[Gustan Cho]

It’s one thing to go through a Chapter 7 bankruptcy discharge and start the mortgage application process again, but certain conditions or time limits must be observed depending on the type of mortgage one is seeking. Here are some brief descriptions of each type.

Waiting Periods After Discharge:

• FHA Loans: 2 years from the date of the discharge.
• VA Loans: 2 years from the date of the discharge.
• USDA Loans: 3 years from the date of the discharge.
• Conventional Loans (Fannie Mae/Freddie Mac): 4 years from the discharge date.
• Non-QM Loans: No waiting period after bankruptcy but requires at least a 20% down payment.

Note that all the above waiting periods may be waived occasionally if there are “extenuating circumstances” for which the bankruptcy may be justified.

Credit Score Requirements

FHA Loans: 580 is acceptable, but a mortgage lender can have lender overlays on credit scores and may ask for higher credit scores.

VA Loans: No such requirement exists, but mortgage lenders usually want at least this figure.

USDA Loans: There are no minimum credit score requirements. However, most lenders have overlays on credit scores for USDA loans and may require a credit score of 640.

Conventional Loans: Fannie Mae and Freddie Mac guidelines on conventional loans require a minimum credit score 620.

New Credit: Prove that credit has been responsibly utilized after the bankruptcy.

Employment: I have been in employment for a minimum of two years.

Down Payment: HUD requires a 580 credit score for a 3.5% down payment for a home purchase FHA loan.

Down Payment on VA Loans:

Zero down payment required. Lenders offer 100% financing on VA loans. VA loans have no maximum debt-to-income ratio as long as the borrower has strong residual income.

Down Payment on USDA Loans:

There is no down payment required. Lenders offer 100% financing on VA loans. The maximumThe maximum debt-to-income ratio is 29% front-end and 41% back-end.

Down Payment on Conventional Loans:

Down payments on conventional loans range from 3 percent to 20 percent, depending on the nature of the program under consideration.

Debt-to-Income Ratio on conventional loans is capped at 50% DTI.

No New Delinquencies Except for bankruptcy discharge. The applicant must NOT have any derogatory credit after bankruptcy discharge.

Explanation Letter: A few lenders might ask for a letter stating why a particular borrower has a history of filing for bankruptcy.

Housing Payment History: If you rent out accommodation, records of rent repayments may be of value.

Saving/Reserves: This shows that there is a capability to save and stand after the stroke of bankruptcy. These documents support bankruptcy discharge papers provided when such discharge occurred. Additional Considerations Manual Underwriting:

Compensating factors are positive factors of the borrower, such as a higher down payment, reserves, other income seasoned at least one year but not used as qualified income, and other positive factors that lower the lender’s risk. Re-establishing credit after the bankruptcy discharge is a big compensating factor. A payment shock of five percent or less is another big compensating factor.

[Gustan Cho]

Great article, Chad Bush. Angie Torres @Angie_Torres will chime in on this thread and advise us on the real deal. Also, GCA has so much to offer our veterans. We can go down to credit scores down to 500 FICO. We have no debt-to-income ratio caps as long as the borrower has sufficient residual income. Anyone with higher rates, we can do a VA streamline refinance (VA IRRRL) and close in about a week or even sooner. Veterans with a COE has so many benefits. You as a veteran with a COE should try to get a four-unit multi-family home and one year later, use your VA again and get yourself a single-family home. Thank you for your service, Chad. Now I need to show you extra respect. Lol. Do you know the exact parameters on how you become eligible for a Certificate of Eligibility. My son Tim is a E-5, a drill sergeant, but is on the reserves. I think he served for six or seven years but never went to combat. How do soldiers on the reserves qualify for a COE.

[Gustan Cho]

Thank you for your insights into the current market conditions. Especially in the automobile industry.

• The Joe Biden and Kamala Harris Administration’s priority and goal is to make the economy look better than what it is.
• Inflation numbers are higher than the government reports.
• Unemployment numbers have been misreported and shorted by 818,000 people.
• The state of the economy is of the utmost importance if the Democrats want to win and clinch the Presidency and majority control over the U.S. Senate and Congress.
• We care about how the economy is performing.
• As much as we should not make any hearsay political statements or forecast the economy, we can state facts and try to provide some context to the issues highlighted above:

Auto industry pain points:

• It has indeed been documented that a certain population has experienced difficulties in servicing motor vehicle loans.
• Due to the sluggish economy, we have a higher incidence of motor vehicle repossession in some regions.
• One in five people needs help getting approved for auto financing.
• An alarming rate of auto repossessions is being reported month after month.

Interest rates:

• Car loan rates, in particular, have been on a worrying rise.
• This does not help consumers fund vehicles.
• Average interest rates on car loans are between 7% and 12% for consumers with great credit and high credit scores.
• Consumers with fair to good credit pay interest rates between 12% and 25%.
• The average new monthly car payment is between $1,000 to $1,800.
• Many people need help to afford their car payments due to the high cost of living, inflation, and home prices.

Loan approvals: Some borrowers also find it difficult to obtain vehicle loans because of negative reporting.

Vehicle preferences:

More customers preferred vehicles that were deemed more efficient within different parameters. These include, but are not limited to, fuel prices and the state of the economy.

Inventory levels: Inventory status also differs by manufacturer and geography.

Economic outlook:

• There can be all types of predictions.
• When it comes to the state of the economy, predicting things is more challenging than it seems.
• It is important to point out that a certain economic indicator is only sometimes simple and unambiguous.
• Different sectors of the economy are likely to be in recession while others are booming.
• The range of experience among individuals can be widely varied.

Reviewing economic literature and reports from different sources can help one inquire into the latest context and nuanced economic parameters. This may provide a more complete picture of the present economic environment and what the future may hold.

If the developments affecting the economy worry you, especially regarding how such factors will shape your finances, consulting a financial advisor may assist you. The advisor will take into account your particular factors and advise accordingly.

https://www.youtube.com/watch?v=DhMZU51W6tM

[Gustan Cho]

Here is an elaboration of the general expectations of a down payment within various loan schemes:

FHA Loans

Down Payment: For Credit Scores of 580 and Above: 3.5% of the total purchase price.

Credit Score Below 580: It is necessary to have made a 10% deposit.

VA Loans

Down Payment: 0%: You will not need to make any down payment.

Eligibility: You are a veteran, af τ active duty service person, or eligible surviving spouse.

USDA Loans

Down Payment: 0%: You will not need to make any down payment.

Eligibility: The property must be located in a designated rural area, and you are eligible for certain income limits.

Conventional Loans

Down Payment:

Standard Conventional Loan: 3% or less and less than 5%.

Avoiding PMI: Generally, a 20% down payment is needed to avoid private mortgage insurance.

Non-QM Loans

Down Payment: The normal down payment is between 10% and 30%.

Varies by Loan Type: Non-QM loans are relatively lenient and include bank statement loans, DSCR loans, and no-doc loans, which all have different deposit policies.

Jumbo Loans

Down Payment:

Normally, the lender determines 10% to 20%. Some lenders may require more, particularly when the loan is larger, or the credit score is lower.

Alternative Financing Loan Programs

Down Payment:

Hard Money Loans: These are usually between 20% to 30%.

Seller Financing: Financing through the seller responses is highly flexible, pegged anywhere between 5% and 20% according to the agreement between the seller and the buyer.

Private Loans: However, the amount that needs to be put down on a house purchase in the form of a deposit is subject to the rules of the lending institutions that have advanced the money and the conditions on which the lending was arranged.

More Terms to be Agreed upon

Higher Percentage Required at the Commencement of the Loan:

In general, the more you put down on a home, the lower your loan-to-value ratio (LTV) is, thus minimizing the chances of being rejected and further allowing for low interest rates.

Loan Program Specifics: In some instances, there may also be additional variables that may include first-time homebuyer down payment programs or grants.

Depending on the loan option opted for, credit history, and lender preferences, a specific down payment will be mandatory. If you intend to contribute as much as 50% for any of these loan plans, you should be able to satisfy or exceed the minimum down payment.

[Gustan Cho]

There is no standard definitive answer to whether you must pay mortgage insurance. This will largely depend on the characteristics of your loan type, the size of your down payment, and any other facts relating to the loan. Here is an overview of circumstances when mortgage insurance needs to be purchased and which types are available.

Conventional Loans

Private Mortgage Insurance (PMI):

Buyers who opt for conventional loans whose down payment is below 20% will likely be obligated to acquire a Private Mortgage Insurance PMI.

PMI Purpose: PMI protects the lender if you stop making payments on your loan and default. The PMI value varies based on the loan amount, credit rating, and down payment percentage.

How Long You Pay PMI: PMI normally ceases when you have accrued mortgage equity of 20%, either by regular payment or by appreciation of the property.

FHA Loans:

Mortgage insurance premium (MIP):

Happily, every FHA loan taxes the borrower with the insurance irrespective of the amount of down payment made.

Upfront MIP: Conversely, most FHA loans are charged upfront MIP. The upfront mortgage insurance premium (UFMIP) is usually assessed once at the beginning of the mortgage. It is usually 1.75% of the mortgage amount. It may be a settlement expense or included in the loan.

Annual mortgage insurance premium: For FHA loans, borrowers have to pay Mortgage Insurance premiums, which are charged annually and distributed monthly in installments. The rate is a function of the amount loaned, the duration of the loan, and the LTV.

How long do you have to pay MIP?: Unless the collateral value of the house purchased is at least 90% of the purchase price for mortgages, this insurance is payable for the life of the mortgage. For mortgages with an encumbering collateral value equal to 90% of the purchase price or lower, the insurance coverage is payable for 11 years.

VA Loans

No Mortgage Insurance: Satisfying the eligibility requirements, eligible veterans and active duty service members. Eligible borrowers include some National Guard and Reserve members who do not need mortgage insurance in case of VA loans.

Funding Fee: Instead of mortgage insurance, VA loans include a one-time funding fee paid once. The fee is determined by several criteria, including the borrower’s service record, the amount of down payment made, whether the assumed loan is the first or subsequent usage of benefit entitlement and several more.

USDA Loans

Guarantee Fee:

However, USDA loans targeting homers in less developed and urban areas need normal mortgage insurance. Rather, they charge a fee that acts like a pledge of guarantee to the loan.

Upfront and Annual Fee: The primary guarantee fee charged by the USDA consists of an upfront charge (which can also be included in the loan) and an annual fee paid monthly.

Jumbo Loans

PMI on Loans With Small Down Payments:

Jumbo loans, which are higher than the conforming loan amounts, might require PMI when the down payment is 20% or below. However, jumbo loans usually have a higher down payment, making PMI unnecessary.

It is up to the consumer to choose the type of loan and the amount of their down payment to decide whether mortgage insurance payment is necessary. Conventional loans with a down payment of a certain percentage below the required threshold will also need PMI. In contrast, FHA loans carry an MIP regardless of the perceived value, and VA loans do not invite mortgage insurance. USDA loans are charged a guarantee fee instead of a regular MI. Familiarizing with these conditions enables one to estimate the amount one will finance on the mortgage.

[Gustan Cho]

Alternate income documentation is one of the unique characteristics of bank statement mortgages. This is because they are designed primarily for small business owners, business executives, and other non-traditional earning individuals who may need help to provide consistent tax returns or W-2s in the application process. More specifically, as opposed to furnishing income proof in the normal way, the conditions set out by the lenders do not take into account the gross income figures but rather concentrate on the applicants’ bank statements.

An Assessment of Income in Bank Statement Loans by the Lenders

Classification of bank statements necessary for analysis:

Personal Bank Statements: Some creditors wish to use personal bank statements to compute the income statement. However, this is rare and applies when someone has nonbusiness banking or business accounts.

Business Bank Statements: The lenders would also require access to the employer’s business bank statements. Mortgage underwriters look at the history of funds going in and out of the business account to ascertain the business’s net cash flows.

Length of documentation:

Applications must, however, have passed a minimum of twelve months. Most lenders have that policy. However, some non-QM wholesale lenders require twenty-four months of bank statements. There are 12-month and 24-month bank statement loans for self-employed borrowers. The 24-month bank statement loans have a slightly lower rate than the 12-month bank statement loans.

Gross Deposits Calculation: Total Deposits: During the review, the mortgage underwriter will be assisted by establishing and depositing eligible deposits (income relating to the forwarding of the business) within the review period, and these are added.

Exemptions: Concerning income computations, transfers considered gainful transfers between accounts, refunds, or immediately recognized transactions, such as the cash received from selling an asset an organization has owned for a long time, can be counted as unused.

Income Determination: Personal Deposits: Personal bank statements are such that the lender may assume that some deposits are income. Thus, a certain percentage of the deposits are allocated as personal use cash. So, while analyzing personal account statements, the lender will look for these deposits.

Business Deposits: Business deposits are another aspect of the loan application process. Total deposits are usually taken. A certain percentage of the income is deemed. A thumb rule on the typical business-related costs is considered.

Expense factor: Lenders often apply expenses to gross deposits to sustain business operations. For a particular lender who believes that 30% of deposits will be spent and operational expenses incurred, only 70 % of total deposits will be considered income. Percentages will change depending on the types of businesses and industries.

CPA Letter: There are certain situations (for instance, in the case of self-employment or a standard small business) where a lender might request a letter from the CPA regarding certain elements, such as business expenses, on a few occasions.

Illustrative Calculation:

Business Bank Statements (24 months):

• For 24 months, the cumulative allowable deposits are $ 240,000.
• The expense factor of 40% is applied where only 60% of income from the deposits is left.
• 240,000 * 0.6 =144,000 per month.
• Thus, this is calculated over two years: 144,000/24, which gives a monthly income of 6,000.

Debt-to-Income Percent (DTI):

After arriving at the borrower’s expected income, the lender should calculate the Debt-to-Income Ratio (DTI). The DTI ratio is the proportion of the debtor’s income that goes toward repaying loan commitments versus the general income level.

Key Considerations

Increased down payments: Like other self-employed loans, only a few banks require this post-qualification. Bank statement loans, on the other hand, have a very high down payment option, ranging from 7.0 to 10%, as opposed to traditional mortgage loans.

Interest Rates: Such loans normally attract high interest rates due to being self-employed and the chances of being unable to show proof of income.

Minimum Credit Score Requirements: Different lenders use different credit requirements. Therefore, most mortgage lenders of bank statement loans will require a minimum credit score between 600 and 660.

Using bank statements enables a lender to scrutinize the bank receipts of a self-employed individual and determine the income level for that individual. This way of income calculation is more informative than other relevant documents. Typically, a single bank statement analysis is done over the past 12 to 24 months. An expense factor estimate is made. A net qualifying deposit income is calculated. This allows people with non-income paychecks to purchase homes. No income tax returns or other income documents are required on bank statement loans for self-employed borrowers.

[Gustan Cho]

How Much House Can I Afford vs How Much House Can I Qualify For?

Affordability concerns the amount of expenses you can afford with your finances. For example, it includes housing expenses such as mortgage interest. In addition to mortgage interest, you need to add the principal, land rates, home insurance, power, and upkeep costs. This also addresses social life, savings objectives, and other economic factors.

However, qualification is about what a bank feels you can afford after assessing your financial status:

• Income.
• Creditworthiness.
• Presence of debt.
• Equity.

This is how lenders go about it, although the amount may differ from what you would like to stretch out easily.

How Much House Can I Qualify For Compared to Salary?

When providing loans, lenders have a rough idea of how much house you can qualify for based on your salary and other factors.

28/36 Rule: Lenders usually do not accept that your monthly housing costs (i.e., mortgage, taxes, and insurance) go beyond the margin of 28% of the income you earn per month before tax. In addition to that, all your debts, including housing costs, should not account for more than 36 percent of gross monthly pay.

As an illustration,

For a person who earns $75,000 in a given year, for example, a month has a gross of $6250.

• 28% of $6250= $1750 for housing expenses.
• 36% of 6250=$2250 for total debt payments.

What salary must Mustone have to afford a house worth $300K?

To estimate the income needed to afford a $300,000 house, let us consider the following assumptions:

• Down Payment = 20% = $60,000.
• Mortgage Amount = $240,000.
• Interest Yields = 6% (for a fixed 30-year mortgage).
• Homeowners’ Insurance and Property Tax = $300/month.

Inputting into the mortgage calculator,

• Estimator of Monthly Mortgage Payment (Principal & Interest) = $1,439.
• Cumulative Monthly Housing Cost = $1,739 (this includes taxes and insurance).
• Using the 28% rule of,
• Target Monthly Income Gross = 1739/0.28 = $6,211
• Target annual income = $6,211*12 = $74,532

From this, we can comfortably afford a $300,000 house and seek an income of around $74,500 a year with a 20 percent down Payment and a 6 percent interest charge.

What is the Minimum Credit Rating Required to Process a Housing Loan of a House Worth 300K?

The loan type and particular requirements of the lenders determine the score required:

Conventional loans: The borrower has to possess a minimum credit score of about six hundred twenty. However, with a higher of seven hundred forty options, the lowest interest rates are prevalent.

FHA Loans: Most of these loans have relaxed credit rating standards, and a score of 580 is usually acceptable with a down payment of 3.5%. On the other hand, borrowers with scores of 500 to 579 will have to pay 10% upfront while they can still take the loan.

VA Loans: They usually average around the 620 mark, but some lenders will approve applicants with scores as low as 580.

USDA Loans: Deals at least with a score of 640.

The size of the house you can afford is relative to your income and debts, along with the amount you are accustomed to spending, but the amount you are eligible for depends on the lender. In general, a $300,000 home would require an income of about $74,500 per annum, and you should also have a reasonable credit score of 620, which varies with the type of mortgage an individual seeks and the other financial conditions that one has to satisfy.

[Gustan Cho]

The qualification and pre-approval stage of the mortgage process is the most important step of the entire mortgage loan process. One of the reasons why there is stress or a last minute mortgage loan denial of borrowers is because the loan officer did not properly qualify and pre-approve the borrower. Unfortunately, many loan officers do not thoroughly review the borrower’s mortgage loan application, run credit, review income docs and tax returns, and run the automated underwriting system before issuing a pre-approval. Believe it or not, many loan officers just take the mortgage loan applicant’s word on the income, assets, liabilities, tax liability, credit history, credit tradelines, and credit scores and issue a pre-approval letter. By doing so, the entire home buying and mortgage process gets thrown into a loop and chaos happens where there is unlimited stress during the entire mortgage process. The consequences can lead to stress during the mortgage process, delays in closing, and a last minute mortgage loan denial.

https://gcamortgage.com/mortgage-after-conditional-approval/

gcamortgage.com

Getting Denied For a Mortgage After Conditional Approval

If you got denied for a mortgage after conditional approval, look at non-QM loan options such a no-doc, and DSCR loans, and bank statement loans.

[Gustan Cho]

I will take you through mortgage professionals and how they are remunerated:

Mortgage Broker:

• A mortgage broker bridges a client wishing to borrow and a lender offering loan facilities.
• Instead of lending out their own money, they work with different wholesale mortgage lenders to offer the most suitable loan for the clients.

Role of a mortgage broker:

1. Evaluate the financial position of the borrower.
2. Identify the loan with favorable terms from lenders.
3. Assist in filling out the loan application forms.
4. Collect the available evidence for the application.
5. Act as an intermediary between the borrower and the lender.

Differences between mortgage professionals:

Mortgage Broker and Mortgage Banker:

• Mortgage brokers work as intermediaries between their clients and a collection of lenders.
• Mortgage bankers are employed by one lending institution only and only provide products from that lending institution.

Full-Eagle Mortgage Banker:

• A full-eagle mortgage banker is capable of performing all the stages of receiving a loan, including originating it, underwriting it, closing it, and funding the loan using some of their own money.
• They may also service the loans or sell them on the secondary market.

Direct Lender:

• The same as above, except that it is a financial institution, such as a bank, credit union, or a certain mortgage company, that can lend out its own funds.

Correspondent Lender:

• A Correspondent Lender is a person or firm that originates and funds loans under its name.
• A correspondent lender generally sells them to larger lenders or investors after closing.

Mini-Correspondent Lender:

• It can be compared to a correspondent lender.
• Rather, it is in a limited proportion and might need more underwriting powers.

Compensation:

Mortgage Brokers:

• Payment for their type of services is normally made through origination fees (which are payable by the borrower).
• They may also obtain yield spread premium (YSP) from lenders.
• Other brokers impose a combination of fees, including outside of closing costs paid by the borrower and paid by the lender.

Mortgage Bankers:

• Traditionally, there are two types of compensation structures.
• One is the salary, and the other is the percentage of the loan volume translated to commissions.

Full-Eagle Bankers:

• In this way, they are no different from mortgage bankers.
• Income also comes from servicing or selling loans on the secondary market.

Direct Lenders:

• Benefit from interest on loans issued to borrowers and maintained in their books.
• Loans expected to be resold can also be originated and serviced by the lender.

Correspondent and Mini-Correspondent Lenders:

• Earn income from origination fees.
• They may also benefit from the difference between the price at which they have borrowed funds and the price at which they sell the loans to investors.

Yield Spread Premium (YSP):

• A YSP is a payment from a lender to a broker for obtaining a loan at a higher interest rate than the borrower was otherwise meant to get.
• From the lender’s perspective, this is done because the broker has helped to get a borrower willing to pay his money at a higher interest.

Mortgage Company Compensation:

• Several compensation methods for mortgage companies depend on the company’s model.
• Loan application type fees.
• Interest income (where they hold the mortgage for its life).
• Loan servicing fees.
• Sub-prime market operations
• Yield spread premium (these are companies that act as brokers).

This article provides the most important types of mortgage professionals and how they are compensated. Specifics such as titles, structure, and at what stage compensation is given differ from company to company, from state to state, and from regulation to regulation.

Is there something in a particular direction you want me to take?