The other day I received a call from a gentleman looking to refinance out of his 2-year adjustable rate home mortgage (2/28 ARM) that is now variable. These home loans are typically reserved for subprime borrowers due to a poor credit rating. Although this is not an ideal loan, he wasn’t in too bad of shape because he put a serious 20% down when he purchased the property. I couldn’t help but think that this guy took the 2-year ARM for a good reason (bad credit?). This wasn’t the case however. After running his credit and seeing that he had plenty of credit depth and an impeccable credit rating going back 12 years, I asked him why he took the 2-year ARM. Unfortunately this gentlemen had been duped!

He went into the story of how the original loan officer offered him an incredible rate for what he thought was for a 30-year fixed loan, and the closing costs he quoted him were half what he thought they would be, so all in all it seemed like an incredible deal at the time. The rest of the process went smoothly until the day of closing when he found out that the 30-year fixed rate was actually for a 2-year ARM with a 3-year hard prepayment penalty, and the closing costs ended up being twice what he imagined. None the less, the gentlemen went on to sign the closing documents because the loan officer said that he would refinance him out of this loan for free. He also had nothing in hand to call this loan officer out with since the loan officer never gave him three vital documents that could have avoided this serious train wreck… and he didn’t know to ask for them.

Here are the three documents you need to ask for when applying for a mortgage that will help keep your loan officer honest:

• Good Faith Estimate (GFE) - This will break down all of the closing costs of the loan. These numbers are very difficult to get exact but the loan officer should never be off more than a couple hundred dollars.
• Truth in Lending Statement (TIL) - This document will disclose several important numbers but most importantly the Annual Percentage Rate, and whether the loan has a prepayment penalty or not.
• Financing Agreement - This document right here is gold and you should have a financing agreement early on whether the rate is locked or floating. The loan officer should issue this to you not only for your protection, but also for his since it lays out whether the rate is locked or if it is floating, the loan type, rate and any points being charged. If you’ve locked your loan in, you should immediately request this document as it tells you when the rate was locked and for how long the rate lock is good for. A lot of people feel that with just a GFE they are covered, but really it’s the financing agreement that gives you the most assurance of the loan you are being offered and keeps the loan officer honest. This is your insurance should anything change at, or prior to closing.

With these three items in hand you are now empowered to call the loan officer the day of closing to ask why your financing agreement says you are locked at a rate of 6.5% but the rate on the final loan papers is 7%, or why he is charging 2 points instead of the 1 on the GFE. You actually have a signed financing agreement from both parties that states your loan program, rate and points being charged. So any deviation from this is a call for action! A GFE on it’s own does not have as much power because as the name of the document states, “Good Faith Estimate” so don’t think you’re ‘good to go’ without your financing agreement.

If you keep these three documents in mind when applying for a loan you are insuring a smooth process. Not all loan officers conduct business in this manner so please don’t feel that I am saying that all loan officers need to be kept within arms reach. Like in many professions, the bad loan officers ruin it for the good ones, but none-the-less all loan officer should be offering these documents to you. You shouldn’t have to ask for them… Oh, and in case you are wondering, the loan officer I mentioned previously was never to be found by the home buyer after the closing– so there goes the “free” refinance…

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If you’re as busy as the next person in the DC Metro area, then you probably have not had the time to pick up a newspaper or watch more than 30 minutes of the news. However, I’m sure you have heard from co-workers or friends about the negative press surrounding the mortgage and housing markets. The rancor of this situation has caused some sort of paralysis in the consumers. But where there’s adversity, there’s opportunity. By human nature, we tend to listen to our friends or mentors or should I say go along with what everyone else is doing. We wait for someone to say “It’s OK.” Just call this your little push in the back.

If you have been researching home prices then you have probably seen that the national average is down. This will continue, but remember three things. The first is that the markets that have been hit the hardest drag down the average depreciation (Miami, California, Las Vegas, Phoenix). Secondly, homes that were priced $500,000 and higher were more inflated than the entry level housing. The bigger they are the harder they fall. When those homes depreciate, they will be affected more than the lower priced homes. Finally, because dismay can create an instinctive reaction among sellers and the market perception keeps buyers hesitant, prices may be lower on the way down that at the bottom of the barrel.

What does this all mean? It’s a GREAT time to shop for a moderately priced home in Northern Virginia or Washington DC. When the market has found a solid bottom and the demand returns, there will be a lot less ambiguity about what a home in your area is really worth. Sellers will be less willing to entertain offers, and selection will decrease.

The news might have you thinking that it’s impossible to get a loan these days. This is far from true. Experience has given lenders a clear picture of the kinds of loans that shouldn’t be offered again. But the loans that have performed more consistently are still available, and you might be surprised what you can qualify for.

Banks like to see strength in at least 2 of the 4 areas:

1. Credit score and credit history
2. Sufficient, verifiable income for the payment amount and monthly debt
3. Equity in the property or down payment
4. Liquid assets (money in the bank, stock market, IRA’s, 401k’s, etc…)

The items that will make your loan more difficult to obtain:

1. Non-Owner Occupied (investment property)
2. Stated or No Income (meaning you can’t prove income with W2’s or Tax Returns)

Bottom Line: If you can justifiably afford to make a regular house payment, there’s a great chance that this can be proven to a lender, who will in turn be glad to give you an excellent loan.

There’s even further incentive to act on this information. Even if prices decline another 10%, due to the market hysteria, there are sellers out there right now selling for 20% under current appraised value. So you might find a house for $300,000 today that will end up being worth $330,000 when the market bottoms out. A catch 22, but true. This also means that your value is likely to be at it’s highest as far as refinancing is concerned, and remember that equity is one of the positive factors banks consider.

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Many of those who lose their home to foreclosure in Northern Virginia, Maryland & Washington DC, are often interested in buying a home after foreclosure as quickly as possible. While the foreclosure will stay on the former homeowners’ credit for 7-10 years, this does not mean that they won’t be able to qualify for a new home loan in a shorter period than that. However, it takes work to be able to qualify for a new home after foreclosure. The quickest way to get a mortgage after facing foreclosure is to save up 35% as a down payment. Some foreclosure lenders will loan up to 65% LTV (loan to value) of the home right after foreclosure, or while still in foreclosure. Of course, other qualifications may apply, and rates will not be great if there was a previous foreclosure involved. But from a lenders’ perspective, having a substantial amount of equity in the property will give the homeowner a new cushion to prevent them from becoming a victim to foreclosure again.

However, if the homeowner doesn’t plan on saving tens of thousands of dollars, then they will have quite a bit more work to do in order to receive a mortgage. They need to get to a point in which the foreclosure is just one small mark on an otherwise pristine credit history.

After foreclosure, it is always best to begin working on repairing the credit situation as soon as humanly possible. Get negative information removed, negotiate with creditors, dispute debts, and many other techniques can be used to raise up the consumers’ credit score by over 200 points. Getting a credit card with a small balance, using it, and almost paying it off every month is another great idea. This way, they can carry a small balance and generate some positive credit history every month.

Also, there may be a need to speak with a financial advisor to work out a budget and put together a savings plan. Building an emergency fund, so that any other financial hardship won’t have such a devastating affect, is a smart idea. This also shows a bank that there is extra money in a savings account, which will help the lender decide that the applicant now deserves a loan approval. It also shows a lender the good spending habits of the consumer after the foreclosure.

The foreclosure victim should not expect to get a 100% LTV loan for their next house. This is why it is key to save up at least some down payment plus closing costs in order to qualify for a good loan. It takes some work, but homeowners can bounce back to a pretty full recovery within a year after foreclosure, and experience all the joys and responsibilities of owning their own home, again.

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When people call me to apply for a mortgage in Virginia, DC or Maryland, I am amazed how little people know about credit. Since credit determines how much interest will be charged for borrowing the money and how easy it will be to obtain the loan, you would think people would make it their business to know how their credit stands at all times or if they can do anything in order to improve the score. I rarely have a person come in to apply for a mortgage loan that has prepped their credit. Since credit is just a snapshot in time of the standing on all of your accounts as reported by the creditor, tweaking your credit beforehand can be important and can save you real money by taking a couple of measures at least a month before applying for that home loan.

1. Get your annual credit report - Go to AnnualCreditReport.com and pull up your free annual consumer credit report from all three credit bureaus Equifax, Experian and Transunion. This will give you all the information being reported by all of your creditors. Analyze this report carefully and start submitting disputes for incorrect, erroneous or any information that is negative. They have automated the system where you can see the report and file your dispute electronically. As a rule of thumb, after you file for disputes also write a letter disputing the same item and wait for a month to mail it out. This will help if the disputes you filed come back, and the item in dispute reports back information that leads the credit bureaus to determine that this is your debt and all information is correct. When they get that 2nd letter they will mail a request for the same information, and the creditor might not respond within the allotted 30-day window. This means that by law the credit bureau must delete this record.
2. 35% is the magic number! - The credit bureaus (Equifax, Experian and Transunion) put “weight” on how much you’ve borrowed versus what your credit limit is. If you have a $1,000 credit card and your balance is $850, this hurts your credit even though you are below the limit (if you go over the limit, the bureaus’ penalty is severe so be warned). The optimal balance in this situation would be $350. If this is the case, you would “prep” your credit by paying down your balance to the optimal amount before you apply. The tricky part about this is the timing. If you pay it down in September, it might not be reported to the bureaus until October. A good rule of thumb is to pay it down and wait for your next statement to reflect the new balance. The creditor should have reported to the bureaus by then. If you are close or over the limit and you can’t afford to pay it down to 35%, you should at least shoot to get the card back under the limit and get it as low as you can.
3. Don’t do anything! - Yes, don’t pay back that collection. This is a real simple step, right? When prepping your credit, you probably think that paying off that old collection will help raise your score.  Well, this is not always true. Let’s say you had a collection filed against you 3 years ago and in year number 2, the company or collection agency decided to stop updating the collection (which happens frequently). So now you have a collection that states, “Last Reported 1/2006″ on your credit profile. If you pay this off, the company or collection agency will update (at least they are supposed too!) the account with the bureaus and this will cause this negative trade line to go from last updated 2006 to last updated 10/2007. Even though it shows a zero balance now, this will open this wound up again and cause more harm than good. You would typically make sure that it is an inactive collection (at least 7+ months with no activity). Once you have verified this, run your report as normal but pay off the collection after your credit has been pulled. Now, if the collection was just reported in the last 2-6 months, chances are good that they are still reporting it, so paying it off immediately would be wise. Consult your loan officer for the best advice pertaining to your situation.
4. Don’t apply for new loans - Hold off on that great credit card offer. Want to buy a car? You shouldn’t concentrate on making any additional large purchases until you have applied for a mortgage and know the outcome. Preferable outcome would be that you’ve gone to settlement on your new home. If you have yet to put a contract on a property or close on the purchase, discuss any matter that can possibly affect your credit with your loan officer. Tell them what you want to do.

If you follow these simple steps your credit rating will be positively impacted. The major thing to keep in mind here is that credit is a snap shot into your life- so dress up for the camera =). Although I know that paying down a credit card is easier said than done, this should be the goal on your mind at all times if you have any kind of credit outstanding. Let’s put it this way:  If you have a credit card that has a limit of $1,000 and you are over the limit with a balance of $1,100. Paying it down to a 35% balance to $350 would cost you $750. If this raises your credit rating, and in turn gives you a better mortgage rate by at least .25% on a $300K purchase, you would save about $750 a year (or $63 a month) in interest on the mortgage. Pay on the mortgage for at least 2 years and you just saved serious money!

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