If you have gone through or are considering going through a foreclosure, short sale, or bankruptcy, NOW is the time to start getting your credit back in order. Although it seems like a long time away, there are steps to take in preparation for your next home.

Buy Home After Bankruptcy (Chapter 7)

How long will you have to wait on buying a home after filing for Chapter 7? It depends on the loan type and other factors, with ranges between 2-years and 4-years from the discharge date.

• Fannie Mae: 4 years from Discharge Date
• FHA: 2 years from Discharge Date
• VA: 2 years from Discharge Date
• USDA Rural: 3 years from Discharge Date

Buy Home After Bankruptcy (Chapter 13)

How long will you have to wait on buying a home after filing for Chapter 13? It ranges between 1-year and 4-years depending on the loan type.

• Fannie Mae: 2 years from Discharge Date (4 years from Dismissal)
• FHA: 1 year of the payout must elapse & payment performance must be satisfactory. Buyer must receive permission from the court to enter into a mortgage.
• VA: 1 year of the payout must elapse & payment performance must be satisfactory. Buyer must receive permission from the court to enter into a mortgage.
• USDA Rural: 1 year from completion

Buy Home After Foreclosure

How long will you have to wait on buying a home after a foreclosure on your previous home? It depends on the loan type and ranges between 2-years and 7-years from the Trust Deed date.

• Fannie Mae: 7 years from Trust Deed date
• FHA: 3 years from Trust Deed date
• VA: 2 years from Trust Deed date
• USDA Rural: 3 years from Trust Deed date

Buy Home After Short Sale

How long will you have to wait on buying a home after a short sale on your previous house? It depends on the loan type and other factors, with ranges between 0-days and 7-years.

• Fannie Mae (w/ a max of 80% LTV): 2 years
• Fannie Mae (w/ a max of 90% LTV): 4 years
• Fannie Mae (w/ max LTV): 7 years
• FHA: 3 years from completion date (can re-enter market if short sale is sold with NO mortgage delinquencies)
• VA: 2 years from Trust Deed date (can immediately re-enter market if short sale is sold with NO mortgage delinquencies)
• USDA Rural: 3 years from completion date

Click here to download the printable PDF

Guest author: Jon Tobias of the Tobias Team @ Nova Home Loans.

In an effort to encourage sellers to short sale their homes rather than let them go to foreclosure, in  September the Arizona Department of Housing (AZDH) began accepting applications for a new program where they will offer $4,500 to sellers and 3% of the purchase price to buyers for help with closing costs on homes in short sale.  The new program is in response to lackluster participation in the existing program aimed at helping struggling homeowners modify the principal balance on their current loan.

The AZDH offers various programs to try and help struggling homeowners keep their homes as well.  Under the unemployment mortgage aid program, unemployed Arizona homeowners can receive temporary payment assistance for up to 24 months while they seek employment.  Additionally, those who qualify can apply for the aforementioned Principal Reduction Program. 

The Principal Reduction Program provides a loan modification utilizing principal reduction of up to $50,000 with a matching contribution from participating lenders to reduce the mortgage payment to 31% of the homeowner’s monthly income.  Participants must meet certain requirements, including eligible hardship, property type, loan balance, income level, and other conditions.

While this could be good news for struggling homeowners, the largest servicers and lenders are not required to accept any terms issued by the AZDH and have only agreed to 6 modifications in the state to date.

Still for those who qualify, these programs could help homeowners save their homes from foreclosure as well as salvage their credit.  Worth looking into at http://www.housingaz.com/.

Did you know lenders use different credit scores for different purchases?  When you are in the market to get credit, beware.  The credit score you receive may not be the score a lender receives.  Scores can differ depending on what kind of borrowing you’re doing whether it be from purchasing a home to buying a car or getting a credit card.

Know Your Rights.

Under the Fair Credit Reporting Act that took effect January 1st of this year, lenders must either tell those who apply for credit what score was used, or tell the applicant how it was used if they didn’t receive the best terms available.

8 Need to Know Credit Score & Borrowing Tips

1. Credit scores are not a total reflection of whether you are making good financial decisions or poor ones.
2. If you refinance your home at a lower interest rate, inquiries could show up on your report.  Inquiries lower a score. Be it mortgage related or not, be sure to ask if someone is doing a “soft credit pull” or a regular credit check.  A soft pull does not provide a whole credit report and will not affect your credit.  However, having several hard credit checks where your report is actually pulled, can lower your credit score because it appears you are out looking for credit wherever you can get it.
3. Rather than checking your credit score often, it is better to ensure that the information on your report is accurate. Make your payments on time and reduce monthly balances for a month or two before applying for a loan or mortgage.
4. The rates lenders give may vary. Some give the best rates to people with a score of 700 while others may use 750 or higher.  What used to be the standard acceptable score of 620, has changed recently and now some lenders are considering scores in the low 500′s.
5. If you pay your credit card bill in full every month, you do not get a zero balance on your credit report.  The report shows the balance at the end of the billing period, before the payment is posted.
6. Late payments can show up on your score for years. However, paying down a high balance has an immediately positive impact on your credit.
7. Check your credit report for mistakes. If you have a similar name as someone else, you may have their credit on your report!  I’ve seen this often enough for it be a concern.  Especially if you’re a “Jr.” or “Sr.” or carry on a family name.  Unfortunately, sometimes it can be a family member whose poor credit is inadvertently affecting your own.
8. Finally, make sure that when you pay off a bill, you follow up with the credit agencies to ensure the payoff gets posted in a timely manner.  Often, creditors can take a long time doing this and that isn’t helping you, even though you paid off your bill.  And always remember, paying off revolving debt first is beneficial. Paying off small interest student loans for example, doesn’t have nearly the impact of paying off a credit card.  Typically, the loan gets smaller as you pay it.  The credit card simply allows you more available credit!

A new agreement with Bank of America could help Arizona homeowners who are struggling to make their mortgage payments. Bank of America announced that it will begin offering loan modifications under an Arizona foreclosure-prevention program funded by federal dollars.

Federally Funded Program

The state provides money to pay off up to $50,000 of a mortgage if the bank agrees to forgive an equal amount, meaning borrowers who qualify can cut the amounts they owe by up to $100,000!!  Bank of America the first major lender to sign on to the plan, which is funded by $268 million from the Treasury Department’s Hardest Hit Housing Program.

Reduced Loan Balances

Officials say lenders have been reluctant to reduce loan amounts.  Since the Arizona Housing Department (AHD) starting accepting applications in September for loan modifications, only one homeowner in Arizona actually obtained one.  That borrower had his loan balance reduced by $40,000. While it’s not clear how many borrowers will actually get a modification, this agreement should at least encourage more of them.  The AHD reports that 40 percent of the 1,300 requests the agency has fielded have been from Bank of America customers.

The Thing to Remember

Bank of America loans are actually held by government-owned agencies Fannie Mae and Freddie Mac who have not yet agreed to the principal-reduction loan modifications.  Notably, the agreement applies only to loans owned by Bank of America.  Bank of America will begin mailing notices to Arizona homeowners who are eligible for the loan modifications as early as this week.  The bank is encouraging customers to wait for those notifications rather than contacting the bank directly to find out if they qualify.

Modifications

After home values crashed nationally, many people owned homes that were worth less than what they owed.  That problem was prevalent in the Phoenix metro area of Arizona, where home values plunged by more than 50 percent.  As a possible solution, the federal government has funded programs to encourage lenders to modify loans which reduces homeowners’ payments by lowering the interest rate, changing terms, or just forgiving part of the debt.  Although lenders are sometimes willing to cut interest rates, a separate federal program launched in April 2009 rewards them for doing so.  However, few lenders have have been willing to forgive principal.  In February 2010, the Treasury Department launched its Hardest Hit Housing Program to aid states facing the biggest foreclosure problems.  Arizona officials chose to focus much of the money on encouraging principal-reduction loan modifications.

Qualifications

In order to qualify for loan modifications, borrowers must be able to show a cut in income due to loss of employment, reduction in work hours, illness divorce, or death.  The borrower has to also prove that they so have some income and owe at least 20 percent more than their home is worth. Those who took out a second mortgage and didn’t use it in the purchase of the home aren’t eligible.  Qualifying borrowers have their principal reduced and their loan is then restructured to lower the payments.

Expanding Guidelines

The state housing agency is working to expand guidelines so more people can qualify, partly by easing the rule that bars borrowers who took out a second mortgage.  Homeowners who receive monthly-payment help will be encouraged to apply for the state’s principal-reduction loan modifications when they are working full-time again.

While lenders may be reluctant to encourage modifications, it’s a better alternative than foreclosure.  At least with modifications, they stand to recover more of the loss in these situations.  Hopefully, by encouraging this, Bank of America will help many struggling Arizonians stay in their homes!

OCCUPANCY & PROPERTY TYPE

The rate will depend upon the reason for the purchase:  Is it a primary residence?  An investment property?  A second home?  Typically a primary residence yields less risk for the investor since buyers are more likely to retain payments on the home their living in if they experience a hardship.  So the rate is typically lower on a primary residence than on an investment property or second home.  Rates also vary based on the type of home such as a single family residence as opposed to a condo or manufactured home.  It is important to note that misrepresenting occupancy to get a lower rate is considered fraudulent and often, occupancy is being verified after closing.

TYPE OF LOAN

Each loan type has its own pricing so rate options vary depending on whether the loan is conventional, FHA, VA, etcetera.  Adjustable rates mortgages have lower rates than fixed rate mortgages to compensate the buyer for the risk of not having a fixed rate.  The lender is the only one who can determine what loan type a buyer qualifies for.

LOAN-TO-VALUE (LTV)

The LTV is determined by dividing the appraised value of the property or the purchase price of the home by the loan amount. Rates may be lower with a higher down payment since this creates a lower LTV, depending on the type of loan.

LOAN SIZE

Investors make less money in interest on smaller loans.  Therefore, there is tiered pricing depending upon the size of the loan.

CREDIT SCORE

The buyer’s credit score can also affect the rate.  Better scores may be eligible for lower rates since the buyer has shown a history of paying their debt and doing it on time.  It’s possible that in the future, there may be more credit score adjustments and this would be a major factor in determining rates.

RATE LOCK PERIOD & TERM

The term of the loan and whether the rate is locked at a fix rate or not also affect rates.  Typically rates are locked on a 30 or 45 day period and are for a 30 year mortgage.  Rates that are locked in longer are generally higher because they present more risk for the investor with the possibility of market movements during the rate lock period that could work in the buyer’s favor.

It’s important to remember that the annual rate is not the same thing as the rate on a note.  The note rate is simply the rate the borrower pays monthly for the money their borrowing.  The annual rate, which is reflected on the Truth-In-Lending (TIL) document the lender is required to provide, reflects the rate including all of the fees incorporated into the loan. So if you want to know what you’re truly paying back over the life of your loan, look at the total amount of payments on the TIL.

Here’s a quick rundown of the different types of investments in the real estate market. This includes dealing with a lender, mortgage company, banks, and REITs. Getting the feel for how each of these works will provide the most benefit to the would-be investor.

Lenders

A lender is an individual, or an institution, who lends a borrower some money in order for the latter to purchase a house. There are different kinds of lenders like the hard money lenders, commercial lenders, educational lenders, or mutual organizations. A bank can also serve as a commercial lender. The lender lets people borrow money, but with certain terms. The terms include the length of the loan, the interest rate, and a payment plan.

FRM/ARM

A mortgage company is one which specializes in proposing loan mortgage services like loan calculating, free mortgage quotes offer, deal guides and excellent customer services. They also have the power to approve mortgage loan applications. These companies can offer wither a Fixed Rate Mortgage (FRM) or an Adjusted Rate Mortgage (ARM) to interested borrowers. Other services offered by mortgage companies include mortgage refinancing, new mortgage acquisition, obtaining a home equity loan, property evaluation and many more.

Banks

A bank is a business that accepts deposits and uses these deposits in lending activities through several ways, one of which is the capital markets. The bank is one of the institutions people run to when they want to make a loan in buying a house. The loan would help them assist in their finances or would add to the amount in buying the house. The borrowed money will have a certain interest and the rate of interest varies in various banks. The rate can either be a fixed interest rate, floating interest rate or a flat rate.

Another entity to turn to when one wants assistance in buying a house is the government. The government offers cheap loan programs and flexible payment plans that could really help the citizens in acquiring a home. Also, other government loans don’t require the applicant to have a perfect credit or a large amount of down payment. There is also no worries though on is a first-time buyer. Finding government sponsored programs is often done through a bank.

REITs

Real Estate Investment Trusts or REITs are business organizations which capitalize in real estates to obtain income. REITs have trust managers who are able to offer major services like locating probable properties, buying these properties and dealing with possible tenants. There are shares in REITs that one can buy, sell and purchase from tax-deferred accounts of retirement. The shares are also being traded on major stock exchanges. People who are not knowledgeable of the real estate business, but want to engage with the trade opt for this investment type.

Guest contributor: Susan Redfield, a real estate agent at USREOProperties.com, reo properties for sale & online listings

As a rule, credit scores analyze the credit relate information on your credit report. How they do this varies. Since FICO scores are frequently used, here is how these scores assess what is on your credit report.

1. 35% – Your Payment History – Have you paid your credit accounts on time? Late payments, bankruptcies and other negative items can hur you credit score. However, a solid record of on-time payments and help your score dramatically.
2. 30% – How Much you Owe – FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit the lower your score will be.
3. 15% – Length of your Credit History – A longer credit history will increase your score. However, you can get a high score with a short credit history if the rest of your credit report shows responsible management.
4. 10% – New Credit – If you recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. If you need a loan, do your rate shopping with in a focused period of time, such as 30 days, to avoid lowering your FICO score.
5. 10% – Which Side of the Bed you Wake up on – I don’t think there is a science to all the calculations on determining your FICO score so small miscellaneous variables could affect your rating. What color shirt you wear, If you take cream with your coffee…I don’t know?? Hopefully, this list will give you a good start to building and maintaining a high credit FICO score.

At the urging of NAR, Fannie Mae announced a new policy on February 6, 2009, to allow investors and second home buyers to own up to 10 financed properties. The new policy takes effect on March 1, 2009, and replaces the current 4-property limit. The restriction applies to the total number of financed properties, not just to the number sold to Fannie Mae.

Investor and second home borrowers that seek to own between 5 and 10 financed properties must meet additional eligibility requirements. Borrowers must have a credit score of at least 720. The maximum loan-to-value ratio is 70% or 75%, depending on specified criteria. Borrowers may not have any history of bankruptcy or foreclosure in the past 7 years, or any mortgage delinquencies of 30 days or greater within the past 12 months. Reserve and other requirements also apply.

For Arizona homeowners that are considering selling their homes as a short-sale, there are important aspects about your mortgage(s) that you need to know. I will go through the readers digest version here, but be advised I am not a lawyer (nor want to be) so please contact a licensed real estate attorney or legal counsel for advise.

Arizona is a non-deficiency state, which means that properties of two and one-half acres or less and used for single-family or two-family dwellings; that the lender cannot bring a deficiency suit. This applies to mortgages that are held in deed of trust (which 99% of Arizona mortgages are). HOWEVER, the caveat is that the borrowed funds for the loan(s) must of been used to purchase or refinance the secured real estate. Meaning, if you used a line of credit to buy a boat, take a trip or build a pool that this loan is not subject to Arizona’s non deficiency statute. The reason being is that this money was financed by what is called a non purchase loan. Furthermore meaning….a mortgage lender may be able to obtain a deficiency judgment against you for the balance of the non purchase loan.

So to recap, if the property was bought using purchase money (loan that is applied to the purchase of real property) then there is no recourse for a lender to come after a homeowner for the mortgage balance if the property is sold short or goes into forclosure. On the other hand, if the property has liens that are held with non purchase money (loan that was used to buy stuff), the lender has every right to pursue a defiency judgement in the state of Arizona.

I hope this helps clarify that a foreclosure or short-sale will wipe anyway any debt on a property execpt on any loans that were made with non purchase money.

This is a good loan program for first time home buyers looking to buy homes in rural areas of the Phoenix Metro Area. More specifically some of these areas include: Queen Creek and the Town of Maricopa in Pinal County.

I decided to blog about this Rural Home Loan program because a realtor had emailed me about a buyer that was potentially going to make an offer on my Queen Creek flip home. The realtor’s concern is that the buyers would have to wait 90 days from the time we acquired the property because the title has to be seasoned for 90 days per FHA guidelines. While this is very true with FHA loans and some conforming loans, it does not apply to the USDA Rural Home Loan Program.

Here is an overview of some of the advantages of the USDA Rural Home Loan:

• 100% Financing with No Down Payment
• No Private Mortgage Insurance
• There is no Cash Reserve Requirement
• Minimum Credit History Requirements
• Finance Closing Costs – up to 6%
• Closing Costs Can be Paid by the Seller (up to 6%)
• Typically Rates are Lower Than FHA Loans
• No Limitation to the purchase price
• Repairs Can be Financed up to 100% of the Value

If you are a home buyer interested in Queen Creek or Maricopa real estate, I recommend you consider the USDA Rural Home Loan Program. This program provides the lowest interest rates with the lowest down payment requirements.

If you need to talk to a creditable and trusted mortgage consultant, I highly recommend you contact:

Michael Barnes
Desert Sun Mortgage
4301 N. 75th St, Ste 103
Scottsdale, AZ 85251
Tel: 480-946-2200 ext 114
michael.barnes(at)desertsunmortgage.com