When Mom, Dad, Uncle Jim, or Aunt Sue agree to give you $5000 to buy a new home, it seems like they should be able to give you the money and everyone’s happy. Unfortunately, lending guidelines require a little more than that. The issue is that they *could* be giving you a gift, but they *could* be expecting you to repay them as well. Family members aren’t afraid to tell a little white lie for one another… So…what if you are to repay the “gift”? Is there a monthly payment? Can you actually qualify WITH the payment to your relative? There really is a reason for all the nit-picking, I promise!

Once we get past the gift letter and accept the fact that we need to document the gift funds, the next big issue comes up: “WHY do you need to prove that the gift DONOR had the money to give?!?” Well, we have to look at lending guidelines again and see the common sense answer. A family member is likely to GIVE money to help another family member out. There is a select group of relationships that are allowed to give a gift. Your next door neighbor may have the money, but if you convince him to give it to you, he’s most likely going to want it back, right? So…since your neighbor has the money, and Aunt Sue is an acceptable gift donor, wouldn’t it be simple for the neighbor to give Aunt Sue the money to give you? Then there would be a new debt to the neighbor… So, the solution is to make sure Aunt Sue actually had the money to give in the first place. It’s frustrating, but it’s the only way to avoid loan fraud and putting people in homes they can’t actually afford.

So, if you’re thinking of buying a home, and you plan on using a gift, take note of the items you’ll need to provide as documentation:

- Gift letter (provided by your lender)
- Copy of the gift check to you from the donor (Personal checks are best)
- Copy of the CANCELED check from the donor’s account (OR – if not a personal check – most recent bank statement from donor showing available funds, no unusual deposits, and the withdrawal of the gift)
- YOUR most recent bank statement, or transaction history signed by a teller, showing your balance after the gift was deposited.

If you gather this documentation carefully the first time around, the frustration level will drop considerably and the paperwork will cruise through underwriting.

One last tip: If you KNOW you’re going to be getting a gift, and you KNOW how much it will be…..deposit it in your bank account BEFORE you apply for your home loan, then you’ll ONLY need to provide a gift letter! It’s a little known secret that spares many a home buyer a ton of frustration and paperwork!

Please remember one last thing: in the world of home loans, the name of the game is DOCUMENTATION. It may seem excessive these days, but compared to the days of no documentation that got us in trouble, this is a good thing.

Carmen Babb is a Mortgage Consultant with Wells Fargo Home Loans here in Salem Oregon

Phone: 503-551-9690

MAC  P6202-024

So without further ado…here is information about the dreaded “paper trail”  by Carmen Babb.

As a lender, one of the most frequent lines I hear from customers is something like, “What more do you want from me?!” or “I never had to provide this for my last mortgage” and sometimes even “What are you going to ask for next: My blood type??” The truth is: home buyers get understandably frustrated because lending regulations require documentation on such a detailed level, it can be quite a process to satisfy an underwriter these days.

So…what’s the most common issue when it comes to documentation and home loans? MONEY! It seems simple to homebuyers: if you need $6,000 to close on your new purchase, then you come up with the money somehow, and it’s all good, right? Nope. Sorry, but it just isn’t that simple. Here is my best advice for home buyers:

• Meet with a mortgage consultant early on and determine how much money you will need
• Discuss where that money will be coming from with your mortgage consultant (be very specific – having money “in the bank” is different than withdrawing money from your 401(k) and depositing it into the bank)
• Work with your mortgage consultant to create a “paper trail” of ALL monies in your accounts. This means getting copies of all large deposits from your bank, documenting where the money came from, and documenting gift funds.
• Speaking of GIFT FUNDS – This deserves its own bullet point! When getting a gift from a relative or close friend, you must provide proof that the donor expects no repayment and had the money to give you, proof you deposited the money, and proof of your balance after depositing. The easiest way to do this is with a gift letter (provided by your mortgage consultant), a cancelled personal check from the donor, and a statement from your account showing the funds have been deposited. There’s also a little known secret: It’s even easier to get the gift BEFORE you officially apply for your home loan. Then, you only need a gift letter and a statement showing you have the money.
• If you have money in multiple accounts, leave it in multiple accounts for now. Your lender will have to document every deposit and every transfer, so the more you move your money, the more paperwork you’ll have to track down.

So does it sound daunting enough to stop you from wanting to buy a home? It shouldn’t! Documenting funds to close is not the nightmare some customers and lenders feel it is. The key is to be prepared to “prove it” and talk to your mortgage consultant before you move any money around.

The mortgage industry today is different than it was a few short years ago. There is no doubt about that! But if we step back and look at the changes, most are for the greater good. Added scrutiny from underwriters is helping to prevent another flood of foreclosures and it’s also helping to ensure that potential homebuyers really are ready to be homeowners. For years, people with no money, bad credit, and unstable employment history could buy a home with no money down. There weren’t enough questions being asked. Today…the questions are being asked.

As a buyer, try to remember this one bit of advice when applying for a mortgage: You’re asking for a loan of $100,000, $200,000, or more. That’s a lot of money, and your lender needs to document your file impeccably to avoid fines. If you work closely with your mortgage consultant, and work proactively to document funds to close, your home buying experience will go much more smoothly and you’ll save yourself the stress of trying to create a paper trail.

Carmen Babb is a mortgage consultant with Wells Fargo Home Mortgage

You can call her at 503-551-9690, email her at Carmen.Babb@wellsfargo.com or visit her online.  

Each business has it’s acronyms.  Real estate, I think,  has more than any other business.  I think we like speaking in code to sound important and impressive or something.

I can just see an agent with a Salem Oregon home buyer.

“Hey that’s an REO over there. It has HDW, FR, LR, DR, and DLB.”

“Great what’s the FMV and my PITI?”

The latest acronyms to permeate the real estate world are HVCC, HERA and HOEPA.    I’m a firm believer that when you think people are smarter than you, just throw out a few acronyms to show how smart you are….just kidding, for those of you that may stumble upon this post and not know that I have a very dry, sarcastic sense of humor.

Despite the fact that we now have these extra special acronyms to banty around, they do impact buyers and sellers of real estate in the Salem Oregon area.  Because we seem to be in a place where there is no such thing as too many rules, some new real estate rules have been made with regard to lending and appraisals.  I won’t go into all the details except for how it impacts you.

In the Salem Oregon area we have typically done 30 day closings.  Because of new rules and underwriters being super cautious our closings have been closer to 45 days for the past few months.  Now because of the new HERA rules, closings may take 45-60 days.  What this change does is require waiting periods in lending for various things.  Essentially time for a buyer to look over things and make sure they are comfortable with the disclosures they are being given AND they match what they were told from the get go.  What this means is that there will be delays due to these mandated time frames.

Buyers need to be aware of these mandates as do sellers.  Longer close times, means the house is off the real estate market for a much longer period of time. It is even more imperative that Salem Oregon sellers look over buyers as carefully as possible to ensure that if they are going to take the house off the market for 60 days, the buyer is really strong.   Quick and good communication is going to be even more imperative as small changes in the APR for a buyer trigger new disclosures and waiting time frames.

It is extremely important due to these rules that buyers work with lenders that have excellent communication sills. It is also imperative that buyers and sellers work with local Salem real estate agents that are on top of these new rules.  This is not the time to work with an agent that does real estate “on the side.”

If you go up to interview a Salem Oregon agent and you say “tell me about HVCC, HERA, and HOEPA, and they say “huh?”  It’s time to move on…

(that would be to me by the way…c’mon you didn’t expect at least one shameless plug in here for business?)

Their 2nd quarter sales volume has remained fairly steady through this recession.  If you look at the 2nd quarter data for the decade you can see the nice bump during the bubble time.  Now it looks deceptive, but Aumsville is so small that when a subdivision like Highberger Meadows goes in, it makes a huge difference in the real estate market.  The new construction homes sold fairly well in this quarter.  The prices are great for the size and amenities AND Aumsville qualifies for the USDA loans which is one of the very few 100% financing programs.  Close to Salem, qualifies for 100% financing, has a nice new subdivision…what’s not to like and buyers seems to think so as well.

Unlike the Salem Oregon real estate market, the Aumsville market has been hovering around 6 months of inventory for a while.  This plunge in inventory is a little bit of a surprise, but not totally unexpected.   Not sure it will stay in a seller’s market for the whole year, but probably a neutral market.   If you want to see homes that are currently on the Aumsville real estate market, you can search for homes here.

So…in order to make things “easy”…cough, cough… for first-time home buyers the government had an announcement about this subject.  So what’s the deal?

The tax credit has been approved on FHA loans, but wait…you can’t use it towards the 3.5% down payment part when you actually purchase a house.  So essentially you can use it for closing costs, BUT you can’t get the credit early and do that because that would be fraud.

Jeff Belonger wrote a really good post on this, so I’m just sending you to his post to explain it all.  In true government fashion, it is so convoluted and difficult, that well bottom line…you should just take the tax credit when you file your taxes.

That has since been retracted.  Personally, I am not surprised.  It would take a while to get a program like that in place and the tax credit is only good through the end of this year.

So…never mind.

Go back to your regularly scheduled Salem Oregon house hunting program and forget that they ever said that.

The backlash was huge.  “We need to make sure home buyers have some skin in the game people said. ” No more down payment help.  Zilch.

Now, if you are a Salem Oregon home buyer doing an FHA loan, you can use the tax credit as the down payment for the house.  Announced today, FHA will do a “bridge loan” of sorts so that home buyers can take their tax credit at closing instead.  So, if you are a home buyer planning to do an FHA loan, you can now use that money as part of your 3.5% down payment.

I will post more as details emerge for the Salem Oregon area.

What’s the state of the financing market? We hear so much bad news in the media, but I see people buying homes, cars, etc. What is the expected/usual/average down payment required, what is the limit of income to debt ratio, etc?

Some people all scared about there being no financing, but it seems like that is just less financing for those who likely couldn’t afford it anyway; a return to perhaps the days my parents used to speak of where you had to have a down payment of some sort, have a good balance of debt to income, etc.

Question 1:  The state of the financing markets.

Lenders are still hurting and are “hoarding” money to shore up their books.  Many lenders are raising fees for loans to make up losses.  Loan origination fees used to be 1% and now 1.5% is pretty common.  Underwriters are scrutinizing loans like there is no tomorrow right now.  This is not a bad thing, but in the past underwriting would take 2-4 days and now it is not uncommon to her underwriters taking 2-3 weeks to look at and evaluate a borrower.

Money is there for borrowers, it is just tight.

Question 2: Down payment requirements

There are only two loan programs that do 100% financing right now and that is the VA (Veteran’s administration) loans or the USDA Rural housing loans.  Many buyers are going with the FHA backed loan which is a 3.5% down payment requirement.

Lenders love to see a 20% down payment.  You can still do 10% down and there are a few 5% down conventional loan programs but the PMI (Private Mortgage Insurance) payments have gone up from what I am hearing.

Question 3: Loan to value ratios

Ideally your entire debt should not be more than 35% of your income. That’s your entire debt so that includes car payments, credit card payments, etc.  I also suggest that working parents include their daycare costs in that number as well.  Failure to do so will make living very difficult. If you try and buy a home with a higher ratio than that, it is very possible that the underwriter will say no.

I have had a few clients get loans with slightly higher ratios, but they are the rare breed these days.

Comment:  Lack of financing

There is financing.  If someone has low credit scores and no money then, no, they won’t qualify for financing.  Not everyone should buy a home.  In my opinion, if you are renting and you can’t afford to save any money for a down payment, then you should NOT buy a home.

Purchasing a home is not just about the mortgage payment itself.  You have to maintain a home which costs money.  If you don’t have money to stash away for a down payment, you don’t have money to maintain your home.  That is not a good combination.

So…yes, you are correct that there is indeed financing for people that have saved their money and are financially sound.  We are back to the way it has been in the past.  Work hard, save your money, and then purchase a Salem Oregon home.

The government-backed mortgage-finance company stopped guaranteeing mortgages in condo buildings where fewer than 70% of the units have been sold, up from 51%. In addition, the company won’t back loans for sales in buildings where 15% of current owners are delinquent on association fees or where more than 10% of units are owned by a single-entity.

This will impact our local Salem Oregon condo market because we have The Meridian, Church Street Condos, and The Rivers all for sale right now.  I don’t know for certain, but I don’t think any of them are at 70% sold.  This could be a problem for those developers as lenders may be leery to lend on those projects without the guarantees of Fannie Mae.

This is an unfortunate situation for our local developers.  The condos are a nice addition to the rejuvenation of our downtown area, and this just makes it harder to pull developers into projects.  With lending criteria changing on a daily basis, the rejuvenation and livability of our downtown area may be put on hold as developers have to assess the risk of engaging in large projects.

If you are considering a condo purchase here in Salem, Oregon contact me to get on a condo list, or start your search for condo units here.

Oregon vets are fortunate to have a great home loan program here.  The Oregon Department of Veteran’s Affairs…okay, say that 10 times fast…has a wonderful program: the ORVEThome loan program.   I can say this from personal experience, since I had several veteran buyers here in the Salem Oregon area  last year who used this program.  I wish all lenders could be as good as these guys…

How does it work?

The qualifications are pretty basic.  You have to be

•  a post Vietnam vet or discharged from the military within the last 30 years.
•  honorably discharged
• qualify for what you want to buy..you still have to be able to pay the mortgage and have good credit.

What is it?

• Buyers need to only put down 5%.
• There is a lifetime maximum loan of $417,000.  So you would have one house loan of
  $200,000 then sell and get another loan for $217,000, or just buy a house once for $417,000, but then you wouldn’t qualify for the program anymore.
• The house has to be a primary residence.  
• The home needs to be in Oregon.  
• Unlike VA loans, these do NOT require the seller to pay any closing costs, but the seller can
  contribute closing costs.

Honestly, if you are a military person here in the Salem Oregon area that has been discharged from the military, this program is for you.  The ORVET staff and underwriters are great to work with and make purchasing a home easy for a vet…the way it should be.

If you need the name of our local Salem Oregon ORVET mortgage broker you can contact Mike Malowney at MMalowney@windermere.com, then give me a shout to help you with your home
search.