Franklin Advantage Mortgage Expert

Mortgage Underwriter Doesn't Like Commissions or Bonuses But They Can Help You By a Home

noreply@blogger.com (Franklin Advantage) — Sat, 11 May 2013 21:25:00 +0000

Irvine, CA asks:
My husband and I are both in medical sales. We are paid commissions and bonuses. This is normal in our industry. We decided that now is the time to buy a house but were told by a local bank that their mortgage underwriter would not be able to use our income. What income will a Fannie Mae, Freddie Mac, FHA and VA consider as income? And more importantly, what will they not consider as income?

Franklin Advantage:
Fannie Mae, Freddie Mac, FHA and VA all use the same method of calculating commission and bonus income; commissions and bonus income can be counted if the borrower can document they have received it for two years and there is a likelihood that it will continue.

As a rule, the underwriter will average the last two years and the year to date bonus or commission income. But there are exceptions.

Has commission or bonus income decreased from the year before? Or does the year to date indicate lower commissions? If so, the underwriter may not consider it likely to continue. Where the underwriter will usually average the commission or bonus income over the past two years, they may instead only consider most recent year or not count it at all.

What if the borrower switched from one commission job to another commission job? As long as the most recent two years of continuous employment reflect commissions or bonus income, it may be considered subject to the same limits listed above. It will not be considered if job are not in the same field or if the job is not considered similar.

What if the borrower changed employers from a salary or hourly position to an employer that pays a lower salary plus commissions or bonuses? Unfortunately, unless there is a two year history of receiving the commissions or bonuses; only the current lower salary can be used.

How to squeeze more income from commissions and bonuses.

Many times a borrower’s commissions and bonuses are increasing as they become more effective in their jobs and build a larger client base. To show the most income for qualifying the lender can take only the most recent 24 months commissions and bonuses. With a bonus or commission schedule from the borrowers Human Resources or the last 24 months pay roll statements; the underwriter can eliminate the early months of the year previous to last year that showed less income.

There are, of course many other things that an underwriter will look at when calculating commission or bonus income. And, there are other ways to help a borrower who receives commissions and bonuses qualify. They are too numerous to go through here but feel free contact to Franklin Advantage or call us at (800) 314-5363. Our seasoned, professional Loan Officers can help you explore your home loan options.

Mortgage Guidelines When Receiving a Down Payment Gift

noreply@blogger.com (Franklin Advantage) — Fri, 19 Apr 2013 21:07:00 +0000

Buena Park, CA asks:
My father says that he will give my fiancee and I money when we are ready to buy a house. I was told that this could be a problem when we get a loan. Is this right? Are there any rules I should be aware of when someone gets a cash gift to buy a house?

Franklin Advantage:
When you are lucky enough to be receiving a gift to supplement or fully fund your down payment there are different underwriting guidelines that Fannie Mae, Freddie Mac, FHA and VA have regarding gifts.

When a borrower is receiving a gift, Fannie Mae and Freddie Mac both require that the borrower have 5 percent of the sales price from their own funds unless the gift is large enough for a 20 percent down payment. With a gift of 20 percent of the sales price, the borrowers are not required to have any of their own funds for the purchase of their residence.

This applies to the purchase of vacation homes as well but Fannie Mae and Freddie Mac do not allow gifts when buying an investment property. The entire down payment must be from the borrowers own funds.

FHA allows for the entire down payment to be a gift. The gift can not only be for the down payment but can also cover all closing costs.

Fannie, Freddie, FHA and VA do not allow the donor to be a person or entity with an interest in the sale transaction such as the seller, builder, etc.

If the veteran is receiving a gift, VA has the same gift guidelines as FHA.

When a gift is being received, all loans require it to be documented with the following:
* A “Gift Letter” showing the donors name, address and phone number, the relationship between the donor and borrower, the amount and source of funds.
* A copy of the check or wire from donor’s account listed on the gift letter
* A copy of the check or wire being deposited into borrowers account.

In addition to the above, FHA and VA require a copy of the donor’s bank statement. Large deposits into the donors account that appear on the bank statement before the gift is transferred must be explained, sourced and documented.

A bank statement from the donor is not required by Fannie Mae and Freddie Mac.

Do you have more questions? Call Franklin Advantage at (800) 314-5626 or contact us through our website.

3% and 5% Down with No PMI is Available

noreply@blogger.com (Franklin Advantage) — Tue, 02 Apr 2013 23:32:00 +0000

La Habra, CA asks:
I was at an open house last weekend where the real estate agent told me I could get a loan with only 3 percent down payment and no PMI. I’ve been told that any loan I get with less than 20 percent down has to have PMI. Is there a 3 percent down payment mortgage with no PMI available? Also, she told me we did not need to get an appraisal. How can that be?

Franklin Advantage:
The open house you visited last weekend was a foreclosure. In fact, it was not just any old foreclosure; it was a Fannie Mae foreclosure.

Fannie Mae offers special financing on their foreclosures. The Fannie Mae “HomePath” program does not require PMI (Private Mortgage Insurance) even with as little as a 3 percent down payment.

As you can imagine, not having to pay hundreds of dollars in PMI makes Fannie Mae foreclosed home much more desirable. This leads buyers to offer more for the property than can be justified with an independent appraisal. This would usually cause problems in obtaining financing.

This leads me to the second part of your question. To avoid a problem with an appraisal coming in lower than the contracted sales price; Fannie Mae does not require appraisal on their foreclosures financed with their HomePath program.

The Fannie Mae HomePath program will save you money by letting you avoid PMI but you may pay more for the home than you would if the HomePath program was not available on that home.

Investors can also use the HomePath program to buy the Fannie Mae foreclosures. The investment loan though HomePath only requires a 10 percent down payment (normal Fannie Mae guidelines require 20 percent down payments) no PMI and no appraisal.

What if you don't want to pay PMI but the home is not a Fannie Mae foreclosure and eligible for the HomePath program? You can get a Fannie Mae loan without PMI with a 5 percent down payment, sorta…

Lender Paid Mortgage Insurance or LPMI is a way to avoid paying traditional PMI.

LPMI is a one time up front sum paid by the lender. Depending upon the size of the down payment, it costs about 1 to 2.5 percent of the loan amount for borrowers with the best credit. It cost more if the borrowers credit is not at the highest levels.

This cost is passed on to the borrower by increasing the interest rate. The higher rate will net the lender more money when they sell the loan. With the additional money from the future sale, the lender pays the cost of the LPMI.

The payment from the increase in interest rate and no PMI is lower than the payment if the interest rate were lower and the PMI were added.

But LPMI is not for everyone.

If you plan on keeping your home and not refinancing, traditional monthly PMI may be a better option. With loan with traditional monthly PMI you will be able to drop the monthly PMI once your loan reaches either 78% or 80% of your home’s purchase price or value (as long as you keep your payments timely).

With LPMI you are stuck with the higher increase to your interest rate for the life of the loan.

Call Franklin Advantage at (800) 314-5626 or contact us through our website. Our seasoned, professional Loan Officers are ready to help you explore all of your home loan options.

Do I need extra money beyond what it takes to buy the house?

noreply@blogger.com (Franklin Advantage) — Fri, 22 Mar 2013 02:24:00 +0000

Rancho Santa Margarita, CA asks:
I’ve been told that I need extra money in addition to the money I need to buy a home. I’ve also been told I don’t need any extra cash at all. What is the truth here? Do I need extra money beyond what it takes to buy my home?

Franklin Advantage:
Many loan programs require the buyer to have cash available after the close of escrow as a reserve against an unforeseen financial set-back. These documented funds the buyer are called “Reserves”.

Reserves are calculated in terms of monthly housing payments. A housing payment included principle and interest and taxes, insurance and any HOA fees. Some loans require the buyer to document as many as twelve month’s reserves to qualify.

How much cash reserves does the lender require you to have once the loan closes? That depends on the type of loan you are getting and the type of home you are buying.

FHA loans require no reserves at the close of escrow on a single family home or duplex. On 3-4 unit properties, FHA requires three months reserves after closing.

VA also does not have any reserve requirements on single family homes and duplexes. On 3-4 unit properties, VA requires six months reserves. If the borrower owns additional properties, three additional months reserves are required for each additional rental property owned.

Fannie Mae reserves requirements are based on the overall risk of the loan. Risk factors include credit scores, debt ratios and down-payment.

A single family homes purchase with debt ratios at or below 36% and a 680 credit score; no reserves are required. If your debt ratio is above 36% and your credit score is at or above 700; no reserves are required. Otherwise, two months reserves are required on a single family homes purchase unless…

A single family homes purchase with a credit score at or below 660 and less than 25% down payment requires six months reserves.

2-4 unit property purchases and all investment property purchases require a minimum of six months reserves and if your credit score is below 680; in most cases, Fannie Mae requires twelve months reserves.

Fannie Mae requires two months reserves on a vacation homes unless your debt ratio is greater to 36% and the credit score is at or below 720, then twelve months reserves are required.

Call Franklin Advantage at (800) 314-5363 if you have any questions or contact us and a seasoned, professional Loan Officer will answer your questions and help you achieve your financial goals.

How does a Mortgage Underwriter Calculate Overtime for a Home Loan?

noreply@blogger.com (Franklin Advantage) — Wed, 27 Feb 2013 17:11:00 +0000

Orange, CA asks:
I work construction and last year I worked a lot of overtime. The year before I worked overtime too but not as much. I haven't worked a lot of overtime so far this year because most of the overtime is worked over the summer in construction. How does do you calculate overtime for a home loan?

Franklin Advantage:
Fannie Mae, Freddie Mac, FHA and VA all require a two year history of receipt of overtime to consider it as income. As a rule, the underwriter will average the last two years and the year to date overtime. But there are exceptions.

Has your overtime decreased from the year before? Or does the year to date indicate less overtime income? If so, the underwriter may consider it unstable and not give you credit for any overtime income.

Here is an exception: If your employer will document that you changed positions that lead to less overtime, the underwriter may consider only averaging your income since your change date.

What if you did not have any overtime before your change in positions and you haven’t been in your new position a full two years? Unfortunately, unless there is a two year history of receiving the overtime; it cannot be used.

The continuation of overtime on a regular basis must also be documented. If you earned overtime in the previous two years but you haven’t earn any so far this year, the continuance of overtime income will be questioned and may not be counted.

Here is an exception: If your employer will document that your overtime will continue but tends to run slow in the beginning of the year, the underwriter may consider averaging the previous two years overtime.

To calculate overtime income the underwriter will want a Verification of Employment (VOE) form completed by your employer. Your employer is required to break out your overtime from your gross income for the previous two years and year to date income. The VOE will also ask your employer if the continuance of overtime is “likely”. If your employer does not indicate it will be; the overtime income cannot be used.

To calculate your overtime income without a VOE, use the last paycheck stub paid in the last two years (this would be the paycheck stubs you got around Christmas that show a breakdown of your year to date income separating salary, overtime, commission and bonus income) and your most recent paycheck stub.

There are, of course many other things that an underwriter will look at when calculating overtime income. They are too numerous to go through here but feel free to call Franklin Advantage at (800) 314-5626 or contact us if you have any additional questions or concerns.

Buying Again After a Short Sale or a Foreclosure

noreply@blogger.com (Franklin Advantage) — Mon, 04 Feb 2013 22:00:00 +0000

Rancho Santa Margarita, CA asks:
How long do we have to wait after a short-sale or a foreclosure to buy a new home? With home prices and interest rates so low, we would like to buy again.

Franklin Advantage:
That depends on two factors:
1. Was it a short sale or a foreclosure?
2. What kind of loan are you looking to get?

VA
If you are a veteran and the short sale or foreclosure was not on a VA loan; the VA will allow you to get a new home loan after two years.

FHA
If you had a foreclosure or were delinquent at the time of the short sale; FHA will allow you to get a new home loan after three years. If you were not delinquent on the payments at when you closed your short sale; FHA will allow you to get a new home loan after two years.

Conventional Financing (Fannie Mae and Freddie Mac)
If you had a foreclosure, Fannie and Freddie will not give you a new home loan for four years. If you had a short sale, Fannie and Freddie will allow you to get a new home loan after three years with a minimum 20% down payment.

Two additional notes on this:
1. FHA and VA do not require any greater down payments than standard guidelines (zero for VA and 3.5% for FHA).
2. Although Fannie and Freddie only require four years since a foreclosure to obtain new financing; many investors who buy these loans do require up to seven years.

If you or anyone you know had a short sale or foreclosure and is considering buying a new home, have them contact Franklin Advantage or give us a call at (800) 314-5626.

Buy Now or Save for a Bigger Down Payment?

noreply@blogger.com (Franklin Advantage) — Fri, 18 Jan 2013 19:22:00 +0000

Hacienda Heights, CA asks:

My Father-in-Law says my husband and I need to save more money before we can buy a house. We have been saving for almost two years and are now near our original goal. But now that home prices have moved up in the last few months, he says we should save more. I think it might be better to buy now before home prices and interest rates go higher. What do you think?

Franklin Advantage:

Ask your Father-in-Law if he has ever seen a hamster in a wheel. They run faster and faster and never get anywhere.

In today’s real estate market saving up for a larger down payment is like that. As you put more money aside; the home prices move higher. The higher home prices mean you need to put more money aside. You become a hamster in a wheel.

It’s best to work with what you got. There are several options that let you buy a home with small down payments.

FHA only requires 3.5 percent of the sale price.
Fannie Mae and Freddie Mac both have 3% down options.
And if you’re a veteran, no down payment is required with a VA loan.

And VA loans don’t have PMI.

Is PMI your Father-in-Law's scary monster? A onetime flat fee you can eliminate PMI for the life of the loan. The onetime cost can be paid by you as an additional cost, by the seller as a negotiated part of the sale contract or by taking a higher interest rate to receive a credit to cover the cost.

I listed a few extra down payment options you may not have considered on the Franklin Advantage website.

Contact or call Franklin Advantage at (800) 314-5626 and one of our seasoned, professional Loan Officers will help explore your home loan options.

Time Heals All Credit Wounds

noreply@blogger.com (Franklin Advantage) — Fri, 14 Dec 2012 03:16:00 +0000

Santa Ana, CA asks:

My current credit score is 509. How can my credit score be raised?

Franklin Advantage:

When you are trying to increase your creditscore, TIME is your friend. Time heals all credit wounds.

How long has it been since you missed a payment? Installment loans such as car, student and home loans hurt your credit score most when they are currently late. Once the late payments are over three months ago, your score will improve. The more time that passes; the more your credit will improve. If the lates are more than two years ago, it has almost no detrimental affect on your score.

Of course, mortgage lates will have other problematic effects on your ability to get a home loan beyond your FICO score.

Revolving debt delinquencies (ie: credit card lates) have a longer effect on you credit score. But like installment loan lates, the more time that passes the more your score will improve.

There are two kinds of credit cards: large bank cards and department store and finance company cards.

Large bank cards paid on time move your score higher faster. The FICO company was originally formed to help big banks determine credit risk. Today, the FICO scoring model still puts the most weight on large bank revolving debt payment histories.

Because large bank revolving accounts weigh so heavily with FICO, it is important to not close these accounts. Closing these credit accounts will negatively affect your score. Also, if you do not have any large bank credit card accounts, you should open one.

Department store and finance company credit cards are best paid current and then kept at very low or zero balances. It is important to not close these cards if you have a balance on them. Department store and finance company credit cards are not highly regarded by FICO. If you have too many of these credit card accounts (even at a zero balance), FICO considers this to be an indicator of a greater credit risk and they will hurt your credit score.

Time cures all Collection wounds as well but not all collections are equal. There are two types of collection accounts that affect your credit score: collections that are being reported every month by the credit agencies and collections that were reported in the past but are no longer being reported monthly.

If the collection is currently being reported, pay it. Paying a collection that is being reported every month to the credit agencies is the only way to help yourscore. A payment plan with the collection company will not stop them fromreporting it as an open collection. Only paying it will stop the monthlyreporting.

Ifthe collections is not being reported every monthly, don't pay it! Paying anold collection that has not been reported in months or even years will changeyour credit report in two ways. First, it will reflect it is paid and secondly,it will update the reporting date. The updating the status will hurt yourcredit score more than the showing the collection as paid will help it.

Theinvestor may require you to pay these old collections but you can pay them whenyour loan is in process after your scores have been pulled for your loan.

Timeis your greatest ally in obtaining a higher credit score but it alone will notdeliver a great score. You must still pay your payments on time, keep yourcredit card balances below their maximum limits and challenge erroneousinformation on your credit report.

Contact Franklin Advantage and let their seasoned professionals help you plan for your better credit.

Using your 401k to buy a home

noreply@blogger.com (Franklin Advantage) — Sat, 17 Nov 2012 00:26:00 +0000

San Pedro, CA asks:

I was told that I can use my 401k to buy a house. Should I get cash it out or get a loan? What are the penalties for cashing it out? Won’t the loan make it that much tougher to get a mortgage?

Franklin Advantage:

401k’s and 403b’s are retirement savings account through your employer. They allow you to defer income for your retirement. A 401k is offered by a business while 403b is offered by non-profits.

Money saved in your 401k or 403b can be a great place to get your down payment when you buy a home.

Most plans allow you to borrow against your own funds. The loan is usually at a lower than market rate and the payment is deducted from your payroll check making it almost invisible.

A loan secured by your 401k or 403b loan is not counted against you when you apply for your new home loan. FHA, VA, Fannie Mae and Freddie Mac do not consider the payment a liability but rather the use of your own funds for the purchase of a home.

If you would rather not borrower from your plan, there are provisions in 401k and 403b plan rules to allow you to access their savings in extreme circumstances. You have to prove you need the money for buying your home. The plan will ask for an estimated closing statement from escrow before they give you the money.

Remember, 401k and 403b plans are intended for retirement savings. So, if you want to take money out of your plan early, there are penalties and taxes in place to deter you. If you are younger than 59 ½; any money that you withdraw from your 401k or 403b is subject to income taxes and a 10% ‘early withdrawal penalty’.

There are other options available when gathering up your down-payment. Check out our webpage for more information.

Contact Franklin Advantage via eamil or call us at (800) 314-5626. Our seasoned profession loan officers are always available to answer your questions

Are VA Loans Getting More Expensive?

noreply@blogger.com (Franklin Advantage) — Sun, 11 Nov 2012 14:20:00 +0000

Camp Pendleton, CA asks:
Sir, I have heard rumors that the cost of VA loans will be increasing. I am interested in using my VA Benefit to purchase a home and have had various individuals tell me that the Funding Fee will be increasing. What is a funding fee? When will it be increasing?

Franklin Advantage:
There will be no changes to the VA Loan Guaranteed Funding Fees until September 30, 2016. During 2011 there were numerous circulars that said the fees would change in 2012 and again in 2013 – however that never happened. The fee structure currently in place, as outlined below will be in place until the end of September 2016. (See the chart below)

The VA Loan Guaranteed Funding Fee is a onetime fee that is financed with all VA loans. It is insurance to protect the tax payer for covering losses from other VA loans that don’t’ preform.
Think of the VA Funding Fee as the VA’s up-front PMI fee – because essentially a Funding Fee is the VA Loan’s form of mortgage insurance. It’s works like FHA’s UFMIP (Up-Front Mortgage Insurance Premium).

FHA loans have two forms of mortgage insurance; the UFMIP and a monthly MIP (Mortgage Insurance Premium). MIP is like conventional PMI. It is charged monthly and once your loan amount reaches a pre-determined amount and meets other requirements; drops off. VA has no monthly mortgage insurance fee.

The funding fee is WAIVED for Veteran’s who are on Disability. The amount that is waived is solely decided by the VA. If your benefits are pending, and you want to go ahead with your VA loan, effective with the bill passed by Congress in August of 2012, you will not have a Funding Fee charged, if you have already been “screened” as fully disabled. If your “disability” is not fully determined during screening, it can be REFUNDED back at the point you do get that paperwork. In that situation, it will cause your loan amount to be paid down by the VA.

For example; if the loan amount is $300,000 and the funding fee is $6,450, the “total” loan will be $306,450. The $6,450 funding fee is financed with your loan. Once your disability benefits are approved by the VA, all or a portion of the $6,450 funding fee will be removed from the amount you owe. The portion depends on “how much” disability the VA shows – are you 10% disabled? 40%? 100%?

If you’ve already made it through the process and are receiving disability compensation from the VA, we can include the compensation as income.

For more information on VA loans, Please contact Franklin Advantage. Our seasoned professionals are always available to answer your VA home loan.

Old Student Loan Debt Haunts Home Loan Financing

noreply@blogger.com (Franklin Advantage) — Sat, 13 Oct 2012 03:07:00 +0000

Fullerton, CA asks:
I have an old student loan that (I’m hoping) is long, long forgotten. I was told by a real estate agent that this might haunt me. Is this true? How will they find out?

Franklin Advantage:
FHA and VA will not guarantee your home loan for the lender if you are currently delinquent on a federal debt. They will guarantee your home loan if you are in an agreed upon repayment plan.

Lenders check for delinquent federal debt by checking the borrower's credit report, public records and HUD's Credit Alert Interactive Voice Response System (CAIVRS).

CAIVRS was developed by the Department of Housing and Urban Development in June 1987 as a shared database of defaulted Federal debtors, and enables processors of applications for Federal credit benefit to identify individuals who are in default or have had claims paid on direct or guaranteed Federal loans, or are delinquent or other debts owed to Federal agencies.

CAIVRS has delinquent borrower records from the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the Department of Education (DOE), the Department of Agriculture (USDA), the Small Business Administration (SBA), the Federal Deposit Insurance Corporation (FDIC), and the Department of Justice (DOJ).

Lenders also check with the IRS. The IRS does not report to CAIVRS and an IRS debt may not show up on a credit report.

If you owe money on an old student loan, to the IRS or any federal agency; call them. Believe me, they will be happy to talk to you and schedule a repayment plan. Once the plan is in place and we can verify you have made payments for 3 months, FHA and the VA will guarantee your home loan.

Contact Franklin Advantage to get pre-approved. Our seasoned professional can help you prepare for your new home purchase.

Should I Refinance?

noreply@blogger.com (Franklin Advantage) — Fri, 14 Sep 2012 22:00:00 +0000

San Clemente, CA asks:

I keep hearing that Mortgage interest rates are at historic lows. I'm wondering if it makes sense to refinance my home? How much lower does the new rate need to be to make it a wise choice?

Franklin Advantage:

You often hear that the new loans interest rate should at least 1% lower than your current rate for a refinance. But this does not always hold true. For example, if you're home loan is greater than $250,000; a 1/2% could save you over ten thousand dollars.

Whether you should refinance or not depends on your situation and your reasons. There are three primary reasons to refinance your mortgage.

* Lower your payments by borrowing at a lower interest rate

* Convert your adjustable rate mortgage to a fixed rate home loan

* Access the equity in your home to consolidate other debt at a lower interest rate

Lower your payments

Since there may be costs associated with refinancing a mortgage, the decision to refinance should be considered taking those costs into consideration. Essentially, you are paying money today, to save more money later.

For example, assume that refinancing reduces your monthly payments by $60 per month. If you have 25 years remaining on your mortgage, you will save $18,000 in payments over the life to the loan. If you paid $2,000 in closing costs to refinance, you saved really $16,000 over the next 25 years.

Here is something else to consider. In the simple example above, you save $16,000 over the next 25 years, but you had to pay $2,000 up front to do that. At $60 a month in savings it will take 33 1/3 months to break even on your initial $2,000 closing costs investment. This means that if you refinance or payoff you new loan in less than 33 1/3 months; you lost money.

Convert your adjustable to fixed

Many homeowners with adjustable rate mortgages find them difficult to part with. Even with todays historically low interest rates, most variable rate loan interest rates are below current the fixed rates. This means that a refinance may not lower your payment.

Of course, the new payment you get with a fixed rate loan today may be higher than your current adjustable payment but will it be lower next year? No one expects rates to stay this low forever. Paying a little more now will save you a bundle in the future.

Access the equity in your home

Mortgage interest is not only among the lowest rates available to consumers; in most cases it is also tax deductible (please check with a tax professional). The consolidation of debt at higher interest rates can save you thousands of dollars.

Currently. the fair market value of your home may be one of the biggest stumbling blocks to a cash out refinance. Although home values have started appreciating again this year (The National Association of Realtors feel that the bottom occurred sometime in late 2011), you should work with your Loan Officer to check the recent sales in your area before paying for an appraisal.

Today's mortgage process

The mortgage financing industry has changed dramatically since the mortgage crisis of 2008. Much more documentation is required and it is much more invasive. It’s not easy for anyone to get a mortgage in today’s market. But the aggravation will be worth it.

Contact Franklin Advantage and our seasoned Loan Officers will take the time to analyze your situation and offer you options.

California Proposition 13 Trumped?

noreply@blogger.com (Franklin Advantage) — Thu, 23 Aug 2012 04:09:00 +0000

Laguna Beach, CA asks:
My property taxes went up dramatically. I thought in California my Property tax increases were limited by Proposition 13. Why did they go up so much this year?

Franklin Advantage:

Home values have improved in California. The median home price in July 2012 was 12.7% higher than it was in July 2011. As the market improves, many Californians will see an increase in property taxes.

Proposition 13, the 1978 landmark voter initiative limits property tax increases to no more than 2% per year. But some homeowners have been surprised to see greater increases. The reason is the other not-quite-so-landmark 1978 initiative, Proposition 8.

Proposition 8 (not to be confused with the 2008 anti-gay marriage proposition) was a companion ballot measure that allowed the assessor a to temporarily reduce property assessments when values go down. It also allows increases of greater than 2% when values go back up as long as the assessed value does not exceed what the assessed value would have been with Proposition 13 limitations.

The increase in home values in California had made refinancing accessible to many more Californian homeowners. And just in time! With interest rates at historic lows; there is no better time to contact Franklin Advantage.

Why tax returns are needed for loan pre-approval

noreply@blogger.com (Franklin Advantage) — Fri, 06 Jul 2012 19:33:00 +0000

Dana Point, CA asks:
Why does a Loan Officer need to see tax returns for a pre-approval? Why aren’t my paycheck stubs and W-2’s sufficient?

Franklin Advantage:
The reason we ask for the last two year tax returns is to avoid surprises. Tax return transcripts are requested by all investors prior to allowing a loan to close. If the transcripts reflect an expense I have not accounted for in the submission of the application, the application may be denied. Denied at the 11th hour!

Many people have job related expenses that their employer does not reimburse them for. The IRS allows you to deduct these “un-reimbursed employee expenses” on your tax returns. Teachers deduct school supplies, nurses deduct licensing fees and IT professionals deduct their laptops. These deductions are claimed on IRS form 2106.

FHA, VA, Fannie Mae and Freddie Mac all subtract this expense from your income calculation. A teacher who claims $6,000 a year in unreimbursed employee expenses will lose $500 a month for loan qualifying. That’s about $40,000 less house.

Another potential underwriting problem is a hobby business. Claiming business losses as you buy and sell beanie babies or play DJ at weddings will hurt your ability to qualify. Any losses that are reflected on your tax returns will be subtracted from your other income.

Contact Franklin Advantage for a full pre-approval. Our professional, seasoned loan officers are always available to answer your questions.

How do Mortgage Impounds work?

noreply@blogger.com (Franklin Advantage) — Thu, 14 Jun 2012 19:10:00 +0000

Diamond Bar, CA Asks:
Do all loans require taxes and insurance be included in the payment? How does this work? What does it cost to set them up?

Franklin Advantage:
When a mortgage loan is impounded it means that the taxes and insurance will be collected as part of your monthly payment.

All FHA and VA loans require that taxes and insurance be impounded. Most conventional loans (Fannie Mae and Freddie Mac) require impounds on loans over 80% of the sales price or appraisaed value. In California, conventional loans can only require impounds if the loan is 90% or greater than the sales price or appraisaed value

The amount the mortgage servicer collects every month depends on the amount needed to pay your taxes (and/or insurance) annually.

For example: if your property taxes are $1,200 a year, your payment will include an additional $100 tacked on for the taxes (annual taxes / 12 months). As the year progresses the mortgage servicer collects the additional $100 monthly and as the taxes become due; they pay them on your behalf with the money they’ve collected.

California property taxes are payable in two half installments with the first due November 1st and the second due February 1st. If the first payment of your new home loan is October 1st, the lender will collect 8 months of taxes at the close of your loan.

Sounds like a lot but here’s why:
• With the close the mortgage servicer has 8 months taxes
• With the October payment the mortgage servicer will have 9 months tax payments
• In November the servicer pays the first half property taxes
• And with the November payment the mortgage servicer now has 4 months taxes
• With the December payment the mortgage servicer will have 5 months tax payments
• With the January payment the mortgage servicer will have 6 months tax payments
• In February the servicer pays the second half property taxes
• And with the February payment the mortgage servicer now has 1 month taxes to start again

Having your taxes and insurance included in your monthly payment makes budgeting easier. And, as required by law, the mortgage servicer pays interest to you for the money they hold on your behalf.

If you have any questions about a home loan, contact Franklin Advantage. Our seasoned professionals are available to answer your questions.

Visit us at www.thefranklinadvatage.com.

Are Loan Costs Tax Deductible?

noreply@blogger.com (Franklin Advantage) — Thu, 31 May 2012 01:57:00 +0000

Yorba Linda, CA Asks:

Are the loan costs when I buy my home a tax deduction?

I’m buying a home and have been told that the points I pay are deductible. Are they? What about the appraisal or the credit report? Are they deductible?

Franklin Advantage Says:

The IRS does not allow you to deduct most fees when buying a home with the exception of property taxes and “points”.

A “point” is a loan fee equal to 1% of the loan amount. Lenders offer loans with “points” to buy down the rate. For example: 1 point may get you an interest rate that is .25% lower than a loan without a “point”. On a $300,000 loan this will cost you $3,000 and save you about $41 in your monthly payment.

IRS Publication 530 says you can deduct the full amount of points the year you bought your home if you meet all the following tests:

1. The points are on the home you live in: not an investment property or a home you plan to rent.

2. Points are a normal fee charged in the market and you are not paying more that is usually charged

3. The points were not paid in place of fees normally charged, such as appraisal fees, inspection fees, title fees, escrow fees, etc.

4. The amount a cash you applied toward the purchase of your home including the initial deposit, down payment, appraisal, and any other fees, must be at least as much as the points you are writing off.

Now here is the tricky part: the seller can pay the points and you can still write them off as long as you meet the four tests above.

Remember, this applies to purchasing a home you are going to live in: not a refinance. The IRS has a whole separate set of rules for writing off points on a refinance loan.

Contact Franklin Advantage and let us give you loan options with points and without. Just because points are deductible doesn’t make them your best option.

Can a Co-Signer Help My Credit?

noreply@blogger.com (Franklin Advantage) — Fri, 11 May 2012 21:23:00 +0000

Manhattan Beach, CA Asks:
I don't have the best credit. Can my mother who has excellent credit co-sign to help me get a new home?

Franklin Advantage:
A co-signer's additional income can be used to help you qualify but a co-signers good credit won't make up for bad credit.

The credit scores of all borrowers are considered when underwriting a loan application. Underwriting guidelines for conventional and FHA mortgages use the lowest borrowers middle score (middle score of the three major credit agencies: TransUnion, Equifax and Experian).

Improving your credit score may not be as daunting as you suspect. I've seen many buyers improve their credit scores in as little as 30 days following a few simple steps.

What happens when our house does not appraise?

noreply@blogger.com (Franklin Advantage) — Sun, 22 Apr 2012 00:09:00 +0000

Garden Grove asks:
We are in escrow to buy a home. My father-in-law says we are paying too much for the home.

What happens when the house I'm buying does not appraise for the sales price?

Franklin Advantage:
Three things can happen when the home you are in escrow to buy does not appraise.

A.) You, the buyer can choose to bring in the difference between the sales price and the appraised value in addition to your down payment.

The bank will not lend more than the sales price and underwriting guidelines require that the down payment be based on the lower of the sales price or appriased value.

B.) The seller can lower their price to meet the appraised value.

FHA and VA appraisals follow the property for 6 months. Even if the buyer and seller decide not to proceed with the sale, the next buyer will be limited by the appraised value if the next buyer also chooses to use FHA or VA as a financing vehicle.

C.) You, the buyer and the seller can aggree to meet somewhere in the middle.

This is the most common solution. The seller agrees to a lower price a little and you, the buyer agree to come in with a little more money.

Read more about the home buying process at the Franklin Advantage web page.

Can a co-signer help me buy a home?

noreply@blogger.com (Franklin Advantage) — Wed, 04 Apr 2012 22:04:00 +0000

Huntington Beach Asks:

I am looking to buy a home here in Huntington Beach, California. I know I can afford a much larger payment but the bank says I can’t. Can a co-signer help me buy a home?

Franklin Advantage:

A co-signer can help you buy a home if you plan to buy your home using FHA or Freddie Mac financing.

FHA allows someone to co-sign for you even when they don’t plan on living in the home with you. With an FHA loan, the co-signers income and debts (including their monthly housing expenses since they won’t be living with you) can be combined with your income and debts to help you qualify for more house.

Freddie Mac, like FHA will allow someone to co-sign for you even they don't plan on living in the home with you. Freddie requires a minimum down payment of 10% of the sales price (FHA only requires a 3 1/2% down payment) and has stricter debt to income ratios than FHA.

Fannie Mae allows co-signers as well but you, the occupying borrower would have to qualify without them. This approach means that the only benefit of having a co-signer with Fannie is that the co-signer can help you with the down payment.

A co-signer is great for first time homebuyers. With FHA financing, the co-signer will help the buyer get qualified for more house when the some of the buyers income is not being considered. For example: the addition of the co-signers income can help you when you plan on having a roommate, you have not been receiving commissions or bonuses for two years, or you have not been receiving overtime for two years.

A co-signer can help if you have no credit. Many investors are uncomfortable lending to buyers with no credit history. The addition of a co-signer with a good credit history allows the buyers lower FHA rates and fees.

The one thing a co-signer cannot help you with is poor credit. No matter how good a co-signers credit is; it does not make up for the other buyers poor credit. Also, a co-signer with poor credit will be a hindrance.

http://www.thefranklinadvantage.com/

Does taking a year off stop me from getting a loan?

noreply@blogger.com (Franklin Advantage) — Wed, 28 Mar 2012 00:55:00 +0000

Anaheim asks:

I've only been on my job for a year. The year before I was out of the country on a mission and before that I was self-employed. I have money for a down payment but i was told that because I took that year off, I can't get a loan. Is this true?

Franklin Advantage:

FHA and VA underwriting guidelines require evidence of stable employment which can usually be demonstrated by a two year history. A concurrent two year history is not a hard and fast rule.

If your current job is stable and you have a two year history of employment when you include your employment prior to your year long mission, you meet guidelines.

Am I considered a "First Time Home Buyer"?

noreply@blogger.com (Franklin Advantage) — Thu, 15 Mar 2012 00:20:00 +0000

Costa Mesa asks:
I owned a house four years ago but when I got divorced I was forced to sell it. Can I qualify for a "First Time Home Buyer" loan?

Franklin Advantage:
Most "First Time Home Buyer" programs only require that you have not owned a home in the last three years.

There are a lot of different requirements that also need to be met to qualify for any loan. Underwriters look at your credit worthiness, your income stability and your debt to income ratio. "First Time Home Buyer" program guidelines are a little tougher on these than other programs in the interest of protecting the novice buyer.

Find out more about First Time Home Buyuer programs in your area.

School district pays his student loans

noreply@blogger.com (Franklin Advantage) — Thu, 09 Feb 2012 22:30:00 +0000

Covina asks:
I've been a teacher for five years. My contract with the school district includes their payment of my student loans.

How will the bank approach this?

Will they still count these loan payments against me even though I do not make the payments?

Franklin Advantage:
The bank will still consider these loans payments against you because the school district is not a co-signer on the loans.

An umderwriter will be hesitant to not consider these debts against your future ability to pay with school districts across the country cutting back. Even though the district has paid and is paying this debt, only you are responsible for the payments. Your contract with the district next year may not be as generous.

Consider having the school district reimburse you for your student loans in the future. The additional income will help you qualify for more house.

Franklin Advantage offer more information on buying a home

Will deferred student loans hurt my chances to get a home loan?

noreply@blogger.com (Franklin Advantage) — Fri, 20 Jan 2012 21:31:00 +0000

Norwalk CA asks:

I want to buy a house but I'm being told that my students loans will hurt my ability to get a home loan.

The funny thing is that my student loan payments don't start for 1 1/2 years. I don't have payments. How can payments I don't have stop me from getting a home loan?

Will my deferred student loans hurt my chances to get a home loan?

Franklin Advantage:

Deferred Stundent loans do not hurt your ability to get a home loan as long as:

A.) You are applying for a FHA or VA loan

B.) There will be at least 12 months (1 year) deferment of payments at the time of close.

Conventional financing (Fannie Mae and Freddie Mac loans) will count a student loan payment in your debt to income ratios regardless of it's deferment status. If no payment is yet established, 5% of the balance will be used as a surrogate payment in qualifying.

FHA and VA financing will not calculate student loan payments against a borrower if there is at least 12 months deferment at the close of your escrow. This will need to be documented with a letter from your student loan creditors.

Contact or call Franklin Advantage at (800) 314-5626. Our seasoned professional Loan Officers are always available to answer your questions.

When is a conventional loan better than a FHA loan?

noreply@blogger.com (Franklin Advantage) — Wed, 28 Dec 2011 20:45:00 +0000

Lakewood CA said:
We want to buy a home that may appraise for less with a FHA loan than the asking price.

With very good credit would it be wise to go with a Conventional loan, or just keep looking?

We like this house very much, but aren’t in a situation to pay cash for the difference of the asking price and what may be an appraisal that comes in less than the the seller is asking for. Anybody have a clue (I don’t).

Franklin Advantage:
A conventional loan is better than a FHA loan when:
   1.) You have 10% of the sales price for a down payment
Mortgage Insurance on conventional loans over 90% of the sales price/appraised value is almost or as high as Mortgage Insurance on an FHA loan.
   2.) You have a credit score of 700 or greater
Rates on conventional 30 year fixed rate loans have been higher than comparable rates on FHA loans for some time now. With the addition to rates and fees for credit scores below 700; FHA loans price out better for the borrower when the loan is over 90% of the sales price.
   3.) You can qualify for a conventional loan.
Conventional (and Mortgage Insurance) underwriting is much more stringent than FHA underwriting.

Regarding the appraisal:

Conventional loans require appraisals just like FHA loans. Appraisers have access to the same comparable sales for both conventional and FHA appraisals. A conventional appraisal and FHA appraisal done on the same house on the same day should appraise for the same value.

FHA appraisals are harder on the property by requiring all health and safety issues be addressed to meet minimum HUD standards but this does not affect the value; only the condition of the property when transferred.

I understand you really like THIS house but i’m sure the seller really wants to sell this house as well. If the appraisal comes in low; have your real estate agent talk to the seller’s agent or the seller. The seller may be able to accommodate you by adjusting the sales price down or offering to pay your loan costs thereby freeing up your funds to meet their higher sales price.

Also, if the value comes in low make sure your real estate agent makes the seller aware that an FHA appraisal “goes with the house” for six months. Any other FHA buyer who comes in after you, they will be obligated to use this appraisal.

http://www.f-advantage.com/fha.php

Why do FHA loans have less foreclosures than other loans?

noreply@blogger.com (Franklin Advantage) — Fri, 25 Nov 2011 21:07:00 +0000

Long Beach CA said:

Why do FHA loans have less foreclosures than other loans?

I though FHA loans are more risky.

Franklin Advantage:

There are several reasons that FHA (and VA) loans have lower default rates than conventional loans.

1.) FHA and VA loans have always required the borrower(s) to fully document their income. Fannie Mae, Freddie Mac Alt A, and Sub Prime loans have accepted alternate and no income verification loans.

This policy has lead to a disproportionate ratio of self-employed and commissioned borrowers with Fannie Mae, Freddie Mac and other home financing vehicles. When the economy slows down (or stops dead in its tracks), the self-employed and commission borrowers see greater volatility in their income.

2.) FHA and VA loans (VA loans have an even lower default rate even though VA loans require no down-payment) are assumable. This allows borrowers who are in trouble to find a buyer for their home with little costs. FHA loans do require the new buyer to qualify for the loan but their flexible underwriting guidelines do not make this difficult.

3.) FHA and VA variable rate loans are more conservative.

a. FHA and VA variable rate loans have never offered deferred interest like Alt A and Sub Prime loans.

b. FHA and VA variable rate loans have an annual interest rate adjustment cap of 1% where Fannie and Freddie have a 2% cap.

c. FHA and VA hybrid loans (loans that are fixed for the initial 3, 5, or 7 years then become variable rate loans) have a 1% adjustment cap after the initial fixed period where Fannie and Freddie had 5% caps and Alt A and Sub Prime loans had caps as high as 7%.

4.) FHA and VA loan limits were lower than Fannie Mae and Freddie Mac. The lower loan limits made FHA and VA loans less desirable during the height of the housing bubble.

There are several additional reasons but the 1st and 4th reasons offered above are probably the main reasons for FHA and VA's current health.

http://www.f-advantage.com/fha.php

http://www.f-advantage.com/va.php