(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, causing Escrows not to close on time!

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.

Check out Danny Salas and Dan Henry (Steve Williams Realtor) on Real Estate Today Radio! 

Check out Danny Salas and Dan Henry (Steve Williams Realtor) on Real Estate Today Radio and hear why they both agree that it is best to act now instead of waiting for the market to bottom out.

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Check out Danny Salas on Real Estate Today RADIO, December 1, 2010 speaking about upcoming Fannie Mae changes.

Valuable for Homebuyers AND Real Estate Agents!

(Click the Play Button below to open up Audio Player)

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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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Interest Rates are Low helping Mortgages

The housing market started to regain stability in the past two months, after months of sales being in the toilet. Mortgage rates are at extreme lows, which are helping, although unemployment is predicted to remain high in 2011 (above 9% for the third year in a row – the last time this occurred was 1939 to 1941) which will aid in the low demand for houses.

In July, The National Association of Realtors’ index of pending home resale had a 4.5% gain in July and a 4.3% gain in August. However, a year ago these rates were up 18.4%. In the same month (August), three of four regions had gains in contract signings. The South had a 6.7% gain, the West had a 6.4% gain, and the Midwest had a 2.1% gain.

Previously owned homes make up around 90% of the market and in August these sales rose to a rate of 4.13 million.

West Chester Moody’s Analytics Senior economist Aaron Smith described the situation as a stabilizing improvement with “a long way to go”.  He believes the labor market is going to be the most important factor, which is identical to what other experts are forecasting.

Economy

 

Unemployment Continuing its High is Hurting the Market

Unemployment impairs home sales as well as aids housing foreclosures. In August foreclosures hit a record high for the third time within five months. Predictions are that if this problem of joblessness is not dealt with, no market can fully flourish.

Because of this, policy makers of the Federal Reserve may try to counteract with more stimulus.

Progression and prevention of deflation in the economy will be a matter of fiscal relief, believes William Dudley, the President of the Fed Bank of New York.

Very Low Mortgage Rates

Freddie Mac has announced that ending September, a 30-year fixed mortgage average rate had been recorded at 4.32%, a super low. Freddie’s Chief Economist, Lawrence Yun, stated, “Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market”.

Homebuyer tax credit with a maximum of $8,000 were required to be signed on April 30 and closed by September 30 so many closed near the beginning of summer.

Solutions Ahead

This horrible economic year is ending on a steady path. However this path is at a low incline.  A huge aid to help reclaim the housing market’s health will be when unemployment finally decreases. Until then, it will only continue to get better at a slow rate.

The Long Haul Ahead

Another idea for growth from William Dudley (Fed Bank of New York) is that sustaining home and stock values, generating mortgages for home buying and refinancing to be less expensive, and decreasing the cost of assets for business can ultimately help our economic situation by lowering long-term interest rates.  This can be done by refreshing purchases of Treasuries or mortgage debt.

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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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Spain's Troubles Show Signs Of Euro Weakness

Large Spanish Bank Fails

The continued financial troubles, in Europe, keep pushing Mortgage-Backed Securities to areas that I couldn’t even have dreamed of, one month ago.  CajaSur, one of Spain’s largest banks, has FAILED and has been taken over by The Bank of Spain, Spain’s Central Bank.

Economic Recovery

The National Association for Business Economics (NABE) has pronounced a few existing figures, to the market, today.  They are claiming that the U.S. Economy will grow at an unanticipated rate of 3.2%, compared to the expected 3.1%.  Some good news on the employment front, was that they expect unemployment to drop to 8.5% by the end of 2011.  These numbers aren’t as hopeful as our government’s numbers, however, they are probably more realistic.  They also pin-pointed the economic recovery date to June of 2009.

US Treasury Auction

Starting tomorrow, the U.S. Treasury will auction off $42 Billion of 2-Year Notes.  Wednesday will see $40 Billion of 5-Year Notes, and Thursday will show another $31 Billion of 7-Year Notes.  These auctions can cause wild market reaction, however, with Europe’s troubles on the wing, who knows what can happen!

It Doesn't Get Much Better Than This!

Locking Advice

With a ton of economic information and the auctions, for this week, I would be comfortable Locking!  With the completely unexpected values of Mortgage-Backed Securities, I would take advantage.

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