St. Louis Mortgage Help

Are you about to start the home buying process? Are you currently in the process and you feel overwhelmed with the process of home buying? You’re not alone. Homebuyer surveys find that more people today want to buy a home, but challenges such as saving for a down payment and student loans are keeping them sidelined.

We know the vast majority of buyers (92 percent) use online search at some point in their home buying process. Maybe that’s how you found me at www.bobrutledge.com!

But, before you start picking out your dream house online, take a minute to make sure you grasp these 7 key facts about homeownership.

1. Go back to school (for a day). We know you probably just Goggled “how to buy a home,” but did you know there are homeownership education courses that can really help you prepare? Homebuyer counseling is occasionally required when using a down payment assistance program, but any buyer can benefit. You’ll learn about the home buying process, improving your credit, mortgage terms, planning a budget and more. Plus, a new study finds that by simply participating in these in person or online courses, you’ll reduce your risk of foreclosure by 42 percent.

2. Get an agent. If you aren’t yet a homebuyer, there’s no reason not to have a real estate agent. Your agent’s commission will come from the home you purchase, not your pocketbook. Everybody wins! Even if you don’t think you’ll need help with lots of showings, a real estate agent will help you navigate contracts between you and the seller and set up important things like the home inspection. As a new buyer, you’ll benefit from the expert help.

3. Find the right lender. (PICK ME) Your mortgage lender will help you secure your home financing—and, there are many types of banks and lenders who can help. Unfortunately, according to the Consumer Financial Protection Bureau (CFPB), nearly half of homebuyers don’t shop around for a mortgage lender. Like you, your finances and home buying goals are unique. So, it makes sense to shop around and interview your lender for the job. Find a lender that can work within your parameters and not their own, too many lenders will make YOU

4. Your credit score matters. The type of loan you get, including interest rates and points paid, is primarily determined by your credit score. The better your credit score, the more affordable loan you can get, often with more options for a low down payment. For low down payment loans, your MIDDLE credit score needs to be a minimum of 620. Review your credit report, make adjustments and get prepared so you can enjoy the lowest interest rate possible and save cash over the life of your loan.

5. You don’t need 20 percent down. You may have heard or read that you need 20 percent down. It’s not necessarily a bad thing, but that’s just not the case. And, if using a low down payment can get you in a home now (instead of 3 years from now), you’ll enjoy low rates and get out of a rising rent situation. Low down payment options have been around for a long time. In fact, data shows that low down payment loans with sound underwriting (loan is fully documented, income verified) are just as successful as loan with large down payments.

6. Down payment programs offer savings. Did you know the average down payment assistance benefit is more than $8,000? Many homebuyers don’t know about homeownership programs that can help them get in a home much more quickly and provide a valuable cash cushion for other home buying expenses. You could save on save on your down payment and closing costs, or even get ongoing tax credits. If you would like to see how a low down payment mortgage and down payment programs can help to get you into a new home with zero out of pocket expense follow this link to my ZERO PROGRAM.

7. Don’t forget to budget closing costs. Most buyers focus on saving for a down payment, but your closing costs can run you another 3 to 5 percent of the sales price. It’s important to factor in those costs so you are prepared for the closing table. Ask your agent about negotiating those costs with the seller. In addition, some homeownership programs can help you cover your closing costs.

2018 Guide to Qualifying for a Mortgage with IBR Student Loans

When you have student loans, qualifying for a mortgage can get tricky.

Student loan guidelines have changed yet again.  This is your ultimate guide to understanding how these changes will affect you in 2018.

Understanding IBR

When you begin to make payments on your student loans, you may have several options.

You may be making payments on your student loan based on your income.  This is called an Income Based Repayment (IBR) plan.

IBR plans typically will not cover the principal and interest due, and the loan balance may increase even though you are making payments.

If your payment is based on a calculation that pays off your loan in full at the end of a loan term, this is an amortized payment.

All underwriting guidelines with all lenders will allow you to use an amortized payment when calculating your debt to income ratio.

IBR plans could also leave you with a $0.00 payment, even though your loan is in repayment status.  Your income is reviewed every year to determine your new payment over the next year.

Student Loan Payment Change History

More and more students are straddled with student loan debt for years after leaving school.

Being chained to student loan debt requires an experienced locksmith to unlock the correct guidelines to get you approved for a home loan.

It’s almost a full time job keeping up with the updates to the underwriting guidelines, and IBR payments seem to send many loan officers into a tail spin of misinformation.

Student Loan Guideline Changes Since 2015

• 2 times for Fannie Mae Conventional Loans

• 2 times for Freddie Mac Conventional Loans

• 1 time for FHA Insured Loans

• 2 times for VA Guaranteed Loans

• 1 time for USDA Guaranteed Loans

  The first major change to the underwriting guidelines happened when lenders were no longer allowed to ignore deferred payments or loans in forbearance.

  The second major change was that you had to apply a payment to any student loan balance.  If the payment reporting on your credit report will not pay off the loan at the end of a fixed term, your payments are not amortized.

  Non-amortized payments became public enemy #1 by Fannie Mae, FHA, and USDA.  In 2015, Freddie Mac guidelines did not allow for deferred payments or loans in forbearance, and would allow IBR payments, even if the reported payment is $0.00.

  Calculating Your Debt to Income Ratio (DTI)

  The entire student loan debacle is being caused by confusion around how your debt to income ratios are calculated.

  Your debt to income ratio is calculated as your proposed housing payment (when buying a home) plus your monthly liabilities from your credit report, as a percentage of your gross income.

  When using a Fannie Mae or Freddie Mac Conventional loan, the total housing payment plus monthly liabilities cannot exceed 50% of your gross income, or a 50% DTI.

  Borrowers using a FHA mortgage have 2 DTI ratios.  A front-end debt to income ratio is your housing payment as a percentage of your income.  A back-end debt to income ratio includes your monthly liabilities from your credit report.

  FHA will allow your housing payment to be as high as 46.99% front-end DTI, and a maximum 56.99% back-end DTI including your debts.

  Student loans become confusing when no payment is reported on your credit report, or when your payment is an Income Based Repayment (IBR) payment.

  2018 Student Loan Guidelines Snapshot

  Fannie Mae Conventional

• Non-amortized Payment – IBR Ok, even with $0.00 payment – Updated April, 2017

• Amortized Payment – Ok with all lenders

• Deferred or forbearance use 1% of loan balance.

  Freddie Mac Conventional

• Non-amortized Payment – Must use .5% of loan balance – Updated February, 2018

• Amortized Payment – Ok with all lenders

• Deferred or forbearance use 1% of loan balance.

  FHA Government Insured

• Non-amortized Payment – Not Allowed | Must use 1% of loan balance

• Amortized Payment – Ok with all lenders

• Deferred or forbearance use 1% of loan balance.

  VA Guaranteed Loan

• Non-amortized Payment – Not Allowed | Must use 5% of loan balance divided by 12

• Amortized Payment – Ok with all lenders

• Deferred or forbearance use 1% of loan balance.

  USDA Guaranteed Loan

• Non-amortized Payment -Not Allowed | Must use 1% of loan balance

• Amortized Payment – Ok with all lenders

• Deferred or forbearance use 1% of loan balance.

  Freddie and Fannie Swap Guidelines

  Interestingly enough, Fannie Mae and Freddie Mac have since swapped positions on IBR payments as of the most recent update by Freddie Mac in February 2018.

  Freddie Mac no longer allows for IBR payments, while Fannie Mae does since April 2017.  Fannie Mae will even allow an IBR payment with a $0.00 payment.

  If you have an IBR payment that is equal to less than .5% of the balance of your student loan, Fannie Mae is your option for being able to use the payment as reported on your credit report.

  Creative Solutions to Solve Student Loan Problems

  If you are trying to buy a home, and the pieces just aren’t fitting together, here are some creative solutions that past clients have successfully done.

  Payments Deferred or Loan in Forbearance

  If you have loans with deferred payments, or if your loan is in forbearance, we have had homebuyers go into an income based repayment plan, and qualify using a Fannie Mae Conventional

  Parents Co-Sign and Pay Student Loan Payment

  Fannie Mae recently updated their “Contingent liability” guideline to allow student loan payments to be ignored, if you can show that a co-signer has made the payments for the past 12 months.

  Debt to Income Ratio too High for Conventional

  This home buyer is consolidating over a dozen loans into a 30 year amortized payment.  We needed an amortized payment to take advantage of more flexible DTI requirements over Conventional.

  Payment Not Showing Up on Credit Report

  If you loan is in repayment, your lender can get a credit supplement (if needed) from the credit bureau by providing them with a copy of your statement from your student loan lender.

  Have Less than 5% Down Payment and IBR Payment

  It is a common misunderstanding that FHA offers the lowest down payment.  VA & USDA offer 100% financing, but additional qualifying is required.

  Both Fannie Mae and Freddie Mac have programs that allow for as little as a 3% down payment.  Eligibility can be determined by income limits, or the area you are buying in.

  There are no income limits for homes being purchased in “targeted” low to moderate income.  These special programs also include discounted mortgage insurance and discounted closing costs.

  Why Lenders Get it Wrong

  If you’re calling from a TV, radio, or internet advertisement, you are most likely being connected to a call center, where the “Loan Officer” has little to no actual mortgage experience. You can look up the experience of your Loan Officer at http://nmlsconsumeraccess.org/ and see when they got their mortgage license and what they were doing before they became a mortgage loan officer. (YOU WILL BE SURPRISED!)

  I call these “big box” lenders.  These lenders are amazing at processing a certain type of loan file that does not require anything too far outside the box. They only want and really can only do the vanilla stuff.

  If you are working through a big box lender, here is what is really happening, your application is not getting in front of a professional until it reaches the underwriter.

  Many times, your file is not in front of the underwriter until after you’ve already accepted your purchase offer and paid for the appraisal.

  Hopefully, there’s enough time, and the underwriter is experienced enough to look up the guidelines, and can figure out how to save your new home by getting you approved for the right loan.

  I wouldn’t believe this happens as much as it does if I didn’t see it professional so often!  So many of these horror stories we hear could have been avoided if a professional loan officer was used, and not a call center lender.

  Work with an Expert

  

   

Pros and Cons of a Low Down Payment

When it comes to a down payment on your home, are you aiming high or low? The down payment is the number one reason most buyers wait longer than they’d like to buy a home. In fact, many sidelined buyers have the income and qualifications to make the monthly mortgage payment, but lack the down payment.

But, there’s also a misperception about 20 percent down. In a NerdWallet study, 44 percent of Americans believe you need 20 percent or more to buy a home. The reality is that about 60 percent of homebuyers financed their purchase with a 6% or less down payment, according to the National Association of REALTORS®.

But, how low is too low for your down payment?

The fact is there are no cookie cutter mortgages — your home financing will be as unique as you. FHA is known for their low down payments for first-time homebuyers, but many conventional fixed rate loans offer lower than FHA’s 3.5% down.

What about zero down? VA loans for armed service members and qualified veterans provide a great value, including no down payment, relaxed credit requirements and no mortgage insurance. (Plus, down payment programs may help with closing costs and even an equity boost.)

In certain areas there is the USDA Mortgage that also provides a zero down payment option, low interest rates, relaxed credit guidelines, but with income restrictions depending on where and number of people to live in the new home.

Some lenders offer grants to buyers to overcome the down payment hurdle. But, according to guidelines from Fannie Mae and Freddie Mac, lenders can make contributions to a borrower’s down payment or closing costs only after the borrower has contributed a minimum 3% down payment.

“To meet that 3% threshold, the borrower can still come with funds from a relative, a government agency — such as grants from a housing finance agency — or from an employer housing program. That has not changed,” says Lisa Tibbitts, a spokeswoman for Freddie Mac.

Let’s take a look at the pros and cons of a smaller down payment.

The Pros:

You can buy a home sooner. With a lower down payment, you’re putting less down and not saving as long before you get in a home. It can help you secure a loan at today’s low rates and avoid any rent increases that may be on the horizon.

You’ll have more reserve funds on hand. When you buy a home, there are many other related costs, including home repairs and improvements. With a smaller down payment, you’ll avoid being “house poor” as soon as you leave the closing table and can enjoy using some of your hard earned dollars to make the home your own.

Down payment programs can help. Don’t overlook down payment programs as part of your home financing. These programs can help boost your down payment savings or even provide a tax credit for the life of the loan. Some programs provide affordable first mortgages with a very low down payment.

The Cons:

Your monthly payment will be larger. When you put less down, your home loan — and monthly payment — will be larger. Work with your lender to ensure you are comfortable with the monthly payment.

You may be required to pay mortgage insurance premiums. Some down payment programs may waive mortgage insurance (MI), but in most cases if your down payment is below 20 percent, you’ll be required to get MI — it helps manage risk for your lender and protect them if you fail to repay the mortgage. It’s important to note that with a conventional, fixed rate loan and borrower paid MI, you can cancel your mortgage insurance when you reach 20% equity in your home. With an FHA loan, you must continue to pay MI for the life of the loan.

Could hurt in a competitive market. Unfortunately, some sellers see smaller down payments as a negative, although it’s not necessarily true. In fact, the seller may actually earn less on the home from an all cash buyer with a lower offer. Plus, some down payment programs will fund your closing costs — something you won’t have to negotiate with the seller. Put the seller at ease by getting your financing set up early and documenting it in a letter accompanying your offer.

The bottom line? The right down payment for you depends on your situation. Weigh the overall pros and cons of a low down payment and talk with your lender, Bob Rutledge, about what is the best fit for you.

Visit www.bobrutledge.com to learn about low down payment options, VA and USDA zero down payment programs, and down payment assistance.

At the start of many mortgage application I hear my borrowers tell me that they had started the process of 'fixing' their credit BEFORE they spoke with me or any other mortgage lender. This is a mistake that has hurt so many potential home buyers. This is especially true when it comes to collections on your credit report.

Collection companies have done a great job over the years of convincing consumers that paying off collections will raise their credit scores. Many are actually surprised to learn that paying off collections will actually LOWER their credit scores.

Collections are usually reported on the credit as a “9” status or collection account. This means the account has already been "written off" and assigned to collections by the creditor. Once an account is reported this way on the credit report, the damage to the credit score is irreversible, unless that item is removed completely from the report.

If the account is paid off, the collection company reports that the account now has a $0 balance, but they do not usually delete the item off the report. The account has already become a collection, and the risk of the consumer defaulting on another account is already very high, due to that collection.

So their credit score will not go any higher if it is paid off, because paying off a collection after the fact, doesn't lower the risk of defaulting in the future.

However, the DATE OF LAST ACTIVITY is updated to the date the account was paid off. So if that account was sent to collections 3 years ago, the date of last activity is 3 years old and the impact to the credit score is not as much. But if the consumer pays off that collection today, they just update the date of last activity to today's date, many times causing the scores to go DOWN as a result.

Crazy isn't it? 

Also, if you have medical collections most mortgage programs will not require you to remedy medical collections, in essence....we ignore them. Yes, they may be hurting your credit scores, but there are usually other methods available to you to increase your scores.

Before you start doing your homework to purchase a new home please contact me or another mortgage professional. Allow us to pull your credit report for you and to discuss what is the best course of action to take, you may be surprised how easy it really is to get your credit scores higher.

You Are Not Alone

I recall the feelings that ran through me when I felt compelled to file for a Chapter 7 bankruptcy, I felt as though I was an outcast and ashamed that I could not handle my obligations. For a very long time I barely admitted it to myself much less my friends.

Now I realize that I did not have a solid handle on my finances and it took a couple small set backs to put me into the position of bankruptcy. But, when I look back I see a life lesson that was provided to me and has been instilled well into the fabric of my personal life. I will not allow this to happen ever again. It is this exact lesson that Underwriters and Mortgage Lenders are looking for from borrowers when it comes to providing a mortgage approval for a home buyer after a bankruptcy.

As a Mortgage Lender I am in a very unique position to provide both experience and knowledge in help my clients when they come to me for help in the purchase of a new home or the refinance of thier current house after a bankruptcy.

TIME AND PROOF

For the sake of brevity I will not get into all the exact rules for every mortgage program, I do at my website, please visit AFTER BANKRUPTCY here I provide what you need to get you approved.

Every mortgage program has specific time periods that you must wait after the discharge of your bankruptcy before you get started. Though most of the programs have exceptions to those wait guidelines, for instance the wait period for FHA is normally 2 years, but there is an exception called Back to Work that allows for only a 12 month wait period.

Something that many Lenders fail on is that after a Chapter 13 bankruptcy has been discharged it is possible to be approved for a FHA mortgage after only 12 months! BUT! You can actually get approved for a FHA mortgage while you are still in the repayment period of your Chapter 13! If you have made at least 12 months of on time payments and if your Trustee agrees you are eligible for a FHA mortgage!

The Underwriters will be looking for validation that you have learned from your bankruptcy. They will want to see that if you have current credit accounts that you are making your payments on time. This is important, to re-establish credit after your bankruptcy and especially with a credit card or two.

COMPENSATING FACTORS

Applying for and getting approved a mortgage application after a Chapter 7 or Chapter 13 bankruptcy requires a stronger than normal application. To strengthen your application requires COMPENSATING FACTORS. Click on the link for a long list of items that you probably already can bring to your application, here are a couple that are important.....

Housing payment shock, you should not have a large increase in what you are paying currently for housing compared to your new house payment.

12 months of on time housing payment, this is an absolute must. There are exceptions if you are living somewhere rent free.

Keep your total debt to income ratio at or below the recommended guidelines of the mortgage program.

YOUR BANKRUPTCY FIXED A PROBLEM

When I was an Underwriter we were told that a bankruptcy should be seen as the borrower recognizing that they had a problem with thier current financial situation and the method of solving that problem was bankruptcy. Now, let's see that the borrower has learned from that life lesson and they are practicing what they learned.

It takes a mortgage lender that adhers to the guidelines of the mortgage programs and don't have overlays that create roadblocks to your approval. It takes a mortgage loan officer that is willing and able to take on your special situation, don't settle!

If you have questions please feel free to visit my website, www.bobrutledge.com or contact me.