Benefit 3 – Avoid contractual problems by getting pre-approved by a reputable lender

Did you know the standard Residential Real Estate Agreement commonly used in Oregon allows the seller to prevent you from switching lenders or loan programs?

In this short video I explain the third benefit of being pre-approved for a home loan prior to starting your search:

Consumers should take the time to compare lenders prior to starting their home search because once they are in an accepted offer they need the sellers written consent to switch lenders.

If you would like to get pre-approved then please contact me today to get the process started!

Credit Myth #7- Qualifying for a home loan without a credit score

After spending over 16 years in the mortgage lending industry I have identified seven myths that consumers commonly hold regarding their credit.  In this series of videos I am going to breakdown each myth and help you better understand how your credit scores are determined so that you can achieve a better outcome for your next loan application.

The seventh myth is that an applicant without a credit score cannot qualify for a mortgage.  Please watch this short video to learn the truth:

It is possible for people without a credit score to obtain a home loan.  They have to be able to demonstrate that they have made on-time payments for other recurring payments such as rent, utilities, insurance or other similar bills.  This is known as a “non-traditional credit reference”.  This approach may not be used for an application with a credit score that is too low to qualify.

If you would like to learn if this loan program would work for you please contact me today!

Credit Myth #6: It takes a great credit score to qualify for a home loan (not true)

After spending over 16 years in the mortgage lending industry I have identified seven myths that consumers commonly hold regarding their credit.  In this series of videos I am going to breakdown each myth and help you better understand how your credit scores are determined so that you can achieve a better outcome for your next loan application.

The sixth myth is that an applicant must have a good credit score to qualify for a home loan.  Please watch this short video to learn the truth:

If you would like to learn about your options for buying a home with a below average credit score please contact us today to get the process started!

Credit Myth #5: All forms of debt are equal

After spending over 16 years in the mortgage lending industry I have identified seven myths that consumers commonly hold regarding their credit.  In this series of videos I am going to breakdown each myth and help you better understand how your credit scores are determined so that you can achieve a better outcome for your next loan application.

The fifth myth is that all forms of debt are looked at equally.  The credit scoring algorithms classify debt as either being an installment loan or revolving credit.  Watch this short video for more information on how to manage these forms of debt to enhance your credit.


Revolving Credit

An example of a revolving account is a credit card.  A lender approves a borrower to spend up to a credit limit.  It is then up to the borrower to determine how much they borrow relative to that limit and how much they pay back each month.

Generally speaking revolving credit is considered riskier than installment loans but when a borrower has a history of using their revolving credit conservatively this will improve their credit.

Installment Debt

An example of an installment loan is a fixed rate mortgage.  In this case the borrower receives a lump sum from the lender and agrees to repay the loan over a period of time with interest.  It is most important that a borrower make the payments in a timely fashion.  In general, an installment loan is considered less risky than revolving credit.

Ideally, a consumer will carry a mix of installment and revolving accounts and make their payments in a timely fashion.

Please contact me today to learn more!

Things to know about purchasing a condominium

Hey, guys. Evan Swanson, Swanson Home Loans of Cherry Creek Mortgage here to talk to you today about the differences between applying for a loan to buy a condominium and a traditional detached single-family residence.

Why are there differences?

Well, understand, as a lender, we always must evaluate the collateral for the loan. When a person buys a condominium, they are buying into a small democracy.  The homeowner’s association, which is charged with the responsibility of maintaining the common areas, which is often the structure in which the condominium is located.  Not only do we have to take a borrower through the traditional steps to evaluate their finances, but we also have a separate underwriter look at the condominium itself to make sure the condominium is governed well and has the financial resources to maintain the property over time.

Loan programs

With regards to specific loan programs, what is there to look out for? If you’re using FHA or VA financing, there is a separate approval process that the HOA must go through and that project will be listed on those websites to determine if they are eligible or not. If the property is not eligible, chances are you’re not going to be able to use those types of financing to buy a condo there.

For FHA: https://entp.hud.gov/idapp/html/condlook.cfm

For VA: https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

A couple other things for conventional and jumbo loans that an underwriter will likely want to look at:

Occupancy

The underwriter might want to measure as a percentage of all the units in the homeowner’s association what percentage are owner-occupied and what percentage are non-owner-occupied.  Lenders like to see more owner-occupied because, in general, those owners will vote for assessments and maintenance investments that will help maintain the building over time.

HOA

Is the HOA currently in any form of legal litigation? If so, litigation has to be complete before a loan can fund, typically. Is the HOA under any major, significant construction? If so, oftentimes the construction has to be completed before a loan can fund.

The underwriter may also want to see if there is a concentration of ownership to a single person or entity? There can be limitations on how much a single entity can own of the entire project.

Residential vs. retail space

And then lastly, does the condo have retail space? Is it a mixed use? If so, there’s limitations on how much of the overall square footage can be allocated to retail and residential square footage.

The bottom line is there’s another set of rules that lenders must follow when helping guide a customer through a condominium purchase.

If you’re thinking about buying a condominium, make sure you’re working with a lender that understands those rules. Of course, if you’re looking for a lender, we would love to be a resource, so contact us today. Talk to you soon. Thank you.

Conforming loans vs. Jumbo loans

Transcript:

In this post and video, I will summarize the differences between a conforming loan and a jumbo loan.

Loan Amount

The first difference is the loan amount, which is ultimately what defines a conforming loan versus a jumbo mortgage.  For 2018, here in Portland, Oregon, the threshold that determines a conforming loan and a jumbo loan is $453,100.00.

A loan amount at that level or less can be underwritten to conforming loan standards, whereas a jumbo mortgage is for an amount in excess of that and is underwritten to jumbo underwriting standards.

I expect the threshold to increase annually overtime.

Underwriting

The second difference is that conforming loans are underwritten to more standardized and simpler guidelines. Fannie Mae and Freddie Mac have produced underwriting guidelines that are applied to conforming loan applications.

For jumbo mortgages, the market is much more fragmented. There are a lot more than two institutions that underwrite jumbo loans and each one has a different set of rules and guidelines.  Therefore, the criteria to approve jumbo loans is a lot less standardized than for conforming loans.

As you might have imagined, jumbo loans tend to be underwritten to a much higher standard than conforming loans. Let me give you a few examples.

Credit

With regard to credit, typically we see jumbo loans require higher credit scores, and in addition, the applicant must have more credit depth, more accounts and history on their credit report, than a conforming loan.

Income

Second, in terms of income, we measure a debt to income ratio for each loan application.  This calculation takes into account the amount of obligations as a percentage of the income. We typically see jumbo mortgages limited to a debt to income ratio of 43%, meaning 43% of the household’s income can be allocated to obligations and the new mortgage payment. Whereas with conforming loans, we can typically get applications approved to 45% and in some instances, 49.9% percentConforming loans allow for higher levels of monthly obligations relative to an applicant’s income.

Assets

With regard to assets, under a jumbo underwrite, typically the jumbo guidelines will require that the applicant have a multiple of six times the mortgage payment left over in financial accounts after the down payment and closing takes place. Whereas with conforming loans, when buying a primary residence, the underwriter doesn’t necessarily require us to document any financial reserves.

Appraisal

Lastly the appraisal, or the collateral underwrite are different between these types of loans. With a jumbo mortgage we typically always need an appraisal, and in some instances, we might need two appraisals and/ or a review appraisal on top of the initial appraisal. With regard to a conforming loan, we can typically get the loan approved with an appraisal and in some instances even that is waived.

In terms of rates and fees, currently the jumbo and conforming loans are pretty similar, but at times you do see small differences between the two.  The bottom line is the conforming loans will be a little less cumbersome to be underwritten compared to a jumbo mortgage. If you have questions about qualifying for either, I would love to be a resource, contact me today. Thank you.

 

Applying for a home loan as a self-employed or an independent contractor

Video Transcript:

I frequently get asked how applying for a loan as a self-employed borrower or an independent contractor is different than for a traditional full-time W2 employee.

First off, applying for a loan as a self-employed or independent contractor is not automatic, means to deny or not approve a loan application. We can do loans and frequently do for independent, self-employed borrowers.

However, applying for a loan and having an underwriter calculate income for a self-employed, independent contractor is different than a traditional W2 full time employee.

With a traditional W2 full time employee we collect pay stubs, W2 forms, and that typically spells out the income that the borrower makes. With an Independent or self-employed borrower, we collect tax returns as the primary documentation that we rely on to calculate qualifying income.

For most self-employed borrowers we collect two years of the most recent filed tax returns and look at those calculations to determine income. If a self-employed or independent contractor has been in business for five years or more then we may be able to get away with only providing the most recent year. Most independent contractors file a Schedule C and report all of the income and expenses for their independent contracting on that Schedule C.

Mortgage underwriters do not rely on the top line gross revenue, or gross receipts. They rely on the net income figure that’s reported on schedule C, with potentially a couple of modifications made depending on the type of expenses that are listed.

Are you self-employed or an independent contractor and want to explore your options?  Contact me today and we’ll take it from there. Have a great one, thank you.