Denver’s relationship with Fannie Mae and Freddie Mac hits the rocks:

The chief executives of Fannie Mae and Freddie Mac on Tuesday warned that their ailing mortgage-finance companies will suffer further in 2008 because of a weakening housing market and rising home-loan defaults.

Read the full article: Freddie and Fannie: More woes in 2008

Metro Denver’s designation as a “declining market” could delay any recovery in the area’s long-suffering residential real-estate market, local housing experts said Tuesday.

Read the full article: Fannie label on Denver ominous

What does this all mean: Putting 5% down is the norm to get a Fannie Mae or Freddie Mac loan. They do have several high risk 100% loans but these loans have higher rates with higher levels of mortgage insurance.

FHA only requires 3% down.

Some companies will have 100% down programs it just remains to be seen who.

FHA Secure is being touted as the solution to the maddening mortgage adjustable rate mortgage crisis. It remains to be seen if a government loan will really solve the mortgage crisis or if the crisis was really a spend like there’s no tomorrow attitude.

A new federal loan program designed to help borrowers cope with rising payments on adjustable-rate mortgages is kicking into gear.

An estimated 80,000 borrowers nationally are expected to take advantage of the FHASecure loan program, said Ben Johnson, director of the Denver Homeownership Center with the Federal Housing Administration.

Another 160,000 or so are expected to use other FHA loans to escape their unaffordable mortgages.

The first Colorado borrowers in the program should start receiving their new loans in early November.

Critics say the program doesn’t go far enough to help homeowners.

FHASecure loans, unveiled by President Bush in August, are designed to shift borrowers who can’t afford higher payments on their ARMs into more traditional FHA-backed loans.

But they aren’t a shoo-in. Borrowers facing a reset must have stayed current on their payments for at least six months, although those who have fallen behind because of a reset to a higher interest rate are eligible.

Loans are underwritten to FHA standards, which limits how much can be financed. In Denver-Aurora, the FHA cap is $308,370.

The FHA will insure a mortgage for up to 97 percent of a home’s appraised value. If the borrower can’t come up with the down payment or the loan is worth more than the home, the current mortgage provider must be willing to accept a second mortgage for the difference, including any prepayment penalties or other fees.

Borrowers must also demonstrate an employment history and that they can afford the payments on the new loan, based on an interest rate that will come in somewhere between the initial rate offered on the ARM and the higher adjusted rate.

Critics charge that FHASecure and other administration efforts represent a Band-Aid on an open wound. There were 223,538 foreclosure filings in the U.S. in September, according to RealtyTrac.

“Unfortunately, the bottom is falling out of our housing market much more quickly than the administration is willing to stem the tide of foreclosures,” Sen. Charles Schumer, D-N.Y., said Wednesday.

Schumer was responding to an announcement Wednesday by Treasury Secretary Henry Paulson Jr. of a new alliance with mortgage servicers, housing counselors and government agencies to help an estimated 2 million borrowers who face higher payments on their ARMs – not all of whom would qualify for FHASecure loans.

“A combination of stagnant or falling house prices, low- down-payment mortgages and resetting adjustable-rate mortgage rates are creating real challenges for many American homeowners,” Paulson said in a statement.

The Hope Now program will work to establish best practices in housing counseling and launch a mass-mail marketing campaign next month to reach struggling borrowers before they fall off a cliff.

As it reaches out to help borrowers, the FHA also has cracked down on seller-financed assistance programs.

The programs, which claimed to be charities, inflated home sales prices, allowing the minimal 2 percent to 3 percent down payments to be wrapped back into the FHA loans and increasing the risk to buyers and the government.

Source: Denver Post

Here’s a mortgage primer on which loans are no longer the flavor of the month on Wall Street. They’re the Michael Vick’s of the mortgage world, they were once very popular on but now nobody wants to be associated with them. Okay, that’s a little bit too harsh since these loans didn’t kill dogs. Then again, these loans have put families in dire straits so lets keep the Michael Vick analogy.

Loans the Wall Street doesn’t like:

• THE LOANS WITH THE REALLY REALLY REALLY LOW RATE AND LOW MONTHLY PAYMENT

Also called: 1%, NEGATIVE AMORTIZATION, NEG AM, OPTION ARMS, PAY OPTION ARMS or

“A CAN OF WHOOP ASS WAITING TO HAPPEN”

• THE LOANS FOR BORROWERS WITH REALLY REALLY REALLY BAD CREDIT HISTORIES

Also called: SUBPRIME, NON PRIME, POOR CREDIT, 2/28s, 3/27s, or

“I GUESS THIS IS WHAT I GET FOR NOT PAYING MY BILLS”

• THE LOANS FOR BORROWERS WHO HAVE GOOD CREDIT BUT WHOSE OVERALL LOAN APPLICATION DOESN’T MEET FANNIE MAE OR FREDDIE MAC’S STANDARDS

Also called: ALT-A or

“SO I’VE GOT GOOD CREDIT AND A GOOD JOB BUT I’M PENALIZED FOR NOT SAVING ANY MONEY”

• THE LOANS FOR BORROWERS WHO CAN’T REALLY REALLY REALLY SHOW HOW MUCH MONEY THEY’VE MADE OR HOW MUCH THEY HAVE SAVED UP

Also called: STATED INCOME, STATEDSIVA, SISA, NO DOC, or

“DON’T THEY HAVE LOANS FOR PEOPLE WHO DON’T HAVE JOBS?”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PUT ANY MONEY DOWN

Are called: 80/20, 100% Financing, NO MONEY DOWN, 103%, 107% or

“I WANT A LOAN WHERE I GET TO KEEP MY MONEY IN CASE MY JOB GETS OUTSOURCED TO INDIA”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PAY AN AMORTIZED PAYMENT

Also called: INTEREST ONLY, IO, or

“IF I LIKE PAYING DOWN PRINCIPAL MY PAYMENT GETS RECAST TO A LOWER PAYMENT EVERY MONTH”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY WANT TO BUY A HOME THEY HAVE NO INTENTION OF LIVING IN

Also called: INVESTMENT PROPERTY LOANS, NON OWNER OCCUPANCY, NOO or

“I’M GOING TO BE THE NEXT DONALD TRUMP”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY MAKE A LOT OF DOUGH

Also called: JUMBO, NON CONFORMING, SUPER JUMBO, MILLION DOLLAR LOANS, ANYTHING OVER $417,000 or

“THAT’S PRETTY LOW FOR A RATE OF RETURN AND PRETTY HIGH FOR A MORTGAGE INTEREST RATE”

It remains to be seen if Wall Street still likes:

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY HAVE NO INTENTION OF LIVING IN THEIR HOMES FOR 15 to 30 YEARS

Also called: ADJUSTABLE RATE MORTGAGES, ARMS, 3/1, 5/1, 7/1, 10/1, TEASER RATE LOANS, HYBRID LOANS, BALLOONS or

“THE AVERAGE PERSON MOVES EVERY 5 to 7 YEARS, SO WHY SHOULD I GET A LOAN FOR 30 YEARS?”

Wall Street will always like:

• THE LOANS WITH REALLY REALLY REALLY NO RISK

Also called: FHA, VA, CONFORMING, FANNIE MAE, FREDDIE MAC or

“THE LOANS THAT MAKE UP THE MAJORITY OF THE AMERICAN MORTGAGE LANDSCAPE”

Yesterday, ZERO DOWN LENDERS FOLDING was emblazoned on the front page of the Denver Post.

The article discusses in detail how subprime lenders are going out of business. The model suprime lenders use is usually the same across the board. Typically they offer 2 or 3 year adjustable rate mortgages. Once the borrower has a two year history of paying a mortgage they usually refinance to another loan. Hence the term band aid loans or band aid lenders. These lenders are going broke and now it’s front page news.

About two dozen of the largest subprime mortgage lenders across the country – some with offices and customers in Denver – have gone under or stopped making loans since December….

Subprime lenders are typically viewed as lending options to poor credit borrowers as well as borrowers with collections, bankruptcy, or foreclosures. However, they cater to more than that:

1. If a borrower has great credit but no assets, they may be a subprime borrower.
2. If a borrower has poor credit and a multitude of assets, they may be a subprime borrower.
3. If a borrower is buying their first home but doesn’t have the income necessary to qualify for a FHA loan, they may be a subprime borrower.
4. If a borrower has more than one late payment on a mortgage, they may be a subprime borrower.
5. If a borrower is buying a home and renting a room to a friend, they may be a subprime borrower.
6. If a borrower… well you get the point. The scenarios are endless.

I get a lot of email. Some are linking requests. Some are spam that somehow get through GMAIL’s spam filter. Some are mortgage requests. Some are mortgage questions. Some are mortgage vendors trying to sell me something.

On Sunday, I received a well written argument from a reader who asked me to post his response to the Denver Post article NO MONEY DOWN: A HIGH RISK GAMBLE.

Phil,

I enjoy frequenting your blog, and wanted to be sure to share this with you. I am an independent Mortgage Broker with my own company Source Financial LLC, and I wrote an extended response to The Sunday Denver Post’s lead article from September 17, 2006 entitled “No Money Down: A High-Risk Gamble” [www.denverpost.com/ci_4347686].

I found the Denver Post article to be riddled with misrepresentations, one-sided accountings, and dangerous misinformation, all supporting a traditionalist approach to mortgages that has put two-thirds of all families into home ownership, but yet has led to a situation where the average fifty year-old American is worth negative $7000, only 5% of Americans retire at age 65 in financial dignity, and 9 out of 10 Americans die in debt.

In reference to my 2000 word response, Denver Post Business Editor Stephen Keating indicated that “I will take the time to read it and digest your observations, and discuss it with the rest of the reporting/editing team here.” Article author and Denver Post Business Writer Greg Grifffin wrote “This is a well-reasoned and well-supported argument. I don’t agree with everything you’ve said, but you’ve managed to get me thinking.” Unfortunately, checking today’s (September 24) Sunday Denver Post and www.denverpost.com, my response remained unpublished…

A Response to “No Money Down: A High-Risk Gamble” – The Sunday Denver Post, September 17, 2006 lead article [www.denverpost.com/ci_4347686]

As an independent Mortgage Broker that owns my own company, Source Financial LLC, in addition to being affiliated with a larger mortgage company that handles the processing and servicing of my loans, Lion Financial Corporation, I read the lead article “No Money Down: A High-Risk Gamble” with great interest. Knowing that a lot of folks along the Front Range turn to the Denver Post as an objective source for information, I was shocked and dismayed by much of the information and conclusions that were put forth on a topic that already invokes a fight or flight response among many home owners.

100% financing loans have been an amazing tool that has greatly contributed to the 5% increase over the last twenty years in percentage of homes occupied by the owner. But it is not the lack of equity that is putting these borrowers into jeopardy, it is a lack of a flexible asset base to deal with changes that has been increasing the risk of these folks defaulting. In general, people that utilize 100% financing for home purchases usually are lacking the liquid assets, emergency funds, and overall wiggle room to deal with financial hardship.

Of course lenders usually have guidelines concerning liquid asset reserves that must be held by the borrower in order to qualify for a loan, but often they only require enough to cover two to four months of mortgage payments. When people do face catastrophic events rightfully referenced by the Denver Post, “job loss, medical problems and divorce,” those reserves can often quickly disappear.

But having equity in one’s home when faced with these situations does not “give homeowners options when they face financial problems,” because it is precisely when folks are facing such dilemmas that they are quite often unable to qualify for refinancing, as at that point in time they are too high risk of a borrower for lenders to work with. As a Mortgage Broker I am deeply disturbed by this fact, but unfortunately it is a reality that we all must face when dealing with banks and lenders.

And probably the most misunderstood aspect of homeownership is the fact that equity is a ZERO PERCENT RETURN INVESTMENT. Yet two-thirds of Americans hold the majority of their wealth in home equity, which is a non-liquid asset that gives them absolutely zero return. Many people confuse appreciation, which is the increase in home value due to market trends, with getting some kind of return on their equity, but that is a common misconception. That is why it is so important for homeowners to separate their equity from their home via refinancing, and put those “cashed out” funds into investment vehicles that offer an actual rate of return. In doing so, homeowners increase their overall liquidity, improve their capacity to face emergencies, reduce their financial risk, increase their rate of return, improve their tax deductions, and diversify their investment portfolio.

Instead of spending their liquid asset base (savings) to finish their basement and send money to their parents, such as in the case of Jose Garcia and Maria Vanderhorst, borrowers with 100% financing have to exercise greater financial discipline. And putting money down and getting into a 30-year fixed would not have improved their situation, as then their down payment would be tied up as equity, which is a non-liquid asset, money that can only be accessed through refinancing or by selling their home.

100% finanacing loans are not dangerous, what is dangerous is borrowers not having a liquid asset base to deal with life’s contingencies. Unfortunately, these are the type of borrowers that tend towards 100% financing, as it really is their only option for home ownership. And tying up their wealth in the straightjacket known as equity is not part of the solution, it is part of the problem. An incredible means to access equity for the purpose of greater fiscal flexbility and all the other goods mentioned above, or “cashing out equity as one goes,” is the Option-ARM loan, which received quite a misguided slamming in the Denver Post article.

The Payment Option Loan gives the borrower four different payment options each and every month: they can make an Interest Only, 30-Year amortized, or 15-Year amortized payment based upon the fully indexed interest rate, or they can make the minimum payment that is based upon a very low “start rate” (usually between 1% and 4%), which involves deferring interest (a.k.a. negative amortization), or adding the difference between the Interest Only payment and the minimum payment onto the principal of the loan. Now while most lenders offer the Payment Option Loan with an adjustable fully indexed rate, one that starts adjusting as early as the first month, some lenders offer the Payment Option Loan with a fixed interest rate for the first five years.

The Payment Option Loan has proven to be a favorite of Real Estate Investors and Real Estate Agents, as it frees up extra cash flow on a monthly basis for much greater investment opportunities. Knowing that equity is a zero percent return investment is some powerful information to have.

The annecdote concerning Louis and India Harts conflated the fixed “start rate” with the adjustable “fully indexed rate”, such that readers were left with the impression that the Harts’ interest rate went from 2.6% to 8.1%. The start rate, which determines how much the minimum payment will be, is not a “teaser rate” that “quickly shoots up”. Some lenders do gradually increase the minimum payment itself (not its determining start rate) on an annual basis, usually somwhere in the range of 7.5% per year, to keep the borrower from deferring too much interest. But the start rates is always otherwise a fixed rate. It is the fully indexed rate, upon which the Interest Only, 30-Year amortized, or 15-Year amortized payments are based, that is adjustable is this case. And this fact is consistent with the numbers quoted in the article: the minimum payment of $919 the Harts are making would be the combination of $721 (2.6% start rate on a $180,000 loan) and $198 of escrowed Property Taxes and Hazard Insurance, which is approximately what they would be for such a home.

In the Harts’ particular case, they are going to have plenty of time to refinance before their loan starts to recast when the principal hits 115% (which would be $207,000 in their situation), as they will be well below that total when their three year prepayment penalty period is up. So the answer to Louis’ “I don’t know how we’re going to do it,” is that when those three years are up, they’ll refinance and get themselves into a loan that they feel more comfortable with and educated about. Though given their situation, if properly understood the Payment Option Loan really is their best option.

My question is how can mortgage products themselves be blamed for foreclosures? At best the article points towards a correlation, but demonstrating causation surely requires more than offhanded references to what some unnamed experts stated the next wave of defaults “may” come from. Beyond unpredictable catastrophic occurences like job loss and overwhelming medical bills, foreclosures occur because borrowers are getting into loans that they do not understand, and often they do not know that they do not understand the mortgage product. It is the responsibility of the Mortgage Broker to completely explain all the details of any mortgage product to the borrower. But it is also the responsibility of the borrower to be certain that they understand the terms of loan before signing off on it at closing. Vehicles and guns both kill in the range of 35,000 Americans each year, but it is the human misuse due to lack of education, ignorance or simple negligance that creates this reality, much like in the mortgage scenario.

Every different mortgage product serves its purpose, and what works for one borrower will not work for another given the specifics of their situation. To label certain categories of loans as “high-risk gambles” or as leaving “no room for slips” ignores the millions of families that are in these loans and find that they very much work for them. It is also a disservice to consumers to mislead them with such one-sided representations.

The true irony of the lead piece in September 17th Sunday Denver Post is that the conclusion that “Option-ARMs… could fuel a surge in foreclosures in the next few years” is the opposite of what we find is actually going on in the mortgage industry, as Payment Option Loans have proven to have the lowest foreclosure rate of any mortgage product currently on the market. World Savings is a bank that specializes in this product, which they refer to as the Pick-A-Pay Loan, as more than 90% of the loans they outfit borrowers with are of the Option-ARM variety. As a lender they have less than a 1% percent foreclosure rate! But World Savings, along with the independent Mortage Brokers like myself that they work with, take on the responsibility of educating the borrowers as to how to properly and smartly manage this incredibly powerful mortgage product.

A lot of mortgage brokers I know will not touch Payment Option loans, but I believe that is primarily because they are not all that interested in educating the consumer. Why not just throw them into a 30-year fixed APR mortgage? Everyone pretty much knows how that works. But that is also how banks make of the most money off of borrowers! The “list of higher-risk, alternative mortgages” the article refers to are not only not necessarily higher risk (Payment Option loan has the lowest risk, as discussed above), but they also provide the borrower the opportunity to increase their monthly cash flow by lowering their monthly mortgage payments by as much as 40%. In this way consumers are empowered to “become the bank” and grow their own investment portfolio, rather than falling into the trap of handing over their hard earned capital to the banks in the form of a large down payment or paying down principal so that they can have more of a zero percent return investment, equity.

Affiliates of Lion Financial Corporation, like myself through my company Source Financial LLC, do not shy away from the privilege or responsibility of educating our clients how to properly utilize alternative mortgage packages. And why is this? Because when families are taught smart mortgage product and equity management, they learn to utilize their mortgage as a financial tool for building wealth, which easily makes a $500,000 to $1,000,000 difference for the borrower over the next fifteen to twenty years. The affluent have always understood how to leverage their mortgage, pay as little down as possible, and keep very low monthly payments in order to increase cash flow for investment purposes. The American middle class is being transformed by engaging in these very same concepts and increasing their fiscal discipline, and I absolutely would not have it any other way.

Brent Ritzel
President/CEO, Source Financial LLC
Denver, Colorado, USA
An affiliate of Lion Financial Corporation
303-590-8999
Brent.Ritzel@lionfinance.com

The Denver Post three articles devoted to real estate and mortgage fraud:

• 3 men named in real estate scam

The indictment claims the men solicited investments in duplex projects in Colorado, Texas and Florida that were never built.

• Big profits oil the wheel of loan fraud

Former prosecutor Anthony Accetta cleaned up mortgage fraud 34 years ago – or at least, he tried.

Accetta said nobody in the lending industry cares about mortgage fraud, because nobody in the lending industry suffers when a loan goes bad. The mortgage industry is a financial game where all of the players are covered against losses.

• FHA program key in surge of foreclosures

A key factor in the state’s record-setting wave of foreclosures, critics say, is an FHA program that allows people to borrow more than their houses are worth with little or no money down.

Created to extend the dream of homeownership to first-time buyers, the so-called FHA gift program instead has led to rampant foreclosures. Nearly 6,000 FHA loans have wound up in foreclosure in Colorado in the past two years, and during that time the program allowed more than 25 percent of FHA buyers to use gifts as down payments.

To read more about mortgage and real estate fraud check out these two blogs:

1. Flipping Frenzy
2. Mortgage Fraud Blog

Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.

In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, including “low” and “no” down payment mortgage programs. These types of programs require the borrower to provide less than 3 percent of the loan amount as down payment. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income.

Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home” is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.

Editors Note: Due to the mortgage and credit crunch, 100% financing has been eliminated. If you’re in need of a Denver Financing contact us to discuss your mortgage options.

100% Financing allows you to buy a home with no money down.

100% home loans are widely available nowadays. Not only do government loan programs such as FHA and VA offer Zero Down mortgages, conventional loan programs with No Money Down feature are also offered by many traditional mortgage banks.

100% financing can be a great loan even for those who do have access to a down payment. Down payment funds can many times can be better kept aside for things such as other investment opportunities, a reserve account for emergencies and future home improvements.

Many people wait to receive income tax money, a big bonus at the end of the year, or a large gift from an immediate family member before they begin looking to buy a new home. A 100% zero down loan eliminates this waiting period and allows you to obtain the home you want now. Especially now with the uncertainty of interest rates and where they will be in the next 6-12 months. Now is the time to begin looking for your dream home. Waiting may cause you to accept a higher interest rate because the rates have increased during the time you waited. Even if you do have money available for a down payment it is always a good idea to keep some money put away for a rainy day or for an old furnace that needs to be fixed, an old water heater that needs to be replaced or some other basic home repairs. Also, you may want to have some money left to help pay for some of the costs associated with buying a new home, such as buying window treatments, decorating, new furniture, etc…

Almost all lenders allow this now and it can even be done with poor credit. Down to a 560 currently, although the interest rate will be reflective of your credit score!

By using 100% home financing option to control your up-front expenses by reducing your down payment to as little as zero without having to pay mortgage insurance. Most commonly know as 80/20 combo mortgages.

Besides being commonly known as 80/20 combo mortgages. 100% Financing can also be called NO MONEY DOWN or ZERO DOWN.

With 100% or Zero Down home loans, a home buyer is able to minimize his or her out of pocket expenses allowing them to purchase their dream home much sooner. In addition this allows more cash for the family to use for other home necessities.

You can now get 100% financing for the full purchase price of a home a single loan. In recent years, loan products have been developed to provide home buyers with the opportunity to purchase a home without a down payment. For many years, the minimum down payment required was 5% of the purchase price for a home. Then, special first-time home buyer programs came into existence, which usually required a 3% down payment. Now you can buy a home without a down payment.

100% Financing programs are off erred by lenders in markets where property values are stable or increasing. In markets that show decreasing property values, lender are much less likely to offer 100% Financing programs.

Often you can still do 100% Even with poor credit with a seller carry back. The lender will finance 80% and the seller will finance the remaining 20% Some lenders will allow this even with a credit score as low as 540!

Writing closing costs into the Purchase and Sale contract is called adding “seller concessions”. Many lenders will allow up to 6% of the sale price of the home to be paid in seller concessions.

If you are considering purchasing a property with no money down, please contact your local mortgage agent before you write your offer.

One effective way to get a win-win is to help someone with no down payment money on a For Sale By Owner home. The seller is more likely to agree to seller concessions when they know they are saving the realtor commission. If you find a 100% loan for the buyer and the seller will agree to 6% seller concessions, the broker can get a fair commission for playing real estate agent and directing the parties to a good title company or attorney to help with contracts and closing. This is often considerably cheaper than FHA because FHA has the mandatory up front PMI of 1.5% although the interest rate may be a little higher than the FHA rate. You might also ask your mortgage broker about companies that offer to have the PMI added to the interest rate where it is tax deductible, or have them do an 80/20 loan to avoid MI altogether.

100% financing does not include your closing costs. Your Real Estate Agent may write the closing costs into the contract for the seller to pay so that you may not be required to use any of your funds to purchase your home.

If your credit score is below 700, another excellent way to avoid PMI Private Mortgage Insurance on a 100% purchase is to contact us and enquire about a subprime 100% purchase mortgage loan.

You will still have to put down earnest money on the home you plan to purchase. If you obtain 100% financing, the earnest money will be used toward your closing costs.

Borrowers with strong credit scores will have more 100% financing programs to choose from with better rates than a borrower with a lower score.

Although more difficult to qualify for, there are No Money Down programs for investment properties as well. The property has to be residential, up to 4 units. As an investor pay close attention to your cash flow on any property as 100% financing often pushes expenses beyond income.

Many people today are opting for 100% financing, or zero down programs. This puts you at an advantage if you already have cash on hand. While it would seem logical to put money down towards your purchase, you may want to consider your situation after the loan closes. Will you have enough cash left over?

The Uniform Residential Loan Application is commonly referred to as the 1003 (ten-oh-three) throughout the mortgage industry. When the loan application is completed accurately, the data obtained provides sufficient information for the underwriter to make an informed decision about the borrower(s).

The application is divided into sections to make it easier to complete and understand. They are as follows:

• Type of Mortgage and Terms of Loans
• Property Information ampersand Purpose of Loan
• Borrower Information
• Employment Information
• Monthly Income ampersand Combined Housing Expense Information
• Assets ampersand Liabilities
• Details of the Transaction
• Declarations
• Acknowledgement ampersand Agreement
• Information for Government Monitoring Purposes

Type of Mortgage ampersand Terms of LoanThis section identifies the loan program requested and the term of the loan in months.

Property Information ampersand Purpose of LoanThis section identifies the subject property’s common address and legal description including the year the property was built and the number of units within the property. The purpose of the loan and the occupancy status are included in this section. The section also addresses other informational items such as whether the loan is a construction loan, construction permanent loan, or a refinance loan. Finally, this section includes the name and manner in which the title is held, the source of the down payment and the settlement charges.

The Borrower Information contains all of the personal information of the primary borrower and co-borrower. The information needed to complete this section includes the following: Name Social Security Number Home Phone Birth date Years of Schooling Marital Status Number of Dependents and Ages Current Address Former Address if residing at Current Address less than 2 years If there is a co-borrower this information will need to be supplied as well.

• D. Year Built — The year the subject property was built
• E. Purpose of the Loan — The reason you are applying for the mortgage –(1)Purchase or (2)Refinance
• F. Property Will Be — (1)Primary Residence — Borrower will live in the property. (2)Secondary Residence — Borrower will use the property as a vacation home and it will NOT produce income.

(3)Investment — The borrower will NOT occupy the subject property; it will be used as an income producing property.

G. Complete this Line if Construction or Construction-Permanent Loan

• Year Lot Acquired — The year the lot was purchased
• Original Cost — The purchase price of the lot
• Amount Existing Liens — Total balance of ALL mortgage liens on the subject property
• Present Value of Lot — Present market value of the lot
• Cost of the Improvements — The dollar amount of the construction costs for the proposed new home
• Total (a+b) — (a)Present Value of Lot + (b)All the Cost of Improvements

L. Estate Will Be Held In — Indicates how estate will be held.

• Fee Simple — Indicates an estate under which the owner(s) is entitled to unrestricted use of the property.
• Leasehold — Indicates an estate in real property wherein the mortgagor does not actually own the property, but rather has recorded a long-term lease; the expiration date of the lease should also be included in this section

IV. Employment HistoryThis section is designed to identify at least a two-year employment history for the borrower(s). It identifies potential factors like stability, tenure, and the line of work of the borrower(s).

If you would like us to assist you in completing the 1003 application over the phone, give us a call at the number listed at the top of the page.

The 1003 is the starting point for the entire loan process. Wherever you go to apply for a loan, be it at your local bank, or with a mortgage broker, or even on the Internet, all lenders insist on a completed 1003 application. It is the standardized form designated by Fannie Mae and is a pre-requisite for a real estate loan.

K. Source of Down Payment — The source of the funds the borrower(s) is using for the down payment and/or closing costs on the subject property loan. These funds can be personal funds, gifted funds, etc.

Information needed in this section is as follows:

• Borrower’s Name — Full name with middle initial including Jr. or Sr. if applicable
• Social Security Number — Borrower’s Social Security Number
• Home Phone Number — Borrower’s phone number at their present address
• DOB — Date of birth in MM/DD/YYYY form
• Yrs. of School — The number of years of education the borrower has completed in whole numbers
• Married, Unmarried, or Separated
• Dependents — The number of dependants and their ages
• Present Address — The complete property address where the borrower currently resides. A full two-year residence history is needed
• Own or Rent — Does the borrower own or rent at the present address or any other addresses in the 2-yr residence history
• The borrower’s complete mailing address if different from the present address

• Mortgage Applied For — Type of Mortgage Requested
• Agency Case Number — FHA, VA or USDA/RHS Case Number
• Lender Case Number — Lender’s Internal Case Number
• Amount — Dollar Amount Wanted
• Interest Rate — Rate the Borrower Expects to Receive
• No. of Months — Term of the Loan in Months
• Amortization Type — Either Fixed Rated, Graduated Payment Mortgage(GPM), Adjustable Rate Mortgage(ARM), or Other

• A. Subject Property Address

— The property address that will be secured by the mortgage loan. If the property address is not known, put TBD (To-Be-Determined)

• B. No. of Units — The number of units contained within the subject property
• C. Legal Description of Subject Property — The method of geographically identifying the subject property; see preliminary title commitment or purchase contract for legal description

J. Manner in which title will be held — The type of tenancy.

• Joint Tenants — An ownership of a property by 2 or more individuals who have equal, undivided interest in the subject property
• Tenants in Common — An ownership of a property by 2 or more individuals, each of them having an undivided, but not necessarily equal, interest in the subject property
• Single Tenant — The ownership of a property by one individual.

• Name and address of the employer — A full two-year employment history is needed
• Self-Employed — Mark here if the borrower is self-employed
• Yrs. on the Job — The length of time the borrower has worked in their current line of work in years and months
• Years employed in this line of work — Length of time in the current profession in years only
• Position — Current job title and position
• Business Phone — The phone number of the borrower’s employee, not a cell phone unless the borrower is self-employed
• Other Income — If the borrower has a second/part-time job and they are using the income for purposes of qualification, they must included a 12-month history and be able to demonstrate the income will continue.

H. Complete this line if this is a refinance loan

• Year Acquired — Year the subject property was purchased
• Original Cost — The purchase price of the subject property
• Amount of Existing Liens — The total balance of ALL the mortgage liens on the property
• Purpose of the Refinance — (1.) No cash-out rate/term — The borrower is refinancing the subject property to include the payoff of existing mortgage(s), the closing costs, and/or prepaid items/reserves with zero net proceeds to the borrower at closing. (2.) Limited cash-out rate/term — The borrower is refinancing the subject property to include the payoff of the existing mortgage(s), the closing costs, and/or prepaid items/reserves and receives industry acceptable cash at closing that is usually less than 2% of the loan amount. (3.) Cash-out — The borrower is refinancing the subject property to pay off the existing mortgage(s) for the subject property, to pay any closing costs associated with the loan, and/or to receive additional cash proceeds at closing for any personal or business matters.

I. Title will be held in what name(s) – The name(s) of the individual(s) who will be vested in title to the subject property

III. Borrower InformationThis section identifies information about the borrower(s) such as names, social security numbers, and at least a two-year residence history. This section falls under the regulations of the Equal Credit Opportunity Act (ECOA). When concerning martial status, the borrower may only be asked, “Are you married, unmarried, or separated?” In a community property state, the applicant may further ask, “If unmarried, are you single, divorced, or widowed?”

A document that gives an estimate of a properties fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

You probably have an opinion of the value of your home. Your opinion and a professional appraiser’s opinion may be the same. But appraisers are required to be objective and impartial in their analyses and opinions. A professional appraiser has been trained in appraisal methodology and looks at how your home compares with sales and listings of homes similar to yours, considers many factors such as price trends and proximity to a freeway, complies with professional standards, and usually completes a written report.

It is important to note the appraisal process and inspection for FHA and VA loans in particular may be significantly more rigorous than a conventional mortgage.

An appraisal when completed is good to keep on hand even after the intended transaction is complete. For example, after getting an appraisal for a refinance transaction, this same appraisal may come in handy to give you a point of reference should you wish to sell the property at a future date.

A fee is paid to an appraiser, who is qualified by education, training, and experience to estimate the value of real and personal property. Appraisers usually charge one fee for a single-family home and slightly higher fees for a two-family, three-family, or four-family home.

Appraisals are much more likely to come in under the expected value in a re-finance transaction than in a purchase transaction. Simply because homeowners often unrealistically over estimate the value of their homes.

Even though the borrower pays for the cost of the appraisal report, it is in the name of the lender bank or mortgage broker. By law, borrowers have the right to receive a copy of the Appraisal Report. In fact, lending institutions are required to disclose to the borrowers that they have this right.

The fair market value that is determined by the appraisal is not just what an evaluation of what your house is worth, but what a potential buyer in that market would be willing to pay for the property.

Although appraisals rarely come in under the purchase price, it happens. What are the implications of a low appraised value? For one, the buyer overpaid, at least in the eyes of the appraiser. An appraisal is nothing more than just the appraiser’s professional opinion on the “fair market value” of the subject home. The “fair market value” of a home is subjective. What it’s worth to one buyer is often not worth as much to another (otherwise the first buyer would have been overbid). In a purchase transaction, the buyer often uses the low appraisal value as leverage to negotiate a lower purchase price. Unless being in an overheated real estate market where the seller is certain he will find another buyer, the seller would often agree to a lower price for fear of not finding another buyer in a short time, and the recurrence of a lower appraisal value with any subsequent buyers. Another possibility the appraised value may come under the purchase price is that the appraiser may not be familiar with the neighborhood. This happens most often when the bulk of the appraiser’s work is not in the same vicinity of the subject home, or that the subject property is located in a rural area when there are no usable comparable sales. If a home buyer believes this is the case, he should request a copy of the appraisal report from the lender, check the comparable properties chosen and determine whether they are valid comparable.

There are several kinds of appraisals including an Automated Valuation Model, a Full Interior and Exterior Appraisal, and a Limited Exterior Appraisal. Some loans such as home equity loans under $100,000 don’t require a full appraisal, while home loans over $2 million will require two full appraisals.

Costs for appraisals can vary depending on which company is used. Sometimes the cost can be inclusive in the loan fees and other times it will need to be paid when the appraiser comes out to the home. In any event, the appraisal evaluation is one of the key components in what loan amount each individual borrower will qualify for.

The appraisal in not to be confused with the home inspection. While an appraisal is completed for the value of the home alone, the inspection is performed to uncover potential problems that may be present in the home. It’s very important to have both done on the property.