Disputed Items on Credit report Killing your Mortgage Application

Minneapolis, MN:  It is a fairly common practice recently, and people with credit report issues are told to do it on a regular basis, but disputing an item on your credit report may just end up getting your mortgage application denied!

fico_graphDisputing bad credit really is the the heart of credit repair, but mortgage underwriting system have been improved and upgraded to deal with this issue.  All mortgage loans start out by being run thought an automated underwriting system (AUS). The AUS looks at your overall application and your credit report to make a lending decision.

Having disputed items on your credit report will prevent an automatic approval, and force your loan to be down graded to an manual underwrite. It doesn’t matter if your score is acceptable.

A manual underwrite on your mortgage application is DRAMATICALLY more restrictive in guidelines than an automatic underwrite. You will be required to pay off collections, supply more documentation, and the whole process will take longer!

A good example would be debt-to-income ratios.  On a computer approval, you may be approved with a 45% debt ratio.  But if it a manual underwrite, it is 41% of bust.

I just had this occur to one of my clients (which is why I am writing this post).  The client has an old car repo on his credit report with a $10,000 deficiency balance.  With the computer approve, he would NOT have to pay the old item off to buy his house.  Unfortunately, he tried disputing the repo and hoped it would magically go away.  Well, it didn’t – and shouldn’t.  So the dispute on the credit report turned his application into an manual underwrite, and under the manual underwrite guidelines, he MUST PAY IT OFF in order to buy his house.  Ouch…

New FHA Rules – 3 major changes coming soon

Minneapolis, MN: If you are a first-time home buyer, you may already be leaning towards an FHA-backed mortgage to finance your Minnesota or Wisconsin home. Recently, the Federal Housing Administration announced changes to their mortgage guidelines, which are being made to stem the losses from all the foreclosures the past few years.

updateFHA does not provide loans, rather FHA is a government entity that insures mortgage loans made by banks and non bank lenders. Needless to say, if a lender can get an FHA guarantee on a portion of a loan, they are much more willing to provide a loan to someone.

Without the FHA, home buying would be a bit tougher for many home buyers buyers who cannot meet the slightly higher down payment and credit score requirements of a conventional loan. After the collapse of subprime lending in 2008, and the tightening of credit that followed, FHA-backed mortgages became the only game in town for many first-time home buyers.

FHA guidelines are a little more forgiving when it comes to credit history, making it the only practical option for some  home buyers who had a prior bankruptcy, foreclosure, or short sale in the past few years.

Here are 3 major FHA rule changes slated for 2013, and how they may affect you:

1. All FHA loans initially require mortgage insurance.  Just like conventional loans, mortgage insurance could be dropped below 80% loan-to-value.  After June 3rd 2013, this is no longer the case. Mortgage insurance on FHA loans will be on your mortgage payments for the life of the loan.

2. The cost of monthly mortgage premiums is going up slightly on April1, 2013. While it is  a relatively small amount; it would add an extra $20 a month to a $200,000 mortgage.  This will only effect new loans.

3. Few lenders allow for score below 640, but for those lender who do offer very poor credit score FHA loans (580-620 range) home buyers will face stricter debt-to-income ratios in 2013. In other words, the less debt you have, the better.

The good news is, these changes shouldn’t derail anyone’s plans to buy a home in MN, WI, or the rest of the country. Even with the new changes in 2013, FHA-backed mortgages remain attractive for many at least for the first 10-years or so of home ownership.

Finally, if you are buying a home, remember to get pre-approved by a local Minnesota or Wisconsin mortgage lender first…  You need to know what loan programs you qualify for, down payment options, FHA mortgage interest rates and how they will effect you, and an acceptable price search range to be looking at BEFORE you spend any time with a Realtor.

Alternatives to Foreclosure

Minneapolis, MN:  Life happens. For all sorts of reasons, from divorce, job loss, or a major medical event, people can sometimes get into financial trouble.  The worst thing anyone can do is bury your head in the sand. It isn’t going away, and is usually easier to deal with early on.  Ask friends and relatives for help right away.

stop_fcOther Alternatives to Foreclosure


A reinstatement is the simplest solution for a foreclosure, but often the most difficult to achieve. The homeowner simply comes up with the money to pay the total amount past due (including late fees) to the lender.  This is a great option early on.


Many believe bankruptcy is a “foreclosure solution,” but this is only true in some states and situations. Entering bankruptcy can be a risky and costly process. Be sure to seek the advice of a qualified bankruptcy attorney when pursuing this as an option.


Refinancing means you will acquire a new loan based on your current credit standing. If you have already missed mortgage payments, those missed payments and now damaged credit scores may make it difficult to get approved for a new mortgage loan

Mortgage Modification

A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. Contact your current lender to discuss a modification.


Also known as a “friendly foreclosure,” a deed-in-lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Contact your lender on how to “give back the keys.”


A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back-payments over a period of time. Typically this involves putting the past due payments to “the back of the loan.”


A short-sale is exactly what the name implies.  You put the home up for sale, and find a buyer.  Unfortunately, the sales prices is less than you owe.  You will then negotiate with the bank to accept the sales prices as payment in full. While still damaging to your credit, it is better because you usually are able to walk away free…  with the bank never coming after you for any money they lost. On a true foreclosure, they can usually come after you later on for any loss.

Rent the Property

This option does not require lender approval, but does require the homeowner’s ability to rent the house for enough money to cover the monthly mortgage payment. Being a landlord isn’t overly difficult, but isn’t for everyone.

Service members Civil Relief Act

If a member of the military experiences financial distress due to deployment-and their debt was entered into prior to deployment-he or she may qualify for relief under the Service members Civil Relief Act.


Getting a VA Home Loan in MN or WI

Minneapolis, MN: VA Home Loans In MN and WI are probably the coolest mortgage loan lenders offer. VA Home Loans in MN and WIIt is available both while serving our country and after they are discharged.

Upon a veterans return,  hey usually are looking to re-establish themselves the the communities that they will be returning to. This means that many of them will be looking to purchase a home that they can settle in and raise their families.  A VA Mortgage can assist our Veterans in making that transition.

VA Mortgages provide our Veterans with two major advantages that other Mortgage programs do not have.

VA Loans require no down payment, and have no mortgage insurance, plus you can roll all your closing costs into the loan. This makes for one heck of a great first-time home buyer deal for military veterans wanting to buy a home! The country appreciates your service. This is one way we pay you back. Today mortgage rates on VA loans are very low, making homes even more affordable.

VA Mortgage benefits for a Veteran:

A VA Streamline Refinance is similar to the FHA Streamline Refinance. It is officially known as a IRRRL loan (interest rate reduction refinance loan) because of the money you can save by lowering your monthly interest rates. It was created by the VA in an effort help our veterans secure the lowest interest rate possible. This VA loan process is done quickly, with minimal hassle so our veterans can save immediately.

Those who are eligible:

  • Honorably discharged
  • Widow/widower of eligible service member or spouse of an MIA or POW
  • Wartime service – a minimum of 90 days active duty
  • Peacetime periods – 181 days of continuous active duty
  • Actively in service or a valid VA Form DD214
  • Have certificate of eligibility (I can usually get this for you)

Mortgage Rates unchanged for week ending Feb 14th 2013

Minneapolis, MN:  Freddie Mac yesterday released the results of its most current Primary Mortgage Market Survey(R) (PMMS®), showing average fixed mortgage rates unchanged from the previous week and remaining near their record lows as they continue to support housing demand, translating into a pick-up in home prices in most markets.

balance_ratesNews Facts

  • 30-year fixed-rate mortgage rates (FRM) averaged 3.53 percent with an average 0.8 point for the week ending February 14, 2013, the same as last week. Last year at this time, the 30-year FRM averaged 3.87 percent.
  • 15-year fixed mortgage rates this week averaged 2.77 percent with an average 0.8 point, the same as last week. A year ago at this time, the 15-year FRM averaged 3.16 percent.
  • 5-year adjustable rate mortgages (ARM) averaged 2.64 percent this week with an average 0.6 point, up from last week when it averaged 2.63 percent. A year ago, the 5-year ARM averaged 2.82 percent.

Freddie Mac’s survey is the average of loans bought from lenders * last week, including discount points. Applicants must pay all closing costs at these rates. No cost loan rates higher.

Follow this link to view today’s best MN and WI mortgage interest rates.

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

“Mortgage rates remain near record lows and continue to support housing demand, translating into a pick-up in home prices in most markets. The median sales price of existing homes rose 10 percent between fourth quarter 2011 and 2012, the largest year-over-year gain in seven years. Among large metropolitan areas, 88 percent saw positive annual increases in the fourth quarter, compared to 81 percent in the third quarter and 75 percent in the second. The largest gains occurred in Phoenix (34 percent), Detroit (31 percent) and San Francisco (28 percent).”

Popular FHA Loans to become more expensive

updateMinneapolis, MN: The popular FHA loans, requiring just 3.5% down payment are about to become more expensive.

Starting on April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35%. While this is small, this is the most expensive mortgage insurance of all loans available in the market! This is also on top of the more than doubling of FHA mortgage insurance two-years ago. These staggering increases in mortgage insurance is highly expected to continue the decreased use of FHA loans.

To add insult to injury, on June 3, 2013, FHA mortgage insurance, which currently goes away when your loan-to-value drops to 78%, will be changed to “life of loan”.  Another words, it will NEVER go away, regardless of down payment or loan-to-value. This will only be one NEW loans. Existing FHA loans will not change.

Example: Purchase Price $175,000 3.5% down payment at 4% mortgage rate on 30yr.  Currently, that mortgage insurance would end at 78%, and cost someone $20,838.  Under the new rule, the mortgage insurance would be on the loan forever, and cost someone $42,447 – MORE THAN DOUBLE the cost.

There are buyers that qualify on income and credit who may not have the necessary additional down payment required for the 5%, or 10% down conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.

The average time for FHA mortgage insurance to go away is about 9.5 years. So for homeowners who anticipate staying in their home for ten years or less, the new changes might not have much financial impact. However, homeowners who expect to be in their home longer should seriously consider going with a 5% down conventional loan if at all possible.

For buyers currently in the market, you can avoid these increases by acting now.

HARP 3 on the horizon?

Minneapolis, MN: As anticipated, Democratic Sens. Robert Menendez, NJ, and Barbara Boxer, CA, this week reintroduced a bill that could spur more refinances.

underwaterThe Responsible Homeowner Refinancing Act, (AKA HARP 3) among other things, has a stated goal of relaxing requirements for borrowers to refinance and would extend the Home Affordable Refinance Program (HARP) for an extra year through 2014.  It is currently set to expire December 31, 2013.

Currently, the HARP Refinance program only allows people who have a loan owned by Fannie Mae or Freddie Mac to refinance an underwater home.  HARP 3 would allow ALL underwater homes to be refinanced.

Stay tuned for more details.


Hurt an Intruder? Are you insured?

St Paul, MN:  I just ran across this issue, and thought it was interesting to pass along.

windown2Suppose a thief breaks a window in Joe McHomeowners home and crawls through. Joe McHomeowner, the insured, uses a baseball bat to knock out the intruder and then calls the police.

In today’s world, it is likely the thief will sue for his injuries. Is Mr McHomeowners liability for the thief’s head injuries covered by his homeowners policy?

The answer is YES.  Joe McHomeowner’s liability is covered because he used reasonable force to protect persons and property.

When buying a home, be sure you get proper homeowners insurance.  A great policy is usually only a few dollars more per month over cheap insurance. Be sure to talk with a licensed insurance agent – not just a web site – to make sure you are fully and properly covered on your home.