Home Buying Tips | What You Need To Apply and Get Approved For An FHA Loan

Part of being a successful real estate team is knowing who can help us get our buyers through what can be a daunting task for someone who has never done it before – loan approval.  It’s all about who you know, and we are fortunate enough to know several expert FHA lenders.

One of those lenders is David Lucido, with Eustis Mortgage, who has graciously agreed to contribute to the West Bank Living blog and share his knowledge with us all.  With FHA being the financing option chosen by so many buyers today, we thought it was important to give you David’s take on the FHA loan process:

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Several times per week, I’m asked the following question: “What do I need to do to be approved for a loan to  buy a house?”

My answer to them is to tell them that they’ve already taken the first step by asking that question! Then we proceed to take a look at their specific situation to see what options are best for them.

The biggest disadvantage that homebuyers face today is a lack of valid information. It’s not their fault – and it’s not their agents’ fault – with today’s ever-changing economical climate, it’s very difficult to have information that is accurate and up to date. What was true last week or last month is most likely different today.

Most first time homebuyers today aren’t working with the 10-20% to put down that our parents had when they bought their first house. And thankfully, it’s no longer mandatory for them to have that large down payment in order to buy a house.

That’s why FHA mortgages are perfect for that individual that has the credit, but not the cash… So, what can we do?

Let’s take a look at FHA financing and what is required for approval.

First step – call a Loan Officer.

Loan officers, like myself, are directly connected to FHA lending guidelines and have up-to-the-minute information as far as what is needed to qualify, and what is needed to close. In a 10-15 minute phone conversation, I can obtain all of the necessary information to determine:

• If they qualify for financing, &
• How much money they can be approved for.

In our initial phone conversation I will:

• Review their credit
• Obtain a 2 year residence history
• Obtain a 2 year employment history and income information
• Obtain asset information

NOTE: The minimum credit score for any FHA approval is a 620. (Based on information received from Equifax, Trans Union, and Experian). We will look at all 3 credit scores, and use the middle of the 3 scores to qualify. If there is a co-borrower on the loan, the lower middle score is used to qualify.

Second step – submit documentation.

Current paystubs – FHA requires a full 30-day history of paystubs, including the most recent paystub received. If the buyer is paid weekly, we will require the most recent 4 paystubs – if they are paid bi-weekly, or semi-monthly, we will collect the most recent 2 paystubs. Paystubs must be typed or computer-generated (not hand-written), and must include the gross income that has been received year-to-date. If there is a co-applicant on the loan, the same information is required of them as well.

W2’s – FHA requires W2’s for the past 2 full tax years. So until the end of 2009, we will require their W2’s from 2007 and 2008. We will need ALL W2’s received during those 2 years for all jobs held and income received (even if they only worked there for a short while). Any income reported on their tax returns for 2007 and 2008 must be documented with either a W2 or 1099.

Tax Returns – 2 years tax returns (2007 and 2008) are required on ALL individuals applying for FHA loans. Even if they have W2’s to show their income for the last 2 years, the FULL tax returns (including all attached schedules) are required. This is required so as to document all income and losses for those years. Any losses appearing on the tax returns will be included when calculating their average income over the 2 year period.

Bank Statements – FHA requires the most recent full 2 months bank statements. Any account from which funds are being used for the down payment, closing costs, or reserves must be documented. If the buyer is obtaining gift funds from a family member, we will have them and the donor complete a Gift letter that states that the funds are being given as a gift (and not as a loan requiring repayment).

These are the primary items that are collected when submitted the loan application to FHA for approval. After the initial review by underwriting, they may request some additional items (case by case)

For example:

• Letter of explanation of any credit report inquiries throughout the last 90 days
• Letter of explanation regarding any derogatory credit items appearing on the credit report
• Letter of explanation regarding any gap in employment for more than 90 days
• Letter of explanation regarding any significant increase or decrease in income, or unusual activity appearing on their bank statements (large deposits or withdrawals).

**The advantage of FHA is that they do accept unique situations that the borrower has encountered regarding their credit, employment, or income. So, I encourage everyone to apply, even if they think they don’t make enough money, or have enough money to put down. **
FYI: Borrowers can receive assistance from the sellers (of up to 6% of the sale price of the home) to help cover their loan costs.  These seller-paid costs can include

• Closing costs
• Homeowners and Flood Insurance
• Property Taxes

This seller-paid assistance could include everything but the 3.5% down payment. There are even programs available that can help the buyer with the amount they need for their down payment.

And, finally the third step… – GO FIND A HOME!

Once the homebuyer has been pre-approved, and has identified and secured a purchase contract on the property they wish to buy, we will order the appraisal and title work, and work towards a closing within 30-60 days.

So good luck! It’s a great time to buy, and still a great time to get approved for financing!

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Thanks to David for sharing his knowledge with us – we look forward to hearing more from him soon.

Need to get in touch with David and start the home buying process? He can be reached at 504.883.8100 or by email at david@eustismortgage.com.

Have another real estate question? Contact the West Bank Living Team for answers.  It would be our pleasure to assist you.

A Not So Short Discussion of Short Sales

For the longest time, I kept reading about the short sale woes of my Realtor friends in other states.  I couldn’t understand what all of the fuss was about, since I just wasn’t seeing very many of them in the New Orleans area and had no concept of how difficult these deals can be.

That’s not the case anymore.  More and more often, I am running across short sale listings on the West Bank and so I realized it was time to address them.

Imagine this…

You worked hard, saved your money and bought the home of your dreams.  Between downsizing companies and a rough economy, you can no longer afford to pay your mortgage each month.  You are trying to sell your home, but owe more than it’s worth in today’s real estate market.  You don’t have the cash to pay the difference between what a buyer would be willing to pay and the balance on the mortgage. 

What can you do?  A short sale may be the solution to avoiding foreclosure.

What is a short sale?

A short sale occurs when the lender agrees to accept less than the balance owed when a property is sold. 

But the words “short sale” are a misnomer because it can be a very long road getting to that agreement.

First, the home owner must prove that they are suffering from a financial hardship by supplying a letter that outlines why they are unable to continue making payments on the home (for example a job loss or reduction in pay). 

Additionally, the seller must provide documentation of their financial situation in the form of a current financial statement, 2 years of tax returns, recent pay stubs, copies of bank statements – basically the same information that a lender would request when applying for a loan. 

The bank collects all of this information and…..sticks it in a file somewhere on the desk of an employee with hundreds of other files without actually telling the home owner if they will or will not approve an amount less than the balance owed. 

Until an actual offer is received on the home, neither the agent or the seller know if the bank will approve the sale.  And when that offer IS received, it can take months to get an answer from the lender. 

Real life example:  I wrote an offer on a short sale listing in November 2008.  As of today we still do not have an answer from the lender – over 5 months later.

In my opinion, the banks are being short sighted in how they are handling these requests.  They have mortgage holders who are sincerely trying to negotiate the best deal for their property to pay off as much of the loan as possible and avoid the credit damage caused by a foreclosure.  Going to foreclosure is an expensive process for a bank and generally adds months to the time it will take for them to recoup their investment in a property.  But they are making busy work for themselves getting in the way of willing buyers and sellers every step of the way.

From a buyers perspective, it’s faster and easier to negotiate and get to a closing with a foreclosed property than with a short sale – at least with a foreclosure the bank has a price in mind and the time it takes to get from offer to closing is reasonable.  Too often, buyers wait for months only to receive no answer on a short sale, causing them give up and move on to purchase a different home. 

How is this process helping anyone?

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For professional, local real estate advice and representation, contact the West Bank Living Team.  It would be our pleasure to assist you with all of your New Orleans West Bank real estate needs, including foreclosures and short sales.

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West Bank Real Estate FAQ: What Do I Have to Bring to the Closing?

In the final days before a closing, I always hear the same question from every buyer and seller:  What do I need to bring? Lucky for you, it’s a pretty short list!

Buyers

• Drivers license – The law requires all title companies to verify your identification by making a copy of your drivers license or state ID.  Don’t worry, they have privacy policies in place to keep your information safe.
• Certified funds – Once you know the amount of money you will need to bring to the closing, don’t forget that the funds will need to be in the form of a cashier’s check made payable to the title company. 
• Additional documents – Occasionally, there will be something special requested by a lender.  If so, don’t hold up your closing by forgetting it. 

Sellers

• Drivers license – As with buyers, the title company must verify that you are who you say you are
• All keys to the house – Much appreciated by the buyers
• Gate code – If you live in a gated community, the new owners might want to be able to get in!
• Alarm information – Directions for use, your super secret code and contact information for the alarm company
• List of special service providers – Pool service, lawn service, your go-to air conditioning guy…all of this can be life saving for a new owner
• Receipts for repairs – If there were any repairs or improvements made after inspections, bring the receipts with you (this is part of the inspection response agreement)

That’s it!  By the time you are ready to go the closing, the hard part is over.  Negotiations are finished, repairs are done and the movers have packed for you.  Congratulations on a successful sale!

Copyright 2008.  Lisa Heindel and West Bank Living.  All rights reserved.

West Bank Real Estate FAQs: What Information Do I Need Before I List My Home?

Once you have made the decision to list your West Bank home for sale, there are a few things that you will need to have available to make the process a little smoother.  While this list might not cover everything, it’s a good starting place. 

As you gather all of this information together, I recommend making a file folder to keep it all in.  Of course, don’t forget where you put the folder.

Documents Needed

Floor plan (if available)  Buyers love to have a floor plan for their new house, especially if they plan to make changes OR if additions have been made to the home over the years

Flood insurance policy  There are 2 reasons for this:  (1) it contains your flood zone, which is needed to complete the disclosure and (2) many of the flood zones have changed over the years.  If you have a flood policy that allows you to be "grandfathered" in under an old zone, buyers may want to assume that policy.

Most recent appraisal  If it’s more than 90 days old, the value may have changed, but the measurements have not.  Being able to say that an appraiser measured the square footage of your home (instead of an agent) lends more credibility to the number.

Survey  The wonderful thing about surveys is that they are rarely outdated.  Unless you have given away or sold a portion of your land, the boundaries of your lot are the same now as they were when you purchased your home.  A survey is especially important to buyers if you don’t have a fence around your yard, since one will be needed if they plan to install anything around the property lines.

Flood elevation certificate (if available)  Many lenders are now requiring flood elevation certificates during the loan approval process.  If you can provide an existing certificate for the buyers, this is one less thing that could possibly delay a closing.

Home Owner’s Association Covenants and Restrictions  Residents of gated communities or those that have deed restrictions should provide copies of any and all information related to the Home Owner’s Association.  Rules, regulations, covenants, restrictions and contact information for association board members can all be requested by the potential buyers, so it’s better to have this package prepared ahead of time.

Information Needed

The Louisiana Property Disclosure form has page after page of questions for you to answer about the history of your home.  To save yourself some time, gather the following information before you meet with your West Bank REALTOR:

• Names of all people who are on the title of the house  Not only are the names of all of the owners needed, but their signatures are needed as well on all of the listing documents.  Don’t schedule a time with your agent when everyone who needs to sign is not available!
• Age and type of air conditioning/heating systems
• Age of hot water heater
• Dates of any damage to the home and details on how/if it was repaired
• Termite contract details  Who is the contract with?  When does it expire?
• Home warranty information (if applicable)
• A list of any improvements done to your home  The very things that you love the most about your home are probably the things that will attract a buyers interest as well.  You can help your agent craft the perfect description of your home by sharing all of the recent changes and improvements made to it!

Still have questions about listing your West Bank home for sale?  Give me a call or drop me an email and I’ll be happy to discuss your personal situation with you privately.

Copyright 2008.  Lisa Heindel and West Bank Living.  All rights reserved.

What Does That Mean? A West Bank Real Estate Listing Status Lingo Lesson

A lot of time and effort goes into the analysis of the West Bank real estate market each month.  But, if you are not a real estate geek (like me) or have lived in another part of the country where the terms used are different, then some of it may seem like Greek to you.

Here is a quick and easy primer on the different real estate listing statuses used in each months West Bank market reports: 

Active – currently listed for sale in the MLS (multiple listing service – a central database of all property in an area listed by real estate professionals)

Pending - an offer has been accepted on the property, but the seller is continuing to allow potential buyers to view the property  – usually in hopes of getting a back up offer.  Typically, this status means that inspections and the appraisal have not been completed yet.  In some cases, sellers are not 100% warm and fuzzy that the contract will make it to closing and want to hedge their bets a bit by continuing to show the property up until they receive a clear to close from the buyers mortgage company.  A special note to sellers:  When there is a large number of homes for sale (like now) most agents will not show a property that is in a pending status to avoid disappointing their buyers.

Open Predication – an offer has been accepted on the property, but the buyers are still trying to sell their existing home – in some other areas this is known as a contingency.  Usually a predicated offer has terms that give the buyers a specific amount of time to sell their home and/or to remove the predication if another acceptable offer comes in.  During the period of the predication, the seller will allow showings to other qualified buyers.

Under contract – an offer has been accepted on the property and the seller is not allowing showings.  Things happen though, so if the house you’ve had your eye on is “under contract”, ask your agent to keep you updated in case it comes back on the market.

Closed - the sale has been completed and the property has been transferred to the new owners.

Not so hard, right?  Stay tuned for the next real estate lingo lesson, coming soon to a West Bank real estate blog near you!

Copyright 2008.  Lisa Heindel and West Bank Living.  All rights reserved.

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