Truth time…

Why It’s Important to Be Truthful on Mortgage Applications

Mortgage Loan Application
Bariscan Celik/Getty Images

Your income is one of the major factors lenders use in determining whether you qualify for a mortgage. Which is why omitting, hiding, manipulating or not showing income may put you in a decidedly gray area with your mortgage company.

When you apply for a home loan, lenders require specific income documentation to fund a mortgage, including:

  • Income tax returns for the two most recent years, with accompanying W-2s
  • Corporate tax returns for the two most recent years if self-employed
  • 30-day pay stub history

One exception to this rule is when completing a government loan streamline refinance or a HARP 2 refinance. For those, no income documentation may be required.

But there are some circumstances in which you might decide to omit your income from your mortgage application. Here are a few scenarios where you can get into sticky territory when trying to get a mortgage.

The Self-Employed Borrower

There is no getting around the lending requirement to show two years of tax returns — including corporate returns when applicable. Today’s federal lending requirements prevent a lender from cherry-picking which income years to use for qualifying. For example, if your 2013 income was strong but your 2012 income was very low, the lender cannot simply ignore the 2012 income, as they must calculate a 24-month average of your income. So the lower income will, of course, lower your average.

Furthermore, if you are an employee of your own company, you’re still considered self-employed. Why? You control and set your own income, unlike a traditional employee who does not have an ownership interest in the company. In this case, you’ll still need to submit all the required documentation.

Non-Disclosed Income

The first question a prudent lender would ask is: Why are you trying to hide your income? Most of the time when the situation arises, it is because showing full income will make the lending scenario worse in trying to qualify. For example, if you’re receiving income you don’t disclose on your tax returns and you don’t pay taxes on, you have bigger problems (as the IRS is particularly on the lookout for tax fraud). Simply put, it’s best to give your lender all material information regarding your income. Doing so allows them to help you get a mortgage.

Side Jobs & Cash Deposits

If you’re putting cash deposits independent of your normal income into your bank account and you don’t document it with your application, you could throw a big wrench in your mortgage process. This is true whether it’s a regular side income or not. If you’re applying for government financing, all cash deposits must be documented and sourced, meaning you’ll need to explain the origin of the funds. For conventional loan financing, lenders must source and document cash deposits that are 20% or more of your monthly income.

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Are you ready for rates in 2015?

3 things to know about interest rates in 2015

Here’s the skinny on what it means for mortgages

Interest question

Most every major mortgage finance economist is on record – or will be on record by the end of this week – as saying interest rates will rise in 2015.

And they are probably right. On the conservative side it’s between 4.5-5%, with some outliers thinking it could be as high as 5.3% by the end of 2015.

Of course, keep in mind that last year there was only one notable naysayer on interest rates rising – Capital Economics which predicted no change in 2014. Since it looks like 2014 will end with rates a little lower than the start of 2014, it shows that even when there’s consensus, it’s a good reminder to take every prediction with a grain of salt.

That said, the reasons most economists are giving for believing interest rates will rise in 2015 are on firmer ground, and some of the variables that were in play in 2014 – QM, QRM, tapering, QE – are now locked in place for 2015.

Therefore, barring any major economic upheaval, yes, mortgage interest rates will be gradually climbing.

So that’s one, and it’s really the easy one.

1. Mortgage rates will go up

Interest rates can’t stay bound at such low levels. The National Association of Realtors isn’t alone in predicting this will happen.

But what about two and three? Have a look.

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Tis the season to enjoy a mudroom…

How to Turn a Closet Into a Mudroom for Less Than $300

Mitchell Parker | Houzz | Nov 15th 2014| link

Walking into their split-level 1958 Seattle home always created a bottleneck for the NyQuist family. Kristen, Steven and their three kids — Elliot (age 8), Clio (6) and Shepherd (4) — would often get stuck on a 5-foot by 3-foot landing, where they would crowd around peeling off their backpacks and coats before shuffling farther into the home.

Before Photos

So Kristen turned her attention to a coat closet (seen here) at the top of the stairs. She plowed into Houzz in search of inspiration and came up with a solution to turn the closet into a recessed mudroom of sorts.

BEFORE: The closet was unappealing with the doors on. When Kristen removed them, she knew she had to turn the space into something visually pleasing.

Cash is still king!

All-Cash Sales Still a Third of the Market

Jann Swanson | Mortgage News Daily | Nov 12 2014 | link

Although cash sales ticked up slightly in August, a pattern that has been maintained for 14 of the last 15 years, that share of all home sales continued to retreat on a long term basis.  CoreLogic said today that cash sales had a 33.8 percent portion of the market in August, a less than one point uptick from July and was down from a 36.4 percent share in August 2013.  The percentage of cash sales has been lower on a year-over-year basis every month since January 2013.

Prior to the housing crisis, the cash sales averaged approximately 25 percent of all sales.  They peaked in January 2011 when cash transactions made up 46.3 percent of total home sales.

The largest share of cash transactions were for the purchase of lender owned real estate (REO) at 56.9 percent.  One third of existing home purchases were paid for in cash as were 31.8 percent of short sales and 16.5 percent of new home sales.  Despite the frequency that cash was used to purchase REO those sales themselves represented only 7.2 percent all home purchases in August so had little influence on overall cash numbers.


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Disclose, disclose, disclose!

In most states, the law requires sellers to fill out paperwork regarding their knowledge of the property they intend to sell. Many agents and sellers see disclosures as a thorn in their side. Why would they badmouth their property or listing? Why not say as little as possible and see if the buyer discovers any issues on their own?

This is a penny-wise and pound-foolish mentality. Non-disclosure can lead to major headaches during escrow. You could lose the buyer, be forced to renegotiate the price or have to put the property back on the market. Non-disclosure can also lead to litigation months or even years after the sale.

Self-disclosing, pre-inspections and putting it all out there prior to a buyer making an offer helps to usher the sale along and make the process simpler. It’s smart business, and ultimately saves time and money.

If handled well, disclosures and calling out known issues helps inform your pricing and marketing strategy. Here are five tips to use disclosure to your advantage.

Order a building report

Each municipality has a building department that keeps records on every property. For a small fee, they provide building reports that contain valuable information about the home, such as the building’s history, permits issued, closed permits, violations, zoning information and sometimes landmark or historic status.

Buyers or their banks will likely request this report. When they see open permits or violations, you better believe they are going to ask you to cure them, request a credit or walk away.

Be prepared by ordering a building report early in the selling process. If you have issues to address, you can take care of them before you list the property. The potential buyer will then see a clean report, which will inspire confidence — not only in the property, but also in you as a seller.

Have inspections done prior to listing your home

Most sellers balk at this idea. Why pay to have the home inspected if you plan to sell?

The answer is so that you can ultimately make more money. A home listed for sale at a great price gets a buyer in the door to make an offer, but that buyer will have his or her inspection regardless. It they find dry rot in the garage, they will either walk away from the deal or ask you for money.

If you lose the buyer, the property goes back on the market with a stain on the listing. Everyone will ask what happened to the first deal, and you will likely be forced to disclose this new, known issue.

If you credit the buyer, your ultimate net proceeds will be lower than if you had priced the termite work into the asking price and let buyers know about the issue up front.

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No more ducts!

Go Ductless This Winter!

One of the latest and most popular innovations in heating and cooling your home not only saves energy, but is compact, cheaper to install and can be set up without tearing down walls.

Ductless heating and cooling systems, also known as mini-splits and ductless heat pumps, are growing in popularity around the world because they are a highly efficient heating and cooling option for homes. They were introduced to this country just 30 years ago from Japan and have been growing in popularity ever since. According to Navigant Research, by 2020, ductless systems will account for nearly 30 percent of all energy-efficient HVAC systems revenue.

Mini-split systems don’t require ducts, which is where many homes lose energy. In retrofits, it is much simpler and less expensive to install a ductless system than one that requires ripping out walls and ceilings to install ducts.

These systems are also small in size, cost less to install than traditional HVAC systems, and use a fraction of the energy, substantially reducing utility bills. Energy Star-qualified systems can reduce cooling and heating costs by 30 percent. Newer models are continuously coming on the market, that are increasingly efficient.

The perception has also been that mini-split systems do not work in colder climates. However, according to Mike Smith, senior marketing manager for residential products at Mitsubishi Electric , their hyper-heating mini-split ductless systems are suitable for anywhere in the United States. He says one model can heat or cool at full capacity* when it is down to 5 degrees Fahrenheit outdoors. According to Smith:

“Low ambient heating technology is on the rise, allowing ductless heat pumps to function in low ambient outdoor temperatures. This capability is significant for two reasons: It means that ductless zoning technology is a viable solution for residences across the country even in colder climates like the Midwest and New England where heat pumps were not previously considered the best option. Also, hyper-heating technology frequently eliminates the need for supplemental heating, making the ductless zoning system the only system needed for total comfort control. This saves installation time, and improves energy efficiency without relying on fossil fuels. “

VA Home Loan 101

Tell a Veteran About Their Homebuying Benefits

VA home loans
Scott SchaeferArmy veteran Richard Kuri, 81, used his VA loan benefits to purchase a home this summer with $0 down.

Richard Kuri had a beacon guiding him along the homebuying journey. Consider it one of the benefits of buying down the road from a lighthouse. The 81-year-old Army veteran closed this summer on his dream home, just three blocks from the Lake Michigan shoreline. Two years removed from a bankruptcy discharge, Kuri was able to land a loan using his VA mortgage benefit.

The Michigan resident worked hard to repair his credit following the bankruptcy. He also had something too many veterans and military members still lack: Awareness of the homebuying benefits

A whopping 1 in 3 aren’t even aware they have a home loan benefit….

earned by his service to our country.

VA loan volume has skyrocketed since the housing crash. Veterans and military families have flocked in record numbers to this $0 down mortgage in a time of tight credit. But millions upon millions of veterans are still missing out.

About 10 percent of the country’s 22 million veterans currently have a VA-backed loan. A whopping 1 in 3 homebuying veterans aren’t even aware they have a home loan benefit, according to survey data from the Department of Veterans Affairs. To be sure, VA loans aren’t the best fit for every military buyer. But they should at least know it’s an option. Scores of veterans and service members have an incomplete home financing picture.

Simply making sure they’re aware of the home loan benefits earned by their service can help ensure veterans get the best deal possible.

Big-Time Benefits: The government created the VA loan program as part of the original GI Bill. Envisioned as a short-term benefit, the program aimed to boost the postwar economy and broaden access to homeownership for returning veterans.

Seventy years later, VA loans are still fulfilling that original mission. Rather than make home loans, the VA basically insures a portion on behalf of eligible veterans and service members. That fiscal guaranty helps gives lenders the flexibility to extend financing with some significant benefits, chiefly the ability to purchase with $0 down.

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