VETERANS ADMINISTRATION LOAN PROGRAM

• $0 down payment
• Borrower must have VA Certificate of Eligibility and copy of DD214 form
• 2% - 3% VA funding fee rolled on top of mortgage
• No mortgage insurance required
• Must qualify per VA credit guidelines
• National Guard and Reserve members may be eligible
• Ratios to 41%, but 45% possible
• Minimum requirement for family support - formula is used that takes into account number of family members and square feet
• Maximum loan amounts with full eligibility changes periodically

JUMBO LOAN PROGRAMS - Varies among investors

• Generally requires credit scores above 620, 660 for stated income
• Minimum down payment of 5% to $400,000
• Loan to $600,000 with 15% down
• Most investor guidelines have $650,000 as maximum loan
• Loans to $1,000,000 with 25% down and 680 or higher scores
• Guidelines above for single family homes only
• Stated income programs available

HELOC - (Home Equity Line of Credit) and Second Mortgages

• Be careful, not all investors offer HELOC's or second mortgages
• Best rates if scores above 700, ratio under 40%
• Generally available to 660 score
• HELOC's are usually an Adjustable Rate Mortgage (ARM)
• Second mortgages are usually a fixed rate loan
• Ratios from 40% to 45%, depends on scores and LTV
• Some loan types at higher LTV's may not allow HELOC's
• Extra disclosures and forms are generally required
• Sometimes a separate application, GFE or TIL are required
• Fees are charged by title company and investor
• Hard for NIV or Stated income borrowers to get
• Usually income documentation is required
• Beware of price adjustments to the first mortgage loan
• Both used to avoid Private Mortgage Insurance (PMI)

Conventional Programs

Standard Conventional Program

• 5% down payment must come from borrowers own funds
• No income restrictions
• Qualifying ratios to 40 plus percent or more
• Required credit scores of 680 or higher
• Seller can pay 3% of closing costs
• Purchase or rate/term refinance

ALT/FLEX 97 - Conventional Program

• 3% down payment can be gifted, competition for FHA Loans
• No income restrictions
• No home buyer education required
• Better first time homebuyer program than FHA, in some situations
• 33/40 qualifying ratios, sometimes higher with 700 plus credit scores
• Closing costs can be paid by seller up to 3% or gifted
• Allows borrower to get into property with little to no money out of their pocket
• Mortgage insurance can be removed after 20% equity is achieved (unlike FHA)
• Required credit scores of 680 or higher
• Rate is typically about .125% - .250% higher than the standard conventional program
• The borrowers mortgage insurance coverage is reasonable and cheaper than what FHA insurance costs
• Conventional appraisal, FHA appraisal has tough inspection aspects

JUST MISSED CONFORMING PROGRAMS

Refer With Caution Level One

• 15 or 30 year fixed loans
• Rate are typically about 1% higher than standard conventional rates
• Cash-out refinances to 85% with MI, 80% without MI
• 97% loans are still eligible under Level One
• Even with mortgage insurance payment is usually lower than a B/C and cheaper than FHA
• Most, but not all, investors offer this program
• 20% down payment avoids mortgage insurance

Refer With Caution Level Two

• 15 or 30 year fixed loans
• Rates are typically about 1.25% higher than standard conventional rates
• Cash-out refinances to 80% to LTV and no MI
• 97% loans are still eligible under Level Two
• Few investors offer this program
• In some situations, going with a B/C loan or FHA may be a better option. The payment may be less depending on what the mortgage insurance is.
• 20% down payment avoids mortgage insurance.

Zero Down Payment Programs

100% to 103% - conventional program

• 100% first mortgage, means zero down payment
• Purchase only
• Maximum loan amount is FNMA and/or Freddie Mac maximum
• Up to 3% of the closing cost can be financed for a total LTV of 103%
• Owner occupied primary residences only
• Requires credit score of 700 or higher
• 2 months of PITI in reserves required after closing
• No income restrictions
• 33/38 qualifying ratios
• 3/27, 5/25 and 7/23 programs available

80/20 combination

• Purchase only
• First mortgage at 80% of purchase price
• Second mortgage at 20% of purchase price
• Avoids mortgage insurance required on 100% first mortgage program
• Requires credit score of 700 or higher
• 2 months of PITI in reserves required after closing
• No income restrictions
• 33/38 qualifying ratios
• CAUTION - not all investors offer this program

COMBO PURCHASE PROGRAMS (First Mortgage - Second Mortgage - Down Payment)

80-10-10

• Most common program, used to avoid paying mortgage insurance
• Standard conventional underwriting guidelines
• First Mortgage at 80% of purchase price
• Second Mortgage at 10% of purchase price
• Down payment of 10%, 5% of borrowers own funds required
• Avoids mortgage insurance, which is not tax deductible
• There is a price adjustment

80-15-5

• Standard conventional underwriting guidelines
• First Mortgage at 80% of purchase price
• Second Mortgage at 15% of purchase price
• Down payment of 5%, must be borrowers own funds
• Avoids mortgage insurance
• There is a price adjustment

75-20-5

• Standard conventional underwriting guidelines
• First Mortgage at 75% of purchase price
• Second Mortgage at 20% of purchase price
• Down payment of 5%, must be borrowers own funds
• Avoids mortgage insurance
• There is a price adjustment

Loan-to-Value and Combined Loan-to-Values

Loan-to-Value and Combined Loan-to-Values
The LTV for any given program is again going to be dictated by the strength of the borrower-Credit grade, property type, credit history, program guidelines and the type of documentation, (stated income, full documentation, etc.) are all factors that will go into determining a maximum LTV and CLTV. Many investors will allow a CLTV of up to 90% - 100%. They may do a first mortgage for 80%-85% and allow a second mortgage from a third party up to 90%/~100% of the appraised value or purchase price. The second mortgage can be in the form of a seller carry-back (must be a mortgage) or institutional loan from a bank or other financial institution. The carry-back cannot be a contract for deed.
If the borrower has stronger credit but still doesn't fit into any of the conforming programs, there are non-conforming investors that will lend 100% of the value or purchase price. This is a single first mortgage carried by the investor. These programs exist for purchases and cash-out refinances. LTV's and CLTV's are again determined on a case by case basis for each
application.

Pre-Payment Penalties
Most non-conforming loans will carry a pre-payment penalty of at least 2 years (some as long as 5 years). This means that if the borrower pays off the loan within this period, they will likely pay a penalty of typically 2% of the outstanding loan balance. This pre-payment penalty fluctuates from investor to investor but is typically in the 2% range. This information will be disclosed by Steve Betow as early in the process as is possible.

Debt Ratio's
Debt ratios are also specified to the credit grade and the strength of the borrower. Typically on the non-conforming market the maximum debt-to-income ratios are around 50%, but can go as high as 60%.

Property Type
Property type and condition are an important factor in the non-conforming market. A property that is noted as being in fair condition will have a hard time being placed on the conforming and non-conforming market. One to four units are acceptable. Manufactured, Modular, or Doublewide homes are acceptable if the property meets certain requirements. Will be different from investor to investor. Expect lots of delays caused by underwriting and an appraisal review process. They often ask for more photos, more comparables and letters of explanation. We will be charging more for B/C appraisals in an attempt to be proactive and avoid problems and/or delays.

Acreage
Typically, the non-conforming market will not look at more than the house and 5-10 acres when reconciling a value for the property. However, we do have lenders that will look at acreage properties on a case by case basis.

Loan Programs Summary
As you can see by the above information, the non-conforming market is made up of dozens of individual lenders, each with their own set of underwriting guidelines and pricing. It is our job to familiarize ourselves with the ever-changing mortgage market and to bring your borrowers and our lenders together in a mutually beneficial relationship with access to literally hundreds of different mortgage programs.

The self-employed borrower: Full documentation or No Income Verification (NIV)

The self employed borrower is one who actually works for him or herself - i.e., borrowers not employed by a corporation, or controlling a substantial part of their employing entity. Usually, 25 percent ownership in the employing entity will result in the determination that the borrower is self-employed, although a stricter standard is sometimes used.

Types of self-employed applicants:

No legal entity involved
The most simple self-employed applicant is one who is not employed by a separate corporation or other entity, but files with the Internal Revenue Service using a Schedule C return. Most 1099 workers do this.

Separate legal entity involved
The borrower may be employed by, or derive income from the following:

• Subchapter S corporation
• LLC
• Partnership
• Other types of joint ventures
• Farm

Required information: (unless the applicant is applying for a No Income Verification (NIV))

• Two years' individual tax returns and W-2's, or 1099's if client income is received from a corporation or partnership they have an ownership interest in.
• Two years' corporate or partnership returns are also required.
• Any payment for income through salary must be supported with further documentation, such as pay stubs.

No income verification (NIV) - self-employed or W-2's borrower
Self-employed and sometimes salaried borrowers may elect to skip providing tax returns or income documentation. Generally, the higher the credit score, the lower the interest rate. A high score should also mean a smaller down payment. Some program highlights are listed below. Note that not all features are available on all programs.

• Most programs require two plus years of self-employment or job time.
• Usually 10% to 25% down payment is required.
• 0% to 5% down payment programs are available, with higher credit scores.
• High credit scores can mean a lower rate, and less down payment.
• High credit scores can mean more loan programs are available.
• The interest rate will be slightly higher than the going conventional rate, even when borrowers scores are above 700.
• Lower credit scores will usually mean a higher interest rate and more down payment.
• Underwriters will usually request a letter from their accountant to verify the type of business and how long it has been in business.
• Sometimes twenty-four months of personal bank statements can be used to prove cash flow and then get a lower rate and/or be allowed to put a smaller down payment.
• Many programs require a copy of a business license, business card, yellow page listing, or some other proof of self-employment.
• Most programs like to see a minimum of four trade lines, with over a 24 month history, on the credit report.

Stated income programs - fast and easy

• Income is stated on application but not verified.
• Can be used for self-employment borrowers or W-2 income borrowers.
• Requires 2 to 6 months of PITI in cash reserves - requirements vary.
• Requires credit scores of 680 or higher; 700 or higher gets better interest rate.
• No need to supply tax returns or financial statements.
• Must be self-employed in same job for minimum of two years - letter from accountant needed.
• Interest rate is typically about M25 - .500 higher than the standard conventional
• Down payment requirements range from 10% to 20% - 5% down available, but difficult.
• This program also comes in "non-conforming" for credit scores below 680, down to 620 but requires 5% - 25% down payment, and higher interest rate.
• Zero down payment is now available - hard to believe, but true.

No income / No asset program

• No income or assets are stated on the application
• Income and debt ratios are not calculated.
• Can be used for self-employed borrowers or W-2 income borrowers.
• Assets are not verified since they are not listed.
• Requires credit scores of 680 or higher.
• No need to supply tax returns or financial statements.
• This program also comes in "non-conforming" for credit scores below 680, down to 620 but requires 20% to 25% down payment, and higher interest rate.

No ratio

• Income and employment not listed.
• Assets are verified.
• Do not have to prove employment because income not stated.
• Credit scores above 680 receive best rates - 10% down option.
• Available to 620 credit score with 20% to 25% down.

General tips for working with self-employed borrowers

• If client wants to use an income verifying program, ask to see the last two years of tax returns. We only need copies of the complete federal returns.
• Add the adjusted gross income together for the last two years and divide by 24 months, this will give you the monthly average income to use in qualifying. Some deductions can be added back into the income, so get to an underwriter ASAR
• If the business is paying for an automobile, make sure the debt is not left in the qualifying debts. It would be counted against them twice if you fail to do this.
• In some situations with high (700+) credit scores, one year of tax returns may be okay.
• Because many self-employed borrowers write off so many expenses, they usually end up going with a No Income Verification program of some kind.
• Having a mortgage late, the more recent, the more serious, will make it tough to get a No Income Verification loan at any credit grade.

B/C CREDIT LOANS - Alternative Financing

Non-Conforming programs were developed to help borrowers who fell outside of the traditional Conforming box of guidelines. These programs are designed to give borrowers a second chance to get into a home or to help them consolidate their debts into one easy to manage monthly payment. Often this second chance is all that was needed to get the borrower back on their feet and give them the opportunity to clean up their credit problems. To offset the additional risk involved in lending to these borrowers, Loan-to-Value ratios are often reduced and interest rates are increased. At Steve Betow, our job is to try and match up each borrower with a lender that has programs that best match the borrowers needs. Applications are typically faxed to about 3-4 different investors. Each pre-approval is then examined and the investor that returns with the best overall pre-approval (highest LTV, lowest rate, condition requirements, etc.) is then selected and the borrower and/or loan officer is notified of the terms and conditions of the approval. Prepayment penalties are common.

Factors used by investors to rate an application submitted by SB

• Consumer Credit History
• Mortgage History
• Property Type and Location
• Debt Ratios
• Income (source and stability)
• Loan-to-Value and Combined Loan-to-Value Ratios
• Documentation Type (full documentation, stated income, etc.)

These factors are all taken into consideration and a credit grade is received. These grades can range from an A borrower, who has overall good credit but has a few dings in the past 12 months, to a D borrower, who has had a long history of delinquent accounts, several outstanding collections or judgements, a recent bankruptcy or foreclosure, or a combination of all of these. Each grade received may differ slightly and it is not uncommon for Steve Betow to receive a different grade from each investor that the application was submitted to.

Terms
A typical non-conforming loan is set up on a 2/28 or 3/27 amortization. What this means is that the loan is amortized for 30 years, but the rate is fixed only for the first 2 or 3 years, at which point the loan turns into a 6 month LIBOR ARM. Though there are 30 year fixed rates available, the interest rates on these loans tend to be substantially higher than those of the 2/28 or the 3/27. These are not loans that we want your borrowers to stay into for more than 2 or 3 years. The objective is to get the borrowers the chance they need to re-establish their credit and then in two or three years refinance them in to a conforming "A" loan. The result is a steady flow of refinance business for you.

Rates
Interest rates on the non-conforming market are very difficult to quote with any degree of accuracy. This is due to the fact that each investor has their own set of rates and each application is graded and priced on a case by case basis. A common range for these products is between 7% - 12%. These rates depend largely on the credit grade, LTV, property type, mortgage payment history, consumer credit history, etc. Once an approval has been received from a prospective investor, a more accurate interest rate can be quoted. Generally, rates cannot be locked in for any specific period of time, each investor has different rules and policies.