When a borrower is trying to get a loan for a house, one of the things they'll need to do is fill out a lot of paperwork. In many cases that paperwork explains everything the lender and their underwriter needs to know. But in some cases that's not true, and a letter of explanation is needed. While that might seem daunting, or like there's a problem with the borrower's application, that's generally not true. Instead, these kinds of letters are becoming more common and are just used to clear up simple questions the underwriters may have about anything in the application they can't qualify or verify with the data they already have.
In other words, a letter of explanation is exactly what it sounds like. The lender and their underwriter are asking the borrower to explain something. That could be a change in jobs, a gap in employment, a large deposit into their bank account, a source of self-employed income, or just about anything else. These kinds of letters are also typically asked for if the borrower is purchasing a house a long distance from where they currently live. Are they moving? Did they change jobs? Will they telecommute? There are a number of questions the underwriter will seek to answer, but questions don't necessarily mean problems.
What the underwriter typically looks for is the borrower's ability to pay back the loan. As long as that can be verified to their satisfaction, the loan will likely be approved. They want the letter, or sometimes letters, of explanation in order to cover all of their bases and make sure that the information they are using to make an approval determination is as complete and thorough as possible. With that in mind, any borrower who's asked to provide a letter of explanation should do so quickly and efficiently, providing exactly the information the lender or the underwriter has requested from them.
If a borrower chooses not to provide a letter, refuses to do so, or otherwise doesn't give enough complete information to the lender when it is asked for, there is a possibility that the loan will be denied. In some cases the explanation itself will lead the lender or underwriter to deny the loan, but that's far less common. Most explanation letters are just used as a way to connect the dots, and when that's done the underwriter is satisfied with the information provided. Then they can move forward with underwriting and approving the loan, and the borrower can get the home they were hoping to buy.
If any borrower doesn't fully understand the questions being asked, they should get clarification before providing the letter. That way they can give the lender and the underwriter the information they need and want, so the loan can keep moving through the process. Failing to give them the information they want can actually result in the loan being delayed, and in some cases that could cost them the house they're trying to buy. It's always better to get that letter to the lender right away, so the loan can continue to be worked on by the underwriter and approval can be that much closer.
Overall, borrowers who are asked for letters of explanation shouldn't get worried about that type of request. They should simply make sure they understand the question, provide a direct and succinct answer, and then wait to see if the underwriter asks for anything else. There is no reason to assume that being asked for a letter of explanation means that the loan won't be approved. Many borrowers get nervous about these letters or see them as almost accusatory, but it's important to step back and treat these letters as what they really are. A lender's underwriter is asking a question, the borrower answers it, and the process of getting approved for the loan moves on.
Moving is maddening. It’s a super-dooper heavy scoop of effort on top of daily work and home life. But getting an effective system in place for coordinating all the steps involved can help you maintain sanity.
The first step toward good organization is to determine what you can afford to spend on the move. Will it be a DIY project from beginning to end or will you be able to hire professional help?
Tips to Help You Get Rolling
Here are eight basic organizational tips to help you avoid potholes on the road from one abode to another. There is no such thing as perfection, but that doesn’t mean you shouldn’t attempt the smoothest move possible.
Analyze Your Budget
Analyze your budget to see what options are doable. If you think you can afford a moving company, interview a few to learn the range and price of their services. Ask whether they will transport large appliances or if you need to hire a specialty moving service. Here is detailed information about matters to consider when hiring movers.
If you need to rely on help from friends and family, consider whether to budget for a rental truck. It may be necessary if (1) you have lots of furniture and large appliances; (2) it’s a long-distance move; and (3) you want to maintain goodwill by avoiding multiple moving trips between the old and new residences.
Create a Notebook
You need a notebook separate of your daytimer for jotting down to-do lists and recording moving plans, including your budget, checkoff list of items to move, and timeline. A binder may be the best choice, because you’ll need pocket pages for documents -- such as mover or rental agreements -- and receipts.
Set a Timeline
Develop a timeline setting dates for accomplishing tasks. Divide it by weeks into early, middle, and late parts of the process. For example, early work would include making moving arrangements, cleaning closets, purging unnecessary possessions, and obtaining packing supplies. Don’t forget to set dates for sending out notifications of your address change to organizations that need it (such as utilities, credit card companies, and schools) as well as family and friends.
Accumulate Moving Supplies
Although it may be necessary to purchase specialty containers such as wardrobe boxes, standard sizes of sturdy boxes often are free through Craigslist and neighborhood social media websites such as Nextdoor. You’ll also need bubble wrap, packing tape, markers, and filler materials like newsprint or packing peanuts. Eliminate headaches by accumulating these supplies the week before you plan to pack.
Inventory What to Move
Obtain measurements of your new home’s rooms. Then, measure your furniture to see what will fit in which rooms. Can you squeeze your large, heavy oak desk through the doorway of the upstairs room in which you are visualizing it? Does it fit anywhere? Measurements will help you make decisions about what goes with you and what to give away. By setting an inventory of what to move, you can fine tune your moving costs.
Sort, Purge, and Pack
Moves are great for culling your herd of possessions. As you prepare to pack by sorting the contents of bureaus, closets, shelves, garage, garden shed, and wherever, consider what you can live without. Do you really need your childhood VCR tapes? Are five red sweaters one too many? Why in the world do you have two vacuum cleaners, three blenders, four hammers, and 50 mugs? Now is the time to let go and give away some of the abundance.
Open up your moving notebook and make a list of thrift shops and other organizations to which you can make donations. Does your library earn money by selling used books? Hallelujah! Add them to your delivery list.
As you pack boxes for the move, label them according to where they should be placed (bathroom, bedrooms, kitchen) in your new place.
Use or Give Away Food
Once you have a moving date, start using up the contents of your refrigerator and freezer. If your freezer is full and transporting cold goods to your new home isn’t possible, develop a list of people and organizations with whom to share the excess. Your neighbors might even use some of it to prepare a going-away party for you.
Be sure to add a date to your timeline for defrosting the freezer.
Pack Immediate needs and Valuables
Set aside suitcases for packing items you’ll transport in your car. These should contain immediate necessities such as changes of clothing, toiletries, and medicines as well as valuables including important papers (birth and wedding certificates, deeds, rental agreements, financial documents), and jewelry. Use your notebook to plan a list of these items.
Finally, don’t just take care of your move; take care of yourself. Add dates to your timeline for stress-reduction activities, including get-togethers with neighbors you will miss, meals at favorite restaurants, and walks in the park. You’ll never regret taking time to say goodbye.
For more articles and updates, subscirbe below.
This just In:
Kentucky Housing Corporation (KHC) is proud to announce a new round of Hardest Hit Fund Down Payment Assistance Program (HHF DAP), a total of $6 million will be available for new reservations beginning Wednesday, July 11, 2018, at 10 a.m. ET.
Currently Available - Hardest Hit Fund (HHF) DAP
- Zero percent interest rate for first-time home buyers.
- A non-repayable second mortgage for $10,000.
- Forgiven after five years.
- Home purchase must be located in Christian, Hardin, Jefferson, or Kenton counties.
- New construction properties are not allowed.
- Property has to have been previously occupied
- Applicants must meet Secondary Market Income and Purchase Price Limit Below:
Please contact us today for more Information.
For more articles and updates, subscirbe below.
Buy vs Rent
Traditionally first time home buyers were renting prior to buying their home. But a typical question for an LO is the “buy versus rent” question, and which one is more “affordable” for the client. But it is important for an originator to know that they understand the dynamics of their local housing markets in a way that can benefit their customers. An LO can help his or her client understand available housing options in the context of their individual financial situations and long-term financial goals.
How much money has the client saved up? An experienced LO starts with an evaluation of the client’s financial health, and calculating how much money the client has for a down payment (normally 5-20%) or deposit on a rental (usually one month of rent). Experienced originators tell clients to be sure to keep enough in savings for an emergency fund - three to six months of living expenses to cover unexpected costs.
How much debt does the potential buyer have? Current and expected financial obligations like a car payment and insurance, credit card debt, and student loans must be considered – the client should be able to make all the payments in addition to the cost of a new home. Experienced originators suggest aiming to keep total rent or mortgage payments plus utilities to less than 25 to 30 percent of gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most mortgage loans to 43 percent.
Potential borrowers should know their credit score. They should work with the originator in looking at all the costs of ownership and of renting: utilities, yard maintenance, cable, rental insurance, and so on, rental insurance. They should know how long they plan on staying, or perhaps the ability to move quickly is more important.
So many questions that need to be answered, so little time!
For more articles and updates, subscirbe below.
When you're ready to buy a home, you'll discover a wide variety of loan programs. However, if you have less than perfect credit or a limited amount of money available for a down payment, your options become limited. Federal Housing Administration (FHA) loans are one of the easiest loans to qualify for, because down payments and credit score requirements are much lower than conventional home loans. Below are some general requirements to better understand how these loans work.
What Is an FHA Loan?
The FHA is a branch of the U.S. Department of Housing and Urban Development and offers government-backed mortgages. While the FHA insures these loans, it isn't the lender. Home buyers get FHA loans from FHA-approved lenders. However, because the FHA guarantees these loans, these lenders are often willing to approve borrowers they might not otherwise consider. To qualify for an FHA home loan, you must meet certain credit score and down payment requirements, show proof of employment and steady income and have a favorable debt-to-income ratio that includes your estimated mortgage payment. Plus, the home you wish to purchase must pass an appraisal performed by an FHA-approved appraiser.
Credit issues or less than stellar credit doesn’t necessary disqualify from obtaining an FHA loan, however your down payment requirement will increase. If your credit score is 580 or higher, you may qualify for an FHA loan with a down payment as low as 3.5%. However, if your score is between 500 – 579, you’ll be required to pay at least 10% down. You're generally ineligible for an FHA loan with a credit score under 500, but allowances may be made under certain circumstances, when you meet other criteria.
Down Payment Requirements
Many conventional mortgages require 20% down. FHA mortgage applicants may qualify for down payments as low as 3.5% -- the minimum amount required. However, your down payment hinges on your credit score, and increases as your score decreases. You can pay your down payment from your savings, but it can also be a financial gift from a family member. You can also receive down payment assistance from government grants or city, county or state housing authorities or nonprofit organizations.
Your total closing costs vary based on your state of residence, size of your loan and whether you paid points to lower your interest rate. However, FHA-approved lenders aren’t allowed to charge more than 3% to 5% of your loan amount for closing costs. FHA requirements define which closing costs are allowable and the amounts deemed reasonable. The FHA also allows the home seller, builder and/or lender to pay some of your closing costs.
Mortgage Insurance Requirements
Because FHA loans require less than 20% down, you’re required to pay mortgage insurance. This insurance protects lenders from loan defaults. The FHA requires both upfront and annual mortgage insurance, regardless of the amount of your down payment.
Upfront mortgage insurance is a percentage of your loan amount and one-time premium paid when you close on your loan. However, you’re allowed to roll your upfront premium into your mortgage, which increases your monthly payment.
Annual mortgage insurance is also a percentage of your loan amount, but this percentage varies based on loan amount, loan term (length of loan repayment, usually 15 or 30 years) and initial loan-to-value ratio (loan amount divided by the appraised value of the home). Annual insurance is actually charged monthly, so the total amount is divided by 12 to determine your monthly payment. This amount is added to your mortgage payment for one total payment each month.
If your loan-to-value amount was greater than 90% when you signed your loan, you’re required to pay annual mortgage insurance the entire loan term. If your loan-to-value was less than 90%, you pay mortgage insurance for the loan term or 11 years, whichever comes first.
The FHA adjusts its loan limits annually to set a minimum and maximum amount they will lend on any given loan. These limits are influenced by shifting home prices and conventional loan limits. Maximum loan amounts are usually slightly higher than median home prices in a specified area. Thus, the amount can vary from state to state and even county to county. Cost of living in a specific area and special exceptions for areas with higher home construction costs can also affect these limits.
Content on this site is for informational purposes only. It is not to be construed as legal, financial, personal or other advice. Information and opinions offered are those of independent sources and may not be endorsed by American Mortgage Service Company and/or AmericanMortgage.com. We make no representations as to the suitability or validity of information in a blog on this site. We are not liable for any errors or content of blogs or for any losses, injuries or damages arising from its display or use. There is no obligation to update information provided in a blog on this site.