Thursday, August 1, 2013

Are You Alive? Yet Another Reason to Check Credit Annually

In every class I teach, I am always telling people about the importance of checking their credit every year. Recently I had a mortgage client who had never checked his credit, but was confident everything was in good shape because he didn't ever really need credit so he had no debts. I pulled the credit, he was correct about no debts, but he was being reported as deceased. Yes, deceased, no credit score, no credit history, which if you are deceased you really don't need anyway, but this is a problem when you are alive and well.
He was surprised to find out about this, and has gone to work to rectify it with the three credit bureaus.  The problem is why he needs (or wants) credit now, he wants to buy a house. Can he buy a house right now? Not at this point, not until his credit report is corrected, and then we will have to see about establishing credit.
This is yet another example of why we as consumers need to check our credit with some frequency, a minimum of once a year. Credit is an ongoing thing, and when you need it you want to make sure it is there. Opportunity and survival, the two reasons we need credit, and the best time to by batteries is before the hurricane hits, the best time work on credit is when you don't need. As the saying goes, banks are always willing to lend you money when you don't need it, but unwilling when you really need it. Preparation prevents this problem, get your umbrella on a sunny day, don't wait for it to rain.
Imagine waking up one day and deciding to run a marathon. I don't mean waking up and deciding to train for a marathon, I mean waking up, going to a race, signing up and running in a marathon with no training or preparation. How is that going to go? Badly, because in all likelihood you wouldn't even be able to sign up for a marathon the day of the race, at least not a popular race, let alone go out untrained and complete the running course. Sounds ridiculous doesn't it? Yet every week I talk to someone who is doing the same thing, it just isn't running a marathon, it is buying a house, which is kind of like a marathon, there is preparation, and addressing credit now is the first step in that training process.

Patrick Ritchie
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
480-203-4641 Cell

Thursday, June 27, 2013

The Needs List for a Borrower

Here is the letter I send to clients to get their file started, it tells them what we will need, covers the things to avoid doing, and is designed to eliminate issues to ensure a smooth closing:

Thank you for the opportunity to be of assistance with your financing. If at anytime I can answer any questions please let me know.

Here is a list of what we will need from you, let me know if you have any questions on anything.

Copies are sufficient, originals are not needed for your file.

Please note that it is better to send me these items as they become available rather than waiting to have everything.

- Past two pay stubs assuming bi-weekly payment, otherwise for weekly payroll four pay stubs

- Most recent quarterly retirement statement (all pages, even if page 4 of 4 is blank, we need it to complete the document)

- Past two bank statements (all pages, even if page 4 of 4 is blank, we need it to complete the document) IF YOU ARE ON AN ACCOUNT WITH ANOTHER INDIVIDUAL WHO WILL NOT BE ON THE LOAN THEY WILL NEED TO WRITE A LETTER STATING YOU HAVE FULL ACCESS TO THE MONEY IN THE ACCOUNT

- 2011 and 2012 years taxes with all schedules (if you show business deductions or loss on your taxes please let me know immediately)

- 2011 and 2012 W2's and/or 1099's

- Your work address and a phone number to the business

- Digital copy of driver's license, either a scanned copy or take a digital picture and forward, it is important that we have a clear copy

- Copy of social security card (if you do not have it I can use your W2 instead)

- Name and telephone number for verification of employment, or if your company uses the Work Number we will need a company code that you can request from your HR department

- Name and telephone number for your insurance carrier you use for homeowner's insurance, the #1 reason for delayed closings is last minute insurance quotes, get a quote during your inspection period and have your insurance agent email me at for the mortgagee clause and loan number.

The following is only needed if it applies to your situation, I list this so we don't miss anything, if it doesn't apply please ignore:

- If you currently rent we need the name and telephone number for your landlord to verify rent was paid on-time

- For self-employed borrowers we need the name and telephone number for your accountant. Please note that your accountant will need to verify your business twice, once at the beginning of the transaction and once within 10 days of closing, it is a good idea to make sure your accountant will not be on a boat in Tahiti within 10 days of your closing.

- If you have ever been divorced we will need a copy of your divorce decree

- If you are ordered to pay or receive child support we will need a copy of the support order

- If you have filed for bankruptcy we will need your bankruptcy discharge and all schedules, if you do not have it I can access it through the federal court house with your bankruptcy filing number

- If you have a mortgage that has been modified please provide your modification agreement

- If you had a foreclosure we will need your 1099-C or 1099-A showing the property address and how your name appeared on the mortgage

- If you had a short sale we will need a copy of the HUD-1 Settlement statement to show the date of closing on the short sale

- If you have had a bankruptcy, foreclosure, or short sale we will need a signed explanation letter covering the extenuating circumstances surrounding the event (job loss, medical, divorce, family issues, etc.), why it happened and why it isn't likely to happen again.

- If you have sold a property in the past 12 months I will need a copy of the HUD-1 Settlement statement

- If you have rental properties we will need current signed copies of all leases, mortgage statements, and HOA payment statement/coupon

- If you have any other real estate that is not rented out we will need mortgage statements, and HOA payment statement/coupon (if you own it free and clear or do not escrow your taxes and insurance please provide a tax bill and copy of your homeowner's insurance policy)

- If you are a Veteran using VA we will need a copy of your DD-214

- Number of dependents and their ages living in your household

- Let me know if you have applied for any new credit in the past 90 days where the new account may not yet be reporting on your credit report

The 'do not do' list will make our transaction go smoother:

  • Non-payroll deposits must be seasoned in your bank account for 2 months, otherwise it will have to be documented to show where it came from (check stub, etc.). Do not make any non-payroll deposits into the bank account(s) you are using for this transaction, unless it can be documented with a copy of a check, statement, gift letter, settlement statement, bill of sale, etc., please do not deposit cash. Cash is bad because it cannot be documented other than with a bill of sale, if you need to deposit cash please call me ASAP so we can figure out the best approach, this will eliminate problems later.
  • Do not apply for any credit other than the mortgage application when you want to purchase a home.
  • Do not co-sign with anyone on a new credit transaction.
  • Do not apply for any 6 months same as cash financing for furniture or appliances until after closing.
  • Do not quit your job or switch employers during the home buying process, if this is a possibility let me know ASAP (EMPLOYMENT WILL BE VERIFIED AT THE BEGINNING OF THE TRANSACTION AND AGAIN WITHIN 10 DAYS OF CLOSING).
  • If you are buying a condo let me know ASAP because there are specific  requirements for condos and not all will qualifying for financing, this does not apply to townhomes or patio homes, only condos.
  • If you are planning on getting married or divorced during the transaction let me know ASAP
  • If you intend on asking for repairs in your contract have your agent contact me on the verbiage to avoid issues with the use of "credit or allowance" in the contract.

The appraisal need to be paid with a credit card once you have a contract to purchase a home, you will be called to get your credit card number to pay for the appraisal.

You can drop these items off at my office, or scan and email them to me. If you would like for me to copy these for you at my office let me know. I do need to get these documents as quickly as possible in order to move your file forward, please let me know if you have any questions or need assistance with these documents.

Thank you for the opportunity to be of assistance with your mortgage. Feel free to call or email me with any questions.

Patrick Ritchie
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
480-203-4641 Cell

Wednesday, June 12, 2013

How is the Short Sale Reporting on the Credit Report?

How a short sale reports on a credit report is important, it can make the difference between an approved mortgage or a denied mortgage. On a conventional loan, someone who had a short sale 2 years ago or more, and had an extenuating circumstance (job loss/reduction, medical, divorce, etc.) is eligible for a new conventional mortgage. However, the way the short sale reports can make a difference with the approval.
Ideally a short sale will report as "settled for less than amount due" or some deviation of that, and show a $0 balance and $0 past due. In some cases the short sale was never updated and shows on the credit report as being a foreclosure that is still past due. This makes a difference.
I had a client who had a short sale just over two years ago, it reported on the credit report as a settled account, and  the client has a good explanation for the reason the short sale occurred. I ran the file through automated underwriting and received an approval. A different client, same facts, except the short sale reported as a foreclosure with no reference to the account being settled, this loan was not approved by automated underwriting.
Same scenario for both borrowers, but the way the credit report is reporting can make a huge difference, make sure the credit report is reviewed for accuracy because when someone is ready to buy they may not be in the best position due to how their credit report is reporting.
If someone isn't sure about how to address their short sale have them contact me to get them in position to get a mortgage.

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
480-203-4641 Cell


Monday, March 11, 2013

FHA Mortgage Insurance Increase and More Bad News for Buyers

On April 1st, 2013 the annual mortgage insurance (paid monthly as part of the PITI) will be increasing from a factor of 1.25 to 1.35 on the minimum down 30-year term FHA mortgage.

Currently on a $200,000 loan amount the monthly mortgage insurance would be $208.33, for case numbers assigned after April 1st the new 1.35 factor on a $200,000 would be $225 per month. Not an Earth shattering amount by any stretch, but considering four years ago the factor was only .55, on a $200,000 loan amount the old mortgage insurance was only $91.66 per month. It has only gone up over the past four years and here it goes up again.

Perhaps the bigger issue is what goes into effect on June 3, 2013, at that point any new FHA loans putting the minimum down will have monthly mortgage insurance for the life of the loan. The only way to get rid of it will be to refinance out of FHA. This unfortunately is a blow to using FHA, but for many people they don't have much of a choice because they only meet the guidelines for FHA, and not a conventional mortgage.

The reason behind these changes? Survival. Without it the FHA program, which has been around since 1934, would likely fold up and go away, that would be an enormous blow to real estate, and I hope we never see the demise of the FHA program.

Just to clarify a couple things that have come up recently, I have read two articles in the past couple weeks in magazines that have made it sound like someone can only get a mortgage if they have 20% down. That is not the case, on FHA a borrower only needs 3.5% down. Also, I have read that people who had foreclosure, bankruptcy, or short sale will have to wait forever to buy again, blah, blah, not true, the universal rule for FHA is worst case scenario after 3 years or less someone is eligible for FHA financing again. So be aware of some of the misinformation out there, when in doubt consult your FHA 4155 guidelines, or contact me and I will get you the answer.

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
480-203-4641 Cell

© Copyright 2013 Patrick Ritchie All Rights Reserved

Use Your Head Before You Shred

I came across an article for an upcoming shred-a-thon, and it sort of gave me chills:

PHOENIX - ABC15 is hosting a shred-a-thon on Monday, March 18 to help you protect your personal information.

If you have piles of important personal documents lying around after filing taxes, bring them to participating UPS Stores around the Valley for safe shredding.

You can bring up to 50 pounds of documents to shred for FREE during normal store hours.

Seriously? You want me to bring 50 pounds of my most important personal documents for utter destruction? Is the fear of identity theft causing us to shred documents that we need to keep?

To a certain extent I am noticing more shred addicted clients than in years past. I gave a client a list of what we would need from them for their mortgage and they informed me they shred everything, so providing documents might be a problem.

I am all for reducing the likelihood of identity theft, I teach a class about it, and included a chapter on it in my book The Credit Road Map. However, I also highly encourage people to keep important documents, some can be replaced, some cannot. I have found the best way to save documents is to scan them as a .pdf file and save them on an external hard drive, and then place that hard drive in a safe deposit box at a depository institution. That is your best filing cabinet, the one that is there when you need it, and cannot be stolen by burglars in the event of a break-in. If you are extra anal like me, put that external hard drive into a freezer bag to protect it against water. A good friend of mine had the experience of his bank burning down to the ground, and the vault was flooded by the fire department. Those with boxes less than knee high had water logger boxes, just a heads up.

Some people swear by those services that backup your computer and say your entire hard drive can be put back on if something were to happen. Guess what? I had that service, paid an annual fee for it, and when my hard drive died it was supposed to be as simple as logging in, pressing a button, and everything would go onto my new laptop. It didn't quite work that way, in fact it didn't work that way at all, my hard drive was not updating to the cloud as it was supposed to do, and ultimately nothing transferred back onto my new laptop. Abiding by the childhood adage of always be prepared I had my trusty external hard drive, in fact I had a couple of them just in case one of them malfunctioned.

Here is a list of documents either needed for the mortgage process or that should just be kept:

- Bank statements: many people have gone paperless, and can access their statements online anytime they may need them. However, if you later leave that bank you will lose access to the statements, plan accordingly. For a mortgage you only need to provide the past two months.

- Pay stubs: some people are able to access online pay stubs from their employer, some cannot, for a mortgage you will need 30 days worth of pay stubs.

- Retirement account statements: just like bank statements, most people can access this online, for a mortgage you only need the most recent quarterly statement.

- W2's and 1099's: these are harder to access online and are important to save, the past two years are required for a mortgage.

- Tax Form 1040 plus all schedules: important to save, past two years needed for a mortgage, make sure you have copies of these saved somewhere you control. If you used the free version of a tax software it likely will not give you access to your tax work at a later point, I have had a few disappointed clients in the past who relied on that, if you paid for the service, the forms should be available as long as you know your login and password.

- Divorce decree: make sure you have a copy of this, you can always get a copy from the court if needed, sometimes online, but sometimes only in person. Save a copy because this important court order is something you will need for your mortgage, and you may need in the future if a disagreement arises.

- Bankruptcy paperwork: over the years I have discovered that many times consumers are never given their bankruptcy paperwork by their attorneys, but they don't know it, fortunately it is easy enough to obtain from the federal court if you need it. Another thing I have discovered is that it is easier for me to get it for the client than for the client to figure out how to get it themselves. I use the PACER system and can have the complete set of paperwork in a few minutes, and yes, I save it as a .pdf form for the client and give it to them. The discharge and all schedules are needed for the mortgage, other than that I am not sure when someone would need their bankruptcy paperwork, but if it has been in the past seven years it will be needed on a home purchase.

- Award letter for pension: since it tells the consumer how much they are receiving for their pension this is important to keep.

- Award letter for social security: same as above.

- Lease on rental: important to keep for at least the length of the statue of limitations in your jurisdiction for contracts, just in case. NOLO has a nice directory of the statutes of limitations for all 50 states, but do not rely on it for an important legal matter, for example it lists 2 years for injury in Arizona, which is true, but I unfortunately know dog bite law all too well in Arizona and the statute of limitations is 1 year, it is a unique exception to the 2 year rule, and the story as to why is way too long to get into, so use at your own peril:

- Old credit reports: unless you save a copy you can't replace this important document, you only need this to protect yourself when a creditor tries to change the date on a bad debt to try to keep it on there longer than seven years. Keep a copy of your credit reports every year, it is your best protection from financial bullying, don't be a victim.

- Documentation of paid debts: this is a tricky one, because now we could cross into hoarder territory, of which I have been a card carrying member, but have since shredded my membership. Now I am just a digital hoarder with many files in my external hard drives. Seriously though, if I asked you if you had a receipt from three years ago for the DVR you returned to the cable company would you laugh at me or could you produce it? I do ask people this question frequently, because if the answer is no they may have to cough up $400 to pay a collection to the cable company, because the cable company has sent a collection to the credit bureaus saying money is owed, and the culprit often times is a piece of equipment from the cable company that either was not returned, or was returned but not credited to their account. Save those receipts and final statements.

- Documentation of unpaid debts: save this to document the age of accounts, plan B to this is saving your credit report, it is preferable to save both.

- Tax paperwork such as receipts: if the IRS comes calling you will want to have this for at least the past seven years.

The bottom-line is this, you can shred all you want, just scan the irreplaceable documents first.

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor
Ritchie School of Real Estate Finance
480-203-4641 Cell

© Copyright 2013 Patrick Ritchie All Rights Reserved