“Surviving the Mortgage Massacre of 2008”

formerly titled Share the American Dream

Arthur Gahagan
© Copyright 2008

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 PREFACE

If you have questions please call us at 352-428-7407. Please

visit our blog at http://blog.tampabaycreditdoctor.com and

visit us at www.tampabaycreditdoctor.com Enjoy the book.

Thank You.
 Table of Contents
Chapter 1 Are you keeping score?

Chapter 2 What happened?

Chapter 3 Before you start to look.

Chapter 4 Are you qualified, or credit approved?

Chapter 5 Mortgage options.

Chapter 6 Structure your deal.

Chapter 7 Tid Bits & Tactics.

Chapter 8 The Loan Process.

Chapter 9 Looking for a home.

Chapter 10 Resources.
 Chapter 1

Are You Keeping Score?

There have been many changes to the real estate industry and to the

mortgage industry in the year 2008. As I write these words in July 2008,

many people that began the year 2007 gainfully employed in the housing

business, have become a statistic. These are the people you’ve read about

or seen their stories on your evening news. In the early years of this

new century it has been the housing locomotive that was driving the train,

but the engine is now sputtering and coming to a screeching halt. It has

been approximately a year now, that the carnage began.

It is not that way all over the country, but there are many places that now

see many pockets of vacant houses. In fact, there are now more houses

sitting “vacant” that at any other time in our history. This book will be one

person’s opinion about what has happened, why it happened, and what the

effect of it all, will be for you. The title of this chapter is “Are You Keeping

Score?” It is a great place to begin as people are definitely keeping score.

There are people that are tracking the causalities in the lending industry.

There are many other industries that are tied to the housing sector, and

This “bubble burst in certain areas” or “downtown” in many areas will

bring distress to many.

The only score we are concerned with here is your credit score. Notice, I
said score for a reason. Yes there are three credit agencies or bureaus that

have been given information about you. That information is attached to

your social security number.

The three “giants” of the industry are Equifax, Experian, and

TransUnion. I will provide contact information for you at the end of this

chapter. It is important for you to know as a “potential borrower” is that

these scores could have a huge impact on your ability to get a loan.

In the near future these scores may not play as vital a role as they have

played in the past few years but the scores still will be an indicator as to

how you pay your debts. This is vital because the lenders need to know

how you’ve handled your monetary obligations in the past?

We are currently in a time period where foreclosure activity is at record

levels. Will the Federal Government bail us out? Time will tell on that one.

I can tell you that lending standards have tightened up, will continue to

tighten up, and it could be that way for a very long time. What happens to

you? You still need to live somewhere. You still need to survive. You still

need to prepare for your future. If you listen to all the “experts” out there,

they will have you think it’s all very dismal. That is not the case at all.

There will always be buyers and sellers in the marketplace. The only thing

that will ever change is the rules in place at one particular point in time.
We are here to say that “yes,” many loan programs have vanished.

I’m sure that you’ve heard that old expression, “when one door closes,

another opens,” and we believe that it’s true here in this marketplace.

The loan programs that were popular years ago will once again become

popular. The important lesson is for you to pay attention in your financial

life and to realize that someone is keeping score!

At the end of this chapter we will also provide you with a special link where

you can get the only “authorized by Congress” free copy of your credit

report. When you get that report, it will not have scores, but don’t worry

you can get those later inexpensively. This report will give you information

you need to know.

You are looking for information that is not accurate, that you can have

removed if it is not correct or not yours.

You do not want to see collections, charge-off’s, repossessions,

foreclosures, 30, 60, 90 day late’s, etc. Tax liens, bankruptcies, are all

score-killers on a credit report. You do not want to give your social security

number out freely and have many people pull your credit. It’s a score

killer! Those inquiries will zap your scores!

We will explain later how lenders will use this scoring system to rate you as

credit risk. We have a blog where we talk about situations and scenarios

that can happen in a person’s life that will adversely affect their credit. In

many situations a person may not be aware that anything has even

happened.

Here is a link to that blog: http://blog.tampabaycreditdoctor.com

Congress has passed legislation known as the Credit Repair Organizations

Act , they authorized "credit repair" companies to work with credit repair,
but statutes must be followed. . We are not attorney's, we do not give legal or
financial advice. Seek the services of the appropriate professionals.
Everything to do with credit falls under the auspices of the Fair Credit
Reporting Act.

Congress has authorized only one website where you can get one free

copy of your credit report. There are two ways to get that report. You may

call the special toll free number at 1-877-322-8228 and request a copy be

mailed to you or here is the website link: http://AnnualCreditReport.com

As was mentioned earlier in this chapter, that report will not have scores.

You can get scores at the site however for a nominal fee, and you won’t be

asked to sign up for any kind of “service” you don’t need.

If you’ve checked out some of the late night sites offered on TV, you know

what I’m talking about.

HERE IS INFORMATION ON BUREAUS

Equifax

Equifax Consumer Relations

P.O. Box 105873
Atlanta, GA. 30348
800-685-1111
www.equifax.com

TransUnion

TransUnion Consumer Relations

P.O. Box 1000
Chester, PA. 19022
800-888-4213
www.transunion.com

Experian

Experian Consumer Relations

P.O. Box 2002
Allen, TX. 75013
888-397-3742
www.experian.com

One 30 day late, will give you a derogatory report !! Please pay early or on
time!
 Chapter 2

What happened?

To provide a little background on why what is happening now on Wall

Street is important we must go back to the time before RTC and see how

houses were financed. The primary places to go “back in the day” was to

your local friendly Bank or S&L (Savings & Loan ).

People would have money in pass book savings accounts that they

earned maybe 3 or 4 per cent interest on and the bank or S & L loan

committee’s would turn around and potentially make a house loan or

mortgage, and possibly charge 7 to 8%. Today , what used to be called a

Savings & Loan might now be referred to as a Savings Bank.

With the passing of the S&Ls, Wall Street became the "new kid on the

street" as it pertains to home lending. The new players became Mortgage

Brokers, Mortgage Bankers, Loan Officers, etc. Mortgage backed securities

came into existence and were sold on Wall Street in investment vehicles.

Mortgages that were originated and closed by the brokers, lenders, etc.

were bundled together to form “pools” that found their way to Wall Street.

Obviously the process is far more complicated than what I’ve outlined for

you here. It is important to know that the years 2001-2005 were 5 years of a

fantastic run up in house prices in many parts of the country.

During this time investors and speculators were making “big bucks”

turning properties over. It reminded me of the childhood game

"musical chairs.” Friends the music has stopped. In 2005 there were

More 100 per cent loan packages put together than at any point in our

History. Many of those loans were the popular 80/20 variety.

What’s an 80/20?

An 80/20 loan is a combination loan package where the 80 represents a

80 per cent of the total value or sale price of a home. The 20 represents

the remaining 20 per cent of that value or sale price. It is typical that a

lender will only loan on the lower of the value or the sale price for a

property. The value is determined by an appraiser, usually licensed or

state certified, then evaluated and accepted by a loan “underwriter” that

makes the loan decision.

In the 80/20 combo loan scenario, the 80 % loan is usually an ARM.

ARM stands for adjustable rate mortgage. The loan itself is for a 30 year

period, but than can fluctuate as well, and the payment normally will stay

at a “fixed” level for the first two or three years of the loan.

There were many variations of these loans that were written and sold in

the market place. The time periods for these loans to adjust would be the

years 2007 and 2008. I think you can begin to see the problem that is

presently beginning to make headlines. Add $4.00 a gallon gasoline into

the mix and it could become a volatile situation.

Twice within the past week the Dow Jones average was down over 360

points in a single trading day. I would say the investors are a bit jumpy.

My opinion is that the housing sector has never harmed the stock market

as much as the stock market is about to take down housing. I believe that

we are here for the same reason we always get hurt and that is GREED!

In that five year period from 2001 to 2005 the speculators, investors,

builders, flippers, and others were busy stuffing their pockets with cash

due to the quick appreciation rates that were the rage of the day. It was not

at all unusual to make obscene profits in short periods of time. People were

trying to play the housing markets like the stock market and it worked,

for awhile.

A new year dawned in 2006 and it was like someone turned the faucet off.

The buying frenzy seemed to stop over night. Now the finger pointing has

started and everyone is trying to figure out who is to blame. It doesn’t

matter who is to blame. At the end of the day, we all live somewhere and all

we can do is watch out for ourselves and each other.

I’m thinking that the focus for housing in the coming month’s and years

ahead will be more about shelter than it will be for using your house as

an ATM machine.

I realize there is more involved in the down turn than what I’ve talked about

here, but I’ve tried to give the short version. We are where we are, and we

need to prepare and plan with the tools we’ll have to work with as we move

forward.
There are parts of this book that were written in the latter part of 2007 when

things started to unravel. In the summer of 2008 we see approximately a

million foreclosures nationwide and I’m thinking that the worst is yet to

come.

We also see about 4 million homes for sale with approximately 2 million of

them setting vacant. These numbers should afford you a deal, but you’ll

need to formulate your plan.

 Before You Start To Look

In the first two chapters we mentioned a few things that might set the stage

for where we will go in this ebook. We are licensed professionals and have

been at this real estate “ stuff “ for over 30 years. The great thing about

being qualified in both areas, is that we can help structure a house deal

because we know what will be required to put it all together.

In the first chapter I mentioned that you must know what your credit picture

is like before you even entertain the thought of looking at homes. I don’t

think that a contractor would attempt to build a house without a set of

blue prints , why would you think about attempting to buy a house without

knowing where you stand at the beginning?

In the very early stages you must develop your plan. I mentioned earlier

that you should obtain a free copy of your credit report. The reason you

should do that is to verify the accuracy of any information on it. Bear in

mind that if you pay to get a report that has “scores” on it, those scores

may be very different than a report given to, or “pulled” by a potential

lender.

CONTACT A MORTGAGE PERSON

In the lending world, like in the selling world, you will have two types of

buying situations. You have “retail” and you have “wholesale.” In a retail
operation you may go to the bank, credit union, or any other lending

institution where you may apply for a mortgage loan and the person that

takes your application, may have “loan officer”, “ mortgage consultant “,

or a similar title. They may be a salaried employee to gather information at

this point. They will tell you what information they will need and may also

ask for your permission to pull a credit report. You are not on the “tile” in

the lobby or by the teller any more, you are now on the “carpet” at a desk

and the situation changes dramatically for you.

If you get past the “scrutiny” of your credit report, you will be asked to

provide a two year rental history, a two year work history, and it should

be in the same line of work, recent pay stubs, bank statements, W-2’s

from the last 2 years, etc. In many cases the person taking your information

will not be the decision maker. In a retail operation your information may

end up before a “committee” or an “underwriter.”. In the loan process the

“underwriter” is usually the one that decides if a loan gets to a “closing

status.” If you are involved in a mortgage process and do not hear those

three little words, “clear to close” then you have not been fully approved.

The second loan option is the “wholesale “loan origination. This is the

option I am always going to investigate first. Many of the people that work

in the wholesale side of the mortgage business are “mortgage brokers”

and that means they have the ability to get you great pricing for your loan.

If you are dealing with one lender in a “retail” situation you are only going
to be able to get the pricing they have available when it is time to commit

to your loan. A mortgage broker may be on an “approved basis” with

hundreds of different lenders all over the country. You may get a much

better interest rate and terms from a lender in Michigan than you would

from your corner lender on the “street” in Florida.

It is imperative that you shop for your “mortgage broker” as carefully as

you would your doctor. That broker will become crucial to your present

and future “financial health.” In a later chapter entitled “The Loan Process”

we will cover the actual procedures involved in getting a loan to closing

and we will also cover different types of loans in another chapter.

Ask These Questions of the Broker

1. How many lenders are you approved with?

2. Do you do FHA, VA, or USDA loans?

3. Will you pull three scores on me?

4. Will you tell me those three scores?

5. How many loans are in your pipeline?

6. How many closings to you have scheduled this month?

7. How long have you been a broker or loan officer?

8. Do you a commercial office setting?

9. Do you process your own loans?

10. How long will it take to close?

The important thing to know about “mortgage brokers” who originate

loans wholesale and “originators “ the do loans retail, is how they are

paid. In a difficult time, such as the one we are now in, only the good

mortgage brokers survive as it a commission based pay structure. On

the retail side it can be all salaried, part salary-commission, or another

type of stable pay structure. I think that you can see that a mortgage

broker that survives the economic carnage, might be a good choice to

start. If you don’t get good answers to your questions, move on to one

that will give you the answers. A good mortgage person will not have a

problem providing you the answers.

 Chapter 4

Are you qualified, or credit approved?

We begin our process here. You need to contact a mortgage professional

and allow them to pull a credit report on you. Ask the person you are about

to deal with if they will “pull all three scores?” The only answer that work’s

here is “YES.” If you don’t get that answer to start you are off to a bad

beginning and it’s time to move onto a more professional broker.

A mortgage broker or a lending professional incurs a fee for each of the

bureaus that they pull from and many are instructed to keep the costs

down.

In the real world of lending a lender that is approving loans based upon

credit scoring will use the “middle” score of the three, or the “lower” of two

if only two scores show up. An additional reason that a broker may pull

only one score is that if it turns out to be a low score, they might reason

that this particular loan is not likely to materialize. It happens. Don’t let

it happen to you. What happens if your other two scores are much higher

than the one the broker has opted to pull? You could lose out. How can you

make an intelligent decision without all the facts in front of you?

The broker has pulled your scores, has asked you some questions, and we

hope, that based upon their experience has made a determination of what

you might be “qualified” to purchase, as far as a home goes. This is what

real estate types refer to as a pre-qualification process. Many of them may

ask for a “pre-qual” letter from the broker before taking you out to look at

houses, and we would hope, certainly before presenting an offer to

purchase to a seller. In many cases today you might even find a loan

professional “on site” at your friendly real estate office. If you don’t deal

with agent’s of course, you’ll need to have this all in place on your own.

WHO MAKES THE DECISION?

An underwriter is normally the decision maker in the loan process. Up until

an underwriter renders that decision, there are only opinions and

information to be dealt with. If the information provided by the buyer

proves to be false or not accurate, a favorable ending may not result.

A credit approval, or credit pre-approval means that an underwriter has

actually viewed a persons credit report and issues an opinion that if

everything else checks out, there may be an actual loan there.

Do you see that this procedure carries far more weight than just a letter

of opinion about a pre-qualification?

In the actual buying and selling of property, the transactions are nothing

more than what buyer and seller agree to, in writing normally, and if

modifications are needed along the way, and all parties agree, changes

can happen.

You need to check with legal counsel, or verify what is required to buy

real property where you are located. You also need to know the difference
about property types you may attempt to purchase. A single family

dwelling is the easiest to obtain financing for. Mobile homes on

deeded land have different rules than mobile homes where the land

is rented or leased.

You are at the beginning, ask questions here!

We’ve covered the question the real estate person or seller will ask. Now

We need to cover the questions you need to ask. The first question you

need to ask your loan professional is this: Based upon my credit report

and other information I’ve provided am I a conforming or non-conforming

borrower? If the answer is non-conforming, your options may have

become limited. The reason being that over the course of the past year or

so, many of those types of loans have gone away. A non-conforming type

borrower might be a person that is self-employed, might have credit woes,

in other words, they don’t fit the conforming mold.

The conforming borrower may have a great rent payment history and it can

be verified, they may have been on their job two years or more, they are

likely a W-2 wage earner, or can show strong numbers if Tax Returns are

asked for, in other words the lenders feel they “conform.”

If you have plans in your future to purchase a home, please realize that

rules have changed, are changing, and figure out what works for you.

If your answer is that you are a “conforming type” borrower, it means that
you may be eligible for various types of government-backed loan programs

and those programs usually offer the best of everything for the consumer.

If you are at the stage where you can verify that you are a “conforming”

borrower and your broker doesn’t offer that type of financing, then you

have to move to where that funding will be open to you.

Do you see why it is so vital to formulate a buying plan? Once you actually

get out into the arena, put up cash to buy a house, and get zapped later

because you didn’t know what you were doing, it could be a costly lesson.

I will try to give as detailed information as I can throughout the course of

this ebook but if you have questions, feel free to email me at:

agahagan2001@yahoo.com or you may also visit us on our web site at:

www.tampabaycreditdoctor.com
 Chapter 5

Mortgage Options

In this chapter we will discuss mortgage vehicles we think will be available

to you now and in the days ahead. Earlier we touched on the fact that in

this year of 2008 , many lenders, brokers, originators, and loan products,

no longer exist in the market place. Many went extinct in 2007.

In a later chapter we will provide some “hands on” examples of how to

structure a deal from the very beginning. The most important thing to

take from this entire ebook, is to learn how to structure your deal before

you ever get into it. I can not stress that point enough. Try to go back to a

seller and ask them to pay $4,000.00 in closing costs for you once you’ve

reached agreement. There is a good chance they might not agree with your

comment, “I just found out I could ask you to do that.”

In this chapter we will touch upon certain loan vehicles, mortgages, or

financing instruments that you might find available to you in the days

ahead. For the sake of brevity, we will highlight features of these products,

but leave the in-depth investigation up to you.

In this the “Age of Google” that should not be too hard of a task for you.

Failing a “google search” your loan professional is an option.

 USDA
This is a great program. The initials stand for United States Department of

Agriculture. Some veteran agents and loan types out there might refer to

this vehicle as “Rural Housing Loans, or even FmHA” the initials stand for

Farmer’s Home Administration. This program is geared basically for the

more rural parts of the country, which I might add, there is still a lot of!

The program has income restrictions, and property guidelines, and other

factors you can learn about from their website.

It is 100 % financing, with a 2% funding fee that can be financed. The best

feature is, that even though its 100 % financing, there is no mortgage

insurance of any kind. That’s a hard deal to beat considering that

mortgage insurance can add hundred’s of dollars to a house payment in

some cases. For more information on this outstanding program go to

this link: www.rurdev.usda.gov/rhs It is the national website.

FHA
Another great loan program that has been around for a long time. Many

people would confuse FmHA ( as it used to be known as ) and FHA as it

is still known. FHA stands for Federal Housing Administration and it is part

of HUD, Housing and Urban Development. The USDA loan program we

discussed above differs greatly from FHA in many areas. Under the USDA

program above, it is possible under some circumstances to get “direct

funding” , that is not the case with FHA. The FHA does not make home

loans, they only insure home loans. Yes FHA insured loans carry mortgage

insurance, both in the form of an “ up front “ premium and a “monthly “

premium that is included in your total monthly payment. The topic of MIP

should be addressed with your mortgage professional. Not all loan

professionals are qualified to do FHA loans.

As is the case with many government programs, FHA insured loans are

“consumer friendly.” HUD determines fees that are “allowable “and that

can be charged as a closing cost item. Fees that are not specified in that

grouping, can not be charged.

There will be a down payment required and it is currently at 3% of your

purchase price. That down payment can be a gift, only not from a party that

has an interest in the transaction. There are charitable 501C programs out

there that may be able to help out. There are also loan limits that are not

federally mandated, but are determined by a county, regional, or city basis.

Those limits are determined by many factors, population, house prices,

median income, just to name a few. Remember your old friend “google?”

Check for your area.

The key to smooth FHA loan closings is find the people that are

experienced in doing them. Keep in mind that in the economy and housing

market we are currently in, there will be many “newbies to FHA” that have

fled the subprime side of the industry.

 VA HOME LOANS

Don’t be misled by the title here. The VA, or Veteran’s Administration, is

not in the business of making home loans. The VA only guarantee’s the

loans for the people that the VA determines is eligible to receive a VA

guaranteed loan. It is pretty much the same as a USDA loan in the sense

that there is no mortgage insurance required.

At this time, an eligible VA applicant that can qualify for the payments, may

purchase a home for up to $417,000.00 without a down payment.

Similar to USDA financing, there is a funding fee on VA loans. I’ll continue

to use the term VA loan, because we know the VA isn’t making the loan.

On both of the other loans we’ve discussed, front and back end ratios are

used to determine ability to gain approval, on VA loans residual income is

a factor in the underwriting process.

I use these terms to introduce you to them and encourage you to learn

what they mean. and also to seek out competent, professional help.

VA loans, USDA loans, and FHA loans are all loans that do not carry

a pre-payment penalty. That is a big deal, especially if you need to sell in

a down market.

You may use the VA loan over and over again. There used to be a myth that

you could only use it once. Check with the VA to find out what they

require. Another thing to make sure you have in your possession is a

VA Certificate of Eligibility, you will need a copy of your DD 214 to get one.
 COMMUNITY 100
Check with your mortgage professional to see if you can qualify for

any of the Community 100 programs that might be available. Over the

years several 97% and 100% programs have been put together to offer

financing options similar to some of the government programs we’ve

discussed.

These loans will carry mortgage insurance and you will need to check to

see what your qualifying factors might be. Not many years ago the “rule of

thumb” was that if a person didn’t have 20% down on the purchase price,

mortgage insurance would be required. There were pricing tiers involved.

For example, if you had 15% down you would pay less mortgage insurance

on a monthly basis, than if you put only 5% down on your purchase.

There are national lenders that may have different requirements as to how

much you need to put down to avoid mortgage insurance. Until recently no

part of mortgage insurance was a tax deductible item, that has changed

and you need to check it out with your tax professionals, CPA, attorney,

etc.

There are “doom and gloom” people out there that are saying “the sky is

falling” but remember that lenders are in the business of making loans

and loans will continue to be made. You need to find the right fit for you.
 Conventional
When I say conventional I am speaking of regular conforming 30 year term,

fixed rate, financing mortgage options. There is even some 40 year term,

and even 50 years on the horizon, if not here already.

The length of the amortization time only serves to lower the monthly

payment amount.

If you are going to go the conventional mortgage route you will need to

plan accordingly. You may need to save for a down payment . You may

need to check out property valuations in an area you are considering. Are

the values rising or declining? Look for real estate “for sale” signs. Do they

line both sides of the street for as far as you can see?

What is your future work history projection? Will you be in the same

location five years from now? Many factors should be considered when

you think about purchasing a home.

In this ebook we will try to prepare you for that purpose. The last part of the

book will be the actual “looking for a home” section. That should be the

end result of your preparation process.

This will end the section about conventional and government loan options

that may be available, but check out those “sub-prime options” if you are

not “main-stream”, there still might be some around.

Not all of the “sub-prime” lenders were foolish. The “sub-prime” loan

programs were geared primarily for people that didn’t fit the conventional

or “conforming” loan molds. In many cases they fit people that may have

been self-employed and/or couldn’t or didn’t wish to prove income. There

still might be a lot of those people out there, especially if the economy is

sputtering. You might be one of those people.

The conventional programs are there for those that might not qualify for

some of the other government type programs. There might be restrictions

that could hamper your purchase, but with the conventional loan vehicles

out there you should be able to overcome all obstacles!

 Chapter 6

Structure Your Deal

Deal Scenario 1

For example purposes only, in this chapter we will assume a sale price

of $100,000.00 for any given property. I have just graduated from

college with an engineering degree, I am employed in my field and my

starting salary is $50,000.00 per year. I found an ad from a “for sale by

owner” who purchased his house a year ago and he paid $94,000.00 for

it. He was a 5% down buyer and it cost him $4700.00 for his out of pocket

at closing. We will assume his closing costs were minimal.

We strike a deal to purchase the home for $100,000.00 and we’ve done

our homework, and feel the property has not declined in value. We have

asked the seller to pick up $5,000.00 of our closing costs, and he has

agreed. He has accepted a new job offer in Minnesota and is ready to go.

His house is in a nice coastal area and not many houses ever are for sale

there.

I have saved all the while I was in college and I have $8,000.00 in my new

Money Market account. I do not wish to use much of it, if any and I opt for

a 5 year ARM that allows me to finance 103% LTV because my middle credit

score is 735. I needed to have a 700 score to qualify for this particular loan.

My mortgage broker has provided me with a GFE ( Good Faith Estimate )

and it is anticipated that my closing costs will be $8,000.00. That is exactly

the amount in my Money Market account. I have prepared though, I have

set up this deal to finance $103,000.00. That means with the extra $3,000.00

over the sale price and the $5,000.00 contribution from the seller he will net

approximately $95,000.00 and he get’s his $4700.00 down payment back.

I go to closing with no out of pocket. My $8,000.00 is still there and I’m

happy because my new raise will more than cover my mortgage insurance

expense. Had a real estate firm been involved in this transaction there may

not have been sufficient funds there to cover that expense. Win-Win and

we are all happy. Even the lender is happy because with mortgage

insurance in place ( that I’m paying for ) I’m insuring against my own

possible default!

Deal Scenario 2
This will be a USDA rural housing loan. This loan will be like buying VA

but you don’t have to risk being shot at to qualify! You and your wife

and young son have been living in a rental house for a few years now

but you just can’t seem to save any down payment money.

You and your wife both have worked at the same place since leaving high

school four years back. You operate a lathe machine and your wife works

in the office. The entire set up is pretty secure.

Your landlord tells you he is going to sell the house and he gives you three

months notice. You check the rural housing website and determine that the
house you are renting isn’t in an area that would qualify for that type of

funding. No worries though, because you know about the program!

You start your search outside of town but not too far from where you work.

You find a cute little house that has been recently renovated and updated.

In this scenario there is a real estate agent involved but they are not

familiar with the USDA program. You hook up your mortgage broker and

real estate person and begin to put your deal together.

You find the property will qualify by address and you know you fit the

income guidelines. You also know that there is a good chance you are

getting a real good deal. You agree on the $100,000.00 sale price and you

put up$500.00 earnest money to apply toward closing costs. You have not

asked the seller for a contribution toward your closing costs. You know

you could, but your gut tells you not to push it, it’s a good deal already.

The appraisal comes in at $107,000.00 and because it’s a USDA deal there

is ample room to finance in your 2% funding fee and the rest of your

closing costs. Your closing costs, including your one year pre-paid

homeowners insurance policy, and other charges only total $6700.00.

You get a check from the title company for $300.00 which is the difference

between the $107,000.00 appraised value and the $106,700.00 in expenses

and you take everyone out for a celebration dinner. Is that a good deal?

No money down. No mortgage insurance. No landlord. You tell me.

Deal Scenario 3
You are out on a Saturday morning driving through a suburban part

of town that you enjoy because they always have some nice “yard or

garage sales” and you spot a house that looks a little neglected but

there is a “yard sale sign” there.

You chat with the people for awhile and it turns out they inherited this

“mortgage free” house from an elderly aunt that passed away about 2

years prior. The young man and his wife are professionals from out of

state and they do well financially. You talk further and they tell you they

would really like to sell but because of tax concerns, they don’t think

they want all the money in one tax year. You chat further and you

exchange phone numbers.

Time passes and the more you think about that little house in a great area

that you really would like to live in, you decide to call them to see if they

might be interested in selling the house. You offer to pay them

$100,000.00 for the house and offer them $50,000.00 money down and ask

them to carry back a second mortgage on the additional $50,000.00 for

whatever terms you agree to. Why a second mortgage for them to carry?

You don’t have any money! All you have is a great job and super credit.

Where do you get the money from? Go to a lender or even a private lender

that will agree to be put in a first lien position at only 50% loan to value.
Do you think you can find anyone to fund that kind of deal? I think you

can. Before you even think about this kind of deal consult the tax

professionals and legal counsel? Do you know there are attorneys

out there that specialize in arranging mortgages for their private

clients? Remember my old friend “google?” You need to find out

what the rules are. Why should a lender make all the money originating

loans. Did you know that if you were to pay off a $100,000.00 loan over

a 30 year period at 7% interest per annum, you would pay $139,508.90

in interest!

Do you see why there will always be mortgage loans available? Not only

is there a great potential to earn a lot of money, but as long as insurance

program’s and government guarantees are in place, what lender wouldn’t

make them? That’s my opinion.

Deal Scenario 4

If we have thought of it, chances are that others have as well. There are

people out there that saw this downturn coming long before we did. They

already went out and purchased a place using a great fixed rate, 30 year

term, government backed home loan. My buddy Jack at work is one of

those kinds of guy’s. He saw this coming long before I did. We both work

at the same place, in fact we’ve been bud’s for a long time.

I like to party more than Jack, in fact Jack is a saver. I guess it didn’t come
as a surprise then when my buddy Jack moved out and bought a place of

his own about a year ago. I never thought Jack would do that, after all we

went way back, we even served in Desert Storm together, I mean

we were tight. It surprised me but Jack had found a sweet deal. He had to

do it, the seller paid all of Jack’s closing costs, and Jack used his VA

eligibility to get a VA loan. ( Guaranteed by VA remember, not from VA )

Jack approached me the other day and said his parent’s are getting up

in years and he felt he needed to move out to Portland to be near them

and ease some of the burden from his sister, who was presently keeping

an eye on them. He was aware that both were in declining health and he

wanted to be close. He knew he could find work and help his sis.

His big concern was his house he had been in less than a year. I had

been able to swing the apartment on my own and had great credit

as a matter of fact. Jack said to one day, “man I really have to do this,

what do you think about assuming my VA loan?” I thought, “well

that’s pretty cool, I might even build up some equity down the road.”

We checked into it. Jack got an “assumption packet” I passed a

government-mandated credit check, there were some nominal

closing fee’s and Jack was Portland Bound! I had no idea that

becoming a homeowner could be such a breeze. The best

part of the deal was the payment is less than my rent was!
Deal Scenario 5

My wife and I were in the market for a new home. Not a new home to us,

I mean we wanted brand new period. We lived in a state that had been hit

with hurricanes in recent years, property values were holding steady,

even rising a bit in the coastal areas. Homeowners insurance premiums,

rising property taxes, we knew we had to do something soon before it went

beyond what we could afford.

We had our eye on one particular subdivision and we loved the house

styles there. The builder had only been in the subdivision three years but

there were only 120 single family homes and it was “ built out.” There

would be no more houses built there and the builder was moving on to

another area.

Imagine our surprise when we saw the sign in front of the model that had

been the builder’s showpiece for the past three years. We knew the model

price had been $279,000 with lot included for the past three years! We were

stunned looking at the price on the sign, “ Today only $229,000, must close

in 15 days.” I called my friend Bill and asked can you close a loan for me

in 15 days? Remember it’s 2007, mortgage business is kind of slow, and

his response is “we sure can, bring a signed contract, I’ll have an appraiser

there on Tuesday.”

The deal went together like this. My friend Bill called the builder and told
him we were strong buyers and he felt he could close it on time. He knew

the subdivision and he knew the other houses to be worth much more now

than the original $279,000.00. He knew value would not be a problem. We

had recently come into inheritance money from my father, but we chose to

park it in another investment and let the interest compound. We looked at

it as the builder had just given us an additional $50,000.00!

Why did the builder do that? Why did he want the deal closed out in 15

days? Turns out he needed the money to put up as “option money” to

sign an option to purchase on a 100 acre parcel 20 miles away where

he could get approval to build apartments and single family homes, and

a small strip mall. You never know.

Deal Scenario 6

This will be our last deal scenario for this book. When you look back and

study these deals be sure to consult the proper professionals as to how

to best structure a similar deal for yourself. Over the course of a 29 year

career we might have seen a deal or two happen, just the way we described

it.

My wife and I have rented this cozy little condo on the east coast of Florida

for the past seven years. Our old neighbors, the owners of this unit, moved

back to Ohio about 4 years ago due to the husband’s failing health. They

used to own a lot of investment property in the quaint little community.

When he became ill, they sold everything except this little condo that we

live in. We keep in touch, I do all the upkeep inside the unit, it’s really nice

here. We exchange Christmas cards and the occasional phone call just to

chat about old times.

The phone rings one day and the owner of our condo is on the phone. She

Said, “ Joe died peacefully in his sleep two month’s ago, but discussed you

two often in our conversations.” “Joe and I have always appreciated the

times we spent together and how you’ve taken such good care of our

condo.” “ I owe $75,000.00 on it yet, would you be interested in buying it

for $80,000.00? I really don’t want to make a lot on it, just pay of the loan

and settle taxes, pay deed stamps, etc. “ We had decided that you should

have it at an affordable price.” “I’m old myself now, we don’t need the

money, see what you can do?”

My wife and I could easily swing this deal. Did we buy it? The appraisal

came in at $195,000.00. Let’s see. Loan amount is $80,000.00 and the

appraised value is $195,000.00. That’s a loan to value ratio of less than

42%! Who isn’t going to write this loan all day long? Think it can’t

happen? I’ve seen it happen. Guess who did the loan? The names,

locations, have been changed, but it did happen.

 Chapter 7

Tidbits & Tactics

In this chapter we will touch on many things. In the last chapter we talked

about 6 different loan scenarios. In those scenarios you learned about

peoples situations. That is all real estate is, is peoples situations. If you’ve

ever been in an airplane as you prepare to land, you fly over all the houses

in a suburb where most of the houses are pretty much the same. They are

called” tract” houses. In every one of those houses, is a story, and some

times a situation that has developed that will involve that house.

If at all possible, deal directly with the owner of a property. Try to figure out

a solution that is beneficial for all parties involved in any transaction.

If you run across a property, go online and try to research it through a

records check with the county appraisers office. It will tell you when the

last sale date was and other interesting information about the property.

You don’t want to buy a property for $150,000.00 in August that an investor

bought in May for $50,000.00. If you attempt to finance a purchase like this

your lender could stop a sale like that from going through unless the

investor could prove the expense involved through receipts, etc. in

arriving at that price. Pay cash, and you’re out of luck.

Real Estate Agents

The reality of the market place in 2008 and on into 2009 will drive many
real estate agents and brokers from the business. There is only so much

business to go around and they all work with the same inventory. The

agents that figure out the best marketing strategies will survive. During

this time of upheaval I would suggest you seek out a real estate person that

is a veteran agent, one who has been through cycles like this before. This

will be a great time for real estate agents that align themselves with the

mortgage professionals that are offering the right loan packages.

In past years the primary emphasis has been a “looking out for the seller’s

best interests” philosophy by many agents. Indeed that may have been

their fiduciary responsibility as outlined by the agency laws of a particular

state they were licensed in. Times have changed. The money may still be

in having a property “ listed “, but only if it’s priced right for the buying

public. Over-priced properties are no longer the “rage, or ruler of the day.”

If I am going to be a buyer in today’s market, I am only going to work with

an agent who is looking out for “ my best interest. “ There used to be an

adage in real estate that said the important thing was “ location, location,

location.” Today in 2008, I say to you the word is “buyer, buyer, buyer!’

The agent’s that do not market for buyers will have a tough time of it as

they sit and watch their inventory of houses languish in the market.

As a buyer, I will make an offer at a price I’m willing to pay. I will set my

price and that will be it. My emotions will not get involved because I know
that I’m dealing only with “situations” and there will be a better property

than this one around the next corner. The day’s of sellers laughing at a

buyers offer are over. The old rules of Economics 101 are in place. When

products are in short supply, they sell for more. When there are too many

of an item, they sell for less. Simple, isn’t it?

As a buyer I know that there are costs associated with a real estate

transaction. I know that in certain areas these costs may be considered

as “ customary.” In other words, “that’s how we do it around here.” I’m

going to say that unless a cost is mandated by some government rule,

agency, or other authority, as to who pay’s it, I’ll negotiate it!

If I’m a buyer, I’m looking for a seller that need’s to sell. I don’t want a

seller that’s wanting to sell. It is my opinion that too many of these

properties flood the market today. I’m only going to work with a seller

that is willing to work with me. It’s cool if they don’t want my offer because

I know a seller out there need’s my offer.

Real estate agents could help themselves by talking to other agents and

letting them know they have credit approved buyers ready to buy. The

question could be, “ do you have a seller that we can work a deal with?”

If you live in an area of hurricane activity, look for a property 1995 or newer,

your insurance costs will be lower, even in coastal counties.

If you are interested in mobiles on land, look for units 1987 and newer.

Lender’s will not loan on the older units.

Look for a lender that will allow a seller to participate in some of the

financing structure. An example would be if you found a great house

you wanted to buy for $100,000.00 but your proposed lender will only

loan 90% ($90,000.00 ) ask the lender if it would be okay for you to

put your 5% down and the seller to carry back a second lien for the

other 5% or $5,000.00.

If they agree, and you qualify in other areas, you become a homeowner.

In these coming difficult days the lenders will have a tendency to decrease

their potential risk, and much of that will be in reducing their potential

exposure. Another way to say this is loan to value, as it is all about layers

of risk. The less the risk, the easier the loan is to get.

Every lender goes into a potential loan situation asking the question,

“what if we have to take the property back?” They do what they can to

reduce risk, whether it’s through mortgage insurance, guarantees, or

reducing their loan to value ratios.

You might see a lender policy that states “we only do mortgage loans

for 80% loan to value.” If you have a house you buy for $100,000.00 and it

appraises at that figure, your loan amount will be $80,000.00

In the first chapter I asked the question, “Are you keeping score?” Your

creditors are watching you. Your credit scores will become a big deal in

the days ahead. The lender’s and creditors watch your spending patterns.

They know when you go out to eat and use your plastic. They know when

you suddenly start using “cash advances” or “those convenience checks”

that come in the mail. Your scores will go down when that happens. You

may only know of the three scores as they relate to your three bureau

reports, but the lenders and creditors have many other “scoring models”

they use to track us, and they don’t have to reveal any of it to us.

We truly are only a number.

In closing here, I will stress that you carefully craft a plan. Use the internet

to help you in every way that you can. Consult the pros, ask questions.

There are many qualified people out there to help you. The good mortgage

pros will still be here, the good real estate agents will be here, the lenders

that didn’t get greedy and corrupt in recent years, they’ll be here.

If I can help to answer questions visit me online at:

http://www.tampabaycreditdoctor.com
 Chapter 8

The Loan Process

We hope that by now you have learned you are in charge of the entire

buying process. You control the real estate agent, you control the loan

professional, they all work for you. You know that the entire house

purchasing project is an orderly progression of verifying information,

about you! Who else would be in charge?

You have negotiated your house purchase deal with the seller. You wish

to know that you are getting a structurally sound dwelling and you have

put a home inspection clause in your real estate contract. It is normal that

this inspection occur within a set time frame that is spelled out in the

agreement. You really did a great job in your negotiating of your contract

because you got the seller to pay for it. If I’m the seller though, I’m

chuckling to myself because since I’m paying for it, it’s my report. The

report can always be put in the buyer’s name or turned over to the

buyer, if the deal progresses. I’m thinking it’s a smart move by the

seller because it can do two thing’s, it can alert the seller to a serious

situation they can remedy, and later advertise to the next buyer that

there is a home inspection report in place and paid for by the seller.

Gives a little leverage to the seller in my opinion.

Once the inspection has proved to be satisfactory and is accepted by

the purchaser we can move on in the process. The actual processing

of the loan file can be handled by either a processor or the actual loan

originator.

The processor has a credit report from early on and at this point the

information is collected that will verify all the statements that were made

on the loan application. The written loan application itself is known as a

1003, and the entire loan documents themselves may consist of between

20 to 30 pages of certain information. Many of these forms are required

to satisfy government regulations as the actual application itself falls

under the jurisdiction of Tile 18 of the US Code. A loan application folks

is serious business, don’t even consider fraudulent activity.

Once the paperwork is gathered up a submission to an underwriter is in

order. If the underwriter is satisfied that everything is in order an approval

with conditions can be granted. That means further processing can move

forward. An appraisal can be ordered, title work or attorneys paper work

can begin, a termite report ordered if required, a well and septic report, if

needed, and if the appraisal is satisfactory and the underwriter is okay that

the conditions have been met, they can issue what is known as a

“clear to close.”

It is at this point, that the underwriter will sign off on the file, and turn the

file over to the “closing department.” Some of the items I mentioned above

will be closing conditions, but the closing department will let you know
what is required to close the loan. Once they are satisfied that they have all

that is required for a legal loan process for the state statutes to be

satisfied, they will prepare preliminary documents to go to the title

company or attorneys office, for the title company to prepare a HUD 1

based upon all the facts of the transaction.

Once the title company or attorney has satisfied the requirements of the

lender or the lenders closing department, the documents can be prepared

for delivery to that closing agent.

Sometimes a check for proceeds for will accompany those documents and

other times the closing agent must get a funding number and a wire

transfer to fund anyone. If the borrower is bringing money to the closing

table, it is almost a certainty those funds will need to guaranteed, if over a

certain amount. Normally cashiers checks, wire transfers, money orders,

etc. will be sufficient.

That is a general outline of how the process works but it may vary from

state to state or from whatever might be “customary” in a particular

region.
 Chapter 9

Looking for a Home

This is the easy part! All this time you thought there would be a ton of

great information in this chapter ! There is. You know the process,

you know what to do. You’ve read this book. You know what you like.

You know your strategy. This is the easy part now, go out there and put

it all together.

You know we are here for you if you have questions. You know we are

only a phone call away at 352-428-7407.

Our email address is agahagan2001@yahoo.com and our web site

is: http://www.tampabaycreditdoctor.com

GO FIND YOUR HOME!!

It has been a pleasure relating to you. Be well friends. Go after your

dreams. Let nothing stand in your way. Don’t come to the end of your

journey, only to say, “ I wish I would have done that.” It is the journey

your family, your friends, the people you touch that matters.
 Chapter 10

Resources
We believe that knowledge is power. You never can educate yourself

enough, in our opinion. I will not provide you with a laundry list of

author’s and title’s to their works here.

I feature reference materials through my Ebay and Amazon partners

on my website at http://www.tampabaycreditdoctor.com .

One of my favorite authors Robert Kiyosaki is featured on my site.

He is the author of Rich Dad, Poor Dad . That is the book that

started him on his way as an educator in the field of real estate.

We feel that his best work is the Prophecy and if you have not read this

book yet you are in for a rude awakening. There is no way that you want

to go into the year 2016 without having read this book!! That is only a

8 years from now as we end this year of 2008.

If you think 2007 was bad, you haven’t seen anything yet!

I have done my best to prepare you for your home buying future and it is

up to you to get ready for 2016. What is going to happen in 2016 that is

going to rock your world? That will be revealed to you in the book titled

the Prophecy. You can order by going to my website below and clicking

on the special link provided. It will be on the home page at the bottom

left hand side. Click on the book cover photo.

go to my website at www.tampabaycreditdoctor.com and place

an order from my Home Page. It is that IMPORTANT.

We hope that you use this book as your reference

material and we hope that you will visit both our blog and our web site as

we move through the days ahead. I’ll give you a hint about what’s coming

down the road in 2016. CLUE: The first wave of Baby Boomers start

turning age 62 this year.

OUR BLOG ADDRESS: http://blog.tampabaycreditdoctor.com

OUR WEB SITE : http://www.tampabaycreditdoctor.com