All Forum Posts by: Joseph Zanazan

Lending as a whole has evolved quite a bit over the past decade in a sense that its become a lot more consumer friendly with the guidelines and disclosure requirements that have been set forth for credit providers to adhere to. As a consumer, you're not only limited to a broker or S&L institutions that are federally regulated. Due to the financial crisis of 2008, brokers that were involved in unscrupulous lending practices and the major depository banks that over leveraged their lending powers were specifically ordered to cease or correct their lending practices. Think of the meltdown as a rough storm that came and washed away all the sins of those who malpractice and called for regulatory guidelines to be put in place which in my opinion were long overdue. The sun did rise again after the storm and what ensued was a more accountable and honest attempt at trying to restore credit lending practices as a whole. A new form of lending institution has sprouted from the ground which has promised and delivered a much cheaper and safer method of delivering residential mortgage products. CONSUMER DIRECT lending time and time again has proven to be the most competitive when it comes to turn times and pricing. Its proven to be more cost effective than dealing with a broker who normally needs to charge a fee to get a loan done, and has also proven to be way more cost effective comparably to the depository institutions we've all known to love throughout the years who usually have their attention and efforts spread over a broad range of financial services. CONSUMER DIRECT lenders are the best way for you to go because they usually don't function based off volume driven guidelines. What that means is it doesn't make a difference to your pocket whether your loan is for $200,000 or $400,000. Most consumer direct lenders charge a standardized origination fee that consists of processing and underwriting which normally should be in the range of $1200-$1800 + your standard 3rd party charges of title and escrow which again should be around $1500 for a conforming loan. Your total cost to get a 1-4 unit residential loan done shouldn't exceed $4000-$4500. 

This platform of consumer lending puts the lender in a position to make a little bit on a lot of loans as opposed to the previous practices which were making a lot on a little bit of loans. Also, consumer direct lenders are not federally regulated, they're regulated by the state. Federal jurisdiction is so broad and casts a large shade for these major banks to rest under, as opposed to state legislation which is a lot more specific and strict. The government has made it a law for all mortgage professionals that work for a consumer direct lender to be licensed by the NMLS. The NMLS has established a method of tracking and tracing  accountability of every single lending institution and the professionals that they employ. The NMLS requires bankers to apply for and complete lending & ethics courses followed by an exam that tests their knowledge of the duties they will be fulfilling. This means that as a consumer you should be able to verify and research the credibility of the professional that is assisting you with the loan process. Remember, not all bankers are created equal nor  are they all incentivized the same way, This means that some are more knowledgeable than others with certain types of loans and some will undoubtedly work harder than others. 

As opposed to focusing on which bank will "give you the best deal" or "give you the best rate", try to do some research about the individual and the institution who is assisting you. I would recommend you apply your time and energy to selecting the correct banker and bank as opposed to the one that will get you the "best loan". Most lenders have a rate match policy anyway so they don't lose potential clientele because a competitor offered an interest rate thats an 8th cheaper. Multiple inquiries as previously mentioned won't do you any favors in this type of situation either. The loan process is a very commitment driven process, meaning both parties need to always be on the same page in order to protect the success and integrity of the closing. Remember you're expecting the banker to be transparent and give you the time and energy you deserve to get the loan done, they need the same from you. If a banker isn't licensed, stay away from them. Verify their license information and make sure they have nothing derogatory about their previous practices. All this is public records for you to verify as the consumer. Here is the official NMLS link for you to do your homework. 

http://www.nmlsconsumeraccess.org

Remember, don't play the rate game. The rates are all pretty much going to be the same at the end of the day. Save your energy and time, be shrewd about it and you can't lose. Im here to answer any further questions you might have. Im always here to assist with any mortgage related topics.

Some of the aforementioned replies provide some really keen insight about what the short sale process should resemble. I think since you as the investor have reached out to the seller about purchasing the property through a short sale transaction, you're probably the one at this point thats immediately entrusted with the integrity & success of the transaction and the subsequent reality that ensues after a short sale. The advantage would be in this case that you're creating a lead and its probably not a lead that has been saturated or previously touched by other investors; you created it through your approach and analysis of the situation. The disadvantage would be that the seller might not have done enough research about the process as you probably would have liked them to do, so you're the guiding light at this point for them, holding their hand like you would your child on the first day of school.Your responsibilities at this point are two fold. 

A) Understand how to structure the file with all the necessary paper-trail & documentation so you can have a smooth and quick transaction by conducting the necessary homework on your seller and their financial scenario. This means asking the right questions to recognize if there is a deal and if its even worth taking a ride down that endless road.

B)Understanding what the circumstances/consequences of a short sale transaction really are and how this will effect your seller. As a full-fledged real estate professional, its going to be your duty to not put your pockets first and really take a look at the bigger picture at the end of the day. A short sale will undoubtedly have an impact on that sellers financial capabilities even long after the property has been short sold to you. So know them, be transparent about them, reiterate them until you're certain that this is something you both want to do.

The 2 main things you want to make sure and inform your seller about are the Credit consequences and the Tax consequences. A short sale would be much like a credit card settlement. You've proactively decided to negotiate with your debtor regarding your owed amounts and have agreed to settle pennies on the dollar to essentially wipe that debt clean. The trade line will report on your credit as a charge off or a settlement. The only difference is that short sale will impede your ability to finance a new home for 12 months to 36 months after settlement subject to certain conditions. The unpaid principle balance that the lender waives will be waived for good and you're no longer obligated to pay it back. However, keep in mind that the IRS will view this as a sort of income. You will be 1099'd for it and you will have to file that portion of the waived balance as Schedule C income. VERY VERY important stuff.

Bank of America has absorbed billions of dollars worth of Countrywide's securitized debt during the acquisition process and they have played the role of he servicer on these debts. These loans that appear to be B of A loans actually aren't money that B of A uses from their portfolio to back them. The investors on these loans, meaning the portfolio where the money came from to fund these loans is the different than the entity who plays the role of the servicer which is B of A. Its B of A's responsibility to process these short sales and provide a trackable paper trail of data supplementing the decision they make to retain or liquidate. Behaviors between lenders can change just based off of their fiscal and monetary position. There are certain common denominators that you should know about when structuring these files because whether its Chase or Bank of America, the base of your argument probably isn't going to change much. The fluidity of your file will be based on how thoroughly you have it structured. Always assume that you will have a lazy and mediocre negotiator on the other end so make sure you do the thinking for them. 

Hello Kayla. Your candidacy for a new FHA mortgage is only limited if you already have a loan that is backed by the FHA. These mortgages are available to anybody and everybody. The catch is though that you only qualify for one FHA loan at a time. Regardless if the other property that is owned by your LLC with your name on it is financed conventionally, creatively or if its paid off, you would still be eligible to qualify for an FHA loan. Not certain what the financing terms of the property under the LLC is, and quite frankly it doesn't matter. Its common practice for many to purchase with FHA or VA (if eligible of course) terms, simply because they are more favorable in small or no down payment situations and gradually build enough equity to one day refinance out of the government backed loan into a conventional. This strategy utilizes your FHA eligibility as a tool. Once you have released the FHA insurance, youre now eligible to reutilize your capabilities all over again. As a "first time homebuyer" you're more likely to use an FHA loan to get into your first home, especially since you're occupying the residence and don't have a hefty down payment like most folks. You DON'T HAVE TO be technically be purchasing your first home ever to qualify for an FHA loan. You can purchase the property with a personal FHA loan, transfer the title to your LLC, eventually refinance out of the FHA into a conventional, RINSE & REPEAT. Youre not limited in these regards.

What you can be limited by though is the amount of properties you own and your debt to income ratios. I believe FNMA & FHLMC allow up to ten financed properties under your name, then you're gonna have to get creative with your acquisitions. Remember, even if your properties are paid off, the bank that is financing you will still hit you for taxes and insurance payments which effect your overall liability ratios. As long as the numbers make sense of course, you should be able to qualify for an FHA loan time and time again.

Thank you for the clarification Tyler. Yes, that is correct. What i meant was that the new parameters that have been set forth starting June 2013 on the highly leveraged FHA loans will disregard your ratios moving forward since the mortgage insurance will be mandatory for the life of the loan.

The FHA has made six changes to its mortgage insurance premium policy in the last 6 years. Beginning in June 2013 , the FHA moved away from its LTV-based system. If I'm understanding correctly, seems like this loan was originated prior to the cutoff date so you still have the ability to drop the MIP. With these types of assumptions, an appraisal typically isn't required. That might make the deal easier to close and save your buyer the appraisal fee. The buyer might choose to obtain an unofficial appraisal independently of the lender to mitigate the risk of overpaying for the property. Remember that a loan assumption means a credit check is completed the same way any FHA loan application would. Loan assumptions can't offer more lenient credit check policies or more stringent ones. If the seller's loan was originated prior to Dec. 1, 1986, you can assume the loan using the "simple assumption" process, which means you don't have to go through a qualification process. If the loan was originated after that date, you need to qualify to assume the loan. Loans originated after Dec. 14, 1989, can be assumed only by private buyers who intend to occupy the residence. This eliminates non owner occupied investors.

To answer your questions directly:

a.) The buyer still have to pay PMI if the appraised value during sale exceeds the loan amount such that the loan amount is <= 80% equity

At that point, it wouldnt be a PMI, it would be MIP. The new appraisal would be unofficial. The regular LTV based FHA parameters would apply to the current note. The original terms of that mortgage would apply and you would be able to release the premium once the loan amount reaches the 78% threshold of the last known value of the home, not the new appraised value.

b.) If the assumed loan has PMI, is the 'option of removing PMI' ability grandfathered into the loan?

Yes it is. The original terms of that loan will remain because it was originated prior to the cutoff date.

c.) Does the start date of the PMI counter (5 year counter) still remain the loan origination date or is it now the start date of the buyer's assumption of the FHA loan?

The original terms of that loan will remain because it was originated prior to the cutoff date.

I'm licensed in the wonderful state of PA Brandon. I would be more than happy to assist you with any additional mortgage related topics. If you need help with financing or would like to simply run some numbers, i would be more than happy to go through them with you.

Escrow will only cut you an official commission check if you are a licensed agent on the deal. Either you're representing the buyer or the seller and you're making a percentage off the sale amount. The sale figures will take into consideration your cut from the deal, the proceeds to your seller will be adjusted because of this cut. Your earnings are yield/spread driven, not so much percentage driven, if that makes any sense.  

In this case though, sounds like you're conducting a wholesale flip, so you would have to be more creative with how you get paid. Your security at this point is the contract you have on lock. Essentially, you're selling the rights to the contract for the price of what that deal is worth to you. The price of what that deal is worth to you is the spread you are making for putting this deal together.

So to answer your question, no you wouldn't get paid in escrow, but yes you would have to grab the preapproval letter & contract and get it to escrow eventually to get the deal closed. You would have to have the buyer pay you for the rights to the contract. Like Bryan previously mentioned, take cash or a check from them. Put certified funds in an escrow account if you have to until the deal is closed. There are a couple ways you can go about getting paid on this type of deal. Bottom line, you secure your payment first, then you proceed as necessary.

Is the property currently paid off or does it have a loan? If there is a loan on the property and are they current or behind? Who is the lender? 

The answers to these questions will determine your capability and will ultimately decide what kind of offers you can and should be entertaining. Your ability to go with financing over cash, or vice verca, will be contingent upon what the current note/mortgage situation looks like on this property.

If there is no loan, as it was already previously mentioned, it makes no difference to your seller how and from where the funds are wired once the transaction has been closed. You at that point qualify the buyer to the best of your ability, like you would any other. Remember, if they're getting financed, they're already going to have to jump through their own hoops with the lender that's lending them this money. As long as you have a preapproval letter from a reputable institution, your role wont be so much as the qualifier as it would be the selector of the buyer with the most suitable offer and the best likelyhood of closing. If the property is free and clear, the new lender has no problem encumbering the title with their first deed position. You should be able to entertain financed offers. Make sure the contract the property is under has the necessary verbiage to protect your ability to assign. If the contract between the seller and you is the only contract on record, then the two of you are free to draw up any terms you would like.

If there is a loan on this property, the only way the decision to sell at a determined price will be in your seller's hands is if the proceeds from the sale cover the loan amount. Now all of a sudden the contract you have with the seller isn't the only contract on record. The legal title held by the bank allows them to have a say so regarding terms and conditions of the sale. There are standard due on sale clauses to worry about if you're doing a sub2, otherwise if there is equity, the new lender will payoff the previous lender and you should be good.

What have your previous transactions with him looked like? Have they been regular principal to principal sales? How comfortable would you say you are with him as a partner or colleague?

The reason why is I ask is because there are a couple ways you can go about this. What you have on your hands is a perfect premise to execute a traditional wholesale transaction. You found a deal, and now you need to find the appropriate buyer that is willing to pay you more than what you paid or have it locked in for. Remember the name of the game is to always try and get the property under contract. On the sales where there is equity involved, you're going to have to interact with the seller yourself. On the ones that are upside down, more often then not your communication will be with the lender that is carrying the note. The approaches you will have with each type of transaction once you've done enough of each will probably be very unique compared to one another. Once you have the basic formula down, its easy to rely on your instincts and sniff out the type transaction that is probably going to take place. Banks create guidelines and overlays that help interpret these types of transactions that come through their pipeline in hundreds of thousands. Not allowing an assignment is their method of informing you that they're not investor friendly. Just like everything else when it comes to Real Estate and Financing, the rewarded are usually the creative ones. These overlays probably won't stop you from getting the deal done anyway. Just keep in mind that the short sale negotiator that works for the bank, has a pay structure that is completely detached from the profit & loss metrics. The negotiator doesnt get paid more or less if they save or squander an extra dollar. Their objection like yours is to get the deal closed because that unit he or she is receiving credit for is getting them one step closer to their coveted bonus. Understanding that mentality from the get go, will give you a great prospective on how to approach these short sale deals. As a shortsale negotiator I've probably interacted with well over 300 different listing/negotiating agents and attorneys and their offers'. Ive seen some pretty creative stuff that wasn't illegal and ended up closing legitimately anyway because of the creativity.

So the objective is to protect yourself because obviously your earnings are on the line. If you're just a buyer at this point your options and role in this transaction would be completely different than if you were the licensed agent. You can't earn anything for a service you provided because that service hasn't been sponsored or insured. Unfortunately a regulatory body doesn't exist that has licensed you and is willing enforce any regulations for or against those unaccountable earnings. You're part of the buyers group at this point and technically you're both one entity. Hopefully the listing agent on this short sale has a firm grasp on things and is in open communication with the lender because your money depends on the relationship with the bank's representative.

Lets look at what you can and can't do at this point because it seems like you aren't licensed and its important to understand how you fit into all this. It does really at the end of the day boil down to how close you and this investor really are, and how great of a relationship you have with the listing agent. So suppose you're the buyer, which is what it sound like, and the negotiator won't let you assign this approval nor will they let you switch buyers last minute. Lets assume they are the negotiator from hell. One of the classic ways for you to overcome this "no assignment" guideline is to switch agents at closing on an LLC you created and submitted the offer with. You should always be proactive and attach the Articles of Incorporation with any LLC offers. The proactive attitude will please your negotiator because now they don't have to ask you for it. The AOI is reviewed and the approval is granted based on all the documentation provided to the negotiator. At that point all you gotta do is add the investor onto the LLC as a partner. Commence to take yourself off the partnership, leaving him as the only and primary agent as well as the sole investor. The negotiator verifies, sees or has no responsibility to know anything about any of this. Not even after the deal closes. Remember, the approval letter issued by the negotiator will have the name of the LLC on it which will be the name the notary will look for when verifying identity. At docs, the notary will verify the identity of the individual signing and will make sure the name is aligned with the current articles. This way everything jives. This procedure shouldn't raise any red flags even with the most acute of negotiators because technically there isn't anything illegal about it.

The dynamic to be aware of would be if you've never dealt with this investor or buyer before, maybe this type of a transaction wouldn't exactly be the best test drive you need to really establish a business relationship. Again, only you know how much credibility this investor has established in your eyes and ultimately it is your decision. You would ultimately be paid to assign the investor as the primary agent for the LLC. How you get paid will rely on your creativity. As long as it isn't illegal, this whole thing is one big negotiation. Just know that these type of deals have risks and they require 200% cooperation from all parties because of all the multiple moving parts. Know your risks so you can make the best decision.

Think of your deductions as expenses you must pay for in order to survive except you're paying them with pretax dollars. Thus securing a larger net amount for yourself because you're doing your best to keep that figure uncompromised. That net amount you've already done your best to secure is the amount the underwriters will allow you to use to your advantage. What we try to do and can't seem to get away with is use the pretax figure because its naturally larger and works out better for us. The bank however will undoubtedly want to see exactly how many of your expenses have already been written off by reviewing your 4506 transcripts. After subtracting the portion we have already written off from our gross income, we are left with our true net amount called the "adjusted" income. The underwriter will always take the conservative approach because thats what they are there to do. Deductions all work the same way and you're absolutely correct to assume that your tax deductibility practices impact your qualification eligibility. 

Each real life scenario you just named has its own respectable tax filing category. The IRS must know what the current overall financial outlook of your earnings is. Form 1040 will give us the entire grid as a snapshot. The schedules will individually define what the profits and losses look like. The reason why usually two years of consistency is needed with these numbers is because statistically one year just doesn't seem to be provide enough stability. Things are obviously a lot more likely to change after a year than two years and it seems that extra year is what Fannie/Freddie/Ginnie require as a minimum with a likelihood of continuance.

Whether or not these guidelines will keep you from qualifying will remain to be answered once the actual application is taken, credit is pulled and income is calculated. You know the numbers, we don't. General information can be a great method education but knowing what your actual figures are and whether or not you qualify can be priceless. Im licensed in the wonderful state of Texas. I would be more than happy to run some numbers with you free of cost of course and help address any uncertainties you might have about the financing process. Cheers.

We know nothing about what your finances are so this answer is about as specific as i can get without speaking out of place. The current automated underwriting approval certificate you have is based on a certain set of LTV and DTI ratios for the SFR. It absolutely doesn't guarantee you anything thats not whatever is guaranteed on the current approval verbatim. That home is sold at a certain amount, which determines a certain financed amount, which effects your goals as a landlord/homeowner, which ultimately determines whether or not you are a high or low risk investment for the lender. You probably already know that you need to be owner occupied and actually live in the property with only 3.5% down on an SFR and the DUP alike. FHA allows duplex financing obviously with the eligibility for qualifying the rent you're collecting from the other unit as income. Just like 1-unit FHA financing, gift funds are allowed towards down payment and closing cost. Your county limit tolerance for financed amount also goes up a bit to help you find a more appropriate property with the right number. Sellers can contribute towards bona fide closing costs but not the down payment. Even the 580 FICO score minimum is identical since they are both FHA, so thats a lot of good news for you. As long as there are no additional lender overlays, you won't be experiencing much difference in the underwriting process. Now whether or not you qualify for a duplex is a question you will have to look into the numbers to determine just like you did with the SFR.

Some things to think about that will ultimately answer all your questions are the down payment you currently have, the healthy monthly threshold you can tolerate for mortgage payments, what your goals are as an owner. As far as living space goes, assuming all things are relative, SFRs will always be more comfortable since you're not sharing your space with anyone. The duplex naturally costs more so your down payment will be larger. Since your down payment is larger, the amount you are financing is substantially larger as well. Now everything is being calculated off a larger figure, that means your homeowners insurance premium, property taxes and mortgage insurance premiums (both upfront and monthly dues) are higher as well. All these adjustments collectively represent your financial liability and how inflated your liability is compared to your earnings. Its what directly effects your ratios on income and cash-flow when its all said and done.

The obvious gem in all this would be your ability to use the rental income as a monthly contribution to your finances, while the vehicle in which you reside is slowly appreciating in value. Remember, the income you're receiving every month isn't entirely eligible to be accounted for, dollar for dollar. Thats what you're receiving but that figure must be treated for any tax deductions before it can truly be considered as a credit or debit. You're now filing two sets of income (assuming you're channeling everything through your personal and not business returns). Schedule A for your primary residence, and Schedule E for your rental. After you have adjusted your true eligibility by subtracting everything you've already written off from your income, the figure left over will be either your income or your losses on this duplex. FHA has done their best to keep guidelines logical and fairly relative to one another, only touching on the certain aspects of the criteria that immediately effect the investors risk. At this point its all in the math. If the numbers allow it, then great.

Any FHA loan, 203b and 203k alike, do get fairly demanding when it comes to documentation and general paperwork, however what government loan doesn't? Whether or not you think its easy i think is ultimately a reflection of the attached goals you have and the heights you're willing to reach to obtain that goal. The 203k is the governments version of conventional construction financing that we all know so well and the only agency construction product available on the market right now. That means that whatever this loan brings to the table, it can't be matched or beat. The paperwork might be just as if not a little more lengthy than a regular 203b. Some might say its totally worth it, and some might argue that it just simply makes no sense. Figure out how willing and able you are to jump through all the hoops that a 203k loan presents after you do some research on it. I personally think it is a great tool for someone to use who knows how to utilize it properly. I would be more than happy to answer any general questions you might have about FHA financing.