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Gustan
AdministratorJuly 21, 2024 at 8:21 pm in reply to: Joe Biden To Step Down From 2024 Re-Election -
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Buying a Two-to-Four Unit Multi-Family Home: Mortgage Loan Guidelines
HUD Guidelines on Two-to-Four-Unit Multi-Family Homes on FHA Loans
Rules:
Down Payment: 3.5% of the purchase price.
Credit Score: Min 580 for max financing; 500-579 requires 10% down.
Occupancy: Must occupy one of the units as a primary residence.
Loan Limits: Varies by area, higher for multi-family properties.
Debt-to-Income Ratio (DTI): Typically 46.9% front-end and 56.9% back-end with an automated underwriting system approval. 31% front-end, 43% back-end on manual underwriting with no compensating factors, 37% front-end and 47% back-end with one compensating factor with manual underwriting, and 40% front-end and 50% back-end with two compensating factors.
Reserve Requirements: Typically, two to four months of PITI (Principal, Interest, Taxes, and Insurance) are required for two—to four-unit properties.
Eligibility Requirements:
Property Condition: Must meet FHA standards.
Income: Steady employment and income history.
Creditworthiness: Good credit history.
VA Guidelines on Two-to-Four Unit Multi-Family Homes on VA Loans
Rules:
Down Payment: None required.
Credit Score: No specific minimum, but lenders usually prefer 620+.
Occupancy: Must occupy one of the units as a primary residence.
Loan Limits: Generally, there are no loan limits, but limits may apply for no-down-payment loans.
Debt-to-Income Ratio (DTI): Typically 41%, but a higher DTI may be acceptable with high residual income.
Reserve Requirements: Not typically required, but some lenders may ask for reserves for multi-family properties.
Eligibility Requirements:
Service Requirements: Must meet VA service eligibility requirements. Certificate of Eligibility (COE): Must obtain COE from VA. Creditworthiness: Good credit history
USDA Loans
Rules:
Down Payment: None required Credit Score: Minimum 640 for streamlined processing Occupancy: Must occupy one of the units as a primary residence.
Loan Limits: Based on area income limits and property value.
Debt-to-Income Ratio (DTI): Typically 29/41% (front-end/back-end).
Reserve Requirements: We may require reserves depending on the lender and property type.
Eligibility Requirements:
Location: The property must be in an eligible rural area. Income: Must meet income eligibility requirements based on area median income.
Creditworthiness: Good credit history.
Fannie Mae and Freddie Mac Guidelines on Two-to-Four Unit Multi-Family Homes on Conventional Loans
Rules:
Down Payment: 5% depending on lender and borrower’s credit profile.
Credit Score: Min 620, but higher scores are preferred for better rates.
Occupancy: This can be used for a primary residence, second home, or investment property.
Loan Limits: Vary by area, higher for multi-family properties.
Debt-to-Income Ratio (DTI): Typically 45%, but a higher DTI may be acceptable with compensating factors.
Reserve Requirements: Typically, six months of PITI for each unit.
Eligibility Requirements:
Income: Stable and sufficient income history. Creditworthiness: Good credit history. Property Condition: Must meet conventional lending standards.
Summary
FHA Loans are great if you have a low down payment and moderate credit score – they also require that the place be your primary residence. VA loans work best with veterans who don’t want to put any money down; these, too, must be occupied as primary residences. USDA mortgages might suit eligible rural area properties without needing down payments while still enforcing them to remain primary residences. These credits do not offer much variety in occupancy options because they primarily focus on single-family homes until four units fall under this category.
Each loan program has specific guidelines and eligibility requirements. FHA, VA, and USDA loans are generally more accessible for primary residences with lower down payment requirements. Conventional loans offer more flexibility but often require higher down payments and credit scores. Assessing your financial situation and goals can help determine the best loan program for purchasing a two-to-four-unit multi-family home.
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I am happy to explain the VA One-Time Close (OTC) New Construction Loans extensively.
What is a VA OTC New Construction Loan?
A VA Construction-to-Permanent loan, or a VA One-Time Close Construction Loan, combines a construction loan with a traditional VA mortgage. It allows eligible veterans and active-duty service members to fund the construction of their new home and its permanent mortgage through one loan closing.
How do VA One-Time-Close New Construction Loans work?
- The same loan covers the long-term mortgage and the construction phase.
- This means you only close on the loan once before construction starts.
- You usually make interest-only payments for the amount drawn during construction.
- After completing construction, the loan converts to a permanent VA mortgage automatically.
Eligibility Requirements:
VA Loan Eligibility: Must have a valid Certificate of Eligibility (COE).
Credit Score: Usually minimum 620; however, no minimum set by VA (lender requirements vary)
Income: Income must be stable enough to cover mortgage payments and other obligations.
Debt-to-Income Ratio:
- There are no maximum debt-to-income ratio caps on VA loans.
- However, lenders have overlays on the debt-to-income ratio on VA OTC NEW CONSTRUCTION Loans, generally up to 41%, but with compensating factors, it can go higher.
- Owner-occupied primary Residence required.
- The property should meet VA standards as well as local building codes.
- Must use a licensed general contractor approved by the VA.
Qualification Process:
Obtain a Certificate of Eligibility (COE)
Meet credit score requirements set by the lender
Show stable employment history with income sufficient for repayment of debts, including proposed housing expense and all other recurring charges such as taxes or insurance premiums against which borrower will not receive compensation from another party.
Have a debt-to-income ratio within acceptable limits;
Choose an approved lender under this program who offers such loans.
Select a licensed general contractor experienced in new residential construction techniques who has agreed in writing to build according to plans developed jointly with the borrower’s architect if applicable, but at least meet minimum code requirements for safety purposes only without regard to aesthetic considerations where there may be more than one acceptable method available provided each method complies fully with applicable laws and regulations including those relating to energy efficiency or accessibility standards.
Provide detailed plans showing lot size, setbacks from property lines, floor area ratio calculations based on zoning district requirements, and any other relevant data the lender requires.
Mortgage Process Steps:
Pre-qualification: Initial assessment of eligibility
Obtain a Certificate of Eligibility
Choose a contractor and finalize building plans
Loan application: Formal application with required documents submitted for approval by the underwriter at the lending institution.
Property appraisal: This is based on plans and specifications provided by the borrower, showing all proposed improvements along with estimated costs.
Underwriting: The lender reviews all aspects of the application package, including but not limited to credit history check, employment verification, etc., before making a final decision on whether or not to approve the request for financing.
Loan approval: If approved, receive a commitment letter indicating the amount approved, terms, conditions, etc.
Closing: Sign loan documents (typically no down payment required), which include a promissory note evidencing promise to repay the sum of certain money advanced plus interest thereon according to its terms together with such security instrument as may be necessary to create a valid first lien against the real property being financed hereunder subject only those exceptions stated within policy issued by title insurer insuring said lien position; Construction phase begins after closing has occurred followed after that periodic inspection during construction draw taken borrower accordance methods agreed upon between general contractor lender representative once progress achieved per the schedule agreed upon between parties signifying completion each milestone. The final inspection takes place upon satisfactory completion of work. All units have been inspected and found to comply with fully applicable codes, laws, and regulations regarding safety, health, welfare, and occupants’ structures, which generally accepted good practice trades involved in their construction maintenance.
Conversion: VA OTC New Construction Loan converts VA permanent mortgage loan.
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What is an FHA One-Time Close (OTC) New Construction Loan?
An FHA One-Time Close (OTC) New Construction Loan enables borrowers to finance the construction of their new home and the permanent mortgage with one loan and one closing. It combines lot purchase (if necessary), construction financing, and permanent mortgage into a single loan, simplifying the process and saving on costs related to multiple closings.
How Does an FHA OTC New Construction Loan Work?
FHA OTC loan allows for financing the home-building process with just one loan. Here’s how it usually works:
One Loan Approval: The borrower is approved for the full amount of the loan, including land costs (if applicable), construction costs, and permanent mortgages.
Single Closing: The borrower goes through a single closing procedure covering both phases—the construction and the permanent mortgage.
Construction Phase: Payments, called draws, are made in stages to cover construction costs while work progresses.
Permanent Mortgage: As soon as the building is completed, this kind of loan converts into a typical FHA mortgage, eliminating the need for another closing.
Eligibility Requirements for an FHA OTC New Construction Loan
Credit Score:
Lenders typically require a minimum credit score between 620 -640, but this may vary from lender to lender.
Down Payment:
The minimum down payment required is 3.5% of the total loan amount.
Income & Employment:
Income must be stable and verifiable
Must have worked continuously in current job or industry for at least two years.
Debt-to-Income Ratio:
The maximum debt-to-income ratio allowed is 43% in most cases, but exceptions can be made if compensating factors exist.
Property Requirements:
The house should be a single-family dwelling unit meeting all applicable Federal Housing Administration standards & requirements.
Builder Requirements:
Builders must be authorized by the Department of Housing and Urban Development and possess a valid builder identification number issued by them.
Primary Residence:
This type of mortgage is meant for owner-occupied homes only; it cannot be used on investment or rental properties.
Steps to Qualify and Get Approved for an FHA OTC New Construction Loan
Pre-Approval:
Get pre-approved by an FHA-approved lender. They will review your credit, income, and financial situation to determine the amount you qualify for.
Select a Builder:
Choose a builder who the Federal Housing Administration approves. Make sure they have their own valid builder ID number from HUD.
Submit Documentation:
Provide all necessary financial documents, such as tax returns, pay stubs, bank statements, etc., as required by the lender.
Property & Construction Plans:
Submit property details and complete construction plans, including cost estimates and timelines.
Loan Approval
The lender will evaluate your application, financial documents, and construction plans; if everything meets their requirements, you will receive loan approval.
One-Time Closing:
Complete the single closing process, which involves signing loan documents, paying any necessary closing costs, and putting down the payment.
Steps of the Mortgage Process on an FHA OTC New Construction Loan
Pre-Approval:
Get pre-approved by an FHA-approved lender to learn about your eligibility and the maximum loan amount you can borrow under this program.
Select a Lot & Builder:
You should pick a suitable lot where you want your house built and then select a builder authorized by the Department of Housing and Urban Development (HUD).
Submit Construction Plans & Budget:
Send detailed construction plans together with cost breakdowns showing items like labor charges, etc., to enable lenders to determine the viability of financing that project through this plan.
Loan Approval & Closing:
Complete the one-time closing process upon approval, sign loan papers, and pay applicable fees.
Construction Phase:
After the accomplishment of building phases, money is paid in portions to the constructor, labeled as draws. Inspection might be necessary to ensure the work is done according to plan.
Conversion to Permanent Loan:
Once construction is complete, an FHA-backed refinancing occurs; it becomes a permanent mortgage without going through another closing. Afterward, you will start repaying regularly as agreed in the mortgage agreement form.
Benefits of FHA OTC New Construction Loan
Simplified Process: The one-time closing makes it less complex and expensive than multiple closings required by other types of loans.
Lower Down Payment: Unlike many other construction loans requiring higher percentages for down payments, this one requires as little as 3.5%.
Fixed Interest Rate: This locks against market rate fluctuations during the building period.
Builder Approval: The person or company you hire should meet all FHA requirements for authorization.
Documentation: You must prepare enough paperwork, including detailed plans showing how everything will be done.
Inspection Requirements: Various checks shall be conducted periodically while the construction is still being constructed.
With these steps and requirements at your fingertips, it will be easier for you to move forward with the FHA OTC New Construction Loan process and build your new home faster.
Gustan Cho Associates offers FHA OTC New Construction Loans.
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What’s a Credit Score Simulator?
A credit score simulator is an internet-based application or software program that shows how specific financial moves may affect your credit score. By entering different situations, such as paying off debt, opening new accounts, or increasing credit limits, the simulator will estimate the impact these changes could have on your credit score over time.
So, How Does It Work?
Credit score simulators use algorithms based on various credit scoring models, such as FICO or VantageScore, to predict how changes in consumer behavior will impact their scores. These estimates might not be entirely accurate due to the proprietary nature of actual credit scoring formulas, but here is generally what they do:
Input Your Current Credit Information –
This may include outstanding balances owed, available credit limits, account history (e.g., age), and payment records (e.g., late payments).
Simulate Changes –
It allows the user to model different financial actions, such as paying down debts, making on-time payments, applying for new credit cards/loans, and letting accounts age.
Receive Estimated Outcomes –
Calculates and presents an estimated change in credit score based on simulated actions taken by the consumer.
How Can It Help To Raise My Credit Score?
A credit score simulator can help you determine which actions will most likely increase your credit rating. Here is how it can help:
Plan Debt Payoff Strategies –
Simulate different repayment plans and see which one would have the biggest positive effect on my FICO.
Identify the Impact Of New Credits –
Please find out how many points applying for another card might cost me.
Optimize Credit Utilization –
Would lowering my balances actually improve the utilization ratio, etc?
Track Payment Histories –
Keeping track of all my bills will help me raise this number over time, etc.
How Do I Get One?
Credit Bureaus & Financial Institutions –
Some bureaus offer these tools as part of their services (e.g., Experian, Equifax, or TransUnion).
Preliminary Approval:
Approach money lenders for early approval. Fulfill this by submitting your financials to the lender, who will give you a mortgage per the conditions stated.
Give Compensating Factors:
Compensating factors such as a steady employment history, low debt-to-income ratio, and large liquid assets can increase your chances of being approved.
Work with a Mortgage Broker:
This person can help you locate lenders who mainly or exclusively deal with people with bad credit ratings.
How Can I Get Pre-Approved for a Mortgage if I Have Low Credit Scores?
Gather Financial Papers:
Bring together pay stubs, tax returns, bank statements, debts, and assets.
Fill Out a Mortgage Application:
Complete this step by choosing one lender or using a mortgage broker.
Provide More Documents:
You may need to supply extra documents to support what you say on paper, so be ready for anything!
Credit Check Processed:
Your lender will check your credit history files, which include past behaviors toward borrowed money, current score levels, etc.
Pre-Approval Letter Issued:
Next, they sent letters telling people how much approval was given to anyone wondering. This document will show an amount that can be used when making home offers during the house hunt phase.
Use credit score simulators and follow these steps to get pre-approved for a mortgage, even with bad credit ratings.
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How Credit Rebuilder Loans Grow Credit Scores
What Are Credit Rebuilder Loans?
Credit-builder loans—or credit rebuilder loans—are structured specifically to improve credit scores. They accomplish this by reporting timely payment history to the credit bureaus over time, which improves credit profiles.
How Do They Work
Loan Structure:
You borrow a small amount of money, and instead of receiving it in cash upfront, the lender deposits the funds into a savings account or certificate of deposit (CD), where they stay until you pay off the loan.
Monthly Payments:
You repay part of your owe plus interest each month. And yes, the lender reports those payments to Experian, Equifax, and TransUnion, the three major credit bureaus.
End of Term:
Once you make your final payment, the lender releases the funds. Your consistent payment history will then show up on your credit report, helping boost your score.
Differences Between Credit Rebuilder Loans vs. Secured Credit Cards vs. Authorized User Credit Cards
Credit Rebuilder Loans:
Objective: Designed to show an ongoing record of paying loans on time to build credit.
Structure: Loaned money is secured in an account until the debt is repaid.
Effect: A positive payment history increases credit score over time.
Secured Credit Cards:
Objective: Establish or rebuild credit with a card backed by a cash deposit as collateral.
Structure: You put down a refundable security deposit (say $200) that becomes your line of credit; payments get reported to all three bureaus.
Effect: Regular use and on-time payments can lead to substantial score improvements.
Authorized User Credit Cards:
Objective: Gain good credit points by being added to another person’s card account as an authorized user (AU).
Structure: While not legally obligated for charges, AUs piggyback off primary cardholders’ histories; accounts appear on both parties’ reports.
Effect: Adopting someone else’s positive payment habits and low utilization might help your score — but so could their bad behavior.
Plan to Rebuild Credit Scores and Increase Credit
Check Your Credit Report:
Get your free annual copy from AnnualCreditReport.com.
Look for things that need to be corrected; dispute any inaccurate information with the appropriate credit bureau(s).
Set Up a Budget:
Create a budget, allowing you to make all your payments on time.
Start by paying off high-interest debt first.
Credit Rebuilder Loan:
Apply for a credit rebuilder loan and make every payment on time.
Verify that the lender reports to all three major credit bureaus.
Secured Credit Card:
Open an account with a reputable issuer for a secured credit card (e.g., Discover it Secured).
Use only a small portion of your available credit limit each month to maintain low utilization—aim to stay below 30%.
Pay off your balance in full before its due date every billing period to avoid paying interest charges.
Become an Authorized User:
Ask somebody with good credit — who also practices healthy credit habits — if they’ll add you as an authorized user (AU) on one of their cards.
Ensure the primary cardholder maintains responsible borrowing behavior; otherwise, this could hurt both your scores.
Diversify Credit Types:
Consider adding different types of accounts (e.g., installment loan, revolving line) to diversify the mix of active trade lines listed under consumer name within FICO database records thereof while maintaining positive control over the same at all times during usage history reporting periods, thereby giving maximum effect towards achieving desired outcomes associated in addition to that where applicable during reporting period(s)) should be considered when trying to improve one’s overall rating.
Monitor Your Progress:
You can use a free service like Credit Karma or sign up for access through one of your existing bank accounts, which offers monthly score updates based on TransUnion data points.
Keep tabs on how things are going; adjust as necessary over time.
Avoid New Debt:
Refrain from applying for multiple credit accounts quickly. Each application creates a hard inquiry that can temporarily damage your credit score.
Credit Utilization: Use only a little credit relative to your card limits.
Stay in the Know: Educate yourself about borrowing money and personal finance from credible sources such as financial advisors or reputable sites. Rebuilding credit takes time and consistency. You can establish a good credit history and improve your credit scores by using a mix of rebuilder loans and secured cards and becoming an authorized user. Doing this will better position you to qualify for a mortgage at the best rate possible. Remember that it requires patience with finances over the long haul.
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Did you get the keys to your brand new home @WineGuy ? Let me know once you get the keys to your new home. I don’t think I ever bought a brand spanking new home. Is it like buying a new car? Is there a new home smell like a new car smell? Congratulations on your hard work in finding the perfect home, Peter, Doreen.
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Gustan
AdministratorJuly 19, 2024 at 12:12 am in reply to: Why Do People Want to Live in CaliforniaI lived in Marina del Rey from 1989 until 1992. My daughter Monica was born in Little Company of Mary Hospital in Torrance. I had a hard time getting my first born name. I knew I was having a daughter. Then one day I was driving and was stuck in traffic and saw a big sign Santa Monica Bank. That is how my daughter got her name. California has beautiful weather, great beaches, breathtaking views. On the filpside, tons of crazies, high crime, everything is expensive, and politicians are absolutely nuts.
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