It’s a conforming guideline. Both Fannie and Freddie require the 4506-T in their guidelines so the lender doesn’t have the option. Lenders can always be more restricitve than the conforming guidelines, but they cannot be more lax.
To Jdeity,
If you lose your job after closing the lender won’t call the note due. They don’t audit for that, what they audit for is that everything in the file is accurate AT THE TIME of the loan submission / underwriting.
You need to be careful here. In the last few years some lenders are having your sign a statement that you have no knowledge of change in or impending change of status of employment, blah, blah. I know of at least two cases, where the lender called my employer AFTER loan docs were signed, but before funding the loan to verify employment. In one case I answered the phone myself. I kind of laughed and told the lady, ya, I’m here at working to earn the income to pay your loan.
Also, about 3 years ago an agent I frequently work with had a deal so south at the last minute as the Buyers were all giddy at the loan signing and the loan officer asked what was up. The Buyers said, oh we quit our jobs yesterday and we’re going to travel around the world for 3 months. The paperwork was taken back and the loan was cancelled and the deal fell apart.
so be aware there are a lot of things going on in the background with regards to checking, auditing, etc. I’m guessing it a lot like border enforcement at San Ysidro (near San Diego, the busy border crossing in the world). I read that when they completely tear a car apart, they “hit” rate is like 98% to find stuff/contraband, etc. Sure plenty of other people are getting across OK with people in their trunks, but if some auditor detects something that out of place in your file and start to dig, who knows what could happen. Keep yourself straight and organized. This allows you to focus on the core aspects of REI.
very useful reponses, thank you all
any more comments on how badly dropping my 3 year, ~30K income job for a new, lower hours, real estate related job, will affect my provable income? are the majority of banks going to be okay, or are most gonna tell me to wait a year and come back?
i intend on using many loans, as i want to do a lot of flipping. having a problem like that will render regular mortgages like i’m hoping for useless (though i’m not even positive yet that prepayment penalties won’t kill things either, but i imagine that’ll be a cheaper route than hard money…)
I do not think anyone will argue with me or say this is fraud…but as for prepayment penalties…just info the broker your looking for a loan with no prepay or I think there are some out there with 4-6months on them… You will pay a higher interest rate and maybe more points depending on broker…but if your flipping it in 2-6months the higher payment will generally outweight the penalty.
I am doing a condo and wanted no prepay…rates are NOO are 9.85 and 13.75% compares to 7.5 and 11.5%. On a 325K loan, it represents about $600 a month more in payments, but otherwise I was looking at about a 10-12K penalty…
Not sure if it was covered in all the arguing. I know it was mentioned alittle, but do you have a college degree and does your wife?? Or maybe, if your going into RE field, and you get your RE license first(depending on state, you can get this in less than 1month if you have the time-in Florida its a 63hr course and they offer it in a 1week session and test afterwards), you maybe able to consider that a legitment career change as you went to school for what your doing now and wont change the loan parimeter requirment for yrs on job.
how are prepayment penalties typically done, % or $, and what magnitude?
your rates in that example you gave, 9.85 adn 13.75… why are there two separate rates? i don’t get it…
my fiance has a college degree (won’t be pursuing her major, not as of now anyways). i am close to a degree but am not going to get it (has no relevance to what i want to do with my life, and costs money adn time to get…).
you mention loan parameter requirement for years on a job - do all loans have this? how set in stone is it? how much variance is htere between banks? is this to be a ‘conforming loan’, and if so what is the actual guideline?
<< i am close to a degree but am not going to get it>>
REALLY, REALLY bad decision!!! But, it’s your life…trust me as someone that knows, it NEVER gets easier to get a degree!
Keith
Hopefully no one bites my head off in hear…but I will try and answer so of these questions.
When buying a property, many investors will do either an 80/20 loan for 100% financing, meaning 1st loan is for 80% of purchase price and 2nd loan is for 20% of the purchase price, bring it to a 100% LTV.
Reason for this is, the buyer wants to avoid PMI (this is an insurance the banks make you pay when the loan is over 80% LTV and can cost you about 1/2 point in the loan (ex. 100K loan can cost about $50-75 a month)
The first loan can be a fixed rate, ARM, Interest Only,Option Arm, etc… the 2nd loan will generally be a fixed rate for 15yrs but amortization schedule will be based on 30yrs so in 15yrs you need to pay off the 2nd or refi it off.
A common 80/20 is a 5/1ARM with a fixed rate for the 2nd.
The rates are higher on the 2nd always since it is not always from the same lender and i case of foreclosure the 2nd loan can be wiped clean or the lender many times will settle for less than 20cents on the dollar, so they are at a higher risk of lose money so want to recoup the actually loan cost faster…
Now when you start asking for a loan that has no prepayment penalty, and they can vary…you have a soft prepay which is where you can sell the home anytime without a penalty but can not refi it. If you refi you will pay a penalty. This can be 1-3% from what I have seen, but I know it varies… I know I have a 250K loan with a 3yr soft prepay and if i refi it after 12months since the place is on a lease option, I will have to pay about 7K in penalties which I added into the purchase price.
Another common loan is the 80/15/5. Basically its 80% 1st, 15% 2nd and your putting down 5% towards purchase. Again it is used to avoid PMI… Now I know there are a few programs out there that will actually loan 100% or 95% LTV in 1 loan and not charge it, but its rare since the banks will have a hard time selling the loan off to another bank which is where they make their money. I know in Fl, alot of people goto eastern financial credit union…they will waive the fee or did in the past on 100% single loan, just need to open a checking account…and good terms…
Now I have a high rate 9.85 and 13.75 b/c I bought at a good discount and plan to sell with in 3-6months and do not want the penalty as it would be more.
You can ask your broker for a loan with no penalty, a penalty only if you refi, and sometimes you can control how long it will be for, 1yr -3yrs i believe…
Depending on your exit strategy will determine your loan program. If you plan on selling within 1-2yrs, get a soft prepay and do not sacrifice the rate to much, if you want to hold then do not worry to much but remember there is a penalty if you do. If you are buying with alot of equity and want to pull it out, look for something without a penalty and pay the higher rate now and refi ASAP to get money out or wait about 6-12months when it becomes easier since title is seasoned ( how long you have owned property-banks look at that- which is why is can sometimes be difficult to flip a home in 1 or 2months for a big profit if the buyers bank feels your making to big a profit, though they may let it slide with proof of upgrades)
Actually if you plan to rehab, take pics and keep notes so you do not have this problem, even on a refi… Had a problem earlier this yr on a rehab I refi… Bought home with appraisal at 240K and then after putting 60K in, the appraisal came in at 525K…bank didnt like it…they ordered 3 appraisals and all were similar. I wanted to pull out 100K for other stuff… They asked for photo’s and receipts which I had and they agreed after 2weeks of games there since i had documented before and after photos.
As for yrs on job. No DOC loan, means No Documentation is giving, basically pull credit and sign your name. No bank statements, etc. High interest rate, some brokers can get 100% on them but i think its tough…You will need a 700FICO to secure these on investments I believe…
Now last of your loans are the HML (Hard Money Lender) these guys are generally private money lenders. High rates…between 10-18% most times, but avg is about 12-15%. Points are high on these loans, around 8-10points on avg. The LTV is usually 65-70%. Not many do 70% and its done on exceptions…They like 60-65% of the sale price/appraisal which ever is lower. Why do people use them… fast turn around…can be done in 24-72hrs usually, all they need is appraisal and clear title… They are not really credit driven and the payments are usually I/O and the loans are kept for no less than 12months. (at those rates you dont even want it more than 6months)
These are mostly used for rehab loans, investors with loan FICO scores, low Debt to income ratio because of other mortgages, etc… rehabbers use them alot, since they can get money to do repairs. The fund will be escrowed and given to you in draws based on work performed. They will send someone to see the work and usually within 24hrs a check will be available for you to move on to next project in rehab. Usually at the close, they will give you about 20% of the rehab cost. But remember, the whole loan is based on sale price. So if house is being sold for 100K, your loan will be for about 65K… If appraisal comes in at time of loan at 200K, then write contract for 200K, so they will loan more. this is how you get your rehab dollars escrowed (this is where everyone got mad at me since i do it all differently) Do not borrow more than you need since the rates are high. Many investors will use HML and just refi in a month or 2 and pull money out. its great when you see a dealand tell the seller you can close in 72hrs…so sell at the discounted price…Now HML also do have some programs where you can roll closing cost into loan, so it will be calculated into the 65%LTV, they will even at times let you roll 2-6payments into the loan so no payments…But again it comes at a price… They also have conventional rehab loans that work similar with the escrow of funds, higer LTV but better rates and a typical 15-30day close like any other loan out there…
Ok…so you got overview of Stated, HML, and No DOc today…remember HML do not look at job status or income…it is based on numbers…how much home is worth…and always take a 1st lien position…
as for your wifes college degree…if it pertains to her new job, it may not hurt to much… I would recommend keeping your jobs, get some deals and cash in pocket then change… maybe you can work for a realtor part time and learn…
have a nice day…hope this post does not create any real negative feedback…and yes it is long and not proof read…sorry…
andrew
Oh another thing that may want to prevent you from switching jobs. When your a 1st time homebuyer, underwriter will want proof you can pay the mortgage when buying it Owner Occuppied or even Non Owner occuppied. For instance if you rent is $700 a month, and now your want a mortgage for $2000 a month…the bank will question if you can afford it and also will probably go back 24months on rent to see each payment was made on-time. If your renting, make sure you have copies of canceled checks or receipts to prove each payment made on time. And be prepared if asked about payment shock as some put it…because you maybe increasing your payments alot. When going full doc, they may even ask for other bills as proof of on time payments, like electric, cable, telephone…see it done…
The 1st home can usually be the hardest since you have not demostrated an ability to pay a mortgage yet and those underwriters like DWF will pull the loan appart with exceptions for the L/O and loan processor…
Also you have a good score, but what about tradeline history… they look into that. Do you have 4 or 5 tradelines that are more than 2yrs old each…no lates or derogatory information i hope…
okay that confuses me; i understand it can cost ~20% value to foreclose, so they (mortgagees) will make the borrower pay pmi for protection. that’s because that last 20% is risky. my confusion is this: who is loaning you 20% 2nd mortgages, if that’s pushing the leverage to 100%LTV? it seems you would have to be insane to be loaning that out, i guess i don’t understand who would loan that. are you saying they’d loan if i put up otehr stuff as collateral? i mean that loan is the opposite of propely collateralized, i don’t understand how that is a wise practice for the mortgagee to do.
Even if you consider it based upon half a point on the entire loan, on a 100K loan, 30 year schedule, i’m getting under $40 month additional. am i missing something or did you just do a mental calculation for that?
yes my fiance and i are actually over 750’s. what kind of interest rate differences are we talking? how easy is the no doc approach, in terms of frequency you’ll find it and how easy it is to close / get approval? what is a typical LTV they’d like to do? prepayment fees more common?
damn, if i can just show them two 750 ficos and sign our names, assuming not too bad of a higher interest rate (not hugely important as we’re trying to get in and out of properties as quickly as possible), and no additional upfront costs that i wouldn’t encounter through a conventional mortgage, this would be an ideal solution.
you said the sale price or appraisal, you mean their asking price, not the price paid right? i mean if a property is being offered at / appraising at exactly $100K, and the seller said that he would sell it to me at $50K, they would loan the full $50 right? i thought they only care about the LTV, for obvious safety reasons, and their points/interest profits.
you mentioned fast turnaround, 24-72 hours, but then say 15-30 day close; can you explain these timelines a little further?
doesn’t matter it wasn’t proofread, that was so helpful to me, so thanks a lot. as far as get some deals, get cash, and learn, we just want to go at it hard right away. i’ll be 1.5 years of intense studying into it by the time we’re ready to go, we both have perfect ficos (over 750), and we’ll have 25K in hand (probably lose a few grand driving to wherever we decide to go, and on hotels while finding our property). i’m sure we’ll have what we need to be successful, though i am likely to get a job just for extra knowledge of the market and networking.
again, thanks for your response, that illuminated a lot for me. looking forward to your responses on questions i had with your post
yrush?
JDiety,
There seems to be a lot of topics being discussed here and also a lot of confusion with the answers.
Let’s first address your concerns:
You want to move to an area where there will be many opportunities for real estate investing. However, you are concerned about employment and income in the new location and how it will affect qulifying.
You have 2 great points that have already been addressed by Kenmorr23 and DFW. They are both actually correct but I think were addressing 2 types of loan programs.
I believe DFW is referencing to the underwriting qualifications for most conventional mortgages that follow Fannie Mae and Freddie Mac guidelines. These loans will have the best terms but will be less flexible when it comes to high ltv financing and reduced documentation loans such as stated, no ratio, and do doc. To recap, conventional loans should be able to use your new employers income from day 1, even if it is in a different field. This will most likely need to be a w2 position and not self employed, contract, 1099, or commissionable.
Kenmorr23 was probably referencing the Alt-A or portfolio programs offered by those same lenders that do the loans above. These loans are for those with good credit, low down payments, and/or a need for reduced documentation. Most real estate investors fall into this loan type. I reviewed over several of the lender’s guidelines that I use and all of them stated a 2 year history in the same field is required for those that receive w2 income. So in your case - you are a manager of a retail store. If you became a manager of a restaraunt then it would probably be looked at closely but could work if strong assets and credit. On the other hand, if you decided to become a waiter at that restaraunt, or a real estate agent, or employee at a real estate office; you probably wouldn’t get approved under this loan type. That’s why they have No Income (no employment with verifiable assets) and No Doc (no employment, income, or assets) loans.
Do you have to move in order to invest in other states? I have several clients that live outside of the states they invest in. Food for thought.
Just two points to address for the discussion about how to use stated income. It’s the broker’s responsibility to ask the client what their gross monthly income is. The client cannot be coached into putting a specific dollar amount. If the amount listed by the client is not enough to qualify then another loan program, such as No Ratio, No Income, or No Doc may be needed. The income can’t be increased later or over inflated initially to make the deal work. Not all lenders require a 4506 to be signed, this includes some Fannie Mae products offered by conventional wholesale lenders.
Aak5454 made a valid point about some lenders asking questions about job changes. If this document shows up, it’s usually at closing. So do be careful if you intend to qualify and close under current employment positions with intent to change soon.
I wouldn’t worry about prepayment penalties. With your scores there are plenty of lenders with prepay free programs.
You asked Yrush to clarfiy about getting a real estate license and how that pertains to employment parameters. You would still need a 2 year history of being an agent to use that income. Same thing for using income based upon self employment or real estate investments. Being a real estate investor is not the same as being a licensed real estate agent.
There are several lenders that will do 100% financing. As mentioned, they split this up into a first and 2nd combo. Rates on the 2nd are usually in the double digits. Also, there are only a handful that will do 100% with one loan; most of those are full doc and have a prepay. And no, they do not require the collateral of other property for qualifying.
Hard money loans were mentioned in this thread also. As noted, these are a great source of funds for rehabbers. Most banks and conventional lenders will require 10-20% down on rehabs. For those that do not have this or require no verification of income/assets - hard money is the quickest and easiest way. YRush noted that the hard money lenders he sees base the loan off of lower of the appraised value or purchase price. In addition, 70% was not common. In all of my dealings with hard money rehab loans the deal is based on the after repaired value. 70% is typicall. So on a home that would be worth $200K fixed up, the max loan would be $140K. The lender will deduct out costs upfront and sometimes payments. Funds for rehab work are put into escrow. Many HML will not release these funds upfront, the money is there for reimbursement of work completed and inspected. Most of my clients who get a hard money loan are closed within 2.5 weeks. I’ve seen then done in a week if title, appraisal, and everything else is properly in hand.
With your scores you should be fine with a no doc loan up to about 95%. A no doc may only be needed if you dont have liquid assets. Remember that these are going to have much higher rates and sometimes costs.
There’s a couple things you should also know too about how a mortgage consultant (loan officer,broker, etc…) gets paid. The length of time you plan to keep a loan directly ties into the fact of what the interest rate and closing costs are. Mortgage professionals receive part of their compensation from the lender based upon the rate a client is locked in at. For example, If the rate was 7.75% the lender may pay the broker a premium of $500; but if the rate was sold at 8.75% the lender would pay a higher premium of mayber $1,500. In addition, a broker also receives compensation through the origination charged at closing. It’s up to them to balance how much they need to make from the rate and how much they will make in origination.
Here’s where fix/flip short term loans can run into a problem with conventional lenders. Lendes are in business for brokers to sign up clients that are keeping that loan. The servicing and interest is how they intend to be profitable. So the lenders that we do business with usually have a “recapture” policy. This means that any compensation paid to us for signing up a loan will be requested back if that loan does not have at least 4-6 payments made on it. Now if the broker knows upfront going into the loan that the client will be selling the property quickly, he would need to adjust the compensation to make sure that nothing was being paid via the lender based upon the rate. Thus, all of the brokers compensation would be paid in the form of origination, maybe a little higher than the client intended but the only real security for the mortgage professional to make sure he’s in compliance with the lender. Some lenders take it as far as cutting off a broker from doing business with them if too many loans payoff within the first 6 months, regardless if a premium for the rate was paid or not. And of course, you’ll always find brokers who will tell you they dont care about the “recapture” policy and will take the chance that the lender wont ask for money back or cut them off if your loans keep closing too soon. I only know of a couple lenders that dont care about recapture but not every client may fit into their parameters.
(Just thought I’d throw this part in there since it seems to come up a lot with clients who want conventional loans for less than 6 months)
Hope this helped clarify some things.
If you get a job in the same field it shouldn’t be a problem.