Buying a Home after Major Credit Damage

Have you experienced a bankruptcy, foreclosure, judgment, or other major negative credit event? It may seem like all hope is lost to restore your credit and buy a home, but that’s not true! You can absolutely recover from major credit damage, and qualify to buy a home. The key is rebuilding your credit as soon as possible after the event. You can do so by paying close attention to all your accounts to ensure they’re paid on time. Also, keep the balances low, and track your accounts to ensure no further erroneous derogatory information is reported. Then, after the required waiting period for your event, you will be eligible to apply for a home loan. See below for current residential lending requirements after major credit damage.

Residential Lending requirements after Major Credit Damage

1. Bankruptcy: If you are seeking a conventional or government loan, and filed for chapter 7, 11, or 13 bankruptcies, a 2-4 year waiting period is required from the discharge or dismissal date. The waiting period depends on the bankruptcy type and loan program type you seek.
2. Foreclosure: Foreclosures require a 7 year waiting period to purchase with a conventional loan, or a 3 year waiting period on a FHA loan. VA loans do not require a waiting period if credit reestablished.
3. Judgments: A judgment, or other public records listed on a credit report (such as a tax lien, or collections) doesn’t require a formal waiting period before you can apply for a home loan. They do, however, considerably damage your credit scores. Pay and close the accounts as soon as possible, and then begin rebuilding your credit with accounts in good standing in order to bring your scores up.

*Note: We are not attempting to cover all negative credit events. These are examples of some of the negative credit events a consumer can experience, along with the applicable required waiting periods for residential lending.

How to Maintain Good Credit

Over the years I’ve noticed clients with great credit have similar habits, habits which I also employ myself. If you want to maintain good credit throughout your lifetime, I’m convinced these 5 tips will help you do just that.

Tips to Build and Maintain Good Credit

1. Make your payments on time, or early. Obvious yes, but also necessary to establish a history of credit reliability.
2. Allow your credit to age. If you have accounts in good standing, keep them open! These accounts help establish consistency in your credit history.
3. Keep your credit card balances low. Any balance over 50% of your limit adversely affects your score.
4. Payoff derogatory accounts. If you do get a collection or judgment, be sure to payoff and close that account as quickly as possible.
5. Monitor your credit. It’s wise to check your credit every six months to ensure mistakes aren’t present that will hurt your scores.

An Introduction to the Credit ABCs

Have you ever wondered how your credit score is calculated, how to establish “good” credit, or why your scores vary when different creditors pull your credit report? If so, tune in to my new miniseries, The Credit ABCs. Based on my experience as a mortgage professional, I will review not only how credit works, but the dos and don’ts of establishing and maintaining good credit.

In Part 1 of the Credit ABCs I introduce you to the world of electronic credit scoring. Here are the main points:

1. Mortgage lenders use the following scoring models: Equifax – Fico classic 05, Transunion- Fico classic 04, and Experian- Fair Issac 02. We consider all three bureaus, but your middle score is the qualifying score. Other creditors, such as car dealerships and credit card companies, use different scoring methods. The free credit report you can obtain online uses only one bureau and does not necessarily use the same scoring models.

On June 4, 2018, the new ineligible area maps for the Rural Development Single Family Housing (SFH) and Multi-Family Housing programs will be updated

USDA loans are zero-down, government insured loans available for borrowers who want to purchase in USDA designated rural areas. USDA property eligibility is determined by USDA rural area maps. Updated maps on the USDA Income and Property Eligibility Site at https://eligibility.sc.egov.usda.gov.

All properties for new applications must be located in an eligible rural area based on the new eligibility maps

However, a property that is located in an area being changed from rural to non-rural may be approved if all of the following conditions are met:

1. The application is dated and received by the lender prior to June 4, 2018 and the Loan Estimate was issued by the lender within 3 days of application receipt.
2. The applicant has a signed/ratified sales contract on a property that is dated prior to June 4, 2018.
3. Applicant meets all other loan eligibility requirements.

Call me if you are interested in a USDA loan, or with any mortgage-related questions!

You have to sign them with every purchase or refinance, but what are loan disclosures? Basically, they are the documents we as lenders are required by law to disclose to you, many of which you sign to acknowledge. Here are a few important facts about your loan disclosures that I hope will make signing them less overwhelming. 🙂

Two Sets of Loan Disclosures, the LE, and the CD

1. Initial loan disclosures are those we must disclose to start your loan. Generally these disclosures inform you of the regulations we have to abide by in order to lend to you, such as the equal credit opportunity act. There are also disclosures to inform you of your rights, such as the right to receive the appraisal. What I consider the most important initial disclosure though, is the loan estimate.
2. The Loan Estimate, or LE, contains all the important terms of your loan, including loan program, interest rate, term of the loan, closing costs and cash to close. I review this carefully with my clients to ensure they understand the important facts of their loan.
3. Closing disclosures include all the documents we must disclose to you in order to close your loan. They include disclosures about your loan servicing, your final settlement statement numbers from escrow, and most importantly, your note (which obligates you to the loan) and deed of trust (which is records your home ownership or mortgage change with the county). You will want to keep your copy of these two documents for your records.
4. The Closing Disclosure, or CD, is an updated version of the LE with closing terms that you receive before signing. I advise borrowers to review this disclosure carefully to ensure all terms are accurate, and as expected.

Watch below for more, and don’t hesitate to reach out with questions!

After the home you want to purchase is under contract, or you’ve decided to move forward with a refinance, what happens to your loan? I’ve broken the loan process out into 5 simple steps to loan closing. I aim to take the guesswork out of what happens to your loan application when you’re ready to proceed.

5 Simple Steps to Loan Closing

1. Initial Disclosure Signing: I prepare and have you sign everything I must disclose to you in order to start the loan process. This does not obligate you to accept the loan. We can lock in your interest rate at this time, or wait until a more favorable time. I also collect the documents needed from you to process the loan at this time.
2. Prepare for Underwriting: Your loan processor  works with me to move your loan through the loan process. S/he will review your loan to check for any missing items we need to request. The processor also orders the appraisal, verification of employment, tax transcripts, and other required items for underwriting.
3. Initial Underwriting Approval: The underwriter is the person who decides if your loan application meets the guidelines of the agency or investor of the loan. On a conventional loan, that’s Fannie Mae or Freddie Mac. On an FHA loan that’s the Federal Housing Administration, etc. If your application meets guidelines the underwriter will approve your loan with conditions. These are the additional items required to close your loan. Your loan processor or I will request them from you. 
4. Final Underwriting Approval: When we have your conditions, and the appraisal, back, we can submit for final underwriting approval. At this stage the underwriter says your loan is approved to close. This is also the stage where we must lock your interest rate in. Then we disclose a closing disclosure to you.
5. Loan Closing: Three days after your closing disclosure goes out, your final loan documents can be signed. This is where you go into your escrow office to sign the ‘big stack’ of final documents, obligating you to the loan. Typically one day after you sign, we fund on the loan. This happens after a review by our funder to ensure everything required is in the loan file. Once we fund, or send the money for your loan to escrow, the deed of trust you signed will be sent to your county for recording. Once recorded, you own the home, or a new lender is on record if you refinanced.

If you have questions about the loan process you can ask me at any time! Quick and clear communication is one of the cornerstones of my business. Watch below for more!

In every transaction I get the question, “what are my closing costs?” First, it’s important to note, every transaction, be it a purchase or refinance, has closing costs.  There are no loans without closing costs because there are many parties that work on your loan in order to provide the necessary requirements to close it. It’s a mortgage professional’s responsibility to disclose these costs to you, although many of the costs are from third parties. With that foundation, I’d like to share what I believe are the three most important facts about closing costs.

Three Important Facts About Closing Costs

1. Closing costs and pre-paids are often lumped together, but there is a fundamental difference. Closing costs are services you pay for in conjunction with your loan, and pre-paid items are items you must pay at close that you would have paid regardless, such as property taxes, homeowner’s insurance, and pre-paid interest for your mortgage.
2. On a purchase, closing costs and pre-paids can be paid by you, paid by your rate, or paid by the seller. Because you do not yet have equity, there is no option to roll closing costs into the loan. On a refinance, it is possible to roll closing costs into your loan, and even come to close with nothing out of pocket, provided you have the equity to do so.
3. Some closing costs can change, some cannot. Lender fees and third party fees you cannot shop for, such as appraisal or credit report, cannot change. Other third party fees, such as title and escrow, can change within a 10% tolerance. Pre-paids are completely variable because they are based on the time you close. For example, if taxes are due the month after you close, those will be collected at closing, but if they were just paid, less taxes will be collected at closing.

Total closing costs and pre-paid items will vary from loan to loan based on a variety of factors. The important thing is you have a mortgage professional you can trust who disclose accurately from the beginning, review your costs and pre-paid items with you in detail, and be forthright and transparent when anything changes. My clients can always expect this of me. See below for more, and if you have questions about closing costs, don’t hesitate to contact me!

Happy holidays to one and all! Before we end 2017, I’d like to provide an update on the local market based on what I’m seeing. We’ve had a bit of a rollercoaster ride this year in the Seattle area! Depending on what your next move might be, check out the following summary, and pertinent articles, to keep yourself in the know this holiday season.

Seattle Area Market Trends

1. Buying: The market has evened out a bit so buyers have more of an edge. As you may have noticed this year, we have had a pretty big influx of newcomers to the Seattle area. Here’s an interesting article comparing Seattle to the other major west coast Tech Hub, San Francisco: Seattle Might Be the Next San Francisco, and inventory is still low. Overall, it may take a while to find what you’re looking for, but you can expect fewer bidding wars and more opportunity to get concessions from sellers. You shouldn’t have to worry about prices skyrocketing while you’re looking either.
2. Selling: If you’re thinking of selling your home you can still expect to sell in a reasonably short period. Demand is still high if you are priced well. Always discuss with your professional realtor the best way to market the property. Don’t make the fatal mistake of pricing out of the market! Check out Zillow’s recent home price forecast for Seattle this next year Zillow’s Value Assessment for Seattle (5.6% growth as compared to 14.1% this past year).
3. Refinancing: If you’re wondering if it makes sense for you, please call. Lowering the term of your loan, or getting cash out have been the most popular refinances this year. With the great increase in equity we’ve experienced, coupled with low interest rates, you couldn’t pick a better time. Call me if I can help you or someone you know. Your refinance analysis is always free!