The bad news is that as a result of that legislation, a lot of fly-by-night companies have sprung up that are ripping homeowners off. When you’re already in trouble with a loan, the last thing you need is more trouble!

So here’s what you should know…

Once your home loan becomes delinquent, it winds up in the Loss Mitigation Department of the bank that lent the money. That department is staffed and run by attorneys who are out for blood. Yours. The only way to deal with them is to get an attorney of your own that’s experienced at home loan out-of-court settlements. Someone who can negotiate a loan modification to cut your payment… or a reduction of your principal balance to bring it in line with your home’s current value. Either way, you need the right representation.

I’ve had great success referring clients to Legal Home Loan Solutions. This attorney-based firm is run by Thomas C. Matevia, a lawyer who has been doing out-of-court settlements on home loans since 1970. He didn’t just spring up with the new legislation. He knows every detail of what has been and is the law surrounding real estate loan issues.

Your lender has attorneys that want to tear you apart. You need an attorney that will put it all back together. Legal Home Loan Solutions is the only firm I trust. Call them at 561-200-3392. Get your payment down and hang onto your home. This guy can financially save your life!

Turns out he had signed on for a negative amortization loan. Not just any neg am loan, but one with a margin of 3.75%! So each month that margin was added to an index to calculate the interest rate. In his case, the index was the CODI (Certificate of Deposit Index). And by the time he came to me, the index was at 5.3%. Add the margin of 3.75% and his interest rate was over 9%!  This at a time when interest rates were FAR LOWER.

His monthly payment was $1929…but the amount he owed that month was $4,713! The difference of $2784 was added to the balance of his loan. If the margin stayed the same (unlikely), his balance went up over $38,000+ the first year. Now, add in the cost of the refinance…and he was in deep neg territory!

That’s the difference between a mortgage salesman and consultant.

A salesman is out to profit at your expense. The higher the margin, the more the lender pays.  So, a salesman will hike up the margin to line his pockets. The salesmen who suckered my client charged a 1% origination fee, a $595 processing fee, a $350 administration fee, and pocketed a 3% premium from the lender. He made out like a bandit while my client took a bath. In addition, my client had a 5% prepayment penalty for the first 3 years. Had he gone to a mortgage consultant instead, he would have had a margin of 2% or less…attached to a lower index…with a zero broker’s fee. In short, a loan he could live with.

So when a customer asks me for a neg am loan, I only give it to him if I feel the circumstances are right.  He has to be a savvy borrower. The upside of the transaction needs to be good. And, it has to be refinanced after a year or two. I also make sure it has the best possible terms: A low margin. No prepayment penalty. And, bi-weekly payments.  (The 25^th and 26^th payments help eat up a portion of the interest accrued.)

I’ve occasionally seen investors who do well with a neg am loan as long as they get out of the market at the right time.  But with loans as with life, timing is everything!

Unlike the days of 100% financing with no income or asset verification, there’s no question loans are tougher to get these days. But they’re still available if you can document your income, down payment, closing costs and cash reserves. If you know what to watch for and know how to play the game.

If you’re self-employed, you have to show two years tax returns (1040’s if it’s a sole proprietorship—1120’s if you’re incorporated).  If it’s mid-year, you’ll need a year-to-date profit & loss statement and a balance sheet.

The self-employed borrower is more likely to have problems getting approved.   While the salaried borrower is qualified on gross income, the self-employed borrower is qualified based on net income. In a nutshell, an employed person with an annual salary of $45,000 can qualify for more than a self-employed borrower grossing $100,000+ a year!

No-income verification loans are still available, though the guidelines have changed. The days of the 80/10/10 are gone (where you could put down 10%, get a first mortgage for 80% and a 2^nd for 10%.)  Now, most lenders are looking for a down payment of 20%-30% and want asset verification to boot.

If you can document that your income doesn’t exceed the debt ratios (36% for FNMA & 43% for FHA), you could qualify for a ‘full doc’ loan with minimal payment requirements. But you must prove that the money is yours or the lender won’t let you use it.  (It’s called ‘source of funds.’)

Lenders now want to see your complete bank statements for the past two months. If you’re getting a gift from a family member, you have to show the funds debited from the donor’s account, then credited to the borrower’s account or escrow. Lenders want to see cash reserves of two to six months after down payment and closing costs. So if your total payment of principal, interest, taxes, insurance, and association fees totaled $3000/month, the lender could require up to $18,000 remaining after the transaction!

And if you own other properties, make sure your i’s are dotted and your t’s crossed. That’s a huge red flag in today’s lending market — and a sure way to get your loan declined! If you own a rental property, have the lease handy. A lender can require proof of the monthly amount deposited to your account for the past 12 months.  If the rental property is within 55 miles of the property you’re buying, it has to make sense. If you’re buying a $250,000 townhouse to live in, don’t want to have a $1,000,000 rental!

Although lending guidelines are tough, interest rates are at historic lows.  And there are great deals out there. It’s an ideal time to buy. Yes, the days of the amateur investor are gone. But if you know what you’re doing…and have the proper guidance…you can really make a killing in this market!