All Forum Posts by: Joseph Zanazan

When you say you just decided to try and give it back or let them take it, did you mean an actual deed-in-lieu or were you going to let them foreclose on you?

Its interesting to me to hear folks talk about the experiences they have had with the banks who have held their first mortgages. You can almost see the writing on the wall when it comes to the behind the scenes distribution of mortgage backed securities on the secondary market. With HSBC its funny though because the situations are usually very similar. Its definitely no secret that this FDIC insured depository institution has a reputation in the industry, and its not one of a bank with thorough customer service and organic growth. Its no secret that in the past, HSBC had been linked to multiple malpractices and misrepresentations of income and has been named a defendant in quite a few lawsuits because of its residential mortgage-backed securities offerings. The bank's been accused of inaccurate statements and omissions in its offer documents. Its no secret that the type of business they've upheld has trickled down to their management and personnel. They even announced at one point that they were completely going to stop funding mortgages altogether. Sounds like HSBC concluded that it would be more cost effective to flip a pool of nonperforming loans to a servicing company rather than spend the overhead to foreclose on them. It just so happened to be that your loan was part of the pool. The new servicing company is probably one of a few that HSBC is dealing with for the reason of getting you off their books. The servicing company is buying your loan specifically with the purpose of servicing it and reviving the asset to make it performing again.

I think the bigger picture at the end of the day is that you cut your losses and were rewarded somewhat for your efforts. Keep in mind that if you have the option to defer debt, simply with the principles of inflation, you're at an advantage in this situation. Its always better to pay later, than have to deal with it today if its not costing you any more to do so. That deferred amount, if I'm not mistaken, isn't costing you any additional interest because its not a part of your new active loan. Even if the banked agreed to waive the debt, as opposed to deferring it for you, you would be responsible for the tax on that waived portion. The IRS will view that as schedule C income and youde bear the tax burden like you would with any form of income. I think you're not doing too bad at this point. You have another 5 stress free years until you have to deal with it again. You've displayed excellent survivor skills and i think the universe has rewarded you. Good luck

Sounds like you have a pretty good idea of all the different methods of financing that are available to you. Whats important to understand about these options are the different hoops you need to jump through to obtain the financing you desire. To answer your question, conventional and FHA loans both operate under the parameters set forth by Fannie Mae and Freddie Mac. When reviewing your application, besides how much money you make, your banker and underwriter will take into consideration how and where this income is generated from. Whether you're a wage-earner receiving a W2 at the end of the year or you're 1099'd, each criteria comes with its own set of guidelines and conditions. Although its always recommended to provide documentation verifying the history of a two year period of income, this particular guideline isn't one that's set in stone with no possibility of exception. Income that has been received for a shorter period of time may be considered acceptable as long as the borrower's income & employment profile demonstrates compensating factors to reasonably offset the shorter income history. If you're relying on overtime or bonus income for qualifying purposes, make sure you have at least 12 months under your belt to be considered stable.

Fannie Mae and Freddie Mac have created a framework that defines what a legally funded mortgage backed security should resemble. This framework is called the Automated Underwriting System (AUS) and it generates a certificate every time a desktop review has been conducted on a mortgage file. The AUS is a hardcoded system that will initially put the file through the wringer, detecting any red-flags & criteria discrepancies that the borrower will have to be responsible for before receiving any credit. This template establishes a guide for all brokers and lenders, thus eliminating the taken chances and guessing games involved with submitting and processing a loan. The certificate gives a conditional approval and enumerates a set of stipulations that need to be satisfied in order for the file to reach full approval. Underwriters will interpret the AUS, waiving or demanding the conditions set forth by the system generated parameters. Employment is a very cert. driven condition and can be different from file to file. 

Rental income is a little different than income earned through regular wages or self employment. The two questions every underwriter wants answered is how long you've been in your current position and how many years you've been in the same line of work. Since the credit lending decision is made based on the borrower's capability to repay debt and not your tenant's, the bank will always take the conservative approach and take your gross adjusted income. This means after you write-off deprecation, insurance, interest etc on your rental property, the figure you're left with is what the underwriter will utilize as your earnings. 

To help alleviate some confusion as far as your rental income goes, its really simple. The bank's argument is that if your tenant loses their means to pay rent, it clearly automatically alters your capability to uphold the mortgage since you're solely relying on the collected rent to pay down your loan. After-all you're the one the bank has designated as the trustor and not your tenant. As far as regular income goes, wage earners who have been in their line of work for many consecutive years and just so happen to be in a new job can get away with only documenting two bank statements or only one year of W2s while a sole proprietor might have to provide personal & business returns for the past two years to prove that the earnings are in fact legitimate with a strong likelihood to continue for the years to come.

Unfortunately I'm not licensed in FL to discuss rates and payment with you on potential financing, probably will be very soon, however i would be more than happy to further clarify or answer any questions you might have. Cheers.

Welcome fellow Southern Californian! I too started my biggerpockets experience with the podcasts. This community is full of genuinely insightful people who want to help. Hope you find everything you need and more. See ya around...

The difference between your current payoff and your new loan amount is the costs that are associated with closing the loan (usually financed on your behalf). These costs are broken down into two categories. Prepaid finance charges and closing costs. Prepaid finance charges are the recurring charges associated with the loan i.e. property tax, homeowners insurance/HOA. Depending on whether or not you have requested to have your escrow account impounded, the new loan will usually set aside the premium for your property taxes and homeowners insurance for the following 12 months as a cushion for the lender. Your impound account acts as a deposit so in essence it always stays there once you have originally designated it in escrow. Closing costs on the other hand are comprised of two additional categories themselves. The cost to originate the loan, which is what the bank will charge you for processing and underwriting the file. And your third party charges (usually completely independent from the lender unless otherwise stated) which is your title and escrow charges. Regardless of what you are led to believe, the act of processing your loan isn't any different on a primary residence vs a rental. Be aware of those who mislead and intend to suggest that costs should be relatively different. You should expect to pay on a loan amount of that size, anywhere between 1%-2% in closing costs + prepaid finance charges if there are any. If the company that funds your loan charges you $1600 to take the file from start to finish, and the 3rd party charges are another $1600, plus taxes and insurances for the next year of approximately $3200, its clear to see how it can seem that it costs $6400 to do a loan. Thats not always necessarily the case.

The primary differences between the loan on an owner occupied residence vs. absentee owner is the risk the investor who is lending you the money is taking. For this risk there is a premium to pay. The financing terms are simply a lot more conservative and less aggressive when it comes to rental property. Fannie Mae guidelines suggest a larger portion of collateral either in the form of a down payment on a purchase or equity on a refinance. Max LTV for these type of loans is usually 85% and interest rates general tend to be .375 to .500 higher compared to financing on a primary residence. Aside from the higher interest rate you pay on the money you have borrowed, the financing process shouldn't be any different in cost or experience.

If the property is self sustaining, or even profitable, the profitable income earned can immediately have a positive impact on your DTI ratio. The discrepancy here is that you are speaking to bankers of all different sorts. Some have been in the industry for many years and are used to the traditional methods of processing and underwriting and often will give you what their recollection of the guidelines are. Some have been in the industry for less than a year and don't have enough real world experience when it comes to dealing with underwriters, so they wouldn't know how to present the file and get certain conditions waived or considered to the borrowers advantage. Then there are a small percentage of bankers and processors who know exactly what they're doing and will give you the correct information the first time. Guidelines are important but underwriters are always going to look at the "bigger picture". Two processors can process the same file and get a completely different set of conditions. With that in mind, its all about making a case for yourself. Bank statements, cancelled rent checks, lease contracts etc. can all help you when it comes to your application. Do some research so you can get in touch with a seasoned banker who will guide you in the right direction.

Your turn time is ultimately depended on the type of transaction thats taking place, which more often than not will have something to do with where the funds are coming from, or who the lender ultimately is. 

Cash transactions normally close the fastest because you have two principals transacting directly with eachother. Transactions where financing is required, trustor/trustee & beneficiary relationships are created, which normally require a little more due diligence and time to close. That translates to more paperwork and additional smaller moving parts within the transaction that come together to form the financing process (processing, underwriting, escrow etc). 

If im not mistaken it seems like you were inquiring about all cash transactions where a buyer buys directly from the seller with cash. The turn time on those transactions has everything to do with the experience of the principals' and how motivated they are. Ive seen all cash transactions close in as fast as 7 days, ive also seen all cash transactions take up to 60 days (short sale). It all boils down to how many hoops must you jump through in order to legally close escrow on a deal. 

 If you have mortgages on these properties, they will report on your credit. If they report on your credit report, they come up as liabilities that you are accountable for. Since it sounds like you plan on using your positive cash-flow as a source of income, the underwriter will want to see what your schedule E looks like on your 1040 or personal returns. They will look at what you claim as income plus what your overall tax deductibility status looks like on that asset. To be a homeowner in this wonderful country we live in, means that you have certain allowances that you can get that are known as tax write-offs. You're allowed to annually get a tax break on certain expenses such as the mortgage interest and insurance you pay on your property, even the depreciation your property goes through. If after all the calculations and income adjustments have been made and you are still showing positive cash-flow, then any savvy processor knows they can make a case to an underwriter for a judgement call. More often than not, after all adjustments have been made, there isn't a significant amount that you can claim as income on your application. Don't consider yourself limited by guidelines at this point. Its more of the "bigger picture" that any seasoned underwriter will be concerned with. I would have a seasoned mortgage banker run some numbers for you and take a deeper look into what your tax returns look like. 

FNMA guidelines are pretty straight forward for self employed individuals, and you will almost never get the benefit of the doubt when it comes to documentation or qualification. Any loan that fits into the FNMA or FHLMC guidelines is driven by an automated underwriting certificate. This AUS dictates what documentation must be submitted to prove everything you as the borrower are claiming to be accurate on the application. Two years tax returns + 4506 transcripts are mandatory nowadays. Along with your returns, depending on what kind of business you have, you will have to provide an operational license along with either a 1099 stating the amount of earnings or bank statements showing you earnings for the previous year. The rule of thumb is always two years of consecutive income. If last year was stronger than the year before, the guidelines will dilute your income by including the weaker year. If you were stronger two years ago vs last year, they will take a 24 month average. In other words, the underwriters will always take the more conservative and safe approach.

One of the advantages of having a conventional loan vs. FHA financing is the mortgage insurance requirements. Conventional loans allow you to drop or cease insurance payments once a certain criteria is reached without having to necessarily pay to refinance out of the existing loan. There are primarily two ways you can go about this situation.

1)Borrower-initiated Cancellation

When a mortgage with PMI reaches an 80% loan-to-value ratio (LTV) based upon the initial amortization schedule or pre-payments, the borrower may make a written request to the lender that PMI be canceled.

2)Automatic Termination

When a mortgage that is subject to PMI reaches a 78% (LTV) as a result of the initial amortization schedule, the PMI must be automatically terminated provided that the borrower is current on payments. If the borrower is not current, the PMI must be automatically terminated when the borrower becomes current; cancellation will take place the first day of the following month. With a 30 year mortgage, it will take eight or ten years on average to reach the point where you can cancel the insurance.

Whats important to keep in mind is that your current property value isn't what the lender would be taking into consideration. Your amortization schedule will determine when your payment history has reached a certain threshold. Your current loan amount, in respect to the initial appraised value of the home at the time of the financing will be the figures the lender will look at. If your property appreciates enough where you feel an 80% LTV ratio can be achieved, then you're subject to the same loan requirement guidelines as you were last time you obtained financing. That includes another appraisal and going through the same income and asset calculations in order to create a complete mortgage backed security, just like you did the initial loan. Another piece of advice, don't use Zillow as your end-all be-all valuation tool. Its almost always inaccurate.