Attorney Connie
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Status of Mortgage Payment and Possession of Collateral Foreclosure
Is A Home Loan Delinquency of 120 Days Equivalent to A Foreclosure?
- No, but it’s a critical stage:
- At 120 days late, your lender can take steps to start a foreclosure, but there is no foreclosure yet.
After how many late mortgage repayments can foreclosure commence?
Typically, four missed payments:
- Foreclosure proceedings may commence after 120 days of defaulted payments (generally four missed payments in a row).
- Social Security disability does not qualify for an exception to the 120-day foreclosure period.
Exceptions include:
Why have the mortgagor tax?
- Pre-emptive court actions such as bankruptcy can change dates.
What Do 120 Days Delinquent Speak Of?
- In layperson’s terms, one hundred twenty days delinquent means that you have not paid your mortgage for 120 days and are likely to face the prospect of losing the property.
What is the 120-day Default Period for a Mortgage?
- The 120-day default period can also be defined as a compulsory waiting period whereby no lender can undertake foreclosure to give the borrower time to consider other options.
How Many Payments Can You Miss On A Mortgage Before You Are Trouble?
A lot of time up to 120 days:
- After 120 days, the lender can initiate foreclosure.
- However, please make sure to call your lender sooner than later so that you can discuss this.
How Long Can You Be Late with Your Mortgage Payment?
- Usually for up to four months[120 days].
- After this, foreclosure can begin.
What Happens If You Cannot Make A Payment For 3 Consecutive Months In The Mortgage?
Pre-Foreclosure Status:
- You will receive notices, and your lender might try to mitigate the loss.
- However, the lender may commence foreclosure following the next payment default.
Can a bank still foreclose on the house even though you have remitted partial mortgage payments?
Yes, where payments made are not sufficient:
- Although it is hips that payments are made that cover the agreed amount, the lender can apply for foreclosure.
- However, some lenders will seek other ways to avoid this.
Key Takeaway: If you have fallen behind on payments, contact your lender immediately to determine whether a home loan modification may be feasible and eliminate the need to go into foreclosure.
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The time frame of how long a borrower may take to clear the conditions given in a conditional loan approval will be different for all approval conditions. The time frame of clearing conditions on a conditional loan approval is put under a few days to a few weeks upon consideration of parameters like those discussed below:
Type and Complexity of Conditions:
Minor Conditions: This documentation is often sent to support additional documents. Minor conditions include updated pay stubs, bank statements, or even proof of insurance. Such conditions may take less than a week to clear.
More Complex Conditions: Other conditions seem more difficult due to verifying. Additional conditions, such as resolving credit issues, explaining exorbitant deposits, or getting the extra property surveys performed, depend on a case-by-case scenario.
Your Responsiveness
It is best to provide the requested documents and particulars as soon as possible. Getting the requested documents as soon as humanly possible without delay enables the conditions to be cleared sooner. Reducing response time may also reduce the time it takes to clear the conditions.
Lender’s Efficiency
This is also the case when it comes to how fast the lender reviews and processes the documents you have submitted regarding the condition. Other lenders may do it within a day or two, while other lenders may take a week or so.
Underwriting Workload
When the underwriting department is busy with many loans, reviewing conditions and recommending their clearance may take too long. This is usually the case when that side is busy.
Role of the Third Party
In cases where such clearing conditions entail third-party engagements like sourcing a fresh appraisal or requesting a payoff letter from another lender, the timeline is generally dependent on the speed at which these particular third parties are able to furnish the required details.
Typical Timeline:
Quick Turnaround: 2-3 days on straightforward conditions.
Average Time: 5-10 days is typical in most cases.
Longer Scenarios: 2 weeks and above. All conditions are established if they are intricate or if the conditions of collecting or examining the required documentation experience delays.
Tips to Expedite the Process:
Organize Documents: Organize and prepare all required financial documents.
Stay in Touch: Stay in touch with your loan officer, and do not hesitate to provide any required information when requested.
Follow-up: Call in occasionally to check if everything is running smoothly.
You will receive a “clear to close” once all the conditions have been answered, and this will lead you to the next step of booking the closing date.
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People on commission income need to have a two-year history of commission income required to qualify for a government-backed or conventional loan. You need to show two years of federal income tax returns to be eligible to qualify for a mortgage loan. There are alternatives for those who earn commission per sale and aim to get an FHA loan or other loan programs. The following is what you need:
FHA Loans for Commission Income
- Time: Most lenders will want you to have earned commission income for at least the last two years.
- Average Income: Generally, a two-year average of commission income is used to qualify.
Income Documentation: You will be required to include:
- Last two years’ federal income tax returns.
- W-2s
- Most recent pay stubs.
- VOE (Verification of Employment) from the prospective employer.
Debt-to-Income Ratio on FHA Loans:
- Usually, the total monthly debt, including the new mortgage payment, should not exceed 46.9% front-end and 56.9% back-end debt-to-income ratio on automated underwriting system approved FHA loans.
HUD Manual Underwriting Guidelines on FHA Loans:
HUD manual underwriting guidelines have lower debt-to-income ratio caps. Here are the HUD manual underwriting debt-to-income ratio caps:
- 31% front-end and 43% back-end with no compensating factors,
- 37% front-end and 47% back-end with one compensating factor, and
- 40% front-end and 50% back-end with two compensating factors.
Credit Rating:
- An FHA loan with a 3.5 down payment requires a credit rating of at least 580.
- For a 10% down payment, it can accept a rating between 500 and 579.
Other Mortgage Programs for Commission Income:
Conventional Loans: Like FHA, these loans require a two-year history and will average the last two years.
VA Loans:
- Commission income is also acceptable for VA loans if the applicant qualifies.
- Like other mortgage loans, you must have a two-year commission income history to qualify for VA loans with commission income.
- There are no maximum debt-to-income caps on VA loans approved/eligible per the automated underwriting system.
VA Manual Underwriting Guidelines on Debt-to-Income Ratio
VA loans allow for manual underwriting. VA manual underwriting caps the maximum debt-to-income ratio as follows:
- 31% front-end and 43% back-end with no compensating factors,
- 37% front-end and 47% back-end with one compensating factor, and
- 40% front-end and 50% back-end with two compensating factors.
USDA Loans: For commission income, these loans can also be applied for rural properties and will require mostly a two-year history.
The basic qualifications:
Evidence of Employed Stability: Although one’s income may vary over time, one must showcase that one is consistently employed.
Income Level Stable or Growing: This is a common approval since lenders want to note a stable income progression over the years.
Equity: This depends on the loan being applied for(3.5% for FHA under a good credit score, possibly 0% for VA or USDA).
Savings: It is important to note that being cash-liquid would enhance your application more when the income is not consistent.
Property Requirements: The property must meet the loan program’s standards (e.g., HUD guidelines on property standards).
Tips for Success:
- Put aside some additional income so that you will be able to work economically if your application is accepted or the amount needed is met.
- Be meticulous in the pay records if you are involved in commission, alternative incomes, or self-employment, for instance.
Engaging or consulting with a mortgage broker specializing in commission-based income loans may be wise.
When applying for a commission loan, you may be required to wait until you accumulate enough commission before qualifying when the commission income is new.
This is because although most lenders will aim for a specific amount, their discretion may differ slightly. Therefore, it is prudent to shop around. A mortgage professional is there to assist you and help you choose the best-fitting loan program for the specific type of income, namely, commission income.
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What are mortgage points?
Mortgage points are upfront fees paid at closing in exchange for a reduced interest rate on the loan. Typically, one point equals 1% of the loan amount and decreases the rate by an eighth or a quarter of a percent, depending on the lender.
Purpose of Discount Points
They aim mainly at reducing monthly mortgage payments throughout their life span, thus creating long-term savings.
Who Charges Discount Points?
Lenders are responsible for charging these fees, which borrowers pay during closings.
Benefits for the Buyer
Depending upon how long one intends to stay put, buying these little guys can save you some serious money over time. This is especially if we’re talking decades here when our houses become homes forever.
Is it worth it to pay a discount point?
To determine whether or not it is worthwhile to purchase points, calculate a “break-even period”. How many months before lower monthly costs surpass initial expenditure. If this number happens to be less than your expected tenure (i.e., number of years staying), go for those bad boys!
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When applying for a mortgage, you can use past W-2s and a current year-to-date (YTD) pay stub. This is even if the latter includes overtime income, if OT income has been seasoned for the past two years and it is likely to continue for the next three years. Nevertheless, there are factors to consider:
Salient Points:
Income Stability:
Lenders prefer that an applicant has had a steady income over some time. If overtime forms part of your regular income and has been so for the last 24 months, they may consider it when calculating your qualifying income. In this case, they will average such earnings for the past two years to determine what is acceptable.
Verification of Overtime:
To verify this fact, lenders usually expect employers’ Verification of Employment (VOE) to show that overtime work is ongoing and predictable.
Documentation:
Two of the most recent years’ W-2s, recent pay stubs (including one with YTD earnings), and sometimes an employer’s letter are usually required. Additionally, the lender may request tax returns if there are large amounts of OT or other types of variable income.
Income Calculation:
Suppose an employee’s overtime pay tends not to be constant. For example, annually varying the amount earned within consecutive 24-month periods could affect how much money one can qualify for as a loan. In such cases, there might seem to be significant differences between what one has made this year through extra hours worked beyond regular shifts and what was earned during any previous calendar year doing the same thing. Using previous W-2s and current hourly or salary on the employment offer letter as qualified income is customary. Plus, the past two-year average overtime income (verified via employment verification) can be used when applying for a mortgage. Ensure that the overtime income is regular and well documented since lenders want proof of its stability. Overtime income is verified by the employer via employment verification. The chances of overtime income continuing for the next three years need to be likely. Talking with your lender can help clarify what portion will be used in calculating qualifying income based on these documents.
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Yes, a non-occupying co-borrower can be a friend and not a family member, but this is determined by the loan program you are using.
FHA Loans (HUD Guidelines):
For FHA loans, it is usually required that a non-occupying co-borrower must be related to the primary borrower by blood, marriage, or law (such as a close family friend who has had a long-standing relationship with the borrower and may qualify under specific circumstances). However, this rule may have some exceptions depending on certain factors presented to an underwriter at the time of submission. If they can make a good case for themselves and their relationship with applicant[s], then sometimes the lender might go along with it; otherwise, being related is normally necessary.
Conventional Loans (Fannie Mae and Freddie Mac Guidelines):
According to Fannie Mae or Freddie Mac guidelines, non-occupying co-borrowers do not have to be related to the main borrower. This means any individual with a strong financial background, including friends and business partners, could act as your non-occupying co-borrower. These programs tend to have more flexible relationship requirements compared to FHA loans.
Main Differences:
FHA Loans: Non-occupant borrowers generally need some blood, marriage, and legal tie, though this is not always true in all cases.
Conventional Loans: Fannie Mae & Freddie Mac will allow unrelated parties to serve as non-occupant borrowers if they so desire. Your friend would only qualify if they were related to conventional loans such as Fannie Mae or Freddie Mac. However, for an FHA loan, I would like them to have some kinship through blood, marriage, and legal ties. The underwriter may waive this requirement based on our lender’s flexibility.
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Certainly, you can use your wife’s revenue to apply for an FHA loan despite her negative credit ratings. However, here are some important points:
Non-Borrowing Spouse:
If your wife has a very poor credit history, you have the option of listing her as a non-borrowing spouse. This means that her income may be considered when qualifying for the loan. Her credit will not be considered during the approval process. Instead, her debts will be included in calculating the debt-to-income (DTI) ratio.
Joint Application:
If you opt to apply jointly, both your credit scores will be assessed. Usually, the lender considers the lower score between the two. This might affect whether you qualify or even the interest rate.
Community Property States:
In case you reside within a community property state, regardless of whether she has taken out any loans. They will still be factored into DTI calculation. This is because such places treat all debts incurred by one spouse as joint obligations potentially impacting qualification. But having said so, it’s worth mentioning that using her income could help improve your DTI ratio.
FHA Requirements:
These loans are known for being more lenient towards low credit ratings. Therefore, even if your partner does not have good scores, there is still a chance of eligibility, provided other compensating factors exist. For example, a larger down payment or higher earnings exist.
Strategies:
Here are a couple of strategies you can consider
Non-Borrowing Spouse: To avoid affecting the loan with their bad score, thus only benefiting from their income,
Credit Improvement: Try enhancing their ratings before applying to increase the chances of giving better terms.
To conclude, with an FHA loan. Even if my wife has terrible credits, I could use her money to apply. But I must decide whether she should become a borrower or act as a non-borrowing spouse. You should consult an authorized FHA lender for guidance based on your specific circumstances.
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Yes, in a Chapter 13 bankruptcy repayment plan, you can qualify for a mortgage and buy a house. However, certain requirements must be met:
Main Requirements:
Approval by Trustee and Court:
To incur new debts like a mortgage during bankruptcy, you need permission from the trustee of Chapter 13 and the court. To do this, you must file an application with the court explaining why such a loan is needed and how it fits into your payment plan.
Payment history:
For lenders to consider giving you a mortgage, they typically require between 12 and 24 months of on-time repayment towards a bankruptcy plan. It’s positive that you have made 2.5 years’ worth of payments on time.
Credit score:
With a credit score 655, certain loan programs may be available to you, including FHA loans. These loans have less strict policies regarding scores and are very popular among borrowers who have filed for Chapter thirteen bankruptcy.
Type of Loan:
FHA Loan: You will have better luck getting approved for this type since they’re more lenient with their rules about credit scores and past bankruptcy. The minimum requirement for an FHA loan is usually around 580, so even though yours could be better, at least it’s within range.
VA Loan: If you’re a veteran, VA Loans might work better because they don’t care too much about what happened before filing bankruptcy.
Conventional Loan: Most conventional lenders will only touch people two years after discharge, but if presented properly during Chapter 13 proceedings, some might consider extenuating circumstances.
W2 Income Only (No Tax Returns):
This is for individuals without tax returns but having W-2 income. Mortgage lenders could still pass, particularly if the loan is an FHA or VA, where income verification methods are more flexible.
Steps to Take:
Consult Your Bankruptcy Attorney: Before taking action to secure yourself housing through a mortgage, In contrast to chapter thirteen, consult with your lawyer first so that he or she can advise on how best to approach the court approval process.
Work With An Experienced Lender: Find a lender who has dealt with borrowers under Chapter 13 bankruptcies before because they will know what to do and push for at each stage. They should be able to help you through the whole thing and ensure all necessary papers are filed on time.
Get Ready For Documentation: Have everything ready, such as W2 forms and recent pay slips, among others, which show that even though one is still paying off debts, one can still afford mortgage payments.
Having paid consistently for two and half years, coupled with having a credit score of 655 plus being employed officially (W-2 income). It puts you in good stead when seeking mortgages during the repaying period under chapter thirteen. The most important thing is getting approvals from courts or trustees required by law while dealing with lenders having experience in these matters.
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Example Cases on the Operation of Discount Points
Case 1: Small-Savings Loan
Loan Amount: $300,000
Interest Rate Without Points: 3.5%
Interest Rate With 1 Point: 3.25% (Cost: $3,000)
Monthly Savings: $42
Break-Even Period: 71 months
Result: Worthwhile if staying for more than six years.
Case 2: Large-Investment Loan
Loan Amount: $500,000
Interest Rate Without Points: 4.0%
Interest Rate With 2 Points: 3.5% (Cost: $10,000)
Monthly Savings: $142
Break-Even Period: 70 months
Result – Good if staying for over five years.
Case 3: Short Term Stay
Loan Amount I borrowed: $250,000
Interest Rate Without Points: 3.75%
Interest Rate With one Point: 3.5% (Cost:$2,500)
Monthly Savings:$34
Break-Even Period: 74 months
Outcome – Not worth it if you plan to sell within six years.
In every scenario where somebody buys discount points, it reduces their monthly mortgage payment, but you have to calculate how long you’re going to stay with the mortgage to determine whether it’s a good financial decision or not based on when the break-even point is.