Deed for Lease Program - Rent Your Own Home to Avoid Foreclosure

Fannie Mae recently launched a new program to help struggling homeowners avoid the foreclosure process. The Deed for Lease program allows homeowners to transfer their property deeds to their lenders, and then lease the home (from the lender) at a market rate. This program is an alternative to other foreclosure-avoidance solutions, such as loan modifications.

Many homeowners facing foreclosure have been unable to secure a mortgage modification, due to lender backlogs and other issues. The Deed for Lease program will give these folks another option for staying in the home.

How the Deed for Lease Programs Works

If you qualify for the program, you would transfer the deed to your house back to the lender who is currently servicing the loan. Once they are in possession of the deed, the lender would lease the home back to you for a period of up to one year. They would use current market rates to set the monthly lease amount. After the initial lease period ends, you might be able to renew it for a full term (up to a year) or a monthly term. Or, the bank might cancel the lease after the first term and subsequently sell the home.

So at best, it's a way to stay in the home indefinitely. At worst, it's a way to buy some time before getting the boot. Either way, the homeowners will have a roof over their heads for a while longer, which gives them time to make other arrangements.

How to Qualify for the Program

As mentioned earlier, the Deed for Lease program was created by Fannie Mae (the Federal National Mortgage Association). They have established some guidelines for homeowners who wish to participate in the program.

• First of all, the home in question must be your primary residence. It cannot be an investment property.
• Secondly, you cannot have any liens on the house beyond the mortgage itself. If you do have subordinate liens, you would need to released by the lien holder.
• Third, the rental rate (at which the lender leases the home back to you) must not exceed 31% of your gross monthly income.

These are the main guidelines for the Deed for Lease program, but there are other criteria as well. To apply for consideration, you would need to go through your current mortgage lender. They will review your situation and criteria to see if you're eligible for the Deed for Lease program, after which they will notify Fannie Mae of your eligibility. At that point, you'll have a second review process. You get screened by your lender first, and then reviewed by Fannie Mae afterward.

If you "pass" all of these checkpoints, Fannie Mae will execute the lease agreement between you and your lender. After that, you will be leasing your own home for up to 12 months.

Where to Learn More

If you have questions about the Deed for Lease program (and to find out if you qualify), visit the Fannie Mae website located at eFannieMae.com. The program was featured on the home page when I visited earlier today. They have a document listing some frequently asked questions about the program, as well as other helpful information.

Home Buyer Tax Credit has Been Extended to April 2010

This is an update to a previous post about the first-time home buyer tax credit being extended into 2010. Some new information has been released, regarding the extension of this credit. Here's a summary of recent events:

• On November 4th, the Senate unanimously approved a bill that would extend the home buyer tax credit until April 30, 2010.
• The House of Representatives approved the bill on November 5th.
• The credit cap for first-time home buyers is still set at $8,000.
  
• As far as the tax credit goes, the definition of "first time" buyer is a broad one. It includes anyone who has not owned a home in the last three years.
• To be eligible for the first-time buyer credit, you must sign a contract by April 30 and close by June 30.
  
• The bill also expands the credit to include current homeowners who want to move up to a new home.
• The credit cap for current homeowners buying a new home is set at $6,500.

Some lobby groups, such as the NAR, have been pushing for an increase in the tax credit amount -- from $8,000 to $15,000. So once again the government is subsidizing the housing market and reducing the down-payment burden on home buyers. Hmmmm ... isn't that sort of how we got into this mess in the first place?

Turned Down for a Mortgage Due to My Credit Score

Reader question: "I was recently turned down for a mortgage loan due to my credit score being low. The lender did not give me much more information than that. I was wondering what I should do in this situation, in order to get approved down the road."

This is a pretty common question we get from readers. Fortunately, it's also pretty easy to answer. First, you should understand that a credit score is one of several reasons you could be turned down for a mortgage loan. Yes, it's one of the most common reasons, but there are some others we need to talk about.

When someone gets turned down for a home loan, it's usually due to one of the following factors:

• The borrower's credit score is too low.
• The borrower's income is too low, relative to the amount they're trying to borrow.
• The borrowers are carrying too much debt, relative to their income.

If you have one or more of these things going against you, there's a good chance you'll be turned down by the lender.

Turned Down Because of Bad Credit

In your case, it seems that your score was too low for the lender's underwriting guidelines. So, what can you do about the situation? First off, you should ask the lender for more details. They may not give you any more information, but it never hurts to ask. I would want to know if I was turned down solely because of my credit score, or if there were other factors involved. This is the only way to know what you need to work on.

Secondly, if you were turned down for the mortgage based on your credit score alone, you should ask how far out of bounds you were. Ask the lender what their general guidelines are for mortgage approval, and ask what score they require to get the best interest rate. These are two different "brackets," so you want to know where you stand in relation to both of them. You will need a certain score to get approved for a loan, and you'll need an even higher score to get the best rates the lender has to offer.

But first things first. You want to know why you were turned down for a mortgage loan by this particular lender. If i was your credit score alone, then how far off was it, based on their guidelines? If there were other factors involved in their decision, what were they?

Lastly, you should keep in mind that every lender has different underwriting guidelines. When I refer to these underwriting criteria, I'm talking about the specific guidelines they have within their own company to determine whether a borrower is qualified or not. These guidelines determine if someone will be turned down or approved for a mortgage, but they do vary from one company to the next.

Based on these differences in underwriting procedures, it's hard for me to say exactly what score you will need to get approved for a loan. But I can give you some average numbers:

• If your score is higher than 650, then there's probably a lender out there that's willing to work with you. In that range, you may get turned down for mortgage by one lender, and then end up getting approved by different lender.
• The higher you can boost your score over that number, the better your chances are getting approved across-the-board.
• If your score is 720 or above, and you have everything else going for you in terms of mortgage approval, then you probably won't have any trouble getting approved for a loan.
• In order to get the best interest rates a lender has to offer, your score will need to be even higher -- probably 750 or above.

Now you can see what I mean when I refer to different qualifying "rackets." Just keep in mind that these numbers are averages, and not written in stone.

So let's sum up some of the key points we've discussed. You can be turned down for a mortgage loan based on several factors. This can happen when your credit score is too low, or when you don't make enough money relative to the amount you want to borrow. In other words, if the mortgage is just beyond your financial reach, you're going to get turned down for the loan. Some people get rejected by lenders because they are carrying too much debt, relative to their income level. This is referred to as a debt-to-income ratio, and it's one of the key qualifying factors used by lenders today.

Lastly, let me remind you to follow up with the lender and ask why you were turned down for this particular loan. Try to get as much information as you can from them. It's in their interest to provide these details, because it helps you make improvements wherever needed. Then, later on, you might end up applying for a loan through that same lender. So they will get you business in the long run.

I hope this helps you out some, and I wish you luck with your future endeavors.