Top 3 Things to Know About Your Income

When qualifying for a home loan, a high FICO score and a large down payment are commonly considered the most important factors. In fact, many other factors are equally important, but the #1 factor that affects your ability to qualify for a home loan is income. Income is king!

Here are the top 3 things to keep in mind when calculating your income for a home loan:

1. You need to have received any bonus income, commission income, or overtime income over a 2-year period for it to qualify as “income.” And if your bonus, commission, or overtime income declined from one year to the next, it will not be considered income at all when qualifying for a home loan.

2. Self-employed borrowers qualify using their AGI (adjusted gross income), i.e. the income reported after deductions. If your business grossed $1,000,000 but $990,000 was expensed that year, your income that year, as far as the lender is concerned, was only $10,000.

3. Employee expense deductions. According to the IRS, non-self-employed people are allowed to write-off various employee expenses. Those expenses are deducted from your gross income to calculate the income used to qualify for a home loan.

Not all money one earns will necessarily be considered income when qualifying for a home loan. Complete a thorough pre-approval with your lender so you know exactly what your lender considers your income. Always know your true buying power before starting to shop for a home!

How Does a Short Sale Impact My Credit?

A short sale will negatively impact your credit  in two ways. One, your FICO score will drop, which will affect your ability to acquire new credit and, two, after a short sale, banks will require a minimum waiting period in most (though not all) cases before allowing you to qualify for a home loan..

Standard Short-Sale Waiting Periods:
Conventional loans require a 2-year waiting period when putting 20% down, 4 years when putting 10% down, and 7 years when putting less than 10% down. FHA loans require a 3-year waiting period after a short sale unless the borrower had NO mortgage late payments leading up to the short sale. You lucky folks with NO mortgage late payment can qualify for FHA financing immediately following a short sale.

No Minimum Short-Sale Waiting Periods:
If your short sale was the result of what is called “financial mismanagement,” you will most likely not qualify for financing without a set waiting period. But if you have suffered medical issues or other extenuating circumstances, you may not have to wait to qualify for a mortgage.


Here are three real examples of buyers qualifying for a mortgage immediately following a short-sale and foreclosure:

#1 – Buyer co-signed for his goddaughter on her mortgage. The goddaughter defaulted on the loan. Since the buyer was only a co-signer and never lived in the property and was technically not responsible for the short sale, he qualified for a mortgage with no minimum waiting period. The short sale was completed in December and he closed on his property two months later in February.

#2 – Buyers purchased a property that burned down due to a brush fire in the neighborhood. The city would not allow the property to be rebuilt. After 18 months of legal wrangling with the city, the buyer had no choice but to short-sell the property. The buyers qualified for a new mortgage with no minimum waiting periods.

#3 – Buyer had a messy divorce and started paying alimony and child support payments. This increased his monthly liabilities dramatically and he could not longer afford the house payment. His divorce of 17-years was considered a one-time event and he qualified for a new home loan right away.

Top 3 Reasons to Stop Renting and Buy a Home

Owning a home is part of the American Dream, though renting is not always a bad idea. Renting can be cheaper, require less maintenance, and offer the flexibility to pick up and move with little hassle. Still, eventually, most people want to stop renting and own their home.

Here are the 3 top reasons why renting may no longer make sense for you:

#1 – Stop Paying Your Landlord’s Mortgage: Is your rent payment equal to a mortgage payment? Consider and include the tax benefits when making the “rent vs. own” calculation. Mortgage interest, property taxes, and insurance are tax deductible.

#2 – Historically Low Rates: Locking in a low interest rate for 30 years at a time, as most economists predict substantial inflation in the years to come, is a very good idea.

#3 – Peace of Mind: Never having to move again and being able to fix up the place exactly how you want it.

Owning a home has proven to be a very successful investment over the past 100 years and, for most people, it is the single best investment they will make in their lifetime!

Top 10 Do’s and Don’ts for Home Buyers

Here are the Top 10 Do’s and Don’ts for Home Buyers currently in escrow:

#1 – DON’T change jobs.

#2 – DON’T make new purchases with your existing credit cards.

#3 – DON’T apply for new credit.

#4 – DON’T make large deposits into your bank account.

#5 – DON’T accept gift funds unless they are given in the form of a personal check OR wired into escrow directly.

#6 – DO transfer all funds used to purchase the property into ONE bank account asap.

#7 – DO expect to provide MANY necessary documents up until the time that your new home keys are in your hand.

#8 – DO shop for homeowner’s insurance and provide a quote to your loan officer.

#9 – DO make copies of all checks before depositing them into your bank account.

#10 – DO expect to receive calls and correspondence from your real estate agent, loan officer, loan processor, escrow company, and title company.

The home buying process is stressful enough. Keep these 10 do’s and don’t rules in mind to make sure the home buying process is as smooth as possible.

Top 10 Truths: Mortgage Interest Rates

Here are the top 10 insider tips about mortgage interest rates.

  1. Mortgage interest rates change daily, Monday through Friday, and can go up or down multiple times per day.
  2. Rates are locked for a specific time period. Most commonly, rates are locked for a 30-day period, but 45-day, 60-day, 90-day, and 180-day lock periods are also available.
  3. Rates are locked by your loan officer.
  4. Being quoted a rate does not equate to locking a rate. A quote is a quote, and a lock is a lock.
  5. Rates can be locked once a property has been purchased and you’re in escrow.
  6. The longer the lock period, the higher the rate.
  7. Your FICO score, down payment amount, property type (house vs. condo), occupancy (owner occupied or non-owner occupied), loan term (30-year fixed vs. 5, 7 & 10-Year Adjustable) ALL affect your rate.
  8. Once a rate is locked, no rate changes can be made. Think of locking a rate like buying a stock. Once you’ve bought it, it’s final. Rate changes barely affect your monthly payment. On a $500,000 loan amount, the difference between a 4% and 4.125% rate is $36 per month
  9. The truth is that no one knows whether interest rates will rise or fall in the short term, so lock your interest rate as soon as possible and feel great about the rate you locked.

In the 1980’s, first mortgage interest rates exceeded 16% and never dropped below 9%. Today, interest rates are at an all-time historic low. Why try to bet that things will get even better when you can take advantage of great current rates?!

Top 10 Truths: Mortgage Insurance

Mortgage Insurance (MI) aka Private Mortgage Insurance (PMI) is a necessary evil in today’s lending environment for many home buyers. Here are the top 10 things to know about mortgage insurance:

  1. What is Mortgage Insurance?
    Mortgage insurance, aka MI, is an insurance policy which compensates the lenders or investors for losses due to the default of a mortgage loan. If a borrower defaults on the mortgage, the lender or investors is paid back a portion of the loan balance.
  1. Why do I pay Mortgage insurance?
    Loans requiring mortgage insurance are considered higher-risk. Put 20% down on a conventional loan and pay no MI.
  1. When do I pay Mortgage Insurance?
    There are two types of loans that charge MI: Conventional Loans and FHA Loans.

Conventional loans typically require mortgage insurance when down payments are below 20%. More factually, mortgage insurance is required with the 1st mortgage is over 80% loan-to-value.

FHA 30-Year loans require mortgage insurance on all loans regardless of the down payment amount. As of June 3, 2013, the monthly mortgage insurance remains for the life of the loan – for loans over 90% loan-to-value, i.e. when the borrower puts less than 10% down.

  1. How do I avoid paying Mortgage Insurance?

Put 20% down on a conventional loan or chose a 1st and 2nd loan combo. No FHA.

  1. How do I pay the Mortgage Insurance?

Mortgage insurance is charged two ways: Monthly-Paid or Single-Paid. Monthly-Paid MI charges on a monthly basis. Single-Paid MI charges a one-time fee at the close of escrow as part of the closing costs.

  1. What determines how much Mortgage Insurance I pay?

FICO score and down payment are the two main factors to determine the cost of mortgage insurance. Higher FICO scores and a larger down payment = lower MI costs. A high FICO score will lower the mortgage insurance premiums dramatically.

  1. Mortgage insurance Cost

FHA charges 1.30% annually on average.

Monthly-Paid MI costs 0.70% on average.

Single-Paid MI costs 2.5% on average.

Actual charges vary.

  1. How to get rid of Mortgage Insurance?

The US Homeowners Protection Act of 1998 allows for borrower to require PMI cancelation when the amount owed is reduced to a certain level, most commonly = 80% loan-to-value. This is for conventional loans only as FHA charges MI on every loan. The only way to ever get rid of MI on FHA loans is to refinance out of FHA and into a conventional loan. Paying down the loan balance or property values increasing are the two ways to get rid of mortgage insurance.

Is MI tax deductible?

No. As of Dec 31, 2013 mortgage insurance the IRS longer tax deductible.

               9. Who pays the MI?

Three parties are allowed to pay the MI.

  • Borrowers (you).
  • Sellers.
  • Lenders

10. Lender and Seller Credits

Lending guidelines allow sellers and lenders to give limited credits to be applied to the borrowers closing costs. To pay off the mortgage insurance entirely, typically the borrower chooses the Single-Paid MI option and negotiates with the seller or lender to cover the cost.

Seller Credits
have to be negotiated as part of the contract negotiations between the buyer and seller. Lenders have the ability to generate Lender Credits by increasing the borrower’s interest rate on most loan products and in most cases. On average, a 0.50% increase to the rate generates enough credits to pay the cost of the Single-Paid MI fee. The benefit to increasing the interest rate and eliminating the mortgage insurance payment is an overall lower monthly payment.

In conclusion, nobody likes mortgage insurance but the alternative is to either make a larger down payment or not buy at all. VA loans do not charged mortgage insurance but one must be a Veteran. Good news! Go enlist for 4 years with the US Military, Army or Navy and pay no mortgage insurance on your next loan.

Top 10 Truths: FHA Loans

The FHA was established in 1947 and experienced a re-birth after banks discontinued the stated-income qualification around 2008. For buyers who had between 3% and 10% down FHA became the “only game in town,” as conventional loans required 10% down before the minimum down payment dropped to the current 5% level.

Here are the top 10 things to know about FHA loans:

  1. FHA is NOT a first-time home buyer program.
  2. FHA allows buyers to have one FHA loan at a time–with few exceptions.
  3. FHA charges monthly mortgage insurance FOR LIFE on ALL LOANS regardless of the down payment.
  4. FHA allows a low 3.5% down payment.
  5. FHA charges the highest mortgage insurance premiums in the industry.
  6. FHA allows for bankruptcies, foreclosures, short sales, and loan modifications, with a waiting period of only a few years after-the-fact.
  7. FHA does not require “reserves” in most cases, meaning you are allowed to have only $1 in the bank “post-close,” i.e. after paying the down payment and closing costs and closing escrow.
  8. FHA allows “owner-occupied” properties only. No investment properties or second homes allowed.
  9. FHA charges a 1.75% one-time upfront mortgage insurance fee on all loans in addition to monthly mortgage insurance.
  10. FHA’s monthly mortgage insurance premium has tripled since 2010, and its one-time upfront mortgage premium has almost doubled since 2010.

The most common misconception is that FHA is a first-time home buyer program, which it is not. But with its low 3.5% down payment option, many first-time home buyers use FHA loans and, for them, they can be a great option.

Top 5 Ways to Avoid Monthly Mortgage Insurance

Many home buyers are unable to avoid monthly mortgage insurance–it’s part of taking that next step and buying a property even if you don’t have a large down payment. But if possible, use these 5 strategies to avoid paying monthly mortgage insurance.

  1.  Make a minimum 20% down payment on a conventional loan. 20% down is the magical number to avoid paying monthly mortgage insurance.
  2. FHA requires mortgage insurance on all loans, so avoid FHA loans if possible.
  3. 1st and 2nd mortgage combos eliminate the need for mortgage insurance.
  4. HOMEPATH loans do not require mortgage insurance. Homepath loans are only allowed when “Fannie Mae” is the seller.
  5. Mortgage insurance can be paid in two ways: “Single-Paid” or “Monthly-Paid”. Choose the single-paid option and pay the mortgage insurance in full to eliminate the need to pay monthly.

With a conventional loan, monthly mortgage insurance eventually falls away, and FHA loans can always be refinanced into conventional loans to eliminate mortgage insurance. So don’t feel bad if you need to incur mortgage insurance to get into a home.

Mortgage Payment 101

When calculating a mortgage payment, here are the four basic costs:

  • Principal
  • Interest
  • Property Taxes
  • Insurance

Online mortgage calculators tend to give you the principal & interest payment but don’t forget about property taxes and insurance! Property taxes rate are county specific. LA County charges 1.25% (of the purchase price) every year, for example. Insurance costs around $100 per month on average.

Three additional costs may apply to you depending on the type of property you are purchasing and the type of loan you are qualifying for.

  1. Mortgage insurance:

Mortgage insurance is required the vast majority of the time when making a down payment less than 20%. Note: FHA loans require mortgage insurance on all loans regardless of the down payment amount.

  1. Home Owner Association Fees:

HOA fees apply to all condos, townhouses and even single family residences located when a PUD (planned unit development).

  1. Mello Roos and CFD fees.

These fees apply to many brand new home development communities. One pays either Mello Roos fees or CFD fees. Never both.

The added costs of mortgage insurance, HOA, Mello Roos and CFD fees can greatly increase your monthly mortgage payment. Make sure you know all the costs associated with any given property to give you the most accurate monthly payment.

Top 10 Insider Tips About Your FICO Score

Top 10 Insider Tips About Your FICO Score

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