(Originally written for 2010 taxes, but still applicable and helpful!)

4506-T Form Processing Needs To Be Particular

Requirements for 2011 IRS Transcripts

When filling out an application package, you’ll notice a form called the 4506-T.  This form enables a lender to obtain an electronic print-out of the Federal 1040 Tax Returns that have been filed with the IRS.  If the tax returns provided do not match the computer’s electronic print-out, line-by-line, than the loan may not fund.

Why Buyers should physically take their 2011 Returns to the Local IRS Office

E-filing could be an eight to 12 week wait, before a buyer’s loan may fund.

What If The Print Out Is NOT Available Yet?

Generally speaking, if the electronic print out was not available, than you couldn’t use that year’s income, from the 1040’s.  If 2009 was not a particularly good year, and you need 2011’s income to make certain that your qualifying ratios work, for the home of your dreams…than there’s a dilema.  Answer:

For loans underwritten before April 15, 2011, if the borrower has filed their 2010 tax returns, and the tax transcripts are not yet available, the tax transcript request will be returned from the IRS and reflect “No Record Found”, the following must be provided:

• 2011 Tax Transcript showing “No record or return filed”; and,
• Copy of the 2011 Tax Return, and,
• For Salaried Borrowers: a 2009 and 2010 tax transcript, current paystub and 2011 W-2;
• For Self Employed Borrowers: a 2009 and 2010 transcript, and 2011 1040’s stamped received by local IRS office along with 2009 and 2010 tax returns.

Don’t worry about the transcripts.  Access Real Estate Lending’s Processing Team takes care of ordering and processing the forms, using the 4506-T form, through an IRS portal.

Common Scenario question:

Self Employed borrower has filed their 2011 returns (no transcripts available yet) and they need the 2011 income to qualify for the loan. (Yes) We can drop 2009 income and use 20010 and 2011 provided the 2011 increase is “reasonable.” In order to do this, we must have copies of 2010 tax returns STAMPED received by the local IRS office. Unfortunately the copy of Electronic filing of 2010 returns is not acceptable, a copy, of the 2011 returns, must be a stamped copy, from IRS office.

We will provide further direction the closer we get to April 15, 2012. At that time we can give guidance when borrowers are filing extensions and what will be required. This policy is subject to change as we receive direction from our investors.

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What Are 203(k) Loans?

The Federal Housing Administration (FHA) insures loans that enable home buyers to finance 96.5% of acquisition costs PLUS the cost to renovate the home.  So, if you’re interested in buying a foreclosed property that has had the carpets removed, that doesn’t have a front door, or needs some nice fixing up, than this loan will enable you to do so.  And the escrow can close before any of the work starts!

Writing An Offer

You definitely want to write your offer to include the verbage, “seller is aware that buyer is obtaining an FHA 203(k) loan.”  This is important, as the seller, and Listing Agent, need to know that you understand that the property needs some rehabilitation attention, if it’s not included, than the seller may not take your offer seriously; as they know the property is dilapidated.

FHA’s 203(k) Loan Attention To Detail

You’ll definitely will want to get your ducks in a row, on this loan.  It’s not only important for you to have your documentation ready, but you’ll be working with a general contractor that needs to pay specific attention to details, as well.  One example is a general contractor’s insurance needs to be updated…almost always.  The renovation must start within 2 weeks of the escrow closing.  All of the work must be completed within six months.  So, if the general contractor’s insurance is set to expire in seven months, from your loan application date, you can see that this could be an issue.  Simple answers to these types of dilemmas, are exactly why you want to use a knowledgeable Mortgage Banker, like Access Real Estate Lending.

You Will Want To Be Very Organized

What You’ll Need

Click on this link, and it will take you to a list of everything you’ll need to gather, including what your general contractor will need to provide.

We’re ringing it in with a new radio segment. Listen why Danny Salas thinks FHA 203K Loans are a good opportunity for Buyers and Agents.

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Interest Rates Continue to Climb

Why Are Rates Skyrocketing?

There are a couple of things occurring.  QEII is taking effect on the market, and deflating the value of the dollar, worldwide.  The U.S. is doing the exact same thing, it has ridiculed other countries of doing, in the past.  Quatitative Easing II is the government’s stimulus program to actually cause inflation (interest rates’ worst nemesis), in order to spur economic life, into an increasingly dead economy.

The second main issue is, again, Europe.  This time, it is Ireland.  Ireland’s financial banking system is at the brink of complete collapse.  Therefore, as we’ve seen in the past with other European Countries, the European Central Bank (ECU) and the International Monetary Fund (IMF), have stepped in and offered a deal to Ireland, that they may not be able to refuse.

Why would Ireland Refuse Help?

Pride!  Simply, put…Pride, Austerity, and higher taxes.  Ireland has the lowest tax rate of any European country.  And the concern is, that if they accept this assistance, they’ll have to raise taxes and perhaps cause the unrest that Greece had to endure, through their financial fiasco.  In economics, austerity is when a government reduces its spending and/or increases user fees to pay back creditors.  Austerity is usually required when a government’s fiscal deficit spending is felt to be unsustainable.

Safe-Haven Treasuries, Not As Safe

Investors Moving Money

During the uncertainty in Europe, investors tend to move their money into the safe-haven of U.S. Bonds, Treasuries, and Mortgage-Backed Securities.  However, with a plan on the table to revitalize Ireland’s financial stability, that safe haven is less attractive, and therefore, money pours out of these places, and into Stocks, Bonds, Gold, Oil, etc.  This causes rates to increase.

Hold Your Horses

Europe is still not out of trouble.  Greece, Portugal, Spain, and Italy, are all beginning to show signs, again, of financial trouble.  Their banking systems may need more bailout help, as they already have experienced.  If this rears its ugly head again, we could see these same investors shuffle money back into the safe-haven of U.S. Bonds and Mortgage-Backed Securities…causing rates to move downwardly again.

Watch Europe Carefully…Rates Could Benefit

Locking In

If you haven’t done so, already.  You’re not working with the right mortgage banker.  However, if you or your client, just had your application taken…I’d hold out and watch what happens with Greece, Portugal, Spain, and Italy.  We may have a small rebound, after suffering HUGE losses, this past two weeks.

Related Must Reads

Past European Troubles
Greece’s 1st Financial Rescue Program
Portugal’s Past Troubles

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In the past, if you had an unpermitted addition on your property we would have to remove the unpermitted area from the GLA (gross living area) square footage and also price the loan on a Standard 30 Year Fixed Rate Loan, or a government sponsored FHA Loan, with a significant additional cost.  Well, now, Access Real Estate Lending, through one of our wholesale partners, is able to leave the square footage in the GLA and also keep our best interest rate pricing!!

 Single Family Properties with unpermitted room additions are acceptable as described below.

All of the following must apply:

• The appraiser must comment that the addition or conversion was completed in a workmanlike manner and that there is not any impairment to the soundness, structural integrity or livability of the property.
• The room addition must conform to the rest of the property.
• The addition or garage conversion cannot cause the subject property to be in violation of zoning.  The appraisal must indicate that the zoning is legal and may not include any comments that the zoning of the property has been jeopardized. 

• The square footage of the addition may be included in the appraised value.  A garage or porch conversion may be appraised as originally intended or as currently used, depending on the comparable sales.  Example:  If garage conversions are typical for the area as evidenced by comps, the conversion may be appraised as it is currently used.  If garage conversions are not typical for the area the conversion should be appraised as a garage.
• The hazard insurance policy must clearly show that the entire square footage of the subject property, including the unpermitted addition, is included in the policy. 

Examples

Room Addition Example:  If the property was a 3 bedroom property and another bedroom has been added and the property is being appraised as a 4 bedroom property, the hazard insurance policy must clearly insure the total square footage of all living space, including the addition.

Garage Conversion Examples:  If the property is being appraised with the garage conversion being valued as a bedroom, the hazard insurance policy must clearly insure the total square footage of all living space. 

If the garage conversion is being valued as a garage, then the hazard insurance policy need only insure the area as a garage.

NOTE:  The hazard insurance policy does not need to indicate that there is an unpermitted addition or garage conversion, but the square footage that we are lending on must be covered by the policy.

 NOTES FOR GARAGE CONVERSIONS: 

Zoning:  Local ordinances and/or municipality requirements may obligate a property to have covered garage storage.  This is more common in PUDs and gated communities.  It is the responsibility of the appraiser to check for this type of requirement; however, it is the underwriter’s responsibility to thoroughly review the appraisal to ensure the property’s zoning is compliant. 

 Ineligible Scenarios

The following scenarios are not eligible under any circumstance:

• Room additions are not eligible on 2-4 unit properties.  All properties must be single family properties and the addition may not result in the property converting to a multi-unit property, etc.
• Additions that result in extra living units, also known as accessory units or granny flats, etc. are not eligible.   

Related Must Reads

FHA-Why It’s King

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Beginning October 8, 2010 PMI Home Insurance raised their maximum LTV (Loan To Value) to 97%.  For most in the industry, it will be a good thing. With a 3% down payment, more potential homebuyers will qualify for loans.

Criteria Outline

To See All of PMI’s Criteria and Rate Changes, Check Out:

www.pmi-us.com

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Rates On The Rise

Government Stimulus Causing Rate Increases

For the most part, you have probably seen mortgage interest rates start to rise over the past few business days.  The new government stimulus program is getting ready to roll out, in November.  This will, most likely, cause interest rates to rise.

Inflation TOO LOW!

The reason sounds simple, however, you generally read that inflation will cause rates to increase.  On the opposite extreme, there is deflation.  I’ve written about this, in the past, however, the government has been announcing that they are very concerned that the level of inflation in the country is uncomfortably low.

What does this mean?

In order for an economy to grow, there must be inflation.  Inflation, in the U.S., is virtually non-existent, and we are now approaching a point where deflation is becoming a major concern, and a real threat to the economy.  The government has stated that they are committed to preventing this from happening, and they are stepping in with a new round of stimulus.

How This Differs From The $1.25 Trillion Stimulus

The initial stimulus program, when the government pumped $1.25 Trillion into buying Mortgage-Backed Securities, to keep interest rates low, was to also enable businesses and consumers to borrow money.  This round of stimulus, launcing in November, is particularly focused on increasing prices at the Wholesale and Retail Level, forcing items to cost more, and therefore, eluding a downward spiraling ecomomic distaster, by preventing deflation from occuring!

Is This Gonna Work?

What is critical for you, as a consumer and professional Realtor to understand, is that inflation is the nemisis of bonds and Mortgage-Backed Securities.  Mortgage-Backed Securities are the determining factor regarding interest rates, and if the government is committed to increasing inflation, then mortgage rates have nowhere to go, but up.

The Writing’s On The Wall

I’ve written before that many times, speculation will have an impact on interest rates, more so than actual economic statistics.  The government stimulus package will start in November, yet we have already seen an increase in over 50 basis points, for a loan’s cost.  That translates to approximately, 1/2 Point on a real estate loan.  And this is just in the past two weeks!

What Should You Do?

I am urging you to please contact me right away.  I can provide you updated financing information, on your particular situation, or your buyers’, so you all can make an educated decision on what your next step should be.  I just want to be certain that you are kept up to date on what is happening, and that you understand how the changing rates will impact you today, or in the future.

Related Must Reads

Deflation Concerns, One Year Ago
Rates Were Expected To Go Up A Long Time Ago…When I Was Wrong

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Instantly Detect Changes Between Borrower’s Origination and Pre-Closing Credit Reports By Utilizing CreditCOMPARE.

Credit bureaus are now offering CreditCompare. Compare two reports to comply with FannieMae’s LQI requirement to identify undisclosed liabilities. Identifies the variances, so you don’t have to!

CreditCOMPARE  Identifies Changes In: 

• Borrowers Identification Information

•  Credit Scores (if ordered on the Pre-closing Report)

•  Balances, Tradelines, Payments and Public Records

•  NEW Tradelines and Inquiries

•  Credit Utilization

 

 

 

  

 

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Beginning October 4, 2010, FHA is requiring FHA Mortgage Insurance Premiums on all loans with case numbers assigned on or after this date, per HUD Mortgagee Letter 2010-28.

The Changes

FHA will decrease the Up Front Mortgage Insurance Premium (UFMIP) from 2.25 to 1.00 percent while ALSO increasing the monthly Mortgage Insurance Premium (MIP) from .55 up to .90 percent.

What This Means

For the most refinancing FHA homeowners and home buyers, this MIP change is neutral— just different.  To carry each month, loans will COST MORE; However, procuring will be LESS COSTLY. It is a compromise that should help steady and recapitalize the government group.

Contact Access Real Estate Lending today to see if a FHA Streamline Refinance will work for you!

*Change to FHA MORTGAGE Insurance Premiums was originally to change September 7, 2010.

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