Important Facts You Should Know About Lending

1. If I put down a certain amount of money on a house, I won’t need to show any income in order to qualify for a mortgage. FALSE

In the state of Pennsylvania, in March 2011, the governor of Pennsylvania outlawed “no income or stated income loans.” All mortgages in the state of Pennsylvania require income verification going back 24 months.

2. If I put down 30% or 40%, my credit score and credit history do not matter. FALSE

Although the interest rate will not increase if a down payment of 40% or more is provided, an underwriter for a lending institution will still scrutinize the payment history and usage of credit in determining a borrower’s ability to pay a mortgage.

3. It only takes two months to establish credit. FALSE

If alternative sources of credit are not used in determining a borrower’s ability to repay a debt, it takes seven months on a credit card or any other type of installment debt that is newly established, to create a score on our credit bureau system. It may show a payment history but not enough to generate a score.

4. Is it true that no credit is better than bad credit? FALSE

It is required to have a credit score in order to purchase a house and obtain a mortgage. There are some exceptions where they will allow alternative sources of credit such as rental references, utilities and cell phone bills to determine a borrower’s willingness to repay a loan. If not, a buyer must show a positive history.

5. Shouldn’t I charge up the new card and pay it off to show a good credit history? FALSE

When we pull credit reports, we see the final balance on the last billing cycle. If you charge it up and pay it off, all we see is the card appears maxed out. This brings the scores down. The proper way to get the highest score possible is to use the card for a small item once per month. This shows minimal use of consumer debt, which brings the scores higher.

6. Is my Credit Karma score the same as the one you pull? SOMETIMES

What most people don’t realize is that Credit Karma shows consumers what their score will be when they are applying for credit cards.  That system shows a different algorithm which is used in determining a borrowers credit profile.  Most consumers don’t have access to the same scoring system used for mortgages. It doesn’t mean that we lowered your score when running your credit, it just means that the scores aren’t the same in the two systems.

Could This Be Another Housing Bubble on the Horizon?

We all remember 2008, but do you know what events led to the housing crash? There were a few fundamental issues that caused the sudden housing market correction. The first issue was that there was an oil rise per barrel. This raised the cost of gasoline as a trickle-down effect causing a consumer scare or fear of gas prices increasing to upwards of $5 per gallon. The gas price scare caused long distance commuters to rethink their plans of moving into neighboring states, particularly New Yorkers and North Jersey residents from moving to Pennsylvania. As this phenomenon occurred, homeowners weren’t able to sell their homes. This caused demand for housing to fall, and thus house prices started to decrease.

With the initial need for housing years earlier, and rising home prices, lenders came up with creative types of financing to keep up with the strong consumer demand. Adjustable-Rate Mortgages with rising rates, No Doc loans (where buyers didn’t have to provide income documents to qualify), and low credit scores loans. Sometimes requiring little to no money from potential borrowers made home ownership affordable to almost anyone. Although, this influx of new buyers impacted the market and fueled the frenzy of ownership, these loans proved to be unsound. Initially, these unconventional types of financing didn’t have a negative effect. As new buyers were finding it difficult to keep up with the monthly payments, most were able to sell their homes quickly to get out of their debt, and some even made a profit. The increase in prices masked certain hidden fundamental issues. In particular, those who had questionable mortgages, were the first ones affected by the diminishing demand for housing. With a sudden lack of buyer demand, home values started to decrease. The house of cards collapsed and there was a flood of foreclosures entering the market when consumers couldn’t keep up with the payments. The current housing market going into 2021 seems similar in some ways but is yet quite different.

Due to many changes in lending, all loans require sound lending decisions, with more conservative underwriting standards. This has increased the high quality buyers in today’s market. The interest rates are at an all time low with many mortgages below 3%. (Rates were over 6% in 2008). Oil and gas prices are on the lower side, and the US Government has put stop gap measures in place to keep the economy stable. With no unforeseen catalyst changing in the near future, this housing market doesn’t appear to have a looming bubble to cause it to collapse.

Remarks Regarding COVID-19 Pandemic

I know there is a lot of concern, not only in our country, but around the world right now due to the rapid spread of the novel coronavirus (COVID-19). I wanted to take the time to shed some light on this matter. There is a lot of misinformation being shared across news media outlets, Internet and social media. I know this is a time of panic for a lot of you, but now is the time to stay positive and calm because there is always a light at the end of the tunnel.

When I was a child, I would develop many fears over what I read in newspapers and watched on television. I specifically remember the Summer of ’74, my family and I were vacationing down at the Jersey Shore. Suddenly, news broke out that a man attending a conference for Legionnaires in Philadelphia had died mysteriously. The cause of this mans death later turned out to be Legionnaire’s Disease. Once people found out, they rushed from the shore in panic not knowing if they would catch this disease. The largest fear to me at that time was the fear of the unknown.

Throughout history, we have seen many forms of viruses. For example, in Africa, Ebola killed thousands of people. SARS, which originated in China (2002), killed with devastating effects. Much like the current coronavirus, it took the lives of the elderly and immune compromised. SARS was deadly and contagious, but only for some. Back in 2009, we witnessed the Swine Flu epidemic work its way across the globe.  

Today, we know that the FLU kills thousands of people, but it comes with little global panic. With social media, the Internet and news media outlets the information we receive can be misinterpreted. The misinformation can be spread easily through word-of-mouth. One thing leads to another, and everyone is panicking. Panicking only causes stress and we want to make sure everyone is staying safe and healthy and following the pre-cautionary measures.  

According to WHO (World Health Organization) in order to reduce the spread of the virus, we must be doing the following:

1. 1. Regularly wash your hands with anti-bacterial soap for about 20 seconds. Clean your hands with alcohol-based hand sanitizer.
2. 2. Maintain a 6 feet distance between one another, especially ones who sneeze or cough around you.
3. 3. Refrain from touching your eyes, nose and mouth.
4. 4. Stay home, if you feel unwell.

Majority of states have issued their own rules regarding the spread of COVID-19. Make sure to check out your local/state government websites for more information.  

In conclusion, I would like to reiterate that panicking can only cause more stress and stress is not good for your health. When looking up information regarding this Pandemic, please rely on credible sources. Many people tend to share false information without fact checking. We hope that everyone is practicing safe social–distancing. Stay safe and stay healthy. I wish you and your families well during this difficult time.

Ask the “Mortgage Man”

Grant Money for First Time Home Buyers!

Is it possible to have another incentive better than what is currently available? We have a program called the First Front Door. This grant is offered to first time home buyers ( buyers who haven’t owned a home in the past 3 years), under certain income limits, to be used to enhance their down payment. For every $1 down payment paid by the buyers, this program offers an additional grant of $3 to a maximum grant of $5,000. This may or may not have to be paid back. There are certain income limits and restrictions, but you don’t have to pay anything back if the property is occupied for the first 5 years of ownership. It is a nice way to minimize the savings required to buy a home.

In addition to this grant, the normal incentives of seller assist can be applied to the closing costs, making this program affordable to may different first time home buyers. The grant funds are limited and are given on a first come first serve basis, until the funds are depleted. They anticipate that they will be exhausted sometime in April.

It is a great program for anyone that needs that extra cash, especially on properties that won’t meet USDA or FHA property requirements. Perhaps the well and septic don’t meet the minimum property requirements, or repairs necessary to pass the property for FHA/USDA financing. This is a fantastic alternative while monies last.

Andy Williams

President

(484)-695-5972

NMLS #118317

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