I know you have heard the ads on the Radio or TV and probably are wondering what all the hype is about with certain loans or Loan Companies. I know most of you have heard of Rocket Mortgage and some of you may have even tried it to find out that it is not as easy as it sounds. You may have heard of loans that can qualify you with just bank statements or “Income Solving Loans”, as advertised. You may have heard of Down Payment Assistance programs that are designed to help you with your down payment so you don’t have to come out of pocket to buy a house with very much money. These are all programs designed to get your attention and some are very viable programs and others you soon find out are a whole lot of work for very little.
So, let’s start with Rocket Mortgage and getting a mortgage with a push of a button. This is a bit of a pipe dream, so to speak, as in order for this to work you have to input all you information into their system before it can work and in some cases it won’t work and you end up having to deliver the traditional documentation anyway to get approved for your mortgage. Rocket Mortgage is a division of Quicken Loans which has emerged as one of the largest Mortgage Companies in the nation after Mortgage Melt down of a decade ago. The way their system works is based on a software platform that is designed to interact with different employer’s payroll systems and different banks. The software sets up, with your permission, an interaction with web based companies like ADP, Paychex, Talx and other payroll associated companies to verify your income information. The software also gets your permission to get your online banking information, as well, to verify that you have enough money for the down payment and closing costs associated with the loan. It will interact with credit reporting agencies as well. Once you have inputted all your information into their system the software can run income, bills, and cash to close to accurately give you an approval. However, if your job or bank does not interact with any of the online systems you will have to provide traditional documentation anyway. The major problem with this system is that you don’t have a human to be able to tell you how to fix any issues with your employment or deposits or any other reasons why their system is declining you for a home loan. This system is only as good as the information that is inputted from you the borrower and if you are confused as to what to put into the system you may make a simple input error and that could cost you the decision of an approval. When you work with a traditional Loan Officer they generally do all the input for you based on the documents you provide them and it is in their best interest to get your loan approved and closed as their income depends on it. This automated system might work for the perfect borrower who has perfect credit and has had one job, one bank account and works for the government. This, unfortunately, is not the real world, but it is a system that will be refined and eventually something like this will be the way mortgages are delivered in the future, but for now we still need human interaction to deal with problems or glitches that may arise.
Now down payment assistance programs (DAPs) have been around for a long time. The problem with these programs are that they have become so regulated over the last decade now since the Mortgage Meltdown that there are very few programs available. In California we have the California Housing Finance Agency or CalHFA for short and they offer an income limited program that is called MyHome Assitance program. This program will offer up to 3.5% second mortgage on the purchase of a home and the money is ued for the down payment on the first mortgage and closing costs if necessary. For the MyHome program you need to be a first time homebuyer (not claiming mortgage interest on your primary home for the last 3 years). You must occupy the home as your primary residence, and complete a homebuyer education course and you must fit into the income limitations. This assistance program can be used with an FHA or Conventional loan. For more detailed information and help with doing this loan please contact MAE Capital directly and one of our licensed and qualified Loan Officers can walk you through this process. CalHFA also offers, though approved Lender’s and Brokers like us the Mortgage Credit Certificate or MCC that is designed to help first time homebuyers receive and additional tax credits from homeownership and this program is also limited by the amount of household income that is made and does not help with the down payment it is only a tax credit program. This is really your only options for Down payment assistance in California. It all boils down to being able to get a down payment of 3.5% which is the minimum amount for an FHA loan. With an FHA loan, the 3.5% can come from a DAP or it can be a gift so it is very flexible as to where the funds to close come from. Here at MAE Capital we can hold your hand though this process and provide different options as they arise.
Lastly you may have heard of the Cash Call ”Income Solving” loans for owner occupied homes. These loans are being presented for those folks that may have trouble showing their income to a lender because they are self-employed or write off too many expenses on their Federal Tax Returns. The commercial on the radio states to call them if you have been declined by a lender for lack of income. Back in the day we used to be able to do stated income loans for those that write too many expenses off their tax returns if it made sense to for the client. These loans have been made illegal with Dodd Frank Act of 2008 which states that lenders must prove a borrower’s ability to repay the loan they are requesting. This has been interpreted to mean that you must get Tax Returns, and Pay statements in order to prove the borrower’s ability to repay a loan. There have been serval institutions that have looked at the law and came up with alternative ways of proving the ability to repay. One of the best ways to show that a borrower is actually making enough money from their self-employment would be to look at the deposits they make into their bank account every month. The Bank Statements will also show how a borrower is spending the income that is made from their business. If a borrower can show that their business is making good deposits every month and they are saving money after paying their usual bills then why would they not be able to afford a house payment. It is these bank statement loans or “Income solving Loans” that have been becoming more popular with self-employed people as they have a tendency to write-off more expenses than a typical salaried person would simply because they can. When we analyze a person’s bank statements for the last 24 months you can see trends and habits of good paying individuals or poor paying individuals. That coupled with a good credit score and savings habits will generally get a loan approved. These alternate income qualifying or Income Solving products are all different and different lenders will handle them differently, so it is important to use a Mortgage Broker for these products for no other reason than they can find the lender that will approve your loan. The Cash Call Loan is not the only alternative it is only one of many lenders that offer this type of solution. Don’t give up if you have been trying to get a bank statement loan from a mortgage banker or a Bank and it is declined chances are there is a lender out there that will probably approve the loan if it makes sense and it will generally be from a lender you have not heard of before.
The bottom line with regards to loans and specialty financing is that you should be dealing with a Mortgage Broker that knows the ins and outs of these products to get you hooked up with the right lender the first time. The myth that it will cost you more money dealing with a Mortgage Broker I just that a myth. In most cases a Mortgage Broker can find you the best interest rate scenario for you as opposed to a Bank or a Mortgage Banker as a Mortgage Broker is paid by the lender in the form of Lender Paid Commission. So not only could a traditional loan cost you less working with a Mortgage Broker but these specialty loans might only be found to be offered by a company you may never had heard of before but your Broker knows of them as it is our job to know where to find the right loan for our clients. With specialty loans and down Payment Assistance Programs and even software programs here a MAE Capital we can walk you through the maze of ever changing finances and trends and get you the answers you need to make informed decisions. We know that you are an expert in your trade or occupation and so are we, and it is our job, and our pleasure, to help you with all of this confusing stuff. With one phone call you can get the answers you need to Buy, Sell, Finance or Refinance all types of Real Estate. We look forward to guiding you to your next Real Estate transaction. Give us a call today at 916-672-6130 and ask to talk to one of our qualified Loan Officers. If you are selling a home and buying another one ask about our special bundling packages that can save you thousands in Real Estate commissions and fees.
Is it time to bring back loans that people don’t have to fully income or credit qualify for? I believe it is, for no other reason than the current environment cuts out an entire section of the US economy from qualifying for a good loan. The self-employed borrower is being left behind with the current lending rules. The self-employed borrower is a broad reaching term that applies to people that derive their income from partly or entirely from a source that does not require the withholding of taxes. This includes people on commission as a part of their income or their entire income. Another section of potential borrowers that are being left behind are those with less than perfect credit and a high down payment or high equity positions.
The idea of tight underwriting criteria is to keep the foreclosure rate low and to protect potential borrowers from themselves over committing themselves on a mortgage. In the past, lenders were left to their own when determining risks associated with lending money to potential borrowers. It has pretty much always held true that the more money, or equity, a potential borrower has into their home the less likely they will default on their mortgage. Even during the mortgage crisis of 2005-2011 we found that the folks that had a high investment into their homes initially were far less likely to default on their mortgage. After the crisis and with the onset of the Dodd Frank Act that put law into the mortgage risk assessing business we are finding that those folks that have the ability to save from their self-employed jobs are being discriminated against for no other reason than being a true American by using a tax accountant to prepare their taxes and writing off more things than a salaried employee can. This affect can be attributed to the current tax code that allows people write off business related expenses off their income thus reducing the amount of income a lender can use to qualify them. Currently even with a substantial down payment, 20% or more, if the self- employed borrower does not show enough income, net of expenses, they will not be allowed to get a traditional loan under the Dodd Frank laws.
This holds true for those that have a lower than acceptable credit score with a high down payment or equity position. I would contest to say that if a borrower can put a large down payment, 20% or more, they would be less likely to walk away from their mortgage even if the house devalued by 10-20% in the first few years after purchasing. We have seen over time that Real Estate, over the long run will continue to rise at a rate as high, or in most cases, higher than inflation. What this means is that people with large down payments have shown a commitment to the house they are purchasing for the long term. I would contend that even though a potential borrower may have a less than acceptable credit history for a low down payment loan that they should be able to be able to buy a home with a large down payment as they will tend to find ways to make the payments so they don’t lose their investment.
Good news, there is hope for these underserved borrowers out there. We have seen an increase in investors that see loopholes in the law that will allow for these underserved folks to be able to purchase a home. The Dodd Frank law states that “a borrower must show the ability to repay the mortgage”. FNMA and FHLMC (Fannie Mae and Freddie Mac) have interpreted that to mean that all loans securitized by them must explore all income verification sources such as Tax Returns, Pay-stubs, W2s, 1009’s, for all borrowers on the loan. Currently if a borrower fails to provide any one of those documents that support an income needed, the borrower is declined from those loans. The good news is that some new innovative lenders, even with the support from Wall Street hedge funds, are providing loans to those that have similar situations.
The laws state that if you are going to do a qualified mortgage (a home loan for a primary residence) you must show the borrower’s ability to repay that mortgage or verify their income. This can be done by other ways than tax returns, W2s and paystubs, as no two borrowers created equally, everybody is different. So to discriminate on those that don’t show income on their tax returns when they obviously are making income is ridiculous. There are other ways to prove income such as showing regular deposits made to a bank account, or show enough assets that could pay the mortgage off, or simply listening to a borrower on their thoughts of how they plan to repay the loan based on the large down payment they would be making. The market place is coming up with new ideas every day to stay within the law. Alternate income loans are going to be the future for those that cannot show proof of income through traditional sources and we have those Alternate Income Loans Available today.
Alternate income loans vary greatly from source to source that is why here at MAE Capital Mortgage Inc. we take care in making sure our alternate income lenders are everything they say they are. We have several Alternate income sources that will use bank statements for the last 12 to 24 months and average the deposits. The borrowers that can show a good deposit history will tend to get the best alternate income rates on their primary home. All the Alternate Income sources have graduated tiers for credit scores, and down payment or loan to value. What this means is that if you have a large down payment, good deposit history in the bank and you have a good credit score you will get the bests alternate loan rates. The rates will vary to the degree of risk. So on the other hand if you have poor credit you will be required to put a larger down payment or have a larger equity position for a refinance in order to get an alternate income type of loan. The Alternate income loans will require at least a 20% down, or equity position, to obtain this type of loan as the loan is not sold to FNMA FHLMC. There will be plenty of cases where people should not attempt to purchase at this time if their credit is too bad, or they just don’t have a good source of income, or they don’t have the saving to put into purchasing a home.
The Alternate Income loans are designed to fill the gaps where the banks will not lend. Most Alternate Income Borrowers are those that feel that they can make a mortgage payment with the income they are currently making, and have saved a good amount of money, and have good credit. Banks don’t offer these types of loans for a variety of reasons, so you will have to use MAE Capital Mortgage to find the alternate funding sources that will fit your needs. We are licensed by the department of Real Estate and we hold a NMLS license and that makes us uniquely qualified to be able to Broker loans to those funding sources. Our job is to find the best source for your particular situation and match the borrower with lender. We are limited by law on what can be charged on Alternate Money transactions as these loans are on your primary residence, so you know you will be taken care of when we do this type of loan for you or any loan for that matter. Our job, when working with our borrowers, is to find the best funding source for you, the borrower, for your particular needs and or challenges and if you do fit the box for a FNMA or FHLMC or FHA or VA loan we will certainly fit you into the best deal possible. If you have been faced with being declined for a loan from a Bank or a Mortgage Banker give us a call today and we will see if we can fit you into an Alter Income Loan. Again thanks for reading and You can call us today at 916-672-6130.