What's a Scenario???

Mortgage like any profession has a large vernacular of acronyms and jargon used by professionals like me to communicate the many issues relating to origination of home loans for our customers.

It’s important as a prosumer (educated consumer) to know what your trusted advisor is talking about especially when it pertains to the largest financial decision in your life.

One of the key terms I use quite a bit in discussing mortgages with my clients is their “Scenario”. So what is a scenario… Well it’s basically a simple word that relates to your loan and how it is represented to the many banks a trusted advisor will shop to obtain you the best possible loan and rate available the day he/she obtains a rate quote on your behalf.

So what makes up a scenario and why should it matter. I feel the more my customers know about what I do and how I do it the greater their trust in my capabilities and the higher their comfort level in dealing with professionals like me to handle this important transaction on their behalf.

So let’s talk about what makes up your scenario.

The base components of your scenario as follows:

Credit History and FICO scores (Fair Isaacs Score)
There are actually three primary reporting agencies that use three different proprietary methods to arrive at a three digit scores that reflects your credit worthiness to lenders. Each has it’s own name (the most well know is Fair Isaacs Score or FICO I commonly used by brokers like me) but they all produce similar scores when pulled. In mortgage traditionally your middle score is the one used to determine your actual score for use in putting together your loan scenario.

It’s also important to note late payments, collection activity, charge offs and other negative items such as liens, bankruptcies and court actions all effect your credit rating or overall score and thus impact your scenario as well.

It’s always good to note that most lenders would like every borrower to maintain 3x24. That’s three tradelines at least one of which is over $5,000 in value that have been open (the first month it reported on your credit report) and active meaning it is not closed and has reported in the current month. There are some lenders who will approve credit reports with less but in most cases you will pay higher rates with this lenders as well.

Income
Simply stated this is the money you earn before taxes from your various sources of income such as your primary employer or job, investments, rental properties, retirement, alimony, child support etc…

Generally to qualify for a home loan you will need at least two full years of employment in the same line of work. If you are fresh out of college it may take a little time on the job to get you in to your first home but not necessarily depending on the lender and program you are shooting for. Generally you must be gainfully employed to secure a home loan especially if you are a first time home buyer.

Debt To Income Ratio
Once we pull your credit report we can access you current debts when compared to your income. This calculation is termed your DTI or debt to income ratio. It is the actual percentage of money dedicated monthly to paying/servicing all existing debts when compared to your overall income. In most cases lenders will want this ratio to be no more than 45% to 50% of your total income but some programs allow for higher ratios as well some as high as 65% for conforming loan amounts ($417K today).

Current Home Value
To evaluate your homes value the best-case scenario is to contract with a licensed appraiser which costs $350 approximately nationwide. An appraisers job is to evaluate and present an opinion of value on a given day. They traditionally visit your home, calculate square footage, lot size, they verify title compared to your actual home and the amenities and upgrades presented in the home, check recently sold homes in your immediate area that are like-for-like properties and then calculate an overall value based on your home square footage and lot size. There are various methods to provide an appraised value but the most common uses comparative sales (of like-for-like properties) to calculate value of your home.

Documentation Type
There are a few ways to document your income when you approach a lender for pricing. The various documentation types are as follows:
· Full Doc (2 most recent pay stubs, 2 W2s, Reserves documented with one or two bank statements from sources such as checking/savings, IRA or 401k quarterly statement etc…)
· Stated/Verified which means you state your income and provide no income support documents. A verification of employment or CPA letter may be required by the lender to verify your job or business. Also for sole proprietors your business license, evidence of incorporation may be requested. You also will need to verify personal assets (Reserves). This is money you can evidence that shows you have two to six months of payments or PITI (principal, interest, taxes and insurance) payments saved somewhere at your disposal. Most commonly the bank would like to obtain a verification of deposit or VOD to evidence these or a bank statement containing all pages that does not show income deposits would work as well. You can also use IRA, 401K, savings accounts and investments as well. In certain case pension accounts may work as well.
· Stated/Stated in this scenario you state your income and state your assets. It can be costly to do but in certain circumstances may be the easiest way for self employed individuals or people in unusual positions to work their loan through the process. Normally higher credit scores are required for these types of loans. Today a 700+ FICO would be most desired.
· No Ratio in this scenario the lender does not require any income to be placed in the loan application and they do not use the DTI ratio to evaluate the loan application. This too can be more costly form a rate standpoint but may be one way a borrower with higher debt loads gets their scenario approved. Strong assets is a much needed item in this scenario.
· No Doc this solution is good for borrowers with very low Loan to Value ratios. Meaning they have lots of equity stored up in the value of their home so the banks has very little risk of default.

Dwelling type
Most borrowers don’t realize the significance of this little acronym on their overall scenario. Lenders will generally charge more to loan on condos/town homes, condotels (over three levels high) compared to single-family dwellings or SFR’s. Manufactured homes are too evaluated differently from what I call sticks and bricks or SFRs. If you are a first-time homebuyer you should take care when seeking your first property. You should know manufactured home loans will require more money down generally speaking when compared to single family dwellings and condos/town homes, condotels as well will generally gain equity more slowly and conversely lose equity more slowly then single family dwellings and finally single family dwellings most often sell more quickly then all other types of housing.

In all of these scenarios it’s important to note the lenders are simply assessing risk of the potential for you to default on this new home loan given the documentation and information the lender has to evaluate. Generally speaking the greater the risk the higher your interest rate.

As you seek guidance and loan information from your trusted advisor you should keep these items in mind and always take care to properly review and maintain your credit rating. In the Internet age it is now more important than ever to keep a guarded eye on your critical data contained in your credit report. You never know when accidental information will be posted to your credit profile and of course there is always a threat identity thieves will strike.

Best Regards,

Kenneth Knapp
Your Trusted Advisor
949-294-0403
kknapp [at] signaturecapital.net

Credit Scores Matter Now More Than Ever Before!

With skyrocketing interest rates (sub prime interest rates JUMPED a shocking 1% to 2% in a single week last week) and tightening underwriting guidelines having the best possible scenario (that’s your complete loan scenario given your income, documentation type, fico score, loan amount and value) to shop your loan with is extremely important in today’s real estate market.

If you are creeping up on a refinance window, looking to buy your first home, or an investment property and you are not sure where you stand as far as your FICO scores. Get wise and work on it now before you start obtaining quotes from mortgage brokers or lenders.

Much of my business focuses on assisting my clients obtain the most competitive rates possible simply through prudent work and execution on their existing credit profile.

In reality the work that needs to be done in most cases takes time, 30 to 90 days usually. So it is important you seek component expert help now to ensure your credit profile gets rated as high as possible prior to getting your loan started.

I recommend this company for professional, ethical help. Most of my clients set up an affordable monthly account with this organization and they work diligently on all negative issues that affect my customer’s scores. You only pay a reasonable fee per month until the needed work is complete. You can stop their activity at anytime as well. It’s flexible and very cost effective. Don’t get scammed into paying thousands of dollars for a couple of hundreds dollars worth of work. Overtime I've noted significant increases in my clients scores consistently and this organization have worked with ten of thousands of clients here in US.

Within our company we partner very closely with a real estate law firm (they work in our offices directly). The credit improvement company I recommend is also a law firm. I have observed their work and wholeheartedly support their solution for the reasonable cost and impeccable work they conduct.

If you are a first time buyer, current owner looking to invest or an active investor who has a lower FICO than desired I encourage you to call my office (888-367-6926) today for assistance and a FREE consultation and credit analysis. My advice is always free of charge and if nothing else you will get the benefit of speaking to a professional who has worked with thousands of customers in similar circumstances to yours. The phone call is free and I'm always happy to hear from folks who care about their credit and pending financial decisions. “Remember failing to plan is planning to fail”

Remember sometimes a two or three point differential in your FICO could mean the difference in getting high interests rate via sub prime lenders and obtaining prime rates from a prime lender.

One of my specialties in this business is obtaining prime rates for folks who otherwise would be overcharged by less professional organizations in this industry. Always be careful who you work with in mortgage. Any mortgage broker with half a brain can get most decent files approved, but does your financial advisor take your best interests to heart and work on obtaining the best possible solution for you short term and long term? If you would like a few testimonials from my past clients I'm always happy to offer contact information from my previous clients with whom you can speak to about my services and my company.

Don’t settle for any mortgage broker get the best in the business to ensure the best results. We are committed to the long term satisfaction of our trusted clients. We are the “The Bottom Line in Honest Lending.” But don’t take my word for it. Call my customers and see what they have to say about my work and reputation.

I wish you the best.

Kenneth Knapp
Your Trusted Advisor in Mortgage
888-367-6926 Toll FREE
949-294-0403 direct
kknapp [at] signaturecapital.net

Get Savvy and Save! Short Sales are for Losers, REO's (Bank Owned Property) is the Way to Save Money Now!

Rookies to real estate investment often see California's current trends of rising foreclosures and jump on the many short sale opportunities present on the market.  They see low ask prices and go crazy dreaming about the instant equity and wealth they will make by snatching up these hot deals before anyone else can at a foreclosure.

The reality that escapes these would be investors is the fact 99% of the time the bank will not accept their offer prior to an auction.  So the short sale property sits idle on the market attracting would be buyers who fax over volumes of documents with little or no results.  It's attune to the junk mail you get in your mail box everyday both online and off.  It's just a bunch of noise the bank cares little about.  The bank will eventually invite you and ten to twenty other short sale bidders to the public auction date.  The minimum bid will include all of the costs the banks seeks to recoup which will most likely leave you at or above market value to snatch up your great deal,  it's not such a great deal...  Welcome to reality.

Stop wasting your time, money and effort killing needless trees faxing stacks of offer documents over that get little to no attention and almost never get accepted.  Step up to where the savvy investor plays and buy direct from banks after they discount their real estate prices.

Welcome to the world of REO!!!!

This is what wikipedia says about REOs:

Real Estate property acquired for investment or as a result of foreclosure.

REO means - Property owned by a lender - usually a bank - after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: the minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale.

If the property is real estate owned, the bank will then go through the process of trying to sell the property on its own. It will try to remove some of the liens and other expenses on the home, and then try to sell it on the market. Real estate investors will often go after these properties as banks are not in the business of owning homes and, in some cases, the house can be bought at a discount to its market value.

So why are REOs attractive?  The most significant component an REO purchase has over many other types of distressed property purchases is the bank does the discounting and your are not left to the auctioneers hammer to set your purchase price.  You are in control!

So what's happening now in REO's

Today in our local region our REO sales leaped over 200% in a single month.  As I write this article my group maintains a list of well over 300 properties in our our region (Inland Empire, CA) that are presently being offered for sales by lending institutions.  Many of which are being offered below market value. 

For the savvy investor or home buyer who has waited and saved for the right time to buy, there could not be a better time to jump on a white hot deal!

To get access to our proprietary list all you need to do is email (kknapp(at)homeloanchaoches.com)or call me (888-367-6926).