Yesterday we celebrated my office celebrated our move to a new office on South Broadway in Edmond, by cutting a ribbon and having quite a few friends over for a cook-out and prize drawings. Our guest of honor was U.S. Army Veteran Major Ed Pulido. During his presentation, the Major highlighted several of the many benefits available to veterans, including the V.A. benefit for home ownership.
This valuable benefit has helped tens of thousands of veterans own their own home. Because of their sacrificial service to their country, veterans have the opportunity to move into a new home aided by several special financing arrangements.
100% financing. This is one of the most distinctive features of V.A. home financing. Any approved veteran can find a home, make an offer and move into that home with no down payment. For many this is the only way they can ever afford to move into a home. Until a couple of years ago, conventional financing also offered 100% financing for qualified buyers, but now only V.A. and the Rural Development loans provide no down payment options.
4% seller concessions. Regardless of whether a home is purchased through a home mortgage or the buyer pays cash, all home transactions have closing costs. There are appraisals, title work, filing fees and in some cases actual surveys are required. In most cases these costs range from $3,200 to $5,700 depending on the price of the home being purchased. In Oklahoma county, the average home sells for about $150,000. Seller concessions are actual dollars the sellers agree to apply from the proceeds of their home to the buyers closing costs; in effect, they “concede” these monies to cover the costs of the buyer closing on the purchase of their home. 4% of that $150,000 home is $6,000, more than enough to cover even excessive closing costs.
No monthly Mortgage Insurance. This feature of a veteran’s home financing is another huge feature. Mortgage insurance is a fee charged by the lender for loans that exceed the 80% loan to value threshold. This means that home loans exceeding 80% of the home’s value are typically charged a monthly fee to cover the lender’s perceived exposure to higher risk for extending the mortgage beyond what is considered “prudent” in the industry. This monthly fee is based on the amount of the loan combined with several other factors. V.A. home mortgage financing has no such monthly fee and saves the veteran between $40 and $150 a month.
Low interest rates. Most qualifying veterans can move into a new home with no money down, paying little to no closing costs, have no monthly mortgage insurance and have their mortgage fixed at a low 30 year rate. In most cases interest rates on V.A. loans are at or near low conforming rates.
Certificate of Eligibility (C.O.E.). This is the verification the veteran must obtain from the V.A. in order to qualify for this type of home financing. The V.A. issues this certificate when requested by the veteran or the veteran’s approved lender. Interest veterans can find an informative booklet about how to obtain your certificate of eligibility at: http://www.homeloans.va.gov/pdf/veteran_registration_coe.pdf.
DD-214. This is a form all discharged veterans are familiar with. It is their discharge paper. In order to obtain your COE through your lender, you will need a copy of your DD-214.
Credit score and verifiable income. Like all other home mortgages, lenders have minimum thresholds of requirements that must be met for their approval of your home mortgage. Minimum credit score requirements are a 580 and the maximum debt to income ratio is around 42%. The debt to income ratio is obtained by dividing the minimum monthly payments appearing on a credit report (including the new mortgage, home owners insurance and taxes) and dividing that number by the monthly gross income. Other types of financing will allow for higher debt to income ratios, but they also require a higher minimum credit score and a minimum down payment of at least 3.5% of the purchase price.
There is a short laundry list of other features, benefits and requirements that can be discussed with your lender of choice. If you are considering a V.A. home mortgage, please discuss all of these items with your lender before signing any paperwork.
Friday, March 26, 2010
Friday, March 19, 2010
Don't Make These 7 Mortgage Mistakes
The Federal Tax credit is quickly coming to an end (April 30th). Hundreds of OKC metro home buyers are rushing to contact their realtors to get under contract by the deadline. While that’s great business for everyone involved in the real estate industry, home buyers can be unknowingly making several critical mistakes potentially costing them thousands of dollars over the life of their loan.
Regardless of whether you are a self-employed construction worker, or the CEO of a large corporation, buying a home represents making a purchase that is three to six times your annual income. You’re going to need financing for that large purchase and knowing the ropes before making this step will save you Lots ‘O Cash and tons of grief.
Failing to fix your credit. I talk with mortgage lenders and realtors every week who are amazed at the number of people who apply for a mortgage with their fingers crossed just hoping to be approved. They haven’t checked their credit much less done anything to fix the blemishes that tarnish their report. There are any number of websites that will provide your complete credit report with scores for a small fee. Take advantage of these resources to find and fix any errors on your credit report. Of course if the report is accurate and still showing bad credit, you’ll need more time to affect the fixes necessary to qualify for a home loan.
Not looking for first time home buyer programs. These programs are sponsored by cities and state organizations and typically offer down payment assistance to home buyers who meet certain criteria. If you are in need of this type of assistance and are interested whether or not you meet the criteria, contact your city administration for any help they might have. You can also check with the Oklahoma Housing Finance Agency at www.ohfa.org as well as Community Action www.okacaa.org.
Getting pre-qualified instead of pre-approved. Most home buyers are confused by the difference in these two terms. Pre-qualification is a more casual process where the mortgage provider may or may not pull your credit and based on the information you tell them issue a pre-qualification letter. The pre-approval process usually requires you to submit tax returns, current pay stubs and bank statements before the banker issues your letter which states you are pre-approved for the loan.
Taking too big of a loan. Remember what Mama used to say? “Just because you can doesn’t mean you should.” Oh, your Mama didn’t say that? Well mine did, and it’s wisdom that still holds true. Just because you can qualify for the larger loan amount doesn’t mean you should do it. Remember that life will always throw you a curve ball when you least expect it. Take out a mortgage that anticipates the surprises of life and still allows you to make the monthly payment without too much stress.
Not shopping for the best loan. I’m constantly amazed at many of the mortgage quotes people show me when they are shopping for a new home loan. Even with the new Federal requirements that reveal many of the hidden fees and “fuzzy math” used for too long by many mortgage brokers, home buyers still ask me to review their mortgage quotes which contain hundreds and sometimes thousands of dollars of junk fees. Lesson to be learned; take time to shop for your best deal.
Forgetting about closing costs. Getting your new home loan is one thing. Getting to closing with enough cash to close is another. These expenses typically include attorney fees, title insurance, prepaid home owners insurance and property taxes, points and lender fees. These costs usually total around 3% to 5% of the price of the home. The unprepared home buyer sees these costs and gets the proverbial “deer in the headlights” expression. Plan for these costs by having your lender prepare an accurate cost to close spread sheet.
Not preparing for enough cash on hand after you move in. It’s expensive to move. Rent a truck, put down utility deposits, new curtains, a few throw rugs, several meals eaten out and then something unexpected will happen…it always does. The hot water heater goes out; the garage door lift burns up; the door locks have to be replaced; or one of a hundred other possibilities. If you don’t plan for these unexpected events, moving into your new home can become your new nightmare.
Regardless of whether you are a self-employed construction worker, or the CEO of a large corporation, buying a home represents making a purchase that is three to six times your annual income. You’re going to need financing for that large purchase and knowing the ropes before making this step will save you Lots ‘O Cash and tons of grief.
Failing to fix your credit. I talk with mortgage lenders and realtors every week who are amazed at the number of people who apply for a mortgage with their fingers crossed just hoping to be approved. They haven’t checked their credit much less done anything to fix the blemishes that tarnish their report. There are any number of websites that will provide your complete credit report with scores for a small fee. Take advantage of these resources to find and fix any errors on your credit report. Of course if the report is accurate and still showing bad credit, you’ll need more time to affect the fixes necessary to qualify for a home loan.
Not looking for first time home buyer programs. These programs are sponsored by cities and state organizations and typically offer down payment assistance to home buyers who meet certain criteria. If you are in need of this type of assistance and are interested whether or not you meet the criteria, contact your city administration for any help they might have. You can also check with the Oklahoma Housing Finance Agency at www.ohfa.org as well as Community Action www.okacaa.org.
Getting pre-qualified instead of pre-approved. Most home buyers are confused by the difference in these two terms. Pre-qualification is a more casual process where the mortgage provider may or may not pull your credit and based on the information you tell them issue a pre-qualification letter. The pre-approval process usually requires you to submit tax returns, current pay stubs and bank statements before the banker issues your letter which states you are pre-approved for the loan.
Taking too big of a loan. Remember what Mama used to say? “Just because you can doesn’t mean you should.” Oh, your Mama didn’t say that? Well mine did, and it’s wisdom that still holds true. Just because you can qualify for the larger loan amount doesn’t mean you should do it. Remember that life will always throw you a curve ball when you least expect it. Take out a mortgage that anticipates the surprises of life and still allows you to make the monthly payment without too much stress.
Not shopping for the best loan. I’m constantly amazed at many of the mortgage quotes people show me when they are shopping for a new home loan. Even with the new Federal requirements that reveal many of the hidden fees and “fuzzy math” used for too long by many mortgage brokers, home buyers still ask me to review their mortgage quotes which contain hundreds and sometimes thousands of dollars of junk fees. Lesson to be learned; take time to shop for your best deal.
Forgetting about closing costs. Getting your new home loan is one thing. Getting to closing with enough cash to close is another. These expenses typically include attorney fees, title insurance, prepaid home owners insurance and property taxes, points and lender fees. These costs usually total around 3% to 5% of the price of the home. The unprepared home buyer sees these costs and gets the proverbial “deer in the headlights” expression. Plan for these costs by having your lender prepare an accurate cost to close spread sheet.
Not preparing for enough cash on hand after you move in. It’s expensive to move. Rent a truck, put down utility deposits, new curtains, a few throw rugs, several meals eaten out and then something unexpected will happen…it always does. The hot water heater goes out; the garage door lift burns up; the door locks have to be replaced; or one of a hundred other possibilities. If you don’t plan for these unexpected events, moving into your new home can become your new nightmare.
Friday, March 12, 2010
Potential Problems with Your Next Home Purchase
When it comes to buying or selling a home, it is wise to anticipate for some problems in almost every transaction. Anyone who tells you that their transactions never have any problems is not someone you should trust. Think about it; could you honestly make that promise about what you do to earn a living?
Several years ago, I had a customer who still owns a company that specializes in the installation of windows for businesses and automobiles. He told me that when he interviews potential glass cutters, one of the questions he asks them is, “Do you ever break any glass when doing an install?” If their answer is, “No”, he doesn’t hire them because, “If you don’t occasionally break glass on an install, you’re not doing much work as an installer.”
Similar truth applies to your next home transaction. Especially in today’s lending climate. The list of guidelines borrowers must meet in order to qualify for a home loan gets longer and more involved all the time. Once the transaction is started several of the factors involved are out of the hands of either your realtor or your loan officer. Here are just a few of the more common problems in today’s home buying and selling market.
Changing credit scores: Almost everyone knows about credit scores. Most don’t realize that their scores are not static but they are subject to change every time their credit is pulled. This is because the scores are a “snapshot” of your credit profile at the moment your credit is pulled. Pull it again in a day or two and scores could be a bit different based on any purchases or payments you may have made.
This problem usually only comes into play with those borrowers who have FICO scores that are “on the bubble” to qualify for financing. If this describes you, my best advice is to make no additional credit purchases and pay all credit lines on time until your purchase is complete. Most lenders re-pull credit prior to close to verify the borrower’s credit scores.
Appraisals with values below asking price: This has become a growing issue in today’s housing climate. Most realtors have done extensive homework to head off this problem, but there are occasions when even this background check isn’t enough to foresee a low appraisal price. Compensating factors such as recent neighborhood sales, the number of foreclosures in your area and average days on market can have a negative impact on the final value the appraiser assigns to your home. If it comes in higher than expected, that’s okay. You could have left money on the table. If it comes in lower than expected, you may be stuck renegotiating the asking price of your home.
Repairs discovered by the inspector: You’ve lived in your home for years and have done everything you know to keep it in good repair. But when the home inspector comes to call you may be in for some surprises. Recently one of my customers was buying a home where the sellers had lived for about three years. The inspector discovered that the floor vents for the HVAC system were leaking and that the owners had painted the ducts to try and hide this problem.
Changing interest rates: If I get one call a day I get ten. “What is today’s rate?” the caller inquires. Of course I give them a rate, but in reality our industry publishes multiple rate changes throughout the day. If you’re planning to close within the next 30 days the safest bet is to lock in your rate. But if you lean more to the adventurous side you can “float” your rate and lock just prior to closing. If you choose to “float” your rate, be prepared for changes beyond your control.
Unknown title issues: Regardless if you’re taking a mortgage to purchase a home, or if you’re paying cash, you want a clear title before signing the closing documents. Surprise tax liens, mechanic’s liens, property boundary disputes and unpaid property taxes are just a few of the issues that must be cleared up before the property title can be declared clear to transfer.
Several years ago, I had a customer who still owns a company that specializes in the installation of windows for businesses and automobiles. He told me that when he interviews potential glass cutters, one of the questions he asks them is, “Do you ever break any glass when doing an install?” If their answer is, “No”, he doesn’t hire them because, “If you don’t occasionally break glass on an install, you’re not doing much work as an installer.”
Similar truth applies to your next home transaction. Especially in today’s lending climate. The list of guidelines borrowers must meet in order to qualify for a home loan gets longer and more involved all the time. Once the transaction is started several of the factors involved are out of the hands of either your realtor or your loan officer. Here are just a few of the more common problems in today’s home buying and selling market.
Changing credit scores: Almost everyone knows about credit scores. Most don’t realize that their scores are not static but they are subject to change every time their credit is pulled. This is because the scores are a “snapshot” of your credit profile at the moment your credit is pulled. Pull it again in a day or two and scores could be a bit different based on any purchases or payments you may have made.
This problem usually only comes into play with those borrowers who have FICO scores that are “on the bubble” to qualify for financing. If this describes you, my best advice is to make no additional credit purchases and pay all credit lines on time until your purchase is complete. Most lenders re-pull credit prior to close to verify the borrower’s credit scores.
Appraisals with values below asking price: This has become a growing issue in today’s housing climate. Most realtors have done extensive homework to head off this problem, but there are occasions when even this background check isn’t enough to foresee a low appraisal price. Compensating factors such as recent neighborhood sales, the number of foreclosures in your area and average days on market can have a negative impact on the final value the appraiser assigns to your home. If it comes in higher than expected, that’s okay. You could have left money on the table. If it comes in lower than expected, you may be stuck renegotiating the asking price of your home.
Repairs discovered by the inspector: You’ve lived in your home for years and have done everything you know to keep it in good repair. But when the home inspector comes to call you may be in for some surprises. Recently one of my customers was buying a home where the sellers had lived for about three years. The inspector discovered that the floor vents for the HVAC system were leaking and that the owners had painted the ducts to try and hide this problem.
Changing interest rates: If I get one call a day I get ten. “What is today’s rate?” the caller inquires. Of course I give them a rate, but in reality our industry publishes multiple rate changes throughout the day. If you’re planning to close within the next 30 days the safest bet is to lock in your rate. But if you lean more to the adventurous side you can “float” your rate and lock just prior to closing. If you choose to “float” your rate, be prepared for changes beyond your control.
Unknown title issues: Regardless if you’re taking a mortgage to purchase a home, or if you’re paying cash, you want a clear title before signing the closing documents. Surprise tax liens, mechanic’s liens, property boundary disputes and unpaid property taxes are just a few of the issues that must be cleared up before the property title can be declared clear to transfer.
Friday, March 5, 2010
3 Options for Upside Down Homeowners
If you owe more on your home than it would bring in today’s housing market you may feel trapped with no options. Should you have tried to recently refinance your home you may be painfully aware that your options are severely limited. Most lenders require equity in your home before allowing you to refinance.
You may think you have no where to turn, but you might be wrong. Options do exist and two of them are part of the federal government’s Making Home Affordable program.
Option one is HARP, or Home Affordable Refinance Program. (Don’t you just love how all government programs seem to be required to have a catchy acronym?) If your situation meets certain criteria, you could be eligible for a refinance of 105% and in some cases up to 125% of the value of your home.
Before throwing that “refinance celebration party” there are a couple of qualifications that must be met. First, you cannot be on the road to foreclosure. If you have had any delinquent payments over the past 12 months, you will not qualify for this program.
Also, Fannie Mae or Freddie Mac must own your home mortgage. This is because this federal program is made available only through these two mortgage behemoths. You find out whether or not your loan is owned by Fannie or Freddie at http://makinghomeaffordable.gov and following the four steps linked to the home page.
Your ability to take advantage of this program will also depend on your credit score, the way your current home financing is structured and other lender specific guidelines. It won’t help everyone, but it could help you and it’s worth looking into. HARP can literally shave $200 to $400 off your monthly payment and can make the difference in your being able to keep your home.
Option two is HAMP, or Home Affordable Modification Program. (Not quite as catchy an acronym as the former, but it’ll do.) To qualify for this option you will need to prove financial hardship that puts your mortgage in imminent danger of default. If you travel down this path, be prepared for a thorough personal financial audit of all income and assets. It’s guaranteed not to be a pleasant experience having someone comb through your personal finances, but it could mean the difference between keeping and losing your home.
Again, this program requires that your current loan be owned by Fannie or Freddie but this program includes those home loans owned by the U.S. Treasury. There’s not website for easy look up of Treasury owned loans, you’ll have to make some calls to find out. Your lender should be able to help you ferret this out.
The federal government provides up to $1,500 to lenders for processing these modifications, but the final approval rests with the lender, not the government.
HAMP is not a refinance program, it is a restructuring of the terms of your current note. This restructuring can lower your payment for up to five years (that’s 60 months). Then beginning in the sixth year the borrower’s interest rate may begin to increase but no more than one percent per year until it reaches the “market rate at the time the modification agreement is prepared,” this according to the Making Home Affordable website.
Some of the options available to the mortgage company are re-amortize your loan to a longer term, lower your interest rate, or forgive some of the principal balance of your loan. But in the final analysis, the decision rests with your lender. Once the new agreement has been reached, the modification has a ninety-day trial period where the lender evaluates your ability to meet the terms of the modification before setting the changes permanently in place.
Option three if you don’t qualify for HARP or HAMP, there’s nothing to keep you from trying to negotiate a modification with your lender. Call them up and give it a try. Whatever you do, don’t bury your head in the sand and ignore the problem. Ignore it long enough and your lender will foreclose on your home.
If modification or restructuring your home loan is not an option for you, consider a short sale which means selling your home at market value with the remaining loan balance being forgiven by your lender. It will take some negotiating with your lender, but this option is better than foreclosure.
You may think you have no where to turn, but you might be wrong. Options do exist and two of them are part of the federal government’s Making Home Affordable program.
Option one is HARP, or Home Affordable Refinance Program. (Don’t you just love how all government programs seem to be required to have a catchy acronym?) If your situation meets certain criteria, you could be eligible for a refinance of 105% and in some cases up to 125% of the value of your home.
Before throwing that “refinance celebration party” there are a couple of qualifications that must be met. First, you cannot be on the road to foreclosure. If you have had any delinquent payments over the past 12 months, you will not qualify for this program.
Also, Fannie Mae or Freddie Mac must own your home mortgage. This is because this federal program is made available only through these two mortgage behemoths. You find out whether or not your loan is owned by Fannie or Freddie at http://makinghomeaffordable.gov and following the four steps linked to the home page.
Your ability to take advantage of this program will also depend on your credit score, the way your current home financing is structured and other lender specific guidelines. It won’t help everyone, but it could help you and it’s worth looking into. HARP can literally shave $200 to $400 off your monthly payment and can make the difference in your being able to keep your home.
Option two is HAMP, or Home Affordable Modification Program. (Not quite as catchy an acronym as the former, but it’ll do.) To qualify for this option you will need to prove financial hardship that puts your mortgage in imminent danger of default. If you travel down this path, be prepared for a thorough personal financial audit of all income and assets. It’s guaranteed not to be a pleasant experience having someone comb through your personal finances, but it could mean the difference between keeping and losing your home.
Again, this program requires that your current loan be owned by Fannie or Freddie but this program includes those home loans owned by the U.S. Treasury. There’s not website for easy look up of Treasury owned loans, you’ll have to make some calls to find out. Your lender should be able to help you ferret this out.
The federal government provides up to $1,500 to lenders for processing these modifications, but the final approval rests with the lender, not the government.
HAMP is not a refinance program, it is a restructuring of the terms of your current note. This restructuring can lower your payment for up to five years (that’s 60 months). Then beginning in the sixth year the borrower’s interest rate may begin to increase but no more than one percent per year until it reaches the “market rate at the time the modification agreement is prepared,” this according to the Making Home Affordable website.
Some of the options available to the mortgage company are re-amortize your loan to a longer term, lower your interest rate, or forgive some of the principal balance of your loan. But in the final analysis, the decision rests with your lender. Once the new agreement has been reached, the modification has a ninety-day trial period where the lender evaluates your ability to meet the terms of the modification before setting the changes permanently in place.
Option three if you don’t qualify for HARP or HAMP, there’s nothing to keep you from trying to negotiate a modification with your lender. Call them up and give it a try. Whatever you do, don’t bury your head in the sand and ignore the problem. Ignore it long enough and your lender will foreclose on your home.
If modification or restructuring your home loan is not an option for you, consider a short sale which means selling your home at market value with the remaining loan balance being forgiven by your lender. It will take some negotiating with your lender, but this option is better than foreclosure.
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