What does “Subject to HUD Guidelines 24 CFR 206.125” mean?
Every once in awhile, in a listing description of a foreclosure, you will see the verbiage, “Subject to HUD Guidelines 24 CFR 206.125.” This means the property was financed with a Reverse Mortgage and there will be restrictions based on that fact.
Lets step back a moment.
What is a reverse mortgage you ask….good question! A reverse mortgage is a type of financing offered to people who are 62 years old or older, own there own home and have equity built up in that home. The mortgage is set up so the homeowner can access the equity in the home on an ongoing basis. Essentially, the lender will pay out an amount equal to the equity in the home (or whatever amount they agree to loan). That is the simplified version. For a more in depth explanation take a look at our blog post on Reverse Mortgages.
Ok, back to the language, “Subject to HUD Guidelines 24 CFR 206.125” and how it might affect a Buyer. because it is was subject to a reverse mortgage the seller will have certain restriction in how the property is acquired, marketed and sold.
Some of the restrictions are as follows:
The property must sold at the appraised value or the value of the balance of the loan. So the price you see on the listing sheet may very well be the price they need to get. There are other stipulations as well.
The property will be sold “AS IS”. No repairs will be completed and if the house has not been cleaned out it very may well stay that way. The Buyer will have to accept the condition at the time of closing. The Buyer also can not do any repairs prior to closing including termite treatments. This is important because we sometimes see the lender ask for repairs prior to closing if the Buyer is using an FHA loan to purchase the property.
The utilities can not be turned on at the sellers expense per HUD guidelines. Utilities can be turned on during an inspection period (10 days) at the Buyers cost and they also must be shut off on completion of the inspection period.
Generally the Seller will require 30 days for a cash closing and 60 for a financed one although the property may close sooner…or later if extensions are agreed upon. You never know with banks.
The Buyer is not allowed to occupy the house prior to closing.
This is just a summary of the rules and restrictions.
For a full description of the process and restrictions go HERE.
Mortgage and Refi Process List
We recently were at a meeting with a mortgage representative and she gave us a list of what will typically be required for a loan submission. This pretty much covers new purchases and a refinance.
I added a few that are specific to those of us who are considered “self employed”.
Social Security Number
Copy of Drivers License
Current Paystub (Gov’t Loans require 1 months of paystubs)
Last 2 Years of W2’s
Last 2 Years of Complete Federal tax Returns
Pension or SS Income: 2 Months of Bank Statements auto deposits OR award letter and 1099’s for 2 years.
1 Months current Checking/Savings Statements
1 Months current Investment/Retirement Statement – include all pages for all Statements.
Current Tax Bill
Current Insurance Bill
Current Mortgage Statements
If Self-Employed – Current business licenses and often a letter from your CPA saying how long you have been “self-employed”.
Upon Loan Submission the loan officer will need a credit card # to cover the appraisal.
Prior to Closing:
Insurance Binder or Declaration page of Insurance for Refi.
They will often verify employment just prior to closing.
For a PreApproval
They will need:
Social Security Number
Current Home Address and how long you have lived there (they need a 2 year history).
If paying rent-how much monthly.
If you own another property they need all the info
2 year employment history- full name of the company, address, phone#, how long you have been there, your title and how long in a particular field.
Yearly gross salary or hourly wage
If retired or military they will need the gross amount of monthly or yearly income
Assets – name of checking/savings and the approximate balances
I received this information on credit scores from a lender so I thought I would pass it on…
What Affects My Credit Score
IS IT TRUE THAT RUNNING CREDIT REPORTS CAN REDUCE YOUR SCORE?
Fico.com states that it doesn’t if it is a same industry report. Experience tells me differently. The good news, if it is less than 3 in a 90 day period, it doesn’t change it at all. If you run 15 in one week you will 2-4 points for each report run.
HEY, I KNOW MY SCORE; I RAN IT ON THE INTERNET. ISN’T IT THE SAME!
Not so much. The on line version is close to the real thing, but not quite. If you really need to know, have someone in the mortgage industry run it.
I HAVE BEEN WORKING ON MY CREDIT. WILL MY SCORE EVER IMPROVE?
Late pays affect the score by the number of lates, how long they were late, and more importantly, how recent were they. It is hard to quantify the damage multiple lates have on score. If the lates have been more than 2 years, they have a much smaller affect on the score.
WHY IS MY SCORE SO LOW? I NEVER MISS A PAYMENT.
IF YOU HAVE HAD PERFECT CREDIT ALL OF YOUR LIFE, WILL YOU HAVE A PERFECT SCORE?
NO!!!!!!! One of the dumbest calculations that go into credit scoring is the ratio of credit used versus the credit limit. The closer you get to 100% of your credit limit, the more points you will lose.
A card with a $100 limit and a $99 balance will lose you about 15-18 points. If that same card has $101 on it, you will lose about 25 points. Throw on a past due, and now you are talking about some serious points.
Ideally, you would never want your balance to exceed 50% of your limit.
SHOULD I CLOSE OUT MY OLD CARDS TO GET A HIGHER SCORE?
Again, NO!!! If you want a higher score, go out and use those cards just a little bit. Put $20 on a $10000 card will score some points.
The longer you have had a card or loan, the more it adds to your score. HOW DO I GET A PERFECT SCORE?
I don’t know. I have run over 10,000 reports and have never seen an 850.
Other than the obvious (paying everything on time) and keeping credit balances less than 50% of the limit, time. I have only seen one score of 847. She had credit established for 30+ years, no lates and minimal balances on credit. To top it off, she was a real estate agent.
USDA loans on Cape Cod are no longer going to be available to the towns of Barnstable, Bourne, Dennis, Falmouth, Harwich, Mashpee, Sandwich and Yarmouth. This change, according to the mortgage rep that gave us the information, is going to take place on February 28, so there is still time, but not much.
There are a lot of sites that state they are the “official” site, but this is the “real one”: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
USDA loans are great for those that qualify. The one issue I have seen come up is that the appraisal is a much more in depth process and becomes something of an inspection. Here is a document outlining some of the guidelines: http://www.rurdev.usda.gov/Publications/WI-RHS-Originator-Manual-Section-3-Property-Eligibility.pdf
Any repairs found, under the USDA guidelines, by the home inspector, pest inspector or appraiser will, typically have to be completed prior to closing. Because of this process, USDA loans are not ideal for homes that need quite a bit of work.
If you have questions concerning USDA loans give us a call. We can put you in touch with a mortgage representative who is knowledgeable about them.
Bank of America has Sold Your Mortgage…What Does that Mean?
Within the last couple of weeks Bank of America has been sending letter to homeowners letting them know that there is a new servicer for their loan. The one I am personally aware of is Seterus, but have also heard that Homeward and SPS (Select Portfolio Servicing) are others. What that means is that they are no longer responsible for handling the loan. If you are making payments, make sure they go to the right place!
Are You Involved in A Short Sale?
If you are involved in a short sale transaction, this could and probably will cause delays. BOA has to transfer documents to the new servicer before the ball can get rolling again and I am hearing that BOA isn’t always doing so in a timely manner. If you have an offer in negotiation it depends how far along things are as to the result of the changeover. If the offer is newly submitted to BOA then you will probably have to start from scratch with the new company. If there is a letter of approval and the closing is eminent then there is a chance the new company will approve the short sale and allow the property to convey. The bottomline is that you will probably face delays and it is important for your agent to contact all parties and communicate with them so no one is surprised by it…there is enough of that in short sale transactions already.
A Letter at Your Doorstep…What Now?
Let your agent, attorney or negotiator know who the new servicing company is. BOA should be transfering documents over to the new company, but you want to be proactive by contacting them quickly and requesting the appropriate documents they need for the short sale file and ask them what they have. Has there been a recent BPO done on the property…that should be one of the files transfered and the new company will wait on that before negotiating on any submitted offer that is not already approved. At least you can get your part done. It also doesn’t hurt to have whoever is negotiating with BOA on your side to contact BOA for an update on the file transfer.
Our Best Advice
Be Proactive! That is something our team stresses all the time. There is only so much that is within your control in these types of situations, but it is very important to have people helping you that know the short sale process. If you have any questions we would be happy to help! 508-258-9010 or [email protected] .