RESPA stands for Real Estate Settlement Procedures Act and was first enacted in 1974 to protect consumers from unnecessary charges associated with securing home mortgage financing. These rules are constantly under scrutiny and now, new Federal mortgage rules have gone into effect beginning January 1, 2010. These new rules were introduced after over two years of research and interviews by the Department of Housing and Urban Development and the Federal Reserve into better ways to protect the interests and rights of borrowers.
The new rules are designed to help consumers shop for and find the best loan for their particular situation. The rules caused a re-creation of the Good Faith Estimate of Closing Costs as well as the final HUD-1 or Settlement Statement. The new forms in their original format are a requirement for every new residential home mortgage originated after January 1st of this year. The forms break down the costs of every home mortgage in the simplest terms and make it all but impossible for lenders to hide fees.
It sounds contradictory, but the new GFE (Good Faith Estimate) has been simplified and yet lengthened from a single legal size sheet to three letter size sheets. (This form may be viewed on-line at: http://www.hud.gov/content/releases/goodfaithestimate.pdf).
Page one of the new GFE gives the borrower an overview of the terms of the mortgage they are considering as well as a proposed interest rate and fee summary. Federal law now mandates that these costs be good for a minimum of 10 days. This is to give the borrower time to shop for better loan terms and or lower costs.
At the bottom of page one each lender must record the borrower’s proposed adjusted origination charges and the total for all other settlement services. Then these two sums are totaled to reveal the borrower’s total settlement charges. Once these charges have been totaled and a rate has been locked, Federal law mandates that they may not increase at closing.
The box at the top of page two shows the borrower how the lender arrived at the adjusted origination charges. The first figure is the lender’s origination charge and must include ALL of the lenders origination charges including: broker fees and charges, application fees, underwriting and processing fees, tax service fees, flood certification fees, etc. In short, all fees charged by the lender for this loan must be lumped into the dollar amount listed on this line.
Just below this figure the lender must declare the borrower’s credit or charge (points) for the specific interest rate chosen. One of three choices must be made. a) “The credit or charge for the interest rate of ____% is included in our origination charge” (see the figure above); b) “You receive a credit of $_______ for the interest rate of _____%. This credit reduces your settlement charges”; c) “You pay a charge of $____ for this interest rate of ____%. This charge (points) increases your total settlement charges”. The sum of these two figures becomes the borrower’s adjusted origination charge and is transferred to the bottom of page one.
The remainder of page two of the GFE is dedicated to other charges associated with the loan such as title fees and other services required by the lender, such as appraisal, inspections, and FHA/VA funding fees. And the new RESPA guidelines extend greater protection to borrowers by limiting many of these services to a 10% increase over the figures quoted in the GFE.
Once the borrower provides enough information for a full application, Federal law mandates that the GFE be provided to the borrower within three business days. The GRE has become a legal and binding document between the lender and the borrower. For this reason lenders will not be allowed to provide a Good Faith Estimate unless a complete application has been taken.
The following information is required for a complete application: Borrower(s) name, Social Security number of Tax ID Number, property address, monthly income, property value or “best estimate”, and loan amount (including interest rate and product type).
The look and feel of the new GFE is quite a bit different from the form that has been in use for so many years. But borrowers will quickly become comfortable with the additional protection it provides them and the ease with which it allows them to compare financing costs between different lenders.
Thursday, January 14, 2010
Friday, January 8, 2010
What's In Store for Mortgages in 2010?
2008 was the year of the foreclosure when we saw record numbers of defaulted home loans and people simply walking away from their homes. 2009 was the year of refinance with interest rates hovering at insanely low rates in the low to mid 4% range. 2010 appears to be the year of the home purchase.
The Federal “First Time Homebuyer Tax Credit” program was extended until the end of April and already this stimulus seems to be having the desired affect on depressed housing markets across the country. Locally, this program continues to encourage first time home buyers to jump into the market. And with the addition of the $6,500 tax credit for subsequent home buyers the hope is that the housing market will be more brisk, at least for the first half of 2010.
What shape is your financial house in? Until just a few months ago the best home loans required a minimum credit score of 720. Most lenders now require a minimum score of 740 for the best rates. And for folks who have these scores need to be prepared to provide their lender with more documentation than ever. Higher credit scores will still open the door to the lowest interest rates, but before the lender will let you have the rates, even people with ultra high scores will be required to provide more documentation than ever before.
The days of the no-doc or low-doc home mortgages are gone. Borrowers with high credit scores used to be able to “state” the income they made and still get great rates. Not any more. Borrowers with scores in the 800’s are now required to validate every dollar of income and assets before being approved for a home loan.
Your credit scores may be fine, but what is your debt to income ratio? An easy way to discover this number is to add up all the monthly payments showing on your credit report and divide that number by your gross monthly income. If that is above 40% that could limit the amount the lender is willing to extend to you.
What about a down payment? In the housing hey-day, home buyers routinely put nothing down to buy their home. 100% single loans were an every day happening. Other buyers stacked piggy-back loans to avoid mortgage insurance. Now in all but a few instances, 100% financing is gone. Lenders require most home buyers to bring a minimum down payment to closing. FHA still requires a relatively small 3.5% down payment and many lenders still require a minimum credit score of 620 to qualify.
Other conventional financing may have slightly lower interest rates, but also require a more substantial down payment of 10% or more. For those home buyers who are “rolling over” the equity from their existing home, this won’t be an issue.
The down payment hurdle can be made easier by the generosity of family who, in certain circumstances, can “gift” that amount to other family members purchasing a home. The gift must come from a bone-fide family member who must also sign a letter declaring the money to be a gift with no repayment required. Check with your own lender for the specifics of the gifting of down payment monies.
Is the timing right for you to buy? If you are considering the purchase of your first home you should plan on owning that home for at least three to five years. Some experts believe that housing prices still have a way to fall before they turn around. Our local market doesn’t seem to support this concern, but just to be on the safe side, it would be wise to buy the home only if you plan on living there for at least three to five years.
If your plan is to buy a home, fix it up and sell it within a year or less, you had better find the right house for the right price and know what you’re doing. Even the pro’s in years past who made their living “flipping” houses aren’t doing much of this type home buying.
The Federal “First Time Homebuyer Tax Credit” program was extended until the end of April and already this stimulus seems to be having the desired affect on depressed housing markets across the country. Locally, this program continues to encourage first time home buyers to jump into the market. And with the addition of the $6,500 tax credit for subsequent home buyers the hope is that the housing market will be more brisk, at least for the first half of 2010.
What shape is your financial house in? Until just a few months ago the best home loans required a minimum credit score of 720. Most lenders now require a minimum score of 740 for the best rates. And for folks who have these scores need to be prepared to provide their lender with more documentation than ever. Higher credit scores will still open the door to the lowest interest rates, but before the lender will let you have the rates, even people with ultra high scores will be required to provide more documentation than ever before.
The days of the no-doc or low-doc home mortgages are gone. Borrowers with high credit scores used to be able to “state” the income they made and still get great rates. Not any more. Borrowers with scores in the 800’s are now required to validate every dollar of income and assets before being approved for a home loan.
Your credit scores may be fine, but what is your debt to income ratio? An easy way to discover this number is to add up all the monthly payments showing on your credit report and divide that number by your gross monthly income. If that is above 40% that could limit the amount the lender is willing to extend to you.
What about a down payment? In the housing hey-day, home buyers routinely put nothing down to buy their home. 100% single loans were an every day happening. Other buyers stacked piggy-back loans to avoid mortgage insurance. Now in all but a few instances, 100% financing is gone. Lenders require most home buyers to bring a minimum down payment to closing. FHA still requires a relatively small 3.5% down payment and many lenders still require a minimum credit score of 620 to qualify.
Other conventional financing may have slightly lower interest rates, but also require a more substantial down payment of 10% or more. For those home buyers who are “rolling over” the equity from their existing home, this won’t be an issue.
The down payment hurdle can be made easier by the generosity of family who, in certain circumstances, can “gift” that amount to other family members purchasing a home. The gift must come from a bone-fide family member who must also sign a letter declaring the money to be a gift with no repayment required. Check with your own lender for the specifics of the gifting of down payment monies.
Is the timing right for you to buy? If you are considering the purchase of your first home you should plan on owning that home for at least three to five years. Some experts believe that housing prices still have a way to fall before they turn around. Our local market doesn’t seem to support this concern, but just to be on the safe side, it would be wise to buy the home only if you plan on living there for at least three to five years.
If your plan is to buy a home, fix it up and sell it within a year or less, you had better find the right house for the right price and know what you’re doing. Even the pro’s in years past who made their living “flipping” houses aren’t doing much of this type home buying.
What
2008 was the year of the foreclosure when we saw record numbers of defaulted home loans and people simply walking away from their homes. 2009 was the year of refinance with interest rates hovering at insanely low rates in the low to mid 4% range. 2010 appears to be the year of the home purchase.
The Federal “First Time Homebuyer Tax Credit” program was extended until the end of April and already this stimulus seems to be having the desired affect on depressed housing markets across the country. Locally, this program continues to encourage first time home buyers to jump into the market. And with the addition of the $6,500 tax credit for subsequent home buyers the hope is that the housing market will be more brisk, at least for the first half of 2010.
What shape is your financial house in? Until just a few months ago the best home loans required a minimum credit score of 720. Most lenders now require a minimum score of 740 for the best rates. And for folks who have these scores need to be prepared to provide their lender with more documentation than ever. Higher credit scores will still open the door to the lowest interest rates, but before the lender will let you have the rates, even people with ultra high scores will be required to provide more documentation than ever before.
The days of the no-doc or low-doc home mortgages are gone. Borrowers with high credit scores used to be able to “state” the income they made and still get great rates. Not any more. Borrowers with scores in the 800’s are now required to validate every dollar of income and assets before being approved for a home loan.
Your credit scores may be fine, but what is your debt to income ratio? An easy way to discover this number is to add up all the monthly payments showing on your credit report and divide that number by your gross monthly income. If that is above 40% that could limit the amount the lender is willing to extend to you.
What about a down payment? In the housing hey-day, home buyers routinely put nothing down to buy their home. 100% single loans were an every day happening. Other buyers stacked piggy-back loans to avoid mortgage insurance. Now in all but a few instances, 100% financing is gone. Lenders require most home buyers to bring a minimum down payment to closing. FHA still requires a relatively small 3.5% down payment and many lenders still require a minimum credit score of 620 to qualify.
Other conventional financing may have slightly lower interest rates, but also require a more substantial down payment of 10% or more. For those home buyers who are “rolling over” the equity from their existing home, this won’t be an issue.
The down payment hurdle can be made easier by the generosity of family who, in certain circumstances, can “gift” that amount to other family members purchasing a home. The gift must come from a bone-fide family member who must also sign a letter declaring the money to be a gift with no repayment required. Check with your own lender for the specifics of the gifting of down payment monies.
Is the timing right for you to buy? If you are considering the purchase of your first home you should plan on owning that home for at least three to five years. Some experts believe that housing prices still have a way to fall before they turn around. Our local market doesn’t seem to support this concern, but just to be on the safe side, it would be wise to buy the home only if you plan on living there for at least three to five years.
If your plan is to buy a home, fix it up and sell it within a year or less, you had better find the right house for the right price and know what you’re doing. Even the pro’s in years past who made their living “flipping” houses aren’t doing much of this type home buying.
The Federal “First Time Homebuyer Tax Credit” program was extended until the end of April and already this stimulus seems to be having the desired affect on depressed housing markets across the country. Locally, this program continues to encourage first time home buyers to jump into the market. And with the addition of the $6,500 tax credit for subsequent home buyers the hope is that the housing market will be more brisk, at least for the first half of 2010.
What shape is your financial house in? Until just a few months ago the best home loans required a minimum credit score of 720. Most lenders now require a minimum score of 740 for the best rates. And for folks who have these scores need to be prepared to provide their lender with more documentation than ever. Higher credit scores will still open the door to the lowest interest rates, but before the lender will let you have the rates, even people with ultra high scores will be required to provide more documentation than ever before.
The days of the no-doc or low-doc home mortgages are gone. Borrowers with high credit scores used to be able to “state” the income they made and still get great rates. Not any more. Borrowers with scores in the 800’s are now required to validate every dollar of income and assets before being approved for a home loan.
Your credit scores may be fine, but what is your debt to income ratio? An easy way to discover this number is to add up all the monthly payments showing on your credit report and divide that number by your gross monthly income. If that is above 40% that could limit the amount the lender is willing to extend to you.
What about a down payment? In the housing hey-day, home buyers routinely put nothing down to buy their home. 100% single loans were an every day happening. Other buyers stacked piggy-back loans to avoid mortgage insurance. Now in all but a few instances, 100% financing is gone. Lenders require most home buyers to bring a minimum down payment to closing. FHA still requires a relatively small 3.5% down payment and many lenders still require a minimum credit score of 620 to qualify.
Other conventional financing may have slightly lower interest rates, but also require a more substantial down payment of 10% or more. For those home buyers who are “rolling over” the equity from their existing home, this won’t be an issue.
The down payment hurdle can be made easier by the generosity of family who, in certain circumstances, can “gift” that amount to other family members purchasing a home. The gift must come from a bone-fide family member who must also sign a letter declaring the money to be a gift with no repayment required. Check with your own lender for the specifics of the gifting of down payment monies.
Is the timing right for you to buy? If you are considering the purchase of your first home you should plan on owning that home for at least three to five years. Some experts believe that housing prices still have a way to fall before they turn around. Our local market doesn’t seem to support this concern, but just to be on the safe side, it would be wise to buy the home only if you plan on living there for at least three to five years.
If your plan is to buy a home, fix it up and sell it within a year or less, you had better find the right house for the right price and know what you’re doing. Even the pro’s in years past who made their living “flipping” houses aren’t doing much of this type home buying.
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