All Forum Posts by: Joseph Zanazan

The simple answer to that question would be that not all lenders are created equal.It's your duty as a responsible consumer to do the necessary research on the institution and banker that's attempting to lend you credit. Remember, you will be submitting bank statements an divulging social security numbers as a part of your application, so do your best to set yourself up for success. 

When it comes to product availability and marketing efforts, the law makes it mandatory for lending institutions to be truthful in their advertisements and solicitations. Like Miriam previously mentioned, whether or not an institution offers FHA & VA financing is something you should touch on within the first 5 minutes of conversation.

The highly sophisticated financing system we have established in this country consists of primary and secondary markets. The two work hand in hand to provide capabilities for consumers to be able to obtain credit on the front end while providing a system of steady liquidation and insurance for credit providers on the back end. In 1934, the National Housing Act was our post-depression efforts to help stabilize the economy by forming the FHA. Years later the act was amended to form Fannie Mae. In the sixties there was a need to further broaden the capital base available for mortgages so FNMA was partitioned into two entities to form Fannie Mae and Ginnie Mae. Fannie Mae would cover all conventional financing, while Ginnie Mae would handle all FHA and VA financing. As the economy picked up and times started changing, we further broadened our lending capabilities in an effort to expand the secondary market by forming Freddie Mac in 1970. These institutions play the role of the investor and insure the bank that is lending credit a method of compensation as long as the loan has been underwritten correctly and closed legally regardless of whether or not the borrower defaults on it years later.

The concept of lending and the business model lenders use today has evolved quite a bit over the past few years and has created distinct institutions that offer credit to everyday consumers like you and I. At the end of the day they all offer financing solutions to borrowers seeking a mortgage, however that is where the similarities end. There are direct lenders, retail lenders, mortgage brokers, portfolio lenders, correspondent lenders, wholesale lenders and others. These different lenders are chartered under Federal and State law, which gives them their primary distinctions. Without getting into too much detail about all the different business platforms and methods of monetization utilized, the underlying factors are common in that there are multiple financial and institutional requirements that need to be fulfilled to be directly endorsed by Fannie Mae, Freddie Mac and Ginnie Mae. Fannie Mae and Freddie Mac have a list of approved lenders that are allowed to close a mortgage-backed security in the primary market and then move the asset to the secondary market where it will be sold. These lenders can originate, process, underwrite, close and deliver most loans without a pre-review just by using DU and LP protocol. Ginnie Mae, which deals with primarily FHA and VA mortgages, grants the direct right to service these debts regardless of whether or not they are the investor on the loan. To be an FHA direct lender you need to meet the following requirments:

1)Certified original audited financial statement with adjusted net worth of at least $250,000 that has been prepared within the last year.

2)A senior corporate official showing at least 3 years of experience handling FHA affairs (loan origination and servicing background)

3)Multiple credit and background checks to verify legitimacy of the heads of the institution.

4)$1 million warehouse line of credit or equivalent funding program to show liquidity and lending power.

5)Business plans, quality control plans, E&O insurance policy, sanction letters, fidelity bonds and other formalities to provide security.

As you peel the onion it makes more and more sense why some lenders offer certain services & products and why others simply don't qualify to do so. Why some lenders are staffed correctly enough to be able to deliver these loans with the most minimal cost and why others charge an arm and a leg because they simply dont do enough of these types of loans. Why some charge a standardized fee and others charge "points". One inquiry on your credit report wont make or break you as long as you don't have excessive inquiries that will compromise your FICO score. I'm licensed in the wonderful state of MA and i would be more than happy to run some numbers with you and help further clarify any uncertainties you might have. Cheers

 The real answer to that question is that the banks will do whatever they deem fit as far as portfolio allocation in order to remain as profitable and compliant as possible. The rhyme or reason might seem ambiguous, but the more short sale transactions you close, the more you get inside the head of the bank. If you can land a job as a processor or negotiator you really can get a glimpse inside the strategy of the bank. As previously mentioned, Chase bank plays the role of the servicer for many investors and services many different types of portfolios. During my almost 2 year span with Chase, i was the active negotiator on well over 300 short sale transactions. If you understand how the back end functions, you will approach your submission way differently.

 The relationship between the listing agent to the seller is kind of like the relationship between the negotiator to bank. The reason why there are two agents is because title is split between equitable title(borrower) and legal title(bank). A good negotiator will do their job, be diligent with the file and not lay down to an agent who wants to be aggressive. On the same token, a negotiator and the department as a whole is incentivized on how many files they close. So by default it is in their best interest to be as cooperative and "on the ball" as possible. Remember there is usually a VP that manages a dozen supervisors which each have a dozen regular negotiators on their respective teams. Its these departments' duty to burn and turn as many of these short sale offers that are coming through the door in a legal and trackable manner. As you would probably imagine there is a sophisticated internal system that utilizes charts to tell the story on a file and if required, approval by upper management and credit officers when loss ratios are higher. So the waived amount definitely does matter. Its what determines who has enough authority in the chain of command to write off how much loss. Think of the department like one big machine with multiple moving internal parts, just like any sophisticated machinery. The files would be the fuel or the feed that requires processing in order to truly be able to utilize it as a resource. Every file is treated just like the next, whether the sale is in California or Rhode Island, with its proper set of protocols and procedures. The beneficiary(bank) in this particular situation has the say-so as to what they will accept as a proper settlement. If you understand how things function, you can definitely have the upper hand.

Its all about submitting a thorough and complete file that tells a story and submits enough documents to prove your case. You always want to demonstrate that you have done the best to market the property to earn as much as possible and through your experience & research have arrived at a figure that you feel makes the most sense during that period of time in the market. Short sale have been around for over a decade but they became highly fashionable in 2009 because we were in a recovering economy. As previously mentioned these banks are nationwide so the connection for the bank to the streets is a BPO agent thats supposed to be local and familiar with the market . A broker just like you and I gives their opinion on what they think the homes is worth. Since this BPO will be the figure the bank utilizes as their opinion of what the property is worth, the BPO resembles an appraisal and documents the analysis just like one. You can dispute a BPO just like you can an appraisal if you feel you have evidence or information that suggests against what's reported. Using these rights to your advantage, plus by being there when the BPO agent is there during the time of the inspection, you can totally make a significant effort at controlling your fate. Its not illegal for you to be there and have a conversation about all the deferred maintenance on the property with the BPO agent at all. Usually an experienced agent will know that the BPO is good for 120 days and every four months is basically another opportunity to bring in a new deal that is appropriate to the new BPO figure. They will also know that they're fully entitled to submit their own property inspections and bids for upgrades/rehab cost that will help make the file look stronger. Don't expect your negotiator to be nice and share the BPO figure with you. If the property has been on the market for a significant period of time, thats another key factor that a VP will look at before approving a file. The longer it sits, the more likely the approval of a low offer. This is an ideal instance for an offer thats low, but just above the tolerable threshold of approval. Seasoned agents know that the bank won't approve an offer if the benefit doesn't outweigh the cost of just letting it go to foreclosure, so they use their offer as a poking stick just to see where the bank is at with their figures. Most banks will counteroffer once and it is your responsibility to come in with your best & final offer. Judging by how far off your offer and inspection report are from their BPO and counteroffer, you will know more or less how to proceed at that point.

Make sure your files contain the following always:

1)MLS listing showing you have had the property on the market for a while and haven't been able to sell it at the demanded figure, so therefore you need approval on a lower offer to make it work.

2) Inspection report documenting everything that needs to done to the place to bring it up habitable standards. Most of these short sales are bruisers with significant amounts of deferred maintenance. Since its difficult to truly compared distressed properties with one another due to different types of distress, you compare the ARVs to the BPO figures, and then subtract the cost of rehab/improvements that your inspection suggests in order to get your true offer amount. This way you're injecting a dose of logic as to why you arrived at that figure and why it makes sense for the bank to take your offer.

3) Listing agreement obviously because you are the agent on the deal. Show that you have had the property up for sale at the prices they recommend and that its simply just not moving at that price.

4) Contract of course stating the price, terms and conditions of the deal. All cash closings tend to be favorable no matter which way you look at it simply because its a faster closing. But at the end of the day a deal is a deal and who cares how you buy it. The bank shouldn't provide any priority to a cash deal over a financed one so pay attention to things like that.

5) Proof of funds or letter of pre approval to show that you have the financing aspect covered without a problem.

6) If you're purchasing with an LLC, the negotiator will ask you for an Articles of Incorporation anyway. Be proactive and submit it ahead of time to show that you advocate transparency.

Always remember that you can't rely on the negotiator's logic and incentivized structure because at the end of the day the negotiator gets significantly less for each closed file than you, so you have more to lose. Its your deal, you need to chew it up and put it in their mouths' to swallow if you want things to go a certain way. Just be sure you're always submitting proof to explain yourself and you should be good.

Sydney makes a good point about need one under specific circumstances. An LLC does more than just provide you insurance. The LLC creates a shelter which allows you to allocate the cash you use to purchase and the loans you leverage for the financing of the properties in your portfolio that you've decided to acquire throughout the years. Think of it like creating an entity that exists specifically to play the role of the character conducting business activity in your best interest, that will also play as the role of the filter for anything earned or owed. Besides liability protection and overall insurance, an LLC can help you structure your acquisitions in the most tax effective way, ofcourse assuming that without it you would be in a much more pressing circumstance. If you're highly leveraged on your properties, don't really have much personal cash or assets, then i suppose rushing to get an LLC might not be in your best interest. Just like everything else, forming an LLC costs money. You can argue that the money spent on forming an LLC and the annual renewal fee might be more efficiently allocated as money for down payment and/or closing costs until you get a property under your belt and to a point where there is enough equity to protect. I guess just like most business decisions, there is more than one way to look at things. Some people are comfortable having their rentals channel straight through their personal tax returns into their schedule E without the LLC shelter, and some always end-up purchasing the property from themselves with their LLC and position themselves that way. I think if you're eventually planning on making a business out of this, just like any business, you're probably going to want to create some sort of entity sooner or later. Find a good CPA that your business contacts,friends or family members have been using for years and have good things to say about. Contact them, explain your situation and see what they say.

Got it. I thought that's what you might have meant but i wasn't sure.

The underwriter, upon reviewing the title report, will request to have the spelling and vesting of title be updated and correct to match all other docs in the file. Luckily they see enough of these to stipulate the transfer and proceed with a conditional approval pending an update on the prelim. These types of issues get resolved pretty quickly, assuming you have a good relationship with the title company you're working with. The bank that is assisting you with the settlement on your mortgage has a standing interaction with the title company they're utilizing already .

As mentioned in the earlier replies, the reasons why the title was not providing the most recent and accurate vesting can be in endless. Sometimes conveyance of title gets held up in between transactions due to lack of or late recording. Remember this information is intended to be public record. Yours is one of many that the county is dealing with simultaneously, so don't be surprised if after months these things still pop up on title.

Hopefully the banker and processor working on your file realize the nuances of these types of underwriter guidelines and know how to approach them to get conditions waived or pushed back so you can go to docs as fast as possible. Sometimes you gotta push push push these underwriters and give them enough evidence and confidence about the file to be able to pull it off. There are conditions that are far more unrealistic and arbitrary than this one. I don't foresee this being too big of an issue.

VA loans become advantageous during periods when borrowers are concerned about future rate increase. If the loan was closed before March 1, 1988, it becomes eligible for assumption by anyone. The assumers of these mortgages don't have to meet any requirements at all, but the seller remains responsible for the mortgage if the buyer doesn't pay. Anything that was funded after March 1, 1988, VA loan assumption is not allowed unless you obtain prior approval from a GNMA endorsed lender. The advantage in these situations is that the veteran is released from liability to the VA and doesn't have to worry about the sale of the home coming back to haunt them at a later date if the purchaser defaults on the mortgage.

The fee to assume a VA loan is usually in the range of .5%. I usually guesstimate a padded threshhold and although it usually doesnt get up to %1 on assumptions , its more in the range of a half percent. Think of this funding fee as the premium VA needs to insure your mortgage.

Is the assumptuin of a VA loan always going to present you with the most merit when it comes to the cost effective financing? ABSOLUTELY NOT!

I think a smart person is one who understands the numbers and understands their goals. Not always will assuming a VA loan be the one and only option for you. Remember that in order to process and underwrite a VA loan, banks as an institution and their employed underwriters need to be directly endorsed specifically by the VA. Also, the rumors you have heard about the process being a bit more lengthy than traditional conventional financing is true. Lets just say you want to work with a lender who has strong underwriters and has an existing pipeline that's VA heavy. Experience is key. Lets run some numbers when you're ready and see if its for you or not.

Each option you named bring something unique to the table. Its important for the obvious reasons to recognize what you are trying to accomplish as soon as possible and whats available to you as a financing option.

To answer your question, conventional and FHA loans both operate under the parameters set forth by Fannie Mae and Freddie Mac. When reviewing your application, besides how much money you make, your banker and underwriter will take into consideration how and where this income is generated from. Whether you're a wage-earner receiving a W2 at the end of the year or you're 1099'd, each criteria comes with its own set of guidelines and conditions. Although its always recommended to provide documentation verifying the history of a two year period of income, this particular guideline isn't one that's set in stone with no possibility of exception. Income that has been received for a shorter period of time may be considered acceptable as long as the borrower's income & employment profile demonstrates compensating factors to reasonably offset the shorter income history. If you're relying on overtime or bonus income for qualifying purposes, make sure you have at least 12 months under your belt to be considered stable.

Private lenders and owner financing are going to resemble more hard money. These types of financing differ from traditional mortgage financing in the sense that credit is extended based on the merits of the deal or hard asset, not your credit per se.

My best advice to you is to do as much research as possible and talk to as many licensed agents as possible about your situation. Conversations and research will familiarize you with the process and even if you can't do something today, it will make you way more prepared for tomorrow. Sounds like you're eventually going to have to come around to this situation at least a time or two in your lifetime. Since i am licensed in CA, I would be more than happy to help you with your efforts at trying to obtain financing and answer any questions in the process. 

VA loans as mentioned above are assumable. If i were you I would immediately formulate a strategy with respect to your figures of affordability. All Veterans using the VA Home Loan Guaranty benefit must pay a funding fee. Remember, the VA Funding Fee is a one-time fee paid directly to the Department of Veterans Affairs (VA) for every VA purchase or refinance loan. Throughout the life of the loan, the funding fee is gradually absorbed and if the same loan is kept long enough, eventually is completely rendered to zero. During consecutive VA refinances on the same loan, the same funding fee carries over to the next loan. This fee experiences a credit on the previous loan and a debit on the new one. In essence, it keeps updating itself in escrow on every transaction until you keep the loan long enough. Although the loan amount is effected by this fee since it is added to the financed amount, your actual figures for the sake of calculation are not going to consider the funding fee as a part of the total borrowed amount. Same concept goes for the FHA upfront premium.

The overlays and guidelines on these loans are pretty straightforward and don't really change much from bank to bank. There are some costs, however they are usually minuscule and a small price to pay for the merit that assuming a VA loan presents. VA allows $255 for processing, $45 for a closing fee, and the VA itself receives a funding fee of approximately 1% of the loan balance. This reduces the loan's cost to taxpayers considering that a VA loan requires no down payment and has no monthly mortgage insurance. The funding fee is a percentage of the loan amount which varies based on the type of loan and your military category, if you are a first-time or a regular VA loan user, and whether you make a down payment.

When it comes to rental income (income you claim on your Schedule E), calculations are a little more intricate and quite different than income earned through regular wages or self employment. Underwriters are there to be super conservative and protect the best interest of the bank by nitpicking and dismantling your attempt at applying for credit. The bank will always take the conservative approach and take your gross adjusted income. Remember, one of the perks of owning property in this great country of ours are the allowances we get, aka our tax write-offs. This means you don't quite get to present that cash-flow as a dollar for dollar profit and get credit for it. After you write-off deprecation, insurance, interest etc on your rental property, the figure you're left with is what the underwriter will utilize as your true income. With a loss on your Schedule E, you're telling the underwriter that this property as a whole investment is well, a loss. That loss is the most accurate and adjusted income figure, and will always take precedent in the income calculations. 

Depreciation is the natural aging your home is allowed to endure, basically the standard calculation of wear and tear that enables you to deduct from your tax liability. There are multiple methods to calculate depreciation e.g. Straight line, Double depreciation, Sum of years etc. The STRAIGHT LINE depreciation is the primary method that is utilized nowadays. To calculate, you take the initial cost of the asset and divid it by its estimated "useful life." So if you buy a house for $100,000, and since home loans are amortized over 30 years, you divide $100,000 by 30. You would be depreciating at an annual rate of $3000. Annual depreciation of $3000 translates to an adjustment of $250 to your rental income calculation. After you treat the numbers with their appropriate formulas, you carry that income over to your main Front and Back end ratios, aka DTI ratio. Front end encompasses your total living housing expense, which is the total expenses of the residence in which you are residing in. Back end encompasses everything. Everything means your total liabilities, including taxes and insurance payments on all properties and everything on your credit report. Might be a lot to take in all at once. The more you ask, the more you learn.

PS. Land does not depreciate.

If you bought the property cash, what loan would you be refinancing? 

If you're looking to research and educate yourself on guideline limitations and qualifying conditions, you can always read about Fannie Mae and Freddie Mac's quick selling guides that will usually give you a general understanding of what the gist is when it comes to submitting a complete application and file. The link below is very informative.

https://www.fanniemae.com/content/tool/selling-gui...

Remember though, the bank that you decide to move forward with may or may not have additional overlays when it comes to income conditions. After you've done a little research find a qualified direct lender and get in touch with a reputable banker that can review your situation and answer your questions.