Is credit lending still tight?

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Submitted by kev374 on November 14, 2014 - 11:05am

I was talking to my Uncle who is an appraiser here in Southern California and he insists that getting a mortgage today is extremely difficult and one needs 20% down in most cases. I did not think that is the case at all.

I brought up the point that there is FHA, but he claims that FHA is not easy to obtain anymore and there is a huge amount of pushback and red tape with getting an FHA mortgage and even if the downpayment is small the cost of the mortgage has become very expensive.

Any truth to this? What is the reality?

Submitted by spdrun on November 14, 2014 - 11:12am.

I read that average d/p is something like 22%. Obama's pet stooge, Mel Watt, is trying to change that (at least for Fannie/Freddie) but changes are slow and incremental. Hopefully the GOP congress will do their best to obstruct and retard.

There's no reason why it should change. People without skin in the game will find is easier to walk away, and if you buy at 3% down, you're close to being underwater from day 1. 20% down was the standard till the 90s(?). It was also the de-facto standard in jurisdictions that didn't bubble up or down much. Read: Texas, under their homestead act, and NYC apartment buildings.

Submitted by kev374 on November 14, 2014 - 1:36pm.

Totally agree... if it was the standard in 90s and before and the housing market did just fine then why is it suddenly necessary to go to 5% down? It makes no sense.

In addition I also think that those who have 20% saved up have demonstrated the discipline required to save and be financially responsible.

Submitted by poorgradstudent on November 14, 2014 - 1:38pm.

It's tighter than the bubble and looser than 2009.

Part of it depends on how much of a rate premium you're willing to pay, along with suffering PMI. FHA loans are way less attractive than they used to be thanks to increasing fees.

My understanding is once the amount borrowing crosses into "Jumbo" loan territory, it becomes much trickier to get a loan. I think that limit in SoCal is 625,000? So it's possible if your uncle is appraising a lot of North County McMansions, 20%+ is going to be the norm.

Submitted by aaahnoor on January 30, 2015 - 10:49pm.

I was talking to my Uncle who is an appraiser here in Southern California and he insists that getting a mortgage today is extremely difficult and one needs 20% down in most cases.

__________
NOOR

Submitted by spdrun on January 30, 2015 - 10:54pm.

As it should be. In a volatile market like Southern CA, some cushion to keep homes from ending up underwater should be required.

Submitted by joec on January 31, 2015 - 7:20pm.

I think instead of "tight", the better term maybe "must follow guidelines".

If you don't fit in the box that they can sell your loan off to, you will have a tough time. Even if you are a multimillionaire, using the computer program conventional underwriting terms, you may not qualify (think Ben Bernanke...) unless you get a custom terms loan and some lenders won't even bother with you.

If you are self employed, good luck...

When we bought in 2009, I pretty much told the lender guy how much did you need me to put down to get the loan? Some didn't or won't even work with us or spend the time of day at all. This is even if we came in with > 50% down.

It's all pretty silly.

Seems like a good deal for anyone if you loan them 50%, they default, you just got the house for 50% off.

Submitted by svelte on January 31, 2015 - 7:28pm.

Guidelines aren't as tight as you would think.

http://www.broadviewmortgagelongbeach.co...

Note the 46.99% front end and 56.99% back end, min credit score 640.

Submitted by HLS on February 1, 2015 - 12:18am.

If you qualify, it's easy to get a loan.
If you don't qualify, putting 70% down won't help
(unless you go to a hard money lender)

For some people, it's never been easier to get a loan.
Having $10 million in the bank doesn't make it any easier to qualify for many loan programs.

If you make $300,000 a year and only have one credit card and no mortgage loan history, you could have a hard time getting a loan, even with 30% or 40% down.
If you have crappy credit, and can qualify, you can buy with 3.50% down,
If you have good credit and can qualify, you can buy with 3% down.
There are loan limits and different guidelines/costs for various programs.

20% down avoids mortgage insurance, not necessarily easier to get a loan with 20% down.
It's only 'easier' because your payment will be much lower.

I did a refi for an appraiser recently, he's a great appraiser but confused about mortgages.
Your uncle is wrong. It's not 'extremely difficult' IF you qualify. For many people it's simple to qualify.
He is correct that FHA is not cheap with mortgage insurance but many people don't care.
They just want to buy a house and will pay whatever they are told.
If interest rates were higher, many people wouldn't qualify.

Submitted by phaster on February 7, 2015 - 9:36am.

I'm trying to refi a property (to take advantage of rates I've been told just dropped)

anyone ever heard of, or had experience with:

https://www.umpquabank.com/locations/cal...

Submitted by Clifford on February 10, 2015 - 12:48pm.

HLS,

How hard would it be for someone who has the following credit profile to get a mortgage (conventional, not jumbo):

- Had a mortgage 10 years ago (currently has no mortgage)
- FICO score ~700
- Has only 2 credit cards
- Has no debt
- %50 down payment

Submitted by spdrun on February 10, 2015 - 1:02pm.

They'll still have to take your debt to income into account unless you're getting a portfolio loan for a non-owner occupied property.

Submitted by HLS on February 10, 2015 - 2:08pm.

Clifford wrote:
HLS,

How hard would it be for someone who has the following credit profile to get a mortgage (conventional, not jumbo):

- Had a mortgage 10 years ago (currently has no mortgage)
- FICO score ~700
- Has only 2 credit cards
- Has no debt
- %50 down payment

Relatively easy as long as you qualify based on income.
You would not want FHA.
Do you qualify for a VA ?
For conventional there are 2 loan limits ($417K & $546K in San Diego County) and 5 down payment tiers for a purchase. (3% 5% 20% 25% and 40%)
There are pricing hits based on credit score bucket AND down payment. It's a cut & dried matrix table, no exceptions, no excuses, no explanations.

They always use the middle credit score of the 3 bureaus, the highest & lowest are ignored.
If 2 people are needed to qualify, the use the lowest borrower's middle score.

In many cases this presents a problem, but if a borrower's income is not needed to qualify I suggest considering only 1 person on the loan, spouse can still be on title which is the ownership part.

Let's say there are 50 conditions that have to be signed off before a loan is approved.
Nothing gets overlooked because of a higher credit score OR larger down payment.
All 50 conditions need to be signed off.

Having a larger down payment on a purchase (OR more equity on a refi) doesn't make it any easier to qualify for a loan, other than the fact that your payment is lower.
They DO NOT say "there is 50% equity, we won't lose money, let's just fund the loan"
they are not looking to foreclose and there are many obstacles to doing so.

Credit scores generally need to be at least 620 but you will have a higher rate OR cash price to pay to get what someone with a 740+ score will get.

Most people don't grasp that there is not one rate that fits everybody. In most cases a mid score above 740 gets you the best pricing. It doesn't make it any easier if your score is 800 or 840.

feel free to contact me privately if you have specific questions.

Approvals don't care about how much debt you have, they only look at minimum monthly payments on a credit report.
Many people are not aware that they can raise their credit scores relatively easily & quickly.
It seems like your score should be much higher than 700~ but it depends on your history.

Just because someone has 50% down, zero debt, an 800 credit score and $1 million dollars in the bank, it doesn't mean that they can qualify for a conventional loan.
In many cases it's easier for someone with 3% down, other debt, no cash other than down payment and a much lower credit score to qualify.
.........It's simply idiotic.

Submitted by CA renter on February 10, 2015 - 8:09pm.

HLS wrote:

Just because someone has 50% down, zero debt, an 800 credit score and $1 million dollars in the bank, it doesn't mean that they can qualify for a conventional loan.
In many cases it's easier for someone with 3% down, other debt, no cash other than down payment and a much lower credit score to qualify.
.........It's simply idiotic.

Wow, that really is idiotic. I didn't realize that these things (especially large down payment) don't necessarily make it easier to qualify for a loan. If I were the lender, down payment would be the #1 qualifying factor, followed by debt/income ratios, and then FICO scores.

Submitted by spdrun on February 10, 2015 - 8:17pm.

Down payment does make it easier to qualify for a loan once you move outside of the domain of conventional lending.

Submitted by CA renter on February 11, 2015 - 12:53am.

Doesn't that seem silly, though? That's the best guarantee of maximum return of the lender's money in the event of a default, no?

Submitted by jeff303 on February 11, 2015 - 12:02pm.

HLS wrote:

They always use the middle credit score of the 3 bureaus, the highest & lowest are ignored.
If 2 people are needed to qualify, the use the lowest borrower's middle score.

In many cases this presents a problem, but if a borrower's income is not needed to qualify I suggest considering only 1 person on the loan, spouse can still be on title which is the ownership part.

Are banks willing to run both scenarios for comparison? I.e. add spouse onto loan (higher income, lower credit score) versus not?

Submitted by poorgradstudent on February 11, 2015 - 3:43pm.

HLS wrote:
Approvals don't care about how much debt you have, they only look at minimum monthly payments on a credit report.
Many people are not aware that they can raise their credit scores relatively easily & quickly.

It's kind of scary how easy it is to manipulate the numbers if you plan ahead. For example, most student loans offer a variety of payback plans. One option is graduated repayment, where payments go up with time, under the assumption income will improve. So even if the payment will be more like $200/mo over the life of a mortgage, it can look like $100/mo to the lender if that's your current monthly minimum.

Shuffling credit card debt onto 0% interest cards also lowers the minimum monthly payment, since most CC's use a variant of Interest Accrued During Billing Cycle + X% of account balance. Of course shuffling debt can negatively impact a credit score in the short run.

The way income is counted is weird and somewhat frustraing as well. In particular it's annoying that "contract" work isn't counted, even if it's a 6 month contract that has been renewed every time for the last couple of years. Considering California is an At Will employment state, to me it would make more sense to look at income history rather than current employment status and salary.

It's a messy system that can be manipulated, but brokers legally aren't supposed to coach you through how to pull some of the levers.

Submitted by joec on February 11, 2015 - 8:04pm.

If you're self employed, I think you're also required to use "net" profits now as income. That makes it so you now may not qualify if you want to minimize your taxes in a given year...Want to contribute to your retirement? Maybe skip it a year to jack up your income to qualify for a refi...

HLS, are you seeing non x-corp business owners getting many mortgages/refi's in the current environment?

I think it's all like this because every bank is trying to sell the loan back to fannie/freddie. Since they set the rules, they do whatever they require. If banks held the loans like maybe 30 years ago, then the guidelines would be more varied I'd assume.

Does any institution even hold loans anymore?

Submitted by spdrun on February 11, 2015 - 8:17pm.

^^^

Commercial lenders and small local banks. Here's one example:

https://www.valleynationalbank.com/Busin...

Submitted by an on February 11, 2015 - 8:24pm.

joec wrote:
If you're self employed, I think you're also required to use "net" profits now as income. That makes it so you now may not qualify if you want to minimize your taxes in a given year...Want to contribute to your retirement? Maybe skip it a year to jack up your income to qualify for a refi...
I thought self employed people don't have any more tools to minimize their taxes compare to W2-er?

Submitted by joec on February 12, 2015 - 7:26pm.

If you look at my old posts, you can see I did say self employed can put more in retirement. That said, for a W2-er, your paycheck is your income. For a self employed sole proprietor, your revenue isn't your income.

AN, you should just start your own thing and see how it goes...

Submitted by an on February 13, 2015 - 1:18am.

joec wrote:
If you look at my old posts, you can see I did say self employed can put more in retirement. That said, for a W2-er, your paycheck is your income. For a self employed sole proprietor, your revenue isn't your income.

AN, you should just start your own thing and see how it goes...

I did and will do so again for the exact reasons I've been saying. Thanks for the suggestion though.

Submitted by HLS on February 13, 2015 - 1:44am.

jeff30 wrote:

Are banks willing to run both scenarios for comparison? I.e. add spouse onto loan (higher income, lower credit score) versus not?

I don't know what 'banks' do. I don't work for a bank. I work for a borrower and do this to figure out what is best for the borrower.

Banks have divisions that are mortgage brokers.
They generally have the exact same automated approvals but may not have the best price OR service.
There is a huge misconception about what 'banks' do.

Submitted by HLS on February 13, 2015 - 1:50am.

poorgradstudent wrote:

It's kind of scary how easy it is to manipulate the numbers if you plan ahead.

It's a messy system that can be manipulated, but brokers legally aren't supposed to coach you through how to pull some of the levers.

It IS easy to manipulate some things but not income. Tax returns, pay stubs & W2's are usually
required except for some programs.

Do you have a source for stating the legality of a broker coaching you OR did you make that up ?

Submitted by HLS on February 13, 2015 - 2:02am.

Income is figured before retirement contributions.
W2 salary is prior to deductions.
Schedule C is similar.
Generally if you own more than 25% of a corporation, the K1's & 1120S are required to be submitted as well as 1040's

Most approvals are automated. Very rare to have manual underwriting now. Maybe some exceptions.
I don't think that many institutions hold many loans for 30yrs these days, 10yrs or less perhaps.
HELOC's do not have the same risk exposure; usually tied to the prime rate.

Submitted by svelte on February 13, 2015 - 7:08am.

jeff303 wrote:
HLS wrote:

In many cases this presents a problem, but if a borrower's income is not needed to qualify I suggest considering only 1 person on the loan, spouse can still be on title which is the ownership part.

Are banks willing to run both scenarios for comparison? I.e. add spouse onto loan (higher income, lower credit score) versus not?

In assisting another family recently, I can tell you for sure that a major bank recommended just using one spouse on the loan app, but the couple used both anyway. They were rejected.

They then resubmitted to the same major bank with just one spouse (both still on title) and were approved.

Submitted by jeff303 on February 13, 2015 - 11:58am.

That's interesting. My question to HLS was admittedly a naive one, but it seemed to touch a nerve. Anyway, what I'm really trying to figure out is, how can a borrower determine which scenario is better for them? Is it possible to work with someone (buyers agent, bank, other lender, whoever) who can "run the numbers" on both scenarios relatively easily? Or does one have to apply for two different loans in order to see the difference?

Submitted by svelte on February 13, 2015 - 12:11pm.

jeff303 wrote:
That's interesting. My question to HLS was admittedly a naive one, but it seemed to touch a nerve. Anyway, what I'm really trying to figure out is, how can a borrower determine which scenario is better for them? Is it possible to work with someone (buyers agent, bank, other lender, whoever) who can "run the numbers" on both scenarios relatively easily? Or does one have to apply for two different loans in order to see the difference?

Talk to a loan officer. They've dealt with underwriters enough that they'll be able to tell you which scenario is most likely to result in approval. They'll also be able to tell you what parts of your documentation are solid and what could potentially cause problems.

Of course, nothing is guaranteed as the loan officer and the underwriter are intentionally partitioned off from each other - for good reason.
The only way to know for sure is to submit something and see what comes back.

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