What not to do after you apply for a mortgage.

A mortgage application, of any kind, is suppose to be a "snapshot" of the applicant's employment, income, debt, assets and credit worthiness. Don't move while the lender is trying to take this picture!  

 

How do you "stand still" and not jeopardize your approval? Follow these rules;

 

1. Don't quit or changes jobs. 

2. Don't buy anything on credit. This includes credit card purchases.

3. Don't apply for new credit. This could affect your credit score.

4. Don't move large sums of cash from one account to another.

5. Don't payoff, or pay down, your current debts.

6. Don't make your Good Faith Deposit in cash. 

 

It's possible that you could make any of these moves and still be approved. Just make sure you have a discussion with your loan officer before making these moves.

 

 

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Co-signer for your FHA Construction Loan.

If you are planning on building a new home, and have been told you don't make quite enough to qualify, you may want to consider getting a co-signer. FHA doesn't want you to spend more than 43% of your monthly income on your new home payment and all other debt service. For a young, growing, family that can be a challenge.


FHA will allow a family member to co-sign the loan with you as a non-occupying borrower. FHA will take everyone's income and everyone debt into consideration when applying the 43% debt-to-income limit.


Keep in mind that all applicants must meet FHA credit qualifications. A co-signers good credit can not overcome a borrower's poor credit. As always, call me to discuss your situation.


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Is your land being gifted to you?

Is someone gifting you the land you're going to build on? Great! The FHA construction loan program allows you to use this as your down payment and even let you roll in closing costs. FHA does require that the land donor state, in writing, that this is a gift. The donor must be a family member or close friend.

 

If your gifted land is a freestanding piece of land, with no liens, it's own legal description and tax id number, then you are all set to build. This assumes that it meets all local and state requirements for a building permit. If, however, your gifted land is part of someone else's land, and/or has a lien on it, you have some work to do before breaking ground. Let me explain by using a common example I dealt with over the years.

 

Your Grandparents have a home that they bought 20 years ago. It's a large lot, several acres, and they have a small mortgage left on the home, let's say $50,000. They would like to split off a part of the land and gift it to you to build on.

 

Your first step is to find a survey of the lot and where the current home is placed. Have the local building department review it to see if the lot you're splitting off, and the remaining home/lot, both meet their building requirements. This will just be an informal review.

 

For a formal approval you will need to hire a surveyor to survey the existing lot and come up with legal descriptions for the vacant lot and the new lot. If the local government approves your split you will then have two lots, each with their own legal description and tax id number.

 

Now you have to get the lien removed. Keep in mind that the mortgage lien is not just on the home, it's on the land as well. All of the land, no matter if you split off a portion or not. So your new lot has your grandparent's mortgage lien on it. The FHA construction loan program will want to have the first, and only, lien on on the property. So this mortgage lien needs to be paid off or removed by your grandparent's lender.

 

The lender should be willing to remove the lien if they feel they have sufficient equity in the "parent" lot, the lot your grandparents still own. You would need to call the lender, explain the situation, and request an application for a "partial release of lien". This is not a common request so you will need to be persistent and ask for a supervisor. 

 

There can be situations where you are not going to be able to pull this off. The lot may be too small, it may not have enough "frontage", the lien may be too large. My suggestion is that you call me or your builder. We can help walk you through your situation. 

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Rebuilding your credit score.

A wise person once told me "The most important thing in your life is your health, but your credit score isn't too far behind.". I wholeheartedly agree. 

 

Your credit score doesn't just affect if you get a loan or not (and the rate you pay) it affects your insurance rates, and even job opportunities. Yet few people understand just what affects these scores and how to raise it. Let give you a few insights that might help you.

 

First, your credit scores are not just a reflection on your past payment history, although that is a big part. Your credit score is a predictor on the likelihood that you will default (go 90 days or more past due) on a credit obligation in the future. 

 

There are many factors that go into this prediction. As stated before, you past credit history may be the most important factor but it's not the only one. When it comes to negative items (late payments, defaults, judgments, etc.) the keys are recency, frequency and severity. 

 

One 30 day late three years ago will have almost no effect on a credit score (not recent). Where a 30 day late a month ago (recent) will have a bigger effect. One late payment (not frequent) will have less of an effect than several late payments in a row (frequent). 60 and 90 day late payment will hurt you score more than a 30 day late.

 

High credit card balances will bring down your score almost as quickly as a late payment. I have seen completely paid as agreed credit reports that have low credit scores due to max'd out credit cards. The credit scoring system reads this as someone that is spending more than they are taking in. While they may be paid as agreed now, the system predicts that they will have issues in the future.

 

The last item you want to watch is credit inquiries. For most people, 2 or 3 credit inquires a year are not going to be an issue. Beyond that you may start losing some points. If you have high credit card balances be very careful about who you allow to run your credit. The scores system reads that as a desperate borrower trying to find even more credit to keep thing going.

 

Go to my Important Links page to find out how to run your credit without getting hit with an inquiry. You can also find a link to the The Fair Isaac Corporation, the supplier of credit scores. 

 

 

 

  

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Why you need a Construction Loan.

Construction loans are a little more expensive, and require more documentation, than a standard mortgage. So why not just get a standard loan?

 

One of the requirements of a standard mortgage is an appraisal of a fully completed home. So, if you are buying a new home that is already fully constructed, and has been issued a Certificate of Occupancy, you can just get a standard mortgage. If, however, the home you're buying is not complete, or hasn't even been started, the builder will most likely require you to get a construction loan. 

 

A construction loan allows the home to be paid for in stages or "draw" as work is completed. This allows your builder to pay the subcontractors and suppliers. Think of it this way; during the construction phase your loan, your loan is a line of credit. 


Your lender will be doing inspections prior to every draw to confirm that the work has been done. Your title company will also collect documents called Sworn Statements and Waivers of Lien, to make sure that these funds are going to the subcontractors that did the work, and the suppliers that provided the materials.

 

If, at any point, you are dissatisfied with the work you can contact your lender and suspend any future draws. Before you do this please contact your build and see if the issue(s) can be resolved.  

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Using land equity on your FHA or VA construction loan.

If you own your land already you may not have to make a cash down payment. In fact you may be able to roll in any closing costs and/or prepaids. HUD (they write the guidelines for FHA and VA construction, purchase and refi loans) wants the borrower having some kind of investment in the home, cash or land equity.

 

Land equity comes in three forms. First, if you have your land gifted to you. Second, if you put little to no money down on land over a year ago and it has appreciated. Last, if you made a cash down payment on land within the last year, you will be credited that dollar amount at closing.

 

As always, give me a call or email and I will be able to run through the numbers on your personal situation. 

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FHA vs. Conventional Requirements

If you have been turned down for a conventional (Fannie Mae/Freddie Mac) construction loan, you may still qualify for an FHA construction loan. FHA requirements are more forgiving when it comes to credit, debt-to-income and down payment.

 

Let's start with down payment. The conventional construction loan programs I have seen require anywhere from 5% to 20% (or more) down. FHA only requires 3.5% and you can use your land equity in lieu of a cash down payment.

 

When it comes to credit score, you're going to need a 680-720 for a conventional loan, but only a 620 for an FHA construction loan. If you have had a major credit issue (bankruptcy, foreclosure or short sale), you are going to qualify for an FHA loan far sooner than a conventional loan. You will have to wait 4-7 years for a conventional loan vs. 2-3 years (or less) for an FHA loan.

 

In addition to the above mentioned requirements, FHA will expect to see that you have been "paid as agreed" in the last year on all your credit obligations. They would like to see at least 3 lines of credit, again paid as agreed, in the last year. These lines of credit can include credit that would not typically show up on your credit report. This would include your rent payment, utility and/or insurance payments. Make sure you pay these by check from an account with your name on it.

 

You should be able to show steady employment for the last two years. You don't have to be in the same job for the last two years but you should no have major gaps (30 days or more) of being unemployed. 

 

It's never too early to talk. Give me a call, and even if you don't qualify now, I'll make sure you're headed in the right direction.  

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Documents for an Application, Part 1, Income.

Step one in the application process is to document your income.

 

If you are a wage earner we will need at least your most recent pay stub, the last two years of W-2's and the last two years of 1040's (the first two pages of your federal tax return).

 

If you receive retirement, Social Security and/or disability income we will need your Award Letter. This is the letter you get toward the end of the year that states how much you will receive per month in the coming year. If these funds are direct deposited into your account, please include your most recent bank statement showing that deposit.

 

If you are self-employed or write-off expenses we will need your complete federal tax return. This includes all schedules and addendums but no worksheets. 

 

If you receive alimony and/or child support we will need you divorce decree or legal document stating that your ex has to make these payments.

 

 

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FHA/VA vs. Conventional Requirements

If you have been turned down for a conventional (Fannie Mae/Freddie Mac) construction loan, you may still qualify for an FHA/VA construction loan. FHA/VA requirements are more forgiving when it comes to credit, debt-to-income and down payment.

 

Let's start with down payment. The conventional construction loan programs I have seen require anywhere from 5% to 20% (or more) down. FHA only requires 3.5%, VA is zero down and you can use your land equity in lieu of a cash down payment.

 

When it comes to credit score, you're going to need a 680-720 for a conventional loan, but only a 620 for an FHA or VA construction loan. If you have had a major credit issue (bankruptcy, foreclosure or short sale), you are going to qualify for an FHA/VA loan far sooner than a conventional loan. You will have to wait 4-7 years for a conventional loan vs. 2-3 years (or less) for an FHA loan.

 

In addition to the above mentioned requirements, FHA and the VA will expect to see that you have been "paid as agreed" in the last year on all your credit obligations. They would like to see at least 3 lines of credit, again paid as agreed, in the last year. These lines of credit can include credit that would not typically show up on your credit report. This would include your rent payment, utility and/or insurance payments. Make sure you pay these by check from an account with your name on it.

 

You should be able to show steady employment for the last two years. You don't have to be in the same job for the last two years but you should no have major gaps (30 days or more) of being unemployed. 

 

It's never too early to talk. Give me a call, and even if you don't qualify now, I'll make sure you're headed in the right direction.  

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Moving your manufactured home to land.

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