[Gustan Cho]

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.

[Gustan Cho]

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.

[Gustan Cho]

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.

[Gustan Cho]

I 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.

[Gustan Cho]

Rhonda, I suggest you contact the rep and talk to them. See how they sound and their level of service. You can ask other loan officers and see if any of them worked with Quontic.

[Gustan Cho]

Of course! I am happy to provide more information about FHA Jumbo Loans or High-Balance FHA Loans. These loans are for borrowers in high-cost areas whose home prices exceed the standard FHA loan limits.

FHA Jumbo Loans Compared to Traditional FHA Loans:

The main difference is in the loan amount, where FHA Jumbo Loans exceed the standard FHA loan limits within a given area but still fall under the maximum limit set by the Federal Housing Administration (FHA) for these loans in high-cost areas.

Key features of an FHA jumbo loan include:

Down Payment Requirements:

• Minimum 3.5% down payment for credit scores above 580.
• 10% down payment for credit scores between 500-579.
• This is similar to traditional FHA loans; however, it will be higher because the loan size is bigger.

Debt-to-Income Ratio (DTI):

• They are normally capped at 46.9% front-end and 56.9% back-end on Automated Underwriting System-approved files.
• ManualManual underwriting can be up to 40% front-end and 50% back-end, with two compensating factors, such as a higher credit score and a larger down payment.
• Just like traditional FHA loans.

Credit Score Guidelines:

• Minimum of 500 (with 10% down).
• 580 or higher with a 3.5% down payment.
• Some lenders may have higher minimums for jumbo amounts.

Income Guidelines:

• Must show stable and reliable income.
• Typically, one needs two years of employment history.
• Self-employed borrowers usually require two years of tax returns.

Loan Limits:

• They differ from county to county.
• In one-unit properties, Federal Housing Administration, the national low-cost area mortgage limits are $498,257 for 2024.
• The national cap on FHA high-balance loans is $1,149,825 for one-unit properties in high-cost areas.
• The same applies here: anything over this limit but below their high-cost area mortgage limit would qualify as a “jumbo” Federal Housing Administration-backed loan.

Property Types:

• Single-family homes
• Multi-unit properties (up to four units)
• Condos (need to be approved by the Federal Housing Administration)
• Manufactured homes (with restrictions)

Mortgage Insurance:

• The Upfront Mortgage Insurance Premium (UFMIP) is 1.75% of the loan amount. Depending on the term and LTV, the annual MIP is 0.55% of the loan amount.

Interest Rates:

• Usually in line with conventional jumbo loans.
• However, because these loans are for larger amounts, interest rates may be slightly higher than those charged on standard FHA loans.

Occupancy:

Owner-occupied primary residence only

Refinancing Options:

Available through Federal Housing Administration Streamline Refinance (with restrictions)

Differences from Traditional FHA Loans:

Loan Amount: Bigger than standard Federal Housing Administration loans.

Property Values:

Targetted at high-cost areas

Lender Availability:

Fewer lenders provide Federal Housing Administration jumbo mortgages

Underwriting on FHA High-Balance Loans:

It may have more rigid underwriting requirements due to the greater borrowed sum involved.

Documentation:

This could necessitate extensive documentation

Processing Time on FHA Jumbo Loans:

It can take longer due to bigger loan sizes, which require more complex underwriting procedures.

Closing Costs: They might be higher based on a larger loan amount

Key Benefits of FHA Jumbo Loans:

• Lower down payment relative to conventional jumbo mortgages.
• More lenient credit requirements compared to traditional jumbos.
• Allows for higher DTIs than many non-jumbo conforming loans.
• Easier qualifying standards vs. other similar-sized mortgage options.

Considerations:

Mortgage insurance is required throughout the life of the loan if less than 10% down. The property has to meet FHA standards. Even though it is a high-cost area, the laws and regulations governing these programs still set limits.

Remember: Although the Federal Housing Administration sets general rules for all its products, each lender can add extra conditions, especially when dealing with larger sums of money like those in this category. Always shop around and compare offers from different companies before deciding.

[Gustan Cho]

Definitely! I can give you a more focused range of ideas for getting a loan with only 1099 income, especially centered around non-QM loans for people who need more tax documentation and a short income history.

Non-QM Loans for Only 1099 Income (Without Tax Returns Required):

Bank Statement Loans:

• Verify earnings using one or two years’ worth of bank statements.
• Typically, deposits are used as proof of income.
• May accept personal or business bank statements.

1099-Only Loans:

• Designed for independent contractors.
• Can verify income with 1099 forms, often without tax returns.

Asset Depletion Loans:

• Qualify based on total assets rather than income.
• It is a good option if you have a high net worth but report lower earnings.

DSCR (Debt Service Coverage Ratio) Loans:

• For investment properties only.
• Base qualification on the potential rental income of the property to be financed.

Types of Mortgage Loans Based on 1099 Income Only:

One-Year 1099 Income Loans:

• For borrowers with just one year’s history of receiving this pay type.
• Usually, they require larger down payments and higher credit scores.

No-Doc or Limited-Doc Loans:

• Minimal income documentation is needed to close.
• Often, they come with higher interest rates and down payment requirements.

Stated Income Loans:

• Borrower states their income with minimal verification from the lender.
• Less common due to increased regulations

Interest-Only Loans:

• Lower initial mortgage payments but slower equity buildup.
• It can be useful for those with irregular earnings who want lower monthly payments.

Non-QM 1099-Income Only Mortgage Loan Process Overview:

Pre-Qualification: Determine creditworthiness and overall financial situation upfront to see which non-traditional mortgage programs could work.

Loan Program Selection: Identify & select the most appropriate non-QM plan based on the applicant’s case specifics.

Document Gathering Stage: 1 or 2 copies of Form(s) 1099 (typically) Bank Statements (12-24 months). Proof Of Assets Verification(s) Business License. Or Proof Self-Employment Confirmation(s).

Loan Application Submission Step: Complete the formal application process per lender policy.

Income Calculation Phase(s): Evaluate the applicant’s eligibility for the chosen program by considering average monthly deposits, etc.

Property Appraisal Procedure: Official market value assessment conducted by a professional appraiser

Underwriting Process: Closely analyze all submitted information.

Conditional Approval Granted: Loan approved subject to satisfaction of certain conditions.

Satisfaction Of Conditions: Additional documentation may be requested before final funding approval.

Final Approval Issued: Approval given by underwriter(s) working on behalf of lending institution responsible for originating said loan product.

Closing Stage: Reviewing, signing, and funding all necessary paperwork related to mortgage transactions.

Make payment for closing and down payment(s).

1099 Income Only Non-QM Loan Considerations:

Interest Rates:

Usually higher than conventional loans.

The rate may vary significantly depending on the program selected and borrower profile.

Down Payments:

They often require larger upfront payments (20-30% or more).

Some programs may have lower options with higher rates.

Credit Scores:

Typically 660+ is required for better terms.

Some programs go as low as 600.

Debt-to-Income Ratio(s):

It is more flexible than traditional loans, sometimes up to 50% or higher.

Cash Reserves Requirements: You may need to keep 6-12 months’ mortgage payments in the reserve account(s).

Prepayment Penalties Existence:

Please read your documents carefully as they might exist!

Limits on Loans Amounts Borrowed :

Can often exceed conforming loan limits set forth by FHFA

Different Property Types Accepted :

It may allow non-warrantable condos or mixed-use properties that are not eligible under regular guidelines.

Income Stability Proving Timeframe :

While only one year is mandated, showing stable / increasing income over longer periods viewed favorably lenders do take look back past two tax returns sometimes even three years!

Future Refinancing Potential Issues:

Consider potential challenges in refinancing non-QM loans in the future.

Non-QM Mortgage Lender Experience:

Look for lenders experienced in non-QM and 1099 income loans.

Mortgage Broker Assistance:

Working with a mortgage broker like the team at Gustan Cho Associates, who is experienced in non-QM loans, is an urgent priority. Mortgage brokers need to help borrowers understand that these are not normal mortgage guidelines. They’re supposed to help people who wouldn’t qualify under regular rules. But with greater flexibility come harder requirements elsewhere—usually at a much higher price tag. Make sure you know what you’re getting into before signing anything.

[Gustan Cho]

This is everything I know about FHA Jumbo Loans:

Loan Limits:

Change each year based on middle home prices:

FHA Loan Limit in Median Priced Areas of the United States for 2024:

• 1-unit: $498,257
• 2-unit: $637,950
• 3-unit: $771,125
• 4-unit: $958,350

Differ depending on county and property type (1-4 units)

FHA Loan Limit in High-Cost Areas of the United States:

These are the FHA high-cost area limits for 2024:

• 1-unit: $1,149,825

• 2-unit: $1,472,250

• 3-unit: $1,779,525

• 4-unit: $2,211,600

Down Payment:

If the credit score is 580 or higher, then the minimum is 3.5%

10% if the credit score is between 500-579

Can be from family members or eligible non-profits

Credit Score Requirements:

Absolute minimum: 500

Minimum for 3.5% down: 580

Many lenders have higher minimums (620-640) for jumbo loan amounts as part of lender overlays.

Debt-to-Income Ratio (DTI):

• Front-end DTI (housing expenses): Usually capped at 46.9%.
• Back-end DTI (all debts): Normally capped at 56.9%.
• It can go up to 40% front-end and 50% back-end on manual underwriting with compensating factors.

Income Verification:

• Usually, you need two years of steady employment history.
• Self-employed borrowers usually need two years of tax returns.
• Multiple income types are accepted (salary, hourly, commission, etc.).

Property Requirements:

• Must be a primary residence.
• Allowed property types include one to four units.
• Must meet FHA property standards.
• Condos must be FHA-approved.

Mortgage Insurance:

• Upfront Mortgage Insurance Premium (UFMIP).
• Charged as a percentage of the loan amount – usually around 1.75%.

Annual MIP: Varies based on loan term and LTV ratio – 0.55%.

MIP duration:

• It lasts for life on loans with down payments below or equal to ten percent.
• For others, it ends after 11 years.

Interest Rates:

• Competitive with conventional jumbo loans.
• It can be fixed or adjustable.

Loan Terms:

• 15 or 30-year terms are the most common.
• Some lenders offer 20 or 25-year terms.

Closing Costs:

• Similar to standard FHA loans, they may be higher due to the larger loan amount.
• It can be partly covered by seller contributions (up to six percent of the sales price).

Appraisal Requirements:

• It would help if you used an FHA-approved appraiser.
• Property must meet FHA’s Minimum Property Requirements (MPR).

Occupancy Requirements:

• Must be owner-occupied within 60 days of closing.
• Must remain primary residence for at least one year.

Refinance Options:

• FHA Streamline Refinance is available after six months.
• FHA Cash-Out Refinance is available after twelve months.

Assumability:

Lender approval is required to assume FHA loans, including jumbos.

Bankruptcy and Foreclosure Waiting Periods:

Chapter 7 Bankruptcy: Must wait two years from discharge date.

Chapter 13 Bankruptcy: May qualify after one year of on-time payments under certain circumstances.

Foreclosure: Three years must pass before you can get approved again.

Eligible Borrowers:

U.S. citizens

Permanent residents

Non-permanent residents with valid work authorization

Co-borrowers:

Non-occupying co-borrowers allowed (with restrictions)

Cash Reserves:

Typically, they need one to two months of mortgage payments in reserve

May require more reserves for three and four-unit properties

Employment:

A minimum of two years of continuous employment history is generally required.

It may qualify with strong compensating factors if it is under two years old.

Debt Payoff for Qualification:

Allowed on debts being paid off to meet qualification requirements; not permitted with all types of mortgages, though, so check first!

Student Loans:

Counted in DTI even if in deferment; calculated as follows – use greater than one percent of the loan balance or actual payment.

Manual Underwriting:

Available for borrowers with no credit score or non-traditional credit; additional requirements apply.

Energy Efficient Mortgage (EEM):

It can be used in combination with FHA Jumbo for energy-efficient improvements.

Renovation Options:

Can be combined with the FHA 203(k) program for home improvements

Seller Concessions:

• You are limited to 6% of the sales price.
• You can only use seller concessions for closing costs, not down payments.

Remember that while these are FHA guidelines, individual lenders may have stricter requirements, especially regarding jumbo loan amounts. Always shop around and compare offers from multiple FHA-approved lenders.

[Gustan Cho]

Of course! I would love to help. Based on my experience as a loan officer, here is an extensive guide on non-QM 1099 income mortgage loans for owner-occupied homes, second homes, and investment properties.

Owner-Occupied Homes: Eligibility Requirements:

• Proof of 1099 income (typically 1-2 years)
• Bank statements (12-24 months)
• Proof of assets
• Business license or proof of self-employment

Credit Scores:

• Minimum: Often 600-620
• Preferred: 660+
• Best terms: 700+

Down Payment:

• Minimum: Can be as low as 10% for strong borrowers
• Typical: 20-25%
• Lower credit scores may require 30%+

Property Types:

• Single-family homes
• Condominiums (including some non-warrantable)
• Townhouses
• 2-4 unit properties (if one unit is owner-occupied)
• Planned Unit Developments (PUDs)

Second Homes: Eligibility Requirements:

• Similar to owner-occupied, plus
• Property must be suitable for year-round occupancy
• Generally located in a resort or vacation area
• The borrower must have exclusive control over the property

Credit Scores:

• Minimum: Often 620-640
• Preferred: 680+

Best terms: 720+

Down Payment:

• Minimum: Usually 20%
• Typical: 25-30%

Some lenders may require up to 35-40%

Property Types:

• Single-family homes
• Condominiums
• Townhouses
• Some lenders may allow small multi-unit properties

Investment Properties: Eligibility Requirements:

• 1099 income documentation or bank statements
• Proof of assets
• Some lenders may require landlord experience
• DSCR (Debt Service Coverage Ratio) may be used instead of income

Credit Scores:

Minimum: Often 640-660