all of the payments to the seller.

The seller can place a provision in the land contract that in the event of a buyer default, the past payments the buyer made are converted to rental payments. Once the buyer defaults, the owner can file an eviction notice.

This is much faster and easier than going through a foreclosure proceeding. But because of the complexity of this type of sale, you will need a real estate attorney to make sure all the provisions are drafted correctly.

The more interesting issue that your question raises is whether a seller can wrap an existing mortgage in today's environment. Virtually all loan documents have "due on sale provisions."

Today, the banks are struggling to keep pace with the huge number of defaults, foreclosures, and short sales. The real issue is whether they would elect to foreclose on an owner if the payments are current. Personally, I would be reluctant to embark on the steps it would take to hide this from the lender.

On the other hand, if the seller owns the property free and clear or receives enough money from the downpayment to pay off the existing loans, a land contract could help a seller close a property that might not be able to qualify for traditional financing in today's market. Inman News

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

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Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker