MSHDA Loans – What You Need to Know – Part 2
In this podcast episode Laura, Kristi and Michelle talk about the process and requirements for getting approved for a loan with MSHDA as a first-time buyer; and why you should start now.
You can contact Kristi, Laura and Michelle here with any questions:
Kristi Roberts - 810.844.1392 - KNE Realty 360
Laura Pinozzi - 810.824.8551 - KNE Realty 360
Michelle Wilson - 248.486.1117 - Mortgage 1
People assume “well I can't because I gotta be out of my bankruptcy.” That's not true. “I can't because I'm in credit counseling.” That's not true. So all these questions that we're gonna ask will hopefully guide the people into what they have.
Hello this is Laura Pinozzi and we're back with another episode of MSHDA: what you need to know. And we're here again today with Michelle Wilson from Mortgage 1 and Kristi Roberts from KNE, thanks ladies for joining me again, how are you guys doing?
So we had a great conversation last time talking a little bit about what MSHDA is and how it works. Let's take a perspective of “I'm a buyer and I want to get started.” What what kind of things do I need to know? What kind of things do I need to, um…
How do I prepare myself?
Yeah, how do I get prepared?
So basically it's applying for a loan. So you would call us up; "hi, I'm Mr. Smith and I'm looking to purchase a home" and of course we would thank them, we'd find out the information and then we go with the basics, like it's what are you looking in, what is your comfortable purchase price of a home, meaning monthly payment? Because some people can qualify for more payment than others but some people don't want to pay more. So if they're paying rent now of a thousand dollars and they're willing to go $1,100 they're not going to buy a $300,000 house.
Right, so what does that look like from a price perspective…
So basically we have to get the information from you so we will ask the questions. Um, areas you're looking in, amount that you want to stay within, whether you're buying on your own or with someone, then we will get into some personal things such as your income, how long you've been on the job, we have to verify you've been somewhere for two years. Now there's many people out there that think “oh wait I just switched jobs, I can't wait I have to be in it for two years.” That's not true. If you have a two-year work history then we can document that. If you were off work and then returned to work we can document that.
What if I was a student?
If you're a student that counts because you're going to school, that's classified as work. So you could absolutely –
And I don't think a lot of people understand that or realize that.
They don't. So and then some they take time off, let's say a mother has a child, so she took time off work for six months so she has a six month gap, and some will say “no you can't do that,” well yes you can because you're documenting the reason for being off, it wasn't “oh I just decided to not go back to work,” you obviously, you know medically or physically or personally…
Or something more unfortunate, you know a death in the family or whatever…
Exactly. So we document that, so things that make sense. So if you had a job for 13 years and you're off for a year and then you went back, we document why that year off was or what the circumstance is. So people being afraid of trying to apply or afraid of approaching someone, they shouldn't be. They should be able to call up, feel comfortable, ask the questions, or answer moreso the questions we're gonna ask. Because we will ask for that two-year history of residency, where have you lived. Some people move from state to state. Some people have had five different jobs in two years. Some people covid unfortunately affected. You know so there's all these different components that we will ask the questions to try and put them together. Now there can be times people have to wait. But that's okay. Set your road map up. I won't tell you, and others may, but we won't tell you no, we're going to tell you how.
I like that.
So you have to know if your credit score is not strong enough and there's a reason for it, um we document it, we coach you through how to improve it, and we put you where you want to be.
So in other words I could, if I were a first time home buyer let's say, and I feel like I'm maybe six months out maybe nine months out from ready to buy a house for whatever reason that is. I should still start with you today?
You should absolutely start now. Because the biggest component is that if you call me now and we know you can't do it, and we say but here's what you CAN do to do it, in six months [or] nine months from now you're good. If you don't call right now and you think you're doing the right thing in that six to nine months and then you call us in that six to nine months and we say “oh you know what you really need to open a secured credit card” or “you really need to do this” and that takes six to nine months or 90 days to six months to report. So there's those things that if only you would have known or acted on it… So if I tell someone to, yes to open up a secured credit card now, call us back or let's re-look at it in 90 days or six months or – it's more than just one account. So it's all these components. The same goes where people say “I have no score at all, I don't have credit, I don't do anything.” That's okay. MSHDA will 100 percent do a no-score. So we will do alternative credit if you're co-applicant, I just had one recently where the borrower had a job, had his income, had everything but his spouse was a stay-at-home mom, doesn't have any credit whatsoever, like none. So we closed that. Conventional loan closed with MSHDA, down payment and I actually –
And she's on the loan too?
And she's on the loan.
So I have a lot of buyers that'll come to me and they'll just look at our website and we'll see that they're on there and we'll give them a call and just you know kind of do a preliminary interview with them or try to get them started. And a lot of times they're hesitant about getting pre-approved because they feel like either it's going to tarnish their credit by having their credit pulled or they don't want to waste your time as a mortgage professional going through the application process, um almost that they feel like they're an inconvenience to you or to me even at that point so early in the stage of things. And from a real estate perspective I always encourage them like you know what, if you're not ready to buy for a year that's fine, let's learn the market. What areas do you want to be? So I'm going to send you listings of what you're looking for so you can see A) what they're selling for, how quickly they're selling for, and you can hone in on what areas you really want to be in. But then from a mortgage perspective how do you help buyers get over that initial roadblock or fear?
So there's been many times we do get calls like that and they're like “I don't want you to run my credit.” I will 100% talk to them I'll 100% walk them through I will ask them “what debts are on your credit?” So do you have a car payment, they say “oh well I have my utility bill, I have this bill” nope that's not, a utility bill is not a debt on the credit. So the credit would be something that actually reports like a credit card or a RV or a motorcycle or a car, something that has an obligation. And those are the things that I ask. So if I write those things down and they tell me their income, I can manually say, you would qualify for this. It doesn't mean they're approved, so qualifying can be a verbal conversation, and so those are the components that now that puts them at ease a little bit, and then the same they call up and say “oh well I know my credit's good because credit karma says I'm this.” Okay, so that's a big topic there too. So what that basically happens is credit karma's more of a “hey how am I doing with my current stuff?” We pull a credit report that says, can I take on more debt based on everything I've had in the past? So basically the most recent two years has the biggest impact, but if you don't improve those two years, if they were an issue, you're still not going to improve six months from now. But if they have previous they say “well if you look at three years ago I was fabulous,” I totally agree, however, it's not – it's within the most recent two years. So because the credit score is predicting the likelihood the borrower will have a 90 day late in the next 24 months. So to do that they want to see what you have now. So we will take those first-time buyers or those people and I explain to them, I agree your credit karma may say this, however, have you had a bankruptcy in the past? Have you had this in the past? So we ask additional questions. And people I hope are not offended by it. These are actually legitimate legal questions we have to ask on an application. So we don't assume anyone has anything, we have to inquire. So and that’s where it’s like, well give me details on it. We know people have had auto accidents and were in the hospital and were unable to work. We know people have had – there's been all kinds of scenarios that cause people to have credit issues. Um some people had a you know breakup or had something drastic happen in their family life that caused them to have to put a few things on the credit card, got into trouble, did credit counseling. People that are in credit counseling or in chapter 13 bankruptcy being responsible and paying everything back, if they have a 12-month pay history, they can get a loan right now. So people assume “well I can't because I got to be out of my bankruptcy.” That's not true. “I can't because I'm in credit counseling.” That's not true. So all these questions that we're gonna ask will hopefully guide the people into what they have. Now the same way we've got on that employment history, “oh I went from um this sales where I was 1099 and now I have a salary, I'm W2, or I'm set hours for 40 hours,” fabulous.
Or vice versa.
Well the vice versa is bad.
No so but I tell people that. So I absolutely have people call me like “so I'm thinking about switching jobs.” Thank you for calling me! What are you going to go to and what amount? I've had clients that have improved their credit and I've had clients that took a job decreasing their credit because it was better for them like family life, everything about it, like it was more appeasing.
I have something similar. I have a client that's taking about a $30,000 a year pay cut because long-term wise he'll be in a much better position because he's going from a civilian to a federal job. But the federal initial sign on is much less.
In perspective of what they want.
You know so it's like okay, how do you get to what you want? Now others may have their debt to income. So we've talked about income, we've talked about credit, you know now we've got to balance them, so they have to be within a specific debt to income [ratio]. MSHDA requires 45 percent. So if you take your income, divide it by 12, multiply it by 45%, that's all your bills. So if you have a car payment take that out. If you have this – so we'll walk people through that and they're like well you can get a $800 mortgage. You can get a $1500 mortgage. And they say “well I want more than that.” Well let's look at lessening your debt. So they have a few options. They can pay something off, I've told people to refinance the car, they may be at four or five percent where right now they might get it for one or two. You know so they'll reduce their payment. Or they have money in their 401k and it's more beneficial to pay something off. I would rather have someone pay off a credit card debt with their money in the bank, and that's where the MSHDA program comes into value. So if they have ten thousand in the bank and they need to pay off five thousand in debt to qualify for something, use five of the ten that's in the bank, and now MSHDA has another five $7,500 or $10,000 that they can help you with. You got rid of that debt, you know, high paying interest credit card that will never be paid off if you pay the minimum payment, and now you're on a house-reasonable loan with a $10,000 that's zero percent or the $7,500 that's zero percent.
So going back to that, um, reserves. So you're talking about you know if you have ten thousand and you have debt. Does MSHDA have any additional reserve requirements?
MSHDA does not, but whatever program you qualify for may. So again, which we talked about this on the previous podcast, but MSHDA is just your assistance with money or debt ratio or whatever. You still have to qualify for this program over here. So now that being said, we may switch that program. So if conventional wants you to have reserves but FHA doesn't, that's okay. You know, switch to that loan program. Every client is a hundred percent different from the other. There are no two that are the same. So and, but it's the communication. How can you get there? You know, well if you get an income base, student loans. You mentioned being a student. I've had clients that have had $300,000 in student loans, I've had clients with $20,000 or $7,500, however much student loans they have. If they can go conventional we can use an income base. Well right now some of the income base are zero. But I have to have a letter that says income based of zero, and now we don't have to count that against them. Or they have an income base, they may have a hundred thousand in student loans but their payment is $200 bucks. Get me that letter. We can use that or document that. So again we pull out the information for the documentation that – what are your options? If their credit score is not good enough to be able to use that income base, okay well let's set you up to get an income credit score that you can. You know okay well let's work towards this or try and pay this. So again it boils down to the question and the knowledge. Like knowing what to ask or how to help or how to guide. And there will be some times that people may have to wait longer than six months or a year depending on their circumstances. But that's okay. I have clients that have done –
Again, at least they have a road map.
Yeah. And two years later they called me up and said “hey I don't know if you remember me or not,” and a lot of times I will because we carried on such a longevity conversation, and I take my little notes and…
It sounds like you get to know them a little bit personally and you take a lot of care with them.
We try. Yes. I take everyone personally so it is that way. I feel, when I can't help them I'm like, there's got to be a way, I'm gonna find a way, yeah. So the essentials to it.
Well, and homeownership is just so important to so many people, you know, and I feel. that's one of the things that I love most about our job is, you know getting that dream, I mean, the American dream. Making it happen for people.
And it should not be scary.
And the people that go through bad experiences or have horrific stuff, and you know I feel for them. And I won't say that there haven't been times that we've had a file and I've gone back and said okay now we need this, or now we need this, or now we need this. But that's because they gave me an updated document that said you had a five thousand dollar deposit. Well then I'm going to ask where that came from. Or they gave me a pay stub that said they only worked 8 hours instead of the 40. Well I'm going to ask about that. So those are things so then like “oh you know there's so much paperwork and so much detail.” There is. But if we can get more of it in the beginning, and get it corrected before, then it's a super smooth process.
I always tell people when I talk with them in my buyer's consult is, when it comes to talking to your mortgage person it's like going to a confessional. Just spill it all out, let them know everything.
We're going to find out.
Yeah exactly, even if you don't think that it matters, let them know because it could and it most likely will, and it's better to put out smoke vs. fires, so just lay it all out there, and they're going to tell you how to do it. They're not going to, you know – like what you said in the previous podcast, they're not going to tell you no, they're going to tell you how, or when. Like okay yes you did have this happen to you so, we may have to wait six months. But here's what I want you to do in those six months. Or thank you for telling me, this is how we're going to counterbalance this issue. And just lay it all out.
We will find things. There's times I've told people I'm like “what's this house?” “Oh that's my dad's house.” “Do you know he put you on the deed?” You know, that's where it gets kind of sticky and, yeah, hard. Or we found some that people didn't know that it was somebody else's friend of a friend that had put them on. Like it was just, it's a random thing. And that's information when I ask on it, and people tell me they're like “that's not true, that's not right.” I agree with you, and I do, but it's here. Like, it's in print. So I will send that to them. So I don't want them to think that I'm just making it up, you know in the details. So if someone is skeptical because of something, call and ask. Like just let us know, give us the detail, um, you know don't be scared. Like again it's not – it can be a scary process being new to it, um, some people don't know what a W2 is. Well we'll break it down for you. You know that's okay not to know. I don't know how to do electrical or technical things, you know.
Right. You're the professional, you don't expect your clients to be. That's why you have your job. Yes. So I've been doing it for 25 years plus, but um, I love it. I mean I'm still here, I still do it and I still educate and break it down. So if it's broken down elementary then it helps.
Very good. Well thank you ladies, I'm looking at the time and uh, looks like we have to wrap it up here so uh, stay tuned for our next episode of MSHDA: what you need to know. Thanks again.