Mortgage and Portfolio Loan Guide

Zero Down Mortgage – USDA Home Loans

RD loan

Zero Down Mortgage

Did you know that even if you’re not a veteran you can buy a home with a zero down mortgage in many areas? And it’s not too good to be true. There are, however, some restrictions regarding location and income.

The United States Department of Agriculture (USDA) Rural Development guaranteed loan usdalogoprogram is a government loan designed to help low-moderate income earners purchase a home in “rural” areas. However, you may be surprised to see what the government considers to be rural and low-moderate income.

Income

The income restrictions will vary across the country and even across each state. Here is an example for my local market in Livingston County, Michigan. For a guaranteed RD loan the annual household income must be at $93,450 or below. Even if the spouse is not a borrower on the loan, their income will be used as a factor in the household income. USDA looks at the whole picture, not just the applicant. You can use this tool to help you get an idea if your family qualifies for an RD loan in regards to income. Remember when using that tool, you’re looking for qualifying on the guaranteed loan, which will maximize your buying power from in income standpoint.

Location

Many folks are shocked when they take a look to see that their neighborhood is in an area that is considered to be a “rural area” which allows them to get a zero down mortgage. Just outside the metro Detroit area and not far from many major cities Rural Development financing is available. Although the mapping tool on the USDA website is not 100% accurate, you can use this tool to give you an idea of what areas are eligible. You may be pleasantly surprised to find that you don’t have be living “out in the sticks” to be eligible for Rural Development financing.

What is also exciting about RD loans is that you can buy a condo with this program as long as it’s within the eligible geographic limits. Crazy right? Some people call RD loans “farm loans” and you can buy a condo with them. How awesome is that?!

What to Expect

  • Make sure you have your ducks in a row in respect to credit. You don’t need to have perfect credit, but it needs to be reasonable.
  • The process may take a little bit longer than other loans because it needs to get final approval by USDA after the lender approves it. However, right now in my particular market in Michigan, the RD turn time is 2-3 days. So not a significant delay currently.
  • Mortgage insurance is significantly less than FHA on a monthly basis, about 1/3 of what it costs on FHA.

There are so many expenses to consider when buying a home. So if you have an opportunity to buy with a zero down mortgage, and you qualify, why not take advantage of that opportunity?

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The Most Important Part of the Mortgage Process

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 The Most Important Part of the Mortgage Process

By: Ted Lyons

There can be no denying that the mortgage process has become significantly more complicated in the last several years.   The real estate/mortgage bubbles and subsequent collapses made clear that the envelope had been pushed too far when it came to mortgage products that were available.  The industry joke in mid-2000’s was “You only need a Social Security Number and a pulse to get a mortgage – and there’s even some flexibility when it comes to the pulse.”  As the ruins of the bubble era mortgage marketplace were surveyed a flurry of government regulations ensued.  All well-meaning, some flawed in their execution, but each of them needing to be taken into account as we walk through the actual work of obtaining a mortgage.

As a result of all of these changes and the alphabet soup of regulatory agencies and regulations that resulted (CFBP, MDIA, HVCC, QM, etc) the most important part of the process has become not who can make the most outlandish rate pitch – but rather which originator and which company can guide you through the experience intact.  The sad truth of the matter is that for all of the regulatory changes there still isn’t much to stop a large boiler room of a large mortgage bank or lender from promising one rate, and then at the end of the process delivering another.  Their advertisements are littered with enough fine print to choke a horse and the process can be so overwhelming that at the end of it, one doesn’t even necessarily remember what was promised at the beginning of it.  This doesn’t mean that an individual shouldn’t examine the market and make sure that the interest rate, terms, and costs of a given originator and company aren’t in line with that market.  But many of the most severe self-inflicted wounds while getting a mortgage can be from chasing that Holy Grail of a one-eighth lower interest rate or going with a company that says they will give you $50.00 off your costs because you have an account with them.

The demands can be tough in the mortgage world these days.  My customers oftentimes vocalize that the process has become mind numbingly intrusive – and I can’t argue with them there.  So my job is to be their Sherpa, guiding them through unavoidable challenges at all times. I am also their Gladiator, fighting for them so that they can buy or refinance their home when the going gets tough.  That’s why the most important part of the mortgage process today is having a champion originator who works for an organization that can be trusted.  If you’ve had a great experience with an originator in the past – stick with them.  Seek out the advice of colleagues, friends, and family who have had GOOD mortgage experiences.  Finally, look your originator in the eye and determine for yourself if they look like they have the intelligence and the guts to help you get your mortgage – even if the process turns out to be challenging.  Because it’s possible that it will.

Ted Lyons, NAMB, MMLA
NMLS/Michigan License # 140426
Michigan First Mortgage  NMLS# 130329
Branch Manager
Direct (734) 807-1017   Fax (734) 786-2230


How to Get Pre-Approved with Ease

The 4 Pieces of the Mortgage Puzzle

Buying a home is easy. Well…if you take a minute to skim through this it might be a little easier for you on the qualifying end of things. Getting a mortgage is a matter of helping the lender put together the pieces of your financial puzzle. Many times it can get what feels like overly complicated in this world of increased government regulation and lending guidelines. But it can be a lot less complicated if you do a little preparation and have realistic expectations.

So what are the pieces of the mortgage puzzle? Credit, income, assets, and property. If one piece doesn’t fit, your puzzle isn’t complete and you probably won’t get approved. Let’s take a look at those items one piece at a time.

Credit 

Your credit scores and credit history are looked at thoroughly. Each score will be verified from the three credit bureaus (experian, transunion, and equifax). If you only have 2 scores that show up that’s okay, but your lower score of the two will be used to qualify. If you have 3 scores, ideally you want to have a middle score in the mid to high 700 range. Anything below 680 can make things more complicated than what you may be looking for. The other factor that your credit report helps with is determining your monthly debt in comparison to your monthly income (debt to income ratio).

Again, the goal is to keep things simple.

When considering the history shown on your report it’s best to have 3-4 established tradelines that you have been paying on for 24 or more months. A tradeline is any obligation you’re required to pay on a monthly basis that is reported to the credit bureaus. Things like credits cards, student loans (that are not deferred), car loans, personal bank loans, and simple mortgage approvalmortgages would be simple tradelines to verify and use. Cell phone bills or car insurance payments are an example of debts that are not typically on a credit report, and generally would not be used as traditional credit. For derogatory credit tips and more credit preparation see my credit page.

Income

Having a 2 year consecutive and verifiable income stream will help keep things simple for you. You want to have 2 year’s tax returns, W-2’s, and 30 day’s worth of recent pay stubs from your current employer. These items are asked for so that you have the opportunity to show stability and consistency in your income.

If you’re on a base salary or hourly (full time) that will definitely help minimize bumps in the road. Keep in mind that if you receive overtime, bonus, or commission pay it needs to be verifiable to show history and consistency. If you changed employers in the same line of work within the last 24 months, be prepared to provide proof of that employment. If you’re self employed or receive other types of income be prepared to show a consistent history (24 months) and likelihood to continue. For more in depth income tips see my income page.

Assets

There are many options when considering how much you should be putting down to buy your home. Everyone’s situation is unique. You’ll need funds for down payment, property taxes, homeowners insurance, and closing costs. Having at least 2 full months bank statements (all pages) would be something to expect to provide. If you have retirement funds or other liquid assets in a brokerage account that you’ll be using then you’ll need to provide a most recent quarterly statement, and recent activity statement on that account to show proof of funds available. You’ll need to show proof that you have transferred those funds to your bank account prior to closing.

Be prepared to provide a paper trail for everything. If there are any deposits in your accounts that you don’t have a legitimate paper trail for then you will find yourself in a difficult position as far as approval is concerned. Selling your favorite baseball card collection for cash to someone you met on craigslist might be tough to prove. For gift, grant, and other asset info see my assets page.

Property 

The home you are purchasing is the collateral that is being used to secure the financing. Your lender will get an appraisal done to get an opinion of what the fair market value is in relation to the agreed upon purchase price that you and the seller came to terms with. If the appraised value comes in high, congratulations! You technically have instant equity, but the lender will still use the purchase price as the value for qualifying purposes. If the appraisal comes in low you and the seller will need to renegotiate price or you’ll need to bring the difference to the table. The lender will also ask for any repairs noted by the appraiser to be fixed and re-inspected prior to closing. In most cases you’d insist that the current owner completes those howell mi real estaterepairs because you don’t own the home yet.
The lender doesn’t require a general inspection to be completed but it’s usually recommended. This would be a licensed inspector you would hire to tell you what you’re getting yourself into regarding condition. They will put together a detailed report including foundation issues, ventilation problems, and other things that the appraiser wouldn’t necessarily notate. For information on property types and helpful links see my property page.

 

Simple enough right? Look, even if you’re not a first time home buyer, it can be a bit overwhelming. The market and the guidelines are constantly changing. You will save yourself a lot of heartache and pain if you take the time to get your ducks in a row several months before you intend to buy.

A few tips to end with…

Your willingness to provide all items asked for by your lender in a timely manner is helpful to minimize the length of time it takes to close on the home.

Use a Realtor when buying or selling a home. He/she will save you time and money.

Remember that all the pieces to the puzzle have to fit. Even if you make $100k/year, buying a $50k home, and have no debt. You still need to have acceptable credit to obtain financing.

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