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If I am considering an unconventional home loan should I worry

Posted by saphire (My Page) on
Mon, Mar 12, 07 at 0:08

about the new subprime rules?

Assuming I was going to put 20 or 25% down and had a FICO of over 750 but was going to do a Jumbo, interest only and/or no income or all of the above, should I be worried that I might not get the loan I would have gotten 6 months ago?

Is stated income and no income the same thing?

Please no comments on affordability, this is not my first home, let us assume I can afford it and am doing this because I am self employed and have uneven but stable cash flow and will be disciplined enough to pay it down when I have funds available. Also I will most likely be buying first then selling so want to use the proceeds of the sale to pay down the new mortgage rather than bother with a HELO but who knows

I do not have a house in mind but may have to readjust my thinking if the rule changes apply to what I want to do. How do I protect myself? The last thing I want is to have to worry about mortgage approval when I sign the contract


Follow-Up Postings:

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RE: If I am considering an unconventional home loan should I worr

You might not be getting the same loan as 6 months ago. The Prime mortgages that offer those attributes for Prime candidates as yourself (called Alt A products usually), are also changing daily.

Lots of lenders are pulling way back on their Stated Income, No Ratio, and No Income programs (they are all a little different). Many are only allowing true self-employed borrowers to be eligible for those products.

Lots of the IO products are still being offered, but many lenders now require the borrowers to qualify for the whole payment instead of just qualifying on the IO payment.

But from your description, there should be products still avialable for 20% down, 750 FICO, self-employed. You just might not find as many options.


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RE: If I am considering an unconventional home loan should I worr

Hi Saphire,

If I am considering an unconventional home loan should I worry about the new subprime rules?
Assuming I was going to put 20 or 25% down and had a FICO of over 750 but was going to do a Jumbo, interest only and/or no income or all of the above, should I be worried that I might not get the loan I would have gotten 6 months ago?

Kinda pointless to spend energy worrying about what might have been, 6 months back... you'll certainly qualify for the best available in your credit class today.

Is stated income and no income the same thing?

No, "Stated Income" includes your signing a statement of income. "No Income" includes the signing of an application that has no statement of any income figure. The latter is known in the industry as a "No Ratio" qualification loan... this is because without an income figure claimed, it is impossible to calculate a Debt-To-Income ratio.

Also I will most likely be buying first then selling so want to use the proceeds of the sale to pay down the new mortgage rather than bother with a HELO but who knows

PROBABLY going to be cleanest to use the No Ratio qulaification in that case, as you'll most likely not be able to non-fraudulently claim enough income to make the Debt-To-Income ratios fly on a Stated Income loan.

I do not have a house in mind but may have to readjust my thinking if the rule changes apply to what I want to do. How do I protect myself? The last thing I want is to have to worry about mortgage approval when I sign the contract

Get yourself properly Pre-Approved in advance. That will solve (or dramatically reduce) any potential of unfavorable financial surprises upon contract acceptance.

All the best!
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

Oops... great answer Pam!
Didn't see you there...
Dave


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RE: If I am considering an unconventional home loan should I worr

"Kinda pointless to spend energy worrying about what might have been, 6 months back... you'll certainly qualify for the best available in your credit class today"

Not crying over spilt milk, simply trying to frame the question in a way that people will be able to responsd. Bottom line, what you are saying is the tightening will affect Jumbos, interest only and no income loans more than conforming loans even in situation of good credit and reaonable downpayments?

"Get yourself properly Pre-Approved in advance. That will solve (or dramatically reduce) any potential of unfavorable financial surprises upon contract acceptance"

Except that according to news reports the guidelines are changing minute by minute so my preapproval will mean squat a month from now if that product is no longer offered. Also, didn't you say Dave, in another post that preapprovals are usually not worth much?


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RE: If I am considering an unconventional home loan should I worr

Hi Saphire,

Indeed, the non-prime realm is in such immediate upheaval that I literally could not give an even remotely straight answer to several applicants today about their possibility of approval... it's not going to remain this way for long, but at the moment it is almost complete chaos in the lower end of the credit spectrum.

As for Pre-Approvals... they are NORMALLY worthy of certifying that a particular borrower has been fully vetted for credit, liquidity, income & employment, and are backed by the confidence of the Lender to proceed. They are valid as long as all the variables considered in the Pre-Approval are stable and change not for the worse.

660+ credit score borrowers right now should have no concerns with the vaility of their Pre-Approvals.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

I respectfully disagree with Dave ... a Lender I know is changing their guidelines next week for Alt-A and Jumbo A products in response to the market changes.

They had a long planning session yesterday and discussed how they were going to handle loan applications in the pipeline, Pre-Approvals were not even mentioned. The decision was made that loans that were locked and committed (approvals sent out) were OK, and everything else was subject to new guidelines.

If borrowers don't qualify for those new guidelines then they might no longer be eligible for a loan from that lender.

So I don't really believe that a Pre-Approval is reliable in this changing market.

And to answer your first question, Yes ... the Jumbo's Alt-A's are more volitale than the conforming Fannie/Freddie loans.

But as I stated before, with your credit profile, there should still be options for you that you want, just not as many options.


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RE: If I am considering an unconventional home loan should I worr

Hi Pam,

I respectfully disagree with Dave ... a Lender I know is changing their guidelines next week for Alt-A and Jumbo A products in response to the market changes.

Actually... you do bring forth an important point...

Pre-Approvals from individual LENDERS may be at great risk currently, since that lender can only do what it is they have in their own direct portfolio of programs.

Pre-Approvals from a good BROKER (when you have 660+ scores) ought to be far more reliable still.

There are definitely changes afoot... but my observation is that there are still plenty of stable Alt-A and Conforming competitive wholesale resources that are filling in when others drop out.

Of course... everything could change tomorrow, or in June, or ???

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

Thanks Pam and Dave

This whole thing has me a little spooked. I had planned to start looking at houses again but the last thing I want is to worry about a mortgage. Any idea when the guidelines will be finalized?

Another question, a relative, also with a high FICO, is applying for a non real estate business term loan for an established business, next week, will any of this affect that?


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RE: If I am considering an unconventional home loan should I worr

Saphire,

This changing market could continue for a while ... the subprime mess will take a while to shake out and the Alt A will move up and down in relationship.

But you really shouldn't worry, you really have a good credit profile.

I am not at all familiar with business loans, so I can't comment on those.

And I'm going to disagree with Dave again ... I don't think a Pre-approval from a Broker is worth the paper it's written on at this point. They are not lending their own money, they are selling loans to different lenders. So how can they honor that pre-approval if all their lenders have changed their guidleines? And all the major players are currently pulling back on their guidelines.

Go find a house, and don't worry .. it's the marginal borrowers who are going to have the most problems in the future. Some that could have gotten a mortgage yesterday, might not today. But maybe they really shouldn't have yesterday?


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RE: If I am considering an unconventional home loan should I worr

Pam,
(c'mon now... I'm not attacking you....)

So how can they honor that pre-approval if all their lenders have changed their guidleines?

They simply take the loan to a different wholesale source. Not ALL of the sources do ANYTHING together.

And all the major players are currently pulling back on their guidelines.

This is inaccurate. There are still major players that hold their own paper who have not reduced their CLTVs nor credit guidelines. There is still 100% CLTV purchase money at 580... and similarly unchanged all the way up the scale.

Again... might change tomorrow... ANYTHING could change tomorrow... but for TODAY, as I explicitly stated, a good Broker's Pre-Approval is more reliable than a retail lender.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

Thanks again Pam and Dave

I guess I am most worried about the No Income aspect. Since I know my FICO score (well I should pull it again but it was fine last I checked) and we have no major debts other than car loans which we could pay off but since they are below market I am actually making money on the spread. I am not sure how prequalifying will help me. It would be different if I had a W2 and could walk in and say, my salary for the last years has been X0000, the houses I will be looking at will cost Y00000 and I plan to put down U00000 which is 20%. Then he/she could say ok we will finance up to )000000. Here they are essentially taking my word and my credit history that I can afford it. Am I missing something? Will they still be doing that on Jumbo loans a month from now? I can live without the interest only part if I have to but I need the no income part

With no income loans is there something else they look at? Do they want assets? Tax returns? IRAs or portfolios?

Any good sites which explain what a lender looks for in this scenario?


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RE: If I am considering an unconventional home loan should I worr

Hi Saphire,

You say your last look at your credit showed around 750...
You say you have 20-25% down...
YOU say you think you need to qualify "no income" (what do you mean when you say that? Industry jargon and "average jane" talk can be quite different, and your phrase has an industry meaning you may not be implying.)

Questions;
Are you actually employed (self or otherwise)?
Have you been so over 12 months? 24 months?
Is that employment in the same field, or line of business?

You speak about "no income" qualifying... do you actually have no income? Where/how are you expecting to cover the monthly housing costs?

With no income loans is there something else they look at? Do they want assets? Tax returns? IRAs or portfolios?

Let's call it "alternative documentation loans" until we've determined exactly what you are referring to...

These definitely DO NOT look at Tax Returns...
HOWEVER, the more you have in assets (qualified or non,) the safer underwriting feels about approving you.

Hoping to be helpful...
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

We are self employed and have been for over 20 years successfully. As for the no income, we recently went through a business setback that has been successfully resolved and will never happen again and does not affect our credit but did affect our income over the last couple of years but is over (and can actually be documented to a banker if need be). As a result our gross income over the last few years is not what it previously was or what it will be a year from now. In addition, as you pointed out there is the matter of my current house which must be sold. So while we have sufficient reserves to handle both payments (I budgeted for it not selling for a year in the worst case), on the pure ratio analysis (28% and 33% or 36%) we would never qualify for the loan based on what is on our 2006 or 2005 tax return. Also, since I know things are better but I cannot quantify how much better they will be a year from now, I hesitate to give a number to a banker so as not to be accused of fraud as you pointed out above. And yes to answer the obvious question, I am not worried about making the payment just assume it on the hypothetical


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RE: If I am considering an unconventional home loan should I worr

Hi Saphire,

Sounds to me like you qualify for a "Stated Income" application. This is the best-priced loan qualification for your situation, and was literally originally designed for the self-employed borrower in exactly your shoes.

With your liquid asset savings, and your strong credit, I can confidently advise you to take a deep breath of relief, and know there are still PLENTY of competitive lending resources who will be happy to provide your funding. While there is a lot of turmoil and "implosion" at the lower credit grades of lending, the most 'tightening' we've seen in the Alt-A realm (which is what you would be graded) is a reduction of leverage offered from 100% to 'merely' 95% IF YOUR SCORES ARE UNDER 680!!!

Since you are well above that, and since you are planning on bringing plenty of liquidity to the situation, I see no reasons to worry at all.

Enjoy the weekend, and the process from here. Seriously... I see no reason for concern.

All the best!
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

So are these types of loans even available now?


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RE: If I am considering an unconventional home loan should I worr

Hi Saphire,
I don't recall you saying how you are employed. If you are self-employed, then definitely yes, these are still available.

If you are salaried, incented, or commissioned, you may need an additional 5-10% down (or a seller carried note for that balance.)

Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

Actually we are self employed, would be putting at least 30% down but we cannot show the income (even though we can support the loan) due to a business setback that has now been resolved in our favor

Could we do a Jumbo, interest only or no income or all of the above in a fixed 30 year (I know you hate them Dave but that is what I prefer)? Or is that so 2006? What type of premium? When I first posed the question, there was less than .25 spread. I would imagine the risk premium has gone up

My inclination is to wait until everything shakes out but if the perfect house became available tomorrow I would love to know that I can still grab it

Thanks


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RE: If I am considering an unconventional home loan should I worr

Hi Saphire,
Indeed... previous comments about program differentiation and premium levels are out the window, and "it's an entirely different ballgame."

TODAY, in many cases (especially in self-employed stated income,) the 30 FRM loans are actually the cheapest priced... so, even if you never use the over-protection terms, who cares; it's cheaper than any better fit terms.

I probably wouldn't recommend sitting it out waiting for alternatives to settle out & return, UNLESS you are prepared to sit it out a good 2-3 years. I think it may take as long as that, in the worst case, to sort out the credit markets.

Luck!
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

Sorry to hijack here saphire, but Dave - where do you think rates will be after those 2-3 years (say late 2009)? We have our APR reset at that time, and I just can't bring myself to refi a CHEAP 5% I/O note with 28 months left. We can easily afford it, but it seems like a waste - even if rates do go up a bit. I figure I would pay almost $10K more over the next 28 months if I refinaced now to a 30Y fixed. But then again, I don't want an 1980's interest rate either. I would love to get your mortgage "insider" take on this...


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RE: If I am considering an unconventional home loan should I worr

Another piggyback hijack.
I am also considering buying a 4 unit bldg (not owner occupied) I also do not have verifiable income. I live on investments, so there is a history, but I do not have much income on my tax returns. Does the lender look at the bldg as they do on larger multi-family, will the rate be better if I do not go above a four unit as opposed to a larger mix.
I have good Ficos and about 50% down. Will I have a problem getting a mortgage?


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RE: If I am considering an unconventional home loan should I worr

Hi Muddbelly,

Sorry to hijack here saphire, but Dave - where do you think rates will be after those 2-3 years (say late 2009)?

Well... while my crystal ball is a little foggy, and I let the insurance on it lapse.....

I believe that mortgage interest rates are going to remain flat, within a range of roughly 1/2% of where they are today, for a long, long time.

If you have 5% for another 28 months, I would recommend leaving that alone, and making hay while the sun shines by aggressively stuffing every additional discretionary dollar you can into your tax-deferred and tax-free retirement vehicles.

Hi Cmarlin,

(I think you jumped threads (this is from elsewhere, no?...) but I'll answer here nonetheless.)

I am also considering buying a 4 unit bldg (not owner occupied) I also do not have verifiable income. I live on investments, so there is a history, but I do not have much income on my tax returns.

OK, you need to qualify using a special program process called "Self-Employed Investor, Stated Income."

Does the lender look at the bldg as they do on larger multi-family, will the rate be better if I do not go above a four unit as opposed to a larger mix.

Yes... both rates and terms are preferential at a 4-unit level than at 5+ units.

I have good Ficos and about 50% down. Will I have a problem getting a mortgage?

You shouldn't... at 50% down it ought to fly through OK.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner


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RE: If I am considering an unconventional home loan should I worr

Saphire,

Alt-A products are now under a great deal of pressure and scrutiny as subprime loans have been. If you are looking for a stated-self employed-purchase-owner occupied loan, you are still OK with your FICO and your projected LTV since this is an Alt-A loan. LTV is going to be the key. As long as your total, combined LTV is 80% or less, you will be OK.

The loan you described is the exact characteristic of the originally intended Alt-A borrower. The borrowers that are going to have the most trouble are stated-wage earners. Those are the loans that are most often viewed as "liar loans" or fraudulent loans.


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