Need help trying to get pre-approved...

cindy33 · Joined: 23 Aug 2007 Posts: 9 Location: PA

Hi everyone. Looking for some advice on the below scenerio. Please be nice, this is my first post...and I've been reading the posts for about two weeks now...sometimes you guys can be brutal. :shock:

My husband and I are hoping to sell our home and buy a new one, though we are afraid that we will not get approved.

Loan Amount around $225,000
Probably around 5% down after realtor and closing costs from proceeds of our home sale
FICO scores - husband's is 618 - mine is 659
DTI at 37% - you're supposed to include your current mortgage is that, right?

Now for the problems...

Mortgage late over 90 days 11 months ago due to financial problems...we did a loan modification with current mortgage company...my husband has since changed jobs. Also, Husband has a large collection account on credit report due to repossession about 2 years ago.

We did a general search for approval and Quicken Loans approved it, though a local VA/FHA LO said that it would never get through underwriting because of the above. Anyone have any thoughts?

The VA/FHA LO officer said he could not get approval until the collection is Paid. He mentioned trying to put the payoff of the collection account with proceeds into loan as a condition of approval. Is this possible? We would prefer this route because of the PMI.

Another LO told us to stay in this house for at least another six months to a year to get a conventional loan. We are hoping this is not our only option due to our current mortgage rate about to adjust.

Any suggestions???

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Fha can be forgiving of credit mis-deeds, especially if you have compensating factors. Low ratios, additional assets, additional money down, these are all things that improve your chances of being approved for an FHA loan. Most likely an Underwriter will want to see 12 months since the 90 day late, as a minimum. The collection item could be something that they would require be paid prior to or at close, and this would simply mean you'd have to prove you had enough cash to pay that and close.

Keep in mind that a computer generated approval is only as good as the information provided. Also, what did quicken loans approve you *for*. Frequently you can be "approved" and all that means is that you have a pulse. These days it's much harder with some credit issues, but with the scores that you have it'd likely be fairly easy to get a sub-prime loan, but why if you don't have to.

Quote: though a local VA/FHA LO said that it would never get through underwriting because of the above.
Quote: The VA/FHA LO officer said he could not get approval until the collection is Paid.
Here's the brutal side of me. I've gotten some amazing things through FHA/VA financing. Whomever you are speaking to is stretching it by calling themselves an FHA/VA loan officer. First of all, they are not an underwriter, so therefore they do not have the authority to tell you that it won't get through underwriting. If he did not put your completed loan application into the system, decision it, collect your documentation, and submit it through an underwriter and *they* said they need the collection paid in order to fund the loan, then he's just denied your loan and is required to send out a letter of denial.

The details of the collection, and the why's and why it won't happen agains of the late payment are far more important than simply their existence. If he doesn't know this, then he needs to go back to government lending 101.

MortgageAdvisor · Joined: 30 Aug 2007 Posts: 5 Location: Scottsdale, AZ

You should look into a gift fund program, we offer them all the time to our clients. If your going FHA, you can use your 5% to pay off your collections and obtain a gift fund to cover your 3% down payment and negotiate another 3% to be covered by the seller to pay for cloing costs. Let me know if you need any clarification on this process.

Jonathan

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Quote: If your going FHA, you can use your 5% to pay off your collections and obtain a gift fund to cover your 3% down payment and negotiate another 3% to be covered by the seller to pay for cloing costs.

Keep in mind what he is speaking of (which yes, is done all the time) is a down payment assistance program which is frequently paid for by a seller-funded program. (Seller contributes money to a non profit, which contributes money to you for a certain cost.)

Also, there is no reason to do 3% & 3%. Your down payment requirement on FHA is based on your loan amount, and your state. If you are in a high cost state at a higher value, you're looking at a 2.25% down payment requirement. If, however, like most "FHA/VA Loan officers" suggest, you instead put 3 and 3 you will find that your investment requirement increased from 2.25% to 3%.

You won't find many lenders that understand this, or that even know why it is. Another issue is that if you don't use the full 3% of closing cost assistance, guess who gets the remainder? Not you. If instead you put a 5% or 6% all through the down payment assistance program, any extra funds are able to be treated as a principle reduction. It doesn't go in your pocket, but you're not losing the money either.

chow · Posted: Fri Aug 31, 2007 12:11 am Post subject:

We can be brutal? We, only state what we can offer!

Here's a little Treat from a old dog with some really old FHA Tricks....

A seller can do 6% seller conscessions for closing costs, and a DPA program on top of it. The DPA funds do not get included in the 6% seller concessions, when ran through a DPA. It is two different areas. Many a LO doesn't even know this.

Your purchase agreement has to state that X.XX goes to DPA and X.XX goes to closing costs as seller consession.

FHA allows 6% seller consessions, conventional only allows for 3%.

okay, I'm done being brutal :wink:

I wrote my son's purchase agreement and he walked away from his purchase with every out of pocket closing cost he paid for before closing.

cindy33 · Joined: 23 Aug 2007 Posts: 9 Location: PA

Quote: We can be brutal? We, only state what we can offer!

Sorry, I meant no offense. I guess I thought I was out of options and you all were going to tell me so.

Quote: Also, what did quicken loans approve you *for*.

They approved us for $225,000 with 7.75% rate needing 5% down and 3% seller concession. We were hoping to go VA or FHA though because of the PMI.

Quote: Your down payment requirement on FHA is based on your loan amount, and your state.

We live in PA and in our weekly guide most had 0%, some had 2.25%, two had 3%.

Thank you for the great info...Now what do I do.

The VA/FHA loan officer was a recommendation through our realtor and there is an app fee of $325. Do I go forward with this or "him"?

I just don't know who to talk to to make this happen. Our realtor wants to list our house because there are two others on our street, and we'd be good competition. And I will not list my home for fear of not getting a loan to move, we have three children.

Thanks again.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

A) don't go through quicken loans. 7.75% is pretty high considering you're putting 5% down.

B) That local LO is worthless. There's a possibility that there is a financial incentive for the realtor to refer you to that particular person.

C) Ask around for a referral. From people that have purchased a home, and had a good experience. Call those people and ask them if they do FHA loans, and ask them what percentage of their business (unit wise) is FHA. If they close 1 or 2, hang up the phone and call the next guy. They may be a great person, but you're going to need someone that knows FHA inside and out, and an occasional closing simply won't be satisfactory.

Overall, you need to get a commitment from a lending institution. I would also do my homework on said institution. With as volatile as the market is these days, you do not want to get stuck like a borrower we closed today. Today was their 3rd closing date, with their 3rd company; the other two had gone bankrupt right before they were to fund the loan. The new lender doesn't have to honor the old lenders approval, and if your credit has taken a hit, you could be sunk.

chow · Posted: Sat Sep 01, 2007 9:12 pm Post subject:

B) That local LO is worthless. There's a possibility that there is a financial incentive for the realtor to refer you to that particular person.

$325 is for the committment fee? They can charge that upfront for a FHA loan.

Golly Haplo, you really need to lighten up. You make relitter referrals look like something you never do anything with. (you may want to completely clairify this whole quoted sentance before I ask you to stuff your shoes in your mouth).

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Read above. That line is directly related to an earlier post that I made.

And no, I don't go after realtor referral business :P

m2c · Joined: 03 Aug 2005 Posts: 937

Did I understand (infer) correctly that you are eligible for a VA loan? This may well be the way to go unless you have a ton of kids (VA’s net residual income can bite you with large families). With 5% down on a VA you cut the FINANCED VA funding fee by 1.65% and have no monthly MI payment. VA can be forgiving to veterans and your 37% total debt ratio is well within the parameters.

The collection? Here’s the quote out of VA 26-7. Lender may or may not go along with it but it’s worth a shot.
______
Adverse Data
In circumstances not involving bankruptcy, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date of the last derogatory credit item.

If the applicant and/or spouse are determined satisfactory credit risks in spite of derogatory credit information, include an explanation of the basis for the determination.

For unpaid debts or debts that have not been paid timely pay-off of these debts after the acceptability of applicant’s credit is questioned does not alter the unsatisfactory record of payment.

Lenders may consider a veteran’s claim of bona fide or legal defenses regarding unpaid debts except when the debt has been reduced to judgment.

Collection accounts do not necessarily have to be paid off as a condition for loan approval. Account balances reduced to judgment by a court must either be paid in full or subject to a repayment plan with a history of timely payments.

Hopefully I did misread your eligibility for VA in the “FHA/VA” reference.

I’ll second Hap’s caution flag on Quicken. I’ve seen some carnage from loans that were an “interesting” choice. Probably not an informed choice on the part of the borrower.

chow · Posted: Sun Sep 02, 2007 10:05 am Post subject:

Haplo wrote: Read above. That line is directly related to an earlier post that I made.

And no, I don't go after realtor referral business :P

There are some companies that will not allow some collections to stay open and do a FHA loan. That could be a investor rule for that LO. We don't know the whole story. I wouldn't make someone feel that local LO's are bad. Just go find another LO. There seems to be enough of them. With 300,000 originators in the US, It's a good idea to talk to more than 1.

If this is your first purchase, go to a loan officer with a office, that you can actually sit in, and drop off anything that they may need later. First time homebuyers do not need to be warndering around the internet trying to figure out how to read a HUD 1, two hours before closing.

(Yes, that happened to me Friday. Some poor gal is trying to figure out her HUD 1, and go over the fee's. Someone's site told she couldn't be charged half of the normal fee's you see on a loan-then she wanted me to explain prorated taxes.)

Your realtor and loan officer should be able to explain everything for you, if one doesn't know it-the other should.

cindy33 · Joined: 23 Aug 2007 Posts: 9 Location: PA

Quote: Hopefully I did misread your eligibility for VA in the “FHA/VA” reference.

Okay, now you got me all confused. Yes, my husband is a veteran and we had paid off a prior VA loan. He would most likely be eligible...Is this our best option?

Or would we more likely get approved through FHA?

I would prefer to go the route that has the best option for the collection (I can right an explanation...I could right a book, I'm just hoping I don't have too!) and of course the lowest monthly payment (MI).

Quote: $325 is for the committment fee? They can charge that upfront for a FHA loan.

What is the difference between an app fee and a committment fee? Aren't they the same thing.

Thanks for the tip about "Quicken". We also had our doubts about this one. We also thought about the "realtor referral - you pat my back, I'll pat yours..." Unfortunately, we don't know anyone who hasn't gone conventional. The LO did seem very knowledgeable about the VA and FHA, I just don't want to go to his office, sit down, go through the whole app and then have him tell me he can't do it and keep my $325 "committment" fee.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Quote: though a local VA/FHA LO said that it would never get through underwriting because of the above.
The VA/FHA LO officer said he could not get approval until the collection is Paid.

This tells me he was not as knowledgeable as it would seem :P

It may not be anything more than a "hey, I've used this person before and they do a good job" relationship. I'm just saying it's worth asking about.

m2c · Joined: 03 Aug 2005 Posts: 937

Hopefully Haplo will also give his opinion of the VA option, but I think it may be the best available.

I trust you have not only paid off the VA loan but disposed of (sold) the property is covered. Do ask me why, but VA is concerned about this.

On a "reuse" of VA eligibility, the 5% down becomes more improtant -- VA funding fee drops from 3.3% (reuse funding fee) to 1.5%. Still 100% finance and seller can pay all your closing cost is contract is so negotiated and house appraises.

VA manual (26-7) is fairly readable for a government document. You can find at http://www.warms.vba.va.gov/26pamphlet.html

cindy33 · Joined: 23 Aug 2007 Posts: 9 Location: PA

Thanks guys, for all the great input.

I guess I'll start seaching for a local, knowledgeable VA LO. Should I be looking for one that does not have an app fee because of our situation? Or won't I find one that doesn't charge it?

We will be selling the property that the VA loan was on at the same time as looking to buy. Does that matter?

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