Co-signing a loan can prevent home ownership

If you have stable income and credit you’ve probably been approached by friends, family, and/or Girlfriends and Boyfriends to co-sign for a loan.  Lenders look for good credit and income to evaluate the potential risk of applicants and those that pose and elevated risk need others to help reduce that risk.  It’s important to know what can happen if you decide to co-sign before you sign on the dotted line.

Co-signing

A co-signer accepts joint responsibility for another individual’s debt.  Both parties are responsible for the making sure the debts are paid. Credit of both parties involved may be positively or adversely affected depending on the payment history.

Understanding the risk

Credit scores are based on risk and those who can’t qualify for a loan may have limited/no credit, bad credit, too much credit, or not enough income.  All of the reasons listed should raise red flags for any lender and potential co-signer.

Mortgages consider co-signed loans in the DTI (Debt to income Ratio)

Mortgages treat co-signed loans like any other loan, even when it’s someone else’s.  The only way to remove the liability from consideration is if you can prove someone else has been making the payments for 12 months.  This can prove difficult if the account is paid in cash or unverifiable.

Questions to ask yourself before co-signing:

  • Are you willing to assume the debt if the co-borrower wasn’t able/willing to pay?
  • Have you looked at the co-signer’s credit to evaluate their risk?
  • Are you willing to trust this person to make the payments?
  • Are you willing to jeopardize home ownership?
  • Are they making a rash decision they aren’t financially prepared for?

Things you can do to safely co-sign (If you must)

  • Explain expectations to co-signer
  • Require all payments be auto paid through bank – so that all payments are made on time and can be verified.
  • Make sure your number and email are attached to the account so you may be notified in case of account issues.
  • Require the co-signer to allow you to evaluate and inspect their credit history.
  • Avoid co-signing for anyone that’s not part of your immediate family. Avoid boyfriends, girlfriends, friends, etc.

Fannie Mae’s Foreclosure and Short Sale Waiting Periods Updated

Fannie Mae recently changed their policies regarding the purchase of a home after a major credit event like a foreclosure, short sale and bankruptcy. The changes are both positive and negative, but seem to focus on reducing the wait times for those that encountered an “extenuating circumstance” or in layman’s terms a one-time or temporary event that led to the negative credit event. These changes show Fannie Mae’s focus on helping those that were hit hard by the recession.

Derogatory EventWaiting Period RequirementsWaiting Period with Extenuating Circumstances
Bankruptcy Chapter 74 Years2 Years
Bankruptcy Chapter 132 Years from discharge date
4 Years from dismissal date
2 Years from discharge date
2 Years from dismissal date
Foreclosure Included in Bankruptcy4 Years2 Years
Short Sale or Deed in Lieu4 Years2 Years
Foreclosure7 Years3 Years

Requirements

After bankruptcy, foreclosure, or short sale a borrow must re-establish credit in order to meet minimum Fannie Mae guidelines. For specific down payment and documentation needed please contact me directly.

Questions

What’s considered an extenuating circumstance?

Extenuating Circumstances must be verifiable hardships that are considered out of the borrower’s control that significantly reduce income or expense. This can be anywhere from job loss to health issues.

I foreclosed when my property lost substantial value, is that an extenuating circumstance?

Unfortunately no, that falls under a strategic default and is exactly why Fannie Mae is drawing a line in the sand. If you fall into this category waiting 3 years and using FHA may be the best option for you.

Buying a Home After College

Buying A Home After College

You’re graduated from college or trade school, and ready to ditch your rental in favor of a property you can call your own. You’ve weighed your options and decided it’s time to invest in real estate ASAP. It’s likely you won’t have the cash needed to purchase the home out right and you’ll need to obtain a loan.  Cover your basis and review the steps below to graduate from rental status into home ownership.  Do you have what it takes to qualify?

Step 1 – Employment

Loan guidelines will accept two years of school transcripts in place of a two year work history as long as the education is in line with the job you’ve landed. Loans can close after you’ve received 30 days’ worth of pay-stubs.

Step 2 – Credit

Many college students have limited credit, but programs like FHA allow lower scores and alternative credit sources like cell phone, insurance, rent, and health club memberships. Learn about building credit in my understanding credit score article.

Step 3 – Funds

You just spent thousands on school and probably have limited savings; although you may be able to buy a home without much money at all. Down payment assistance programs like CALHFA, CHF Platinum, WISH, and County/City programs can bridge the gap for first time homebuyers without notable assets.

Home Energy Ratings and Energy Efficient Mortgages

Feeling powerless against high energy costs isn’t acceptable anymore.

If you’re in the market for a home it would be wise to order a HERS report and possibly obtain an EEM.

Acronyms and programs may be a bit boring, but I assure you knowing the energy flaws of a home before you buy could save you thousands in energy costs.

  • HERS (Home Energy Rating System) is a powerful tool you can use to evaluate your homes energy consumption with an in depth diagnostic report.
  • EEM (Energy Efficient Mortgage) is added into your current mortgage to pay for energy upgrades on a home purchase.

Home Energy Rating System (HERS)
HERS inspection results are based on diagnostic testing using specialized equipment, such as: a blower door test, duct leakage tester, and infrared cameras to determine:

  • The amount and location of air loss/leakage throughout the home
  • Percentage of air loss/leakage through HVAC
  • The quality and effectiveness of current insulationgreener Solutions Energy Efficient Mortgage
  • Window and Door energy loss
  • Appliance energy assessment (Water heater, HVAC, Kitchen Appliances)
  • Solar benefit analysis

The report will produce a computerized simulation analysis with accredited rating software to calculate a rating score on the HERS index. The report will provide recommended improvements based on a cost benefit analysis and expected return on investment through energy savings. These energy upgrades can be financed through what’s called an EEM (Energy Efficient Mortgage).

Energy Efficient Mortgage
Energy Efficient Mortgage program (EEM) helps home buyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a home as part of their home purchase or refinancing mortgage. Items that can be included in an EEM

  • Appliances (Water Heater, Kitchen Appliances)
  • Insulation
  • HVAC and Duct repair
  • Windows and Doors
  • Solar

Loan amounts vary by county and price of the home, as well as lender limits. So we like to stress that the best way to approach the topic of EEM is during the Pre-Approval/Approval stage of the lending process, not when they are looking at homes or after they found one. It’s better to go into the search with open eyes knowing your options opposed to finding out later.

The EEM shouldn’t be an added stress, the process is simple, and when you think about it, you want the savings your upgrades will bring to be greater than the cost of the upgrades, we often use the analogy you give us $50 we will give you $51 and new windows! The program is set up to provide buyers the opportunity to upgrade the home without incurring additional costs; the additional loan payment should equal the energy savings. An EEM on an older home will provide the funds necessary to upgrade while also adding which should be a no brainer.

Who should obtain a HERS report and EEM?
All homeowners can benefit from the homes energy data; however homes built before 2000 would likely benefit more. Energy focused building has improved drastically in the recent years and older homes stand to save the more.

Is the EEM used in Stockton?
The amount of Energy Efficient Mortgages in Stockton is increasing, because of companies like ours that draw attention to the cost and energy saving potential. Stockton was built in phases and the majority of homes were built prior to 1980, which leaves thousands of potential homes without energy improvements. Think about single pain windows, ineffective insulation, Missing weather stripping, Old HVAC, and aging appliances.

New Home Owners Checklist

You didn’t think your work was over did you?

After waiting weeks to close, providing piles of documents, and signing countless forms the home you dreamed of is finally yours. Yes the buying process is over, but the hard work isn’t and I’ve compiled a list to help. The new home owners checklist should help guide you into a smooth transition.

Change the locks
You never know who might have a key to your home and it’s important to re-key the home ASAP to prevent unlawful access.

Hook up utilities
Contact your local utility providers to set up service. Some providers will require the deed before activating service. The most common items are electricity, gas, water, trash/sewage, cable, and internet)

Change your address
Visit your local post office and grab a change of address package. The package comes with coupons for home related services and items like hardware stores, window coverings, and moving supplies.

Replace batteries in smoke and CO2 alarms
The batteries may be working currently, but you have no idea when they were replaced.

Map the circuit breaker
Before moving everything in the home; locate the circuit breaker and label it. This can help you with troubleshooting problems later.

Find the water and gas shutoff valves
Finding this will shorten the time it takes stop a gas leak or plumbing disaster.

Create a House Binder
Organizing documents associated with your home will help with future problems. The items listed below are important, but they are rarely looked at and often get lost.

Items to include in the binder

  • Notes, Deeds, and Contracts from the purchase
  • Contact information of all parties involved (Lender, Realtor, Insurance, Escrow, Title, etc)
  • Appliance Information (Manuals, Receipts, Service/ Warranty info)
  • Utility account and contact numbers (Water, Cable, Trash, Electricity)
  • Neighbor’s name and phone numbers
  • HOA bylaws and contact info
  • Irrigation pipe layout
  • Insurance Policies

First Aid and home safety
Make sure the home has safety items like flashlights, fire extinguishers, and a first aid kit.

Congratulations on your new home purchase!

San Joaquin County Loan Limits – 2014 – Updated!

2014 San Joaquin County loan limits have been announced by HUD, Dept. of Veterans Affairs, and Fannie Mae. Unfortunately FHA reduced San Joaquin loan limits, while VA and Conventional limits were left relatively unchanged.

HUD reduced the San Joaquin County max FHA loan limit from 488,750 down to $304,750. That’s a reduction of $184,000 which is a 37.6% loss in FHA buying power. According to the Wall Street Journal, San Joaquin County had the 2nd highest reduction in the state and 15th highest in nation. You can view all FHA loan limit decreases on the WSJ site.

2014 Loan Limits

Loan Limits1 Unit2 Unit3 Unit4 Unit
FHA304750390100471550586050
Fannie Mae/ Freddie Mac417000533850645300801950
VA417000N/AN/AN/A
HECM625500N/AN/AN/A

How will lower FHA loan Limits affect San Joaquin County?

James (JJ) Godi, of Art Godi Realtors in Stockton shared some interesting stats with me regarding a property search he did using Metrolist. From January 1st 2013 through Dec 31st 2013 there were 1,764 homes sold in San Joaquin County between $304,750 and $488,750, and 22% of those were purchased using FHA financing. That means that 22% of FHA borrowers wouldn’t be able to buy that same home in 2014. There are currently 245 active home listings in San Joaquin Valley with price points between $304,750 and $488,750 that now have fewer potential buyers.

What does this mean?

FHA isn’t an option buyers choose nowadays; it’s likely there only option. First time buyers find FHA to be the only choice due to expensive and restrictive conventional guidelines for those with less than perfect credit and limited assets. Those buyers will be forced to improve credit and save more. FHA also permits shorter wait periods for borrowers with short sales, foreclosures, and bankruptcies.  Conforming conventional loans allow down payments as low as 5% and credit scores of 620, but they typically price them differently than FHA.

How do I combat this?

It’s important to review all options available and contact me direct to discuss this personally.  Mobile 209-565-4540 | Office 209474-7111